Coregistrants filing on behalf of:

                              Registration Nos. 002-67029/811-3055
                              Registration Nos. 002-87059/811-3872
                              Registration Nos. 033-49117/811-7051
                              Registration Nos. 002-57265/811-2684
                              Registration Nos. 002-94641/811-4163

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933          /X/

         Post-Effective Amendment No. 35                          /X/

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940/X/

Amendment No. 22 /X/

T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
Exact Name of Registrant as Specified in Charter

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

         Post-Effective Amendment No. 27                          /X/

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940/X/

         Amendment No. 20                                         /X/

              T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
                Exact Name of Registrant as Specified in Charter

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

         Post-Effective Amendment No. 9                           /X/

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940/X/

         Amendment No. 8                                          /X/

              T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC.
                Exact Name of Registrant as Specified in Charter


REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

         Post-Effective Amendment No. 45                          /X/

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940/X/

         Amendment No. 24                                         /X/

                    T. ROWE PRICE TAX-FREE INCOME FUND, INC.
                Exact Name of Registrant as Specified in Charter

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

         Post-Effective Amendment No. 21                          /X/

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940/X/

         Amendment No. 18                                         /X/

                  T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
                Exact Name of Registrant as Specified in Charter

                100 East Pratt Street, Baltimore, Maryland 21202
                ------------------------------------------------
                     Address of Principal Executive Offices

                                  410-345-2000
                                  ------------
               Registrant's Telephone Number, Including Area Code

                                Henry H. Hopkins
                100 East Pratt Street, Baltimore, Maryland 21202
                ------------------------------------------------
                     Name and Address of Agent for Service

Approximate Date of Proposed Public Offering July 1, 1999

It is proposed that this filing will become effective (check appropriate box):

/ / Immediately upon filing pursuant to paragraph (b) / / On (date), pursuant to paragraph (b)

/ / 60 days after filing pursuant to paragraph (a)(1) /X/ On July 1, 1999, pursuant to paragraph (a)(1) / / 75 days after filing pursuant to paragraph (a)(2) / / On (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

/ / This post-effective amendment designates a new effective date for a previously filed post-effective amendment.


PROSPECTUS

July 1, 1999
T. Rowe Price Tax-Free Funds

A family of money and municipal bond funds for investors seeking income exempt from federal income taxes.
The Securities and Exchange Commission has not approved or disapproved of these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

T. ROWE PRICE RAM LOGO


T. Rowe Price Tax-Free Funds Tax-Exempt Money Fund Tax-Free Short-Intermediate Fund Tax-Free Intermediate Bond Fund Tax-Free Income Fund Tax-Free High Yield Fund
Prospectus

July 1, 1999

1             ABOUT THE FUNDS
              Objective, Strategy, Risks, and Expenses
              -----------------------------------------------
              Other Information About the Funds
              -----------------------------------------------
              Some Basics of Fixed Income Investing
              -----------------------------------------------

2             ABOUT YOUR ACCOUNT
              Pricing Shares and Receiving
              Sale Proceeds
              -----------------------------------------------
              Distributions and Taxes
              -----------------------------------------------
              Transaction Procedures and
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUNDS
              Organization and Management
              -----------------------------------------------
              Understanding Performance Information
              -----------------------------------------------
              Investment Policies and Practices
              -----------------------------------------------
              Financial Highlights
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements
              and Transaction Information
              -----------------------------------------------
              Opening a New Account
              -----------------------------------------------
              Purchasing Additional Shares
              -----------------------------------------------
              Exchanging and Redeeming
              -----------------------------------------------
              Rights Reserved by the Funds
              -----------------------------------------------
              Information About Your Services
              -----------------------------------------------
              T. Rowe Price Brokerage
              -----------------------------------------------
              Investment Information
              -----------------------------------------------

Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates, Inc., and its affiliates managed $147.8 billion, including over $7.1 billion in municipal bond assets, for more than seven million individual and institutional investor accounts as of March 31, 1999.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any depository institution. Shares are not insured by the FDIC, Federal Reserve, or any other government agency, and are subject to investment risks, including possible loss of the principal amount invested.


ABOUT THE FUNDS

1

OBJECTIVE, STRATEGY, RISKS, AND EXPENSES

To help you decide whether these funds are appropriate for you, this section reviews their major characteristics.

Table 1  Differences Among Funds
                                                                                   Expected
                                                                                   share price  Expected average
Fund                                Credit-quality categories    Income            fluctuation  maturity


 Money                              Two highest                  Low               Stable       90 days or less

                                    ------------------------------------------------------------------------------
 Short-Intermediate                 Predominately four highest   Low to moderate   Low to       2 to 5 years
                                                                                   moderate
                                    ------------------------------------------------------------------------------
 Intermediate                       Two highest                  Moderate          Moderate     5 to 10 years

                                    ------------------------------------------------------------------------------
 Income                             Predominately four highest   Moderate          Higher       Over 15 years

                                    ------------------------------------------------------------------------------
 High Yield                         Generally upper-medium to    High              Higher       Over 15 years
                                    low quality
-----------------------------------------------------------------------------------------------------------------------

What is each fund's objective?

The Tax-Exempt Money Fund seeks to provide preservation of capital, liquidity, and consistent with these objectives, the highest current income exempt from federal income taxes.

The Tax-Free Short-Intermediate Fund seeks to provide, consistent with modest price fluctuation, a high level of income exempt from federal income taxes by investing primarily in short- and intermediate-term investment-grade municipal securities.

The Tax-Free Intermediate Bond Fund seeks to provide a high level of income exempt from federal income taxes consistent with moderate price fluctuation by investing primarily in municipal securities.

The Tax-Free Income Fund seeks to provide a high level of income exempt from federal income taxes by investing primarily in long-term investment-grade municipal securities.

The Tax-Free High Yield Fund seeks to provide a high level of income exempt from federal income taxes by investing primarily in long-term low- to upper-medium-grade municipal securities.

What is each fund's principal investment strategy?

The Tax-Exempt Money Fund invests in municipal securities that mature in 397 days or less. The fund's weighted average maturity will not exceed 90 days. While the fund's yield will fluctuate with changes in interest rates, its share price


T. ROWE PRICE
is managed to remain stable at $1.00. The fund buys securities within the two highest money market categories as rated by established agencies or, unrated, by T. Rowe Price. All securities in the fund present minimal credit risks, in T. Rowe Price's opinion.

The Tax-Free Short-Intermediate Fund invests primarily in short- and intermediate-term municipal securities. Its weighted average maturity normally ranges from two to five years and is not expected to exceed five years. The fund generally buys investment-grade securities, which means their ratings are within the four highest credit categories (AAA, AA, A, BBB) as determined by a national rating organization or, unrated, by T. Rowe Price. The fund may invest up to 5% of assets in below-investment-grade securities with ratings of BB (or the T. Rowe Price equivalent).

The Tax-Free Intermediate Bond Fund invests at least 95% of assets in municipals rated AAA or AA by at least one rating agency or, if unrated, by T. Rowe Price. Up to 5% of assets may be rated A at the time of purchase. The fund's weighted average maturity is expected to range between five and 10 years.

The Tax-Free Income Fund invests primarily in long-term investment-grade municipal securities, and its weighted average maturity is expected to exceed 15 years. The fund may invest up to 5% of assets in below-investment-grade securities, including those with the lowest rating or, if unrated, believed by T. Rowe Price to be noninvestment grade. The fund is also managed to seek capital appreciation and cushion losses from interest rate movements.

The Tax-Free High Yield Fund invests a substantial portion of assets in below-investment-grade municipal or "junk" bonds and may buy bonds in default as long as they do not exceed 10% of assets. The fund's weighted average maturity is expected to exceed 15 years.

In selecting securities for the money fund, fund managers may examine relationships among yields on various types and maturities of money market securities in the context of their outlook for interest rates. Similarly, investment decisions for the bond funds reflect the managers outlook for interest rates and the economy as well as the prices and yields of various securities. For example, if we expect rates to fall, we may buy longer-term securities within each fund's maturity range to provide higher yield (and, in the case of the bond funds, greater appreciation potential). Conversely, shorter maturities may be favored if rates are expected to rise. In addition, if our economic outlook is positive, we may take advantage of the bond fund's "basket" for noninvestment-grade bonds. The funds may sell holdings for a variety of reasons, such as to adjust the portfolio's average maturity or quality or to shift assets into higher-yielding securities.

What are the main risks of investing in the funds?

Any of the following could cause a decline in a fund's price or income:


ABOUT THE FUNDS
. Interest rate This risk refers to the decline in bond prices that accompanies a rise in the overall level of interest rates. (Bond prices and interest rates move in opposite directions.) Generally, the longer the maturity of a fund or security, the greater its interest rate risk. This risk is minimal for money market funds.

. Credit risk This is the chance that any of a fund's holdings will have its credit rating downgraded or will default (fail to make scheduled interest or principal payments), potentially reducing the fund's income level and share price. This risk is reduced for the money fund because of the high-rated securities in its portfolio. Credit risk is reduced for the money fund because of the high-rated securities in its portfolio. On the other hand, the Tax-Free High Yield Fund is most exposed to this risk because of its high component of noninvestment-grade bonds, which carry a greater risk of default. Lower-quality municipals are vulnerable to real or perceived changes in the business climate and can be less liquid and more volatile.

While generally considered to be of medium quality, securities in the BBB category are more susceptible to adverse economic or investing conditions, and some BBB securities have speculative characteristics. The funds may retain a security whose credit quality is downgraded after purchase.

. Political risk The chance that a significant restructuring of federal income tax rates, or even serious discussion on the topic in Congress, could cause municipal bond prices to fall. The demand for municipal securities is strongly influenced by the value of tax-exempt income to investors. Broadly lower income tax rates could reduce the advantage of owning municipals.

. Other risks Each fund may invest in certain sectors with special risks, such as health care, which could be affected by federal or state legislation, electric utilities subject to governmental regulation, and private activity bonds without governmental backing.

. Derivatives risk (bond fund only) To the extent the fund uses these instruments, it may be exposed to additional volatility and potential losses.

. Year 2000 risk Organizations, governmental entities, and markets in which the funds invest will be affected by the Year 2000 problem. While at this time the funds cannot predict the degree of impact, it is possible that fund returns could be adversely affected as a result.

. Risks of the money fund An investment in the money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. The fund has maintained a constant share price since its inception, and fund managers will make every effort to continue to meet this objective.


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

. The yield of each fund will fluctuate with changes in market conditions and interest rate levels. The bond funds' share prices will fluctuate as interest rates change, so when you sell your shares, you may lose money.

How can I tell which fund is most appropriate for me?

Consider your investment goals, your time horizon for achieving them, and your tolerance for risk. The funds can be used to generate income or to diversify a stock portfolio. The higher your tax bracket, the more likely tax-exempt securities are appropriate. If you are investing for maximum tax-free income and can accept sharp price declines in an effort to achieve income exempt from federal income taxes and capital appreciation, the High Yield Fund could be an appropriate part of your overall investment strategy. If you are looking for high income with less volatility and risk, the Income Fund may be more appropriate. If you seek moderate income with still less volatility, the Intermediate Fund could be the proper choice. If you are seeking more income than a money fund offers with low volatility, the Short-Intermediate Fund would be a possibility. Finally, if you are investing for principal stability and liquidity, you should consider the money market fund.

The funds are inappropriate for tax-deferred accounts, such as IRAs.

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

How has each fund performed in the past?

The bar charts and the average annual total return table indicate risk by illustrating how much returns can differ from one year to the next. Each fund's past performance is no guarantee of its future returns.

The funds can also experience short-term performance swings, as shown by the best and worst calendar quarter returns accompanying the following charts. The returns are only for the years depicted in the charts.


ABOUT THE FUNDS

INPUT BAR CHARTS HERE
                                            Calendar Year Total Returns
       Fund           1989    1990   1991    1992   1993    1994    1995    1996   1997    1998
------------------------------------------------------------------------------------------------------
 Tax-Exempt Money     5.93%  5.38%   3.89%  2.53%   2.01%   2.46%   3.40%  3.05%   3.24%  3.08%
 Tax-Free
 Short-Intermediate   6.89   6.04    7.88   6.02    6.32    0.33    8.11   4.01    5.30   4.97
 Tax-Free
 Intermediate Bond      --     --      --     --   12.66   -2.62   13.00   4.15    7.24   5.72
 Tax-Free Income      9.19   5.85   12.18   9.38   12.77   -5.47   17.69   3.27    9.33   5.98
 Tax-Free High       10.51   7.11   11.74   9.56   12.97   -4.39   16.60   4.98   10.17   5.55
 Yield
------------------------------------------------------------------------------------------------------

Tax-Exempt Money Quarter ended Total return

Best quarter 6/30/1989 1.58%

Worst quarter 3/31/1993 0.45%

Tax-Free Short-Intermediate Quarter ended Total return

Best quarter 3/31/1995 2.67%

Worst quarter 3/31/1994 -1.25%

Tax-Free Intermediate Bond Quarter ended Total return

Best quarter 3/31/1995 5.01%

Worst quarter 3/31/1994 -3.97%

Tax-Free Income Quarter ended Total return

Best quarter 3/31/1995 6.85%

Worst quarter 3/31/1994 -5.70%

Tax-Free High Yield Quarter ended Total return

Best quarter 3/31/1995 6.15%

Worst quarter 3/31/1994 -4.28%


T. ROWE PRICE

Table 2  Average Annual Total Returns
                            Periods ended December 31, 1998
                                                              Inception
                            1 year  5 years  Since inception    date

                                                                         -----
 Tax-Exempt Money Fund      3.08%    3.05%        4.39%       04/08/80
 Lipper Tax-Exempt Money
 Market Funds               2.92     2.93         4.33
 Lipper Tax-Exempt Money    3.04     3.06         --
 Market Funds Index
                            ---------------------------------------------
 Tax-Free
 Short-Intermediate Fund    4.97     4.51         5.57        12/23/83
 Lipper Short Intermediate
 Municipal Debt Funds
 Average                    4.55     4.22         5.80
 Lipper Short Intermediate
 Municipal Debt Funds
 Index                      4.89     4.30         --
 Lehman 3 Year GO           5.17     4.93         6.20
 Municipal Bond Index
                            ---------------------------------------------
 Tax-Free Intermediate
 Bond Fund                  5.72     5.38         6.71        11/30/92
 Lipper Intermediate
 Municipal Debt Funds
 Average                    5.40     5.22         6.25
 Lipper Intermediate
 Municipal Debt Funds
 Index                      5.62     5.13         5.99
 Lehman 7 Year Municipal    6.22     5.78         6.56
 Bond Index
                            ---------------------------------------------
 Tax-Free Income Fund       5.98     5.89         7.85        10/26/76
 Lipper General Municipal
 Bond Funds Average         5.32     5.44         7.68
 Lipper General Municipal
 Bond Index                 5.64     5.70         7.75
 Lehman Municipal Bond      6.48     6.23         8.22
 Index
                            --------------------------------------------------
 Tax-Free High Yield Fund   5.55     6.36         9.30        03/01/85
 Lipper High Yield
 Municipal Debt Funds       5.25     5.98         8.79
 Average
                                                                         -----
 Lehman Brothers Municipal  6.33     6.39         9.90
 Bond Revenue Index
                                                                         -----
 Lipper High Yield
 Municipal Debt Funds       5.56     5.93         --
 Index
------------------------------------------------------------------------------

These figures include changes in principal value, reinvested dividends, and capital gain distributions, if any.

What fees or expenses will I pay?

The funds are 100% no load. There are no fees or charges to buy or sell fund shares, reinvest dividends, or exchange into other T. Rowe Price funds. There are no 12b-1 fees. While the funds themselves impose no fees or charges, they will indirectly bear their pro-rata share of the expenses of the underlying funds. The following table provides a range of average weighted expense ratios for each fund. A range is given instead of a single number because the pro-rata share of expenses fluctuates along with changes in the average assets in each of the underlying funds.


ABOUT THE FUNDS

Table 3  Fees and Expenses of the Funds
                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
                                        Management       Other       Total annual fund
 Fund                                       fee        expenses     operating expenses
-----------------------------------------------------------------------------------------------
 Tax-Exempt Money                          0.42%         0.10%             0.52%
                                       ---------------------------------------------------
 Tax-Free Short-Intermediate               0.42          0.11              0.53
                                       ---------------------------------------------------
 Tax-Free Intermediate Bond/a/             0.38          0.27              0.65
                                       ---------------------------------------------------
 Tax-Free Income                           0.47          0.08              0.55
                                       ---------------------------------------------------
 Tax-Free High Yield                       0.62          0.09              0.71
-----------------------------------------------------------------------------------------------

/a/
To limit the Intermediate Bond Fund's expenses, T. Rowe Price contractually obligated itself to waive its fees and bear any expenses from March 1, 1996, through February 28, 1998, which would have caused the fund's ratio of expenses to average net assets to exceed 0.65%. Fees waived or expenses paid or assumed under this agreement are subject to reimbursement to T. Rowe Price by the fund whenever the fund's expense ratio is below 0.65%. However, no reimbursement will be made after February 29, 2000, or if it would result in the expense ratio exceeding 0.65%. Any amounts reimbursed will have the effect of increasing fees otherwise paid by the fund.

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

 Fund                    1 year   3 years   5 years   10 years
---------------------------------------------------------------------

 Tax-Exempt Money          $53      $167      $291      $653
                         ---------------------------------------
 Tax-Free                   54       170       296       665
 Short-Intermediate
                         ---------------------------------------
 Tax-Free Intermediate      66       208       362       810
 Bond
                         ---------------------------------------
 Tax-Free Income            56       176       307       689
                         ---------------------------------------
 Tax-Free High Yield        73       227       395       883
---------------------------------------------------------------------

OTHER INFORMATION ABOUT THE FUNDS

What are the funds' potential rewards?

The regular income dividends you receive from the funds should be exempt from federal income taxes.


T. ROWE PRICE
The Tax-Exempt Money Fund is expected to provide a high level of after-tax income consistent with price stability.

The Tax-Free Short-Intermediate Fund is the most conservative of the four bond funds; its price fluctuation should be modest and its income should be higher than the money fund's but lower than the other bond funds.

The Tax-Free Intermediate Bond Fund should provide higher income and volatility than the Short-Intermediate Fund but less than the other bond funds.

The Tax-Free Income Fund should provide higher income and volatility than the shorter funds as well as the potential for capital appreciation. It may take on additional interest rate risk in achieving its objective, but will seek to cushion losses from rising interest rates.

The Tax-Free High Yield Fund is the most aggressive of these funds. Its income should be the highest because the average credit quality of its holdings is lowest.

How does the portfolio manager try to reduce risk?

Consistent with each fund's objective, the portfolio manager uses various tools to try to reduce risk and increase total return, including:

. Diversification of assets to reduce the impact of a single holding on a fund's net asset value.

. Thorough credit research by our own analysts.

. Adjustment of fund duration to try to reduce the drop in price when interest rates rise or to benefit from the rise in price when rates fall. Duration is a measure of a fund's price sensitivity to interest rate changes.

Some characteristics of municipal securities

Who issues municipal securities?

State and local governments and governmental authorities sell notes and bonds (usually called "municipals") to pay for public projects and services.

Who buys municipal securities?

Individuals are the primary investors, and a principal way they invest is through mutual funds. Prices of municipals may be affected by major changes in cash flows of money into or out of municipal funds. For example, substantial and sustained redemptions from municipal bond funds could result in lower prices for these securities.


ABOUT THE FUNDS
What is tax-free about municipal bonds and bond funds?

The regular income dividends you receive from the fund should be exempt from regular federal income taxes. These dividends may also be exempt from your state's income tax (if any). However, capital gains distributed by the funds are taxable to you. (See Useful Information on Distributions and Taxes for details.)

. Municipal securities are also called "tax-exempts" because the interest income they provide is usually exempt from federal income taxes.

Is interest income from municipal issues always exempt from federal taxes?

No. Since 1986 income from so-called "private activity" municipals has been subject to the federal alternative minimum tax (AMT). For instance, some bonds financing airports, stadiums, and student loan programs fall into this category. These bonds carry higher yields than regular municipals. Shareholders subject to the AMT must include income derived from private activity bonds in their AMT calculation. Relatively few taxpayers are required to pay the tax. Normally, each fund will not purchase any security if, as a result, more than 20% of the fund's income would be subject to the AMT. The portion of income subject to the AMT will be reported annually to shareholders. (Please see Distributions and Taxes - Taxes on Fund Distributions.)

Additionally, under highly unusual circumstances, the IRS may determine that a bond issued as tax-exempt should in fact be taxable. If a fund were to hold such a bond, the fund could have to distribute taxable income or reclassify as taxable income that previously distributed as tax-free.

Why are yields on municipals usually below those on otherwise comparable taxable securities?

Since the income provided by most municipals is exempt from federal taxation, investors are willing to accept lower yields on a municipal bond than on an otherwise similar (in quality and maturity) taxable bond.

How can I tell if a tax-free or taxable fund is suitable for me?

The primary factor is your expected federal income tax rate. The higher your tax bracket, the more likely tax-exempts will be appropriate. If a municipal fund's tax-exempt yield is higher than the after-tax yield on a taxable bond or money fund, then your income will be higher in the municipal fund. To find what a tax-


T. ROWE PRICE
able fund would have to yield to equal the yield on a municipal fund, divide the municipal fund's yield by one minus your tax rate. For quick reference, the next table shows a range of taxable-equivalent yields.

Table 4  Taxable-Equivalent Yields
 If your                                                            A tax-free yield of
 federal tax                                               2%     3%     4%     5%     6%     7%
 rate is:                                                       Equals a taxable yield of:
 28%                                                      2.8%   4.2%   5.6%   6.9%   8.3%    9.7%
                                                          ------------------------------------------
 31%                                                      2.9    4.3    5.8    7.2    8.7    10.1
                                                          ------------------------------------------
 36%                                                      3.1    4.7    6.2    7.8    9.4    10.9
                                                          ------------------------------------------
 39.6%                                                    3.3    5.0    6.6    8.3    9.9    11.6
---------------------------------------------------------------------------------------------------------

What are the major differences between money market and bond funds?

. Price Bond funds have fluctuating share prices. Money market funds are managed to maintain a stable share price.

. Maturity Short- and intermediate-term bond funds have longer average maturities (from one to 10 years) than money market funds (90 days or less). Longer-term bond funds have the longest average maturities (10 years or more).

. Income Short- and intermediate-term bond funds typically offer more income than money market funds and less income than longer-term bond funds.

SOME BASICS OF FIXED INCOME INVESTING

Is a fund's yield fixed or will it vary?

It will vary. The yield is calculated every day by dividing a fund's net income per share, expressed at annual rates, by the share price. Since both income and share price will fluctuate, a fund's yield will also vary.


(Although money fund prices are stable, income is variable.)

Is yield the same as total return?

Not for bond funds. The total return reported for a fund is the result of reinvested distributions (income and capital gains) and the change in share price for a given time period. Income is always a positive contributor to total return and can enhance a rise in share price or serve as an offset to a drop in share price. Since money funds are managed to maintain a stable share price, their yield and total return should be the same.


ABOUT THE FUNDS
What is credit quality and how does it affect yield?

Credit quality refers to a bond issuer's expected ability to make all required interest and principal payments on time. Because highly rated issuers represent less risk, they can borrow at lower interest rates than less creditworthy issuers. Therefore, a fund investing in high-quality securities should have a lower yield than an otherwise comparable fund investing in lower-quality securities.

What is meant by a bond fund's maturity?

Every bond has a stated maturity date when the issuer must repay the bond's entire principal value to the investor. However, many bonds are "callable," meaning their principal can be repaid earlier, on or after specified call dates. Bonds are most likely to be called when interest rates are falling because the issuer can refinance at a lower rate, just as a homeowner refinances a mortgage. In that environment, a bond's "effective maturity" is usually its nearest call date.

A bond mutual fund has no real maturity, but it does have a weighted average maturity and an average effective maturity. This number is an average of the stated or effective maturities of the underlying bonds, with each bond's maturity "weighted" by the percentage of fund assets it represents. Some funds target effective maturities rather than stated maturities when computing the average. This provides additional flexibility in portfolio management but, all else being equal, could result in higher volatility than a fund targeting a stated maturity or maturity range.

What is meant by a bond fund's duration?

Duration is a calculation that seeks to measure the price sensitivity of a bond or a bond fund to changes in interest rates. It measures this sensitivity more accurately than maturity because it takes into account the time value of cash flows generated over the bond's life. Future interest and principal payments are discounted to reflect their present value and then are multiplied by the number of years they will be received to produce a value expressed in years - the duration. Effective duration takes into account call features and sinking fund payments that may shorten a bond's life.

Since duration can also be computed for bond funds, you can estimate the effect of interest rates on share price by multiplying fund duration by an expected change in interest rates. For example, the price of a bond fund with a duration of five years would be expected to fall approximately 5% if rates rose by one percentage point. (T. Rowe Price bond fund shareholder reports show duration.)


T. ROWE PRICE
How is a municipal's price affected by changes in interest rates?

When interest rates rise, a bond's price usually falls, and vice versa. In general, the longer a bond's maturity, the greater the price increase or decrease in response to a given change in rates, as shown in Table 5.

Table 5  How Interest Rates May Affect Bond Prices
                                 Price per $1,000 of a Municipal Bond if Interest Rates:
                                    Rates                         Rates
 Bond maturity          Coupon     Increase                      Decrease
                                   --------          2%          --------          2%
                                      1%                            1%
 1 year          2000   3.00%        $990           $981          $1,010         $1,020
                                ------------------------------------------------------------
 3 years         2002   3.55          972            945           1,029          1,058
                                ------------------------------------------------------------
 5 years         2004   3.75          956            914           1,046          1,095
                                ------------------------------------------------------------
 10 years        2009   4.10          922            852           1,085          1,180
                                ------------------------------------------------------------
 20 years        2019   4.87          883            784           1,138          1,303
                                ------------------------------------------------------------
 30 years        2029   4.94          861            749           1,175          1,397
-------------------------------------------------------------------------------------------------

The table reflects yields on AAA-rated municipals as of May 31, 1999. This is an illustration and does not represent expected yields or share price changes of any T. Rowe Price fund.

Do money market securities react to changes in interest rates?

Yes. As interest rates change, the prices of money market securities fluctuate, but changes are usually small because of their very short maturities. Investments are typically held until maturity in a money fund to help the fund maintain a $1.00 share price.


ABOUT YOUR ACCOUNT
2
PRICING SHARES AND RECEIVING SALE PROCEEDS
Here are some procedures you should know when investing in a T. Rowe Price fund.

How and when shares are priced

Bond and money funds
The share price (also called "net asset value" or NAV per share) for each fund is calculated at the close of the New York Stock Exchange, normally 4
p.m. ET, each day the New York Stock Exchange is open for business. To calculate the NAV, the fund's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. Current market values are used to price fund shares. Amortized cost is used to value money fund securities.

. The various ways you can buy, sell, and exchange shares are explained at the end of this prospectus and on the New Account Form. These procedures may differ for institutional accounts.

How your purchase, sale, or exchange price is determined

If we receive your request in correct form by 4 p.m. ET, your transaction will be priced at that day's NAV. If we receive it after 4 p.m., it will be priced at the next business day's NAV.

We cannot accept orders that request a particular day or price for your transaction or any other special conditions.

Fund shares may be purchased through various third-party intermediaries including banks, brokers, and investment advisers. Where authorized by a fund, orders will be priced at the NAV next computed after receipt by the intermediary. Consult your intermediary to determine when your orders will be priced. The intermediary may charge a fee for its services.

Note: The time at which transactions and shares are priced and the time until which orders are accepted may be changed in case of an emergency or if the New York Stock Exchange closes at a time other than 4 p.m. ET.

How you can receive the proceeds from a sale

. When filling out the New Account Form, you may wish to give yourself the widest range of options for receiving proceeds from a sale.

If your request is received by 4 p.m. ET in correct form, proceeds are usually sent on the next business day. Proceeds can be sent to you by mail or to your bank account by Automated Clearing House (ACH) transfer or bank wire. Proceeds sent by ACH transfer should be credited the second day after the sale. ACH is an


T. ROWE PRICE
automated method of initiating payments from, and receiving payments in, your financial institution account. The ACH system is supported by over 20,000 banks, savings banks, and credit unions. Proceeds sent by bank wire should be credited to your account the next business day.

. Exception: Under certain circumstances and when deemed to be in each fund's best interests, your proceeds may not be sent for up to seven calendar days after we receive your redemption request.

. If for some reason we cannot accept your request to sell shares, we will contact you.

USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES

. All net investment income and realized capital gains are distributed to shareholders.

Dividends and Other Distributions

Dividend and capital gain distributions are reinvested in additional fund shares in your account unless you select another option on your New Account Form. The advantage of reinvesting distributions arises from compounding; that is, you receive income dividends and capital gain distributions on a rising number of shares.

Distributions not reinvested are paid by check or transmitted to your bank account via ACH. If the Post Office cannot deliver your check, or if your check remains uncashed for six months, the fund reserves the right to reinvest your distribution check in your account at the NAV on the business day of the reinvestment and to reinvest all subsequent distributions in shares of the fund. No interest will accrue on amounts represented by uncashed distribution or redemption checks.

Income dividends
. Money funds declare income dividends daily to shareholders of record as of 12 noon ET on that day. Wire purchase orders received before 12 noon ET receive the dividend for that day. Other purchase orders receive the dividend on the next business day after payment has been received.

. Bond funds declare income dividends daily at 4 p.m. ET to shareholders of record at that time provided payment has been received on the previous business day.

. Dividends are paid on the first business day of each month.


ABOUT YOUR ACCOUNT
. Fund shares will earn dividends through the date of redemption; also, shares redeemed on a Friday or prior to a holiday will continue to earn dividends until the next business day. Generally, if you redeem all of your shares at any time during the month, you will also receive all dividends earned through the date of redemption in the same check. When you redeem only a portion of your shares, all dividends accrued on those shares will be reinvested, or paid in cash, on the next dividend payment date.

Capital gains
. Since money funds are managed to maintain a constant share price, they are not expected to make capital gain distributions.

. A capital gain or loss is the difference between the purchase and sale price of a security.

. If a fund has net capital gains for the year (after subtracting any capital losses), they are usually declared and paid in December to shareholders of record on a specified date that month.

Tax Information

. You will be sent timely information for your tax filing needs.

Although the regular monthly income dividends you receive from each fund are expected to be exempt from federal income taxes, you need to be aware of the possible tax consequences when:

. You sell fund shares, including an exchange from one fund to another.

. The fund makes a distribution to your account.

Note: You must report your total tax-exempt income on IRS Form 1040. The IRS uses this information to help determine the tax status of any Social Security payments you may have received during the year. For shareholders who receive Social Security benefits, the receipt of tax-exempt interest may increase the portion of benefits that are subject to tax.

If a fund invests in certain "private activity" bonds, shareholders who are subject to the alternative minimum tax (AMT) must include income generated by these bonds in their AMT computation. The portion of your fund's income that should be included in your AMT calculation, if any, will be reported to you in January.

Taxes on fund redemptions
When you sell shares in any fund, you may realize a gain or loss. An exchange from one fund to another is still a sale for tax purposes. If you realize a loss on the sale or exchange of fund shares held six months or less, your capital loss is reduced by the tax-exempt dividends received on those shares.


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In January, you will be sent Form 1099-B indicating the date and amount of each sale you made in the fund during the prior year. This information will also be reported to the IRS. For most new accounts or those opened by exchange in 1984 or later, we will provide the gain or loss on the shares you sold during the year, based on the "average cost," single category method. This information is not reported to the IRS, and you do not have to use it. You may calculate the cost basis using other methods acceptable to the IRS, such as "specific identification."

To help you maintain accurate records, we send you a confirmation immediately following each transaction you make (except for systematic purchases and redemptions) and a year-end statement detailing all your transactions in each fund account during the year.

Taxes on fund distributions
In January, you will be sent Form 1099-DIV indicating the tax status of any capital gain distributions made to you. This information will also be reported to the IRS. A fund's capital gain distributions are generally taxable to you for the year in which they were paid. Dividends are expected to be tax-exempt.

The tax treatment of a capital gain distribution is determined by how long the fund held the portfolio securities, not how long you held shares in the fund. Short-term (one year or less) capital gain distributions are taxable at the same rate as ordinary income and long-term gains on securities held more than 12 months are taxed at a maximum rate of 20%. If you realized a loss on the sale or exchange of fund shares that you held six months or less, your short-term loss will be reclassified to a long-term loss to the extent of any long-term capital gain distribution received during the period you held the shares.

A portion of the capital gains realized on the sale of market discount bonds with maturities beyond one year may be treated as ordinary income and cannot be offset by other capital losses. Therefore, to the extent each fund invests in these securities, the likelihood of a taxable gain distribution will be increased.

. Distributions are taxable whether reinvested in additional shares or received in cash.

Tax effect of buying shares before a capital gain distribution If you buy shares shortly before or on the "record date" - the date that establishes you as the person to receive the upcoming distribution - you will receive a portion of the money you just invested in the form of a taxable distribution. Therefore, you may wish to find out a fund's record date before investing. Of course, a fund's share price may, at any time, reflect undistributed capital gains or income and unrealized appreciation, which may result in future taxable distributions.


ABOUT YOUR ACCOUNT
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
. Following these procedures helps assure timely and accurate transactions.

Purchase Conditions

Nonpayment
If your payment is not received or you pay with a check or ACH transfer that does not clear, your purchase will be canceled. You will be responsible for any losses or expenses incurred by each fund or transfer agent, and the fund can redeem shares you own in this or another identically registered T. Rowe Price fund as reimbursement. Each fund and its agents have the right to reject or cancel any purchase, exchange, or redemption due to nonpayment.

U.S. dollars
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S. banks. The fund does not accept purchases made by credit card check.

Sale (Redemption) Conditions

Holds on immediate redemptions: 10-day hold If you sell shares that you just purchased and paid for by check or ACH transfer, the funds will process your redemption but will generally delay sending you the proceeds for up to 10 calendar days to allow the check or transfer to clear. If your redemption request was sent by mail or mailgram, proceeds will be mailed no later than the seventh calendar day following receipt unless the check or ACH transfer has not cleared. If, during the clearing period, we receive a check drawn against your bond or money market account, it will be returned marked "uncollected." (The 10-day hold does not apply to the following: purchases paid for by bank wire; cashier's, certified, or treasurer's checks; or automatic purchases through your paycheck.)

Telephone, Tele*Access/(R)/, and personal computer transactions Exchange and redemption services through telephone and Tele*Access are established automatically when you sign the New Account Form unless you check the boxes that state you do not want these services. Personal computer transactions must be authorized separately. T. Rowe Price funds and their agents use reasonable procedures (including shareholder identity verification) to confirm that instructions given by telephone or computer are genuine; they are not liable for acting on these instructions. If these procedures are not followed, it is the opinion of certain regulatory agencies that the funds and their agents may be liable for any losses that may result from acting on the instructions. A confirmation is sent promptly after a transaction. All telephone conversations are recorded.


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Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability to implement a fund's investment strategy by causing the premature sale of securities that would otherwise be held. If, in any 90-day period, you redeem (sell) more than $250,000, or your sale amounts to more than 1% of fund net assets, the fund has the right to pay the difference between the redemption amount and the lesser of the two previously mentioned figures with securities from the fund.

Excessive Trading

. T. Rowe Price may bar excessive traders from purchasing shares.

Frequent trades, involving either substantial fund assets or a substantial portion of your account or accounts controlled by you, can disrupt management of the fund and raise its expenses. To deter such activity, the fund has adopted an excessive trading policy. If you violate our excessive trading policy, you may be barred indefinitely and without further notice from further purchases of T. Rowe Price funds.

. Trades placed directly with T. Rowe Price If you trade directly with T. Rowe Price, you can make one purchase and sale involving the same fund within any 120-day period. For example, if you are in fund A, you can move substantial assets from fund A to fund B and, within the next 120 days, sell your shares in fund B to return to fund A or move to fund C. If you exceed this limit, you are in violation of our excessive trading policy.

Two types of transactions are exempt from this policy: 1) trades solely in money market funds (exchanges between a money fund and a nonmoney fund are not exempt); and 2) systematic purchases or redemptions (see Information About Your Services).

. Trades placed through intermediaries If you purchase fund shares through an intermediary including a broker, bank, investment adviser, or other third party and hold them for less than 60 calendar days, you are in violation of our excessive trading policy.

Keeping Your Account Open

Due to the relatively high cost to a fund of maintaining small accounts, we ask you to maintain an account balance of at least $1,000. If your balance is below $1,000 for three months or longer, we have the right to close your account after giving you 60 days in which to increase your balance.

Small Account Fee

Because of the disproportionately high costs of servicing accounts with low balances, a $10 fee, paid to T. Rowe Price Services, the funds' transfer agent, will automatically be deducted from nonretirement accounts with balances


ABOUT YOUR ACCOUNT
falling below a minimum level. The valuation of accounts and the deduction are expected to take place during the last five business days of September. The fee will be deducted from accounts with balances below $2,000, except for UGMA/ UTMA accounts, for which the limit is $500. The fee will be waived for any investor whose T. Rowe Price mutual fund investments total $25,000 or more. Accounts employing automatic investing (e.g., payroll deduction, automatic purchase from a bank account, etc.) are also exempt from the charge. The fee will not apply to IRAs and other retirement plan accounts. (A separate custodial fee may apply to IRAs and other retirement plan accounts.)

Signature Guarantees

. A signature guarantee is designed to protect you and the T. Rowe Price funds from fraud by verifying your signature.

You may need to have your signature guaranteed in certain situations, such as:

. Written requests 1) to redeem over $100,000, or 2) to wire redemption proceeds.

. Remitting redemption proceeds to any person, address, or bank account not on record.

. Transferring redemption proceeds to a T. Rowe Price fund account with a different registration (name or ownership) from yours.

. Establishing certain services after the account is opened.

You can obtain a signature guarantee from most banks, savings institutions, broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot accept guarantees from notaries public or organizations that do not provide reimbursement in the case of fraud.


MORE ABOUT THE FUNDS

3

ORGANIZATION AND MANAGEMENT

How are the funds organized?

The funds are "diversified, open-end investment companies," or mutual funds, and were incorporated in Maryland as follows: 1) Tax-Exempt Money Fund, 1980;
2) Tax-Free Short-Intermediate Fund, 1983; 3) Tax-Free Insured Intermediate Bond Fund, 1992; 4) Tax-Free Income Fund, 1976; and 5) Tax-Free High Yield Fund, 1984. Mutual funds pool money received from shareholders and invest it to try to achieve specified objectives.

. Shareholders benefit from T. Rowe Price's 62 years of investment management experience.

What is meant by "shares"?

As with all mutual funds, investors purchase shares when they put money in a fund. These shares are part of a fund's authorized capital stock, but share certificates are not issued.

Each share and fractional share entitles the shareholder to:

. Receive a proportional interest in a fund's income and capital gain distributions.

. Cast one vote per share on certain fund matters, including the election of fund directors, changes in fundamental policies, or approval of changes in the fund's management contract.

Do T. Rowe Price funds have annual shareholder meetings?

The funds are not required to hold annual meetings and, to avoid unnecessary costs to fund shareholders, do not intend to do so except when certain matters, such as a change in a fund's fundamental policies, must be decided. In addition, shareholders representing at least 10% of all eligible votes may call a special meeting, if they wish, for the purpose of voting on the removal of any fund director or trustee. If a meeting is held and you cannot attend, you can vote by proxy. Before the meeting, the fund will send you proxy materials that explain the issues to be decided and include instructions on voting by mail or telephone, or on the Internet.


ABOUT YOUR ACCOUNT
Who runs the funds?

General Oversight
Each fund is governed by a Board of Directors that meets regularly to review the fund's investments, performance, expenses, and other business affairs. The Board elects the fund's officers. The policy of the funds is that the majority of Board members are independent of T. Rowe Price Associates, Inc. (T. Rowe Price).

. All decisions regarding the purchase and sale of fund investments are made by T. Rowe Price - specifically by each fund's portfolio managers.

Portfolio Management
Each fund has an Investment Advisory Committee whose chairman has day-to-day responsibility for managing the portfolio and works with the committee in developing and executing each fund's investment program. (The Tax-Free High Yield Fund also has a co-manager.) The Investment Advisory Committees comprise the following members:

Tax-Exempt Money Fund Patrice Berchtenbreiter Ely, Chairman, Jeremy N. Baker, Marcy M. Lash, Joseph K. Lynagh, Mary J. Miller, William T. Reynolds, and Edward A. Wiese. Ms. Berchtenbreiter Ely has been chairman of the fund's committee since 1992. She joined T. Rowe Price in 1972 and has been managing investments since 1987.

Tax-Free Short-Intermediate Bond Fund Charles B. Hill, Chairman, Janet G. Albright, Joseph K. Lynagh, Konstantine B. Mallas, Mary J. Miller, and Arthur S. Varnado. Mr. Hill has been chairman of the fund's committee since 1997. He joined T. Rowe Price in 1991 and has been managing investments since 1986.

Tax-Free Intermediate Bond Fund Charles B. Hill, Chairman, Robert A. Donahue, Eric N. Mader, Konstantine B. Mallas, Mary J. Miller, Julie A. Salsbery, and Arthur S. Varnado. Mr. Hill has been chairman of the fund's committee since 1997. He joined T. Rowe Price in 1991 and has been managing investments since 1986.

Tax-Free Income Fund Mary J. Miller, Chairman, Janet G. Albright, Patricia S. Deford, Charles B. Hill, Alan D. Levenson, Konstantine B. Mallas, Hugh D. McGuirk, William F. Snider, and Arthur S. Varnado. Ms. Miller has been chairman of the committee since 1997. She joined T. Rowe Price in 1983 and has been managing investments since 1987.

Tax-Free High Yield Fund William F. Snider, Chairman, Patricia S. Deford, Konstantine B. Mallas, Mary J. Miller, Arthur S. Varnado, and C. Stephen Wolfe II. Mr. Snider was appointed the fund's chairman in 1999. He joined T. Rowe Price in 1991 and has been managing investments since 1993. Ms. Deford is co-man-


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ager of the fund. She joined T. Rowe Price in 1990. Until June 1998 she was the director of municipal credit research. Since that time, she has been responsible for municipal high-yield credit research.

The Management Fee
This fee has two parts - an "individual fund fee," which reflects a fund's particular characteristics, and a "group fee." The group fee, which is designed to reflect the benefits of the shared resources of the T. Rowe Price investment management complex, is calculated daily based on the combined net assets of all T. Rowe Price funds (except the Spectrum Funds, and any institutional, index, or private label mutual funds). The group fee schedule (shown below) is graduated, declining as the asset total rises, so shareholders benefit from the overall growth in mutual fund assets.

Group Fee Schedule

                                                                     0.334%            First $50 billion/a/
                                                                    -----------------------------------------
                                                                     0.305%            Next $30 billion
                                                                    -----------------------------------------
                                                                     0.300%            Next $40 billion
                                                                    -----------------------------------------
                                                                     0.295%            Thereafter
 -----------------------------------------------------------------------------------------------------------------

/a/ Represents a blended group fee rate containing various break points.

Each fund's portion of the group fee is determined by the ratio of its daily net assets to the daily net assets of all the T. Rowe Price funds described previously. Based on combined T. Rowe Price funds' assets of over $89 billion at March 31, 1999, the group fee was 0.32%. The individual fund fees are as follows: Money, 0.10%; Short-Intermediate, 0.10%; Intermediate, 0.05%; Income, 0.15%; and High Yield, 0.30%.

UNDERSTANDING PERFORMANCE INFORMATION

This section should help you understand the terms used to describe fund performance. You will come across them in shareholder reports you receive from us; in our newsletter, The Price Report; in T. Rowe Price advertisements; and in the media.

Total Return

This tells you how much an investment in a fund has changed in value over a given time period. It reflects any net increase or decrease in the share price and assumes that all dividends and capital gains (if any) paid during the period were reinvested in additional shares. Therefore, total return numbers include the effect of compounding.


MORE ABOUT THE FUNDS
Advertisements for a fund may include cumulative or average annual total return figures, which may be compared with various indices, other performance measures, or other mutual funds.

Cumulative Total Return

This is the actual return of an investment for a specified period. A cumulative return does not indicate how much the value of the investment may have fluctuated during the period. For example, a fund could have a 10-year positive cumulative return despite experiencing three negative years during that time.

Average Annual Total Return

This is always hypothetical and should not be confused with actual year-by-year results. It smooths out all the variations in annual performance to tell you what constant year-by-year return would have produced the investment's actual cumulative return. This gives you an idea of an investment's annual contribution to your portfolio, provided you held it for the entire period.

Yield

The current or "dividend" yield on a fund or any investment tells you the relationship between the investment's current level of annual income and its price on a particular day. The dividend yield reflects the actual income paid to shareholders for a given period, annualized, and divided by the price at the end of the given period. For example, a fund providing $5 of annual income per share and a price of $50 has a current yield of 10%. Yields can be calculated for any time period.

For bond funds, the advertised or Securities and Exchange Commission (SEC) yield is found by determining the net income per share (as defined by the SEC) earned by a fund during a 30-day base period and dividing this amount by the per share price on the last day of the base period. The SEC yield may differ from the dividend yield.

The money fund may advertise a current yield, reflecting the latest seven-day income annualized, or an "effective" yield, which assumes the income has been reinvested in the fund.

INVESTMENT POLICIES AND PRACTICES

This section takes a detailed look at some of the types of securities the funds may hold in their portfolios and the various kinds of investment practices that may be used in day-to-day portfolio management. Each fund's investment program is subject to further restrictions and risks described in the Statement of Additional Information.

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Shareholder approval is required to substantively change a fund's objective and certain investment restrictions noted in the following section as "fundamental policies." The managers also follow certain "operating policies," which can be changed without shareholder approval. However, significant changes are discussed with shareholders in fund reports. Each fund adheres to applicable investment restrictions and policies at the time it makes an investment. A later change in circumstances will not require the sale of an investment if it was proper at the time it was made.

The funds' holdings of certain kinds of investments cannot exceed maximum percentages of total assets, which are set forth in this prospectus. For instance, the bond funds are not permitted to invest more than 10% of total assets in residual interest bonds. While these restrictions provide a useful level of detail about the funds' investment programs, investors should not view them as an accurate gauge of the potential risk of such investments. For example, in a given period, a 5% investment in residual interest bonds could have significantly more of an impact on a fund's share price than its weighting in the portfolio. The net effect of a particular investment depends on its volatility and the size of its overall return in relation to the performance of all the funds' other investments.

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

. Fund managers have considerable leeway in choosing investment strategies and selecting securities they believe will help each fund achieve its objective.

Types of Portfolio Securities

In seeking to meet its investment objective, each fund may invest in any type of municipal security or instrument (including certain potentially high-risk derivatives described in this section) whose investment characteristics are consistent with its investment program. The following pages describe the principal types of portfolio securities and investment management practices of the funds.

Fundamental policy Each fund will not purchase a security if, as a result, with respect to 75% of its total assets, more than 5% of its total assets would be invested in securities of a single issuer, or if more than 10% of the outstanding voting securities of the issuer would be held by each fund. These limitations do not apply to a fund's purchase of securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities.

Operating policy (money fund only) Except as permitted by Rule 2a-7 under the Investment Company Act of 1940, the money fund will not purchase a security if, as a result, more than 5% of its total assets would be invested in securities of a single issuer. Under Rule 2a-7, the 5% limit, among other things, does not apply to purchases of U.S. government securities or securities subject to certain types of guarantees.


MORE ABOUT THE FUNDS
Municipal Securities
Each fund's assets are invested primarily in various tax-free municipal debt securities. The issuers have a contractual obligation to pay interest at a stated rate on specific dates and to repay principal (the bond's face value) on a specified date or dates. An issuer may have the right to redeem or "call" a bond before maturity, and the funds may have to reinvest the proceeds at lower rates.

There are two broad categories of municipal bonds. General obligation bonds are backed by the issuer's "full faith and credit," that is, its full taxing and revenue raising power. Revenue bonds usually rely exclusively on a specific revenue source, such as charges for water and sewer service, to generate money for debt service.

. In purchasing municipals, the funds rely on the opinion of the issuer's bond counsel regarding the tax-exempt status of the investment.

Private Activity Bonds and Taxable Securities While income from most municipals is exempt from federal income taxes, the income from certain types of so-called private activity bonds (a type of revenue bond) may be subject to the alternative minimum tax (AMT). However, only persons subject to the AMT pay this tax. Private activity bonds may be issued for purposes such as housing or airports or to benefit a private company. (Being subject to the AMT does not mean the investor necessarily pays this tax. For further information, please see Distributions and Taxes.)

Fundamental policy Under normal market conditions, the funds will not purchase any security if, as a result, less than 80% of the funds' income would be exempt from federal income taxes. Up to 20% of fund income could be derived from securities subject to the alternative minimum tax.

Operating policy During periods of abnormal market conditions, for temporary defensive purposes, the funds may invest without limit in high-quality, short-term securities whose income is subject to federal income tax.

In addition to general obligation and revenue bonds, the funds' investments may include, but are not limited to, the following types of securities:

Municipal Lease Obligations
A lease is not a full faith and credit obligation of the issuer and is usually backed only by the borrowing government's unsecured pledge to make annual appropriations for lease payments. There have been challenges to the legality of lease financing in numerous states and, from time to time, certain municipalities have considered not appropriating money for lease payments. In deciding whether to purchase a lease obligation, the funds would assess the financial condition of the borrower, the merits of the project, the level of public support for the project,


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and the legislative history of lease financing in the state. These securities may be less readily marketable than other municipals. The funds may also purchase unrated lease obligations.

Municipal Warrants (bond funds)
Municipal warrants are essentially call options on municipal bonds. In exchange for a premium, they give the purchaser the right, but not the obligation, to purchase a municipal bond in the future. The bond funds might purchase a warrant to lock in forward supply in an environment where the current issuance of bonds is sharply reduced. Like options, warrants may expire worthless and they may have reduced liquidity.

Operating policy Each bond fund may invest up to 2% of its total assets in municipal warrants.

Securities With "Puts" or Other Demand Features Some longer-term municipals give the investor the right to "put" or sell the security at par (face value) within a specified number of days following the investor's request - usually one to seven days. This demand feature enhances a security's liquidity by shortening its effective maturity and enables it to trade at a price equal to or very close to par. The money fund typically purchases a significant number of these securities. If a demand feature terminates prior to being exercised, the funds may be forced to hold the longer-term security, which could experience substantially more volatility.

Securities With Credit Enhancements
. Letters of credit Letters of credit are issued by a third party, usually a bank, to enhance liquidity and ensure repayment of principal and any accrued interest if the underlying municipal security should default.

. T. Rowe Price periodically reviews the credit quality of the insurer.

. Municipal Bond Insurance This insurance, which is usually purchased by the bond issuer from a private, nongovernmental insurance company, provides an unconditional and irrevocable guarantee that the insured bond's principal and interest will be paid when due. Insurance does not guarantee the price of the bond or the share price of any fund. The credit rating of an insured bond reflects the credit rating of the insurer, based on its claims-paying ability.

The obligation of a municipal bond insurance company to pay a claim extends over the life of each insured bond. Although defaults on insured municipal bonds have been low to date and municipal bond insurers have met their claims, there is no assurance this will continue. A higher-than-expected default rate could strain the insurer's loss reserves and adversely affect its ability to pay claims to bondholders, such as the funds. The number of municipal bond insurers is relatively small, and not all of them have the highest rating.


MORE ABOUT THE FUNDS
. Standby Purchase Agreements A Standby Bond Purchase Agreement (SBPA) is a liquidity facility provided to pay the purchase price of bonds that cannot be remarketed. The obligation of the liquidity provider (usually a bank) is only to advance funds to purchase tendered bonds that cannot be remarketed and does not cover principal or interest under any other circumstances. The liquidity provider's obligations under the SBPA are usually subject to numerous conditions, including the continued creditworthiness of the underlying borrower.

Synthetic or Derivative Securities
Derivatives and synthetics in which the funds may invest include:

. Residual Interest Bonds (bond funds) (These are a type of potentially high-risk derivative.) The income stream provided by an underlying bond is divided to create two securities, one short term and one long term. The interest rate on the short-term component is reset by an index or auction process normally every seven to 35 days. After income is paid on the short-term securities at current rates, the residual income goes to the long-term securities. Therefore, rising short-term interest rates result in lower income for the longer-term portion, and vice versa. The longer-term bonds can be very volatile and may be less liquid than other municipals of comparable maturity. The funds will invest only in securities deemed tax-exempt by a nationally recognized bond counsel, but there is no guarantee the interest will be exempt because the IRS has not issued a definitive ruling on the matter.

Operating policy Each bond fund may invest up to 10% of its total assets in residual interest bonds.

. Participation Interests This term covers various types of securities created by converting fixed rate bonds into short-term, variable rate certificates. These securities have been developed in the secondary market to meet the demand for short-term, tax-exempt securities. The funds will invest only in securities deemed tax-exempt by a nationally recognized bond counsel, but there is no guarantee the interest will be exempt because the IRS has not issued a definitive ruling on the matter.

Operating policy The money fund will not invest more than 20% of its total assets in these securities.

. Embedded Interest Rate Swaps and Caps (bond funds) In a fixed rate, long-term municipal bond with an interest rate swap attached to it, the bondholder usually receives the bond's fixed coupon payment as well as a variable rate payment that represents the difference between a fixed rate for the term of the swap (which is typically shorter than the bond it is attached to) and a variable rate short-term municipal index. The bondholder receives excess income when short-term rates remain below the fixed interest rate swap rate. If short-term rates rise above the


T. ROWE PRICE
fixed income swap rate, the bondholder's income is reduced. At the end of the interest rate swap term, the bond reverts to a single fixed coupon payment.

An embedded interest rate cap allows the bondholder to receive payments whenever short-term rates rise above a level established at the time of purchase. They normally are used to hedge against rising short-term interest rates.

Both instruments may be volatile and of limited liquidity, and their use may adversely affect a fund's total return.

Operating policy Each bond fund may invest up to 10% of its total assets in embedded interest rate swaps and caps.

Private Placements
Each fund may seek to enhance its yield through the purchase of private placements. These securities are sold through private negotiations, usually to institutions or mutual funds, and may have resale restrictions. Their yields are usually higher than comparable public securities to compensate the investor for their limited marketability.

Operating policy The bond funds may invest up to 15% (10% for the money fund) of fund net assets in illiquid securities, including unmarketable private placements.

Types of Investment Management Practices

Reserve Position (bond funds)
Each fund will hold a portion of its assets in short-term, tax-exempt money market securities maturing in one year or less. The reserve position provides flexibility in meeting redemptions, expenses, and the timing of new investments; can help in structuring each fund's weighted average maturity; and serves as a short-term defense during periods of unusual market volatility. Each fund's reserve position can consist of shares of one or more T. Rowe Price internal money market funds as well as short-term, investment-grade securities, including tax-exempt commercial paper, municipal notes, and short-term maturity bonds. Some of these securities may have adjustable, variable, or floating rates. For temporary, defensive purposes, each fund may invest without limitation in money market reserves (which may not be tax-exempt). The effect of taking such a position is that the fund may not achieve its investment objective.

When-Issued Securities (all funds) and Forwards (bond funds) New issues of municipals are often sold on a "when-issued" basis, that is, delivery and payment take place 15 - 45 days after the buyer has agreed to the purchase. Some bonds, called "forwards," have longer-than-standard settlement dates, typically six to 24 months. When buying these securities, each fund will maintain cash or high-grade marketable securities held by its custodian equal in value to its commitment for these securities. Each fund does not earn interest on when--


MORE ABOUT THE FUNDS
issued and forward securities until settlement, and the value of the securities may fluctuate between purchase and settlement. Municipal "forwards" typically carry a substantial yield premium to compensate the buyer for their greater interest rate, credit, and liquidity risks.

Interest Rate Futures (bond funds)
Futures (a type of potentially high-risk derivative) are often used to manage risk because they enable the investor to buy or sell an asset in the future at an agreed-upon price. Specifically, the funds may use futures (and options on futures) for any number of reasons, including: to hedge against a potentially unfavorable change in interest rates and to adjust their exposure to the municipal bond market; to protect portfolio value; in an effort to enhance income; as a cash management tool; and to adjust portfolio duration. The use of futures for hedging and non-hedging purposes may not always be successful. Their prices can be highly volatile, using them could lower a fund's total return, and the potential loss from their use could exceed a fund's initial exposure to such contracts.

Operating policy Initial margin deposits on futures and premiums on options used for non-hedging purposes will not exceed 5% of a bond fund's net asset value.

Borrowing Money and Transferring Assets Each fund can borrow money from banks and other Price funds as a temporary measure for emergency purposes, to facilitate redemption requests, or for other purposes consistent with each fund's investment objective and program. Such borrowings may be collateralized with fund assets, subject to restrictions.

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

Operating policy  Each fund may not transfer as collateral any portfolio

securities except as necessary in connection with permissible borrowings or investments, and then such transfers may not exceed 33/1//\\/3/\\% of the fund's total assets. Each fund may not purchase additional securities when borrowings exceed 5% of total assets.

Portfolio Turnover (bond funds)
Each fund generally purchases securities with the intention of holding them for investment; however, when market conditions or other circumstances warrant, securities may be purchased and sold without regard to the length of time held. Due to the nature of each fund's investment program, a fund's portfolio turnover rate may exceed 100%. Although the funds do not expect to generate any taxable income, a high turnover rate may increase transaction costs and may


T. ROWE PRICE
affect taxes paid by shareholders to the extent capital gains are distributed. The funds' portfolio turnover rates for the previous three fiscal years are shown in Table 6.

Table 6  Portfolio Turnover Rates
 Fund                                1999         1998         1997
                                     ----         ----         ----
 Short-Intermediate                  39.9%        76.8%        84.3%
                                  ---------------------------------------
 Intermediate                        24.3         56.1         76.8
                                  ---------------------------------------
 Income                              34.1         36.3         40.7
                                  ---------------------------------------
 High Yield                          38.9         24.4         37.0
------------------------------------------------------------------------------

Sector Concentration
It is possible that each fund could have a considerable amount of assets (25% or more) in securities that would tend to respond similarly to particular economic or political developments. An example would be securities of issuers related to a single industry, such as hospital bonds.

Operating policy Each fund is limited to 25% of total assets in industrial development bonds of projects in the same industry (such as solid waste, nuclear utility, or airlines). Bonds which are refunded with escrowed U.S. government securities are not subject to the 25% limitation.

High-Yield, High-Risk Investing (High Yield, Income, and Short-Intermediate Funds)
The total return and yield of lower-quality (high-yield, high-risk) bonds, commonly referred to as "junk," may fluctuate more than the total return and yield of higher-quality bonds. Junk bonds (those rated below BBB or in default) are regarded as predominantly speculative with respect to the issuer's ability to meet principal and interest payments. Successful investment in lower-medium- and low-quality bonds involves greater investment risk and is highly dependent on T. Rowe Price's credit analysis. A real or perceived economic downturn, or rising interest rates, could cause a decline in high-yield bond prices by lessening the ability of issuers to make principal and interest payments. These bonds are often thinly traded and can be more difficult to sell and value accurately than high-quality bonds. Because objective pricing data may be less available, judgment may play a greater role in the valuation process.

Operating policy The Tax-Free High Yield Fund may invest without limit in below investment-grade securities. The Tax-Free Income Fund may invest up to 5% of its total assets in below investment-grade securities. The Tax-Free Short-Intermediate Fund may invest up to 5% of its total assets in below investment-grade securities with ratings of BB by a national rating agency (or, if unrated, the T. Rowe Price equivalent).


MORE ABOUT THE FUNDS
Credit-Quality Considerations
The credit quality of most bond issues is evaluated by rating agencies such as Moody's and Standard & Poor's on the basis of the issuer's ability to meet all required interest and principal payments. The highest ratings are assigned to issuers perceived to be the best credit risks. T. Rowe Price research analysts also evaluate all portfolio holdings of each fund, including those rated by outside agencies. Other things being equal, lower-rated bonds have higher yields due to greater risk. High-yield bonds, also called "junk" bonds, are those rated below BBB.

Table 7 shows the rating scale used by the major rating agencies, and Table 8 provides an explanation of quality ratings. T. Rowe Price considers publicly available ratings but emphasizes its own credit analysis when selecting investments.

Table 7  Ratings of Municipal Debt Securities
                                                                       Moody's        Standard
                                                                       Investors      & Poor's         Fitch
                                                                       Service, Inc.  Corporation      IBCA, Inc.           Definit
 Long Term                                                              Aaa            AAA              AAA                  Highes
                                                                                                                             qualit
                                                                       ------------------------------------------------------------
                                                                        Aa             AA               AA                   High
                                                                                                                             qualit
                                                                       ------------------------------------------------------------
                                                                                                                             Upper
                                                                        A              A                A                    medium
                                                                                                                             grade
                                                                       ------------------------------------------------------------
                                                                        Baa            BBB              BBB                  Medium
                                                                                                                             grade
                                                                       ------------------------------------------------------------
                                                                        Ba             BB               BB                   Specul
                                                                       ------------------------------------------------------------
                                                                        B              B                B                    Highly
                                                                                                                             specul
                                                                       ------------------------------------------------------------
                                                                                                                             Vulner
                                                                        Caa            CCC, CC          CCC, CC              to
                                                                                                                             defaul
                                                                       ------------------------------------------------------------
                                                                                                                             Defaul
                                                                        Ca             C                C                    is
                                                                                                                             immine
                                                                       ------------------------------------------------------------
                                                                                                                             Probab
                                                                                                                             in
                                                                        C              D                DDD, DD, D           defaul

                                                                       Moody's                         S&P
 Short Term                                                             MIG1/ VMIG1    Best quality     SP1+   Very strong quality
                                                                                                        SP1    Strong grade




                                                                       ------------------------------------------------------------
                                                                        MIG2/ VMIG2    High quality     SP2    Satisfactory grade


                                                                       ------------------------------------------------------------
                                                                        MIG3/ VMIG3    Favorable quality


                                                                       ------------------------------------------------------------
                                                                        MIG4/ VMIG4    Adequate quality
                                                                       ------------------------------------------------------------
                                                                        SG             Speculative      SP3    Speculative grade
                                                                                       quality

-----------------------------------------------------------------------------------------------------------------------------------
 Commercial                                                             P-1            Superior         A-1+   Extremely strong
 Paper                                                                                 quality          A-1    quality
                                                                                                               Strong quality



                                                                       ------------------------------------------------------------
                                                                        P-2            Strong quality   A-2    Satisfactory quality


                                                                       ------------------------------------------------------------
                                                                        P-3            Acceptable       A-3    Adequate quality
                                                                                       quality          B      Speculative quality
                                                                                                        C      Doubtful quality



-----------------------------------------------------------------------------------------------------------------------------------


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Table 8  Explanation of Quality Ratings
                                         Bond
                                         Rating    Explanation
 Moody's Investors                        Aaa       Highest quality, smallest degree of
 Service, Inc.                                      investment risk.
                                         -----------------------------------------------------
                                          Aa        High quality; together with Aaa bonds,
                                                    they compose the high-grade bond group.
                                         -----------------------------------------------------
                                          A         Upper-medium-grade obligations; many
                                                    favorable investment attributes.
                                         -----------------------------------------------------
                                          Baa       Medium-grade obligations; neither highly
                                                    protected nor poorly secured. Interest
                                                    and principal appear adequate for the
                                                    present, but certain protective elements
                                                    may be lacking or may be unreliable over
                                                    any great length of time.
                                         -----------------------------------------------------
                                          Ba        More uncertain with speculative
                                                    elements. Protection of interest and
                                                    principal payments not well safeguarded
                                                    in good and bad times.
                                         -----------------------------------------------------
                                          B         Lack characteristics of desirable
                                                    investment; potentially low assurance of
                                                    timely interest and principal payments
                                                    or maintenance of other contract terms
                                                    over time.
                                         -----------------------------------------------------
                                          Caa       Poor standing, may be in default;
                                                    elements of danger with respect to
                                                    principal or interest payments.
                                         -----------------------------------------------------
                                          Ca        Speculative in high degree; could be in
                                                    default or have other marked
                                                    shortcomings.
                                         -----------------------------------------------------
                                          C         Lowest rated. Extremely poor prospects
                                                    of ever attaining investment standing.
                                         -----------------------------------------------------
 Standard & Poor's                        AAA       Highest rating; extremely strong
 Corporation                                        capacity to pay principal and interest.
                                         -----------------------------------------------------
                                          AA        High quality; very strong capacity to
                                                    pay principal and interest.
                                         -----------------------------------------------------
                                          A         Strong capacity to pay principal and
                                                    interest; somewhat more susceptible to
                                                    the adverse effects of changing
                                                    circumstances and economic conditions.
                                         -----------------------------------------------------
                                          BBB       Adequate capacity to pay principal and
                                                    interest; normally exhibit adequate
                                                    protection parameters, but adverse
                                                    economic conditions or changing
                                                    circumstances more likely to lead to
                                                    weakened capacity to pay principal and
                                                    interest than for higher-rated bonds.
                                         -----------------------------------------------------
                                          BB, B,    Predominantly speculative with respect
                                          CCC, CC   to the issuer's capacity to meet
                                                    required interest and principal
                                                    payments. BB - lowest degree of
                                                    speculation;
                                                    CC - the highest degree of speculation.
                                                    Quality and protective characteristics
                                                    outweighed by large uncertainties or
                                                    major risk exposure to adverse
                                                    conditions.
                                         -----------------------------------------------------
                                          D         In default.
---------------------------------------------------------------------------------------------------
 Fitch IBCA, Inc.                         AAA       Highest quality; obligor has
                                                    exceptionally strong ability to pay
                                                    interest and repay principal, which is
                                                    unlikely to be affected by reasonably
                                                    foreseeable events.
                                         -----------------------------------------------------
                                          AA        Very high quality; obligor's ability to
                                                    pay interest and repay principal is very
                                                    strong. Because bonds rated in the AAA
                                                    and AA categories are not significantly
                                                    vulnerable to foreseeable future
                                                    developments, short-term debt of these
                                                    issuers is generally rated F-1+.
                                         -----------------------------------------------------
                                          A         High quality; obligor's ability to pay
                                                    interest and repay principal is
                                                    considered to be strong, but may be more
                                                    vulnerable to adverse changes in
                                                    economic conditions and circumstances
                                                    than higher-rated bonds.
                                         -----------------------------------------------------
                                          BBB       Satisfactory credit quality; obligor's
                                                    ability to pay interest and repay
                                                    principal is considered adequate.
                                                    Unfavorable changes in economic
                                                    conditions and circumstances are more
                                                    likely to adversely affect these bonds
                                                    and impair timely payment. The
                                                    likelihood that the ratings of these
                                                    bonds will fall below investment grade
                                                    is higher than for higher-rated bonds.
                                         -----------------------------------------------------
                                          BB,       Not investment grade; predominantly
                                          CCC,      speculative with respect to the issuer's
                                          CC, C     capacity to repay interest and repay
                                                    principal in accordance with the terms
                                                    of the obligation for bond issues not in
                                                    default. BB is the least speculative. C
                                                    is the most speculative.
---------------------------------------------------------------------------------------------------


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Year 2000 Processing Issue

Many computer programs use two digits rather than four to identify the year. These programs, if not adapted, will not correctly handle the change from "99" to "00" on January 1, 2000, and will not be able to perform necessary functions. The Year 2000 issue affects virtually all companies and organizations.

T. Rowe Price has implemented steps intended to assure that major computer systems and processes are capable of Year 2000 processing. We are working with third parties to assess the adequacy of their compliance efforts and are developing contingency plans intended to assure that third-party noncompliance will not materially affect T. Rowe Price's operations.

Companies, organizations, governmental entities, and markets in which the T. Rowe Price funds invest will be affected by the Year 2000 issue, but at this time the funds cannot predict the degree of impact. For funds that invest in foreign markets, especially emerging markets, it is possible foreign companies and markets will not be as prepared for Year 2000 as domestic companies and markets. To the extent the effect of Year 2000 is negative, a fund's returns could be reduced.

FINANCIAL HIGHLIGHTS

Table 9, which provides information about each fund's financial history, is based on a single share outstanding throughout each fiscal year. Each fund's section of the table is part of the fund's financial statements, which are included in its annual report and are incorporated by reference into the Statement of Additional Information (available upon request). The total returns in the table represent the

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rate that an investor would have earned or lost on an investment in each fund (assuming reinvestment of all dividends and distributions). The financial statements in the annual report were audited by the funds' independent accountants, PricewaterhouseCoopers LLP.

Table 9  Financial Highlights
                                       Year ended February 28
 Tax-Exempt Money         1995     1996/a/      1997       1998       1999
------------------------------------------------------------------------------------

 Net asset value,
 beginning of period    $   1.00   $   1.00   $   1.00   $   1.00   $   1.00
 Income From Investment Operations
 Net investment income     0.026      0.033      0.030      0.032      0.029
                        -------------------------------------------------------
 Net gains or losses
 on securities (both
 realized and                 --         --         --         --         --
 unrealized)
                        -------------------------------------------------------
 Total from investment
 operations                0.026      0.033      0.030      0.032      0.029
 Less Distributions
 Dividends (from net      (0.026)    (0.033)    (0.030)    (0.032)    (0.029)
 investment income)
                        -------------------------------------------------------
 Distributions (from          --         --         --         --         --
 capital gains)
                        -------------------------------------------------------
 Total distributions      (0.026)    (0.033)    (0.030)    (0.032)    (0.029)
                        -------------------------------------------------------
 Net asset value,       $   1.00   $   1.00   $   1.00   $   1.00   $   1.00
 end of period
                        -------------------------------------------------------
 Total return               2.63%      3.38%      3.05%      3.24%      2.97%
 Ratios/Supplemental Data
 Net assets, end of     $687,022   $679,143   $678,135   $740,757   $710,569
 period (in thousands)
                        -------------------------------------------------------
 Ratio of expenses to       0.58%      0.56%      0.55%      0.52%      0.52%
 average net assets
                        -------------------------------------------------------
 Ratio of net income        2.59%      3.33%      3.00%      3.20%      2.93%
 to average net assets
------------------------------------------------------------------------------------

/a / Year ended February 29.


MORE ABOUT THE FUNDS

Table 9  Financial Highlights (continued)
                                       Year ended February 28
 Tax-Free
 Short-Intermediate       1995     1996/a/      1997       1998       1999
------------------------------------------------------------------------------------

 Net asset value,
 beginning of period    $   5.32   $   5.25   $   5.37   $   5.35   $   5.37
 Income From Investment Operations
 Net investment income      0.22       0.23       0.23       0.22       0.22
                        -------------------------------------------------------
 Net gains or losses
 on securities (both
 realized and              (0.07)      0.12      (0.02)      0.05       0.04
 unrealized)
                        -------------------------------------------------------
 Total from investment
 operations                 0.15       0.35       0.21       0.27       0.26
 Less Distributions
 Dividends (from net       (0.22)     (0.23)     (0.23)     (0.22)     (0.22)
 investment income)
                        -------------------------------------------------------
 Distributions (from          --         --         --      (0.03)     (0.02)
 capital gains)
                        -------------------------------------------------------
 Total distributions       (0.22)     (0.23)     (0.23)     (0.25)     (0.24)
                        -------------------------------------------------------
 Net asset value,       $   5.25   $   5.37   $   5.35   $   5.37   $   5.39
 end of period
                        -------------------------------------------------------
 Total return               2.91%      6.87%      4.02%      5.28%      4.90%
 Ratios/Supplemental Data
 Net assets, end of     $454,084   $445,228   $443,631   $438,951   $459,319
 period (in thousands)
                        -------------------------------------------------------
 Ratio of expenses to       0.59%      0.57%      0.56%      0.54%      0.53%
 average net assets
                        -------------------------------------------------------
 Ratio of net income        4.19%      4.39%      4.30%      4.23%      4.06%
 to average net assets
                        -------------------------------------------------------
 Portfolio turnover         93.1%      69.9%      84.3%      76.8%      39.9%
 rate
-------------------------------------------------------------------------------

/a / Year ended February 29.


T. ROWE PRICE

Table 9  Financial Highlights (continued)
                                              Year ended February 28
 Tax-Free Intermediate Bond
                                1995       1996/a/    1997        1998        1999
--------------------------------------------------------------------------------------------

 Net asset value,
 beginning of period           $ 10.58    $ 10.35    $ 10.84    $  10.80    $  11.06
 Income From Investment Operations
 Net investment income           0.46/b/    0.48/b/    0.48/b/     0.48/b/      0.48
                               --------------------------------------------------------
 Net gains or losses on
 securities (both realized       (0.20)      0.49      (0.04)       0.29        0.10
 and unrealized)
                               --------------------------------------------------------
 Total from investment
 operations                       0.26       0.97       0.44        0.77        0.58
 Less Distributions
 Dividends (from net             (0.46)     (0.48)     (0.48)      (0.48)      (0.48)
 investment income)
                               --------------------------------------------------------
 Distributions (from capital     (0.03)        --         --       (0.03)      (0.03)
 gains)
                               --------------------------------------------------------
 Total distributions             (0.49)     (0.48)     (0.48)      (0.51)      (0.51)
                               --------------------------------------------------------
 Net asset value,              $ 10.35    $ 10.84    $ 10.80    $  11.06    $  11.13
 end of period
                               --------------------------------------------------------
 Total return                     2.65%/b/   9.57%/b/   4.19%/b/    7.31%/b/    5.37%
 Ratios/Supplemental Data
 Net assets, end of period     $83,517    $92,153    $99,176    $108,256    $121,053
 (in thousands)
                               --------------------------------------------------------
 Ratio of expenses to average     0.65%/b/   0.65%/b/   0.65%/b/    0.65%/b/    0.65%
 net assets
                               --------------------------------------------------------
 Ratio of net income to           4.53%/b/   4.52%/b/   4.47%/b/    4.43%/b/    4.35%
 average net assets
                               --------------------------------------------------------
 Portfolio turnover rate         170.8%      63.8%      76.8%       56.1%       24.3%
---------------------------------------------------------------------------------------

/a/ Year ended February 29.

/b/T. Rowe Price voluntarily agreed to bear all expenses of the fund through June 30, 1993. Excludes expenses in excess of a 0.20% voluntary expense limitation in effect July 1, 1993 through July 31, 1993; a 0.30% voluntary expense limitation in effect August 1, 1993 through August 31, 1993; a 0.40% voluntary expense limitation in effect September 1, 1993 through September 30, 1993; a 0.50% voluntary expense limitation in effect October 1, 1993 through February 28, 1994; and a 0.65% voluntary expense limitation in effect March 1, 1994 through February 28, 1998.


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Table 9  Financial Highlights (continued)
                                                   Year ended February 28
 Tax-Free Income                  1995       1996/a/        1997         1998         1999
-----------------------------------------------------------------------------------------------------

 Net asset value,
 beginning of period           $     9.66   $     9.25   $     9.66   $     9.59   $     9.95
 Income From Investment Operations
 Net investment income               0.53         0.52         0.52         0.52         0.50
                               -----------------------------------------------------------------
 Net gains or losses on
 securities (both realized          (0.37)        0.41        (0.07)        0.36         0.03
 and unrealized)
                               -----------------------------------------------------------------
 Total from investment
 operations                          0.16         0.93         0.45         0.88         0.53
 Less Distributions
 Dividends (from net                (0.53)       (0.52)       (0.52)       (0.52)       (0.50)
 investment income)
                               -----------------------------------------------------------------
 Distributions (from capital        (0.04)          --           --           --        (0.04)
 gains)
                               -----------------------------------------------------------------
 Total distributions                (0.57)       (0.52)       (0.52)       (0.52)       (0.54)
                               -----------------------------------------------------------------
 Net asset value,              $     9.25   $     9.66   $     9.59   $     9.95   $     9.94
 end of period
                               -----------------------------------------------------------------
 Total return                        1.90%       10.31%        4.81%        9.37%        5.48%
 Ratios/Supplemental Data
 Net assets, end of period     $1,328,675   $1,375,507   $1,336,626   $1,396,288   $1,483,478
 (in thousands)
                               -----------------------------------------------------------------
 Ratio of expenses to average        0.59%        0.58%        0.57%        0.55%        0.55%
 net assets
                               -----------------------------------------------------------------
 Ratio of net income to              5.80%        5.49%        5.41%        5.31%        5.06%
 average net assets
                               -----------------------------------------------------------------
 Portfolio turnover rate             49.3%        48.7%        40.7%        36.3%        34.1%
------------------------------------------------------------------------------------------------

/a/ Year ended February 29.


T. ROWE PRICE

Table 9  Financial Highlights (continued)
                                                 Year ended February 28
 Tax-Free High Yield             1995     1996/a/       1997         1998         1999
-------------------------------------------------------------------------------------------------

 Net asset value,
 beginning of period           $  12.26   $  11.62   $    12.10   $    12.12   $    12.66
 Income From Investment Operations
 Net investment income             0.73       0.72         0.70         0.69         0.66
                               -------------------------------------------------------------
 Net gains or losses on
 securities (both realized        (0.60)      0.48         0.02         0.54        (0.07)
 and unrealized)
                               -------------------------------------------------------------
 Total from investment
 operations                        0.13       1.20         0.72         1.23         0.59
 Less Distributions
 Dividends (from net              (0.73)     (0.72)       (0.70)       (0.69)       (0.66)
 investment income)
                               -------------------------------------------------------------
 Distributions (from capital      (0.04)        --           --           --        (0.06)
 gains)
                               -------------------------------------------------------------
 Total distributions              (0.77)     (0.72)       (0.70)       (0.69)       (0.72)
                               -------------------------------------------------------------
 Net asset value,              $  11.62   $  12.10   $    12.12   $    12.66   $    12.53
 end of period
                               -------------------------------------------------------------
 Total return                      1.26%     10.62%        6.22%       10.42%        4.80%
 Ratios/Supplemental Data
 Net assets, end of period     $873,546   $989,534   $1,053,106   $1,241,990   $1,357,000
 (in thousands)
                               -------------------------------------------------------------
 Ratio of expenses to average      0.79%      0.75%        0.74%        0.72%        0.71%
 net assets
                               -------------------------------------------------------------
 Ratio of net income to            6.29%      6.07%        5.86%        5.59%        5.28%
 average net assets
                               -------------------------------------------------------------
 Portfolio turnover rate           59.6%      39.3%        37.0%        24.4%        38.9%
--------------------------------------------------------------------------------------------

/a/ Year ended February 29.


INVESTING WITH T. ROWE PRICE
4
ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
Tax Identification Number
We must have your correct Social Security or corporate tax identification number on a signed New Account Form or W-9 Form. Otherwise, federal law requires the funds to withhold a percentage (currently 31%) of your dividends, capital gain distributions, and redemptions, and may subject you to an IRS fine. If this information is not received within 60 days after your account is established, your account may be redeemed, priced at the NAV on the date of redemption.

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

Institutional Accounts
Transaction procedures in the following sections may not apply to institutional accounts. For institutional account procedures, please call your designated account manager or service representative.

OPENING A NEW ACCOUNT

$2,500 minimum initial investment; $1,000 for retirement plans or gifts or transfers to minors (UGMA/UTMA) accounts

Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just like your existing accounts so you can exchange among them easily. (The name and account type would have to be identical.)

By Mail
Please make your check payable to T. Rowe Price Funds (otherwise it will be returned) and send your check, together with the New Account Form, to the appropriate address in the next paragraph. We do not accept third-party checks to open new accounts.

Mail via United States Postal Service
T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21297-1300


T. ROWE PRICE
Mail via private carriers/overnight services T. Rowe Price Account Services 10090 Red Run Blvd. Owings Mills, MD 21117-4842

By Wire
Call Investor Services for an account number and give the following wire information to your bank:

Receiving Bank: PNC Bank, N.A. (Pittsburgh) Receiving Bank ABA#: 043000096 Beneficiary: T. Rowe Price [fund name] Beneficiary Account: 1004397951 Originator to Beneficiary Information (OBI): name of owner(s) and account number

Complete a New Account Form and mail it to one of the appropriate addresses listed below.

Note: No services will be established and IRS penalty withholding may occur until a signed New Account Form is received.

By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see Automated Services under Information About Your Services). The new account will have the same registration as the account from which you are exchanging. Services for the new account may be carried over by telephone request if preauthorized on the existing account. For limitations on exchanging, see explanation of Excessive Trading under Transaction Procedures and Special Requirements.

In Person
Drop off your New Account Form at any location listed on the cover and obtain a receipt.

PURCHASING ADDITIONAL SHARES

$100 minimum purchase; $50 minimum for retirement plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA) accounts.

By ACH Transfer
Use Tele*Access or your personal computer or call Investor Services if you have established electronic transfers using the ACH network.


INVESTING WITH T. ROWE PRICE
By Wire
Call Shareholder Services or use the wire address listed in Opening a New Account.

By Mail
1. Make your check payable to T. Rowe Price Funds (otherwise it may be returned).

2. Mail the check to us at the following address with either a fund reinvestment slip or a note indicating the fund you want to buy and your fund account number.

3. Remember to provide your account number and the fund name on the memo line of your check.

Mail via United States Postal Service
T. Rowe Price Funds Account Services P.O. Box 17300 Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous / /section.)/

By Automatic Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder Services Form.

EXCHANGING AND REDEEMING SHARES

Exchange Service
You can move money from one account to an existing identically registered account or open a new identically registered account. Remember, exchanges are purchases and sales for tax purposes. (Exchanges into a state tax-free fund are limited to investors living in states where the fund is registered.)

Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer to your bank, or wired to your bank (provided your bank information is already on file). For charges, see Electronic Transfers - By Wire under Information About Your Services.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on shares held for less than six months or one year, as specified in the prospectus. The fee is paid to the fund.


T. ROWE PRICE
By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider placing your order by your personal computer, Tele*Access (if you have previously authorized telephone services), mailgram, or express mail. For exchange policies, please see Transaction Procedures and Special Requirements - Excessive Trading.

By Mail
For each account involved, provide the account name, number, fund name, and exchange or redemption amount. For exchanges, be sure to indicate any fund you are exchanging out of and the fund or funds you are exchanging into. T. Rowe Price requires the signatures of all owners exactly as registered, and possibly a signature guarantee (see Transaction Procedures and Special Requirements - Signature Guarantees). Please use the appropriate address below:

Mail via United States Postal Service
T. Rowe Price Account Services P.O. Box 17302 Baltimore, MD 21297-1302

Mailgram, Express, Registered, or Certified Mail T. Rowe Price Account Services 10090 Red Run Boulevard Owings Mills, MD 21117

RIGHTS RESERVED BY THE FUNDS

Each fund and its agents reserve the following rights: (1) to waive or lower investment minimums; (2) to accept initial purchases by telephone or mailgram;
(3) to refuse any purchase or exchange order; (4) to cancel or rescind any purchase or exchange order (including, but not limited to, orders deemed to result in excessive trading, market timing, fraud, or 5% ownership) upon notice to the shareholder within five business days of the trade or if the written confirmation has not been received by the shareholder, whichever is sooner; (5) to freeze any account and suspend account services when notice has been received of a dispute

INVESTING WITH T. ROWE PRICE
between the registered or beneficial account owners or there is reason to believe a fraudulent transaction may occur; (6) to otherwise modify the conditions of purchase and any services at any time; or (7) to act on instructions believed to be genuine. These actions will be taken when, in the sole discretion of management, they are deemed to be in the best interest of the fund.

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

INFORMATION ABOUT YOUR SERVICES

Shareholder Services 1-800-225-5132 Investor Services 1-800-638-5660 Many services are available to you as a T. Rowe Price shareholder; some you receive automatically, and others you must authorize or request on the New Account Form. By signing up for services on the New Account Form rather than later on, you avoid having to complete a separate form and obtain a signature guarantee. This section discusses some of the services currently offered. Our Services Guide, which we mail to all new shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or certified resolution to establish services and to redeem by mail. For more information, call Investor Services.

Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs (profit sharing, money purchase pension), 401(k), and 403(b)(7). For information on IRAs, call Investor Services. For information on all other retirement plans, including our no-load variable annuity, please call our Trust Company at 1-800-492-7670.


T. ROWE PRICE
Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days Tele*Access
24-hour service via toll-free number enables you to (1) access information on fund yields, prices, distributions, account balances, and your latest transaction; (2) request checks, prospectuses, services forms, duplicate statements, and tax forms; and (3) initiate purchase, redemption, and exchange transactions in your accounts (see Electronic Transfers in this section).

Web Address www.troweprice.com
After obtaining proper authorization, account transactions may also be conducted through our Web site on the Internet. If you subscribe to America Online/(R)/, you can access our Web site via keyword "T. Rowe Price" and conduct transactions in your account.

Plan Account Line 1-800-401-3279
Plan Account Line
This 24-hour service is similar to Tele*Access but is designed specifically to meet the needs of retirement plan investors.

Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service representatives or by visiting one of our investor center locations whose addresses are listed on the back cover.

Electronic Transfers
By ACH
With no charges to pay, you can initiate a purchase or redemption for as little as $100 or as much as $100,000 between your bank account and fund account using the ACH network. Enter instructions via Tele*Access or your personal computer, or call Shareholder Services.

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

Checkwriting
(Not available for equity funds, or the High Yield or Emerging Markets Bond Funds) You may write an unlimited number of free checks on any money market fund, and most bond funds, with a minimum of $500 per check. Keep in mind, however, that a check results in a redemption; a check written on a bond fund will create a taxable event which you and we must report to the IRS.


INVESTING WITH T. ROWE PRICE
Automatic Investing
($50 minimum) You can invest automatically in several different ways, including:

Automatic Asset Builder
You instruct us to move $50 or more from your bank account, or you can instruct your employer to send all or a portion of your paycheck to the fund or funds you designate.

Automatic Exchange
You can set up systematic investments from one fund account into another, such as from a money fund into a stock fund.

T. ROWE PRICE BROKERAGE

To open an account 1-800-638-5660 For existing brokerage investors 1-800-225-7720
This service gives you the opportunity to consolidate all of your investments with one company. Investments available through our brokerage service include stocks, options, bonds, and others at commission savings over full-service brokers. We also provide a wide range of services, including:

Automated telephone and computer services You can enter stock and option orders, access quotes, and review account information around the clock by phone with Tele-Trader or via the Internet with Internet-Trader. Any trades executed through Tele-Trader save you an additional 10% on commissions. You will save 20% on commissions for stock trades and 10% on option trades when you use Internet-Trader. All trades are subject to a $35 minimum commission except stock trades placed through Internet-Trader, which are subject to a $29.95 minimum commission.

Investor information
A variety of informative reports, such as our Brokerage Insights series and S&P Market Month newsletter, as well as access to on-line research tools can help you better evaluate economic trends and investment opportunities.


T. ROWE PRICE
Dividend Reinvestment Service
Virtually all stocks held in customer accounts are eligible for this free service.

/T. Rowe Price// Brokerage is a division of T. Rowe Price Investment / /Services, Inc., Member NASD/SIPC./

INVESTMENT INFORMATION

To help shareholders monitor their current investments and make decisions that accurately reflect their financial goals, T. Rowe Price offers a wide variety of information in addition to account statements. Most of this information is also available on our Web site at www.troweprice.com.

Shareholder Reports
Fund managers' reviews of their strategies and performance. If several members of a household own the same fund, only one fund report is mailed to that address. To receive additional copies, please call Shareholder Services or write to us at 100 East Pratt Street, Baltimore, Maryland 21202.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies.

Performance Update
A quarterly review of all T. Rowe Price fund results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides
Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe Price Guide to International Investing, Managing Your Retirement Distribution, Personal Strategy Planner, Retirees Financial Guide, Retirement Planning Kit, and Tax Considerations for Investors.


To help you achieve your financial goals, T. Rowe Price offers a wide range of stock, bond, and money market investments, as well as convenient services and informative reports.
For Mutual Fund or T. Rowe Price Brokerage Information Investor Services
1-800-638-5660

For Existing Accounts
Shareholder Services
1-800-225-5132

For Yields, Prices, Account Information, or to Conduct Transactions Tele*Access/(R)/
24 hours, 7 days 1-800-638-2587

Internet Address
www.troweprice.com

Headquarters
100 East Pratt St. Baltimore, MD 21202
Walk-in
Investor Centers
101 East Lombard St. Baltimore, MD 21202

T. Rowe Price Financial Center 10090 Red Run Blvd. Owings Mills, MD 21117

Farragut Square 900 17th Street, N.W. Washington, D.C. 20006

Warner Center, Plaza 5 21800 Oxnard Street Suite 270 Woodland Hills, CA 91367

4200 West Cypress St. 10th Floor Tampa, FL 33607

4410 Arrows West Drive Colorado Springs, CO 80907 A Statement of Additional Information about the fund has been filed with the Securities and Exchange Commission and is incorporated by reference into this prospectus. Further information about the fund's investments, including a review of market conditions and the manager's recent strategies and their impact on performance, is available in the annual and semiannual shareholder reports. To obtain free copies of any of these documents, or for shareholder inquiries, call 1-800-638-5660.

Fund reports and Statements of Additional Information are also available from the Securities and Exchange Commission by calling 1-800-SEC-0330 or by writing the SEC's Public Reference Section, Washington, D.C. 20549-6009 (you will be charged a duplicating fee); by visiting the SEC's public reference room; or by consulting the SEC's Web site at www.sec.gov.
1940 Act File No. 811-3055; 811-4163; 811-2684; 811-7051; 811-3872
LOGO
C03-040 7/1/99


PROSPECTUS

July 1, 1999
T. Rowe PriceTax-Exempt MoneyFund--PLUS Class

A money market fund seeking preservation of capital and liquidity, as well as income. The PLUS class of shares offers unlimited no-minimum checkwriting and a VISA/(R)/ Gold ATM & Check Card.
The Securities and Exchange Commission has not approved or disapproved of these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

T. ROWE PRICE RAM LOGO


T. Rowe Price Tax-Exempt Money Fund--PLUS Class Prospectus

July 1, 1999

              ABOUT THE FUND
1
              Objective, Strategy, Risks, and Expenses

              -----------------------------------------------
              Other Information About the Fund

              -----------------------------------------------
              Some Basics of Money Market Investing

              -----------------------------------------------


              ABOUT YOUR ACCOUNT
2
              The
              T. Rowe Price

              Tax-Exempt Money Fund
              PLUS--Class
              -----------------------------------------------
              Important Information About Your ATM
              & Check Card
              -----------------------------------------------
              Pricing Shares and Receiving
              Sale Proceeds
              -----------------------------------------------
              Distributions and Taxes

              -----------------------------------------------
              Transaction Procedures and
              Special Requirements
              -----------------------------------------------


              MORE ABOUT THE FUND
3
              Organization and Management

              -----------------------------------------------
              Understanding Performance Information

              -----------------------------------------------
              Investment Policies and Practices

              -----------------------------------------------
              Financial Highlights

              -----------------------------------------------


              INVESTING WITH T. ROWE PRICE
4
              Account Requirements
              and Transaction Information
              -----------------------------------------------
              Opening a New Account

              -----------------------------------------------
              Purchasing Additional Shares

              -----------------------------------------------
              Exchanging and Redeeming

              -----------------------------------------------
              Rights Reserved by the Fund

              -----------------------------------------------
              Information About Your Services

              -----------------------------------------------
              Investment Information

              -----------------------------------------------

Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates, Inc., and its affiliates managed $147.8 billion, including over $7.1 billion in municipal bond assets, for more than seven million individual and institutional investor accounts as of March 31, 1999.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any depository institution. Shares are not insured by the FDIC, Federal Reserve, or any other government agency, and are subject to investment risks, including possible loss of the principal amount invested.


ABOUT THE FUND

1

A Word About the Fund's Name and Structure. The Tax-Exempt Money Fund - PLUS Class is a share class of the T. Rowe Price Tax-Exempt Money Fund. The PLUS class is not a separate mutual fund; it has the same portfolio as the Tax-Exempt Money Fund, but carries a different set of services (such as unlimited, no-minimum checkwriting and a VISA Gold ATM & Check Card) and different expenses, as discussed later in this prospectus.

OBJECTIVE, STRATEGY, RISKS, AND EXPENSES

What is the fund's objective?

The fund's goals are preservation of capital, liquidity, and, consistent with these, the highest possible current income exempt from federal income taxes.

What is the fund's principal investment strategy?

The fund provides a stable share price of $1.00 and income that is exempt from federal income taxes. Holdings consist of high-quality, municipal money market securities.

The fund's average weighted maturity will not exceed 90 days, and yield will fluctuate with changes in short-term interest rates. In selecting securities, fund managers may examine the relationships among yields on various types and maturities of money market securities in the context of their outlook for interest rates. If rates are expected to fall, longer maturities may be purchased, which typically have higher yields than shorter maturities, to try to preserve the fund's income level. Conversely, shorter maturities may be favored if rates are expected to rise.

What are the main risks of investing in the fund?

Since the fund maintains a $1.00 share price, money market funds should have little risk of principal loss. However, there is no assurance the fund will avoid principal losses in the rare event that holdings default or interest rates rise sharply in an unusually short period. Because they are exempt from federal income tax, municipal securities held by the fund are also subject to the risk that a significant decline in tax rates, a restructuring of the tax system, or even serious discussion of these topics in Congress, could cause their prices to fall. There is also geographic risk since adverse developments in a particular state could result in price declines.


T. ROWE PRICE 2
The fund's yield will vary; it is not fixed for a specific period like the yield on a bank certificate of deposit. This should be an advantage when interest rates are rising but not when rates are falling. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Additionally, there is no guarantee that the fund's returns will equal or exceed the rate of inflation.

As with any mutual fund, there can be no guarantee the fund will achieve its objective.

How can I tell if the fund is appropriate for me?

Tax-Exempt Money PLUS is a class of shares of the Tax-Exempt Money Fund. Like that fund, this class is appropriate if you have some money for which safety and accessibility are more important than total return. Over time, money market securities have shown greater stability and lower returns than bonds or stocks.

Tax-Exempt Money PLUS offers services that include unlimited, no-minimum checkwriting and a VISA Gold ATM & Check Card. The cost of these services will raise the expense ratio of the PLUS class above that of a typical money fund that does not offer these expanded features.

. Tax-Exempt Money PLUS is one share class of the T. Rowe Price Tax-Exempt Money Fund.

How has the fund performed in the past?

Tax-Exempt Money PLUS began operations on October 31, 1998, and therefore has a limited performance history. As a point of comparison, however, the following bar chart and table show 10 calendar years of returns for the Tax-Exempt Money Fund, which has the same management program and investment portfolio. (Note that prior to the inception of Tax-Exempt Money PLUS, Tax-Exempt Money Fund had no share classes.)

Because Tax-Exempt Money PLUS has higher expenses than the Tax-Exempt Money Fund, its performance, had it existed over this period, would have been lower than what is shown. Nevertheless, the bar chart and table indicate risk by showing how much returns can differ over time. Of course, past performance is no guarantee of future returns.

The fund can also experience short-term performance swings, as shown by the best and worst calendar quarter returns accompanying the following chart. The returns are only for the years depicted in the chart.


ABOUT THE FUND 3

 INSERT BAR
CHART HERE
  Calendar Year Total Returns
 -------------------------------
  1989               5.93%
  1990               5.38
  1991               3.89
  1992               2.53
  1993               2.01
  1994               2.46
  1995               3.40
  1996               3.05
  1997               3.24
  1998               3.08
 -------------------------------

         Quarter ended              Total return

Best quarter                          6/30/1989 1.58%

Worst quarter                         3/31/1993 0.45%

Table 1  Average Annual Total Returns
                                        Periods ended December 31, 1998
                                         1 year     5 years    10 years

 Fund                                     3.08%      3.05%      4.39%
                                        ----------------------------------
                                          2.92       2.93       4.33
                                                                          -----
                                          3.04       3.06       --
-------------------------------------------------------------------------------

These figures include changes in principal value, reinvested dividends, and capital gain distributions, if any. The money fund's $1.00 share price is not guaranteed.

What fees or expenses will I pay?

The fund is 100% no load. There are no fees or charges to buy or sell fund shares, reinvest dividends, or exchange into other T. Rowe Price funds. There are no 12b-1 fees.

The PLUS class charges you for use of your VISA Gold ATM & Check Card. You will be charged $1 for each automated teller machine (ATM) withdrawal using the card; this fee is waived for the first two such transactions in each month. This fee does not include any third-party fees charged at the ATM machine.


T. ROWE PRICE 4

Table 2  Fees and Expenses of the Fund
                                              Annual fund operating expenses
                                       (expenses that are deducted from fund assets)
-------------------------------------------------------------------------------------
 Management fee                                           0.42%/a/
 Other expenses                                           0.72%
 Total annual fund operating
 expenses                                                 1.14%/a/
 Fee waiver/reimbursement                                 0.14%
 Net expenses                                             1.00%
-------------------------------------------------------------------------------------

/a/
To limit the fund's expenses during its initial period of operations, T. Rowe Price agreed to bear any expenses through April 30, 1999, to the extent such expenses would cause the ratio of expenses to average net assets to exceed 1.00%. Effective May 1, 1999, T. Rowe Price agreed to extend this expense limitation for a period of one year through April 30, 2000. Fees waived or expenses paid or assumed under these agreements are subject to reimbursement to T. Rowe Price by the fund whenever the fund's expense ratio is below 1.00%; however, no reimbursement will be made after April 30, 2000 (for the first agreement), or April 30, 2002 (for the second agreement), or if it would result in the expense ratio exceeding 1.00%. Any amounts reimbursed will have the effect of increasing fees otherwise paid by the fund.

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

  1 year       3 years      5 years     10 years

   $102           $            $          $1374
                 348          614
----------------------------------------------------

OTHER INFORMATION ABOUT THE FUND

What are some of the advantages of the Tax-Exempt Money PLUS class?

A Tax-Exempt Money PLUS account offers convenient access to your assets through unlimited, no-minimum checkwriting and the use of a VISA Gold ATM & Check Card. These services are discussed in more detail in Section 2 of this prospectus.

What are the fund's potential rewards?

The fund offers a relatively secure, liquid investment for money you may need for occasional or unexpected expenses and for money awaiting investment in longer-term bond or stock funds. In addition to preserving capital, the fund seeks to provide the highest possible income available from low-risk, short-term securities. Tax-Exempt Money PLUS also offers unlimited, no-minimum checkwriting and the use of a VISA Gold ATM & Check Card.


ABOUT THE FUND 5
How does the portfolio manager try to reduce risk?

Consistent with the fund's objective, the portfolio manager uses various tools to try to reduce risk and increase total return, including:

. Diversification of assets to reduce the impact of a single holding on the fund's net asset value.

. Thorough credit research by our own analysts.

. Maturity adjustments to reflect the fund manager's interest rate outlook.

What is a money market fund?

A money market fund is a pool of assets invested in U.S. dollar-denominated, short-term debt obligations with fixed or floating rates of interest and maturities generally less than 13 months. Issuers can include the U.S. government and its agencies, domestic and foreign banks and other corporations, and municipalities. Money funds can be taxable or tax-exempt, depending on their investment program. Because of the high degree of safety they provide, money market funds typically offer the lowest return potential of any type of mutual fund.

What are the main risks of investing in money market funds?

Since they are managed to maintain a $1.00 share price, money market funds should have little risk of principal loss. However, the potential for realizing a loss of principal in fund could derive from:

. Credit risk This is the chance that any of the fund's holdings will have its credit rating downgraded or will default (fail to make scheduled interest or principal payments), potentially reducing the fund's income level and share price. Regulations require that 95% of the holdings in money market funds be rated in the highest credit category (e.g., A-1 or A-1+) and that the remaining 5% be rated no lower than the second highest credit category (e.g., A-2).

. Interest rate or market risk This risk refers to the decline in the prices of fixed income securities and funds that may accompany a rise in the overall level of interest rates. A sharp and unexpected rise in interest rates could cause a money fund's price to drop below a dollar. However, the extremely short maturity of securities held in money market portfolios -a means of achieving an overall fund objective of principal safety-reduces their potential for price fluctuation.

What are the main types of money market securities the fund can invest in?

. Commercial paper Unsecured promissory notes that corporations typically issue to finance current operations and other expenditures.

. Treasury bills Debt obligations sold at discount and repaid at face value by the U.S. Treasury. Bills mature in one year or less and are backed by the full faith and credit of the U.S. government.


T. ROWE PRICE 6
. Certificates of deposit Receipts for funds deposited at banks that guarantee a fixed interest rate over a specified time period.

. Repurchase agreements Contracts, usually involving U.S. government securities, that require one party to repurchase securities at a fixed price on a designated date.

. Banker's acceptances Bank-issued commitments to pay for merchandise sold in the import/export market.

. Agency notes Debt obligations of agencies sponsored by the U.S. government that are not backed by the full faith and credit of the United States.

. Medium-term notes Unsecured corporate debt obligations that are continuously offered in a broad range of maturities and structures.

. Bank notes Unsecured obligations of a bank that rank on an equal basis with other kinds of deposits but do not carry FDIC insurance.

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

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

Some characteristics of municipal securities

Who issues municipal securities?

State and local governments and governmental authorities sell notes and bonds (usually called "municipals") to pay for public projects and services.

Who buys municipal securities?

Individuals are the primary investors, and a principal way they invest is through mutual funds. Prices of municipals may be affected by major changes in cash flows of money into or out of municipal funds. For example, substantial and sustained redemptions from municipal bond funds could result in lower prices for these securities.

What is tax-free about municipal bonds and bond funds?

The regular income dividends you receive from the fund should be exempt from regular federal income taxes. These dividends may also be exempt from your state's income tax (if any). However, capital gains distributed by the funds are taxable to you. (See Useful Information on Distributions and Taxes for details.)

. Municipal securities are also called "tax-exempts" because the interest income they provide is usually exempt from federal income taxes.


ABOUT THE FUND 7
Is interest income from municipal issues always exempt from federal taxes?

No. Since 1986 income from so-called "private activity" municipals has been subject to the federal alternative minimum tax (AMT). For instance, some bonds financing airports, stadiums, and student loan programs fall into this category. These bonds carry higher yields than regular municipals. Shareholders subject to the AMT must include income derived from private activity bonds in their AMT calculation. Relatively few taxpayers are required to pay the tax. The portion of income subject to the AMT will be reported annually to shareholders. (Please see Distributions and Taxes - Taxes on Fund Distributions.)

Additionally, under highly unusual circumstances, the IRS may determine that a bond issued as tax-exempt should in fact be taxable. If a fund were to hold such a bond, the fund could have to distribute taxable income or reclassify as taxable income that previously distributed as tax-free.

Why are yields on municipals usually below those on otherwise comparable taxable securities?

Since the income provided by most municipals is exempt from federal taxation, investors are willing to accept lower yields on a municipal bond than on an otherwise similar (in quality and maturity) taxable bond.

How can I tell if a tax-free or taxable fund is suitable for me?

The primary factor is your expected federal income tax rate. The higher your tax bracket, the more likely tax-exempts will be appropriate. If a municipal fund's tax-exempt yield is higher than the after-tax yield on a taxable bond or money fund, then your income will be higher in the municipal fund. To find what a taxable fund would have to yield to equal the yield on a municipal fund, divide the municipal fund's yield by one minus your tax rate.

SOME BASICS OF MONEY MARKET INVESTING

Is a fund's yield fixed or will it vary?

It will vary. Yield is calculated every day by dividing the fund's net income per share, expressed at annual rates, by the share price. Since income in the fund will fluctuate as the short-term securities in its portfolio mature and the proceeds are reinvested, its yield will vary.


T. ROWE PRICE 8
Is yield the same as total return?

Yes. The total return reported for the fund is the result of reinvested distributions (income and capital gains) and the change in share price for a given time period. Since money funds are managed to maintain a stable share price, their yield and total return should be the same. Of course, there is no guarantee a money fund will maintain a $1.00 share price.

What is credit quality and how does it affect yield?

Credit quality refers to a borrower's expected ability to make all required interest and principal payments in a timely manner. Because highly rated issuers represent less risk, they can borrow at lower interest rates than less creditworthy issuers. Securities backed by the full faith and credit of the U.S. government are regarded as free of credit risk. Among money market securities, Treasury bills generally carry lower yields than other instruments of comparable maturity.

What is meant by a money market fund's maturity?

Every money market instrument has a stated maturity date when the issuer must repay the entire principal to the investor. The fund has no maturity in the strict sense of the word, but does have a dollar-weighted average maturity, expressed in days. This number is an average of the maturities of the underlying instruments, with each maturity "weighted" by the percentage of fund assets it represents.

Do money market securities react to changes in interest rates?

Yes. As interest rates change, the prices of money market securities fluctuate, but changes are usually small because of their very short maturities. Investments are typically held until maturity in a money fund to help the fund maintain a $1.00 share price.

. An investment in the fund should help you meet your individual investment goals for principal stability, liquidity, and income, but it should not represent your complete investment program.


ABOUT YOUR ACCOUNT
2
THE T. ROWE PRICE TAX-EXEMPT MONEY FUND

Tax-Exempt Money PLUS offers features not normally available from other mutual funds. Subject to T. Rowe Price approval, including a credit review, you may access your account as follows:

. Checkwriting You can write an unlimited number of checks against your account to meet personal expenses. There is no minimum amount requirement for the checks you write.

. VISA Gold ATM & Check Card You may use your ATM & Check Card to purchase merchandise or services at participating establishments or to obtain cash advances from any participating bank. Any of 362,000 worldwide bank branches in the VISA system, as well as all establishments accepting the VISA card, will honor your card. Presently, more than 12 million stores, restaurants, and service outlets worldwide honor the VISA card. You may also obtain cash using your card and personal identification number (PIN) from ATMs displaying the VISA or Plus System/(R)/ name and logos.

IMPORTANT INFORMATION ABOUT YOUR ATM & CHECK CARD

If you lose your ATM & Check Card or PIN, or believe someone has used or may use your card or PIN without your permission, immediately notify T. Rowe Price in one of the following ways:

. By telephone T. Rowe Price 1-800-222-7002

. By mail T. Rowe Price Services P.O. Box 17406 Baltimore, MD 21297-1406

Some of the major features of the account are described in the next table. See the VISA /(R)/ Gold ATM & Check Card Agreement and Disclosure Statement included with your card for complete details. Use of the card is subject to the terms and conditions set forth in this Agreement and Disclosure Statement.

Your card may be subject to certain fees and daily transactions limits, some of which are summarized in the following table. Most daily limits are imposed for the duration of a "banking day," which can differ depending on the type of transaction.


T. ROWE PRICE 10

Table 3  Fees and Limits on Your ATM & Check Card
                                                      Transaction Fees /a/                     Transaction Limits /b/

-------------------------------------------------                                    Dollar amount per day          Banking day
                                                 ----------------------------------------------------------------------------------
 ATM withdrawals                                                                  $500                            12 a.m. to 12
                                                  $1 (waived for first two ATM                                    a.m. ET,
                                                  withdrawals per month)                                          7 days per week
 Cash advances                                    None                           $10,000   (less amount of ATM    6 a.m. to 6 a.m.
                                                                                           withdrawals and        ET,
                                                                                           purchases and          5 days a week/c/
                                                                                           authorizations)
 Purchases and authorizations                     None                           $10,000   (less amount of cash   6 a.m. to 6 a.m.
                                                                                           advances and ATM       ET,
                                                                                           withdrawals)           5 days a week/c/
-----------------------------------------------------------------------------------------------------------------------------------

/a/
The fees listed in the table only include fees that are charged by the fund and do not include fees that may be charged by third parties.

/b/
We reserve the right to impose a limit on the number of transactions you can make per banking day. You will be allowed to make at least eight transactions on any banking day under normal conditions. The system that processes these transactions may have different limits.

/c/
The period from 6 a.m. Saturday to 6 a.m. Tuesday eastern time is considered to be one banking day.

Additional fees
There is a $15 check reorder fee after you use the initial booklet of 100 checks. You will receive 200 checks with each reorder. If you request a copy of a check, an ATM receipt, or a sales/cash advance receipt from T. Rowe Price, your account may be charged $2.50 for each receipt or copy. We will assess your account $10 for the proper placement of each stop-payment request on a check (stop payment is not available on the ATM & Check Card transactions). We will assess your account a $15 fee when you write a check against insufficient or uncollected funds, whether we (in our sole discretion) pay the check or return it unpaid. We also reserve the right to charge additional fees for excessive checkwriting activity.

Liability for unauthorized electronic transactions Notify us at once if you believe your card has been lost or stolen or if you believe unauthorized persons may know your PIN. Telephoning is the best way of keeping your possible losses to a minimum. You could lose all the money and other assets in your account if you never inform us of unauthorized use of your card. If you notify us within two business days after you learn of the loss or theft, you can lose no more than $50 if someone used your card or PIN without your permission.

If you do not inform us within two business days after you learn of the loss or theft of your card or PIN and we could have stopped someone from using your card or PIN without your permission, you could lose as much as $500.


ABOUT YOUR ACCOUNT 11
Also, tell us at once if your monthly account statement shows transactions you did not make. If you do not notify us within 60 days after the account statement was mailed to you, you may not recover any money you lost after 60 days if we could have prevented the unauthorized use.

In case of errors or questions about your electronic transactions

Notify us as soon as you can, as follows, if you think your account statement or receipt is wrong or if you need additional information about a transaction listed on your account statement or receipt.

. By telephone T. Rowe Price 1-800-222-7002

. By mail T. Rowe Price Services P.O. Box 17406 Baltimore, MD 21297-1406

We must hear from you no later than 60 days after T. Rowe Price sent the first monthly account statement on which the problem or error appeared.

You must give us the following information:

. Your name, address, and card number.

. A description of the error or the transaction you are unsure about, and an explanation of why you believe it is in error or why you need more information.

. The dollar amount of the suspected error.

If you telephone us, we may require that you send us your question or complaint in writing within 10 business days.

Except as otherwise stated below, we will tell you the results of our investigation within 10 business days after we hear from you and will correct any error promptly. If we need more time, however, we may take up to 45 days to investigate your complaint or question. If we decide to do this, T. Rowe Price will recredit your account within 10 business days for the amount you think is in error while our investigation is pending. If we ask you to put your complaint or question in writing and we do not receive it within 10 business days, T. Rowe Price may not recredit your account.

For transactions performed by you for the purchase of goods and services with your card at merchant locations, through the mail or by telephone, and any electronic transactions performed at locations outside the United States, we will tell you the results of our investigation within 20 business days after we hear from you and will correct any error promptly. If we need more time, however, we may take up to 90 business days to investigate your complaints or questions.


T. ROWE PRICE 12
If we decide to do this, T. Rowe Price will recredit your account within 20 business days for the amount you think is in error while our investigation is pending.

If we determine that there was no error, we will send you a written explanation within three business days after we finish our investigation and will collect any amounts recredited to you. Upon your request we will give you copies of the documents that we used in our investigation.

PRICING SHARES AND RECEIVING SALE PROCEEDS

Here are some procedures you should know when investing in a T. Rowe Price fund.

How and when shares are priced

The share price (also called "net asset value" or NAV per share) for each class of shares is calculated at the close of the New York Stock Exchange, normally 4 p.m. ET, each day the New York Stock Exchange is open for business. To calculate the NAV, the fund's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. Amortized cost is used to value money fund securities.

. The various ways you can buy, sell, and exchange shares are explained at the end of this prospectus and on the New Account Form. These procedures may differ for institutional accounts.

How your purchase, sale, or exchange price is determined

If we receive your request in correct form by 4 p.m. ET, your transaction will be priced at that day's NAV. If we receive it after 4 p.m., it will be priced at the next business day's NAV.

We cannot accept orders that request a particular day or price for your transaction or any other special conditions.

Note: The time at which transactions and shares are priced and the time until which orders are accepted may be changed in case of an emergency or if the New York Stock Exchange closes at a time other than 4 p.m. ET.

How you can receive the proceeds from a sale

. When filling out the New Account Form, you may wish to give yourself the widest range of options for receiving proceeds from a sale.

If your request is received by 4 p.m. ET in correct form, proceeds are usually sent on the next business day. Proceeds can be sent to you by mail or to your bank account by Automated Clearing House (ACH) transfer or bank wire. Proceeds sent by ACH transfer should be credited the second day after the sale. ACH is an


ABOUT YOUR ACCOUNT 13
automated method of initiating payments from, and receiving payments in, your financial institution account. The ACH system is supported by over 20,000 banks, savings banks, and credit unions. Proceeds sent by bank wire should be credited to your account the next business day.

. Exception: Under certain circumstances and when deemed to be in the fund's best interests, your proceeds may not be sent for up to seven calendar days after we receive your redemption request.

. If for some reason we cannot accept your request to sell shares, we will contact you.

USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES

. All net investment income and realized capital gains are distributed to shareholders.

Dividends and Other Distributions

Dividend and capital gain distributions are reinvested in additional fund shares in your account unless you select another option on your New Account Form. The advantage of reinvesting distributions arises from compounding; that is, you receive income dividends and capital gain distributions on a rising number of shares.

Distributions not reinvested are paid by check or transmitted to your bank account via ACH. If the Post Office cannot deliver your check, or if your check remains uncashed for six months, the fund reserves the right to reinvest your distribution check in your account at the NAV on the business day of the reinvestment and to reinvest all subsequent distributions in shares of the fund. No interest will accrue on amounts represented by uncashed distribution or redemption checks.

Income dividends
. Money funds declare income dividends daily to shareholders of record as of 12 noon ET on that day. Wire purchase orders received before 12 noon ET receive the dividend for that day. Other purchase orders receive the dividend on the next business day after payment has been received.

. Dividends are paid on the first business day of each month.

. Fund shares will earn dividends through the date of redemption; also, shares redeemed on a Friday or prior to a holiday will continue to earn dividends until the next business day. Generally, if you redeem all of your shares at any time during the month, you will also receive all dividends earned through the date of redemption in the same check. When you redeem only a portion of your shares,


T. ROWE PRICE 14
all dividends accrued on those shares will be reinvested, or paid in cash, on the next dividend payment date.

Capital gains
. Since money funds are managed to maintain a constant share price, they are not expected to make capital gain distributions.

. A capital gain or loss is the difference between the purchase and sale price of a security.

. If a fund has net capital gains for the year (after subtracting any capital losses), they are usually declared and paid in December to shareholders of record on a specified date that month.

Tax Information

. You will be sent timely information for your tax filing needs.

Although the regular monthly income dividends you receive from the fund are expected to be exempt from federal income taxes, you need to be aware of the possible tax consequences when:

. You sell fund shares, including an exchange from one fund to another.

. The fund makes a distribution to your account.

Note: You must report your total tax-exempt income on IRS Form 1040. The IRS uses this information to help determine the tax status of any Social Security payments you may have received during the year. For shareholders who receive Social Security benefits, the receipt of tax-exempt interest may increase the portion of benefits that are subject to tax.

If a fund invests in certain "private activity" bonds, shareholders who are subject to the alternative minimum tax (AMT) must include income generated by these bonds in their AMT computation. The portion of your fund's income that should be included in your AMT calculation, if any, will be reported to you in January. If distributions arising from transactions in foreign currencies or securities reduce a fund's net income, a portion of its dividends may be classified as a return of capital. Tax treatment of distributions is explained in year-end tax information we send.

Taxes on fund redemptions
When you sell shares in any fund, you may realize a gain or loss. An exchange from one fund to another is still a sale for tax purposes. If you realize a loss on the sale or exchange of fund shares held six months or less, your capital loss is reduced by the tax-exempt dividends received on those shares.


ABOUT YOUR ACCOUNT 15
In January, you will be sent Form 1099-B indicating the date and amount of each sale you made in the fund during the prior year. This information will also be reported to the IRS. For most new accounts or those opened by exchange in 1984 or later, we will provide the gain or loss on the shares you sold during the year, based on the "average cost," single category method. This information is not reported to the IRS, and you do not have to use it. You may calculate the cost basis using other methods acceptable to the IRS, such as "specific identification."

To help you maintain accurate records, we send you a confirmation immediately following each transaction you make (except for systematic purchases and redemptions) and a year-end statement detailing all your transactions in each fund account during the year.

Taxes on fund distributions
In January, you will be sent Form 1099-DIV indicating the tax status of any capital gain distributions made to you. This information will also be reported to the IRS. A fund's capital gain distributions are generally taxable to you for the year in which they were paid. Dividends are expected to be tax-exempt.

The tax treatment of a capital gain distribution is determined by how long the fund held the portfolio securities, not how long you held shares in the fund. Short-term (one year or less) capital gain distributions are taxable at the same rate as ordinary income and long-term gains on securities held more than 12 months are taxed at a maximum rate of 20%. If you realized a loss on the sale or exchange of fund shares that you held six months or less, your short-term loss will be reclassified to a long-term loss to the extent of any long-term capital gain distribution received during the period you held the shares.

. Distributions are taxable whether reinvested in additional shares or received in cash.

Tax effect of buying shares before a capital gain distribution If you buy shares shortly before or on the "record date" - the date that establishes you as the person to receive the upcoming distribution - you will receive a portion of the money you just invested in the form of a taxable distribution. Therefore, you may wish to find out a fund's record date before investing. Of course, a fund's share price may, at any time, reflect undistributed capital gains or income and unrealized appreciation, which may result in future taxable distributions.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS

. Following these procedures helps assure timely and accurate transactions.

T. ROWE PRICE 16
Purchase Conditions

Nonpayment
If your payment is not received or you pay with a check or ACH transfer that does not clear, your purchase will be canceled. You will be responsible for any losses or expenses incurred by the fund or transfer agent, and the fund can redeem shares you own in this or another identically registered T. Rowe Price fund as reimbursement. The fund and its agents have the right to reject or cancel any purchase, exchange, or redemption due to nonpayment.

U.S. dollars
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S. banks. The fund does not accept purchases made by credit card check.

Sale (Redemption) Conditions

Holds on immediate redemptions
If you sell shares that you just purchased and paid for by check or ACH transfer, the fund will process your redemption but will generally delay sending you the proceeds for up to 10 calendar days to allow the check or transfer to clear. If your redemption request was sent by mail or mailgram, proceeds will be mailed no later than the seventh calendar day following receipt unless the check or ACH transfer has not cleared. If, during the clearing period, we receive a check drawn against your bond or money market account, it will be returned marked "uncollected." (The 10-day hold does not apply to the following: purchases paid for by bank wire; cashier's, certified, or treasurer's checks; or automatic purchases through your paycheck.)

Your redemption proceeds may also be delayed if there are outstanding authorizations on your ATM & Check Card. If you sell shares and there are authorizations pending, the fund will process your redemption, but may hold redemption proceeds up to five business days to allow time for the pending transactions to clear.

We will redeem shares from your account to cover transactions in the following order:

. ATM & Check Card transactions (including ATM withdrawals, merchandise purchases, and cash advances);

. ACH transfers;

. checkwriting;

. all other redemption requests (including exchanges, sweeps to a discount brokerage account, outgoing wires, and redemption checks).


ABOUT YOUR ACCOUNT 17
Telephone, touch-tone telephone servicing, and personal computer transactions Exchange and redemption services through telephone and touch-tone telephone servicing are established automatically when you sign the New Account Form unless you check the box that states you do not want these services. Personal computer transactions must be authorized separately. T. Rowe Price funds and their agents use reasonable procedures (including shareholder identity verification) to confirm that instructions given by telephone are genuine and they are not liable for acting on these instructions. If these procedures are not followed, it is the opinion of certain regulatory agencies that the funds and their agents may be liable for any losses that may result from acting on the instructions given. A confirmation is sent promptly after a transaction. All telephone conversations are recorded.

ATM & Check Card transactions
. Use of your card results in an immediate reduction of your available balance. Your available balance is the dollar value of your PLUS account excluding any amounts subject to the seven business day hold or that have otherwise been placed on hold to ensure payments of ATM withdrawals, cash advances, purchases, other transactions, or authorizations.

. You cannot stop payment on any ATM & Check Card transaction.

. Purchase authorizations will reduce your balance even if the authorization is pending and has not yet resulted in a transaction.

. Transactions using the ATM & Check Card may not exceed your available balance.

Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability to implement a fund's investment strategy by causing the premature sale of securities that would otherwise be held. If, in any 90-day period, you redeem (sell) more than $250,000, or your sale amounts to more than 1% of fund net assets, the fund has the right to pay the difference between the redemption amount and the lesser of the two previously mentioned figures with securities from the fund.

Excessive Trading

. T. Rowe Price may bar excessive traders from purchasing shares.

Frequent trades, involving either substantial fund assets or a substantial portion of your account or accounts controlled by you, can disrupt management of the fund and raise its expenses. To deter such activity, the fund has adopted an excessive trading policy. If you violate our excessive trading policy, you may be barred indefinitely and without further notice from further purchases of T. Rowe Price funds.


T. ROWE PRICE 18
. Trades placed directly with T. Rowe Price If you trade directly with T. Rowe Price, you can make one purchase and sale involving the same fund within any 120-day period. For example, if you are in fund A, you can move substantial assets from fund A to fund B and, within the next 120 days, sell your shares in fund B to return to fund A or move to fund C. If you exceed this limit, you are in violation of our excessive trading policy.

Two types of transactions are exempt from this policy: 1) trades solely in money market funds (exchanges between a money fund and a nonmoney fund are not exempt); and 2) systematic purchases or redemptions (see Information About Your Services).

. Trades placed through intermediaries If you purchase fund shares through an intermediary including a broker, bank, investment adviser, or other third party and hold them for less than 60 calendar days, you are in violation of our excessive trading policy.

Keeping Your Account Open

Due to the relatively high cost to a fund of maintaining small accounts, we ask you to maintain an account balance of at least $1,000. If your balance is below $1,000 for three months or longer, we have the right to close your account after giving you 60 days in which to increase your balance.

Small Account Fee

Because of the disproportionately high costs of servicing accounts with low balances, a $10 fee, paid to T. Rowe Price Services, the fund's transfer agent, will automatically be deducted from nonretirement accounts with balances falling below a minimum level. The valuation of accounts and the deduction are expected to take place during the last five business days of September. The fee will be deducted from accounts with balances below $2,000, except for UGMA/ UTMA accounts, for which the limit is $500. The fee will be waived for any investor whose T. Rowe Price mutual fund investments total $25,000 or more. Accounts employing automatic investing (e.g., payroll deduction, automatic purchase from a bank account, etc.) are also exempt from the charge. The fee will not apply to IRAs and other retirement plan accounts. (A separate custodial fee may apply to IRAs and other retirement plan accounts.)


ABOUT YOUR ACCOUNT 19
Signature Guarantees

. A signature guarantee is designed to protect you and the T. Rowe Price funds from fraud by verifying your signature.

You may need to have your signature guaranteed in certain situations, such as:

. Written requests 1) to redeem over $100,000, or 2) to wire redemption proceeds.

. Remitting redemption proceeds to any person, address, or bank account not on record.

. Transferring redemption proceeds to a T. Rowe Price fund account with a different registration (name or ownership) from yours.

. Establishing certain services after the account is opened.

You can obtain a signature guarantee from most banks, savings institutions, broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot accept guarantees from notaries public or organizations that do not provide reimbursement in the case of fraud.


MORE ABOUT THE FUND

3

ORGANIZATION AND MANAGEMENT

How is the fund organized?

The T. Rowe Price Tax-Exempt Money Fund, Inc., was incorporated in Maryland in 1980 and is a "diversified, open-end investment company," or mutual fund. The Tax-Exempt Money PLUS shares represent a separate class of the fund. Mutual funds pool money received from shareholders of each separate class in a single portfolio and try to achieve specified objectives.

. Shareholders benefit from T. Rowe Price's 62 years of investment management experience.

What is meant by "shares"?

As with all mutual funds, investors purchase shares when they put money in a fund. These shares are part of a fund's authorized capital stock, but share certificates are not issued.

Each share and fractional share entitles the shareholder to:

. Receive a proportional interest in a fund's income and capital gain distributions. The income dividends for the Tax-Exempt Money PLUS shares will differ from those of the regular Tax-Exempt Money Fund shares to the extent the expense ratio of the Tax-Exempt Money PLUS shares differs.

. Cast one vote per share on certain fund matters, including the election of fund directors, changes in fundamental policies, or approval of changes in the fund's management contract. Tax-Exempt Money PLUS shareholders have exclusive voting rights on matters affecting only the Tax-Exempt Money PLUS shares.

Do T. Rowe Price funds have annual shareholder meetings?

The fund is not required to hold annual meetings and, to avoid unnecessary costs to fund shareholders, does not intend to do so except when certain matters, such as a change in its fundamental policies, must be decided. In addition, shareholders representing at least 10% of all eligible votes may call a special meeting, if they wish, for the purpose of voting on the removal of any fund director or trustee. If a meeting is held and you cannot attend, you can vote by proxy. Before the meeting, the fund will send you proxy materials that explain the issues to be decided and include instructions on voting by mail or telephone, or on the Internet.


ABOUT YOUR ACCOUNT 21
Who runs the fund?

General Oversight
The fund is governed by a Board of Directors that meets regularly to review the fund's investments, performance, expenses, and other business affairs. The Board elects the fund's officers. The policy of the fund is that the majority of Board members are independent of T. Rowe Price Associates, Inc. (T. Rowe Price).

. All decisions regarding the purchase and sale of fund investments are made by T. Rowe Price - specifically by the fund's portfolio managers.

Portfolio Management
The fund has an Investment Advisory Committee with the following members:
Patrice Berchtenbreiter Ely, Chairman, Jeremy N. Baker, Patricia S. Deford, Joseph K. Lynagh, Mary J. Miller, William T. Reynolds, and Edward A. Wiese. Ms. Berchtenbreiter Ely has been chairman of the fund since 1992. The committee chairman has day-to-day responsibility for managing the portfolio and works with the committee in developing and executing the fund's investment program. Ms. Berchtenbreiter Ely joined T. Rowe Price in 1972 and has been managing investments since 1987.

The Management Fee
This fee has two parts - an "individual fund fee," which reflects a fund's particular characteristics, and a "group fee." The group fee, which is designed to reflect the benefits of the shared resources of the T. Rowe Price investment management complex, is calculated daily based on the combined net assets of all T. Rowe Price funds (except the Spectrum Funds, and any institutional, index, or private label mutual funds). The group fee schedule (shown below) is graduated, declining as the asset total rises, so shareholders benefit from the overall growth in mutual fund assets.

Group Fee Schedule

                                                                     0.334%            First $50 billion/a/
                                                                    -----------------------------------------
                                                                     0.305%            Next $30 billion
                                                                    -----------------------------------------
                                                                     0.300%            Next $40 billion
                                                                    -----------------------------------------
                                                                     0.295%            Thereafter
 -----------------------------------------------------------------------------------------------------------------

/a/ Represents a blended group fee rate containing various break points.

The fund's portion of the group fee is determined by the ratio of its daily net assets to the daily net assets of all the T. Rowe Price funds described previously. Based on combined T. Rowe Price funds' assets of over $89 billion at March 31, 1999, the group fee was 0.32%. The individual fund fee is 0.10%.


T. ROWE PRICE 22
UNDERSTANDING PERFORMANCE INFORMATION
This section should help you understand the terms used to describe fund performance. You will come across them in shareholder reports you receive from us; in our newsletter, The Price Report; in T. Rowe Price advertisements; and in the media.

Total Return

This tells you how much an investment in a fund has changed in value over a given time period. It reflects any net increase or decrease in the share price and assumes that all dividends and capital gains (if any) paid during the period were reinvested in additional shares. Therefore, total return numbers include the effect of compounding.

Advertisements for a fund may include cumulative or average annual total return figures, which may be compared with various indices, other performance measures, or other mutual funds.

Cumulative Total Return

This is the actual return of an investment for a specified period. A cumulative return does not indicate how much the value of the investment may have fluctuated during the period. For example, a fund could have a 10-year positive cumulative return despite experiencing three negative years during that time.

Average Annual Total Return

This is always hypothetical and should not be confused with actual year-by-year results. It smooths out all the variations in annual performance to tell you what constant year-by-year return would have produced the investment's actual cumulative return. This gives you an idea of an investment's annual contribution to your portfolio, provided you held it for the entire period.

Yield

The current or "dividend" yield on a fund or any investment tells you the relationship between the investment's current level of annual income and its price on a particular day. The dividend yield reflects the actual income paid to shareholders for a given period, annualized, and divided by the price at the end of the given period. For example, a fund providing $5 of annual income per share and a price of $50 has a current yield of 10%. Yields can be calculated for any time period. The fund may advertise "current" yield, reflecting the latest seven-day income annualized, or an "effective" yield, which assumes the income has been reinvested in the fund.


MORE ABOUT THE FUND 23

INVESTMENT POLICIES AND PRACTICES
This section takes a detailed look at some of the types of securities the fund may hold in its portfolio and the various kinds of investment practices that may be used in day-to-day portfolio management. The fund's investment program is subject to further restrictions and risks described in the Statement of Additional Information.

Shareholder approval is required to substantively change the fund's objectives and certain investment restrictions noted in the following section as "fundamental policies." The managers also follow certain "operating policies" which can be changed without shareholder approval. However, significant changes are discussed with shareholders in fund reports. The fund adheres to applicable investment restrictions and policies at the time it makes an investment. Except as may be required by Rule 2a-7 under the Investment Company Act of 1940, a later change in circumstances will not require the sale of an investment if it was proper at the time it was made.

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

. Fund managers have considerable leeway in choosing investment strategies and selecting securities they believe will help the fund achieve its objective.

Types of Portfolio Securities

In seeking to meet its investment objective, the fund may invest in any type of municipal security or instrument (including certain potentially high-risk derivatives described in this section) whose investment characteristics are consistent with its investment program. The following pages describe the principal types of portfolio securities and investment management practices of the fund.

Operating policy Except as permitted by Rule 2a-7 under the Investment Company Act of 1940, the fund will not purchase a security if, as a result, more than 5% of its total assets would be invested in securities of a single issuer. Under Rule 2a-7, the 5% limit, among other things, does not apply to purchases of U.S. government securities or securities subject to certain types of guarantees.

Municipal Securities
The fund's assets are invested primarily in various tax-free municipal debt securities. The issuers have a contractual obligation to pay interest at a stated rate on specific dates and to repay principal (the bond's face value) on a specified date or dates. An issuer may have the right to redeem or "call" a bond before maturity, and the fund may have to reinvest the proceeds at lower rates.


T. ROWE PRICE 24
There are two broad categories of municipal bonds. General obligation bonds are backed by the issuer's "full faith and credit," that is, its full taxing and revenue raising power. Revenue bonds usually rely exclusively on a specific revenue source, such as charges for water and sewer service, to generate money for debt service.

. In purchasing municipals, the fund relies on the opinion of the issuer's bond counsel regarding the tax-exempt status of the investment.

Private Activity Bonds and Taxable Securities While income from most municipals is exempt from federal income taxes, the income from certain types of so-called private activity bonds (a type of revenue bond) may be subject to the alternative minimum tax (AMT). However, only persons subject to the AMT pay this tax. Private activity bonds may be issued for purposes such as housing or airports or to benefit a private company. (Being subject to the AMT does not mean the investor necessarily pays this tax. For further information, please see Distributions and Taxes.)

Fundamental policy Under normal market conditions, the fund will not purchase any security if, as a result, less than 80% of the fund's income would be exempt from federal income taxes. Up to 20% of fund income could be derived from securities subject to the alternative minimum tax.

Operating policy During periods of abnormal market conditions, for temporary defensive purposes, the fund may invest without limit in high-quality, short-term securities whose income is subject to federal income tax.

In addition to general obligation and revenue bonds, the fund's investments may include, but are not limited to, the following types of securities:

Municipal Lease Obligations
A lease is not a full faith and credit obligation of the issuer and is usually backed only by the borrowing government's unsecured pledge to make annual appropriations for lease payments. There have been challenges to the legality of lease financing in numerous states and, from time to time, certain municipalities have considered not appropriating money for lease payments. In deciding whether to purchase a lease obligation, the fund would assess the financial condition of the borrower, the merits of the project, the level of public support for the project, and the legislative history of lease financing in the state. These securities may be less readily marketable than other municipals. The fund may also purchase unrated lease obligations.

Securities With "Puts" or Other Demand Features Some longer-term municipals give the investor the right to "put" or sell the security at par (face value) within a specified number of days following the investor's request - usually one to seven days. This demand feature enhances a security's


MORE ABOUT THE FUND 25
liquidity by shortening its effective maturity and enables it to trade at a price equal to or very close to par. The fund typically purchases a significant number of these securities. If a demand feature terminates prior to being exercised, the fund may be forced to hold the longer-term security, which could experience substantially more volatility.

Securities With Credit Enhancements
. Letters of credit Letters of credit are issued by a third party, usually a bank, to enhance liquidity and ensure repayment of principal and any accrued interest if the underlying municipal security should default.

. T. Rowe Price periodically reviews the credit quality of the insurer.

. Municipal Bond Insurance This insurance, which is usually purchased by the bond issuer from a private, nongovernmental insurance company, provides an unconditional and irrevocable guarantee that the insured bond's principal and interest will be paid when due. Insurance does not guarantee the price of the bond or the share price of any fund. The credit rating of an insured bond reflects the credit rating of the insurer, based on its claims-paying ability.

The obligation of a municipal bond insurance company to pay a claim extends over the life of each insured bond. Although defaults on insured municipal bonds have been low to date and municipal bond insurers have met their claims, there is no assurance this will continue. A higher-than-expected default rate could strain the insurer's loss reserves and adversely affect its ability to pay claims to bondholders, such as the fund. The number of municipal bond insurers is relatively small, and not all of them have the highest rating.

. Standby Purchase Agreements A Standby Bond Purchase Agreement (SBPA) is a liquidity facility provided to pay the purchase price of bonds that cannot be remarketed. The obligation of the liquidity provider (usually a bank) is only to advance funds to purchase tendered bonds that cannot be remarketed and does not cover principal or interest under any other circumstances. The liquidity provider's obligations under the SBPA are usually subject to numerous conditions, including the continued creditworthiness of the underlying borrower.

Synthetic or Derivative Securities
Derivatives and synthetics in which the fund may invest include:

. Participation Interests This term covers various types of securities created by converting fixed rate bonds into short-term, variable rate certificates. These securities have been developed in the secondary market to meet the demand for short-term, tax-exempt securities. The fund will invest only in securities deemed tax-exempt by a nationally recognized bond counsel, but there is no guarantee the interest will be exempt because the IRS has not issued a definitive ruling on the matter.


T. ROWE PRICE 26
Operating policy The money fund will not invest more than 20% of its total assets in these securities.

Private Placements
The fund may seek to enhance its yield through the purchase of private placements. These securities are sold through private negotiations, usually to institutions or mutual funds, and may have resale restrictions. Their yields are usually higher than comparable public securities to compensate the investor for their limited marketability.

Operating policy The fund may invest up to 10% of fund net assets in illiquid securities, including unmarketable private placements.

Types of Investment Management Practices

When-Issued Securities
The fund may purchase securities on a when-issued or delayed delivery basis or may purchase or sell securities on a forward commitment basis. There is no limit on the fund's investment in these securities. The price of these securities is fixed at the time of the commitment to buy, but delivery and payment can take place a month or more later. During the interim period, the market value of the securities can fluctuate, and no interest accrues to the purchaser. At the time of delivery, the value of the securities may be more or less than the purchase or sale price. To the extent the fund remains fully or almost fully invested (in securities with a remaining maturity of more than one year) at the same time it purchases these securities, there will be greater fluctuations in the fund's net asset value than if the fund did not purchase them.

Borrowing Money and Transferring Assets The fund can borrow money from banks and other Price funds as a temporary measure for emergency purposes, to facilitate redemption requests, or for other purposes consistent with the fund's investment objective and program. Such borrowings may be collateralized with fund assets, subject to restrictions.

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

Operating policy  The fund may not transfer as collateral any portfolio

securities except as necessary in connection with permissible borrowings or investments, and then such transfers may not exceed 33/1//\\/3/\\% of the fund's total assets. The fund may not purchase additional securities when borrowings exceed 5% of total assets.

Sector Concentration
It is possible that the fund could have a considerable amount of assets (25% or more) in securities that would tend to respond similarly to particular economic or political developments. An example would be securities of issuers related to a single industry, such as hospital bonds.


MORE ABOUT THE FUND 27
Operating policy The fund is limited to 25% of total assets in industrial development bonds of projects in the same industry (such as solid waste, nuclear utility, or airlines). Bonds which are refunded with escrowed U.S. government securities are not subject to the 25% limitation.

Credit-Quality Considerations
The credit quality of most bond issues is evaluated by rating agencies such as Moody's and Standard & Poor's on the basis of the issuer's ability to meet all required interest and principal payments. The highest ratings are assigned to issuers perceived to be the best credit risks. T. Rowe Price research analysts also evaluate all portfolio holdings of the fund, including those rated by outside agencies. Other things being equal, lower-rated bonds have higher yields due to greater risk. High-yield bonds, also called "junk" bonds, are those rated below BBB.

Table 4 shows the rating scale used by the major rating agencies, and Table 5 provides an explanation of quality ratings. T. Rowe Price considers publicly available ratings but emphasizes its own credit analysis when selecting investments.

Table 4  Ratings of Municipal Debt Securities
                                                                       Moody's        Standard
                                                                       Investors      & Poor's         Fitch
                                                                       Service, Inc.  Corporation      IBCA, Inc.           Definit
 Long Term                                                              Aaa            AAA              AAA                  Highes
                                                                                                                             qualit
                                                                       ------------------------------------------------------------
                                                                        Aa             AA               AA                   High
                                                                                                                             qualit
                                                                       ------------------------------------------------------------
                                                                                                                             Upper
                                                                        A              A                A                    medium
                                                                                                                             grade
                                                                       ------------------------------------------------------------
                                                                        Baa            BBB              BBB                  Medium
                                                                                                                             grade
                                                                       ------------------------------------------------------------
                                                                        Ba             BB               BB                   Specul
                                                                       ------------------------------------------------------------
                                                                        B              B                B                    Highly
                                                                                                                             specul
                                                                       ------------------------------------------------------------
                                                                                                                             Vulner
                                                                        Caa            CCC, CC          CCC, CC              to
                                                                                                                             defaul
                                                                       ------------------------------------------------------------
                                                                                                                             Defaul
                                                                        Ca             C                C                    is
                                                                                                                             immine
                                                                       ------------------------------------------------------------
                                                                                                                             Probab
                                                                        C              D                DDD, DD, D           in
                                                                                                                             defaul
-----------------------------------------------------------------------------------------------------------------------------------

                                                                       Moody's                         S&P
 Short Term                                                             MIG1/ VMIG1    Best quality     SP1+   Very strong quality
                                                                                                        SP1    Strong grade




                                                                       ------------------------------------------------------------
                                                                        MIG2/ VMIG2    High quality     SP2    Satisfactory grade


                                                                       ------------------------------------------------------------
                                                                        MIG3/ VMIG3    Favorable quality


                                                                       ------------------------------------------------------------
                                                                        MIG4/ VMIG4    Adequate quality
                                                                       ------------------------------------------------------------
                                                                        SG             Speculative      SP3    Speculative grade
                                                                                       quality

                                                                       ------------------------------------------------------------
 Commercial                                                             P-1            Superior         A-1+   Extremely strong
 Paper                                                                                 quality          A-1    quality
                                                                                                               Strong quality



                                                                       ------------------------------------------------------------
                                                                        P-2            Strong quality   A-2    Satisfactory quality


                                                                       ------------------------------------------------------------
                                                                        P-3            Acceptable       A-3    Adequate quality
                                                                                       quality          B      Speculative quality
                                                                                                        C      Doubtful quality



-----------------------------------------------------------------------------------------------------------------------------------


T. ROWE PRICE 28

Table 5  Explanation of Quality Ratings
                                       Bond
                                       Rating    Explanation
 Moody's Investors                      Aaa       Highest quality, smallest degree of
 Service, Inc.                                    investment risk.
                                       -----------------------------------------------------
                                        Aa        High quality; together with Aaa bonds,
                                                  they compose the high-grade bond group.
                                       -----------------------------------------------------
                                        A         Upper-medium-grade obligations; many
                                                  favorable investment attributes.
                                       -----------------------------------------------------
                                        Baa       Medium-grade obligations; neither highly
                                                  protected nor poorly secured. Interest
                                                  and principal appear adequate for the
                                                  present, but certain protective elements
                                                  may be lacking or may be unreliable over
                                                  any great length of time.
                                       -----------------------------------------------------
                                        Ba        More uncertain with speculative
                                                  elements. Protection of interest and
                                                  principal payments not well safeguarded
                                                  in good and bad times.
                                       -----------------------------------------------------
                                        B         Lack characteristics of desirable
                                                  investment; potentially low assurance of
                                                  timely interest and principal payments
                                                  or maintenance of other contract terms
                                                  over time.
                                       -----------------------------------------------------
                                        Caa       Poor standing, may be in default;
                                                  elements of danger with respect to
                                                  principal or interest payments.
                                       -----------------------------------------------------
                                        Ca        Speculative in high degree; could be in
                                                  default or have other marked
                                                  shortcomings.
                                       -----------------------------------------------------
                                        C         Lowest rated. Extremely poor prospects
                                                  of ever attaining investment standing.
-------------------------------------------------------------------------------------------------
 Standard & Poor's                      AAA       Highest rating; extremely strong
 Corporation                                      capacity to pay principal and interest.
                                       -----------------------------------------------------
                                        AA        High quality; very strong capacity to
                                                  pay principal and interest.
                                       -----------------------------------------------------
                                        A         Strong capacity to pay principal and
                                                  interest; somewhat more susceptible to
                                                  the adverse effects of changing
                                                  circumstances and economic conditions.
                                       -----------------------------------------------------
                                        BBB       Adequate capacity to pay principal and
                                                  interest; normally exhibit adequate
                                                  protection parameters, but adverse
                                                  economic conditions or changing
                                                  circumstances more likely to lead to
                                                  weakened capacity to pay principal and
                                                  interest than for higher-rated bonds.
                                       -----------------------------------------------------
                                        BB, B,    Predominantly speculative with respect
                                        CCC, CC   to the issuer's capacity to meet
                                                  required interest and principal
                                                  payments. BB - lowest degree of
                                                  speculation;
                                                  CC - the highest degree of speculation.
                                                  Quality and protective characteristics
                                                  outweighed by large uncertainties or
                                                  major risk exposure to adverse
                                                  conditions.
                                       -----------------------------------------------------
                                        D         In default.
                                       -----------------------------------------------------
 Fitch IBCA, Inc.                       AAA       Highest quality; obligor has
                                                  exceptionally strong ability to pay
                                                  interest and repay principal, which is
                                                  unlikely to be affected by reasonably
                                                  foreseeable events.
                                       -----------------------------------------------------
                                        AA        Very high quality; obligor's ability to
                                                  pay interest and repay principal is very
                                                  strong. Because bonds rated in the AAA
                                                  and AA categories are not significantly
                                                  vulnerable to foreseeable future
                                                  developments, short-term debt of these
                                                  issuers is generally rated F-1+.
                                       -----------------------------------------------------
                                        A         High quality; obligor's ability to pay
                                                  interest and repay principal is
                                                  considered to be strong, but may be more
                                                  vulnerable to adverse changes in
                                                  economic conditions and circumstances
                                                  than higher-rated bonds.
                                       -----------------------------------------------------
                                        BBB       Satisfactory credit quality; obligor's
                                                  ability to pay interest and repay
                                                  principal is considered adequate.
                                                  Unfavorable changes in economic
                                                  conditions and circumstances are more
                                                  likely to adversely affect these bonds
                                                  and impair timely payment. The
                                                  likelihood that the ratings of these
                                                  bonds will fall below investment grade
                                                  is higher than for higher-rated bonds.
                                       -----------------------------------------------------
                                        BB,       Not investment grade; predominantly
                                        CCC,      speculative with respect to the issuer's
                                        CC, C     capacity to repay interest and repay
                                                  principal in accordance with the terms
                                                  of the obligation for bond issues not in
                                                  default. BB is the least speculative. C
                                                  is the most speculative.
-------------------------------------------------------------------------------------------------


MORE ABOUT THE FUND 29
Year 2000 Processing Issue

Many computer programs use two digits rather than four to identify the year. These programs, if not adapted, will not correctly handle the change from "99" to "00" on January 1, 2000, and will not be able to perform necessary functions. The Year 2000 issue affects virtually all companies and organizations.

T. Rowe Price has implemented steps intended to assure that major computer systems and processes are capable of Year 2000 processing. We are working with third parties to assess the adequacy of their compliance efforts and are developing contingency plans intended to assure that third-party noncompliance will not materially affect T. Rowe Price's operations.

Companies, organizations, governmental entities, and markets in which the T. Rowe Price funds invest will be affected by the Year 2000 issue, but at this time the funds cannot predict the degree of impact. For funds that invest in foreign markets, especially emerging markets, it is possible foreign companies and


T. ROWE PRICE 30
markets will not be as prepared for Year 2000 as domestic companies and markets. To the extent the effect of Year 2000 is negative, a fund's returns could be reduced.

FINANCIAL HIGHLIGHTS

Tax-Exempt Money PLUS began operations on October 31, 1998, and therefore has no financial history. As a point of comparison, however, Table 6 provides information about the Tax-Exempt Money Fund's financial history, because Tax-Exempt Money PLUS is a new share class of the Tax-Exempt Money Fund and shares its management program and investment portfolio. (Note that prior to the inception of Tax-Exempt Money PLUS, Tax-Exempt Money Fund had no other share classes.) This information is based on a single share of the Tax-Exempt Money Fund outstanding throughout each of its fiscal years.

This table is part of the Tax-Exempt Money Fund's financial statements, which are included in its annual report and are incorporated by reference into the Statement of Additional Information (available upon request). The financial statements in the annual report were audited by the fund's independent accountants, PricewaterhouseCoopers LLP.

Had the Tax-Exempt Money PLUS class been in existence during the time period reflected in the table, some financial information would be different because of its higher expense ratio.


MORE ABOUT THE FUND 31

Table 6  Financial Highlights
                                              Year ended February 28
 Tax-Exempt Money Fund           1995     1996/a/      1997       1998       1999
-------------------------------------------------------------------------------------------

 Net asset value,
 beginning of period           $   1.00   $   1.00   $   1.00   $   1.00   $   1.00
 Income From Investment Operations
 Net investment income            0.026      0.033      0.030      0.032       0.03
                               -------------------------------------------------------
 Net gains or losses on
 securities (both realized           --         --         --         --         --
 and unrealized)
                               -------------------------------------------------------
 Total from investment
 operations                       0.026      0.033      0.030      0.032       0.03
 Less Distributions
 Dividends (from net             (0.026)    (0.033)    (0.030)    (0.032)     (0.03)
 investment income)
                               -------------------------------------------------------
 Distributions (from capital         --         --         --         --         --
 gains)
                               -------------------------------------------------------
 Total distributions             (0.026)    (0.033)    (0.030)    (0.032)     (0.03)
                               -------------------------------------------------------
 Net asset value,              $   1.00   $   1.00   $   1.00   $   1.00   $   1.00
 end of period
                               -------------------------------------------------------
 Total return                      2.63%      3.38%      3.05%      3.24%      2.97%
 Ratios/Supplemental Data
 Net assets, end of period     $687,022   $679,143   $678,135   $740,757   $710,569
 (in thousands)
                               -------------------------------------------------------
 Ratio of expenses to average      0.58%      0.56%      0.55%      0.52%      0.52%
 net assets
                               -------------------------------------------------------
 Ratio of net income to            2.59%      3.33%      3.00%      3.20%      2.93%
 average net assets
-------------------------------------------------------------------------------------------

/a / Year ended February 29.


INVESTING WITH T. ROWE PRICE
4
ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
Tax Identification Number
We must have your correct Social Security number on a signed New Account Form or W-9 Form. Otherwise, federal law requires the funds to withhold a percentage (currently 31%) of your dividends, capital gain distributions, and redemptions, and may subject you to an IRS fine. If this information is not received within 60 days after your account is established, your account may be redeemed, priced at the NAV on the date of redemption.

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

OPENING A NEW ACCOUNT

$2,500 minimum initial investment; $1,000 for gifts or transfers to minors (UGMA/UTMA) accounts

Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just like your existing accounts so you can exchange among them easily. (The name and account type would have to be identical.)

By Mail
Please make your check payable to T. Rowe Price Funds (otherwise it will be returned) and send your check, together with the New Account Form, to the appropriate address in the next paragraph. We do not accept third-party checks to open new accounts.

Mail via United States Postal Service
T. Rowe Price Account Services P.O. Box 17406 Baltimore, MD 21297-1406

Mail via private carriers/overnight services T. Rowe Price Account Services 10090 Red Run Blvd. Owings Mills, MD 21117-4842


MORE ABOUT THE FUND 33
By Wire
Call Investor Services for an account number and give the following wire information to your bank:

Receiving Bank: PNC Bank, N.A. (Pittsburgh) Receiving Bank ABA#: 043000096 Beneficiary: T. Rowe Price [fund name] Beneficiary Account: 1004397951 Originator to Beneficiary Information (OBI): name of owner(s) and account number

Complete a New Account Form and mail it to one of the appropriate addresses listed below.

Note: No services will be established and IRS penalty withholding may occur until a signed New Account Form is received. Receipt of ATM & Check Card and checkwriting privileges are subject to a T. Rowe Price approval process.

PURCHASING ADDITIONAL SHARES

$100 minimum purchase; $50 minimum for Automatic Asset Builder and gifts or transfers to minors (UGMA/ UTMA) accounts.There is no subsequent purchase minimum on this fund. There is a $50 minimum for Automatic Asset Builder transactions.

By ACH Transfer
Use touch-tone telephone servicing or your personal computer or call Investor Services if you have established electronic transfers using the ACH network.

By Wire
Call Shareholder Services or use the wire address listed in Opening a New Account.

By Mail
1. Make your check payable to T. Rowe Price Funds (otherwise it may be returned).

2. Mail the check to us at the following address with either a fund reinvestment slip or a note indicating the fund you want to buy and your fund account number.

3. Remember to provide your account number and the fund name on the memo line of your check.


T. ROWE PRICE 34
Mail via United States Postal Service
T. Rowe Price Funds Account Services P.O. Box 17300 Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous / /section.)/

By Automatic Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder Services Form.

EXCHANGING AND REDEEMING SHARES

Exchange Service
Although you cannot open a Tax-Exempt Money PLUS account via exchange, you can purchase additional shares of this fund by moving money from other identically registered T. Rowe Price accounts to your existing account in this fund. Remember, exchanges are purchases and sales for tax purposes. (Exchanges into a state tax-free fund are limited to investors living in states where the fund is registered.) Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on shares held for less than six months or one year, as specified in the prospectus. The fee is paid to the fund.

By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider placing your order by your personal computer, touch-tone telephone servicing (if you have previously authorized telephone services), mailgram, or express mail. For exchange policies, please see Transaction Procedures and Special Requirements - Excessive Trading.

Redemption proceeds can be mailed to your account address, sent by ACH transfer to your bank, or wired to your bank (provided your bank information is already on file). For charges, see Electronic Transfers - By Wire under Information About Your Services.

By Mail
For each account involved, provide the account name, number, fund name, and exchange or redemption amount. For exchanges, be sure to indicate any fund


INVESTING WITH T. ROWE PRICE 35
you are exchanging out of and the fund or funds you are exchanging into. T. Rowe Price requires the signatures of all owners exactly as registered, and possibly a signature guarantee (see Transaction Procedures and Special Requirements - Signature Guarantees). Please use the appropriate address below:

Mail via United States Postal Service
T. Rowe Price Account Services P.O. Box 17406 Baltimore, MD 21297-1406

RIGHTS RESERVED BY THE FUND

The fund and its agents reserve the following rights: (1) to waive or lower investment minimums; (2) to accept initial purchases by telephone or mailgram;
(3) to refuse any purchase or exchange order; (4) to cancel or rescind any purchase or exchange order (including, but not limited to, orders deemed to result in excessive trading, market timing, fraud, or 5% ownership) upon notice to the shareholder within five business days of the trade or if the written confirmation has not been received by the shareholder, whichever is sooner; (5) to freeze any account and suspend account services when notice has been received of a dispute between the registered or beneficial account owners or there is reason to believe a fraudulent transaction may occur; (6) to otherwise modify the conditions of purchase and any services at any time; or (7) to act on instructions believed to be genuine. These actions will be taken when, in the sole discretion of management, they are deemed to be in the best interest of the fund.

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


T. ROWE PRICE 36
INFORMATION ABOUT YOUR SERVICES
Shareholder Services 1-800-222-7002
You may be eligible for a variety of services as a PLUS shareholder; some you receive automatically, others you must authorize or request on the New Account Form. By signing up for services on the New Account Form rather than later on, you avoid having to complete a separate form and obtain a signature guarantee. This section discusses some of the services currently offered. Our Services Guide, which we mail to all new shareholders, contains detailed descriptions of these and other services.

Automated Services Touch-Tone Telephone Servicing 24 hours, 7 days Touch-tone telephone servicing for T. Rowe Price funds 24-hour service via toll-free number enables you to (1) access information on fund yields, prices, distributions, account balances, and your latest transaction; (2) request prospectuses, services forms, duplicate statements, and tax forms; and (3) initiate purchase, redemption, and exchange transactions in your accounts (see Electronic Transfers on the next page).

Web Address www.troweprice.com
After obtaining proper authorization, account transactions may also be conducted through our Web site on the Internet. If you subscribe to America Online, you can access our Web site via keyword "T. Rowe Price" and conduct transactions in your account.

Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service representatives or by visiting one of our investor center locations whose addresses are listed on the back cover.

Electronic Transfers
By ACH
With no charges to pay, you can initiate a purchase or redemption for as little as $100 or as much as $100,000 between your bank account and fund account using the ACH network. Enter instructions via touch-tone telephone servicing or your personal computer, or call Shareholder Services.

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


INVESTING WITH T. ROWE PRICE 37
Checkwriting
You may write an unlimited number of checks on your Tax-Exempt Money PLUS account. There is no minimum check amount requirement. Canceled checks will not be returned to you by the bank. The check number, amount of each check, payee, and the date posted will normally appear on your monthly statement.

Automatic Investing
($50 minimum) You can invest automatically in several different ways, including:

Automatic Asset Builder
You instruct us to move $50 or more from your bank account, or you can instruct your employer to send all or a portion of your paycheck to the fund or funds you designate.

Automatic Exchange
You can set up systematic investments from one fund account into another, such as from a money fund into a stock fund.

INVESTMENT INFORMATION

To help shareholders monitor their current investments and make decisions that accurately reflect their financial goals, T. Rowe Price offers a wide variety of information in addition to account statements. Most of this information is also available on our Web site at www.troweprice.com.

Shareholder Reports
Fund managers' reviews of their strategies and performance. If several members of a household own the same fund, only one fund report is mailed to that address. To receive additional copies, please call Shareholder Services or write to us at 100 East Pratt Street, Baltimore, Maryland 21202.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies.

Performance Update
A quarterly review of all T. Rowe Price fund results.


T. ROWE PRICE 38
Insights
Educational reports on investment strategies and financial markets.

Investment Guides
Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe Price Guide to International Investing, Managing Your Retirement Distribution, Personal Strategy Planner, Retirees Financial Guide, Retirement Planning Kit, and Tax Considerations for Investors.


To help you achieve your financial goals, T. Rowe Price offers a wide range of stock, bond, and money market investments, as well as convenient services and informative reports.
For Existing Accounts
Shareholder Services
1-800-222-7002

Internet Address
www.troweprice.com

Headquarters
100 East Pratt St. Baltimore, MD 21202
Walk-in
Investor Centers
101 East Lombard St. Baltimore, MD 21202

T. Rowe Price Financial Center

10090 Red Run Blvd. Owings Mills, MD 21117

Farragut Square 900 17th Street, N.W. Washington, D.C. 20006

Warner Center, Plaza 5 21800 Oxnard Street Suite 270 Woodland Hills, CA 91367

4200 West Cypress St. 10th Floor Tampa, FL 33607

A Statement of Additional Information about the fund has been filed with the Securities and Exchange Commission and is incorporated by reference into this prospectus. Further information about the fund's investments, including a review of market conditions and the manager's recent strategies and their impact on performance, is available in the annual and semiannual shareholder reports. To obtain free copies of any of these documents, or for shareholder inquiries, call 1-800-638-5660.

Fund reports and Statements of Additional Information are also available from the Securities and Exchange Commission by calling 1-800-SEC-0330 or by writing the SEC's Public Reference Section, Washington, D.C. 20549-6009 (you will be charged a duplicating fee); by visiting the SEC's public reference room; or by consulting the SEC's Web site at www.sec.gov.
LOGO
1940 Act File No. 811-3055
F26-040 7/1/99


STATEMENT OF ADDITIONAL INFORMATION
The date of this Statement of Additional Information is July 1, 1999.

T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST (the "Trust")
California Tax-Free Bond Fund

California Tax-Free Money Fund and
T. ROWE PRICE STATE TAX-FREE INCOME TRUST (the "Trust")

Florida Intermediate Tax-Free Fund

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

T. ROWE PRICE TAX-EFFICIENT FUNDS, INC.

T. Rowe Price Tax-Efficient Balanced Fund T. Rowe Price Tax-Efficient Growth Fund
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. Rowe Price Tax-Exempt Money Fund--PLUS Class (A Separate Class of T. Rowe Price Tax-Exempt Money Fund, Inc.)
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-FREE INTERMEDIATE BOND FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.


Mailing Address:
T. Rowe Price Investment Services, Inc. 100 East Pratt Street
Baltimore, Maryland 21202
1-800-638-5660

This Statement of Additional Information is not a prospectus but should be read in conjunction with the appropriate Fund prospectus dated July 1, 1999, which may be obtained from T. Rowe Price Investment Services, Inc. ("Investment Services"). Shareholders of the T. Rowe Price Tax-Exempt Money Fund--PLUS Class should refer to the Tax-Exempt Money Fund for information relating to their investment.

Each Fund's financial statements for the year ended February 28, 1999, and the report of independent accountants are included in each Fund's Annual Report and incorporated by reference into this Statement of Additional Information.

If you would like a prospectus or an annual or semiannual shareholder report for a Fund of which you are not a shareholder, please call 1-800-638-5660. A prospectus with more complete information, including management fees and expenses, will be sent to you. Please read it carefully.

C03-043 7/1/99


                              TABLE OF CONTENTS
                              -----------------
                        Page                                             Page
                        ----                                             ----
Capital Stock                      Pricing of Securities
------------------------------     --------------------------------------------
Code of Ethics                     Principal Holders of Securities
------------------------------     --------------------------------------------
Custodian                          Ratings of Commercial Paper
------------------------------     --------------------------------------------
Distributor for the                Ratings of Municipal Debt Securities
Funds
------------------------------     --------------------------------------------
Dividends and                      Ratings of Municipal Notes and
Distributions                      Variable Rate Securities
------------------------------     --------------------------------------------
Federal Registration               Risk Factors
of Shares
------------------------------     --------------------------------------------
Independent                        Risk Factors Associated with a
Accountants                        California Portfolio
------------------------------     --------------------------------------------
Investment Management              Risk Factors Associated with a
Services                           Florida Portfolio
------------------------------     --------------------------------------------
Investment Objectives              Risk Factors Associated with a
and Policies                       Georgia Portfolio
------------------------------     --------------------------------------------
Investment Performance             Risk Factors Associated with a
                                   Maryland Portfolio
------------------------------     --------------------------------------------
Investment Program                 Risk Factors Associated with a New
                                   Jersey Portfolio
------------------------------     --------------------------------------------
Investment                         Risk Factors Associated with a New
Restrictions                       York Portfolio
------------------------------     --------------------------------------------
Legal Counsel                      Risk Factors Associated with a
                                   Virginia Portfolio
------------------------------     --------------------------------------------
Management of the                  Risk Factors Associated with the
Funds                              Equity Portion of
                                   Tax-Efficient Balanced Fund
------------------------------     --------------------------------------------
Net Asset Value Per                Shareholder Services by Outside
Share                              Parties
------------------------------     --------------------------------------------
Organization of the                Tax-Exempt vs. Taxable Yields
Funds
------------------------------     --------------------------------------------
Portfolio Management               Tax Status
Practices
------------------------------     --------------------------------------------
Portfolio Transactions             Yield Information
------------------------------     --------------------------------------------

INVESTMENT OBJECTIVES AND POLICIES

The following information supplements the discussion of each Fund's investment objectives and policies discussed in the Funds' prospectus.

The Funds will not make a material change in their investment objectives without obtaining shareholder approval. Unless otherwise specified, the investment programs and restrictions of the Funds are not fundamental policies. Each Fund's operating policies are subject to change by each Board of Directors/ Trustees without shareholder approval. However, shareholders will be notified of a material change in an operating policy. Each Fund's fundamental policies may not be changed without the approval of at least a majority of the outstanding shares of the Fund or, if it is less, 67% of the shares represented at a meeting of shareholders at which the holders of 50% or more of the shares are represented. References to the following are as indicated:

Investment Company Act of 1940 ("1940 Act") Securities and Exchange Commission ("SEC") T. Rowe Price Associates, Inc. ("T. Rowe Price") Moody's Investors Service, Inc. ("Moody's") Standard & Poor's Corporation ("S&P") Internal Revenue Code of 1986 ("Code") Rowe Price-Fleming International, Inc. ("Price-Fleming")


Throughout this Statement of Additional Information, "the Fund" is intended to refer to each Fund listed on the cover page, unless otherwise indicated.

RISK FACTORS

Reference is also made to the sections entitled "Types of Securities" and "Portfolio Management Practices" for discussions of the risks associated with the investments and practices described therein as they apply to the Fund.

All Funds (other than Tax-Efficient Growth Fund)

The Funds are designed for investors who, because of their tax bracket, can benefit from investment in municipal bonds whose income is exempt from federal taxes. The Funds are not appropriate for qualified retirement plans where income is already tax deferred.

All Funds

Because of their investment policies, the Funds may or may not be suitable or appropriate for all investors. The Funds (except for the Money Funds) are not an appropriate investment for those whose primary objective is principal stability. The value of the portfolio securities of the Fund will fluctuate based upon market conditions. The Tax-Efficient Balanced Fund will normally have 40-50% of its assets in equity securities. The Tax-Efficient Growth Fund will normally invest substantially all of its assets in common stocks. Assets of these funds invested in equity securities will be subject to all of the risks of investing in the stock market. There can, of course, be no assurance that the Funds will achieve their investment objective.

All Funds (other than Tax-Efficient Growth Fund)

Municipal Securities

Yields on municipal securities are dependent on a variety of factors, including the general conditions of the money market and the municipal bond market, the size of a particular offering, the maturity of the obligations, and the rating of the issue. Municipal securities with longer maturities tend to produce higher yields and are generally subject to potentially greater capital appreciation and depreciation than obligations with shorter maturities and lower yields. The market prices of municipal securities usually vary, depending upon available yields. An increase in interest rates will generally reduce the value of portfolio investments, and a decline in interest rates will generally increase the value of portfolio investments. The ability of all the Funds to achieve their investment objectives is also dependent on the continuing ability of the issuers of municipal securities in which the Funds invest to meet their obligations for the payment of interest and principal when due. The ratings of Moody's, S&P, and Fitch IBCA, Inc. ("Fitch") represent their opinions as to the quality of municipal securities which they undertake to rate. Ratings are not absolute standards of quality; consequently, municipal securities with the same maturity, coupon, and rating may have different yields. There are variations in municipal securities, both within a particular classification and between classifications, depending on numerous factors. It should also be pointed out that, unlike other types of investments, municipal securities have traditionally not been subject to regulation by, or registration with, the SEC, although there have been proposals which would provide for regulation in the future.

The federal bankruptcy statutes relating to the debts of political subdivisions and authorities of states of the United States provide that, in certain circumstances, such subdivisions or authorities may be authorized to initiate bankruptcy proceedings without prior notice to or consent of creditors, which proceedings could result in material and adverse changes in the rights of holders of their obligations.

Proposals have been introduced in Congress to restrict or eliminate the federal income tax exemption for interest on municipal securities, and similar proposals may be introduced in the future. Proposed "Flat Tax" and "Value Added Tax" proposals would also have the effect of eliminating the tax preference for municipal securities. Some of the past proposals would have applied to interest on municipal securities issued before the date of enactment, which would have adversely affected their value to a material degree. If such a proposal


were enacted, the availability of municipal securities for investment by the Funds and the value of a Fund's portfolio would be affected and, in such an event, a Fund would reevaluate its investment objectives and policies.

Although the banks and securities dealers with which the Fund will transact business will be banks and securities dealers that T. Rowe Price believes to be financially sound, there can be no assurance that they will be able to honor their obligations to the Fund with respect to such securities.

After purchase by a Fund, a security may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. For the Money Fund, the procedures set forth in Rule 2a-7, under the 1940 Act, may require the prompt sale of any such security. For the other Funds, neither event would require a sale of such security by the Fund. However, T. Rowe Price will consider such event in its determination of whether the Fund should continue to hold the security. To the extent that the ratings given by Moody's, S&P, or Fitch may change as a result of changes in such organizations or their rating systems, the Fund will attempt to use comparable ratings as standards for investments in accordance with the investment policies contained in the prospectus. When purchasing unrated securities, T. Rowe Price, under the supervision of the Fund's Board of Directors/Trustees, determines whether the unrated security is of a quality comparable to that which the Fund is allowed to purchase.

Municipal Bond Insurance All of the Funds may purchase insured bonds from time to time. Municipal bond insurance provides an unconditional and irrevocable guarantee that the insured bond's principal and interest will be paid when due. The guarantee is purchased from a private, non-governmental insurance company.

There are two types of insured securities that may be purchased by the Funds:
bonds carrying either (1) new issue insurance; or (2) secondary insurance. New issue insurance is purchased by the issuer of a bond in order to improve the bond's credit rating. By meeting the insurer's standards and paying an insurance premium based on the bond's principal value, the issuer is able to obtain a higher credit rating for the bond. Once purchased, municipal bond insurance cannot be canceled, and the protection it affords continues as long as the bonds are outstanding and the insurer remains solvent.

The Funds may also purchase bonds that carry secondary insurance purchased by an investor after a bond's original issuance. Such policies insure a security for the remainder of its term. Generally, the Funds expect that portfolio bonds carrying secondary insurance will have been insured by a prior investor. However, the Funds may, on occasion, purchase secondary insurance on their own behalf.

Each of the municipal bond insurance companies has established reserves to cover estimated losses. Both the method of establishing these reserves and the amount of the reserves vary from company to company. The risk that a municipal bond insurance company may experience a claim extends over the life of each insured bond. Municipal bond insurance companies are obligated to pay a bond's interest and principal when due if the issuing entity defaults on the insured bond. Although defaults on insured municipal bonds have been low to date, there is no assurance this low rate will continue in the future. A higher than expected default rate could deplete loss reserves and adversely affect the ability of a municipal bond insurer to pay claims to holders of insured bonds, such as the Fund.

Money Funds

The Money Fund will limit its purchases of portfolio instruments to those U.S. dollar-denominated securities which the Fund's Board of Directors/Trustees determines present minimal credit risk, and which are Eligible Securities as defined in Rule 2a-7 under the 1940 Act. Eligible Securities are generally securities which have been rated (or whose issuer has been rated or whose issuer has comparable securities rated) in one of the two highest short-term rating categories (which may include sub-categories) by nationally recognized statistical rating organizations or, in the case of any instrument that is not so rated, is of comparable high quality as determined by T. Rowe Price pursuant to written guidelines established under the supervision of the Fund's Board of Directors/Trustees. In addition, the Fund may treat variable and floating rate instruments with demand features as short-term securities pursuant to Rule 2a-7 under the 1940 Act.


Bond and Balanced Funds

Because of their investment policies, the Bond and Balanced Funds may not be suitable or appropriate for all investors. The Funds are designed for investors who wish to invest in non-money market funds for income, and who would benefit, because of their tax bracket, from receiving income that is exempt from federal income taxes. The Bond and Balanced Funds' investment programs permit the purchase of investment-grade securities that do not meet the high-quality standards of the Money Funds. Since investors generally perceive that there are greater risks associated with investment in lower-quality securities, the yield from such securities normally exceeds those obtainable from higher-quality securities. In addition, the principal value of long term lower-rated securities generally will fluctuate more widely than higher-quality securities. Lower-quality investments entail a higher risk of default--that is, the nonpayment of interest and principal by the issuer than higher-quality investments. The value of the portfolio securities of the Bond and Balanced Funds will fluctuate based upon market conditions. Although these Funds seek to reduce credit risk by investing in a diversified portfolio, such diversification does not eliminate all risk. These Funds are also not intended to provide a vehicle for short-term trading purposes.

Special Risks of High-Yield Investing The Fund may invest in low-quality bonds commonly referred to as "junk bonds." Junk bonds are regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. Because investment in low- and lower-medium-quality bonds involves greater investment risk, to the extent the Fund invests in such bonds, achievement of its investment objective will be more dependent on T. Rowe Price's credit analysis than would be the case if the Fund were investing in higher-quality bonds. High-yield bonds may be more susceptible to real or perceived adverse economic conditions than investment-grade bonds. A projection of an economic downturn, or higher interest rates, for example, could cause a decline in high-yield bond prices because the advent of such events could lessen the ability of highly leveraged issuers to make principal and interest payments on their debt securities. In addition, the secondary trading market for high-yield bonds may be less liquid than the market for higher-grade bonds, which can adversely affect the ability of a Fund to dispose of its portfolio securities. Bonds for which there is only a "thin" market can be more difficult to value inasmuch as objective pricing data may be less available and judgment may play a greater role in the valuation process.

RISK FACTORS ASSOCIATED WITH TAX-EFFICIENT GROWTH FUND AND THE EQUITY PORTION
OF TAX-EFFICIENT BALANCED FUND

Foreign Securities
The Fund may invest in U.S. dollar-denominated and non-U.S. dollar-denominated securities of foreign issuers.

The Fund may invest in foreign securities. These include nondollar-denominated securities traded outside of the U.S. and dollar-denominated securities of foreign issuers traded in the U.S. (such as ADRs). Such investments increase a portfolio's diversification and may enhance return, but they also involve some special risks, such as exposure to potentially adverse local political and economic developments; nationalization and exchange controls; potentially lower liquidity and higher volatility; possible problems arising from accounting, disclosure, settlement, and regulatory practices that differ from U.S. standards; and the chance that fluctuations in foreign exchange rates will decrease the investment's value (favorable changes can increase its value). These risks are heightened for investments in developing countries, and there is no limit on the amount of the Fund's foreign investments that may be made in such countries.

RISK FACTORS ASSOCIATED WITH A CALIFORNIA PORTFOLIO The Funds' concentration in debt obligations of one state carries a higher risk than a portfolio that is geographically diversified. In addition to State general obligations and notes, the Funds will invest in local


bond issues, lease obligations and revenue bonds, the credit quality and risk of which will vary according to each security's own structure and underlying economics.

Debt The State, its agencies and local governmental entities issued $34.3 billion in long-term debt in 1998. Approximately 26% was general obligation debt, backed by the taxing power of the issuer, and 74% were revenue bonds and lease backed obligations, issued for a wide variety of purposes, including transportation, housing, education and healthcare.

As of February 1, 1999, the State of California had approximately $19.2 billion in outstanding general obligation bonds secured by the State's revenue and taxing power. An additional $14.3 billion in authorized but unissued state general obligation debt remains to be issued to comply with voter initiatives and legislative mandates. Debt service on roughly 20% of the State's outstanding debt is met from revenue producing projects such as water, harbor, and housing facilities. As part of its cash management program, the State regularly issues short-term notes to meet its disbursement requirements in advance of revenue collections. During fiscal 1999, the State issued $1.7 billion in short-term notes for this purpose. California also operates a commercial paper program which it uses to finance construction projects. $0.5 billion of commercial paper was outstanding as of February 1, 1999.

The State supports $6.7 billion in lease-purchase obligations attributable to the State Public Works Board and other issuers. These obligations are not backed by the full faith and credit of the State but instead, are subject to annual appropriations from the State's General Fund.

In addition to the State obligations described above, bonds have been issued by special public authorities in California that are not obligations of the State. These include bonds issued by the California Housing Finance Agency, the Department of Water Resources, the Department of Veterans Affairs, California State University and the California Transportation Commission.

Economy California's economy is the largest among the 50 states and one of the largest in the world. The 1998 population of 33 million represents 12% of the U.S. total. The State's per capita personal income in 1997 exceeded the U.S. average by 4%. The Asian economic crisis, which began in 1997, has had some dampening effect on the state's economy, particularly in high technology manufacturing.

California's economy suffered through a severe recession during the early 1990's as the effects of a slowdown in the national economy were compounded by federal defense spending cuts and military base closings. Since 1994, the State has been in a steady recovery, exhibiting significant job growth and gains in personal income. Growth is expected to moderate in 1999 and 2000. The level of economic activity within the State is important as it influences the growth or contraction of State and local government revenues available for operations and debt service.

Recessionary influences and the effects of overbuilding in selected areas have resulted in a contraction in real estate values in many regions of the State in prior years. Most areas have begun to show improvement corresponding to gains in the general economic level. Future declines in property values could have a negative effect on the ability of certain local governments to meet their obligations.

As a state, California is more prone to earthquakes than most other states in the country, creating potential economic losses from damages. On January 17, 1994, a major earthquake, measuring 6.8 on the Richter scale, hit Southern California centered in the area of Northridge. Total damage has been estimated at $20 billion. Significant federal aid has been received.

Legislative Due to the Funds' concentration in California state and its municipal issuers, the Funds may be affected by certain amendments to the California constitution and state statutes which limit the taxing and spending authority of California governmental entities and may affect their ability to meet their debt service obligations.

In 1978, California voters approved "Proposition 13" adding Article XIIIA, to the state constitution which limits ad valorem taxes on real property to 1% of "full cash value" and restricts the ability of taxing entities to increase real property taxes. In subsequent actions, the State substantially increased its expenditures to


provide assistance to its local governments to offset the losses in revenues and to maintain essential local services; later the State phased out most local aid in response to its own fiscal pressures.

Another constitutional amendment, Article XIIIB, was passed by voters in 1979 prohibiting the State from spending revenues beyond its annually adjusted "appropriations limit". Any revenues exceeding this limit must be returned to the taxpayers as a revision in the tax rate or fee schedule over the following two years. Such a refund, in the amount of $1.1 billion, occurred in fiscal year 1987.

Proposition 218, the "Right to Vote on Taxes Act," was approved by the voters in 1996. It further restricts the ability of local governments to levy and collect both existing and future taxes, assessments and fees. In addition to further limiting the financial flexibility of local governments in the state, it also increases the possibility of voter determined tax rollbacks and repeals. The interpretation and application of this proposition will ultimately be determined by the courts.

An effect of the tax and spending limitations in California has been a broad scale shift by local governments away from general obligation debt that requires voter approval and pledging future tax revenues, towards lease revenue financing that is subject to abatement and does not require voter approval. Lease backed debt is generally viewed as a less secure form of borrowing and therefore entails greater credit risk. Local governments also raise capital through the use of Mello-Roos, 1915 Act, and Tax Increment Bonds, all of which are generally riskier than general obligation debt as they often rely on tax revenues to be generated by future development for their support.

Proposition 98, enacted in 1988, changed the State's method of funding education for grades below the university level. Under this constitutional amendment, the schools are guaranteed a minimum share of State General Fund revenues. The major effect of Proposition 98 has been to restrict the State's flexibility to respond to fiscal stress.

Future initiatives, if proposed and adopted or future court decisions could create renewed pressure on California governments and their ability to raise revenues. The State and its underlying localities have displayed flexibility, however, in overcoming the negative effects of past initiatives.

Financial The recession of the early 1990's placed California's finances under pressure. From 1991 through 1995, accumulated deficits were carried over into the following years and the State's general obligation bonds were downgraded from AAA to A.

Reflecting the recent trend of economic recovery, the state's financial condition has improved considerably. Fiscal 1998 closed with a reserve balance of $2.8 billion. Much of this cushion is the result of explosive growth in capital gains tax collections triggered by a federal tax rate cut. The Governor has proposed a budget for fiscal 1999 which features continued growth in capital gains tax collections, offset by a cut in the vehicle license fee. The State's reserve is projected to be $1.1 billion at the end of fiscal 1999 (1.9% of revenues.) This reserve will be dedicated to balance the ongoing costs of reductions in the vehicle license fee. In October 1998, Moody's upgraded the State's general obligation bonds to Aa3 from A1; the State's general obligations are rated A+ by S&P, and AA- by Fitch. The consequences of the State's fiscal actions reach beyond its own general obligation bond ratings. Many state agencies and local governments which depend upon state appropriations realized significant cutbacks in funding during the last recession. Entities which have been forced to make program reductions or to increase fees or raise special taxes to cover their debt service and lease obligations may recover somewhat during periods of economic prosperity.

On December 6, 1994, Orange County filed for protection under Chapter 9 of the U.S. Bankruptcy Code after reports of significant losses in its investment pool. Upon restructuring, the realized losses in the pool were $1.6 billion or 21% of assets. More than 200 public entities, most of which, but not all, are located in Orange County were also depositors in the pool. The County defaulted on a number of its debt obligations. The County emerged from bankruptcy on June 12, 1996. Through a series of long-term financings, it repaid most of its obligations to pool depositors and has become current on its public debt obligations. The balance of claims against the County are payable from any proceeds received from litigation against securities dealers and other parties. The County's ratings were restored to investment grade in 1998.


Sectors Certain areas of potential investment concentration present unique risks. In 1998, $3.5 billion of tax-exempt debt issued in California was for public or nonprofit hospitals. A significant portion of the Funds' assets may be invested in health care issues. For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of stay, a phenomenon which has negatively affected the financial health of many hospitals. All hospitals are dependent on third-party reimbursement sources such as the federal Medicare and state MediCal programs or private insurers. To the extent these third party payers reduce reimbursement levels, the individual hospitals may be affected. In the face of these pressures, the trend of hospital mergers and acquisitions has accelerated in recent years. These organizational changes present both risks and opportunities for the institutions involved.

The Funds may from time to time invest in electric revenue issues. The financial performance of these utilities may be impacted as the industry moves toward deregulation and increased competition. California's electric utility restructuring plan, Assembly Bill 1890, permits direct competition to be phased in between 1998 and 2002. Municipal utilities, while not subject to the legislation, are being faced with competitive market forces and must use the transition period wisely to proactively prepare for deregulation. They are under pressure to reduce rates and cut costs in order to maintain their customer bases. In addition, some electric revenue issues have exposure to or participate in nuclear power plants which could affect the issuer's financial performance. Risks include unexpected outages or plant shutdowns, increased Nuclear Regulatory Commission surveillance or inadequate rate relief.

The Funds may invest in private activity bond issues for corporate and nonprofit borrowers. These issues sold through various governmental conduits, are backed solely by the revenues pledged by the respective borrower corporations. No governmental support is implied.

RISK FACTORS ASSOCIATED WITH A FLORIDA PORTFOLIO

The Fund's program of investing primarily in insured, AAA-rated Florida municipal bonds should significantly lessen the credit risks which would be associated with a portfolio of uninsured Florida bonds. Nevertheless, to a certain degree, the Fund's concentration in securities issued by the State of Florida and its political subdivisions involves greater risk than a fund broadly invested in insured bonds across many states and municipalities. The credit quality of the Fund will depend upon the continued financial strength of the insurance companies insuring the bonds purchased by the Fund as well as the State of Florida and the numerous public bodies, municipalities and other issuers of debt securities in Florida.

Debt The State of Florida and its local governments issue three basic types of debt, with varying degrees of credit risk: general obligation bonds backed by the unlimited taxing power of the issuer, revenue bonds secured by specific pledged funds or charges for a related project, and tax-exempt lease obligations, supported by annual appropriations from the issuer, usually with no implied tax or specific revenue pledge. During 1998, $15.2 billion in state and local debt was issued in Florida, a 27% increase from the previous year. Of this total debt amount, approximately 16% represented general obligation debt and 84% represented revenue bonds and lease-backed obligations. Debt issued in 1998 was for a wide variety of public purposes, including transportation, housing, education, health care and utilities.

As of April 9, 1999, the State of Florida had $11.5 billion outstanding general obligation bonds secured by the State's full faith and credit and taxing power. General bonded debt service accounted for a modest 2.4% of all governmental expenditures in fiscal year 1998. An additional $4 billion in outstanding bonds have been issued by the State and secured by limited state tax and revenue sources. General obligation debt of the State of Florida is rated Aa2 by Moody's, AA+ by S&P, and AA by Fitch as of April 5, 1999. State debt may only be used to fund capital outlay projects; Florida is not authorized to issue obligations to fund operations.

Several agencies of the State are also authorized to issue debt which does not represent a pledge of the state's credit. The Florida Housing Finance Authority and Florida Board of Regents are the largest issuers of this type. The principal and interest on bonds issued by these bodies are payable solely from specified sources such as mortgage repayments and university tuition and fees.


Economy The State of Florida has a population of approximately 14.7 million, making it the fourth largest state. Due to immigration, the State's population has grown at a rate exceeding the nation for four decades. Florida's economy is broadly based with a large concentration in the service and trade sectors. Tourism is one of Florida's most important industries. Visitor traffic grew by 10% in 1998 and reached an all-time high of 47.3 million visitors. This trend is expected to continue again in 1999.

During most of the 1980s, as Florida's population and employment base grew, its job growth rate was double that of the nation. However, beginning in 1988, job growth slowed and unemployment rates began trending above national levels for a number of years. During 1995, Florida's unemployment rate was 8.2% versus 7.4% nationally. Florida's rapid non-farm job growth since 1996 has reversed this trend and the state's February 1999 unemployment rate stands at 4.4% versus the national average of 4.6%. State per capita income is 98% of the national average, well above norms for the Southeast.

Legislative The State of Florida does not have a personal income tax. A constitutional amendment would be required in order to implement such a tax. Although the probability appears very low, the Fund cannot rule out the possibility that a personal income tax may be implemented at some time in the future. If such a tax were to be imposed, there is no assurance that interest earned on Florida Municipal Obligations would be exempt from this tax.

Under current Florida law, shares of the Fund will be exempt from the State's intangible personal property tax to the extent that on the annual assessment date (January 1) its assets are solely invested in Florida Municipal Obligations and U.S. government securities, certain short-term cash investments, or other exempt securities. There can be no assurance that this exemption for Florida securities will be maintained. Also, the constitutionality of the intangibles tax has been challenged in court.

The Florida Constitution limits the total ad valorem property tax that may be levied by each county, municipality and school district to ten mills (1.0% of value). The limit applies only to taxes levied for operating purposes and excludes taxes levied for the payment of bonds. This restricts the operating flexibility of local governments in the State and may result from time to time in budget deficits for some local units.

Financial The Florida Constitution and Statutes mandate that the State budget as a whole, and each separate fund within the State budget, be kept in balance from currently available revenues each State fiscal year (July 1-June 30.) The Governor and Comptroller are responsible for insuring that sufficient revenues are collected to meet appropriations and that no deficit occurs in any State fund.

The State's revenue structure is narrowly based, relying on the sales and use tax for 70% of its general revenues. This structure, combined with the effects of the recession and heavy spending demands, created budget shortfalls in fiscal years 1991 and 1992. Through midyear spending adjustments and a draw upon its reserves, the State was able to achieve budget balance for both fiscal years. The State's finances received a substantial boost in fiscal 1993 as a result of increased economic activity associated with rebuilding efforts after Hurricane Andrew, which hit south Florida on August 24, 1992. Additionally, Florida recently settled a lawsuit with the tobacco industry where the state sought to recover the costs associated with tobacco usage by Floridians. This settlement resulted in a $750 million payment to the state in 1997, a $220 million payment in 1998 and future payments that rise to $440 million in 2003. At the end of 1998, the State had reserves of $2.5 billion in the General Revenue Fund (15% of revenues).

In November 1994, State voters passed a proposal to limit State revenue growth to the average annual growth in personal income over the previous five years. The cap excludes revenue to pay certain expenditures, including debt service. The limitation should not pose an onerous burden on State finance. However, the demand for governmental services continues to grow because of above average population growth and demographics.

Sectors Certain areas of potential investment concentration present unique risks. In 1997, $1.9 billion of tax-exempt debt issued in Florida was for public or nonprofit hospitals. A significant portion of the Fund's assets may be invested in health care issues.


For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of stay, a phenomenon which has negatively affected the financial health of many hospitals. All hospitals are dependent on third party reimbursement sources such as the federal Medicare and state Medicaid programs or private insurers. To the extent these payors reduce reimbursement levels, the individual hospitals may be affected. In the face of these pressures, the trend of hospital mergers and acquisitions has accelerated in recent years. These organizational changes present both risks and opportunities for the institutions involved. Due to the high proportion of elderly residents, Florida hospitals tend to be highly dependent on Medicare. In addition to the regulations imposed by Medicare, the State also regulates healthcare. A State board must approve the budgets of all Florida hospitals; certificates of need are required for all significant capital expenditures. The primary management objective is cost control. The inability of some hospitals to achieve adequate cost control while operating in a competitive environment has led to a number of hospital bond defaults.

The Fund may from time to time invest in electric revenue issues which have exposure to or participate in nuclear power plants which could affect the issuers' financial performance. Such risks include unexpected outages or plant shutdowns, increased Nuclear Regulatory Commission surveillance or inadequate rate relief. In addition, the financial performance of electric utilities may be impacted by increased competition and deregulation in the electric utility industry.

The Fund may invest in private activity bond issues for corporate and nonprofit borrowers. These issues, sold through various governmental conduits, are backed solely by the revenues pledged by the respective borrowing corporations. No government support is implied.

RISK FACTORS ASSOCIATED WITH A GEORGIA PORTFOLIO

The Fund's concentration in the debt obligations of one state carries a higher risk than a portfolio that is geographically diversified. In addition to State of Georgia general obligations and state agency issues, the Fund will invest in local bond issues, lease obligations and revenue bonds, the credit quality and risk of which will vary according to each security's own structure and underlying economics.

Debt The State of Georgia and its local governments issued $6 billion in municipal bonds in 1998, a 34% increase from the previous year. Of this total debt amount, approximately 30% was general obligation debt backed by the unlimited taxing power of the issuer and 70% was revenue bond debt secured by specific pledged fees or charges for an enterprise or project. As of June 1, 1999, the State was rated Aaa by Moody's, AAA by S&P and AAA by Fitch.

The State of Georgia currently has net direct obligations of approximately $5.2 billion. Since 1973, when a Constitutional Amendment authorizing the issuance of state general obligation (GO) bonds was implemented, the State has funded most of its capital needs through the issuance of GO bonds. Previously, capital requirements were funded through the issuance of bonds by ten separate authorities and secured by lease rental agreements and annual state appropriations. Its Constitution permits the State to issue bonds for two types of public purposes: (1) general obligation debt and (2) guaranteed revenue debt. The Constitution imposes certain debt limits and controls. GO debt service cannot exceed 10% of total revenue receipts less refunds of the state treasury. GO bonds have a maximum maturity of 25 years. Currently, maximum GO debt service requirements are well below the legal limit at 5.1% of Fiscal Year 1998 treasury receipts.

In addition to the general obligation and lease backed debt described above, $318 million bonds have been issued and are outstanding by the Georgia World Congress Authority and $754 million bonds have been issued and are outstanding by the Georgia Housing and Finance Authority, none of which represent direct obligations of the State.

Economy The State of Georgia has a population of approximately 7.6 million, making it the 10th largest state. Since the 1960s, the State's population has grown at a rate exceeding the national average, with the growth rate during the 1980s nearly twice that of the entire country. Stable to strong economic growth during the 1980s was led by the Atlanta metropolitan statistical area, where approximately 45% of the State's population


is located. This area includes the capital city of Atlanta, and 18 surrounding counties. The next largest metropolitan area is the Columbus-Muscogee area followed by the Macon area.

The State's economy is well diversified. The current labor force of 4 million is largely concentrated in service and wholesale/retail trade jobs, followed by lesser amounts in manufacturing and government. Employment gains have substantially exceeded the region and the U.S. since 1980. Georgia's one year employment growth (February 1998 to February 1999) stood at 3.2% compared to the national rate of 2.2%. The State's economy continues to outperform the nation. Georgia's per capita income has steadily improved against the national average since the 1960s and currently is 94% of the U.S., ranking it 25th among the states.

Financial To a large degree, the creditworthiness of the portfolio is dependent on the financial strength of the State of Georgia and its localities. During the 1980s, the State's strong economic performance translated into solid financial performance and the accumulation of substantial reserves.

During fiscal 1989 to 1991, the State's financial condition was affected by three years of revenue shortfalls brought on by recession. During these periods, the Governor called special legislative sessions to enact sizable spending cuts to achieve budget balance. Economic conditions improved in 1992, allowing the State to restore its financial cushion. Results for fiscal 1998 showed a continuation of this positive trend with a surplus of $685 million and an ending general fund balance of $1.2 billion, or 9% of revenues.

A significant portion of the portfolio's assets is expected to be invested in the debt obligations of local governments and public authorities with investment grade ratings of BBB or higher. While local governments in Georgia are primarily reliant on independent revenue sources, such as property taxes, they are not immune to budget shortfalls caused by cutbacks in State aid. The Fund may purchase obligations issued by public authorities in Georgia which are not backed by the full faith and credit of the State and may or may not be subject to annual appropriations from the State's General Fund. Likewise, certain enterprises such as water and sewer systems or hospitals may be affected by changes in economic activity.

Sectors Certain areas of potential investment concentration present unique risks. In 1997, $676 million of tax-exempt debt issued in Georgia was for public or nonprofit hospitals. A significant portion of the Fund's assets may be invested in health care issues. For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of stay, a phenomenon which has negatively affected the financial health of many hospitals. All hospitals are dependent on third party reimbursement sources such as the federal Medicare and state Medicaid programs or private insurers. To the extent these payors reduce reimbursement levels, the individual hospitals may be affected. In the face of these pressures, the trend of hospital mergers and acquisitions has accelerated in recent years. These organizational changes present both risks and opportunities for the institutions involved.

The Fund may from time to time invest in electric revenue issues which have exposure to or participate in nuclear power plants which could affect the issuers' financial performance. Such risks include unexpected outages or plant shutdowns, increased Nuclear Regulatory Commission surveillance or inadequate rate relief. In addition, the financial performance of electric utilities may be impacted by increased competition and deregulation of the electric utility industry.

The Fund may invest in private activity bond issues for corporate and nonprofit borrowers. These issues sold through various governmental conduits, are backed solely by the revenues pledged by the respective borrowing corporations. No governmental support is implied.

RISK FACTORS ASSOCIATED WITH A MARYLAND PORTFOLIO The Fund's concentration in the debt obligations of one state carries a higher risk than a portfolio that is more geographically diversified. In addition to State of Maryland general obligations and state agency issues, the Fund will invest in local bond issues, lease obligations and revenue bonds, the credit quality and risk of which will vary according to each security's own structure and underlying economics.


Debt The State of Maryland and its local governments issue two basic types of debt, with varying degrees of credit risk: general obligation bonds backed by the unlimited taxing power of the issuer and revenue bonds secured by specific pledged fees or charges for a related project. In 1998, $3.8 billion in state and local debt was issued in Maryland, a 33% increase from the previous year. Of this total amount, approximately 45% represented general obligation debt and 55% revenue bonds. Included within the revenue bond sector are tax-exempt lease obligations that are subject to annual appropriations of a governmental body, usually with no implied tax or specific revenue pledge. Debt issued in 1998 was for a wide variety of public purposes, including health care, housing, utilities, and education.

The State of Maryland had approximately $3.4 billion in general obligation bonds outstanding as of December 31, 1998 along with an additional $1.1 billion in other tax-supported debt. General obligation debt of the State of Maryland is rated Triple-A by Moody's, S&P, and Fitch. There is no general debt limit imposed by the State Constitution or public general laws. The State Constitution imposes a 15-year maturity limit on State general obligation bonds. Although voters approved a constitutional amendment in 1982 permitting the State to borrow up to $100 million in short-term notes in anticipation of taxes and revenues, the State has not made use of this authority.

Many agencies of the State government are authorized to borrow money under legislation which expressly provides that the loan obligations shall not be deemed to constitute debt or a pledge of the faith and credit of the State. The Community Development Administration of the Department of Housing and Community Development, the Maryland Stadium Authority, the Board of Trustees of St. Mary's College of Maryland, the Maryland Environmental Service, the Board of Regents of the University of Maryland System, the Board of Regents of Morgan State University, the Maryland Food Center Authority, and the Maryland Water Quality Financing Administration have issued and have outstanding bonds of this type. The principal of and interest on bonds issued by these bodies are payable solely from pledged revenues, principally fees generated form use of the facilities, enterprises financed by the bonds, or other dedicated fees.

Economy Maryland's economic growth has recovered from the effects of federal downsizing in the early 1990s. Employment growth data suggest that the state matched national growth rates of about 2% in 1998. The per capita income level is another sign of strength in the economy. It continues to maintain a high 112% of national per capita, as demonstrated by 1997 data. According to the Maryland Board of Revenue Estimates, the national economy is expected to slow in the later part of 1999 and the State's economy is expected to mirror this trend. However, the State's economy is expected to be resilient because of its overall diversification and particularly because of its low share of manufacturing employment (7% of total employment compared to 16% nationally). The manufacturing sector tends to be more vulnerable during economic downturns.

Financial To a large degree, the risk of the portfolio is dependent upon the financial strength of the State of Maryland and its localities. Financial management continues to demonstrate a conservative approach to managing the State's finances. Fiscal Year 1998 concluded with a General Fund operating surplus of $1.2 billion. The general fund balance rose to a healthy $1.6 billion or 14% of general revenues. For the current fiscal year, the State's Board of Revenue Estimates reported in January 1999 that the revenue forecast has been revised upward to $8.2 billion, an increase of $195 million. These results are reassuring that the budget will remain balanced as the State implements income tax reduction.

Sectors Certain areas of potential investment concentration present unique risks. In 1998, $815.5 million or 22% of Maryland tax-exempt debt was issued in the Health Care sector by public or nonprofit hospitals. A significant portion of the Funds' assets may be invested in health care issues. For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of stay, a phenomenon which has negatively affected the financial health of some hospitals. All hospitals are dependent on third party reimbursement mechanisms. At the present time, Maryland hospitals operate under a system in which reimbursement is determined by a State-administered set of rates and charges that applies to all payors. A federal waiver allows this system to be applied to Medicare reimbursement as well rather than the Federal Diagnosis-Related Group (DRG) system required elsewhere. In order to maintain this Medicare waiver, the cumulative rate of increase in Maryland hospital charges since the base year 1980 must remain below that of US hospitals overall. From 1983 through 1992, the rate of increase for Maryland hospitals was below the


national average; for the six years from 1993 through 1998, Maryland hospital costs have grown faster than the national rate, although the cumulative rate of increase since the base year is still below the national average. Any loss of the Medicare waiver in the future may have an adverse impact upon the credit quality of Maryland hospitals.

The Fund may from time to time invest in electric revenue issues which have exposure to or participate in nuclear power plants which could affect the issuer's financial performance. Such risks include unexpected outages or plant shutdowns, increased Nuclear Regulatory Commission surveillance or inadequate rate relief. In addition, the financial performance of electric utilities may be impacted by increased competition and deregulation of the industry.

The Fund may invest in private activity bond issues for corporate and nonprofit borrowers. These issues sold through various governmental conduits, are backed solely by the revenues pledged by the respective borrowing corporations. No governmental support is implied.

RISK FACTORS ASSOCIATED WITH A NEW JERSEY PORTFOLIO

The Fund's concentration in the debt obligations of one state carries a higher risk than a portfolio that is more geographically diversified. In addition to State of New Jersey general obligations and state agency issues, the Fund will invest in local bond issues, lease obligations and revenue bonds, the credit quality and risk of which will vary according to each security's own structure and underlying economics.

Debt The State of New Jersey and its local governments issue two basic types of debt, with varying degrees of credit risk: general obligation bonds backed by the unlimited taxing power of the issuer and revenue bonds secured by specific pledged fees or charges for a related project. In 1998, $8.7 billion in state and local debt was issued in New Jersey, a 4% decrease from the previous year. Of this total amount, approximately 31% represented general obligation debt and 69% revenue bonds. Included within the revenue bond sector are tax-exempt lease obligations that are subject to annual appropriations of a governmental body, usually with no implied tax or specific revenue pledge. Debt issued in 1998 was for a wide variety of public purposes, including health care, education, and transportation.

The State of New Jersey had approximately $3.6 billion in general obligation bonds outstanding as of June 30, 1998. General obligation debt of the State is rated Aa1 by Moody's, AA+ by S&P, and AA+ by Fitch.

Many agencies of the State government are authorized to borrow money under legislation which expressly provides that the loan obligations shall not be deemed to constitute debt or a pledge of the faith and credit of the State. The New Jersey Economic Development Authority, New Jersey Building Authority, New Jersey Educational Facilities Authority, New Jersey Sports and Exposition Authority, and New Jersey Transportation Trust Fund Authority have outstanding bonds of this type.

Economy The State has recovered from the recession of the early 1990's. New Jersey's large and diverse economy had the best two year period of economic growth from 1997-1998 since 1987-1988. However, employment growth in 1997-1998 was slightly lower than national growth rates. New Jersey may narrow the employment growth gap further, but is expected to remain below national growth levels. New Jersey personal income growth was stronger than the national average. Per capita income in 1997 was also very strong at approximately 128% of the nation. Real Gross State Product increased about 3.5% in 1998, the highest growth in 10 years. For the duration of 1999, New Jersey's economy is expected to track the national economy with a possible slowdown by the middle to end of the year.

Financial To a large degree, the risk of the portfolio is dependent on the financial strength of the State of New Jersey and its localities. The State of New Jersey had General Fund operating deficits in the 1996 and 1997 Fiscal Years, but in Fiscal Year 1998 the State reported a $130 million surplus. The surplus caused the general fund balance to increase to $1.8 billion and unreserved funds to increase to $905 million (5% of general revenues). In 1998 and in the current 1999 Fiscal Year the State has benefited from stronger than expected revenue growth. A recent initiative that may have an affect on the State's financial condition is the Governor's


proposed property tax rebate program. The program is projected to cost $200 million per year over five years for a total of $1 billion.

Sectors Certain areas of potential investment concentration present unique risks. In 1998, 20% of New Jersey tax-exempt debt was issued in the Health Care sector by public or nonprofit hospitals. A significant portion of the Fund's assets may be invested in health care issues. For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of stay, a phenomenon which has negatively affected the financial health of many hospitals. While each hospital bond issue is separately secured by the individual hospital's revenues, third-party reimbursement sources such as the federal Medicare or Medicaid programs and private insurers are common to all hospitals. To the extent these payors reduce reimbursement levels, the individual hospitals may be affected. In the face of these pressures, the trend of hospital mergers and acquisitions have accelerated in recent years. These organizational changes present both risks and opportunities for the institutions involved.

The Fund may from time to time invest in electric revenue issues which have exposure to or participate in nuclear power plants which could affect the issuer's financial performance. Such risks include delay in construction and operation due to increased regulation, unexpected outages or plant shutdowns, increased Nuclear Regulatory Commission surveillance or inadequate rate relief. In addition, financial performance of electric utilities may be impacted by increased competition and deregulation in the industry.

The Fund may invest in private activity bond issues for corporate and nonprofit borrowers. These issues sold through government conduits, such as the New Jersey Economic Development Authority and various local issuers, are backed solely by the revenues pledged by the respective borrowing corporations. No governmental support is implied. In the past, a number of New Jersey Economic Development Authority issues have defaulted as a result of borrower financial difficulties. A number of counties and utility authorities in the state have issued several billion dollars of bonds to fund incinerator projects and solid waste projects. A federal decision striking down New Jersey's system of solid waste flow control increases the potential risk of default absent a legislative solution, or some form of subsidy by local or State governments.

RISK FACTORS ASSOCIATED WITH A NEW YORK PORTFOLIO The Funds' concentration in the debt obligations of one state carries a higher risk than a portfolio that is geographically diversified. In addition to state general obligation bonds and notes and the debt of various state agencies, the Fund will invest in local bond issues, lease obligations and revenue bonds, the credit quality and risk of which will vary according to each security's own structure and underlying economics.

The Funds' ability to maintain a high level of "triple-exempt" income is primarily dependent upon the ability of New York issuers to continue to meet debt service obligations in a timely fashion. In 1975 the State, New York City, and other related issuers experienced serious financial difficulties that ultimately resulted in much lower credit ratings and loss of access to the public debt markets. A series of fiscal reforms and an improved economic climate allowed these entities to return to financial stability by the early 1980s. Credit ratings were reinstated or raised and access to the public credit markets was restored. During the early 1990s, the State and City confronted renewed fiscal pressure, as the region suffered moderate economic decline. Conditions began to improve in 1993, though below average economic performance and tight budgetary conditions persisted. Both entities experienced financial relief in fiscal 1997 because of the strong national economy, a robust financial services sector, and vigilant spending control. The State and City continue to face challenging budgets while they attempt to adjust spending levels and priorities.

New York State

The State, its agencies, and local governments issued $36.5 billion in long-term municipal bonds in 1997, a 32% increase from the previous year. As of March 31, 1998, total State-related bonded debt was projected to be $34.7 billion, of which $4.7 billion was general obligation debt and $29.7 billion was financed under lease-purchase or other contractual obligations. In addition, the State had $293 million in bond anticipation notes outstanding. Since 1993, the State has not issued Tax and Revenue Anticipation Notes (TRANs) terminating


the practice of annual seasonal borrowing which had occurred since 1952. As of June 1, 1998, the State's general obligation bonds were rated A2 by Moody's, A by S&P and A+ by Fitch. All general obligation bonds must be approved by the voters prior to issuance.

The fiscal stability of the State is also important for numerous authorities which have responsibilities for financing, constructing, and operating revenue-producing public benefit facilities. As of September 30, 1997, there were 17 authorities that had aggregate debt outstanding, including refunding bonds, of $846.

The authorities most reliant upon annual direct State support include the Metropolitan Transit Authority (MTA), the Urban Development Authority (UDC), and the New York Housing Finance Agency (HFA). In February 1975, the UDC defaulted on approximately $1.0 billion of short-term notes. The default was ultimately cured by the creation of the Project Finance Authority (PFA), through which the State provided assistance to the UDC, including support for debt service. Since then, there have been no additional defaults by State authorities although substantial annual assistance is required by the MTA and the HFA in particular.

Subsequent to the fiscal crisis of the mid-70s, New York State maintained balanced operations on a cash basis, although by 1992 it had built up an accumulated general fund deficit of over $6 billion on a "Generally Accepted Accounting Principles" (GAAP) basis. This deficit consisted mainly of overdue tax refunds and payments due localities.

To resolve its accumulated general fund deficit the State established the Local Government Assistance Corporation (LGAC) in 1990. A total of $5.2 billion in LGAC bonds have been issued. The proceeds of these bonds were used to provide the State's assistance to localities and school districts, enabling the State to reduce its accumulated general fund deficit. State short-term borrowing requirements, which peaked at a record $5.9 billion in fiscal 1991, have been reduced to zero. Due to a strong wall street performance and a booming economy, New York ended fiscal 1998 with an accumulated surplus of $567 million. The adopted budget for fiscal 1996 included a multi-year tax reduction plan which lowers the maximum personal income tax rate from 7.875 to 6.85%. The original budget proposal for the fiscal year ended March 31,1997, included a multi-year personal income tax rate cut and emphasized cost control to balance against the effects of a weak economy. Because of strong growth in personal income and business taxes, fiscal year 1998 ended with an operating surplus of $1.8 billion, which will helped smooth budget balancing efforts for fiscal year 1999. Fiscal year 1998 is estimated to have ended with another large operating surplus.

New York State has a large, diversified economy which has witnessed a basic shift away from manufacturing toward service sector employment. In 1997, per capita income in New York State was $30,752, 20% above the national average. Like most northeastern states, New York suffered a population loss during the 1970s. However, during the 1980s that trend reversed and population increased slightly, standing at 18,175,301 in 1998. During 1990-1992, the State experienced a slowing of economic growth evidenced by the loss of 425,000 jobs. Conditions have improved with non-farm employment growing by an average of 0.9% between 1994 and 1998, well below the national average. Such economic trends are important as they influence the growth or contraction of State revenues available for operations and debt service.

New York City

The financial problems of New York City were acute between 1975 and 1979, highlighted by a payment moratorium on the City's short-term obligations. In the subsequent decade, the City made a significant recovery. The most important contribution to the City's fiscal recovery was the creation of the Municipal Assistance Corporation for the City of New York (MAC). Backed by sales, use, stock transfer, and other taxes, MAC issued bonds and used the proceeds to purchase City bonds and notes. Although the MAC bonds met with reluctance by investors at first, the program has proven to be very successful.

Much progress has been made since the fiscal crisis of 1975. By 1981, the City achieved a budget balanced in accordance with Generally Accepted Accounting Principles (GAAP) and has continued to generate small surpluses on an operating basis. By 1983, the City eliminated its accumulated General Fund deficit and as of the fiscal year ending June 30, 1998, had a total General Fund balance of $378 million. Although the City continues to finance its seasonal cash flow needs through public borrowings, the total amount of these borrowings has not exceeded 10% of any year's revenues and all have been repaid by the end of the fiscal year.


As of May 1, 1999 the City's general obligation bonds are rated A3 by Moody's, A- by S&P and A by Fitch. S&P has listed the City's rating on positive credit watch.

While New York City sustained a decade long record of relative financial stability, during the 1990s budgetary pressures have been evident. Its major revenue sources, income and sales taxes, were slowed and a downturn in the real estate market reduced property tax revenues. Nonetheless, the City concluded the 1999 fiscal year with an operating surplus of $1.66 billion. The City's finances have been bolstered by strong tax receipts growth, fueled by strong financial markets over the last several years. Revenues and expenditures for the 1999 fiscal year were balanced in accordance with GAAP for the nineteenth consecutive year. New York City remains exposed to future budget pressure should there be a sharp down turn in the financial services sector, though it has established a budget stabilization account for contingency.

Long Island and LILCO

The Long Island Lighting Company (LILCO) was the single largest property taxpayer in both Nassau and Suffolk Counties. LILCO experienced substantial financial difficulty primarily arising from problems related to its completed but unlicensed 809 megawatt Shoreham Nuclear Power Facility located in Suffolk County. In 1986, the State Legislature created the Long Island Power Authority (LIPA) and ownership of the Shoreham Plant was subsequently transferred to LIPA for one dollar in exchange for certain rate benefits to LILCO.

As requested by the Governor, LIPA proposed a plan to restructure LILCO, reduce rates on Long Island and provide a framework for long-term competition in power production. Included in the plan would be a settlement of the Suffolk County tax liability. With the issuance of $7 billion in debt, LIPA will purchase LILCO common stock, acquire or redeem certain preferred stock and outstanding debt, and fund the cost of certain rebates and credits to LIPA's customers. With these purchases, LIPA would acquire LILCO's electric transmission and distribution system, its 18% ownership interest in the Nine Mile Point 2 nuclear plant and the regulatory asset of Shoreham. In May 1998, LIPA sold its first two series of bonds amounting to $4.9 billion. This allowed for the acquisition of LILCO by LIPA and a merger of the remaining portions of the former LILCO business with Keyspan Energy to form Marketspan Corp. LIPA will now be the provider of retail electric service throughout most of Long Island.

Sectors Certain areas of potential investment concentration present unique risks. In 1998, $4.6 billion of tax-exempt debt issued in New York was for public or nonprofit hospitals. A significant portion of the Fund's assets may be invested in health care issues. For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of stay, a phenomenon which has negatively affected the financial health of many hospitals. While each hospital bond issue is separately secured by the individual hospital's revenues, third-party reimbursement sources such as the federal Medicare and state Medicaid programs or private insurers are common to all hospitals. To the extent these third-party payors reduce reimbursement levels, the individual hospitals may be affected. The state's support for Medicaid and health services has slowed over the last several years. In 1997 health care reform was implemented. Under the new system, hospitals are permitted to negotiate inpatient payment rates with private payors. In addition, the federal balanced budget act of 1997 contains provisions to reduce Medicare expenditures. In the face of these pressures, the trend of hospital mergers and acquisitions has accelerated in recent years. These organizational changes present both risks and opportunities for the institutions.

The Funds may from time to time invest in electric revenue issues which have exposure to or participate in nuclear power plants which could affect the issuers' financial performance. Such risks include unexpected outages or plan shutdowns, increased Nuclear Regulatory Commission surveillance or inadequate rate relief. In addition, the financial performance of electric utilities may be impacted by increased competition and deregulation in the industry.

The Funds may invest in private activity bond issues for corporate and nonprofit borrowers. These issues sold through various governmental conduits, are backed solely by the revenues pledged by the respective borrowing corporations. No governmental support is implied. This category accounted for 9.8% of the tax-exempt debt issued in New York during 1997.


RISK FACTORS ASSOCIATED WITH A VIRGINIA PORTFOLIO

The Funds' concentration in the debt obligations of one state carries a higher risk than a portfolio that is geographically diversified. In addition to Commonwealth of Virginia general obligations and agency issues, the Fund will invest in local bond issues, lease obligations and revenue bonds, the credit quality and risk of which will vary according to each security's own structure and underlying economics.

Debt The Commonwealth of Virginia and its local governments issued $5.8 billion of municipal bonds in 1998, including general obligation debt backed by the unlimited taxing power of the issuer and revenue bonds secured by specific pledged fees or charges for an enterprise or project. Included within the revenue bond category are tax-exempt lease obligations that are subject to annual appropriations of a governmental body to meet debt service, usually with no implied tax or specific revenue pledge. Debt issued in 1998 was for a wide variety of public purposes, including transportation, housing, education, health care, and industrial development.

As of June 30, 1998, the Commonwealth of Virginia had $1.1 billion outstanding general obligation bonds secured by the Commonwealth's revenue and taxing power, a modest amount compared to many other states. Under state law, general obligation debt is limited to 1.15 times the average of the preceding three years' income tax and sales and use tax collections. The Commonwealth's outstanding general obligation debt is well below that limit and over 90% of the debt service is actually met from revenue producing capital projects such as universities and toll roads.

The Commonwealth also supports $2.6 billion in debt issued by the Virginia Public Building Authority, the Virginia College Building Authority, the Virginia Biotechnology Research Park Authority, the Virginia Port Authority, and the Innovative Technology Authority for transportation purposes. These bonds are not backed by the full faith and credit of the Commonwealth but instead, are subject to annual appropriations from the Commonwealth's General Fund.

In addition to the Commonwealth and public authorities described above, an additional $8.0 billion in bonds has been issued by special public authorities in Virginia that are not obligations of the Commonwealth. These bonds include debt issued by the Virginia Education Loan Authority, the Virginia Public School Authority, the Virginia Resources Authority, and the Virginia Housing Development Authority.

Economy The Commonwealth of Virginia has a population of approximately 6.8 million, making it the twelfth largest state. Since the 1930s the Commonwealth's population has grown at a rate near or exceeding the national average. Stable to strong economic growth during the 1980s was led by the northern Virginia area outside of Washington, D.C. where approximately 30% of the Commonwealth's population is concentrated. The next largest metropolitan area is the Norfolk-Virginia Beach-Newport News area, followed by the Richmond-Petersburg area, including the Commonwealth's capital of Richmond. The Commonwealth's economy is broadly based, with a large concentration in service and governmental jobs, followed by manufacturing. Virginia has significant concentrations of high technology employers, with nearly 150,000 people employed in 3,900 establishments. Per capita income exceeds national averages while unemployment figures have consistently tracked below national averages.

Financial To a large degree, the risk of the portfolio is dependent on the financial strength of the Commonwealth of Virginia and its localities. Virginia is rated Triple-A by Moody's, S&P and Fitch. The Commonwealth's budget is prepared on a biennial basis. From 1970 through 1998 the General Fund showed a positive balance for all of its two-year budgetary periods. The national recession and its negative effects on Virginia's personal income tax collections did, however, force the Commonwealth to draw down its General Fund balances to a deficit position in 1992. Spending cuts and improved economic conditions allowed for positive operations from 1993 on. The Commonwealth posted a budgetary surplus for fiscal years 1995 to 1998 despite federal retiree settlements and other transfers. On June 30, 1998, the unreserved general fund balance, including a revenue stabilization account, totaled $970 million.

A significant portion of the Funds' assets is expected to be invested in the debt obligations of local governments and public authorities with investment grade ratings of BBB or higher. While local governments in Virginia are primarily reliant on independent revenue sources, such as property taxes, they are not immune


to budget shortfalls caused by cutbacks in State aid. Likewise, certain enterprises such as toll roads or hospitals may be affected by changes in economic activity.

Sectors Certain areas of potential investment concentration present unique risks. A significant portion of the Fund's assets may be invested in health care issues. For over a decade, the hospital industry has been under significant pressure to reduce expenses and shorten length of stay, a phenomenon which has negatively affected the financial health of many hospitals. While each hospital bond issue is separately secured by the individual hospital's revenues, third-party reimbursement sources such as the federal Medicare and state Medicaid programs or private insurers are common to all hospitals. To the extent these payors reduce reimbursement levels, the individual hospitals may be affected. In the face of these pressures, the trend of hospital mergers and acquisitions has accelerated in recent years. These organizational changes present both risks and opportunities for the institutions involved.

The Funds may from time to time invest in electric revenue issues which have exposure to or participate in nuclear power plants which could affect the issuers' financial performance. Such risks include unexpected outages or plant shutdowns, increased Nuclear Regulatory Commission surveillance or inadequate rate relief.

The Funds may invest in private activity bond issues for corporate and nonprofit borrowers. These issues sold through various governmental conduits, are backed solely by the revenues pledged by the respective borrowing corporations. No governmental support is implied.

All Funds

Puerto Rico From time to time the Funds invest in obligations of the Commonwealth of the Puerto Rico and its public Corporations which are exempt form general state and city or local income taxes. The majority of the Commonwealth's debt is issued by the major public agencies that are responsible for many of the island's public functions, such as water, wastewater, highways, telecommunications, education and public construction. As of January 31, 1999, public sector debt issued by the Commonwealth and its public corporations totaled $21.3 billion.

Since the 1980's Puerto Rico's economy and financial operations have paralleled the economic cycles of the United States. The island's economy, particularly the manufacturing sector has experienced substantial gains in employment. Much of these economic gains are attributable in part to favorable treatment under Section 936 of the Federal Internal Revenue Code for United States corporations doing business in Puerto Rico. The number of persons employed in Puerto Rico during Fiscal Year 1998 reached 1.1 million people. The number of unemployed citizens, however, remains high at 13.7 percent.

Debt ratios for the Commonwealth remain high as it assumes much of the responsibility for the local infrastructure. Sizable infrastructure programs are ongoing to upgrade the island's water, sewer and road systems. The Commonwealth's general obligations debt is secured by a first lien on revenues. The Commonwealth has maintained a fiscal policy which seeks to correlate the growth in spending with the growth of the economic base available to service that debt. Between fiscal years 1994 and 1998, however the debt increased 46% while gross product rose 36%. Short term debt remains a modest 11.7% of total debt outstanding as of January 31, 1999. The maximum annual debt service requirement on Commonwealth general obligation debt totals 9.7% of governmental revenues for Fiscal Year 1998. This is well below the 15% limit imposed by the Commonwealth of Puerto Rico.

The fiscal year 1994 budget was balanced with an increase in the tollgate tax on Section 936 companies and improved revenue collections, which enabled the Commonwealth to record a strong turnaround in the General Fund balance to $309 million (6,8% of general fund expenses). A General fund balance of $324 million was recorded for the end of fiscal year 1998.

The Commonwealth's economy remains vulnerable to changes in oil prices, American trade, foreign policy, levels of foreign assistance and natural disasters. On September 21, 1998, Puerto Rico was directly hit by Hurricane Georges, which caused extensive public and private damage. Despite the overall destructiveness of the storm, the net impact may have been positive, as aid from the Federal Emergency Management Agency and insurers is estimated to exceed $3 billion.


Per capita income levels, while being the highest in the Caribbean, lag far behind the United States. In 1997 legislation was introduced proposing a mechanism to permanently settle the political relationship with the United States. In March 1998, the U.S. House of Representatives voted in favor of a political status act that includes a referendum and a 10-year transition plan. A referendum held in December of 1998 resulted in an ambiguous outcome to the status question. Of the voting options available, a majority of voters opted for the choice labeled "None of the Above." While there are various interpretations to this result, it remains clear that no definite resolution to the status issue is anticipated in the near future.

For many years U.S. companies operating in Puerto Rico were eligible to receive a special tax credit available under Section 936 of the federal tax code, which helped spur significant expansion in capital intensive manufacturing activity. Federal tax legislation was passed in 1993 which revised the tax benefits received by U.S. corporations (Section 936 firms) that operate manufacturing facilities in Puerto Rico. The legislation provides these firms with two options: a 5 year phased reduction of the income based tax credit to 40% of the preciously allowable credit or the conversion to a wage based standard, allowing a tax credit for the first 60% of qualified compensation paid to employees as defined in the IRS Code. Studies indicate that there have been no reductions in the economic growth rate or employment in industries which were expected to be impacted by the 1993 amendments. In 1996, amendments were signed into law to phase out the tax credit over a 10 year period for existing claimants and to eliminate it for corporations without established operations after October 1995. At present, it is difficult to forecast what the short and long-term effects of a phase out of the Section 936 credit would have on the Puerto Rican economy.

A final risk factor with Commonwealth is the large amount of unfunded pension liabilities. The two main public pension systems are largely unfunded. The employees retirement system has an unfunded liability of $6 billion and the teachers retirement system has an unfunded liability of $1 billion. The government is working to resolve the liability as evidenced by the use of a portion of the proceeds of a sale of the Puerto Rican Telephone Company to cover a portion of the fund's deficiency.

INVESTMENT PROGRAM

Types of Securities

Set forth below is additional information about certain of the investments described in the Fund's prospectus.

Municipal Securities

Subject to the investment objectives and programs described in the prospectus and the additional investment restrictions described in this Statement of Additional Information, each Fund's portfolio may consist of any combination of the various types of municipal securities described below or other types of municipal securities that may be developed. The amount of each Fund's assets invested in any particular type of municipal security can be expected to vary.

The term "municipal securities" means obligations issued by or on behalf of states, territories, and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities, as well as certain other persons and entities, the interest from which is exempt from federal, state, and/or city or local, if applicable, income tax. In determining the tax-exempt status of a municipal security, the Fund relies on the opinion of the issuer's bond counsel at the time of the issuance of the security. However, it is possible this opinion could be overturned, and as a result, the interest received by the Fund from such a security might not be exempt from federal income tax.

Municipal securities are classified by maturity as notes, bonds, or adjustable rate securities.

Municipal Notes

Municipal notes generally are used to provide short-term operating or capital needs and generally have maturities of one year or less. Municipal notes include:


. Tax Anticipation Notes Tax anticipation notes are issued to finance working capital needs of municipalities. Generally, they are issued in anticipation of various seasonal tax revenue, such as income, property, use and business taxes, and are payable from these specific future taxes.

. Revenue Anticipation Notes Revenue anticipation notes are issued in expectation of receipt of other types of revenue, such as federal or state revenues available under the revenue sharing or grant programs.

. Bond Anticipation Notes Bond anticipation notes are issued to provide interim financing until long-term financing can be arranged. In most cases, the long-term bonds then provide the money for the repayment of the notes.

. Tax-Exempt Commercial Paper Tax-exempt commercial paper is a short-term obligation with a stated maturity of 270 days or less. It is issued by state and local governments or their agencies to finance seasonal working capital need or as short-term financing in anticipation of longer-term financing.

. Municipal Bonds Municipal bonds, which meet longer-term capital needs and generally have maturities of more than one year when issued, have two principal classifications: general obligation bonds and revenue bonds. Two additional categories of potential purchases are lease revenue bonds and pre-refunded/escrowed to maturity bonds. Another type of municipal bond is referred to as an Industrial Development Bond.

. General Obligation Bonds Issuers of general obligation bonds include states, counties, cities, towns, and special districts. The proceeds of these obligations are used to Fund a wide range of public projects, including construction or improvement of schools, public buildings, highways and roads, and general projects not supported by user fees or specifically identified revenues. The basic security behind general obligation bonds is the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. The taxes that can be levied for the payment of debt service may be limited or unlimited as to the rate or amount of special assessments. In many cases voter approval is required before an issuer may sell this type of bond.

. Revenue Bonds The principal security for a revenue bond is generally the net revenues derived from a particular facility, or enterprise, or in some cases, the proceeds of a special charge or other pledged revenue source. Revenue bonds are issued to finance a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges, and tunnels; port and airport facilities; colleges and universities; and hospitals. Revenue bonds are sometimes used to finance various privately operated facilities provided they meet certain tests established for tax-exempt status.

Although the principal security behind these bonds may vary, many provide additional security in the form of a mortgage or debt service reserve Fund. Some authorities provide further security in the form of the state's ability (without obligation) to make up deficiencies in the debt service reserve Fund. Revenue bonds usually do not require prior voter approval before they may be issued.

. Lease Revenue Bonds Municipal borrowers may also finance capital improvements or purchases with tax-exempt leases. The security for a lease is generally the borrower's pledge to make annual appropriations for lease payments. The lease payment is treated as an operating expense subject to appropriation risk and not a full faith and credit obligation of the issuer. Lease revenue bonds are generally considered less secure than a general obligation or revenue bond and often do not include a debt service reserve Fund. To the extent the Fund's Board determines such securities are illiquid, they will be subject to the Fund's limit on illiquid securities. There have also been certain legal challenges to the use of lease revenue bonds in various states.

The liquidity of such securities will be determined based on a variety of factors which may include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer; and
(5) the rating assigned to the obligation by an established rating agency or T. Rowe Price.

. Pre-refunded/Escrowed to Maturity Bonds Certain municipal bonds have been refunded with a later bond issue from the same issuer. The proceeds from the later issue are used to defease the original issue. In many


cases the original issue cannot be redeemed or repaid until the first call date or original maturity date. In these cases, the refunding bond proceeds typically are used to buy U.S. Treasury securities that are held in an escrow account until the original call date or maturity date. The original bonds then become "pre-refunded" or "escrowed to maturity" and are considered as high-quality investments. While still tax-exempt, the security is the proceeds of the escrow account. To the extent permitted by the SEC and the Internal Revenue Service, a Fund's investment in such securities refunded with U.S. Treasury securities will, for purposes of diversification rules applicable to the Fund, be considered as an investment in the U. S. Treasury securities.

. Private Activity Bonds Under current tax law all municipal debt is divided broadly into two groups: governmental purpose bonds and private activity bonds. Governmental purpose bonds are issued to finance traditional public purpose projects such as public buildings and roads. Private activity bonds may be issued by a state or local government or public authority but principally benefit private users and are considered taxable unless a specific exemption is provided.

The tax code currently provides exemptions for certain private activity bonds such as not-for-profit hospital bonds, small-issue industrial development revenue bonds and mortgage subsidy bonds, which may still be issued as tax-exempt bonds. Some, but not all, private activity bonds are subject to alternative minimum tax.

. Industrial Development Bonds Industrial development bonds are considered Municipal Bonds if the interest paid is exempt from federal income tax. They are issued by or on behalf of public authorities to raise money to finance various privately operated facilities for business and manufacturing, housing, sports, and pollution control. These bonds are also used to finance public facilities such as airports, mass transit systems, ports, and parking. The payment of the principal and interest on such bonds is dependent solely on the ability of the facility's user to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment.

Adjustable Rate Securities

Municipal securities may be issued with adjustable interest rates that are reset periodically by pre-determined formulas or indexes in order to minimize movements in the principal value of the investment. Such securities may have long-term maturities, but may be treated as a short-term investment under certain conditions. Generally, as interest rates decrease or increase, the potential for capital appreciation or depreciation on these securities is less than for fixed-rate obligations. These securities may take the following forms:

Variable Rate Securities Variable rate instruments are those whose terms provide for the adjustment of their interest rates on set dates and which, upon such adjustment, can reasonably be expected to have a market value that approximates its par value. Subject to the provisions of Rule 2a-7 under the 1940 Act, (1) a variable rate instrument, the principal amount of which is scheduled to be paid in 397 days or less, is deemed to have a maturity equal to the period remaining until the next readjustment of the interest; (2) a variable rate instrument which is subject to a demand feature which entitles the purchaser to receive the principal amount of the underlying security or securities either (i) upon notice of usually 30 days, or (ii) at specified intervals not exceeding 397 days and upon no more than 30 days notice is deemed to have a maturity equal to the longer of the period remaining until the next readjustment of the interest rate or the period remaining until the principal amount can be recovered through demand; and (3) an instrument that is issued or guaranteed by the U.S. government or any agency thereof which has a variable rate of interest readjusted no less frequently than every 762 days may be deemed to have a maturity equal to the period remaining until the next readjustment of the interest rate. Should the provisions of Rule 2a-7 change, the funds will determine the maturity of these securities in accordance with the amended provisions of such rule.

Floating Rate Securities Floating rate instruments are those whose terms provide for the adjustment of their interest rates whenever a specified interest rate changes and which, at any time, can reasonably be expected to have a market value that approximates its par value. Subject to the provisions of Rule 2a-7 under the 1940 Act, (1) the maturity of a floating rate instrument is deemed to be the period remaining until the date (noted on the face of the instrument) on which the principal amount must be paid, or in the case of an instrument called for redemption, the date on which the redemption


payment must be made; and (2) floating rate instruments with demand features are deemed to have a maturity equal to the period remaining until the principal amount can be recovered through demand. Should the provisions of Rule 2a-7 change, the funds will determine the maturity of these securities in accordance with the amended provisions or such rule.

Put Option Bonds Long-term obligations with maturities longer than one year may provide purchasers an optional or mandatory tender of the security at par value at predetermined intervals, often ranging from one month to several years (e.g., a 30-year bond with a five-year tender period). These instruments are deemed to have a maturity equal to the period remaining to the put date.

Participation Interests The Funds may purchase from third parties participation interests in all or part of specific holdings of municipal securities. The purchase may take different forms: in the case of short-term securities, the participation may be backed by a liquidity facility that allows the interest to be sold back to the third party (such as a trust, broker or bank) for a predetermined price of par at stated intervals. The seller may receive a fee from the Funds in connection with the arrangement.

In the case of longer-term bonds, the Funds may purchase interests in a pool of municipal bonds or a single municipal bond or lease without the right to sell the interest back to the third party.

The Funds will not purchase participation interests unless a satisfactory opinion of counsel or ruling of the Internal Revenue Service has been issued that the interest earned from the municipal securities on which the Funds holds participation interests is exempt from federal income tax to the Funds. However, there is no guarantee the IRS would treat such interest income as tax-exempt.

Bond and Balanced Funds

. Residual Interest Bonds are a type of high-risk derivative. The Funds may purchase municipal bond issues that are structured as two-part, residual interest bond and variable rate security offerings. The issuer is obligated only to pay a fixed amount of tax-free income that is to be divided among the holders of the two securities. The interest rate for the holders of the variable rate securities will be determined by an index or auction process held approximately every seven to 35 days while the bondholders will receive all interest paid by the issuer minus the amount given to the variable rate security holders and a nominal auction fee. Therefore, the coupon of the residual interest bonds, and thus the income received, will move inversely with respect to short-term, seven- to 35-day tax-exempt interest rates. There is no assurance that the auction will be successful and that the variable rate security will provide short-term liquidity. The issuer is not obligated to provide such liquidity. In general, these securities offer a significant yield advantage over standard municipal securities, due to the uncertainty of the shape of the yield curve (i.e., short-term versus long-term rates) and consequent income flows.

Unlike many adjustable rate securities, residual interest bonds are not necessarily expected to trade at par and in fact present significant market risks. In certain market environments, residual interest bonds may carry substantial premiums or be at deep discounts. This is a relatively new product in the municipal market with limited liquidity to date.

. Embedded Interest Rate Swaps and Caps In a fixed rate, long-term municipal bond with an interest rate swap attached to it, the bondholder usually receives the bond's fixed coupon payment as well as a variable rate payment that represents the difference between a fixed rate for the term of the swap (which is typically shorter than the bond it is attached to) and a variable rate, short-term municipal index. The bondholder receives excess income when short-term rates remain below the fixed interest rate swap rate. If short-term rates rise above the fixed income swap rate, the bondholder's income is reduced. At the end of the interest rate swap term, the bond reverts to a single fixed coupon payment. Embedded interest rate swaps enhance yields, but also increase interest rate risk.

An embedded interest rate cap allows the bondholder to receive payments whenever short-term rates rise above a level established at the time of purchase. They normally are used to hedge against rising short-term interest rates. Both instruments may be volatile and of limited liquidity, and their use may adversely affect the Fund's total return.


The Funds may invest in other types of derivative instruments as they become available.

For the purpose of the Funds' investment restrictions, the identification of the "issuer" of municipal securities which are not general obligation bonds is made by the Funds' investment manager, T. Rowe Price, on the basis of the characteristics of the obligation as described above, the most significant of which is the source of Funds for the payment of principal and interest on such securities.

There are, of course, other types of securities that are, or may become available, which are similar to the foregoing and the Funds may invest in these securities.

All Funds

When-Issued Securities

New issues of municipal securities are often offered on a when-issued basis; that is, delivery and payment for the securities normally takes place 15 to 45 days or more after the date of the commitment to purchase. The payment obligation and the interest rate that will be received on the securities are each fixed at the time the buyer enters into the commitment. A Fund will only make a commitment to purchase such securities with the intention of actually acquiring the securities. However, a Fund may sell these securities before the settlement date if it is deemed advisable as a matter of investment strategy. Each Fund will maintain cash, high-grade marketable debt securities or other suitable cover with its custodian bank equal in value to commitments for when-issued securities. Such securities either will mature or, if necessary, be sold on or before the settlement date. Securities purchased on a when-issued basis and the securities held in a Fund's portfolio are subject to changes in market value based upon the public perception of the creditworthiness of the issuer and changes in the level of interest rates (which will generally result in similar changes in value, i.e., both experiencing appreciation when interest rates decline and depreciation when interest rates rise). Therefore, to the extent a Fund remains fully invested or almost fully invested at the same time that it has purchased securities on a when-issued basis, there will be greater fluctuations in its net asset value than if it solely set aside cash to pay for when-issued securities. In the case of the Money Fund, this could increase the possibility that the market value of the Fund's assets could vary from $1.00 per share. In addition, there will be a greater potential for the realization of capital gains, which are not exempt from federal income tax. When the time comes to pay for when-issued securities, a Fund will meet its obligations from then-available cash flow, sale of securities or, although it would not normally expect to do so, from sale of the when-issued securities themselves (which may have a value greater or less than the payment obligation). The policies described in this paragraph are not fundamental and may be changed by a Fund upon notice to its shareholders.

Bond, Balanced, and Growth Funds

Forwards

The Funds may purchase bonds on a when-issued basis with longer than standard settlement dates, in some cases exceeding one to two years. In such cases, the Funds must execute a receipt evidencing the obligation to purchase the bond on the specified issue date, and must segregate cash internally to meet that forward commitment. Municipal "forwards" typically carry a substantial yield premium to compensate the buyer for the risks associated with a long when-issued period, including: shifts in market interest rates that could materially impact the principal value of the bond, deterioration in the credit quality of the issuer, loss of alternative investment options during the when-issued period, changes in tax law or issuer actions that would affect the exempt interest status of the bonds and prevent delivery, failure of the issuer to complete various steps required to issue the bonds, and limited liquidity for the buyer to sell the escrow receipts during the when-issued period.

All Funds (other than Tax-Efficient Balanced and Tax-Efficient Growth Funds)

Investment in Taxable Money Market Securities

Although the Funds expect to be solely invested in municipal securities, for temporary defensive purposes they may elect to invest in the taxable money market securities listed below (without limitation) when such action is deemed to be in the best interests of shareholders. The interest earned on these money market securities is not exempt from federal income tax and may be taxable to shareholders as ordinary income.


. U.S. Government Obligations Bills, notes, bonds, and other debt securities issued by the U.S. Treasury. These are direct obligations of the U.S. government and differ mainly in the length of their maturities.

. U.S. Government Agency Securities Issued or guaranteed by U.S. government-sponsored enterprises and federal agencies. These include securities issued by the Federal National Mortgage Association, Government National Mortgage Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home Administration, Banks for Cooperatives, Federal Intermediate Credit Banks, Federal Financing Bank, Farm Credit Banks, the Small Business Association, and the Tennessee Valley Authority. Some of these securities are supported by the full faith and credit of the U.S. Treasury; the remainder are supported only by the credit of the instrumentality, which may or may not include the right of the issuer to borrow from the Treasury.

. Bank Obligations Certificates of deposit, bankers' acceptances, and other short-term debt obligations. Certificates of deposit are short-term obligations of commercial banks. A bankers' acceptance is a time draft drawn on a commercial bank by a borrower, usually in connection with international commercial transactions. Certificates of deposit may have fixed or variable rates. The Fund may invest in U.S. banks, foreign branches of U.S. banks, U.S. branches of foreign banks, and foreign branches of foreign banks.

. Short-Term Corporate Debt Securities Short-term corporate debt securities rated at least AA by S&P, Moody's or Fitch.

. Commercial Paper Paper rate A-2 or better by S&P, Prime-2 or better by Moody's, or F-2 or better by Fitch, or, if not rated, is issued by a corporation having an outstanding debt issue rated A or better by Moody's, S&P or Fitch and, with respect to the Money Fund, is of equivalent investment quality as determined by the Board of Directors/Trustees.

. Determination of Maturity of Money Market Securities The Money Fund may only purchase securities which at the time of investment have remaining maturities of 397 calendar days or less. The other Funds may also purchase money market securities. In determining the maturity of money market securities, Funds will follow the provisions of Rule 2a-7 under the 1940 Act.

Tax-Efficient Balanced and Tax-Efficient Growth Funds

Hybrid Instruments

Hybrid Instruments (a type of potentially high-risk derivative) have been developed and combine the elements of futures contracts or options with those of debt, preferred equity, or a depository instrument (hereinafter "Hybrid Instruments"). Generally, a Hybrid Instrument will be a debt security, preferred stock, depository share, trust certificate, certificate of deposit, or other evidence of indebtedness on which a portion of or all interest payments, and/or the principal or stated amount payable at maturity, redemption, or retirement, is determined by reference to prices, changes in prices, or differences between prices, of securities, currencies, intangibles, goods, articles, or commodities (collectively "Underlying Assets") or by another objective index, economic factor, or other measure, such as interest rates, currency exchange rates, commodity indices, and securities indices (collectively "Benchmarks"). Thus, Hybrid Instruments may take a variety of forms, including, but not limited to, debt instruments with interest or principal payments or redemption terms determined by reference to the value of a currency or commodity or securities index at a future point in time, preferred stock with dividend rates determined by reference to the value of a currency, or convertible securities with the conversion terms related to a particular commodity.

Hybrid Instruments can be an efficient means of creating exposure to a particular market, or segment of a market, with the objective of enhancing total return. For example, a Fund may wish to take advantage of expected declines in interest rates in several European countries, but avoid the transaction costs associated with buying and currency-hedging the foreign bond positions. One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument whose redemption price is linked to the average three-year interest rate in a designated group of countries. The redemption price formula would provide for payoffs of greater than par if the average interest rate was lower than a specified level, and payoffs of less than par if rates were above the specified level. Furthermore, the Fund could limit the downside risk of the security by establishing a minimum redemption price so that the principal paid at maturity could not be below a predetermined


minimum level if interest rates were to rise significantly. The purpose of this arrangement, known as a structured security with an embedded put option, would be to give the Fund the desired European bond exposure while avoiding currency risk, limiting downside market risk, and lowering transactions costs. Of course, there is no guarantee that the strategy will be successful, and the Fund could lose money if, for example, interest rates do not move as anticipated or credit problems develop with the issuer of the Hybrid.

The risks of investing in Hybrid Instruments reflect a combination of the risks of investing in securities, options, futures and currencies. Thus, an investment in a Hybrid Instrument may entail significant risks that are not associated with a similar investment in a traditional debt instrument that has a fixed principal amount, is denominated in U.S. dollars, or bears interest either at a fixed rate or a floating rate determined by reference to a common, nationally published benchmark. The risks of a particular Hybrid Instrument will, of course, depend upon the terms of the instrument, but may include, without limitation, the possibility of significant changes in the Benchmarks or the prices of Underlying Assets to which the instrument is linked. Such risks generally depend upon factors which are unrelated to the operations or credit quality of the issuer of the Hybrid Instrument and which may not be readily foreseen by the purchaser, such as economic and political events, the supply and demand for the Underlying Assets, and interest rate movements. In recent years, various Benchmarks and prices for Underlying Assets have been highly volatile, and such volatility may be expected in the future. Reference is also made to the discussion of futures, options, and forward contracts herein for a discussion of the risks associated with such investments.

Hybrid Instruments are potentially more volatile and carry greater market risks than traditional debt instruments. Depending on the structure of the particular Hybrid Instrument, changes in a Benchmark may be magnified by the terms of the Hybrid Instrument and have an even more dramatic and substantial effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid Instrument and the Benchmark or Underlying Asset may not move in the same direction or at the same time.

Hybrid Instruments may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. Alternatively, Hybrid Instruments may bear interest at above market rates but bear an increased risk of principal loss (or gain). The latter scenario may result if "leverage" is used to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid Instrument is structured so that a given change in a Benchmark or Underlying Asset is multiplied to produce a greater value change in the Hybrid Instrument, thereby magnifying the risk of loss as well as the potential for gain.

Hybrid Instruments may also carry liquidity risk since the instruments are often "customized" to meet the portfolio needs of a particular investor, and therefore, the number of investors that are willing and able to buy such instruments in the secondary market may be smaller than that for more traditional debt securities. In addition, because the purchase and sale of Hybrid Instruments could take place in an over-the-counter market without the guarantee of a central clearing organization or in a transaction between the Fund and the issuer of the Hybrid Instrument, the creditworthiness of the counter party of issuer of the Hybrid Instrument would be an additional risk factor which the Fund would have to consider and monitor. Hybrid Instruments also may not be subject to regulation of the Commodities Futures Trading Commission ("CFTC"), which generally regulates the trading of commodity futures by U.S. persons, the SEC, which regulates the offer and sale of securities by and to U.S. persons, or any other governmental regulatory authority.

The various risks discussed above, particularly the market risk of such instruments, may in turn cause significant fluctuations in the net asset value of the Fund. Accordingly, the Fund will limit its investments in Hybrid Instruments to 10% of total assets. However, because of their volatility, it is possible that the Fund's investment in Hybrid Instruments will account for more than 10% of the Fund's return (positive or negative).

Illiquid or Restricted Securities

Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where registration is required, the Fund may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market


conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at fair value as determined in accordance with procedures prescribed by the Fund's Board of Directors/Trustees. If, through the appreciation of illiquid securities or the depreciation of liquid securities, the Fund should be in a position where more than 15% of the value of its net assets is invested in illiquid assets, including restricted securities, the Fund will take appropriate steps to protect liquidity.

Notwithstanding the above, the Fund may purchase securities which, while privately placed, are eligible for purchase and sale under Rule 144A under the 1933 Act. This rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities even though such securities are not registered under the 1933 Act. T. Rowe Price, under the supervision of the Fund's Board of Directors/Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's restriction of investing no more than 15% of its net assets in illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, T. Rowe Price will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, T. Rowe Price could consider the following: (1) frequency of trades and quotes; (2) number of dealers and potential purchases; (3) dealer undertakings to make a market; and (4) the nature of the security and of marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A securities would be monitored and, if as a result of changed conditions it is determined that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not invest more than 15% of its net assets in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities.

Warrants

The Fund may acquire warrants. Warrants are pure speculation in that they have no voting rights, pay no dividends, and have no rights with respect to the assets of the corporation issuing them. Warrants basically are options to purchase equity securities at a specific price valid for a specific period of time. They do not represent ownership of the securities, but only the right to buy them. Warrants differ from call options in that warrants are issued by the issuer of the security which may be purchased on their exercise, whereas call options may be written or issued by anyone. The prices of warrants do not necessarily move parallel to the prices of the underlying securities.

PORTFOLIO MANAGEMENT PRACTICES

Bond, Balanced, and Growth Funds

Futures Contracts

Futures contracts are a type of potentially high-risk derivative.

Transactions in Futures

The Fund may enter into futures contracts including stock index, interest rate, and currency futures ("futures" or "futures contracts").

Tax-Efficient Balanced and Tax-Efficient Growth Funds

The Tax-Efficient Balanced and Tax-Efficient Growth Funds may enter into futures contracts including stock index, interest rate, and currency futures ("futures or futures contracts"). The nature of such futures and the regulatory limitations and risks to which they are subject are the same as those described below.

Stock index futures contracts may be used to provide a hedge for a portion of the Fund's portfolio, as a cash management tool, or as an efficient way for T. Rowe Price to implement either an increase or decrease in


portfolio market exposure in response to changing market conditions. The Fund may purchase or sell futures contracts with respect to any stock index. Nevertheless, to hedge the Fund's portfolio successfully, the Fund must sell futures contacts with respect to indices or subindices whose movements will have a significant correlation with movements in the prices of the Fund's portfolio securities.

Interest rate or currency futures contracts may be used as a hedge against changes in prevailing levels of interest rates or currency exchange rates in order to establish more definitely the effective return on securities or currencies held or intended to be acquired by the Fund. In this regard, the Fund could sell interest rate or currency futures as an offset against the effect of expected increases in interest rates or currency exchange rates and purchase such futures as an offset against the effect of expected declines in interest rates or currency exchange rates.

Bond, Balanced, and Growth Funds

The Fund will enter into futures contracts which are traded on national (and for the Tax-Efficient Balanced and Tax-Efficient Growth Funds, foreign) futures exchanges, and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the CFTC. Although techniques other than the sale and purchase of futures contracts could be used for the above-referenced purposes, futures contracts offer an effective and relatively low cost means of implementing the Fund's objectives in these areas.

Regulatory Limitations

If the Fund purchases or sells futures contracts or related options which do not qualify as bona fide hedging under applicable CFTC rules, the aggregate initial margin deposits and premium required to establish those positions cannot exceed 5% of the liquidation value of the Fund after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; provided, however, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in calculating the 5% limitation. For purposes of this policy, options on futures contracts and foreign currency options traded on a commodities exchange will be considered "related options." This policy may be modified by the Board of Directors/Trustees without a shareholder vote and does not limit the percentage of the Fund's assets at risk to 5%.

In instances involving the purchase of futures contracts or the writing of call or put options thereon by the Fund, an amount of cash, liquid assets, or other suitable cover as permitted by the SEC, equal to the market value of the futures contracts and options thereon (less any related margin deposits), will be identified by the Fund to cover the position, or alternative cover (such as owning an offsetting position) will be employed. Assets used as cover or held in an identified account cannot be sold while the position in the corresponding option or future is open, unless they are replaced with similar assets. As a result, the commitment of a large portion of a Fund's assets to cover or identified accounts could impede portfolio management or the Fund's ability to meet redemption requests or other current obligations.

If the CFTC or other regulatory authorities adopt different (including less stringent) or additional restrictions, the Fund would comply with such new restrictions.

Trading in Futures Contracts
A futures contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (e.g., units of a stock index) for a specified price, date, time and place designated at the time the contract is made. Brokerage fees are incurred when a futures contract is bought or sold and margin deposits must be maintained. Entering into a contract to buy is commonly referred to as buying or purchasing a contract or holding a long position. Entering into a contract to sell is commonly referred to as selling a contract or holding a short position.

Unlike when the Fund purchases or sells a security, no price would be paid or received by the Fund upon the purchase or sale of a futures contract. Upon entering into a futures contract, and to maintain the Fund's open positions in futures contracts, the Fund would be required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash, or liquid assets known as "initial margin." The margin required for a particular futures contract is set by the exchange on which the contract is traded, and


may be significantly modified from time to time by the exchange during the term of the contract. Futures contracts are customarily purchased and sold on margins that may range upward from less than 5% of the value of the contract being traded.

If the price of an open futures contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Fund.

These subsequent payments, called "variation margin," to and from the futures broker, are made on a daily basis as the price of the underlying assets fluctuate, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."

Although certain futures contracts, by their terms, require actual future delivery of and payment for the underlying instruments, in practice most futures contracts are usually closed out before the delivery date. Closing out an open futures contract purchase or sale is effected by entering into an offsetting futures contract sale or purchase, respectively, for the same aggregate amount of the identical securities and the same delivery date. If the offsetting purchase price is less than the original sale price, the Fund realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The transaction costs must also be included in these calculations. There can be no assurance, however, that the Fund will be able to enter into an offsetting transaction with respect to a particular futures contract at a particular time. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain the margin deposits on the futures contract.

As an example of an offsetting transaction in which the underlying instrument is not delivered, the contractual obligations arising from the sale of one contract of September Treasury bills on an exchange may be fulfilled at any time before delivery of the contract is required (i.e., on a specified date in September, the "delivery month") by the purchase of one contract of September Treasury bills on the same exchange. In such instance, the difference between the price at which the futures contract was sold and the price paid for the offsetting purchase, after allowance for transaction costs, represents the profit or loss to the Fund.

Tax-Efficient Balanced and Tax-Efficient Growth Funds

For example, the S&P's 500 Stock Index is made up of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The S&P 500 Index assigns relative weightings to the common stocks included in the Index, and the Index fluctuates with changes in the market values of those common stocks. In the case of futures contracts on the S&P 500 Index, the contracts are to buy or sell 250 units. Thus, if the value of the S&P 500 Index were $150, one contract would be worth $37,500 (250 units x $150). The stock index futures contract specifies that no delivery of the actual stocks making up the index will take place. Instead, settlement in cash occurs. Over the life of the contract, the gain or loss realized by the Fund will equal the difference between the purchase (or sale) price of the contract and the price at which the contract is terminated. For example, if the Fund enters into a futures contract to buy 250 units of the S&P 500 Index at a specified future date at a contract price of $150 and the S&P 500 Index is at $154 on that future date, the Fund will gain $1,000 (250 units x gain of $4). If the Fund enters into a futures contract to sell 250 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 Index is at $152 on that future date, the Fund will lose $500 (250 units x loss of $2).

Special Risks of Transactions in Futures Contracts

. Volatility and Leverage The prices of futures contracts are volatile and are influenced, among other things, by actual and anticipated changes in the market and interest rates, which in turn are affected by fiscal and monetary policies and national and international political and economic events.

Most United States futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures


contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of futures contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses.

Margin deposits required on futures trading are low. As a result, a relatively small price movement in a futures contract may result in immediate and substantial loss, as well as gain, to the investor. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit, if the contract were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract.

. Liquidity The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The Fund would do so to reduce exposure represented by long futures positions or short futures positions. The Fund may close its positions by taking opposite positions which would operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin would then be made, additional cash would be required to be paid by or released to the Fund, and the Fund would realize a loss or a gain.

Futures contracts may be closed out only on the exchange or board of trade where the contracts were initially traded. Although the Fund intends to purchase or sell futures contracts only on exchanges or boards of trade where there appears to be an active market, there is no assurance that a liquid market on an exchange or board of trade will exist for any particular contract at any particular time. In such event, it might not be possible to close a futures contract, and in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. However, in the event futures contracts have been used to hedge the underlying instruments, the Fund would continue to hold the underlying instruments subject to the hedge until the futures contracts could be terminated. In such circumstances, an increase in the price of underlying instruments, if any, might partially or completely offset losses on the futures contract. However, as described next, there is no guarantee that the price of the underlying instruments will, in fact, correlate with the price movements in the futures contract and thus provide an offset to losses on a futures contract.

. Hedging Risk A decision of whether, when, and how to hedge involves skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior, market or interest rate trends. There are several risks in connection with the use by the Fund of futures contracts as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the futures contracts and movements in the prices of the underlying instruments which are the subject of the hedge. T. Rowe Price will, however, attempt to reduce this risk by entering into futures contracts whose movements, in its judgment, will have a significant correlation with movements in the prices of the Fund's underlying instruments sought to be hedged.

Successful use of futures contracts by the Fund for hedging purposes is also subject to T. Rowe Price's ability to correctly predict movements in the direction of the market. It is possible that, when the Fund has sold futures to hedge its portfolio against a decline in the market, the index, indices, or instruments underlying futures might advance and the value of the underlying instruments held in the Fund's portfolio might decline. If this were to occur, the Fund would lose money on the futures and also would experience a decline in value in its underlying instruments. However, while this might occur to a certain degree, T. Rowe Price believes that over time the value of the Fund's portfolio will tend to move in the same direction as the market indices used to hedge the portfolio. It is also possible that, if the Fund were to hedge against the possibility of a decline in the market (adversely affecting the underlying instruments held in its portfolio) and prices instead increased, the Fund would lose part or all of the benefit of increased value of those underlying instruments that it has hedged, because it would have offsetting losses in its futures positions. In addition, in

such


situations, if the Fund had insufficient cash, it might have to sell underlying instruments to meet daily variation margin requirements. Such sales of underlying instruments might be, but would not necessarily be, at increased prices (which would reflect the rising market). The Fund might have to sell underlying instruments at a time when it would be disadvantageous to do so.

In addition to the possibility that there might be an imperfect correlation, or no correlation at all, between price movements in the futures contracts and the portion of the portfolio being hedged, the price movements of futures contracts might not correlate perfectly with price movements in the underlying instruments due to certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors might close futures contracts through offsetting transactions, which could distort the normal relationship between the underlying instruments and futures markets. Second, the margin requirements in the futures market are less onerous than margin requirements in the securities markets and, as a result, the futures market might attract more speculators than the securities markets do. Increased participation by speculators in the futures market might also cause temporary price distortions. Due to the possibility of price distortion in the futures market and also because of imperfect correlation between price movements in the underlying instruments and movements in the prices of futures contracts, even a correct forecast of general market trends by T. Rowe Price might not result in a successful hedging transaction over a very short time period.

Bond, Balanced, and Growth Funds

The Fund may purchase and sell options on the same types of futures in which it may invest.

Bond and Balanced Funds

Options on Futures Contracts

The Fund might trade in municipal bond index option futures or similar options on futures developed in the future. In addition, the Fund may also trade in options on futures contracts on U.S. government securities and any U.S. government securities futures index contract which might be developed. In the opinion of T. Rowe Price, there is a high degree of correlation in the interest rate, and price movements of U.S. government securities and municipal securities. However, the U.S. government securities market and municipal securities markets are independent and may not move in tandem at any point in time.

The Fund may purchase put options on futures contracts to hedge its portfolio of municipal securities against the risk of rising interest rates, and the consequent decline in the prices of the municipal securities it owns. The Funds will also write call options on futures contracts as a hedge against a modest decline in prices of the municipal securities held in the Fund's portfolio. If the futures price at expiration of a written call option is below the exercise price, the Fund will retain the full amount of the option premium, thereby partially hedging against any decline that may have occurred in the Fund's holdings of debt securities. If the futures price when the option is exercised is above the exercise price, however, the Fund will incur a loss, which may be wholly or partially offset by the increase of the value of the securities in the Fund's portfolio which were being hedged.

Writing a put option on a futures contract serves as a partial hedge against an increase in the value of securities the Fund intends to acquire. If the futures price at expiration of the option is above the exercise price, the Fund will retain the full amount of the option premium which provides a partial hedge against any increase that may have occurred in the price of the debt securities the Fund intends to acquire. If the futures price when the option is exercised is below the exercise price, however, the Fund will incur a loss, which may be wholly or partially offset by the decrease in the price of the securities the Fund intends to acquire.

Options (another type of potentially high-risk derivative) on futures are similar to options on underlying instruments except that options on futures give the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put), rather than to purchase or sell the futures contract, at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by the delivery of the accumulated balance in the


writer's futures margin account which represents the amount by which the market price of the futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.

From time to time a single order to purchase or sell futures contracts (or options thereon) may be made on behalf of the Fund and other T. Rowe Price Funds. Such aggregated orders would be allocated among the Fund and the other T. Rowe Price Funds in a fair and non-discriminatory manner.

Tax-Efficient Balanced and Tax-Efficient Growth Funds

As an alternative to writing or purchasing call and put options on stock index futures, the Fund may write or purchase call and put options on stock indices. Such options would be used in a manner similar to the use of options on futures contracts.

Special Risks of Transactions in Options on Futures Contracts

The risks described under "Special Risks in Transactions on Futures Contracts" are substantially the same as the risks of using options on futures. If the Fund were to write an option on a futures contract, it would be required to deposit and maintain initial and variation margin in the same manner as a regular futures contract. In addition, where the Fund seeks to close out an option position by writing or buying an offsetting option covering the same index, underlying instrument or contract and having the same exercise price and expiration date, its ability to establish and close out positions on such options will be subject to the maintenance of a liquid secondary market. Reasons for the absence of a liquid secondary market on an exchange include the following: (1) there may be insufficient trading interest in certain options; (2) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (3) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options, or underlying instruments; (4) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (5) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (6) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in the class or series of options) would cease to exist, although outstanding options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain of the facilities of any of the clearing corporations inadequate, and thereby result in the institution by an exchange of special procedures which may interfere with the timely execution of customers' orders.

In addition, the correlation between movements in the price of options on futures contracts and movements in the price of the securities hedged can only be approximate. This risk is significantly increased when an option on a U.S. government securities future or an option on some type of index future is used as a proxy for hedging a portfolio consisting of other types of securities. Another risk is that the movements in the price of options on futures contract and the value of the call increases by more than the increase in the value of the securities held as cover, the Fund may realize a loss on the call which is not completely offset by the appreciation in the price of the securities held as cover and the premium received for writing the call.

The successful use of options on futures contracts requires special expertise and techniques different from those involved in portfolio securities transactions. A decision of whether, when and how to hedge involves skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior or interest rate trends. During periods when municipal securities market prices are appreciating, the Fund may experience poorer overall performance than if it had not entered into any options on futures contracts.

General Considerations Transactions by the Fund in options on futures will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities governing the maximum number of options in each class which may be written or purchased by a single investor or group of investors


acting in concert, regardless of whether the options are written on the same or different exchanges, boards of trade or other trading facilities or are held or written in one or more accounts or through one or more brokers. Thus, the number of contracts which the Fund may write or purchase may be affected by contracts written or purchased by other investment advisory clients of T. Rowe Price. An exchange, board of trade or other trading facility may order the liquidations of positions found to be in excess of these limits, and it may impose certain other sanctions.

Additional Futures and Options Contracts

Although the Fund has no current intention of engaging in futures or options transactions other than those described above, it reserves the right to do so. Such futures and options trading might involve risks which differ from those involved in the futures and options described above.

Federal Tax Treatment of Options, Futures Contracts, and Forward Foreign Exchange Contracts

Although the Fund invests almost exclusively in securities that generate income that is exempt from federal income taxes, the Fund may enter into certain option, futures, and foreign exchange contracts, including options and futures on currencies, which will be treated as Section 1256 contracts or straddles that are not exempt from such taxes. Therefore, use of the investment techniques described above could result in taxable income to shareholders of the Fund.

Transactions which are considered Section 1256 contracts will be considered to have been closed at the end of the Fund's fiscal year and any gains or losses will be recognized for tax purposes at that time. Gains or losses recognized from the normal closing or settlement of such transactions will be characterized as 60% long-term capital gain or loss and 40% short-term capital gain or loss, without regard to the holding period of the contract. The Fund will be required to distribute net gains on such transactions to shareholders even though it may not have closed the transaction and received cash to pay such distributions.

Options, futures and forward foreign exchange contracts, including options and futures on currencies, which offset a foreign dollar denominated bond or currency position may be considered straddles for tax purposes, in which case a loss on any position in a straddle will be subject to deferral to the extent of unrealized gain in an offsetting position. The holding period of the securities or currencies comprising the straddle will be deemed not to begin until the straddle is terminated. The holding period of the security offsetting an "in-the-money qualified covered call" option on an equity security will not include the period of time the option is outstanding.

Losses on written covered calls and purchased puts on securities, excluding certain "qualified covered call" options on equity securities, may be long-term capital losses, if the security covering the option was held for more than 12 months prior to the writing of the option.

In order for the Fund to continue to qualify for federal income tax treatment as a regulated investment company, at least 90% of its gross income for a taxable year must be derived from qualifying income, i.e., dividends, interest, income derived from loans of securities, and gains from the sale of securities or currencies. Tax regulations could be issued limiting the extent that net gain realized from option, futures or foreign forward exchange contracts on currencies is qualifying income for purposes of the 90% requirement.

As a result of the "Taxpayer Relief Act of 1997," entering into certain options, futures contracts, or forward contracts may result in the "constructive sale" of offsetting stocks or debt securities of the Fund.

Options on Securities

Options are another type of potentially high-risk derivative.

Bond and Money Funds

The Funds have no current intention of investing in options on securities, although they reserve the right to do so. Appropriate disclosure would be added to the Funds' prospectus and Statement of Additional Information when and if the Funds decide to invest in options.


Tax-Efficient Balanced and Tax-Efficient Growth Funds

Writing Covered Call Options

The Fund may write (sell) American or European style "covered" call options and purchase options to close out options previously written by the Fund. In writing covered call options, the Fund expects to generate additional premium income which should serve to enhance the Fund's total return and reduce the effect of any price decline of the security or currency involved in the option. Covered call options will generally be written on securities or currencies which, in T. Rowe Price's opinion, are not expected to have any major price increases or moves in the near future but which, over the long term, are deemed to be attractive investments for the Fund.

A call option gives the holder (buyer) the "right to purchase" a security or currency at a specified price (the exercise price) at expiration of the option (European style) or at any time until a certain date (the expiration date) (American style). So long as the obligation of the writer of a call option continues, he may be assigned an exercise notice by the broker-dealer through whom such option was sold, requiring him to deliver the underlying security or currency against payment of the exercise price. This obligation terminates upon the expiration of the call option, or such earlier time at which the writer effects a closing purchase transaction by repurchasing an option identical to that previously sold. To secure his obligation to deliver the underlying security or currency in the case of a call option, a writer is required to deposit in escrow the underlying security or currency or other assets in accordance with the rules of a clearing corporation.

The Fund generally will write only covered call options. This means that the Fund will either own the security or currency subject to the option or an option to purchase the same underlying security or currency, having an exercise price equal to or less than the exercise price of the "covered" option. From time to time, the Fund will write a call option that is not covered as indicated above but where the Fund will establish and maintain with its custodian for the term of the option, an account consisting of cash, U.S. government securities, other liquid high-grade debt obligations, or other suitable cover as permitted by the SEC having a value equal to the fluctuating market value of the optioned securities or currencies. While such an option would be "covered" with sufficient collateral to satisfy SEC prohibitions on issuing senior securities, this type of strategy would expose the Fund to the risks of writing uncovered options.

Portfolio securities or currencies on which call options may be written will be purchased solely on the basis of investment considerations consistent with the Fund's investment objective. The writing of covered call options is a conservative investment technique believed to involve relatively little risk (in contrast to the writing of naked or uncovered options, which the Fund generally will not do), but capable of enhancing the Fund's total return. When writing a covered call option, a Fund, in return for the premium, gives up the opportunity for profit from a price increase in the underlying security or currency above the exercise price, but conversely retains the risk of loss should the price of the security or currency decline. Unlike one who owns securities or currencies not subject to an option, the Fund has no control over when it may be required to sell the underlying securities or currencies, since it may be assigned an exercise notice at any time prior to the expiration of its obligation as a writer. If a call option which the Fund has written expires, the Fund will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security or currency during the option period. If the call option is exercised, the Fund will realize a gain or loss from the sale of the underlying security or currency. The Fund does not consider a security or currency covered by a call to be "pledged" as that term is used in the Fund's policy which limits the pledging or mortgaging of its assets. If the Fund writes and uncovered option as described above, it will bear the risk of having to purchase the security subject to the option at a price higher than the exercise price of the option. As the price of a security could appreciate substantially, the Fund's loss could be significant.

The premium received is the market value of an option. The premium the Fund will receive from writing a call option will reflect, among other things, the current market price of the underlying security or currency, the relationship of the exercise price to such market price, the historical price volatility of the underlying security or currency, and the length of the option period. Once the decision to write a call option has been made, T. Rowe Price, in determining whether a particular call option should be written on a particular security or currency, will consider the reasonableness of the anticipated premium and the likelihood that a


liquid secondary market will exist for those options. The premium received by the Fund for writing covered call options will be recorded as a liability of the Fund. This liability will be adjusted daily to the option's current market value, which will be the latest sale price at the time at which the net asset value per share of the Fund is computed (close of the New York Stock Exchange), or, in the absence of such sale, the latest asked price. The option will be terminated upon expiration of the option, the purchase of an identical option in a closing transaction, or delivery of the underlying security or currency upon the exercise of the option.

Closing transactions will be effected in order to realize a profit on an outstanding call option, to prevent an underlying security or currency from being called, or, to permit the sale of the underlying security or currency. Furthermore, effecting a closing transaction will permit the Fund to write another call option on the underlying security or currency with either a different exercise price or expiration date or both. If the Fund desires to sell a particular security or currency from its portfolio on which it has written a call option, or purchased a put option, it will seek to effect a closing transaction prior to, or concurrently with, the sale of the security or currency. There is, of course, no assurance that the Fund will be able to effect such closing transactions at favorable prices. If the Fund cannot enter into such a transaction, it may be required to hold a security or currency that it might otherwise have sold. When the Fund writes a covered call option, it runs the risk of not being able to participate in the appreciation of the underlying securities or currencies above the exercise price, as well as the risk of being required to hold on to securities or currencies that are depreciating in value. This could result in higher transaction costs. The Fund will pay transaction costs in connection with the writing of options to close out previously written options. Such transaction costs are normally higher than those applicable to purchases and sales of portfolio securities.

Call options written by the Fund will normally have expiration dates of less than nine months from the date written. The exercise price of the options may be below, equal to, or above the current market values of the underlying securities or currencies at the time the options are written. From time to time, the Fund may purchase an underlying security or currency for delivery in accordance with an exercise notice of a call option assigned to it, rather than delivering such security or currency from its portfolio. In such cases, additional costs may be incurred.

The Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from the writing of the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security or currency, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security or currency owned by the Fund.

The Fund will not write a covered call option if, as a result, the aggregate market value of all portfolio securities or currencies covering written call or put options exceeds 25% of the market value of the Fund's net assets. In calculating the 25% limit, the Fund will offset, against the value of assets covering written calls and puts, the value of purchased calls and puts on identical securities or currencies with identical maturity dates.

Writing Covered Put Options

The Fund may write American or European style covered put options and purchase options to close out options previously written by the Fund. A put option gives the purchaser of the option the right to sell, and the writer (seller) has the obligation to buy, the underlying security or currency at the exercise price during the option period (American style) or at the expiration of the option (European style). So long as the obligation of the writer continues, he may be assigned an exercise notice by the broker-dealer through whom such option was sold, requiring him to make payment to the exercise price against delivery of the underlying security or currency. The operation of put options in other respects, including their related risks and rewards, is substantially identical to that of call options.

The Fund would write put options only on a covered basis, which means that the Fund would maintain in a segregated account cash, U.S. government securities, other liquid high-grade debt obligations, or other suitable cover as determined by the SEC, in an amount not less than the exercise price or the Fund will own an option to sell the underlying security or currency subject to the option having an exercise price equal to or greater than the exercise price of the "covered" option at all times while the put option is outstanding. (The


rules of a clearing corporation currently require that such assets be deposited in escrow to secure payment of the exercise price.)

The Fund would generally write covered put options in circumstances where T. Rowe Price wishes to purchase the underlying security or currency for the Fund's portfolio at a price lower than the current market price of the security or currency. In such event the Fund would write a put option at an exercise price which, reduced by the premium received on the option, reflects the lower price it is willing to pay. Since the Fund would also receive interest on debt securities or currencies maintained to cover the exercise price of the option, this technique could be used to enhance current return during periods of market uncertainty. The risk in such a transaction would be that the market price of the underlying security or currency would decline below the exercise price less the premiums received. Such a decline could be substantial and result in a significant loss to the Fund. In addition, the Fund, because it does not own the specific securities or currencies which it may be required to purchase in exercise of the put, cannot benefit from appreciation, if any, with respect to such specific securities or currencies.

The Fund will not write a covered put option if, as a result, the aggregate market value of all portfolio securities or currencies covering put or call options exceeds 25% of the market value of the Fund's net assets. In calculating the 25% limit, the Fund will offset, against the value of assets covering written puts and calls, the value of purchased puts and calls on identical securities or currencies with identical maturity dates.

Purchasing Put Options

The Fund may purchase American or European style put options. As the holder of a put option, the Fund has the right to sell the underlying security or currency at the exercise price at any time during the option period (American style) or at the expiration of the option (European style). The Fund may enter into closing sale transactions with respect to such options, exercise them or permit them to expire. The Fund may purchase put options for defensive purposes in order to protect against an anticipated decline in the value of its securities or currencies. An example of such use of put options is provided next.

The Fund may purchase a put option on an underlying security or currency (a "protective put") owned by the Fund as a defensive technique in order to protect against an anticipated decline in the value of the security or currency. Such hedge protection is provided only during the life of the put option when the Fund, as the holder of the put option, is able to sell the underlying security or currency at the put exercise price regardless of any decline in the underlying security's market price or currency's exchange value. For example, a put option may be purchased in order to protect unrealized appreciation of a security or currency where T. Rowe Price deems it desirable to continue to hold the security or currency because of tax considerations. The premium paid for the put option and any transaction costs would reduce any capital gain otherwise available for distribution when the security or currency is eventually sold.

The Fund may also purchase put options at a time when the Fund does not own the underlying security or currency. By purchasing put options on a security or currency it does not own, the Fund seeks to benefit from a decline in the market price of the underlying security or currency. If the put option is not sold when it has remaining value, and if the market price of the underlying security or currency remains equal to or greater than the exercise price during the life of the put option, the Fund will lose its entire investment in the put option. In order for the purchase of a put option to be profitable, the market price of the underlying security or currency must decline sufficiently below the exercise price to cover the premium and transaction costs, unless the put option is sold in a closing sale transaction.

The Fund will not commit more than 5% of its assets to premiums when purchasing put and call options. The premium paid by the Fund when purchasing a put option will be recorded as an asset of the Fund. This asset will be adjusted daily to the option's current market value, which will be the latest sale price at the time at which the net asset value per share of the Fund is computed (close of New York Stock Exchange), or, in the absence of such sale, the latest bid price. This asset will be terminated upon expiration of the option, the selling (writing) of an identical option in a closing transaction, or the delivery of the underlying security or currency upon the exercise of the option.


Purchasing Call Options

The Fund may purchase American or European style call options. As the holder of a call option, the Fund has the right to purchase the underlying security or currency at the exercise price at any time during the option period (American style) or at the expiration of the option (European style). The Fund may enter into closing sale transactions with respect to such options, exercise them or permit them to expire. The Fund may purchase call options for the purpose of increasing its current return or avoiding tax consequences which could reduce its current return. The Fund may also purchase call options in order to acquire the underlying securities or currencies. Examples of such uses of call options are provided next.

Call options may be purchased by the Fund for the purpose of acquiring the underlying securities or currencies for its portfolio. Utilized in this fashion, the purchase of call options enables the Fund to acquire the securities or currencies at the exercise price of the call option plus the premium paid. At times the net cost of acquiring securities or currencies in this manner may be less than the cost of acquiring the securities or currencies directly. This technique may also be useful to the Fund in purchasing a large block of securities or currencies that would be more difficult to acquire by direct market purchases. So long as it holds such a call option rather than the underlying security or currency itself, the Fund is partially protected from any unexpected decline in the market price of the underlying security or currency and in such event could allow the call option to expire, incurring a loss only to the extent of the premium paid for the option.

The Fund will not commit more than 5% of its assets to premiums when purchasing call and put options. The Fund may also purchase call options on underlying securities or currencies it owns in order to protect unrealized gains on call options previously written by it. A call option would be purchased for this purpose where tax considerations make it inadvisable to realize such gains through a closing purchase transaction. Call options may also be purchased at times to avoid realizing losses.

Dealer (Over-the-Counter) Options

The Fund may engage in transactions involving dealer options. Certain risks are specific to dealer options. While the Fund would look to a clearing corporation to exercise exchange-traded options, if the Fund were to purchase a dealer option, it would rely on the dealer from whom it purchased the option to perform if the option were exercised. Failure by the dealer to do so would result in the loss of the premium paid by the Fund as well as loss of the expected benefit of the transaction.

Exchange-traded options generally have a continuous liquid market while dealer options have none. Consequently, the Fund will generally be able to realize the value of a dealer option it has purchased only by exercising it or reselling it to the dealer who issued it. Similarly, when the Fund writes a dealer option, it generally will be able to close out the option prior to its expiration only by entering into a closing purchase transaction with the dealer to which the Fund originally wrote the option. While the Fund will seek to enter into dealer options only with dealers who will agree to and which are expected to be capable of entering into closing transactions with the Fund, there can be no assurance that the Fund will be able to liquidate a dealer option at a favorable price at any time prior to expiration. Until the Fund, as a covered dealer call option writer, is able to effect a closing purchase transaction, it will not be able to liquidate securities (or other assets) or currencies used as cover until the option expires or is exercised. In the event of insolvency of the contra party, the Fund may be unable to liquidate a dealer option. With respect to options written by the Fund, the inability to enter into a closing transaction may result in material losses to the Fund. For example, since the Fund must maintain a secured position with respect to any call option on a security it writes, the Fund may not sell the assets which it has segregated to secure the position while it is obligated under the option. This requirement may impair a Fund's ability to sell portfolio securities or currencies at a time when such sale might be advantageous.

The Staff of the SEC has taken the position that purchased dealer options and the assets used to secure the written dealer options are illiquid securities. The Fund may treat the cover used for written Over-the-Counter ("OTC") options as liquid if the dealer agrees that the Fund may repurchase the OTC option it has written for a maximum price to be calculated by a predetermined formula. In such cases, the OTC option would be considered illiquid only to the extent the maximum repurchase price under the formula exceeds the intrinsic value of the option.


Lending of Portfolio Securities

Securities loans are made to broker-dealers or institutional investors or other persons, pursuant to agreements requiring that the loans be continuously secured by collateral at least equal at all times to the value of the securities lent, marked to market on a daily basis. The collateral received will consist of cash, U.S. government securities, letters of credit or such other collateral as may be permitted under its investment program. While the securities are being lent, the Fund will continue to receive the equivalent of the interest or dividends paid by the issuer on the securities, as well as interest on the investment of the collateral or a fee from the borrower. The Fund has a right to call each loan and obtain the securities, within such period of time which coincides with the normal settlement period for purchases and sales of such securities in the respective markets. The Fund will not have the right to vote on securities while they are being lent, but it will call a loan in anticipation of any important vote. The risks in lending portfolio securities, as with other extensions of secured credit, consist of possible delay in receiving additional collateral or in the recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. Loans will only be made to firms deemed by T. Rowe Price to be of good standing and will not be made unless, in the judgment of T. Rowe Price, the consideration to be earned from such loans would justify the risk.

Repurchase Agreements

The Fund may enter into a repurchase agreement through which an investor
(such as the Fund) purchases a security (known as the "underlying security")
from a well-established securities dealer or a bank that is a member of the Federal Reserve System. Any such dealer or bank will be on T. Rowe Price's approved list and have a credit rating with respect to its short-term debt of at least A1 by S&P, P1 by Moody's, or the equivalent rating by T. Rowe Price. At that time, the bank or securities dealer agrees to repurchase the underlying security at the same price, plus specified interest. Repurchase agreements are generally for a short period of time, often less than a week. Repurchase agreements which do not provide for payment within seven days will be treated as illiquid securities. The Fund will only enter into repurchase agreements where (1) the underlying securities are of the type (excluding maturity limitations) which the Fund's investment guidelines would allow it to purchase directly, (2) the market value of the underlying security, including interest accrued, will be at all times equal to or exceed the value of the repurchase agreement, and (3) payment for the underlying security is made only upon physical delivery or evidence of book-entry transfer to the account of the custodian or a bank acting as agent. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying security and losses, including: (a) possible decline in the value of the underlying security during the period while the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing its rights.

Reverse Repurchase Agreements

Although the Fund has no current intention of engaging in reverse repurchase agreements, the Fund reserves the right to do so. Reverse repurchase agreements are ordinary repurchase agreements in which a Fund is the seller of, rather than the investor in, securities, and agrees to repurchase them at an agreed upon time and price. Use of a reverse repurchase agreement may be preferable to a regular sale and later repurchase of the securities because it avoids certain market risks and transaction costs. A reverse repurchase agreement may be viewed as a type of borrowing by the Fund, subject to Investment Restriction (1). (See "Investment Restrictions.")

All Funds

INVESTMENT RESTRICTIONS

Fundamental policies may not be changed without the approval of the lesser of
(1) 67% of the Fund's shares present at a meeting of shareholders if the holders of more than 50% of the outstanding shares are present in person or by proxy or (2) more than 50% of a Fund's outstanding shares. Other restrictions in the form of operating policies are subject to change by the Fund's Board of Directors/Trustees without shareholder approval. Any investment restriction which involves a maximum percentage of securities or assets shall not be

considered to be violated unless an excess over the percentage occurs immediately after, and is caused by, an acquisition of securities or assets of, or borrowings by, the Fund. Calculation of the Fund's total assets for compliance with any of the following fundamental or operating policies or any other investment restrictions set forth in the Fund's prospectus or Statement of Additional Information will not include cash collateral held in connection with securities lending activities.

Fundamental Policies

As a matter of fundamental policy, the Fund may not:

(1) Borrowing Borrow money except that the Fund may (i) borrow for non-leveraging, temporary or emergency purposes; and (ii) engage in reverse repurchase agreements and make other investments or engage in other transactions, which may involve a borrowing, in a manner consistent with the Fund's investment objective and program, provided that the combination of (i) and (ii) shall not exceed 33/1//\\/3/\\% of the value of the Fund's total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law. Any borrowings which come to exceed this amount will be reduced in accordance with applicable law. The Fund may borrow from banks, other Price Funds, or other persons to the extent permitted by applicable law;

(2) Commodities Purchase or sell physical commodities; except that the Fund (other than the Money Funds) may enter into futures contracts and options thereon;

(3) Industry Concentration Purchase the securities of any issuer if, as a result, more than 25% of the value of the Fund's total assets would be invested in the securities of issuers having their principal business activities in the same industry;

(4) Loans Make loans, although the Fund may (i) lend portfolio securities and participate in an interfund lending program with other Price Funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33/1//\\/3/\\% of the value of the Fund's total assets; (ii) purchase money market securities and enter into repurchase agreements; and (iii) acquire publicly distributed or privately placed debt securities and purchase debt;

(5) Percent Limit on Assets Invested in Any One Issuer (National, California, Tax-Efficient Balanced, and Tax-Efficient Growth Funds Only) Purchase a security if, as a result, with respect to 75% of the value of its total assets, more than 5% of the value of the Fund's total assets would be invested in the securities of a single issuer, except securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities;

(6) Percent Limit on Share Ownership of Any One Issuer (National, California, Tax-Efficient Balanced, and Tax-Efficient Growth Funds Only) Purchase a security if, as a result, with respect to 75% of the value of the Fund's total assets, more than 10% of the outstanding voting securities of any issuer would be held by the Fund (other than obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities);

(7) Real Estate Purchase or sell real estate, including limited partnership interests therein, unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business);

(8) Senior Securities Issue senior securities except in compliance with the 1940 Act;

(9) Taxable Securities (All Funds, except Tax-Efficient Balanced and Tax-Efficient Growth) During periods of normal market conditions, purchase any security if, as a result, less than 80% of the Fund's income would be exempt from federal, and if applicable, any state, city, or local income tax. Normally, the Fund will not purchase a security if, as a result, more than 20% of the Fund's income would be subject to the AMT;

or


(10) Underwriting Underwrite securities issued by other persons, except to the extent that the Fund may be deemed to be an underwriter within the meaning of the 1933 Act in connection with the purchase and sale of its portfolio securities in the ordinary course of pursuing its investment program.

NOTES

The following Notes should be read in connection with the above-described fundamental policies. The Notes are not fundamental policies.

With respect to investment restriction (1), the Money Funds have no current intention of engaging in any borrowing transactions.

With respect to investment restriction (2), the Fund does not consider currency contracts or hybrid investments to be commodities.

For purposes of investment restriction (3), U.S., state or local governments, or related agencies or instrumentalities, are not considered an industry. Industries are determined by reference to the classifications of industries set forth in the Fund's semiannual and annual reports. It is the position of the Staff of the SEC that foreign governments are industries for purposes of this restriction.

For purposes of investment restriction (4), the Fund will consider the acquisition of a debt security to include the execution of a note or other evidence of an extension of credit with a term of more than nine months.

Operating Policies

As a matter of operating policy, the Fund may not:

(1) Borrowing Purchase additional securities when money borrowed exceeds 5% of its total assets;

(2) Control of Portfolio Companies Invest in companies for the purpose of exercising management or control;

(3) Equity Securities (All Funds except Tax-Efficient Balanced and Tax-Efficient Growth Funds) Purchase any equity security or security convertible into an equity security provided that the Fund (other than the Money Funds) may invest up to 10% of its total assets in equity securities which pay tax-exempt dividends and which are otherwise consistent with the Fund's investment objective and, further provided, that the Money Funds may invest up to 10% of its total assets in equity securities of other tax-free open-end money market funds;

(4) Futures Contracts Purchase a futures contract or an option thereon, if, with respect to positions in futures or options on futures which do not represent bona fide hedging, the aggregate initial margin and premiums on such options would exceed 5% of the Fund's net asset value;

(5) Illiquid Securities Purchase illiquid securities if, as a result, more than 15% (10% for Money Funds) of its net assets would be invested in such securities;

(6) Investment Companies Purchase securities of open-end or closed-end investment companies except (i) in compliance with the Investment Company Act of 1940; (ii) in the case of the Tax-Free Funds, only securities of other tax-free money market funds; or (iii) in the case of Tax-Efficient Balanced and Tax-Efficient Growth Funds, securities of the Reserve Investment or Government Reserve Investment Funds;

(7) Margin Purchase securities on margin, except (i) for use of short-term credit necessary for clearance of purchases of portfolio securities and
(ii) it may make margin deposits in connection with futures contracts or other permissible investments;

(8) Mortgaging Mortgage, pledge, hypothecate or, in any manner, transfer any security owned by the Fund as security for indebtedness except as may be necessary in connection with permissible borrowings or investments and then such mortgaging, pledging or hypothecating may not exceed 33/1//\\/3/\\% of the Fund's total assets at the time of borrowing or investment;


(9) Oil and Gas Programs Purchase participations or other direct interests in, or enter into leases with respect to oil, gas, or other mineral exploration or development programs if, as a result thereof, more than 5% of the value of the total assets of the Fund would be invested in such programs;

(10) Options, etc. Invest in puts, calls, straddles, spreads, or any combination thereof, except to the extent permitted by the prospectus and Statement of Additional Information;

(11) Short Sales Effect short sales of securities; or

(12) Warrants Invest in warrants if, as a result thereof, more than 2% (for the Summit Income Funds) or 2% (for the Summit Municipal Funds) of the value of the net assets of the Fund would be invested in warrants.

NOTES

With respect to investment restriction (6), the Funds have no current intention of purchasing the securities of other investment companies. Duplicate fees could result from any such purchases.

MANAGEMENT OF THE FUNDS

The officers and directors/trustees of the Fund are listed below. Unless otherwise noted, the address of each is 100 East Pratt Street, Baltimore, Maryland 21202. Except as indicated, each has been an employee of T. Rowe Price for more than five years. In the list below, the Fund's directors/trustees who are considered "interested persons" of T. Rowe Price as defined under Section 2(a)(19) of the 1940 Act are noted with an asterisk (*). These directors/trustees are referred to as inside directors by virtue of their officership, directorship, and/or employment with T. Rowe Price.

Independent Directors/Trustees

All Funds except Tax-Efficient Balanced Fund

CALVIN W. BURNETT, PH.D., 3/16/32, President, Coppin State College; Director, Maryland Chamber of Commerce and Provident Bank of Maryland; Former President, Baltimore Area Council Boy Scouts of America; Vice President, Board of Directors, The Walters Art Gallery; Address: 2500 West North Avenue, Baltimore, Maryland 21216

ANTHONY W. DEERING, 1/28/45, Director, Chairman of the Board, President and Chief Operating Officer, The Rouse Company, real estate developers, Columbia, Maryland; Advisory Director, Kleinwort, Benson (North America) Corporation, a registered broker-dealer; Address: 10275 Little Patuxent Parkway, Columbia, Maryland 21044

F. PIERCE LINAWEAVER, 8/22/34, President, F. Pierce Linaweaver & Associates, Inc.; Consulting Environmental & Civil Engineer(s); formerly Executive Vice President, EA Engineering, Science, and Technology, Inc., and President, EA Engineering, Inc., Baltimore, Maryland; Address: Green Spring Station, 2360 West Joppa Road, Suite 224, Lutherville, Maryland 21093

JOHN G. SCHREIBER, 10/21/46, President, Schreiber Investments, Inc., a real estate investment company; Director, AMLI Residential Properties Trust and Urban Shopping Centers, Inc.; Partner, Blackstone Real Estate Partners, L.P.; Director and formerly Executive Vice President, JMB Realty Corporation, a national real estate investment manager and developer; Address: 1115 East Illinois Road, Lake Forest, Illinois 60045

Tax-Efficient Balanced Fund

DONALD W. DICK, JR., 1/27/43, Principal, EuroCapital Advisors, LLC, an acquisition and management advisory firm; formerly (5/89-6/95) Principal, Overseas Partners, Inc., a financial investment firm; formerly (6/65-3/89) Director and Vice President; Consumer Products Division, McCormick & Company, Inc., international food processors; Director, Waverly, Inc., Baltimore, Maryland; Address: 925 Cleveland Street, #177, Greenville, South Carolina

29601


DAVID K. FAGIN, 4/9/38, Chairman and Chief Executive Officer, Western Exploration and Development, Ltd.; Director Golden Star Resources Ltd. and Miranda Mining Development Corporation; formerly (1986-7/ 91) President, Chief Operating Officer and Director, Homestake Mining Company; Address: 1700 Lincoln Street, Suite 4710, Denver, Colorado 80203

HANNE M. MERRIMAN, 11/16/41, Retail business consultant; formerly President and Chief Operating Officer (1991-92), Nan Duskin, Inc., a women's specialty store, Director (1984-90) and Chairman (1989-90) Federal Reserve Bank of Richmond, and President and Chief Executive Officer (1988-89), Honeybee, Inc., a division of Spiegel, Inc.; Director, Central Illinois Public Service Company, CIPSCO Incorporated, Finlay Enterprises, Inc., The Rouse Company, State Farm Mutual Automobile Insurance Company and USAir Group, Inc.; Address: 3201 New Mexico Avenue, N.W., Suite 350, Washington, D.C. 20016

HUBERT D. VOS, 8/2/33, President, Stonington Capital Corporation, a private investment company; Address: 1114 State Street, Suite 247, P.O. Box 90409, Santa Barbara, California 93190-0409

PAUL M. WYTHES, 6/23/33, Founding General Partner, Sutter Hill Ventures, a venture capital limited partnership, providing equity capital to young high technology companies throughout the United States; Director, Teltone Corporation, Interventional Technologies Inc. and Stuart Medical, Inc.; Address: 755 Page Mill Road, Suite A200, Palo Alto, California 94304-1005

Officers

HENRY H. HOPKINS, 12/23/42, Vice President-Vice President, Price-Fleming and T. Rowe Price Retirement Plan Services, Inc.; Director and Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc. and T. Rowe Price Trust Company

PATRICIA S. LIPPERT, 1/12/53, Secretary-Assistant Vice President, T. Rowe Price and T. Rowe Price Investment Services, Inc.

CARMEN F. DEYESU, 8/1/41, Treasurer-Vice President, T. Rowe Price, T. Rowe Price Services, Inc., and T. Rowe Price Trust Company

DAVID S. MIDDLETON, 1/18/56, Controller-Vice President, T. Rowe Price and T. Rowe Price Trust Company

INGRID I. VORDEMBERGE, 9/27/35, Assistant Vice President-Employee, T. Rowe Price

California and State Tax-Free Trusts

* WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board -Director and Managing Director, T. Rowe Price; Chartered Financial Analyst

* JAMES S. RIEPE, 6/25/43, Trustee and Vice President -Vice Chairman of the Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President, and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and General Re Corporation

* M. DAVID TESTA, 4/22/44, Trustee -Chairman of the Board and Director, Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company; Chartered Financial Analyst

MARY J. MILLER, 7/19/55, President -Managing Director, T. Rowe Price

JANET G. ALBRIGHT, 3/31/57, Vice President -Vice President, T. Rowe Price

JEREMY N. BAKER, 2/27/68, Vice President -Employee, T. Rowe Price

PATRICE BERCHTENBREITER ELY, 1/13/53, Vice President -Vice President, T. Rowe Price

PATRICIA S. DEFORD, 9/29/57, Vice President -Vice President, T. Rowe Price

CHARLES B. HILL, 9/22/61, Vice President -Vice President, T. Rowe Price


JOSEPH K. LYNAGH, 6/9/58, Vice President (a) -Vice President, T. Rowe Price

KONSTANTINE B. MALLAS, 5/26/63, Vice President -Vice President, T. Rowe Price

EDWARD T. SCHNEIDER, 9/19/59, Vice President -Vice President, T. Rowe Price

WILLIAM F. SNIDER, 9/16/69, Vice President -Vice President, T. Rowe Price

C. STEPHEN WOLFE II, 4/5/59, Vice President -Vice President, T. Rowe Price

State Tax-Free Trust Only

MARCY M. LASH, 1/30/63, Vice President -Assistant Vice President and Municipal Credit Analyst, T. Rowe Price; (1998) formerly Assistant Vice President, underwriting, at Connie Lee Insurance Company

HUGH D. MCGUIRK, 7/6/60, Vice President (a) -Vice President, T. Rowe Price

GWENDOLYN G. WAGNER, 4/12/57, Vice President -Vice President and Economist, T. Rowe Price; Chartered Financial Analyst

ROBERT A. DONAHUE, 11/8/64, Assistant Vice President -Assistant Vice President and Municipal Credit Analyst, T. Rowe Price; (1998) formerly Director of Policy Evaluation, District of Columbia Public Schools

JULIE A. SALSBERY, 4/29/70, Assistant Vice President -Assistant Vice President and Fixed Income Trader, T. Rowe Price; (1997) formerly assistant portfolio manager/trader at Wainwright Asset Management

Tax-Efficient Balanced Fund

* JAMES A.C. KENNEDY, 8/17/53, Director and Vice President -Director and Managing Director, T. Rowe Price; Chartered Financial Analyst

* JAMES S. RIEPE, 6/25/43, Director and President -Vice Chairman of the Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President, and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and General Re Corporation

* M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director, Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company; Chartered Financial Analyst

MARY J. MILLER, 7/19/55, Executive Vice President -Managing Director, T. Rowe Price

DONALD J. PETERS, 7/3/59, Executive Vice President -Vice President, T. Rowe Price; formerly portfolio manager, Geewax Terker and Company

STEPHEN W. BOESEL, 12/28/44, Vice President -Managing Director, T. Rowe Price; Vice President, T. Rowe Price Trust Company and T. Rowe Price Retirement Plan Services, Inc.

HUGH D. MCGUIRK, 7/6/60, (a) Vice President-Vice President, T. Rowe Price

WILLIAM T. REYNOLDS, 5/26/48,

Vice President -Director and Managing Director, T. Rowe Price; Chartered Financial Analyst

WILLIAM F. SNIDER, 9/16/69, Vice President -Vice President, T. Rowe Price

WILLIAM J. STROMBERG, 3/10/60, Vice President

-Managing Director, T. Rowe Price; Chartered Financial Analyst

ARTHUR S. VARNADO, 6/1/60, Vice President -Vice President, T. Rowe Price

J. JEFFREY LANG, 1/10/62, Assistant Vice President-Assistant Vice President, T. Rowe Price; Vice President, T. Rowe Price Trust Company


Tax-Exempt Money Fund

* WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board -Director and Managing Director, T. Rowe Price; Chartered Financial Analyst

* JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President, and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and General Re Corporation

* M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director, Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company; Chartered Financial Analyst

PATRICE BERCHTENBREITER ELY, 1/13/53, President -Vice President, T. Rowe Price

JANET G. ALBRIGHT, 3/31/57, Vice President -Vice President, T. Rowe Price

JEREMY N. BAKER, 2/27/68, Vice President -Employee, T. Rowe Price

PATRICIA S. DEFORD, 9/29/57, Vice President -Vice President, T. Rowe Price

JOSEPH K. LYNAGH, 6/9/58, Vice President -Vice President, T. Rowe Price

MARY J. MILLER, 7/19/55, Vice President -Managing Director, T. Rowe Price

EDWARD T. SCHNEIDER, 9/19/59, Vice President -Vice President, T. Rowe Price

C. STEPHEN WOLFE II, 4/5/59, Vice President -Vice President, T. Rowe Price

Tax-Free High Yield Fund

* WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board -Director and Managing Director, T. Rowe Price; Chartered Financial Analyst

* JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President, and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and General Re Corporation

* M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director, Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company; Chartered Financial Analyst

WILLIAM F. SNIDER, 9/16/69, President -Vice President, T. Rowe Price

PATRICIA S. DEFORD, 9/29/57, Executive Vice President -Vice President, T. Rowe Price

JANET G. ALBRIGHT, 3/31/57, Vice President -Vice President, T. Rowe Price

CHARLES B. HILL, 9/22/61, Vice President -Vice President, T. Rowe Price

KONSTANTINE B. MALLAS, 5/26/63, Vice President -Vice President, T. Rowe Price

HUGH D. MCGUIRK, 7/6/60, Vice President -Vice President, T. Rowe Price

MARY J. MILLER, 7/19/55, Vice President -Managing Director, T. Rowe Price

EDWARD T. SCHNEIDER, 9/19/59, Vice President -Vice President, T. Rowe Price

Tax-Free Income Fund

* WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board -Director and Managing Director, T. Rowe Price; Chartered Financial Analyst

* JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board, T. Rowe Price Investment Services, Inc., T. Rowe Price


Services, Inc., and T. Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President, and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and General Re Corporation

* M. DAVID TESTA, 4/22/44, Directo r -Chairman of the Board and Director, Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company; Chartered Financial Analyst

MARY J. MILLER, 7/19/55,

President -Managing Director, T. Rowe Price

JANET G. ALBRIGHT, 3/31/57, Vice President -Vice President, T. Rowe Price

PATRICE BERCHTENBREITER ELY, 1/13/53, Vice President -Vice President, T. Rowe Price

PATRICIA S. DEFORD, 9/29/57, Vice President -Vice President, T. Rowe Price

CHARLES B. HILL, 9/22/61, Vice President -Vice President, T. Rowe Price

MARCY M. LASH, 1/30/63, Vice President -Assistant Vice President and Municipal Credit Analyst, T. Rowe Price; (1998) formerly Assistant Vice President, underwriting, at Connie Lee Insurance Company

KONSTANTINE B. MALLAS, 5/26/63, Vice President -Vice President, T. Rowe Price

HUGH D. MCGUIRK, 7/6/60, Vice President -Vice President, T. Rowe Price

EDWARD T. SCHNEIDER, 9/19/59, Vice President -Vice President, T. Rowe Price

WILLIAM F. SNIDER, 9/16/69, Vice President -Vice President, T. Rowe Price

C. STEPHEN WOLFE II, 4/5/59, Vice President -Vice President, T. Rowe Price

Tax-Free Intermediate Bond Fund

* WILLIAM T. REYNOLDS, 5/26/48,

Director -Director and Managing Director, T. Rowe Price; Chartered Financial Analyst

* JAMES S. RIEPE, 6/25/43, Director -Vice Chairman of the Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President, and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and General Re Corporation

* M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director, Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company; Chartered Financial Analyst

CHARLES B. HILL, 9/22/61, President -Vice President, T. Rowe Price

MARY J. MILLER, 7/19/55, Executive Vice President -Managing Director, T. Rowe Price

JANET G. ALBRIGHT, 3/31/57, Vice President -Vice President, T. Rowe Price

PATRICIA S. DEFORD, 9/29/57, Vice President -Vice President, T. Rowe Price

KONSTANTINE B. MALLAS, 5/26/63, Vice President -Vice President, T. Rowe Price

HUGH D. MCGUIRK, 7/6/60, Vice President -Vice President, T. Rowe Price

EDWARD T. SCHNEIDER, 9/19/59, Vice President -Vice President, T. Rowe Price

WILLIAM F. SNIDER, 9/16/69, Vice President -Vice President, T. Rowe Price

ROBERT A. DONAHUE, 11/8/64, Assistant Vice President -Assistant Vice President and Municipal Credit Analyst, T. Rowe Price; (1998) formerly Director of Policy Evaluation, District of Columbia Public Schools

JULIE A. SALSBERY, 4/29/70, Assistant Vice President -Assistant Vice President and Fixed Income Trader, T. Rowe Price; (1997) formerly assistant portfolio manager/trader at Wainwright Asset Management


Tax-Free Short-Intermediate Fund

* WILLIAM T. REYNOLDS, 5/26/48, Chairman of the Board -Director and Managing Director, T. Rowe Price; Chartered Financial Analyst

* JAMES S. RIEPE, 6/25/43, Director and Vice President -Vice Chairman of the Board, Managing Director, and Director, T. Rowe Price; Chairman of the Board, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Retirement Plan Services, Inc.; Chairman of the Board, President, and Trust Officer, T. Rowe Price Trust Company; Director, Price-Fleming and General Re Corporation

* M. DAVID TESTA, 4/22/44, Director -Chairman of the Board and Director, Price-Fleming; Vice Chairman of the Board, Chief Investment Officer, and Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company; Chartered Financial Analyst

MARY J. MILLER, 7/19/55, President -Managing Director, T. Rowe Price

CHARLES B. HILL, 9/22/61, Executive Vice President -Vice President, T. Rowe Price

JANET G. ALBRIGHT, 3/31/57, Vice President -Vice President, T. Rowe Price

PATRICE BERCHTENBREITER ELY, 1/13/53, Vice President -Vice President, T. Rowe Price

PATRICIA S. DEFORD, 9/29/57, Vice President -Vice President, T. Rowe Price

KONSTANTINE B. MALLAS, 5/26/63, Vice President -Vice President, T. Rowe Price

HUGH D. MCGUIRK, 7/6/60, Vice President -Vice President, T. Rowe Price

EDWARD T. SCHNEIDER, 9/19/59, Vice President -Vice President, T. Rowe Price

C. STEPHEN WOLFE II, 4/5/59, Vice President -Vice President, T. Rowe Price

JULIE A. SALSBERY, 4/29/70, Assistant Vice President -Assistant Vice President and Fixed Income Trader, T. Rowe Price; (1997) formerly assistant portfolio manager/trader at Wainwright Asset Management

Compensation Table

The Funds do not pay pension or retirement benefits to their officers or directors/trustees. Also, any director/ trustee of a Fund who is an officer or employee of T. Rowe Price or Price-Fleming does not receive any remuneration from the Fund.

Name of Person,                   Aggregate Compensation from               Total Compensation from Fund and
Position                          Fund(a)                                   Fund Complex Paid to Directors/
---------------------------       ----------------------------------------  Trustees(b)
------------------------------------------------------------------------------------------------------------------------
                                                                            ----------------------------------------------
California Tax-Free Bond Fund
Robert P. Black, Trustee(c)                                    $  218                                         $37,917
Calvin W. Burnett, Trustee                                      1,471                                          65,000
Anthony W. Deering, Trustee                                     1,319                                          80,000
F. Pierce Linaweaver, Trustee                                   1,471                                          67,000
John G. Schriber, Trustee                                       1,471                                          67,000
--------------------------------------------------------------------------------------------------------------------------
California Tax-Free Money Fund
Robert P. Black, Trustee(c)                                    $  190                                         $37,917
Calvin W. Burnett, Trustee                                      1,344                                          65,000
Anthony W. Deering, Trustee                                     1,275                                          80,000
F. Pierce Linaweaver, Trustee                                   1,344                                          67,000
John G. Schriber, Trustee                                       1,344                                          67,000
--------------------------------------------------------------------------------------------------------------------------
Florida Intermediate Tax-Free Fund
Robert P. Black, Trustee(c)                                    $  190                                         $37,917
Calvin W. Burnett, Trustee                                      1,337                                          65,000
Anthony W. Deering, Trustee                                     1,268                                          80,000
F. Pierce Linaweaver, Trustee                                   1,338                                          67,000
John G. Schriber, Trustee                                       1,338                                          67,000
--------------------------------------------------------------------------------------------------------------------------
Georgia Tax-Free Bond Fund
Robert P. Black, Trustee(c)                                    $  270                                         $37,917
Calvin W. Burnett, Trustee                                      1,274                                          65,000
Anthony W. Deering, Trustee                                     1,221                                          80,000
F. Pierce Linaweaver, Trustee                                   1,274                                          67,000
John G. Schriber, Trustee                                       1,274                                          67,000
--------------------------------------------------------------------------------------------------------------------------
Maryland Short-Term Tax-Free Bond Fund
Robert P. Black, Trustee(c)                                    $  195                                         $37,917
Calvin W. Burnett, Trustee                                      1,371                                          65,000
Anthony W. Deering, Trustee                                     1,252                                          80,000
F. Pierce Linaweaver, Trustee                                   1,371                                          67,000
John G. Schriber, Trustee                                       1,371                                          67,000
--------------------------------------------------------------------------------------------------------------------------
Maryland Tax-Free Bond Fund
Robert P. Black, Trustee(c)                                    $  411                                         $37,917
Calvin W. Burnett, Trustee                                      2,365                                          65,000
Anthony W. Deering, Trustee                                     1,670                                          80,000
F. Pierce Linaweaver, Trustee                                   2,365                                          67,000
John G. Schriber, Trustee                                       2,365                                          67,000
--------------------------------------------------------------------------------------------------------------------------
New Jersey Tax-Free Bond Fund
Robert P. Black, Trustee(c)                                    $  192                                         $37,917
Calvin W. Burnett, Trustee                                      1,356                                          65,000
Anthony W. Deering, Trustee                                     1,283                                          80,000
F. Pierce Linaweaver, Trustee                                   1,356                                          67,000
John G. Schriber, Trustee                                       1,356                                          67,000
--------------------------------------------------------------------------------------------------------------------------
New York Tax-Free Bond Fund
Robert P. Black, Trustee(c)                                    $  419                                         $37,917
Calvin W. Burnett, Trustee                                      1,403                                          65,000
Anthony W. Deering, Trustee                                     1,276                                          80,000
F. Pierce Linaweaver, Trustee                                   1,403                                          67,000
John G. Schriber, Trustee                                       1,383                                          67,000
--------------------------------------------------------------------------------------------------------------------------
New York Tax-Free Money Fund
Robert P. Black, Trustee(c)                                    $  192                                         $37,917
Calvin W. Burnett, Trustee                                      1,347                                          65,000
Anthony W. Deering, Trustee                                     1,275                                          80,000
F. Pierce Linaweaver, Trustee                                   1,347                                          67,000
John G. Schriber, Trustee                                       1,347                                          67,000
--------------------------------------------------------------------------------------------------------------------------
Virginia Short-Term Tax-Free Bond Fund
Robert P. Black, Trustee(c)                                    $  195                                         $37,917
Calvin W. Burnett, Trustee                                      1,371                                          65,000
Anthony W. Deering, Trustee                                     1,252                                          80,000
F. Pierce Linaweaver, Trustee                                   1,371                                          67,000
John G. Schriber, Trustee                                       1,371                                          67,000
--------------------------------------------------------------------------------------------------------------------------
Virginia Tax-Free Bond Fund
Robert P. Black, Trustee(c)                                    $  365                                         $37,917
Calvin W. Burnett, Trustee                                      2,092                                          65,000
Anthony W. Deering, Trustee                                     1,554                                          80,000
F. Pierce Linaweaver, Trustee                                   2,092                                          67,000
John G. Schriber, Trustee                                       2,092                                          67,000
--------------------------------------------------------------------------------------------------------------------------
Tax-Efficient Balanced Fund(d)
Donald W. Dick, Jr., Director(c)                               $1,008                                         $82,000
David K. Fagin, Director                                        1,034                                          65,000
Hanne M. Merriman, Director                                     1,032                                          65,000
Hubert D. Vos, Director                                         1,032                                          66,000
Paul M. Wythes, Director                                        1,032                                          80,000
--------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Fund
Robert P. Black, Director(c)                                   $  742                                         $37,917
Calvin W. Burnett, Director                                     2,633                                          65,000
Anthony W. Deering, Director                                    1,708                                          80,000
F. Pierce Linaweaver, Director                                  2,633                                          67,000
John G. Schriber, Director                                      2,634                                          67,000
--------------------------------------------------------------------------------------------------------------------------
Tax-Free High Yield Fund
Robert P. Black, Director(c)                                   $  799                                         $37,917
Calvin W. Burnett, Director                                     2,820                                          65,000
Anthony W. Deering, Director                                    1,806                                          80,000
F. Pierce Linaweaver, Director                                  2,820                                          67,000
John G. Schriber, Director                                      2,820                                          67,000
--------------------------------------------------------------------------------------------------------------------------
Tax-Free Income Fund
Robert P. Black, Director(c)                                   $  411                                         $37,917
Calvin W. Burnett, Director                                     1,804                                          65,000
Anthony W. Deering, Director                                    1,447                                          80,000
F. Pierce Linaweaver, Director                                  1,804                                          67,000
John G. Schriber, Director                                      1,805                                          67,000
--------------------------------------------------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund
Robert P. Black, Director(c)                                   $  407                                         $37,917
Calvin W. Burnett, Director                                     1,360                                          65,000
Anthony W. Deering, Director                                    1,142                                          80,000
F. Pierce Linaweaver, Director                                  1,322                                          67,000
John G. Schriber, Director                                      1,348                                          67,000
--------------------------------------------------------------------------------------------------------------------------
Tax-Free Short-Intermediate Fund
Robert P. Black, Director(c)                                   $  291                                         $37,917
Calvin W. Burnett, Director                                     1,373                                          65,000
Anthony W. Deering, Director                                    1,250                                          80,000
F. Pierce Linaweaver, Director                                  1,373                                          67,000
John G. Schriber, Director                                      1,373                                          67,000
--------------------------------------------------------------------------------------------------------------------------


(a) Amounts in this column are based on accrued compensation from March 1, 1998 to February 28, 1999.

(b) Amounts in this column are based on compensation received from January 1, 1998, to December 31, 1998. The T. Rowe Price complex included 87 funds as of December 31, 1998.

(c) Mr. Black retired from his position with the Funds in April 1998.

(d) Expenses accrued from June 30, 1998 to February 28, 1999.

All Funds

The Fund's Executive Committee, consisting of the Fund's interested directors/trustees, has been authorized by its respective Board of Directors/Trustees to exercise all powers of the Board to manage the Funds in the intervals between meetings of the Board, except the powers prohibited by statute from being delegated.

PRINCIPAL HOLDERS OF SECURITIES

As of the date of the prospectus, the officers and directors/trustees of the Fund, as a group, owned less than 1% of the outstanding shares of the Fund.

As of June 1, 1999, the following shareholders beneficially owned more than 5% of the outstanding shares of the Fund:

California Tax-Free Money Fund: Boone & Associates, Purity Adr Settlement Escrow, 901 Corporate Center Drive, Suite 204, Monterey Park, California 91754-7630.

New York Tax-Free Money Fund: Coleman M. Brandt and Grace L. Brandt JT TEN, 330 West 72nd Street, Apt. 10A, New York, New York 10023-2649.

Tax-Efficient Balanced Fund: Agnes T. Corigliano and Cosmo Corigliano JT TEN, 243 Stamford Avenue, Stamford, Connecticut 06902-8202.

INVESTMENT MANAGEMENT SERVICES

Services
Under the Management Agreement, T. Rowe Price provides the Fund with discretionary investment services. Specifically, T. Rowe Price is responsible for supervising and directing the investments of the Fund in accordance with the Fund's investment objectives, program, and restrictions as provided in its prospectus and this Statement of Additional Information. T. Rowe Price is also responsible for effecting all security transactions on behalf of the Fund, including the negotiation of commissions and the allocation of principal business and portfolio brokerage. In addition to these services, T. Rowe Price provides the Fund with certain corporate administrative services, including: maintaining the Fund's corporate existence and corporate records; registering and qualifying Fund shares under federal laws; monitoring the financial, accounting, and

administrative functions of the Fund; maintaining liaison with the agents employed by the Fund such as the Fund's custodian and transfer agent; assisting the Fund in the coordination of such agents' activities; and permitting T. Rowe Price's employees to serve as officers, directors/trustees, and committee members of the Fund without cost to the Fund.

The Management Agreement also provides that T. Rowe Price, its directors/trustees, officers, employees, and certain other persons performing specific functions for the Fund will only be liable to the Fund for losses resulting from willful misfeasance, bad faith, gross negligence, or reckless disregard of duty.

Management Fee
The Fund pays T. Rowe Price a fee ("Fee") which consists of two components: a Group Management Fee ("Group Fee") and an Individual Fund Fee ("Fund Fee"). The Fee is paid monthly to T. Rowe Price on the first business day of the next succeeding calendar month and is calculated as described below.

The monthly Group Fee ("Monthly Group Fee") is the sum of the daily Group Fee accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee Accrual for any particular day is computed by multiplying the Price Funds' group fee accrual as determined below ("Daily Price Funds' Group Fee Accrual") by the ratio of the Price Fund's net assets for that day to the sum of the aggregate net assets of the Price Funds for that day. The Daily Price Funds' Group Fee Accrual for any particular day is calculated by multiplying the fraction of one (1) over the number of calendar days in the year by the annualized Daily Price Funds' Group Fee Accrual for that day as determined in accordance with the following schedule:

Price Funds' Annual Group Base Fee Rate for Each Level of
                         Assets
                                                        0.480%  First $1 billion  0.360%  Next $2 billion   0.310%  Next $16
                                                                                                                    billion
                                                        ---------------------------------------------------------------------------
                                                        0.450%  Next $1 billion   0.350%  Next $2 billion   0.305%  Next $30
                                                                                                                    billion
                                                        ---------------------------------------------------------------------------
                                                        0.420%  Next $1 billion   0.340%  Next $5 billion   0.300%  Next $40
                                                                                                                    billion
                                                        ---------------------------------------------------------------------------
                                                        0.390%  Next $1 billion   0.330%  Next $10 billion  0.295%  Thereafter
                                                        ---------------------------------------------------------------------------
                                                        0.370%  Next $1 billion   0.320%  Next $10 billion

For the purpose of calculating the Group Fee, the Price Funds include all the mutual funds distributed by Investment Services, (excluding the T. Rowe Price Spectrum Funds, and any institutional, index, or private label mutual funds). For the purpose of calculating the Daily Price Funds' Group Fee Accrual for any particular day, the net assets of each Price Fund are determined in accordance with the Funds' prospectus as of the close of business on the previous business day on which the Fund was open for business.

The monthly Fund Fee ("Monthly Fund Fee") is the sum of the daily Fund Fee accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee Accrual for any particular day is computed by multiplying the fraction of one
(1) over the number of calendar days in the year by the individual Fund Fee Rate and multiplying this product by the net assets of the Fund for that day, as determined in accordance with the Fund's prospectus as of the close of business on the previous business day on which the Fund was open for business. The individual fund fees are listed in the following chart:

California Tax-Free Bond Fund                                                0.10%
California Tax-Free Money Fund                                               0.10
Florida Intermediate Tax-Free Fund                                           0.05
Georgia Tax-Free Bond Fund                                                   0.10
Maryland Tax-Free Bond Fund                                                  0.10
Maryland Short-Term Tax-Free Bond Fund                                       0.10
New Jersey Tax-Free Bond Fund                                                0.10
New York Tax-Free Bond Fund                                                  0.10
New York Tax-Free Money Fund                                                 0.10
Virginia Tax-Free Bond Fund                                                  0.10
Virginia Short-Term Tax-Free Bond Fund                                       0.10
Tax-Efficient Balanced Fund                                                  0.20
Tax-Exempt Money Fund                                                        0.10
Tax-Free High Yield Fund                                                     0.30
Tax-Free Income Fund                                                         0.15
Tax-Free Intermediate Bond Fund                                              0.05
Tax-Free Short-Intermediate Fund                                             0.10


The following chart sets forth the total management fees, if any, paid to T. Rowe Price by each Fund, during the last three years:

                       Fund                             1999        1998            1997
                       ----                             ----        ----            ----
California Tax-Free Bond                             $  878,000  $  744,000      $  644,000
California Tax-Free Money                               333,000     263,000         195,000
Florida Intermediate Tax-Free                           343,000     302,000         211,000
Georgia Tax-Free Bond                                   157,000     108,000          41,000
Maryland Tax-Free Bond                                4,157,000   3,659,000       3,398,000
Maryland Short-Term Tax-Free Bond                       468,000     488,000         378,000
New Jersey Tax-Free Bond                                462,000     352,000         244,000
New York Tax-Free Bond                                  818,000     670,000         582,000
New York Tax-Free Money                                 348,000     281,000         205,000
Virginia Tax-Free Bond                                1,081,000     895,000         829,000
Virginia Short-Term Tax-Free Bond                         5,000           0(a)            0(a)
Tax-Efficient Balanced                                   13,000           0(b)           --
Tax-Exempt Money                                      3,176,000   2,989,000       2,880,000
Tax-Free High Yield                                   8,119,000   7,051,000       6,309,000
Tax-Free Income                                       6,800,000   6,428,000       6,426,000
Tax-Free Intermediate Bond                              438,000     391,000         315,000
Tax-Free Short-Intermediate                           1,895,000   1,856,000       1,884,000
-----------------------------------------------------------------------------------------------

(a) Due to effect of expense limitations discussed below, the Fund did not pay T. Rowe Price an investment management fee.

(b) Prior to commencement of operations.

Limitation on Fund Expenses
The Management Agreement between the Fund and T. Rowe Price provides that the Fund will bear all expenses of its operations not specifically assumed by T. Rowe Price.

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

California Tax-Free Money Fund and New York Tax-Free Funds

Pursuant to the California Money Fund's present expense limitation, $89,000, of management fees were not accrued for the year ended February 28, 1999. Additionally, $99,000 of unaccrued management fees related to a previous expense limitation were not accrued. Pursuant to the New York Money Fund's present expense limitations, $83,000 of management fees were not accrued for the year ended February 28, 1999 and $94,000 and remain unaccrued from prior periods. Subject to shareholder approval, the expenses of both funds may be reimbursed to T. Rowe Price, provided that the recapture of fees would not cause the ratio of expenses to average net assets to exceed the above-mentioned ratios.


Florida Intermediate Fund

Pursuant to the present expense limitation, $1,000 of management fees for the Florida Fund were not accrued for the year ended February 28, 1999, and $5,000 remains unaccrued from the prior period.

Georgia Fund

Pursuant to the present expense limitation, $74,000 of management fees were not accrued by the Georgia Bond Fund for the year ended February 28, 1999, and $78,000 remains unaccrued from the prior period.

Maryland Short-Term Tax-Free Bond Fund

Pursuant to a previous expense limitation, $7,000 of management fees remain unaccrued by the Maryland Short-Term Fund for the year ended February 28, 1999.

New Jersey Fund

Pursuant to the present expense limitation, $4,000 of management fees were not accrued by the New Jersey Fund for the year ended February 28, 1999, and $20,000 remains unaccrued from the prior period.

Virginia Short-Term Bond Fund

Pursuant to the present expense limitation, $97,000 of management fees for the Virginia Short-Term Bond Fund were not accrued for the year ended February 28, 1999, and $104,000 of other expenses were borne by T. Rowe Price and are subject to future reimbursement. Additionally, $184,000 of unaccrued fees and expenses remain unaccrued from the prior period and are subject to future reimbursement.

Tax-Efficient Balanced Fund

Pursuant to the present expense limitation, $119,000 of management fees were not accrued by the Fund for the year ended February 28, 1999. Additionally, $81,000 of other expenses were borne by the manager.

Tax-Free Intermediate Bond Fund

Pursuant to the present expense limitation, $13,000 of management fees were not accrued by the Fund for the year ended February 28, 1999. Additionally, $23,000 of unaccrued fees and expenses from the prior period are subject to reimbursement.

Management Related Services
As noted above, the Management Agreement spells out the expenses to be paid by the Fund. In addition to the Management Fee, the Fund pays for the following: shareholder service expenses; custodial, accounting, legal, and audit fees; costs of preparing and printing prospectuses and reports sent to shareholders; registration fees and expenses; proxy and annual meeting expenses (if any); and director/trustee fees and expenses.

T. Rowe Price Services, Inc., a wholly owned subsidiary of T. Rowe Price, acts as the Fund's transfer and dividend disbursing agent and provides shareholder and administrative services. Services for certain types of retirement plans are provided by T. Rowe Price Retirement Plan Services, Inc., also a wholly owned subsidiary. The address for each is 100 East Pratt St., Baltimore, MD 21202. Additionally, T. Rowe Price, under a separate agreement with the Funds, provides accounting services to the Funds.

The Funds paid the expenses shown in the following table for the fiscal year ended February 28, 1999, to T. Rowe Price and its affiliates.

                             Fund                                 Transfer Agent and    Accounting
                             ----                                Shareholder Services    Services
                                                                 --------------------    --------
California Tax-Free Bond                                               $116,000          $ 94,000
California Tax-Free Money                                                72,000            68,000
Florida Intermediate Tax-Free                                            54,000            67,000
Georgia Tax-Free Bond                                                    52,000            67,000
Maryland Short-Term Tax-Free Bond                                        71,000            67,000
Maryland Tax-Free Bond                                                  456,000            84,000
New Jersey Tax-Free Bond                                                 84,000            67,000
New York Tax-Free Bond                                                  121,000            75,000
New York Tax-Free Money                                                  65,000            68,000
Virginia Short-Term Tax-Free Bond                                        25,000            63,000
Virginia Tax-Free Bond                                                  158,000            67,000
Tax-Efficient Balanced                                                   36,000            62,000
Tax-Exempt Money                                                        331,000            97,000
Tax-Exempt Money Fund--PLUS Class                                            --                --
Tax-Free High Yield                                                     618,000           113,000
Tax-Free Income                                                         574,000           112,000
Tax-Free Intermediate Bond                                               99,000            67,000
Tax-Free Short-Intermediate                                             208,000            93,000
----------------------------------------------------------------------------------------------------


DISTRIBUTOR FOR THE FUNDS

Investment Services, a Maryland corporation formed in 1980 as a wholly owned subsidiary of T. Rowe Price, serves as Fund's distributor. Investment Services is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. The offering of the Fund's shares is continuous.

Investment Services is located at the same address as the Fund and T. Rowe Price-100 East Pratt Street, Baltimore, Maryland 21202.

Investment Services serves as distributor to the Fund pursuant to an Underwriting Agreement ("Underwriting Agreement"), which provides that the Fund will pay all fees and expenses in connection with: necessary state filings; preparing, setting in type, printing, and mailing its prospectuses and reports to shareholders; and issuing its shares, including expenses of confirming purchase orders.

The Underwriting Agreement provides that Investment Services will pay all fees and expenses in connection with: printing and distributing prospectuses and reports for use in offering and selling Fund shares; preparing, setting in type, printing, and mailing all sales literature and advertising; Investment Services' federal and state registrations as a broker-dealer; and offering and selling shares, except for those fees and expenses specifically assumed by the Fund. Investment Services' expenses are paid by T. Rowe Price.

Investment Services acts as the agent of the Fund in connection with the sale of its shares in the various states in which Investment Services is qualified as a broker-dealer. Under the Underwriting Agreement, Investment Services accepts orders for Fund shares at net asset value. No sales charges are paid by investors or the Fund.

CUSTODIAN

State Street Bank and Trust Company is the custodian for the Fund's U.S. securities and cash, but it does not participate in the Fund's investment decisions. Portfolio securities purchased in the U.S. are maintained in the custody of the Bank and may be entered into the Federal Reserve Book Entry System, or the security depository system of the Depository Trust Corporation. State Street Bank's main office is at 225 Franklin Street, Boston, Massachusetts 02110.

Tax-Efficient Balanced and Tax-Efficient Growth Funds

The Fund has entered into a Custodian Agreement with The Chase Manhattan Bank, N.A., London, pursuant to which portfolio securities which are purchased outside the United States are maintained in the custody of various foreign branches of The Chase Manhattan Bank and such other custodians, including foreign banks and foreign securities depositories as are approved in accordance with regulations under the 1940 Act. The address for The Chase Manhattan Bank, N.A., London is Woolgate House, Coleman Street, London, EC2P 2HD, England.

All Funds

SHAREHOLDER SERVICES BY OUTSIDE PARTIES

The Fund from time to time may enter into agreements with outside parties through which shareholders hold Fund shares. The shares would be held by such parties in omnibus accounts. The agreements would provide for payments by the Fund to the outside party for shareholder services provided to shareholders in the omnibus accounts.

CODE OF ETHICS

The Fund's investment adviser (T. Rowe Price) has a written Code of Ethics which requires all employees to obtain prior clearance before engaging in personal securities transactions. In addition, all employees must report their personal securities transactions within 10 days of their execution. Employees will not be permitted to effect transactions in a security: if there are pending client orders in the security; the security has been purchased or sold by a client within seven calendar days; the security is being considered for purchase for a client; or the security is subject to internal trading restrictions. In addition, employees are prohibited from profiting from short-term trading (e.g., purchases and sales involving the same security within 60 days). Any material violation of the Code of Ethics is reported to the Board of the Fund. The Board also reviews the administration of the Code of Ethics on an annual basis.

PORTFOLIO TRANSACTIONS

Investment or Brokerage Discretion

Decisions with respect to the purchase and sale of portfolio securities on behalf of the Fund are made by T. Rowe Price. T. Rowe Price is also responsible for implementing these decisions, including the negotiation of commissions and the allocation of portfolio brokerage and principal business. The Fund's purchases and sales of fixed income portfolio securities are normally done on a principal basis and do not involve the payment of a commission although they may involve the designation of selling concessions. That part of the discussion below relating solely to brokerage commissions would not normally apply to the Fund (other than Tax-Efficient Growth and Tax-Efficient Balanced to the extent it purchases equity securities). However, it is included because T. Rowe Price does manage a significant number of common stock portfolios (including the equity portion of the Tax-Efficient Balanced Fund) 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.

With respect to equity and fixed income securities, T. Rowe Price may effect principal transactions on behalf of the Fund with a broker or dealer who furnishes brokerage and/or research services, designate any such broker or dealer to receive selling concessions, discounts or other allowances, or otherwise deal with any such broker or dealer in connection with the acquisition of securities in underwritings. T. Rowe Price may receive research services in connection with brokerage transactions, including designations in a fixed price offerings.

How Evaluations Are Made of the Overall Reasonableness of Brokerage Commissions Paid

On a continuing basis, T. Rowe Price seeks to determine what levels of commission rates are reasonable in the marketplace for transactions executed on behalf of the Fund. In evaluating the reasonableness of commission rates, T. Rowe Price considers: (a) historical commission rates; (b) rates which other institutional investors are paying, based on available public information; (c) rates quoted by brokers and dealers; (d) the size of a particular transaction, in terms of the number of shares, dollar amount, and number of clients involved; (e) the complexity of a particular transaction in terms of both execution and settlement; (f) the level and type of business done with a particular firm over a period of time; and (g) the extent to which the broker or dealer has capital at risk in the transaction.

Descriptions of Research Services Received From Brokers and Dealers

T. Rowe Price receives a wide range of research services from brokers and dealers. These services include information on the economy, industries, groups of securities, individual companies, statistical information, accounting and tax law interpretations, political developments, legal developments affecting portfolio securities, technical market action, pricing and appraisal services, credit analysis, risk measurement analysis, performance analysis and analysis of corporate responsibility issues. These services provide both domestic and international perspective. Research services are received primarily in the form of written reports, computer generated services, telephone contacts and personal meetings with security analysts. In addition, such services may be provided in the form of meetings arranged with corporate and industry spokespersons, economists, academicians and government representatives. In some cases, research services are generated by third parties but are provided to T. Rowe Price by or through broker-dealers.

Research services received from brokers and dealers are supplemental to T. Rowe Price's own research effort and, when utilized, are subject to internal analysis before being incorporated by T. Rowe Price into its investment process. As a practical matter, it would not be possible for T. Rowe Price's Equity Research Division to generate all of the information presently provided by brokers and dealers. T. Rowe Price pays cash for certain research services received from external sources. T. Rowe Price also allocates brokerage for research services which are available for cash. While receipt of research services from brokerage firms has not reduced T. Rowe Price's normal research activities, the expenses of T. Rowe Price could be materially increased if it attempted to generate such additional information through its own staff. To the extent that research services of value are provided by brokers or dealers, T. Rowe Price may be relieved of expenses which it might otherwise bear.

T. Rowe Price has a policy of not allocating brokerage business in return for products or services other than brokerage or research services. In accordance with the provisions of Section 28(e) of the Securities Exchange Act of 1934, T. Rowe Price may from time to time receive services and products which serve both research and non-research functions. In such event, T. Rowe Price makes a good faith determination of the anticipated research and non-research use of the product or service and allocates brokerage only with respect to the research component.

Commissions to Brokers Who Furnish Research Services

Certain brokers and dealers who provide quality brokerage and execution services also furnish research services to T. Rowe Price. With regard to the payment of brokerage commissions, T. Rowe Price has adopted a brokerage allocation policy embodying the concepts of Section 28(e) of the Securities Exchange Act of 1934, which permits an investment adviser to cause an account to pay commission rates in excess of those another broker or dealer would have charged for effecting the same transaction, if the adviser determines in good faith


that the commission paid is reasonable in relation to the value of the brokerage and research services provided. The determination may be viewed in terms of either the particular transaction involved or the overall responsibilities of the adviser with respect to the accounts over which it exercises investment discretion. Accordingly, while T. Rowe Price cannot readily determine the extent to which commission rates or net prices charged by broker-dealers reflect the value of their research services, T. Rowe Price would expect to assess the reasonableness of commissions in light of the total brokerage and research services provided by each particular broker. T. Rowe Price may receive research, as defined in Section 28(e), in connection with selling concessions and designations in fixed price offerings in which the Funds participate.

Internal Allocation Procedures

T. Rowe Price has a policy of not precommitting a specific amount of business to any broker or dealer over any specific time period. Historically, the majority of brokerage placement has been determined by the needs of a specific transaction such as market-making, availability of a buyer or seller of a particular security, or specialized execution skills. However, T. Rowe Price does have an internal brokerage allocation procedure for that portion of its discretionary client brokerage business where special needs do not exist, or where the business may be allocated among several brokers or dealers which are able to meet the needs of the transaction.

Each year, T. Rowe Price assesses the contribution of the brokerage and research services provided by brokers or dealers, and attempts to allocate a portion of its brokerage business in response to these assessments. Research analysts, counselors, various investment committees, and the Trading Department each seek to evaluate the brokerage and research services they receive from brokers or dealers and make judgments as to the level of business which would recognize such services. In addition, brokers or dealers sometimes suggest a level of business they would like to receive in return for the various brokerage and research services they provide. Actual brokerage received by any firm may be less than the suggested allocations but can, and often does, exceed the suggestions, because the total business is allocated on the basis of all the considerations described above. In no case is a broker or dealer excluded from receiving business from T. Rowe Price because it has not been identified as providing research services.

Miscellaneous

T. Rowe Price's brokerage allocation policy is consistently applied to all its fully discretionary accounts, which represent a substantial majority of all assets under management. Research services furnished by brokers or dealers through which T. Rowe Price effects securities transactions may be used in servicing all accounts (including non-Fund accounts) managed by T. Rowe Price. Conversely, research services received from brokers or dealers which execute transactions for the Fund are not necessarily used by T. Rowe Price exclusively in connection with the management of the Fund.

From time to time, orders for clients may be placed through a computerized transaction network.

The Fund does not allocate business to any broker-dealer on the basis of its sales of the Fund's shares. However, this does not mean that broker-dealers who purchase Fund shares for their clients will not receive business from the Fund.

Some of T. Rowe Price's other clients have investment objectives and programs similar to those of the Fund. T. Rowe Price may occasionally make recommendations to other clients which result in their purchasing or selling securities simultaneously with the Fund. As a result, the demand for securities being purchased or the supply of securities being sold may increase, and this could have an adverse effect on the price of those securities. It is T. Rowe Price's policy not to favor one client over another in making recommendations or in placing orders. T. Rowe Price frequently follows the practice of grouping orders of various clients for execution which generally results in lower commission rates being attained. In certain cases, where the aggregate order is executed in a series of transactions at various prices on a given day, each participating client's proportionate share of such order reflects the average price paid or received with respect to the total order. T. Rowe Price has established a general investment policy that it will ordinarily not make additional purchases of a common stock of a company for its clients (including the T. Rowe Price Funds) if, as a result

of


such purchases, 10% or more of the outstanding common stock of such company would be held by its clients in the aggregate.

To the extent possible, T. Rowe Price intends to recapture solicitation fees paid in connection with tender offers through Investment Services, 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.

Trade Allocation Policies

T. Rowe Price has developed written trade allocation guidelines for its Equity, Municipal, and Taxable Fixed Income Trading Desks. Generally, when the amount of securities available in a public offering or the secondary market is insufficient to satisfy the volume or price requirements for the participating client portfolios, the guidelines require a pro-rata allocation based upon the amounts initially requested by each portfolio manager. In allocating trades made on combined basis, the Trading Desks seek to achieve the same net unit price of the securities for each participating client. Because a pro-rata allocation may not always adequately accommodate all facts and circumstances, the guidelines provide for exceptions to allocate trades on an adjusted, pro-rata basis. Examples of where adjustments may be made include: (i) reallocations to recognize the efforts of a portfolio manager in negotiating a transaction or a private placement; (ii) reallocations to eliminate deminimis positions; (iii) priority for accounts with specialized investment policies and objectives; and (iv) reallocations in light of a participating portfolio's characteristics (e.g., industry or issuer concentration, duration, and credit exposure).

Transactions With Related Brokers and Dealers

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, from time to time, T. Rowe Price may place orders for the Fund's portfolio transactions with broker-dealer affiliates of Robert Fleming Holdings Limited ("Robert Fleming" or "Flemings"), an affiliate of Price-Fleming. Robert Fleming, through Copthall Overseas Limited, a wholly owned subsidiary, owns 25% of the common stock of Price-Fleming. Fifty percent of the common stock of Price-Fleming is owned by TRP Finance, Inc., a wholly owned subsidiary of T. Rowe Price, and the remaining 25% is owned by Jardine Fleming Holdings Limited, a subsidiary of Jardine Fleming Group Limited ("JFG"). JFG is owned by Robert Fleming. The affiliates through whose trading desks such orders may be placed include Fleming Investment Management Limited ("FIM"), and Robert Fleming & Co. Limited ("RF&Co."). FIM and RF&Co. are wholly owned subsidiaries of Robert Fleming. These trading desks will operate under strict instructions from the Fund's portfolio manager with respect to the terms of such transactions. Neither Robert Fleming, JFG, nor their affiliates will receive any commission, fee, or other remuneration for the use of their trading desks, although orders for a Fund's portfolio transactions may be placed with affiliates of Robert Fleming and JFG who may receive a commission.

The Board of Directors/Trustees of the Fund has authorized T. Rowe Price to utilize certain affiliates of Robert Fleming and JFG in the capacity of broker in connection with the execution of the Fund's portfolio transactions. Other affiliates of Robert Fleming Holding 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/Trustees 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, 1999, 1998, and 1997:

                                 Fund                                         1999            1998             1997
                                 ----                                         ----            ----             ----
California Tax-Free Bond                                                 $   302,67,000  $  289,794,000   $  286,416,000
California Tax-Free Money                                                   515,251,000     506,606,000      474,186,000
Florida Intermediate Tax-Free                                               141,767,000     142,932,000      244,915,000
Georgia Tax-Free Bond                                                        73,638,000      97,029,000      104,491,000
Maryland Tax-Free Bond                                                      837,338,000     918,045,000      775,356,000
Maryland Short-Term Tax-Free Bond                                           191,989,000     221,540,000      112,384,000
New Jersey Tax-Free Bond                                                    158,774,000     161,209,000      238,572,000
New York Tax-Free Bond                                                      445,461,000     354,373,000      432,992,000
New York Tax-Free Money                                                     553,482,000     444,785,000      451,170,000
Virginia Tax-Free Bond                                                       40,289,000     563,466,000      508,640,000
Virginia Short-Term Tax-Free Bond                                           492,844,000      56,461,000       35,817,000
Tax-Efficient Balanced                                                       51,569,000      39,110,000              (a)
Tax-Exempt Money                                                          3,124,018,000   3,600,294,000    3,675,043,000
Tax-Free High Yield                                                       2,000,100,000   1,755,491,000    1,801,447,000
Tax-Free Income                                                           1,941,518,000   2,257,818,000    2,284,715,000
Tax-Free Intermediate Bond                                                  153,826,000     272,682,000      320,231,000
Tax-Free Short-Intermediate                                                 642,536,000   1,149,079,000    1,478,084,000
-------------------------------------------------------------------------------------------------------------------------

(a) Prior to commencement of operations.

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, 1999, 1998, and 1997:

                                   Fund                                          1999            1998             1997
                                   ----                                          ----            ----             ----
California Tax-Free Bond                                                    $  251,425,000  $  253,929,000   $  260,704,000
California Tax-Free Money                                                      510,210,000     503,591,000      472,277,000
Florida Intermediate Tax-Free                                                  129,590,000     128,653,000      229,787,000
Georgia Tax-Free Bond                                                           60,945,000      85,009,000       98,598,000
Maryland Tax-Free Bond                                                         708,876,000     793,036,000      680,479,000
Maryland Short-Term Tax-Free Bond                                              188,399,000     193,471,000      108,581,000
New Jersey Tax-Free Bond                                                       140,671,000     136,223,000      225,435,000
New York Tax-Free Bond                                                         383,633,000     299,419,000      394,711,000
New York Tax-Free Money                                                        542,945,000     441,384,000      451,170,000
Virginia Tax-Free Bond                                                         419,010,000     518,159,000      483,074,000
Virginia Short-Term Tax-Free Bond                                               35,660,000      55,291,000       34,013,000
Tax-Efficient Balanced                                                          37,355,000      27,555,000              (a)
Tax-Exempt Money                                                             3,089,301,000   3,586,230,000    3,662,460,000
Tax-Free High Yield                                                          1,644,317,000   1,527,098,000    1,621,470,000
Tax-Free Income                                                              1,651,454,000   1,959,351,000    2,034,461,000
Tax-Free Intermediate Bond                                                     143,749,000     249,144,000      302,633,000
Tax-Free Short-Intermediate                                                    603,036,000   1,083,550,000    1,384,758,000
----------------------------------------------------------------------------------------------------------------------------

(a) Prior to commencement of operations.


The following amounts involved trades with brokers acting as agents or underwriters for the fiscal years ended February 28, 1999, 1998, and 1997:

                                  Fund                                        1999          1998           1997
                                  ----                                        ----          ----           ----
California Tax-Free Bond                                                  $ 51,252,000  $ 35,865,000   $ 25,712,000
California Tax-Free Money                                                    5,041,000     3,016,000      1,909,000
Florida Intermediate Tax-Free                                               12,177,000    14,279,000     15,128,000
Georgia Tax-Free Bond                                                       12,693,000    12,020,000      5,893,000
Maryland Tax-Free Bond                                                     128,462,000   125,009,000     94,877,000
Maryland Short-Term Tax-Free Bond                                            3,590,000    28,069,000      3,803,000
New Jersey Tax-Free Bond                                                    18,103,000    24,987,000     13,137,000
New York Tax-Free Bond                                                      61,828,000    54,954,000     38,281,000
New York Tax-Free Money                                                     10,537,000     3,401,000              0
Virginia Tax-Free Bond                                                      73,834,000    45,307,000     25,566,000
Virginia Short-Term Tax-Free Bond                                            4,629,000     1,170,000      1,804,000
Tax-Efficient Balanced                                                      14,214,000    11,555,000            (a)
Tax-Exempt Money                                                            34,717,000    14,064,000     12,583,000
Tax-Free High Yield                                                        355,783,000   228,393,000    179,977,000
Tax-Free Income                                                            290,064,000   298,468,000    250,254,000
Tax-Free Intermediate Bond                                                  10,077,000    23,538,000     17,598,000
Tax-Free Short-Intermediate                                                 39,500,000    65,529,000     93,326,000
--------------------------------------------------------------------------------------------------------------------

(a) Prior to commencement of operations.

The following amounts 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, 1999, 1998, and 1997:

                   Fund                        1999         1998          1997
                   ----                        ----         ----          ----
California Tax-Free Bond                    $  273,000   $  206,000    $  111,000
California Tax-Free Money                       10,000        2,000         1,000
Florida Intermediate Tax-Free                   48,000       59,000        85,000
Georgia Tax-Free Bond                           51,000       74,000        30,000
Maryland Tax-Free Bond                         545,000      680,000       371,000
Maryland Short-Term Tax-Free Bond               16,000      106,000        12,000
New Jersey Tax-Free Bond                        88,000      176,000        75,000
New York Tax-Free Bond                         353,000      362,000       251,000
New York Tax-Free Money                          1,000       24,000             0
Virginia Tax-Free Bond                         346,000      271,000       121,000
Virginia Short-Term Tax-Free Bond               17,000        6,000         4,000
Tax-Efficient Balanced                          47,000       33,000           (a)
Tax-Exempt Money                               131,000       32,000        13,000
Tax-Free High Yield                          2,152,000    1,655,000     1,139,000
Tax-Free Income                              1,488,000    1,747,000     1,493,000
Tax-Free Intermediate Bond                      49,000      112,000       108,000
Tax-Free Short-Intermediate                    147,000      289,000       370,000
-----------------------------------------------------------------------------------

(a) Prior to commencement of operations.


Of all such portfolio transactions, none were 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.

The portfolio turnover rate for each Fund for the fiscal years ended February 28, 1999, 1998, and 1997, was as follows:

                   Fund                         1999       1998          1997
                   ----                         ----       ----          ----
California Tax-Free Bond                       27.2%        35.0%        47.3%
California Tax-Free Money                       N/A        N/A          N/A
Florida Intermediate Tax-Free                  26.9         25.0         75.8
Georgia Tax-Free Bond                          19.9         49.0         71.1
Maryland Tax-Free Bond                         15.4         19.2         26.2
Maryland Short-Term Tax-Free Bond              46.4         60.4         21.4
New Jersey Tax-Free Bond                       25.5         34.3         78.9
New York Tax-Free Bond                         55.4         55.0         96.9
New York Tax-Free Money                         N/A        N/A          N/A
Virginia Tax-Free Bond                         47.3         64.3         66.2
Virginia Short-Term Tax-Free Bond              22.5         75.0         32.5
Tax-Efficient Balanced                         19.8         12.5        (a)
Tax-Exempt Money                                N/A        N/A          N/A
Tax-Free High Yield                            38.9         24.4         37.0
Tax-Free Income                                34.1         36.3         40.7
Tax-Free Intermediate Bond                     24.3         56.1         76.8
Tax-Free Short-Intermediate                    39.9         76.8         84.3
----------------------------------------------------------------------------------

PRICING OF SECURITIES

Fixed income securities are generally traded in the over-the-counter market. With the exception of the Money Funds, investments in securities are stated at fair value using a bid-side valuation as furnished by dealers who make markets in such securities or by an independent pricing service, which considers yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Securities held by the Money Funds are valued at amortized cost.

There are a number of pricing services available, and the Board of Directors/Trustees, on the basis of an ongoing evaluation of these services, may use or may discontinue the use of any pricing service in whole or part.

Securities or other assets for which the above valuation procedures are deemed not to reflect fair value will be appraised at prices deemed best to reflect their fair value. Such determinations will be made in good faith by or under the supervision of officers of each Fund as authorized by the Board of Directors/Trustees.

Tax-Efficient Balanced and Tax-Efficient Growth Funds

Equity securities listed or regularly traded on a securities exchange are valued at the last quoted sales price at the time the valuations are made. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day and securities regularly traded in the over-the-counter market are valued at the mean of the latest bid and asked prices. Other equity securities are valued at a price within the limits of the latest bid and asked prices deemed by the Board of Directors/Trustees, or by persons delegated by the Board, best to reflect fair value.


Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. In the absence of a last sale price, purchased and written options are valued at the mean of the latest bid and asked prices, respectively.

For the purposes of determining the Fund's net asset value per share, the U.S. dollar value of all assets and liabilities initially expressed in foreign currencies is determined by using the mean of the bid and offer prices of such currencies against U.S. dollars quoted by a major bank.

Assets and liabilities for which the above valuation procedures are inappropriate or are deemed not to reflect fair value, are stated at fair value as determined in good faith by or under the supervision of the officers of the Fund, as authorized by the Board of Directors/Trustees.

Maintenance of Money Fund's Net Asset Value Per Share at $1.00

It is the policy of the Fund to attempt to maintain a net asset value of $1.00 per share by using the amortized cost method of valuation permitted by Rule 2a-7 under the 1940 Act. Under this method, securities are valued by reference to the Fund's acquisition cost as adjusted for amortization of premium or accumulation of discount rather than by reference to their market value. Under Rule 2a-7:

(a) The Board of Directors/Trustees must establish written procedures reasonably designed, taking into account current market conditions and the Fund's investment objectives, to stabilize the Fund's net asset value per share, as computed for the purpose of distribution, redemption and repurchase, at a single value;

(b) The Fund must (i) maintain a dollar-weighted average portfolio maturity appropriate to its objective of maintaining a stable price per share,
(ii) not purchase any instrument with a remaining maturity greater than 397 days, and (iii) maintain a dollar-weighted average portfolio maturity of 90 days or less;

(c) The Fund must limit its purchase of portfolio instruments, including repurchase agreements, to those U.S. dollar-denominated instruments which the Fund's Board of Directors/Trustees determines present minimal credit risks, and which are eligible securities as defined by Rule 2a-7; and

(d) The Board of Directors/Trustees must determine that (i) it is in the best interest of the Fund and its shareholders to maintain a stable net asset value per share under the amortized cost method; and (ii) the Fund will continue to use the amortized cost method only so long as the Board of Directors/ Trustees believes that it fairly reflects the market based net asset value per share.

Although the Fund believes that it will be able to maintain its net asset value at $1.00 per share under most conditions, there can be no absolute assurance that it will be able to do so on a continuous basis. If the Fund's net asset value per share declined, or was expected to decline, below $1.00 (rounded to the nearest one cent), the Board of Directors/Trustees of the Fund might temporarily reduce or suspend dividend payments in an effort to maintain the net asset value at $1.00 per share. As a result of such reduction or suspension of dividends, an investor would receive less income during a given period than if such a reduction or suspension had not taken place. Such action could result in an investor receiving no dividend for the period during which he holds his shares and in his receiving, upon redemption, a price per share lower than that which he paid. On the other hand, if the Fund's net asset value per share were to increase, or were anticipated to increase above $1.00 (rounded to the nearest one cent), the Board of Directors/Trustees of the Fund might supplement dividends in an effort to maintain the net asset value at $1.00 per share.

NET ASSET VALUE PER SHARE

The purchase and redemption price of the Fund's shares is equal to the Fund's net asset value per share or share price. The Fund determines its net asset value per share by subtracting its liabilities (including accrued expenses and dividends payable) from its total assets (the market value of the securities the Fund holds plus cash and other assets, including income accrued but not yet received) and dividing the result by the total

number of shares outstanding. The net asset value per share of the Fund is normally calculated as of the close of trading on the New York Stock Exchange ("NYSE") every day the NYSE is open for trading. The NYSE is closed on the following days: New Year's Day, Dr. Martin Luther King, Jr. Holiday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

Determination of net asset value (and the offering, sale redemption and repurchase of shares) for the Fund may be suspended at times (a) during which the NYSE is closed, other than customary weekend and holiday closings, (b) during which trading on the NYSE is restricted, (c) during which an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Fund fairly to determine the value of its net assets, or (d) during which a governmental body having jurisdiction over the Fund may by order permit such a suspension for the protection of the Fund's shareholders; provided that applicable rules and regulations of the SEC (or any succeeding governmental authority) shall govern as to whether the conditions prescribed in (b), (c), or (d) exist.

DIVIDENDS AND DISTRIBUTIONS

Unless you elect otherwise, the Fund's annual capital gain distribution and, for the Tax-Efficient Balanced and Tax-Efficient Growth Funds, the annual dividend, if any, will be reinvested on the reinvestment date using the NAV per share of that date. The reinvestment date may precede the payment date by as much as one day although the exact timing is subject to change and can be as great as 10 days.

TAX STATUS

The Fund intends to qualify as a "regulated investment company" under Subchapter M of the Code.

Generally, dividends paid by the Funds are not eligible for the dividends-received deduction applicable to corporate shareholders. For tax purposes, it does not make any difference whether dividends and capital gain distributions are paid in cash or in additional shares. Each Fund must declare dividends equal to at least 90% of net tax-exempt income (as of its year-end) to permit pass-through of tax-exempt income to shareholders, and 98% of capital gains (as of October 31) in order to avoid a federal excise tax, and 100% of capital gains (as of its tax year-end) to avoid federal income tax.

At the time of your purchase, the Fund's net asset value may reflect undistributed capital gains or net unrealized appreciation of securities held by the Fund. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable as a capital gain distribution. For federal income tax purposes, the Fund is permitted to carry forward its net realized capital losses, if any, for eight years and realize net capital gains up to the amount of such losses without being required to pay taxes on, or distribute, such gains.

If, in any taxable year, the Fund should not qualify as a regulated investment company under the code: (i) the Fund would be taxed at normal corporate rates on the entire amount of its taxable income, if any, without deduction for dividends or other distributions to shareholders; and (ii) the Fund's distributions to the extent made out of the Fund's current or accumulated earnings and profits would be taxable to shareholders as ordinary dividends (regardless of whether they would otherwise have been considered capital gain dividends).

The Funds (other than Tax-Efficient Growth Fund) may acquire bonds after initial issuance at a price less than the principal amount of such bonds ("market discount bonds"). Gain on the disposition of such bonds is treated as taxable ordinary income to the extent of accrued market discount. Such gains cannot be offset by losses on the sale of other securities but must be distributed to shareholders annually and taxed as ordinary income.

Each year, the Funds will mail you information on the tax status of dividends and distributions.


All Funds (other than Tax-Efficient Balanced and Tax-Efficient Growth Funds)

The Funds anticipate that substantially all of the dividends to be paid by each Fund will be exempt from federal income taxes. If any portion of a Fund's dividends is not exempt from federal income taxes, you will receive a Form 1099 stating the taxable portion. The Funds will also advise you of the percentage of your dividends, if any, which should be included in the computation of alternative minimum tax. Social security recipients who receive interest from tax-exempt securities may have to pay taxes on a portion of their social security benefit.

Because the interest on municipal securities is tax exempt, any interest on money you borrow that is directly or indirectly used to purchase Fund shares is not deductible. (See Section 265(2) of the Internal Revenue Code.) Further, entities or persons who are "substantial users" (or persons related to "substantial users") of facilities financed by industrial development bonds should consult their tax advisers before purchasing shares of a Fund. The income from such bonds may not be tax exempt for such substantial users.

Tax Efficient Growth Fund Only

A portion of the dividends paid by the Fund may be eligible for the dividends-received deduction for corporate shareholders. For tax purposes, it does not make any difference whether dividends and capital gain distributions are paid in cash or in additional shares. The Fund must declare dividends by December 31 of each year equal to at least 98% of ordinary income (as of December 31) and capital gains (as of October 31) in order to avoid a federal excise tax and distribute within 12 months 100% of ordinary income and capital gains as of December 31 to avoid a federal income tax.

Florida Intermediate Tax-Free Fund

Although Florida does not have a state income tax, it does impose an intangible personal property tax (intangibles tax) on assets, including shares of mutual funds. This tax is based on the net asset value of shares owned on January 1.

Under Florida law, shares of the Fund will be exempt from the intangibles tax to the extent that, on January 1, the Fund's assets are solely invested in certain exempt Florida securities, U.S. government securities, certain short-term cash investments, or other exempt securities. If, on January 1, the Fund's assets are invested in these tax-exempt securities and other non-tax-exempt securities, only that portion of a share's net asset value represented by U.S. government securities will be exempt from the intangibles tax. Because the Fund will make every effort to have its portfolio invested exclusively in exempt Florida municipal obligations (and other qualifying investments) on January 1, shares of the Fund should be exempt from the intangibles tax. However, under certain circumstances, the Fund may invest in securities other than Florida municipal obligations and there can be no guarantee that such non-exempt investments would not be in the Fund's portfolio on January 1. In such cases, all or a portion of the value of the Fund's shares may be subject to the intangibles tax, and a portion of the Fund's income may be subject to federal income taxes.

Tax-Efficient Balanced and Tax-Efficient Growth Funds

Taxation of Foreign Shareholders

The Code provides that dividends from net income will be subject to U.S. tax. For shareholders who are not engaged in a business in the U.S., this tax would be imposed at the rate of 30% upon the gross amount of the dividends in the absence of a Tax Treaty providing for a reduced rate or exemption from U.S. taxation. Distributions of net long-term capital gains realized by the Fund are not subject to tax unless the foreign shareholder is a nonresident alien individual who was physically present in the U.S. during the tax year for more than 182 days.

Passive Foreign Investment Companies

The Fund may purchase the securities of certain foreign investment funds or trusts called passive foreign investment companies. Such trusts have been the only or primary way to invest in certain countries. In addition to bearing their proportionate share of the trust's expenses (management fees and operating expenses), shareholders will also indirectly bear similar expenses of such trusts. Capital gains on the sale of


such holdings are considered ordinary income regardless of how long the fund held its investment. In addition, the Fund may be subject to corporate income tax and an interest charge on certain dividends and capital gains earned from these investments, regardless of whether such income and gains are distributed to shareholders.

To avoid such tax and interest, the Fund intends to treat these securities as sold on the last day of its fiscal year and recognize any gains for tax purposes at that time; deductions for losses are allowable only to the extent of any gains resulting from these deemed sales for prior taxable years. Such gains and losses will be treated as ordinary income. The Fund will be required to distribute any resulting income even though it has not sold the security and received cash to pay such distributions.

Foreign Currency Gains and Losses

Foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations, are taxable as ordinary income. If the net effect of these transactions is a gain, the ordinary income dividend paid by the Fund will be increased. If the result is a loss, the income dividend paid by the Fund will be decreased, or to the extent such dividend has already been paid, it may be classified as a return of capital. Adjustments to reflect these gains and losses will be made at the end of the Fund's taxable year.

YIELD INFORMATION

Money Funds

The Fund's current and historical yield for a period is calculated by dividing the net change in value of an account (including all dividends accrued and dividends reinvested in additional shares) by the account value at the beginning of the period to obtain the base period return. This base period return is divided by the number of days in the period than multiplied by 365 to arrive at the annualized yield for that period. The Fund's annualized compound yield for such period is compounded by dividing the base period return by the number of days in the period, and compounding that figure over 365 days.

The Money Funds' current and compound yields for the seven days ended February 28, 1999, were:

           Fund                Current Yield        Compound Yield
           ----                -------------        --------------
                            2.15
California Tax-Free Money   %                    2.17%
New York Tax-Free Money     2.35                 2.37
Tax-Exempt Money            2.51                 2.54

Bond Funds

An income factor is calculated for each security in the portfolio based upon the security's market value at the beginning of the period and yield as determined in conformity with regulations of the SEC. The income factors are then totaled for all securities in the portfolio. Next, expenses of the Fund for the period, net of expected reimbursements, are deducted from the income to arrive at net income, which is then converted to a per share amount by dividing net income by the average number of shares outstanding during the period. The net income per share is divided by the net asset value on the last day of the period to produce a monthly yield which is then annualized. If applicable, a taxable-equivalent yield is calculated by dividing this yield by one minus the effective federal, state, and/or city or local income tax rates. Quoted yield factors are for comparison purposes only, and are not intended to indicate future performance or forecast the dividend per share of the Fund.


The yield of each Fund calculated under the above-described method for the month ended February 28, 1999, was:

                                        3.97
California Tax-Free Bond Fund           %
Florida Intermediate Tax-Free Fund      3.42
Georgia Tax-Free Bond Fund              3.95
Maryland Tax-Free Bond Fund             4.03
Maryland Short-Term Tax-Free Bond Fund  2.93
New Jersey Tax-Free Bond Fund           4.00
New York Tax-Free Bond Fund             4.15
Virginia Tax-Free Bond Fund             4.09
Virginia Short-Term Tax-Free Bond Fund  2.88
Tax-Efficient Balanced Fund                       --
Tax-Free High Yield Fund                4.46
Tax-Free Income Fund                    4.11
Tax-Free Intermediate Bond Fund         3.36
Tax-Free Short-Intermediate Fund        3.16

The tax equivalent yields (assuming a federal tax bracket of 31.0%) for each Fund for the same period were as follows:

                                           6.34
California Tax-Free Bond Fund(a)           %
Florida Intermediate Tax-Free Fund(b)      5.16
Georgia Tax-Free Bond Fund(c)              6.09
Maryland Tax-Free Bond Fund(d)             6.32
Maryland Short-Term Tax-Free Bond Fund(d)  4.59
New Jersey Tax-Free Bond Fund(e)           6.19
New York Tax-Free Bond Fund(f)             6.78
Virginia Tax-Free Bond Fund(g)             6.29
Virginia Short-Term Tax-Free Bond Fund(g)  4.43
Tax-Efficient Balanced Fund                        --
Tax-Free High Yield Fund                   6.46
Tax-Free Income Fund                       5.96
Tax-Free Intermediate Bond Fund            4.98
Tax-Free Short-Intermediate Fund           4.58
----------------------------------------------------------------

(a) Assumes a state tax bracket of 9.3%.
(b) Assumes an intangible tax rate of 0.2%.
(c) Assumes a state tax bracket of 6.0%.

(d) Assumes a state tax bracket of 4.85% and a local tax bracket of 2.67%.
(e) Assumes a state tax bracket of 6.37%.

(f) Assumes a state tax bracket of 6.85% and a local tax bracket of 4.46%.
(g) Assumes a state tax bracket of 5.75%.


The tax equivalent yields (assuming a federal tax bracket of 28.0%) for each Fund for the same period were as follows:

                                           6.08
California Tax-Free Bond Fund(a)           %
Florida Intermediate Tax-Free Fund(b)      4.95
Georgia Tax-Free Bond Fund(c)              5.83
Maryland Tax-Free Bond Fund(d)             6.05
Maryland Short-Term Tax-Free Bond Fund(d)  4.40
New Jersey Tax-Free Bond Fund(e)           5.88
New York Tax-Free Bond Fund(f)             6.49
Virginia Tax-Free Bond Fund(g)             6.02
Virginia Short-Term Tax-Free Bond Fund(g)  4.24
Tax-Efficient Balanced Fund                        --
Tax-Free High Yield Fund                   6.19
Tax-Free Income Fund                       5.71
Tax-Free Intermediate Bond Fund            4.67
Tax-Free Short-Intermediate Fund           4.39
----------------------------------------------------------------

(a) Assumes a state tax bracket of 9.3%.
(b) Assumes an intangible tax rate of 0.2%.
(c) Assumes a state tax bracket of 6.0%.

(d) Assumes a state tax bracket of 4.85% and a local tax bracket of 2.67%.
(e) Assumes a state tax bracket of 5.525%.

(f) Assumes a state tax bracket of 6.85% and a local tax bracket of 4.46%.
(g) Assumes a state tax bracket of 5.75%.

TAX-EXEMPT VS. TAXABLE YIELDS

From time to time, a Fund may also illustrate the effect of tax-equivalent yields using information such as that set forth below:

Your Taxable Income(1999)(a)                        A Tax-Exempt Yield Of:(c)
                                                       2%        3%        4%      5%      6%
                                      Federal Tax        Is Equivalent to a
  Joint Return       Single Return      Rates(b)         Taxable Yield of:
-----------------------------------------------------------------------------------------------
                                   $
                                 25,
                                   7
                                  51
                                  -$
                                   6
                                   2
                                  ,4
                                   5
 $43,051-$104,050                  0  28.0%           2.78      4.17      5.56    6.94   8.33
                                   6
                                   2
                                  ,4
                                   5
                                   1
                                   -
                                   1
                                  30
                                   ,
                                  25
  104,051-158,550                  0  31.0            2.90      4.35      5.80    7.25   8.70
                                   1
                                  30
                                   ,
                                  25
                                   1
                                   -
                                   2
                                  83
                                   ,
                                   1
  158,551-283,150                 50  36.0            3.13      4.69      6.25    7.81   9.38
                                   2
                                   8
                                   3
                                   ,
                                   1
283,151 and above                 51  39.6            3.31      4.97      6.62    8.28   9.93
                           and above
-----------------------------------------------------------------------------------------------
                                                    A Tax-Exempt Yield Of:
Your Taxable Income(1999)(a)
                                                                                    1
                                                       7         8         9        0
                                                       %         %         %        %
                                      Federal Tax        Is Equivalent to a
  Joint Return       Single Return      Rates(b)         Taxable Yield of:

-----------------------------------------------------------------------------------------------
                                   $
                                 25,
                                   7
                                  51
                                  -$
                                   6
                                   2
                                  ,4
                                   5
 $43,051-$104,050                  0  28.0%           9.72     11.11     12.50    13.89
                                   6
                                   2
                                  ,4
                                   5
                                   1
                                   -
                                   1
                                  30
                                   ,
                                  25
  104,051-158,550                  0  31.0           10.14     11.59     13.04    14.49
                                   1
                                  30
                                   ,
                                  25
                                   1
                                   -
                                   2
                                  83
                                   ,
                                   1
  158,551-283,150                 50  36.0           10.94     12.50     14.06    15.63
                                   2
                                   8
                                   3
                                   ,
                                   1
283,151 and above                 51  39.6           11.59     13.25     14.90    16.56
                           and above
-----------------------------------------------------------------------------------------------

(a) Net amount subject to federal income tax after deductions and exemptions.

(b) Marginal rates may vary depending on family size and nature and amount of itemized deductions.


California Funds

Your Taxable Income(1999)(a)                      Marginal Tax Rates

  Joint Return       Single Return    Federal(b)  State   Combined Marginal(c)
-------------------------------------------------------------------------------
  $38,386-$43,050    $19,193-$25,750  15.0         6.0            20.1
    43,051-53,288      25,751-26,644  28.0         6.0            32.3
    53,289-67,346      26,645-33,673  28.0         8.0            33.8
   67,347-104,050      33,674-62,450  28.0         9.3            34.7
  104,051-158,550     62,451-130,250  31.0         9.3            37.4
  158,551-283,150    130,251-283,150  36.0         9.3            42.0
283,151 and above  283,151 and above  39.6         9.3            45.2
-------------------------------------------------------------------------------

A Tax-Exempt Yield of:
 3%    4%     5%    6%     7%     8%     9%      10%
    Is Equivalent to a Taxable Yield of:
------------------------------------------------------
3.75  5.01   6.26  7.51   8.76   10.01  11.26  12.52
4.43  5.91   7.39  8.86   10.34  11.82  13.29  14.77
4.53  6.04   7.55  9.06   10.57  12.08  13.60  15.11
4.59  6.13   7.66  9.19   10.72  12.25  13.78  15.31
4.79  6.39   7.99  9.58   11.18  12.78  14.38  15.97
5.17  6.90   8.62  10.34  12.07  13.79  15.52  17.24
5.47  7.30   9.12  10.95  12.77  14.60  16.42  18.25
------------------------------------------------------

(a) Net amount subject to federal income tax after deductions and exemptions.

(b) Marginal rates may vary depending on family size, nature and amount of itemized deductions.

(c) Combined marginal rate assumes the deduction of state income taxes on the federal return.

Georgia Tax-Free Bond Fund

Your Taxable Income(1999)(a)                       Marginal Tax Rates

  Joint Return       Single Return     Federal(b)  State   Combined Marginal(c)
--------------------------------------------------------------------------------
 $43,051-$104,050     $25,751-$62,450  28.0        6.00            32.3
  104,051-158,550      62,451-130,250  31.0        6.00            35.1
  158,551-283,150     130,251-283,150  36.0        6.00            39.8
283,151 and above  283, 151 and above  39.6        6.00            43.2
--------------------------------------------------------------------------------

A Tax-Exempt Yield of:
 3%    4%     5%    6%     7%     8%     9%      10%
    Is Equivalent to a Taxable Yield of:
------------------------------------------------------
4.43  5.91   7.39  8.86   10.34  11.82  13.29  14.77
4.62  6.16   7.70  9.24   10.79  12.33  13.87  15.41
4.98  6.64   8.31  9.97   11.63  13.29  14.95  16.61
5.28  7.04   8.80  10.56  12.32  14.08  15.85  17.61
------------------------------------------------------

(a) Net amount subject to federal income tax after deductions and exemptions.

(b) Marginal rates may vary depending on family size, nature and amount of itemized deductions.

(c) Combined marginal rate assumes the deduction of state income taxes on the federal return.


Maryland Funds

Your Taxable Income(1999)(a)                      Marginal Tax Rates

  Joint Return       Single Return    Federal(b)  State  Local(c)   Combined Marginal(d)
-----------------------------------------------------------------------------------------
 $43,051-$104,050    $25,751-$62,450  28.0        4.95     2.97             33.7
  104,051-158,550     62,451-130,250  31.0        4.95     2.97             36.5
  158,551-283,150    130,251-283,150  36.0        4.95     2.97             41.1
283,151 and above  283,151 and above  39.6        4.95     2.97             44.4
-----------------------------------------------------------------------------------------

A Tax-Exempt Yield of:
 3%    4%     5%    6%     7%     8%     9%      10%
    Is Equivalent to a Taxable Yield of:
------------------------------------------------------
4.52  6.03   7.54  9.05   10.56  12.07  13.57  15.08
4.72  6.30   7.87  9.45   11.02  12.60  14.17  15.75
5.09  6.79   8.49  10.19  11.88  13.58  15.28  16.98
5.40  7.19   8.99  10.79  12.59  14.39  16.19  17.99
------------------------------------------------------

(a) Net amount subject to federal income tax after deductions and exemptions.

(b) Marginal rates may vary depending on family size, nature and amount of itemized deductions.

(c) Assumes a local tax rate equal to 55% of the state rate for residents in the 4.85% state bracket.

(d) Combined marginal rate assumes the deduction of state income taxes on the federal return.

New Jersey Tax-Free Bond Fund

Your Taxable Income(1999)(a)                      Marginal Tax Rates

  Joint Return       Single Return    Federal(b)  State   Combined Marginal(c)
-------------------------------------------------------------------------------
       $0-$20,000         $0-$20,000  15.0        1.400           16.2
    20,001-43,050      20,001-25,750  15.0        1.750           16.5
    43,051-50,000      25,751-35,000  28.0        1.750           29.3
    50,001-70,000         --          28.0        2.450           29.8
    70,001-80,000      35,001-40,000  28.0        3.500           30.5
   80,001-104,050      40,001-62,450  28.0        5.525           32.0
  104,051-150,000      62,451-75,000  31.0        5.525           34.8
  150,001-158,550     75,001-130,250  31.0        6.370           35.4
  158,551-283,150    130,251-283,150  36.0        6.370           40.1
283,151 and above  283,151 and above  39.6        6.370           43.4
-------------------------------------------------------------------------------

A Tax-Exempt Yield of:
 3%    4%     5%    6%     7%     8%     9%      10%
    Is Equivalent to a Taxable Yield of:
------------------------------------------------------
3.58  4.77   5.97  7.16   8.35   9.55   10.74  11.93
3.59  4.79   5.99  7.19   8.38   9.58   10.78  11.98
4.24  5.66   7.07  8.49   9.90   11.32  12.73  14.14
4.27  5.70   7.12  8.55   9.97   11.40  12.82  14.25
4.32  5.76   7.19  8.63   10.07  11.51  12.95  14.39
4.41  5.88   7.35  8.82   10.29  11.76  13.24  14.71
4.60  6.13   7.67  9.20   10.74  12.27  13.80  15.34
4.64  6.19   7.74  9.29   10.84  12.38  13.93  15.48
5.01  6.68   8.35  10.02  11.69  13.36  15.03  16.69
5.30  7.07   8.83  10.60  12.37  14.13  15.90  17.67
------------------------------------------------------


(a) Net amount subject to federal income tax after deductions and exemptions.

(b) Marginal rates may vary depending on family size, nature and amount of itemized deductions.

(c) Combined marginal rate assumes the deduction of state income taxes on the federal return.

New York Funds

Your Taxable Income(1999)(a)                      Marginal Tax Rates

  Joint Return       Single Return    Federal(b)  State  Local(c)   Combined Marginal(d)
-----------------------------------------------------------------------------------------
  $40,001-$43,050    $20,001-$25,000  15.0        5.90     3.30            22.8
       --              25,001-27,750  15.0        6.85     3.30            23.6
  43,051-45,000           --          28.0        6.85     3.30            35.3
    45,001-90,000          25,751-50,028.0        6.85     3.35            35.3
   90,001-104,050      50,001-62,450  28.0        6.85     3.40            35.4
  104,051-158,550     62,451-130,250  31.0        6.85     3.40            38.1
  158,551-283,150    130,251-283,150  36          6.85     3.40            42.6
283,151 and above            283,151  39.6        6.85     3.40            45.8
                           and above
-----------------------------------------------------------------------------------------

A Tax-Exempt Yield of:
 3%    4%     5%    6%     7%     8%     9%      10%
    Is Equivalent to a Taxable Yield of:
------------------------------------------------------
3.89  5.18   6.48  7.77   9.07   10.36  11.66  12.95
3.93  5.24   6.54  7.85   9.16   10.47  11.78  13.09
3.93  5.24   6.55  7.86   9.17   10.48  11.80  13.11
4.64  6.18   7.73  9.27   10.82  12.36  13.91  15.46
4.64  6.18   7.73  9.27   10.82  12.36  13.91  15.46
4.64  6.19   7.74  9.29   10.84  12.38  13.93  15.48
4.85  6.46   8.08  9.69   11.31  12.92  14.54  16.16
5.23  6.97   8.71  10.45  12.20  13.94  15.68  17.42
5.54  7.38   9.23  11.07  12.92  14.76  16.61  18.45
------------------------------------------------------

(a) Net amount subject to federal income tax after deductions and exemptions.

(b) Marginal rates may vary depending on family size, nature and amount of itemized deductions.

(c) Tax rates are for New York City residents.

(d) Combined marginal rate assumes the deduction of state income taxes on the federal return.


Virginia Funds

Your Taxable Income(1999)(a)                      Marginal Tax Rates

  Joint Return       Single Return    Federal(b)  State   Combined Marginal(c)
-------------------------------------------------------------------------------
 $43,051-$104,050    $25,751-$62,450  28.0        5.75           32.1
  105,051-158,550     62,451-130,250  31.0        5.75           35.0
  158,551-283,150    130,251-283,150  36.0        5.75           39.7
283,151 and above            283,151  39.6        5.75           43.1
                           and above
-------------------------------------------------------------------------------

A Tax-Exempt Yield of:
 3%    4%     5%    6%     7%     8%     9%      10%
    Is Equivalent to a Taxable Yield of:
------------------------------------------------------
4.42  5.89   7.36  8.84   10.31  11.78  13.25  14.73
4.62  6.15   7.69  9.23   10.77  12.31  13.85  15.38
4.98  6.63   8.29  9.95   11.61  13.27  14.93  16.58
5.27  7.03   8.79  10.54  12.30  14.06  15.82  17.57
------------------------------------------------------

(a) Net amount subject to federal income tax after deductions and exemptions.

(b) Marginal rates may vary depending on family size, nature and amount of itemized deductions.

(c) Combined marginal rate assumes the deduction of state income taxes on the federal return.

Florida Intermediate Tax-Free Fund

EFFECTIVE YIELD FACTORING IN INTANGIBLES TAX

Your Taxable Income(1999)(a)

                                              Federal Tax    Intangible Tax
    Joint Return           Single Return        Rates(b)          Rate
-----------------------------------------------------------------------------
     $43,051-$104,050        $25,751-$62,450

And Your Intangible Assets on 1/1/99 Total:

       40,000 or less        20,000 or less$       28              N/A
       40,001-200,000         20,001-100,000       28              0.1
    200,001 and above      100,001 and above       28              0.2
-----------------------------------------------------------------------------
    $104,051-$158,550       $62,451-$130,250

And Your Intangible Assets on 1/1/99 Total:

       40,000 or less        20,000 or less$       31              N/A
       40,001-200,000         20,001-100,000       31              0.1
    200,001 and above      100,001 and above       31              0.2
-----------------------------------------------------------------------------
    $158,551-$283,150      $130,251-$283,150

And Your Intangible Assets on 1/1/99 Total:

       40,000 or less        20,000 or less$       36              N/A
       40,001-200,000         20,001-100,000       36              0.1
    200,001 and above      100,001 and above       36              0.2
-----------------------------------------------------------------------------
  $283,151 and above+    $283,151 and above+

And Your Intangible Assets on 1/1/99 Total:

       40,000 or less        20,000 or less$      39.6             N/A
       40,001-200,000         20,001-100,000      39.6             0.1
    200,001 and above      100,001 and above      39.6             0.2
-----------------------------------------------------------------------------


A Tax-Exempt Yield of(c):
 3%    4%     5%    6%     7%     8%     9%     10%     11%
    Is Equivalent to a Taxable Yield of:
-------------------------------------------------------------
4.17  5.56   6.94  8.33   9.72   11.11  12.50  13.89  15.28
4.27  5.66   7.04  8.43   9.82   11.21  12.60  13.99  15.38
4.37  5.76   7.14  8.53   9.92   11.31  12.70  14.09  15.48
-------------------------------------------------------------
4.35  5.80   7.25  8.70   10.14  11.59  13.04  14.49  15.94
4.45  5.90   7.35  8.80   10.24  11.69  13.14  14.59  16.04
4.55  6.00   7.45  8.90   10.34  11.79  13.24  14.69  16.14
-------------------------------------------------------------
4.69  6.25   7.81  9.38   10.94  12.50  14.06  15.63  17.19
4.79  6.35   7.91  9.48   11.04  12.60  14.16  15.73  17.29
4.89  6.45   8.01  9.58   11.14  12.70  14.26  15.83  17.39
-------------------------------------------------------------
4.97  6.62   8.28  9.93   11.59  13.25  14.90  16.56  18.21
5.07  6.72   8.38  10.03  11.69  13.35  15.00  16.66  18.31
5.17  6.82   8.48  10.13  11.79  13.45  15.10  16.76  18.41
-------------------------------------------------------------

(a) Net amount subject to federal income tax after deductions and exemptions.

(b) Federal rates may vary depending on family size, nature and amount of itemized deductions.

(c) Assumes 100% exemption from federal income and Florida intangible property taxes.

INVESTMENT PERFORMANCE

Total Return Performance

The Fund's calculation of total return performance includes the reinvestment of all capital gain distributions and income dividends for the period or periods indicated, without regard to tax consequences to a shareholder in the Fund. Total return is calculated as the percentage change between the beginning value of a static account in the Fund and the ending value of that account measured by the then current net asset value,


including all shares acquired through reinvestment of income and capital gain dividends. The results shown are historical and should not be considered indicative of the future performance of the Fund. Each average annual compound rate of return is derived from the cumulative performance of the Fund over the time period specified. The annual compound rate of return for the Fund over any other period of time will vary from the average.

                  Cumulative Performance Percentage Change
                               1 Yr.   5 Yrs.   10 Yrs.   % Since    Inception
            Fund               -----   ------   -------   -------    ---------
            ----               Ended    Ended    Ended   Inception     Date
                               -----    -----    -----   ---------     ----
                              2/28/99  2/28/99  2/28/99   2/28/99
                              -------  -------  -------   -------
California Tax-Free Bond       5.95%   37.08%    10.53%   128.18%   09/15/86
Florida Intermediate
Tax-Free                       5.37    31.55        --     40.54    03/31/93
Georgia Tax-Free Bond          5.73    36.81        --     48.38    03/31/93
Maryland Short-Term Tax-Free
Bond                           4.46    23.27        --     29.70    01/29/93
Maryland Tax-Free Bond         5.80    34.87    108.59    118.19    03/31/87
New Jersey Tax-Free Bond       5.81    34.26        --     79.00    04/30/91
New York Tax-Free Bond         6.08    36.04    113.69    140.75    08/28/86
Virginia Short-Term Tax-Free
Bond                           4.51       --        --     22.82    11/30/94
Virginia Tax-Free Bond         6.02    36.37        --     78.33    04/30/91
Tax-Efficient Balanced        14.45       --        --     31.57    06/30/97
Tax-Free High Yield            4.80    37.70    120.46    244.00    03/01/85
Tax-Free Income                5.48    35.91    112.75    375.44    10/26/76
Tax-Free Intermediate Bond     5.37    32.50        --     49.29    11/30/92
Tax-Free Short-Intermediate    4.90    26.34     72.77    136.10    12/23/83
-------------------------------------------------------------------------------

                   Average Annual Compound Rates of Return
                               1 Yr.   5 Yrs.   10 Yrs.   % Since    Inception
            Fund               -----   ------   -------   -------    ---------
            ----               Ended    Ended    Ended   Inception     Date
                               -----    -----    -----   ---------     ----
                              2/28/99  2/28/99  2/28/99   2/28/99
                              -------  -------  -------   -------
California Tax-Free Bond       5.95%    6.51%    7.73%     6.85%    09/15/86
Florida Intermediate
Tax-Free                       5.37     5.64       --      5.92     03/31/93
Georgia Tax-Free Bond          5.73     6.47       --      6.90     03/31/93
Maryland Short-Term Tax-Free
Bond                           4.46     4.27       --      4.37     01/29/93
Maryland Tax-Free Bond         5.80     6.17     7.63      6.77     03/31/87
New Jersey Tax-Free Bond       5.81     6.07       --      7.72     04/30/91
New York Tax-Free Bond         6.08     6.35     7.89      7.28     08/28/86
Virginia Short-Term Tax-Free
Bond                           4.51       --       --      4.96     11/30/94
Virginia Tax-Free Bond         6.02     6.40       --      7.66     04/30/91
Tax-Efficient Balanced        14.45       --       --     17.90     06/30/97
Tax-Free High Yield            4.80     6.61     8.23      9.23     03/01/85
Tax-Free Income                5.48     6.33     7.84      7.23     10/26/76
Tax-Free Intermediate Bond     5.37     5.79       --      6.63     11/30/92
Tax-Free Short-Intermediate    4.90     4.79     5.62      5.82     12/23/83
-------------------------------------------------------------------------------


Outside Sources of Information

From time to time, in reports and promotional literature: (1) the Fund's total return performance, ranking, or any other measure of the Fund's performance may be compared to any one or combination of the following: (a) a broad-based index; (b) other groups of mutual funds, including T. Rowe Price Funds, tracked by independent research firms ranking entities, or financial publications; (c) indices of securities comparable to those in which the Fund invests; (2) the Consumer Price Index (or any other measure for inflation, government statistics, such as GNP may be used to illustrate investment attributes of the Fund or the general economic, business, investment, or financial environment in which the Fund operates; (3) various financial, economic and market statistics developed by brokers, dealers and other persons may be used to illustrate aspects of the Fund's performance; (4) the effect of tax-deferred compounding on the Fund's investment returns, or on returns in general in both qualified and nonqualified retirement plans or any other tax advantage product, may be illustrated by graphs, charts, etc.; and
(5) the sectors or industries in which the Fund invests may be compared to relevant indices or surveys in order to evaluate the Fund's historical performance or current or potential value with respect to the particular industry or sector.

Other Publications

From time to time, in newsletters and other publications issued by Investment Services, T. Rowe Price mutual fund portfolio managers may discuss economic, financial and political developments in the U.S. and abroad and how these conditions have affected or may affect securities prices or the Fund; individual securities within the Fund's portfolio; and their philosophy regarding the selection of individual stocks, including why specific stocks have been added, removed or excluded from the Fund's portfolio.

Other Features and Benefits

The Fund is a member of the T. Rowe Price family of Funds and may help investors achieve various long-term investment goals, which include, but are not limited to, investing money for retirement, saving for a down payment on a home, or paying college costs. To explain how the Fund could be used to assist investors in planning for these goals and to illustrate basic principles of investing, various worksheets and guides prepared by T. Rowe Price and/or Investment Services may be made available.

No-Load Versus Load and 12b-1 Funds

Unlike the T. Rowe Price funds, many mutual funds charge sales fees to investors or use fund assets to finance distribution activities. These fees are in addition to the normal advisory fees and expenses charged by all mutual funds. There are several types of fees charged which vary in magnitude and which may often be used in combination. A sales charge (or "load") can be charged at the time the fund is purchased (front-end load) or at the time of redemption (back-end load). Front-end loads are charged on the total amount invested. Back-end loads or "redemption fees" are charged either on the amount originally invested or on the amount redeemed. 12b-1 plans allow for the payment of marketing and sales expenses from fund assets. These expenses are usually computed daily as a fixed percentage of assets.

The Fund is a no-load fund which imposes no sales charges or 12b-1 fees. No-load funds are generally sold directly to the public without the use of commissioned sales representatives. This means that 100% of your purchase is invested for you.

Redemptions in Kind

In the unlikely event a shareholder were to receive an in kind redemption of portfolio securities of the Fund, brokerage fees could be incurred by the shareholder in a subsequent sale of such securities.


CAPITAL STOCK

Tax-Efficient Balanced, Tax-Efficient Growth, Tax-Exempt Money, Tax-Free High Yield, Income, Intermediate Bond, and Short-Intermediate Funds

The Fund's Charter authorizes the Board of Directors/Trustees to classify and reclassify any and all shares which are then unissued, including unissued shares of capital stock into any number of classes or series, each class or series consisting of such number of shares and having such designations, such powers, preferences, rights, qualifications, limitations, and restrictions, as shall be determined by the Board subject to the Investment Company Act and other applicable law. The shares of any such additional classes or series might therefore differ from the shares of the present class and series of capital stock and from each other as to preferences, conversions or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms or conditions of redemption, subject to applicable law, and might thus be superior or inferior to the capital stock or to other classes or series in various characteristics. The Board of Directors/Trustees may increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the Fund has authorized to issue without shareholder approval.

Except to the extent that the Fund's Board of Directors/Trustees might provide by resolution that holders of shares of a particular class are entitled to vote as a class on specified matters presented for a vote of the holders of all shares entitled to vote on such matters, there would be no right of class vote unless and to the extent that such a right might be construed to exist under Maryland law. The Charter contains no provision entitling the holders of the present class of capital stock to a vote as a class on any matter. Accordingly, the preferences, rights, and other characteristics attaching to any class of shares, including the present class of capital stock, might be altered or eliminated, or the class might be combined with another class or classes, by action approved by the vote of the holders of a majority of all the shares of all classes entitled to be voted on the proposal, without any additional right to vote as a class by the holders of the capital stock or of another affected class or classes.

Shareholders are entitled to one vote for each full share held (and fractional votes for fractional shares held) and will vote in the election of or removal of directors/trustees (to the extent hereinafter provided) and on other matters submitted to the vote of shareholders. There will normally be no meetings of shareholders for the purpose of electing directors/trustees unless and until such time as less than a majority of the directors/ trustees holding office have been elected by shareholders, at which time the directors/trustees then in office will call a shareholders' meeting for the election of directors/trustees. Except as set forth above, the directors/ trustees shall continue to hold office and may appoint successor directors/trustees. Voting rights are not cumulative, so that the holders of more than 50% of the shares voting in the election of directors/trustees can, if they choose to do so, elect all the directors/trustees of the Fund, in which event the holders of the remaining shares will be unable to elect any person as a director/trustee. As set forth in the By-Laws of the Fund, a special meeting of shareholders of the Fund shall be called by the Secretary of the Fund on the written request of shareholders entitled to cast at least 10% of all the votes of the Fund entitled to be cast at such meeting. Shareholders requesting such a meeting must pay to the Fund the reasonably estimated costs of preparing and mailing the notice of the meeting. The Fund, however, will otherwise assist the shareholders seeking to hold the special meeting in communicating to the other shareholders of the Fund to the extent required by Section 16(c) of the 1940 Act.

California and State Tax-Free Trusts

ORGANIZATION OF THE FUNDS

Currently, the T. Rowe Price California Tax-Free Income Trust consists of two series, California Tax-Free Bond Fund and California Tax-Free Money Fund, and the T. Rowe Price State Tax-Free Income Trust consists of nine series, Florida Intermediate Tax-Free Fund, Georgia Tax-Free Bond Fund, Maryland Short-Term Tax-Free Bond Fund, Maryland Tax-Free Bond Fund, New Jersey Tax-Free Bond Fund, New York Tax-Free Bond Fund, New York Tax-Free Money Fund, Virginia Short-Term Tax-Free Bond Fund, and Virginia Tax-Free

Bond Fund each of which represents a separate class of each Trust's shares and has different objectives and investment policies.

For tax and business reasons, the Funds were organized as Massachusetts Business Trusts, and are registered with the SEC under the 1940 Act as diversified, open-end investment companies, commonly known as "mutual fund."

The Declaration of Trust permits the Board of Trustees to issue an unlimited number of full and fractional shares of a single class. The Declaration of Trust also provides that the Board of Trustees may issue additional series or classes of shares. Each share represents an equal proportionate beneficial interest in the Fund. In the event of the liquidation of the Fund, each share is entitled to a pro-rata share of the net assets of the Fund.

Shareholders are entitled to one vote for each full share held (and fractional votes for fractional shares held) and will vote in the election of or removal of trustees (to the extent hereinafter provided) and on other matters submitted to the vote of shareholders. There will normally be no meetings of shareholders for the purpose of electing trustees unless and until such time as less than a majority of the trustees holding office have been elected by shareholders, at which time the trustees then in office will call a shareholders' meeting for the election of trustees. Pursuant to
Section 16(c) of the 1940 Act, holders of record of not less than two-thirds of the outstanding shares of the Fund may remove a trustee by a vote cast in person or by proxy at a meeting called for that purpose. Except as set forth above, the trustees shall continue to hold office and may appoint successor trustees. Voting rights are not cumulative, so that the holders of more than 50% of the shares voting in the election of trustees can, if they choose to do so, elect all the trustees of the Trust, in which event the holders of the remaining shares will be unable to elect any person as a trustee. No amendments may be made to the Declaration of Trust without the affirmative vote of a majority of the outstanding shares of the Trust.

Shares have no preemptive or conversion rights; the right of redemption and the privilege of exchange are described in the prospectus. Shares are fully paid and nonassesable, except as set forth below. The Trust may be terminated
(i) upon the sale of its assets to another diversified, open-end management investment company, if approved by the vote of the holders of two-thirds of the outstanding shares of the Trust, or (ii) upon liquidation and distribution of the assets of the Trust, if approved by the vote of the holders of a majority of the outstanding shares of the Trust. If not so terminated, the Trust will continue indefinitely.

Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of the Fund and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Fund or a Trustee. The Declaration of Trust provides for indemnification from Fund property for all losses and expenses of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund itself would be unable to meet its obligations, a possibility which T. Rowe Price believes is remote. Upon payment of any liability incurred by the Fund, the shareholders of the Fund paying such liability will be entitled to reimbursement from the general assets of the Fund. The Trustees intend to conduct the operations of the Fund is such a way so as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of such Fund.

FEDERAL REGISTRATION OF SHARES

The Fund's shares are registered for sale under the 1933 Act. Registration of the Fund's shares is not required under any state law, but the Fund is required to make certain filings with and pay fees to the states in order to sell its shares in the states.


LEGAL COUNSEL

Swidler Berlin Shereff Friedman, LLP, whose address is 919 Third Avenue, New York, New York 10022-9998, is legal counsel to the Fund.

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP, 250 West Pratt Street, 21st Floor, Baltimore, Maryland 21201, are the independent accountants to the Funds.

The financial statements of the Funds for the year ended February 28, 1999, and the report of independent accountants are included in each Fund's Annual Report for the year ended February 28, 1999. A copy of each Annual Report accompanies this Statement of Additional Information. The following financial statements and the report of independent accountants appearing in each Annual Report for the year ended February 28, 1999, are incorporated into this Statement of Additional Information by reference:

                          ANNUAL REPORT REFERENCES:

                                  CALIFORNIA TAX-  CALIFORNIA TAX-  GEORGIA
                                  FREE MONEY FUND  FREE BOND FUND   TAX-FREE
                                  ---------------  --------------   BOND FUND
                                                                    ---------
Report of Independent
Accountants                             28               28            19
Statement of Net Assets,
February 28, 1999                      12-15            16-22         9-13
Statement of Operations, year
ended
February 28, 1999                       23               23            14
Statement of Changes in Net
Assets, years ended
February 28, 1999 and February
28, 1998                                24               24            15
Notes to Financial Statements,
February 28, 1999                      25-27            25-27         16-18
Financial Highlights                    10               11             8

                                   NEW JERSEY  FLORIDA        NEW YORK TAX-
                                   TAX-FREE    INTERMEDIATE   FREE MONEY FUND
                                   BOND FUND   TAX-FREE FUND  ---------------
                                   ---------   -------------
Report of Independent Accountants      20           19              26
Statement of Net Assets, February
28, 1999                              9-14         10-13           11-14
Statement of Operations, year
ended
February 28, 1999                      15           14              21
Statement of Changes in Net
Assets, years ended
February 28, 1999 and February
28, 1998                               16           15              22
Notes to Financial Statements,
February 28, 1999                    17-19         16-18           23-25
Financial Highlights                   8             9               9


                                                       VIRGINIA    VIRGINIA
                                       NEW YORK TAX-   SHORT-TERM  TAX-FREE
                                       FREE BOND FUND  TAX-FREE    BOND FUND
                                       --------------  BOND FUND   ---------
                                                       ---------
Report of Independent Accountants            26            27          27
Statement of Net Assets, February 28,
1999                                       15-20         12-14       15-21
Statement of Operations, year ended
February 28, 1999                            21            22          22
Statement of Changes in Net Assets,
years ended
February 28, 1999 and February 28,
1998                                         22            23          23
Notes to Financial Statements,
February 28, 1999                          23-25         24-26       24-26
Financial Highlights                         10            10          11

                                       TAX-EXEMPT  TAX-FREE HIGH  TAX-FREE
                                       MONEY FUND  YIELD FUND     INCOME FUND
                                       ----------  ----------     -----------
Report of Independent Accountants          21           31            26
Statement of Net Assets, February 28,
1999                                      3-15         3-25          3-21
Statement of Operations, year ended
February 28, 1999                          16           26            22
Statement of Changes in Net Assets,
years ended
February 28, 1999 and February 28,
1998                                       17           27            23
Notes to Financial Statements,
February 28, 1999                        18-20         28-30         24-25
Financial Highlights                       2             2             2

                                                TAX-FREE      TAX-FREE SHORT-
                                                INTERMEDIATE  INTERMEDIATE
                                                BOND FUND     FUND
                                                ---------     ----
Report of Independent Accountants                    14              17
Statement of Net Assets, February 28, 1999          3-8             3-11
Statement of Operations, year ended
February 28, 1999                                    9               12
Statement of Changes in Net Assets, years
ended
February 28, 1999 and February 28, 1998              10              13
Notes to Financial Statements, February 28,
1999                                               11-13            14-16
Financial Highlights                                 2                2


                                                        TAX-EFFICIENT
                                                        BALANCED FUND
                                                        -------------
Report of Independent Accountants                            29
Portfolio of Investments, February 28, 1999                 11-21
Statement of Assets and Liabilities, February 28, 1999       22
Statement of Operations, February 28, 1999                   23
Statement of Changes in Net Assets, year ended
February 28, 1999, period from June 30, 1997
(commencement of operations) to February 28, 1998            24
Notes to Financial Statements, February 28, 1999            25-28
Financial Highlights                                         10

RATINGS OF MUNICIPAL DEBT SECURITIES

Moody's Investors Service, Inc.

Aaa-Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge."

Aa-Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally know as high-grade bonds.

A-Bonds rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations.

Baa-Bonds rated Baa are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.

Ba-Bonds rated Ba are judged to have speculative elements: their futures cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterize bonds in this class.

B-Bonds rated B generally lack the characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.

Caa-Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.

Ca-Bonds rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked short-comings.

C-Bonds rated C represent the lowest-rated, and have extremely poor prospects of attaining investment standing.

Standard & Poor's Corporation

AAA-This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay principal and interest.


AA-Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong.

A-Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions.

BBB-Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in the A category.

BB, B, CCC, CC, C-Bonds rated BB, B, CCC, and CC are regarded on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. BB indicates the lowest degree of speculation and CC the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.

D-In default.

Fitch IBCA, Inc.

AAA-High grade, broadly marketable, suitable for investment by trustees and fiduciary institutions, and liable to but slight market fluctuation other than through changes in the money rate. The prime feature of a "AAA" bond is the showing of earnings several times or many times interest requirements for such stability of applicable interest that safety is beyond reasonable question whenever changes occur in conditions. Other features may enter, such as wide margin of protection through collateral, security or direct lien on specific property. Sinking funds or voluntary reduction of debt by call or purchase or often factors, while guarantee or assumption by parties other than the original debtor may influence their rating.

AA-Of safety virtually beyond question and readily salable. Their merits are not greatly unlike those of "AAA" class but a bond so rated may be junior though of strong lien, or the margin of safety is less strikingly broad. The issue may be the obligation of a small company, strongly secured, but influenced as to rating by the lesser financial power of the enterprise and more local type of market.

A-Bonds rated A are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.

BBB-Bonds rated BBB are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions ad circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings.

BB, B, CCC, CC, and C are regarded on balance as predominantly speculative with respect to the issuer's capacity to repay interest and repay principal in accordance with the terms of the obligation for bond issues not in default. BB indicates the lowest degree of speculation and C the highest degree of speculation. The rating takes into consideration special features of the issue, its relationship to other obligations of the issuer, and the current and prospective financial condition and operating performance of the issuer.

RATINGS OF MUNICIPAL NOTES AND VARIABLE RATE SECURITIES

Moody's Investors Service, Inc. VMIG1/MIG-1 the best quality. VMIG2/MIG-2 high quality, with margins of protection ample though not so large as in the preceding group. VMIG3/MIG-3 favorable quality, with all security elements accounted for, but lacking the undeniable strength of the preceding grades. Market access

for refinancing, in particular, is likely to be less well established. VMIG4/MIG-4 adequate quality but there is specific risk.

Standard & Poor's Corporation SP-1 very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. SP-2 satisfactory capacity to pay interest and principal. SP-3 speculative capacity to pay principal and interest.

Fitch IBCA, Inc. F-1+ exceptionally strong credit quality, strongest degree of assurance for timely payment. F-1 very strong credit quality. F-2 good credit quality, having a satisfactory degree of assurance for timely payment. F-3 fair credit quality, assurance for timely payment is adequate but adverse changes could cause the securities to be rated below investment grade. F-5 weak credit quality, having characteristics suggesting a minimal degree of assurance for timely payment.

RATINGS OF COMMERCIAL PAPER

Moody's Investors Service, Inc. P-1 superior capacity for repayment. P-2 strong capacity for repayment. P-3 acceptable capacity for repayment of short-term promissory obligations.

Standard & Poor's Corporation A-1 highest category, degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 satisfactory capacity to pay principal and interest. A-3 adequate capacity for timely payment, but are vulnerable to adverse effects of changes in circumstances than higher-rated issues. B and C speculative capacity to pay principal and interest.

Fitch IBCA, Inc. F-1+ exceptionally strong credit quality, strongest degree of assurance for timely payment. F-1 very strong credit quality. F-2 good credit quality, having a satisfactory degree of assurance for timely payment. F-3 fair credit quality, assurance for timely payment is adequate but adverse changes could cause the securities to be rated below investment grade. F-5 weak credit quality, having characteristics suggesting a minimal degree of assurance for timely payment.


PART C
OTHER INFORMATION

ITEM 23. EXHIBITS

TAX-EXEMPT MONEY FUND

(1)(a) Articles of Incorporation of Registrant, dated March 25, 1980
(electronically filed with Amendment No. 18 dated April 22, 1994)

(1)(b) Articles of Amendment dated January 1, 1981 (electronically filed with Amendment No. 18 dated April 22, 1994)

(1)(c) Articles of Amendment of T. Rowe Price Tax-Exempt Money Fund, Inc., on behalf of T. Rowe Price Tax-Exempt Money Fund-PLUS Class dated October 16, 1998

(1)(d) Articles Supplementary of T. Rowe Price Tax-Exempt Money Fund, Inc., on behalf of T. Rowe Price Tax-Exempt Money Fund-PLUS Class dated October 16, 1998

(2) By-Laws of Registrant, as amended June 29, 1981, January 21, 1988, April 20, 1990, July 1, 1991, and July 20, 1993 (electronically filed with Amendment No. 18 dated April 22, 1994)

(3) Specimen Stock Certificate (filed with Amendment No. 1)

(4) Investment Management Agreement between Registrant and T. Rowe Price Associates, Inc. (electronically filed with Amendment No. 18 dated April 22, 1994)

(5) Underwriting Agreement between Registrant and T. Rowe Price Investment Services, Inc. (electronically filed with Amendment No. 18 dated April 22, 1994)

TAX-FREE SHORT-INTERMEDIATE FUND

(1) Articles of Incorporation of Registrant, dated October 7, 1983
(electronically filed with Amendment No. 17 dated April 22, 1994)

(2) By-Laws of Registrant, as amended January 28, 1988, April 20, 1990, July 1, 1991, and July 20, 1993 (electronically filed with Amendment No. 17 dated April 22, 1994)

(3) Specimen Stock Certificate (filed with Amendment No. 1)


(4) Investment Management Agreement between Registrant and T. Rowe Price Associates, Inc. (electronically filed with Amendment No. 17 dated June 9, 1995)

(5) Underwriting Agreement between Registrant and T. Rowe Price Investment Services, Inc. (electronically filed with Amendment No. 17 dated April 22, 1994)

TAX-FREE INTERMEDIATE BOND FUND

(1)(a) Articles of Incorporation of Registrant, dated October 14, 1992 (electronically filed with initial Registration Statement on October 15, 1992)

(1)(b) Articles of Amendment to change name from T. Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc., to T. Rowe Price Tax-Free Intermediate Bond Fund, Inc., dated October 27, 1998

(2) By-Laws of Registrant (electronically filed with initial Registration Statement on October 15, 1992)

(3) See Article SIXTH, Capital Stock, Paragraph (b)(1)-(10) of the Articles of Incorporation, Article II, Shareholders, Sections 2.01-2.11 and Article VIII, Capital Stock, Sections 8.01-8.05 of the By-laws filed as exhibits to this Registration Statement.

(4) Investment Management Agreement between Registrant and T. Rowe Price Associates, Inc., dated November 3, 1992 (electronically filed with Amendment No. 1 on November 25, 1992)

(5) Underwriting Agreement between Registrant and T. Rowe Price Investment Services, Inc., dated November 3, 1992 (electronically filed with Amendment No. 1 on November 25, 1992)

TAX-FREE INCOME FUND

(1)(a) Articles of Incorporation of Registrant, dated September 24, 1976
(electronically filed with Amendment No. 20 dated April 22, 1994)

(1)(b) Articles of Amendment, dated November 4, 1976 (electronically filed with Amendment No. 20 dated April 22, 1994)

(1)(c) Article of Amendment dated May 1, 1981 (electronically filed with Amendment No. 20 dated April 22, 1994)


(1)(d) Articles of Amendment dated July 1, 1983 (electronically filed with Amendment No. 20 dated April 22, 1994)

(2) By-Laws of Registrant, as amended May 1, 1981, January 21, 1982, October 27, 1982, January 1, 1983, February 23, 1983, January 21, 1988, April 20, 1990, July 1, 1991, and July 20, 1993 (electronically filed with Amendment No. 20 dated April 22, 1994)

(3) Specimen Stock Certificate (filed with Amendment No. 2)

(4) Investment Management Agreement between Registrant and T. Rowe Price Associates, Inc. (electronically filed with Amendment No. 20 dated April 22, 1994)

(5) Underwriting Agreement between Registrant and T. Rowe Price Investment Services, Inc. (electronically filed with Amendment No. 20 dated April 22, 1994)

TAX-FREE HIGH YIELD FUND

(1) Articles of Incorporation of Registrant, dated November 30, 1984
(electronically filed with Amendment No. 14 dated April 22, 1994)

(2) By-Laws of Registrant, as amended January 21, 1988, April 20, 1990, July 1, 1991, and July 20, 1993 (electronically filed with Amendment No. 14 dated April 22, 1994)

(3) Specimen Stock Certificate (filed with Amendment No. 1)

(4) Investment Management Agreement between Registrant and T. Rowe Price Associates, Inc. (electronically filed with Amendment No. 14 dated April 22, 1994)

(5) Underwriting Agreement between Registrant and T. Rowe Price Investment Services, Inc. (electronically filed with Amendment No. 14 dated April 22, 1994)

ALL FUNDS

(6) Inapplicable

(7) Custody Agreements

(7)(a) Custodian Agreement between T. Rowe Price Funds and State Street Bank and Trust Company, dated January 28, 1998, as amended November 4, 1998


(7)(b) Subcustodian Agreements between T. Rowe Price Tax-Free Funds and Irving Trust Company and Morgan Guaranty Trust Company (filed with Amendment No. 8)

(7)(c) Subcustodian Agreement between Irving Trust Company and State Street Bank and Trust Company (filed with Amendment No. 12)

(8) Other Agreements

(8)(a) Transfer Agency and Service Agreement between T. Rowe Price Services, Inc. and T. Rowe Price Funds, dated January 1, 1999

(8)(b) Agreement between T. Rowe Price Associates, Inc. and T. Rowe Price Funds for Fund Accounting Services, dated January 1, 1999

(9) Inapplicable

(10) Consent of Independent Accountants

(11) Inapplicable

(12) Inapplicable

(13) Inapplicable

(14) Financial Data Schedules

(15) Rule 18f-3 (electronically filed with Amendment No. 34 dated August 28, 1998)

(16) Other Exhibits

(a) Power of Attorney

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None

ITEM 25. INDEMNIFICATION

The Registrant maintains comprehensive Errors and Omissions and Officers and Directors insurance policies written by the Evanston Insurance Company and ICI Mutual. These policies provide coverage for T. Rowe Price Associates, Inc. ("Manager"), and its subsidiaries and affiliates as listed in Item 26 of this Registration Statement (with the exception of the T. Rowe Price Associates Foundation, Inc.), and fifty other investment


companies, all of which are mutual funds in the T. Rowe Price family of funds. In addition to the corporate insureds, the policies also cover the officers, directors, and employees of the Manager, its subsidiaries, and affiliates. The premium is allocated among the named corporate insureds in accordance with the provisions of Rule 17d-1(d)(7) under the Investment Company Act of 1940.

GENERAL. The Charter of the Corporation provides that to the fullest extent permitted by Maryland or federal law, no director or officer of the Corporation shall be personally liable to the Corporation or the holders of Shares for money damages and each director and officer shall be indemnified by the Corporation; PROVIDED, HOWEVER, that nothing therein shall be deemed to protect any director or officer of the Corporation against any liability to the Corporation of the holders of Shares to which such director or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.

Article X, Section 10.01 of the Registrant's By-Laws provides as follows:

SECTION 10.01. INDEMNIFICATION AND PAYMENT OF EXPENSES IN ADVANCE. The Corporation shall indemnify any individual ("Indemnitee") who is a present or former director, officer, employee, or agent of the Corporation, or who is or has been serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, who, by reason of his position was, is, or is threatened to be made, a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter collectively referred to as a "Proceeding") against any judgments, penalties, fines, settlements, and reasonable expenses (including attorneys' fees) incurred by such Indemnitee in connection with any Proceeding, to the fullest extent that such indemnification may be lawful under applicable Maryland law, as from time to time amended. The Corporation shall pay any reasonable expenses so incurred by such Indemnitee in defending a Proceeding in advance of the final disposition thereof to the fullest extent that such advance payment may be lawful under applicable Maryland Law, as from time to time amended. Subject to any applicable limitations and requirements set forth in the Corporation's Articles of Incorporation and in these By-Laws, any payment of indemnification or advance of expenses shall be made in accordance with the procedures set forth in applicable Maryland law, as from time to time amended.

Notwithstanding the foregoing, nothing herein shall protect or purport to protect any Indemnitee against any liability


to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office ("Disabling Conduct").

Anything in this Article X to the contrary notwithstanding, no indemnification shall be made by the Corporation to any Indemnitee unless:

(a) there is a final decision on the merits by a court or other body before whom the Proceeding was brought that the Indemnitee was not liable by reason of Disabling Conduct; or

(b) in the absence of such a decision, there is a reasonable determination, based upon a review of the facts, that the Indemnitee was not liable by reason of Disabling Conduct, which determination shall be made by:

(i) the vote of a majority of a quorum of directors who are neither "interested persons" of the Corporation, as defined in Section 2(a)(19) of the Investment Company Act of 1940, nor parties to the Proceeding; or

(ii) an independent legal counsel in a written opinion.

Anything in this Article X to the contrary notwithstanding, any advance of expenses by the Corporation to any Indemnitee shall be made only upon the undertaking by such Indemnitee to repay the advance unless it is ultimately determined that such Indemnitee is entitled to indemnification as above provided, and only if one of the following conditions is met:

(a) the Indemnitee provides a security for his undertaking; or

(b) the Corporation shall be insured against losses arising by reason of any lawful advances; or

(c) there is a determination, based on a review of readily available facts, that there is reason to believe that the Indemnitee will ultimately be found entitled to indemnification, which determination shall be made by:

(i) a majority of a quorum of directors who are neither "interested persons" of the Corporation as defined in Section 2(a)(19) of the Investment Company Act of 1940, nor parties to the Proceeding; or

(ii) an independent legal counsel in a written opinion.


Section 10.02 of the Registrant's By-Laws provides as follows:

SECTION 10.02. INSURANCE OF OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS. To the fullest extent permitted by applicable Maryland law and by Section 17(h) of the Investment Company Act of 1940, as from time to time amended, the Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or who is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against any liability asserted against him and incurred by him in or arising out of his position, whether or not the Corporation would have the power to indemnify him against such liability.

Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER

Rowe Price-Fleming International, Inc. ("PRICE-FLEMING"), a Maryland corporation, is a corporate joint venture 50% owned by TRP Finance, Inc., a wholly owned subsidiary of the Manager. Price-Fleming was incorporated in Maryland in 1979 to provide investment counsel service with respect to foreign securities for institutional investors in the United States. In addition to managing private counsel client accounts, Price-Fleming also sponsors registered investment companies which invest in foreign securities, serves as general partner of RPFI International Partners, Limited Partnership, and provides investment advice to the T. Rowe Price Trust Company, trustee of the International Common Trust Fund.


T. Rowe Price Investment Services, Inc. ("INVESTMENT SERVICES"), a wholly owned subsidiary of the Manager, was incorporated in Maryland in 1980 for the purpose of acting as the principal underwriter and distributor for the Investment Companies which Manager sponsors and serves as investment adviser (the "PRICE FUNDS"). Investment Services is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. In 1984, Investment Services expanded its activities to include a brokerage service.

TRP Distribution, Inc., a wholly owned subsidiary of Investment Services, was incorporated in Maryland in 1991. It was organized for, and engages in, the sale of certain investment related products prepared by Investment Services and T. Rowe Price Retirement Plan Services.

T. Rowe Price Associates Foundation, Inc. (the "FOUNDATION"), was incorporated in 1981 (and is not a subsidiary of the Manager). The Foundation's overall objective emphasizes various community needs by giving to a broad range of educational, civic, cultural, and health-related institutions. The Foundation has a very generous matching gift program whereby employee gifts designated to qualifying institutions are matched according to established guidelines.

T. Rowe Price Services, Inc. ("PRICE SERVICES"), a wholly owned subsidiary of the Manager, was incorporated in Maryland in 1982 and is registered as a transfer agent under the Securities Exchange Act of 1934. Price Services provides transfer agent, dividend disbursing, and certain other services, including shareholder services, to the Price Funds.

T. Rowe Price Retirement Plan Services, Inc. ("RPS"), a wholly owned subsidiary of the Manager, was incorporated in Maryland in 1991 and is registered as a transfer agent under the Securities Exchange Act of 1934. RPS provides administrative, recordkeeping, and subaccounting services to administrators of employee benefit plans.

T. Rowe Price Trust Company ("TRUST COMPANY"), a wholly owned subsidiary of the Manager, is a Maryland-chartered limited-service trust company, organized in 1983 for the purpose of providing fiduciary services. The Trust Company serves as trustee and/or custodian for certain qualified employee benefit plans, individual retirement accounts, and common trust funds and as trustee/investment agent for one trust and other retirement plans.

T. Rowe Price Investment Technologies, Inc. was incorporated in Maryland in 1996. A wholly owned subsidiary of the Manager, it owns the technology rights, hardware, and software of


the Manager and affiliated companies and provides technology services to them.

TRPH Corporation, a wholly owned subsidiary of the Manager, was organized in 1997 to acquire an interest in a UK-based corporate finance advisory firm.

T. Rowe Price Threshold Fund Associates, Inc., a wholly owned subsidiary of the Manager, was incorporated in Maryland in 1994 and serves as the general partner of T. Rowe Price Threshold Fund III, L.P., a Delaware limited partnership.

T. Rowe Price Threshold Fund III, L.P., a Delaware limited partnership, was organized in 1994 by the Manager and invests in private financings of small companies with high growth potential; the Manager is the General Partner of the partnership.

RPFI International Partners, L.P., is a Delaware limited partnership organized in 1985 for the purpose of investing in a diversified group of small and medium-sized non-U.S. companies. Price-Fleming is the general partner of this partnership, and certain institutional investors, including advisory clients of Price-Fleming, are its limited partners.

T. Rowe Price Stable Asset Management, Inc. ("STABLE ASSET MANAGEMENT"), was incorporated in Maryland in 1988 as a wholly owned subsidiary of the Manager. Stable Asset Management is registered as an investment adviser under the Investment Advisers Act of 1940, and specializes in the management of investment portfolios which seek stable and consistent investment returns through the use of guaranteed investment contracts, bank investment contracts, structured investment contracts issued by insurance companies and banks, as well as short-term fixed income securities.

T. Rowe Price Recovery Fund Associates, Inc., a Maryland corporation, is a wholly owned subsidiary of the Manager organized in 1988 for the purpose of serving as General Partner of T. Rowe Price Recovery Fund, L.P., a Delaware limited partnership which invests in financially distressed companies.

T. Rowe Price Recovery Fund II Associates, L.L.C., is a Maryland limited liability company organized in 1996. Wholly owned by the Manager and the Trust Company, it serves as General Partner of T. Rowe Price Recovery Fund II, L.P., a Delaware limited partnership which also invests in financially distressed companies.

T. Rowe Price (Canada), Inc. ("TRP CANADA") is a Maryland corporation organized in 1988 as a wholly owned subsidiary of the Manager. This entity is registered as an


investment adviser under the Investment Advisers Act of 1940 as well as with the Ontario Securities Commission to provide advisory services to individual and institutional clients residing in Canada.

T. Rowe Price Insurance Agency, Inc., is a wholly owned subsidiary of the Manager, organized in Maryland in 1994 and licensed to do business in several states to act primarily as a distributor of proprietary variable annuity products.

Since 1983, the Manager has organized several distinct Maryland limited partnerships, which are informally called the Pratt Street Ventures partnerships, for the purpose of acquiring interests in growth-oriented businesses.

TRP Suburban, Inc., is a Maryland corporation organized in 1990 as a wholly owned subsidiary of the Manager. It entered into agreements with McDonogh School and CMANE-McDonogh-Rowe Limited Partnership to construct an office building in Owings Mills, Maryland, which currently houses the Manager's transfer agent, plan administrative services, retirement plan services, and operations support functions.

TRP Suburban Second, Inc., a wholly owned Maryland subsidiary of T. Rowe Price Associates, Inc., was incorporated in 1995 to primarily engage in the development and ownership of real property located in Owings Mills, Maryland.

TRP Finance, Inc., a wholly owned subsidiary of the Manager, is a Delaware corporation organized in 1990 to manage certain passive corporate investments and other intangible assets.

T. Rowe Price Strategic Partners Fund II, L.P. ("STRATEGIC PARTNERS FUNDS") is a Delaware limited partnerships organized in 1992, for the purpose of investing in small public and private companies seeking capital for expansion or undergoing a restructuring of ownership. The general partner of T. Rowe Price Strategic Partners Fund II, L.P. is T. Rowe Price Strategic Partners II, L.P., a Delaware limited partnership whose general partner is T. Rowe Price Strategic Partners Associates, Inc.

Listed below are the directors, executive officers and managing directors of the Manager who have other substantial businesses, professions, vocations, or employment aside from that of Director of the Manager:

DIRECTORS

JAMES E. HALBKAT, JR., Director of the Manager. Mr. Halbkat is President of U.S. Monitor Corporation, a provider of public


response systems. Mr. Halbkat's address is: P.O. Box 23109, Hilton Head Island, South Carolina 29925.

RICHARD L. MENSCHEL, Director of the Manager. Mr. Menschel is a limited partner of The Goldman Sachs Group, L.P., an investment banking firm. Mr. Menschel's address is: 85 Broad Street, 2nd Floor, New York, New York 10004.

ROBERT L. STRICKLAND, Director of the Manager. Mr. Strickland retired as Chairman of Lowe's Companies, Inc., a retailer of specialty home supplies, as of January 31, 1998 and continues to serve as a Director. He is a Director of Hannaford Bros., Co., a food retailer. Mr. Strickland's address is: 2000 W. First Street, Suite 604, Winston-Salem, North Carolina 27104.

PHILIP C. WALSH, Director of the Manager. Mr. Walsh is a retired mining industry executive. Mr. Walsh's address is: Pleasant Valley, Peapack, New Jersey 07977.

ANNE MARIE WHITTEMORE, Director of the Manager. Mrs. Whittemore is a partner of the law firm of McGuire, Woods, Battle & Boothe L.L.P. and a Director of Owens & Minor, Inc.; Fort James Corporation; and Albemarle Corporation. Mrs. Whittemore's address is: One James Center, Richmond, Virginia 23219.

With the exception of Messrs. Halbkat, Menschel, Strickland, Walsh, and Mrs. Whittemore, all of the following directors of the Manager are employees of the Manager.

HENRY H. HOPKINS, Director and Managing Director of the Manager; Director of T. Rowe Price Insurance Agency, Inc.; Vice President and Director of T. Rowe Price (Canada), Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price Threshold Fund Associates, Inc., T. Rowe Price Trust Company, TRP Distribution, Inc., and TRPH Corporation; Director of T. Rowe Price Insurance Agency, Inc.; Vice President of Price-Fleming, T. Rowe Price Real Estate Group, Inc., T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price Stable Asset Management, Inc., and T. Rowe Price Strategic Partners Associates, Inc.

JAMES A.C. KENNEDY, Director and Managing Director of the Manager; President and Director of T. Rowe Price Strategic Partners Associates, Inc.; Director and Vice President of T. Rowe Price Threshold Fund Associates, Inc.

JOHN H. LAPORTE, JR., Director and Managing Director of the Manager.


WILLIAM T. REYNOLDS, Director and Managing Director of the Manager; Chairman of the Board of T. Rowe Price Stable Asset Management, Inc.; Director of TRP Finance, Inc.

JAMES S. RIEPE, Vice-Chairman of the Board, Director, and Managing Director of the Manager; Chairman of the Board and President of T. Rowe Price Trust Company; Chairman of the Board of T. Rowe Price (Canada), Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price Investment Technologies, Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Services, Inc.; Director of Price-Fleming, T. Rowe Price Insurance Agency, Inc., and TRPH Corporation; Director and President of TRP Distribution, Inc., TRP Suburban Second, Inc., and TRP Suburban, Inc.; and Director and Vice President of T. Rowe Price Stable Asset Management, Inc.

GEORGE A. ROCHE, Chairman of the Board, President, and Managing Director of the Manager; Chairman of the Board of TRP Finance, Inc.; Director of Price-Fleming, T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Strategic Partners, Inc., and Director and Vice President of T. Rowe Price Threshold Fund Associates, Inc., TRP Suburban Second, Inc., and TRP Suburban, Inc.

BRIAN C. ROGERS, Director and Managing Director of the Manager; Vice President of T. Rowe Price Trust Company.

M. DAVID TESTA, Vice-Chairman of the Board, Director, Chief Investment Officer, and Managing Director of the Manager; Chairman of the Board of Price-Fleming; President and Director of T. Rowe Price (Canada), Inc.; Director and Vice President of T. Rowe Price Trust Company; and Director of TRPH Corporation.

ADDITIONAL EXECUTIVE OFFICERS

EDWARD C. BERNARD, Managing Director of the Manager; Director and President of T. Rowe Price Insurance Agency, Inc. and T. Rowe Price Investment Services, Inc.; Director of T. Rowe Price Services, Inc.; Vice President of TRP Distribution, Inc.

MICHAEL A. GOFF, Managing Director of the Manager; Director and the President of T. Rowe Price Investment Technologies, Inc.

CHARLES E. VIETH, Managing Director of the Manager; Director and President of T. Rowe Price Retirement Plan Services, Inc.; Director and Vice President of T. Rowe Price Investment Services, Inc. and T. Rowe Price Services, Inc.; Vice President of T. Rowe Price (Canada), Inc., T. Rowe Price Trust Company, and TRP Distribution, Inc.


ALVIN M. YOUNGER, JR., Chief Financial Officer, Managing Director, Secretary, and Treasurer of the Manager; Director, Vice President, Treasurer, and Secretary of TRP Suburban Second, Inc. and TRP Suburban, Inc.; Director of TRP Finance, Inc.; Secretary and Treasurer for Price-Fleming, T. Rowe Price (Canada), Inc., T. Rowe Price Insurance Agency, Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price Real Estate Group, Inc., T. Rowe Price Retirement Plan Services, Inc., T. Rowe Price Services, Inc., T. Rowe Price Stable Asset Management, Inc., T. Rowe Price Strategic Partners Associates, Inc., T. Rowe Price Threshold Fund Associates, Inc., T. Rowe Price Trust Company, TRP Distribution, Inc., and TRPH Corporation; Treasurer and Clerk of T. Rowe Price Insurance Agency of Massachusetts, Inc.

ADDITIONAL MANAGING DIRECTORS

PRESTON G. ATHEY, Managing Director of the Manager.

BRIAN W.H. BERGHUIS, Managing Director of the Manager.

STEPHEN W. BOESEL, Managing Director of the Manager; Vice President of T. Rowe Price Trust Company.

GREGORY A. McCRICKARD, Managing Director of the Manager; Vice President of T. Rowe Price Trust Company.

MARY J. MILLER, Managing Director of the Manager.

CHARLES A. MORRIS, Managing Director of the Manager.

GEORGE A. MURNAGHAN, Managing Director of the Manager; Executive Vice President of Price-Fleming; Vice President of T. Rowe Price Investment Services, Inc. and T. Rowe Price Trust Company.

EDMUND M. NOTZON III, Managing Director of the Manager; Vice President of T. Rowe Price Trust Company.

WAYNE D. O'MELIA, Managing Director of the Manager; Director and President of T. Rowe Price Services, Inc.; Vice President of T. Rowe Price Trust Company.

LARRY J. PUGLIA, Managing Director of the Manager; Vice President of T. Rowe Price (Canada), Inc.

JOHN R. ROCKWELL, Managing Director of the Manager; Director and Senior Vice President of T. Rowe Price Retirement Plan Services, Inc.; Director and Vice President of T. Rowe Price Stable Asset Management, Inc. and T. Rowe Price Trust Company; Vice President of T. Rowe Price Investment Services, Inc.


R. TODD RUPPERT, Managing Director of the Manager; President and Director of TRPH Corporation; Vice President of T. Rowe Price Retirement Plan Services, Inc. and T. Rowe Price Trust Company.

ROBERT W. SMITH, Managing Director of the Manager; Vice President of Price-Fleming.

WILLIAM J. STROMBERG, Managing Director of the Manager.

RICHARD T. WHITNEY, Managing Director of the Manager; Vice President of Price-Fleming and T. Rowe Price Trust Company.

Certain directors and officers of the Manager are also officers and/or directors of one or more of the Price Funds and/or one or more of the affiliated entities listed herein.

See also "Management of Fund," in Registrant's Statement of Additional Information.

ITEM 27. PRINCIPAL UNDERWRITERS

(a) The principal underwriter for the Registrant is Investment Services. Investment Services acts as the principal underwriter for eighty-seven mutual funds, including the following investment companies: T. Rowe Price Growth Stock Fund, Inc., T. Rowe Price New Horizons Fund, Inc., T. Rowe Price New Era Fund, Inc., T. Rowe Price New Income Fund, Inc., T. Rowe Price Prime Reserve Fund, Inc., T. Rowe Price Tax-Free Income Fund, Inc., T. Rowe Price Tax-Exempt Money Fund, Inc., T. Rowe Price International Funds, Inc., T. Rowe Price Growth & Income Fund, Inc., T. Rowe Price Tax-Free Short-Intermediate Fund, Inc., T. Rowe Price Short-Term Bond Fund, Inc., T. Rowe Price High Yield Fund, Inc., T. Rowe Price Tax-Free High Yield Fund, Inc., T. Rowe Price New America Growth Fund, T. Rowe Price Equity Income Fund, T. Rowe Price GNMA Fund, T. Rowe Price Capital Appreciation Fund, T. Rowe Price California Tax-Free Income Trust, T. Rowe Price State Tax-Free Income Trust, T. Rowe Price Science & Technology Fund, Inc., T. Rowe Price Small-Cap Value Fund, Inc., Institutional International Funds, Inc., T. Rowe Price U.S. Treasury Funds, Inc., T. Rowe Price Index Trust, Inc., T. Rowe Price Spectrum Fund, Inc., T. Rowe Price Balanced Fund, Inc., T. Rowe Price Short-Term U.S. Government Fund, Inc., T. Rowe Price Mid-Cap Growth Fund, Inc., T. Rowe Price Small-Cap Stock Fund, Inc., T. Rowe Price Tax-Free Intermediate Bond Fund, Inc., T. Rowe Price Dividend Growth Fund, Inc., T. Rowe Price Blue Chip Growth Fund, Inc., T. Rowe Price Summit Funds, Inc., T. Rowe Price Summit Municipal Funds, Inc., T. Rowe Price Equity


Series, Inc., T. Rowe Price International Series, Inc., T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Personal Strategy Funds, Inc., T. Rowe Price Value Fund, Inc., T. Rowe Price Capital Opportunity Fund, Inc., T. Rowe Price Corporate Income Fund, Inc., T. Rowe Price Health Sciences Fund, Inc., T. Rowe Price Mid-Cap Value Fund, Inc., Institutional Equity Funds, Inc., T. Rowe Price Financial Services Fund, Inc., T. Rowe Price Diversified Small-Cap Growth Fund, Inc., T. Rowe Price Tax-Efficient Balanced Fund, Inc., Reserve Investment Funds, Inc., T. Rowe Price Media & Telecommunications Fund, Inc., and T. Rowe Price Real Estate Fund, Inc. Investment Services is a wholly owned subsidiary of the Manager, is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. Investment Services has been formed for the limited purpose of distributing the shares of the Price Funds and will not engage in the general securities business. Since the Price Funds are sold on a no-load basis, Investment Services will not receive any commissions or other compensation for acting as principal underwriter.

(b) The address of each of the directors and officers of Investment Services listed below is 100 East Pratt Street, Baltimore, Maryland 21202.

NAME                                                               POSITIONS AND                   POSITIONS AND
                                                                   OFFICES WITH                    OFFICES WITH
                                                                   UNDERWRITER                     REGISTRANT
James S. Riepe                                                     Chairman of the Board
                                                                   and Director
Edward C. Bernard                                                  President and Director          None
Henry H. Hopkins                                                   Vice President and Director     Vice President
Charles E. Vieth                                                   Vice President and Director     None
Patricia M. Archer                                                 Vice President                  None
Joseph C. Bonasorte                                                Vice President                  None
Darrell N. Braman                                                  Vice President                  None
Ronae M. Brock                                                     Vice President                  None
Meredith C. Callanan                                               Vice President                  None
Ann R. Campbell                                                    Vice President                  None
Christine M. Carolan                                               Vice President                  None
Joseph A. Carrier                                                  Vice President                  None
Sarah H. Carroll                                                   Vice President                  None
Laura H. Chasney                                                   Vice President                  None
Renee M. Christoff                                                 Vice President                  None
Christopher W. Dyer                                                Vice President                  None
Christine S. Fahlund                                               Vice President                  None
Forrest R. Foss                                                    Vice President                  None
Thomas A. Gannon                                                   Vice President                  None
Andrea G. Griffin                                                  Vice President                  None
Douglas E. Harrison                                                Vice President                  None
David J. Healy                                                     Vice President                  None
Joseph P. Healy                                                    Vice President                  None
Walter J. Helmlinger                                               Vice President                  None
Valerie King                                                       Vice President                  None
-Calloway
Eric G. Knauss                                                     Vice President                  None
Sharon R. Krieger                                                  Vice President                  None
Jeanette M. LeBlanc                                                Vice President                  None
Keith W. Lewis                                                     Vice President                  None
Kim Lewis-Collins                                                  Vice President                  None
Sarah McCafferty                                                   Vice President                  None
Maurice A. Minerbi                                                 Vice President                  None
Mark J. Mitchell                                                   Vice President                  None
Nancy M. Morris                                                    Vice President                  None
George A. Murnaghan                                                Vice President                  None
Steven E. Norwitz                                                  Vice President                  None
Kathleen M. O'Brien                                                Vice President                  None
Barbara A. O'Connor                                                Vice President                  None
David Oestr                                                        Vice President                  None
e
icher
Robert Petrow                                                      Vice President                  None
Pamela D. Preston                                                  Vice President                  None
George D. Riedel                                                   Vice President                  None
Lucy B. Robins                                                     Vice President                  None
John R. Rockwell                                                   Vice President                  None
Kenneth J. Rutherford                                              Vice President                  None
Kristin E. Seeberger                                               Vice President                  None
Donna B. Singer                                                    Vice President                  None
Charles E. Vieth                                                   Vice President                  None
William F. Wendler II                                              Vice President                  None
Jane F. White                                                      Vice President                  None
Thomas R. Woolley                                                  Vice President                  None
Alvin M. Younger, Jr.                                              Secretary and Treasurer         None
Barbara A. O'Connor                                                Controller                      None
Richard J. Barna                                                   Assistant Vice President        None
Catherine L.Berkenkemper                                           Assistant Vice President        None
Edwin J. Brooks                                                    Assistant Vice President        None
Charles R. Dicken                                                  Assistant Vice President        None
Cheryl L. Emory                                                    Assistant Vice President        None
John A. Galateria                                                  Assistant Vice President        None
Susanne L. Gigliotti                                               Assistant Vice President        None
Edward F. Giltenan                                                 Assistant Vice President        None
Janelyn A. Healey                                                  Assistant Vice President        None
Sandra J. Kiefler                                                  Assistant Vice President        None
Steven A. La                                                       Assistant Vice President        None
rs
on
Patricia S.                                                        Assistant Vice President        Secretary
Lippert
C. Lillian Matthews                                                Assistant Vice President        None
Janice D. McCrory                                                  Assistant Vice President        None
Quinn C. McDonald                                                  Assistant Vice President        None
Danielle N. Nicholson                                              Assistant Vice President        None
JeanneMarie B. Patella                                             Assistant Vice President        None
David A. Roscum                                                    Assistant Vice President        None
Jerome Tuccille                                                    Assistant Vice President        None
Nolan L. North                                                     Assistant Treasurer             None
Barbara A. Van Horn                                                Assistant Secretary             None


(c) Not applicable. Investment Services will not receive any compensation with respect to its activities as underwriter for the Price Funds since the Price Funds are sold on a no-load basis.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books, and other documents required to be maintained by the Registrant under Section 31(a) of the Investment Company Act of 1940 and the rules thereunder will be maintained by the Registrant at its offices at 100 East Pratt Street, Baltimore, Maryland 21202. Transfer, dividend disbursing, and shareholder service activities are performed by T. Rowe Price Services, Inc., at 10090 Red Run Blvd., Owings Mills, Maryland 21117. Custodian activities for the Registrant are performed at State Street Bank and Trust Company's Service Center (State Street South), 1776 Heritage Drive, Quincy, Massachusetts 02171.

ITEM 29. MANAGEMENT SERVICES

Registrant is not a party to any management-related service contract, other than as set forth in the Prospectus or Statement of Additional Information.

ITEM 30. UNDERTAKINGS

(a) Not applicable


Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Baltimore, State of Maryland, this April 28, 1999.

T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.

         /s/William T. Reynolds
By:      William T. Reynolds
         Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:

SIGNATURE                TITLE                 DATE

/s/William T. Reynolds   Chairman of the Board  April 28, 1999
William T. Reynolds      (Chief Executive Officer)

/s/Carmen F. Deyesu      Treasurer (Chief       April 28, 1999
Carmen F. Deyesu         Financial Officer)

    *                    Director               April 28, 1999
Calvin W. Burnett

    *                    Director               April 28, 1999
Anthony W. Deering

    *                    Director               April 28, 1999
F. Pierce Linaweaver

/s/James S. Riepe        Director and           April 28, 1999
James S. Riepe           Vice President

    *                    Director               April 28, 1999
John G. Schreiber

/s/M. David Testa        Director               April 28, 1999
M. David Testa

/s/Henry H. Hopkins      Attorney-In-Fact       April 28, 1999
Henry H. Hopkins


Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Baltimore, State of Maryland, this April 28, 1999.

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

         /s/William T. Reynolds
By:      William T. Reynolds
         Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:

SIGNATURE                TITLE                 DATE

/s/William T. Reynolds   Chairman of the Board  April 28, 1999
William T. Reynolds      (Chief Executive Officer)

/s/Carmen F. Deyesu      Treasurer (Chief       April 28, 1999
Carmen F. Deyesu         Financial Officer)

    *                    Director               April 28, 1999
Calvin W. Burnett

    *                    Director               April 28, 1999
Anthony W. Deering

    *                    Director               April 28, 1999
F. Pierce Linaweaver

/s/James S. Riepe        Director and           April 28, 1999
James S. Riepe           Vice President

    *                    Director               April 28, 1999
John G. Schreiber

/s/M. David Testa        Director               April 28, 1999
M. David Testa

/s/Henry H. Hopkins      Attorney-In-Fact       April 28, 1999
Henry H. Hopkins


Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Baltimore, State of Maryland, this April 28, 1999.

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

         /s/Charles B. Hill
By:      Charles B. Hill
         President

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:

SIGNATURE                TITLE                 DATE

/s/Charles B. Hill       President (Chief       April 28, 1999
Charles B. Hill          Executive Officer)

/s/Carmen F. Deyesu      Treasurer (Chief       April 28, 1999
Carmen F. Deyesu         Financial Officer)

    *                    Director               April 28, 1999
Calvin W. Burnett

    *                    Director               April 28, 1999
Anthony W. Deering

    *                     Director              April 28, 1999
F. Pierce Linaweaver

/s/William T. Reynolds   Director               April 28, 1999
William T. Reynolds

/s/James S. Riepe        Director               April 28, 1999
James S. Riepe

    *                    Director               April 28, 1999
John G. Schreiber

/s/M. David Testa        Director               April 28, 1999
M. David Testa

/s/Henry H. Hopkins      Attorney-In-Fact       April 28, 1999
Henry H. Hopkins


Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Baltimore, State of Maryland, this April 28, 1999.

T. ROWE PRICE TAX-FREE INCOME FUND, INC.

         /s/William T. Reynolds
By:      William T. Reynolds
         Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:

SIGNATURE                TITLE                 DATE

/s/William T. Reynolds   Chairman of the Board  April 28, 1999
William T. Reynolds      (Chief Executive Officer)

/s/Carmen F. Deyesu      Treasurer (Chief       April 28, 1999
Carmen F. Deyesu         Financial Officer)

    *                    Director               April 28, 1999
Calvin W. Burnett

    *                    Director               April 28, 1999
Anthony W. Deering

    *                    Director               April 28, 1999
F. Pierce Linaweaver

/s/James S. Riepe        Director and           April 28, 1999
James S. Riepe           Vice President

    *                    Director               April 28, 1999
John G. Schreiber

/s/M. David Testa        Director               April 28, 1999
M. David Testa

/s/Henry H. Hopkins      Attorney-In-Fact       April 28, 1999
Henry H. Hopkins


Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Baltimore, State of Maryland, this April 28, 1999.

T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.

         /s/William T. Reynolds
By:      William T. Reynolds
         Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated:

SIGNATURE                TITLE                 DATE

/s/William T. Reynolds   Chairman of the Board  April 28, 1999
William T. Reynolds      (Chief Executive Officer)

/s/Carmen F. Deyesu      Treasurer (Chief       April 28, 1999
Carmen F. Deyesu         Financial Officer)

    *                    Director               April 28, 1999
Calvin W. Burnett

    *                    Director               April 28, 1999
Anthony W. Deering

    *                    Director               April 28, 1999
F. Pierce Linaweaver

/s/James S. Riepe        Director and           April 28, 1999
James S. Riepe           Vice President

    *                    Director               April 28, 1999
John G. Schreiber

/s/M. David Testa        Director               April 28, 1999
M. David Testa

/s/Henry H. Hopkins      Attorney-In-Fact       April 28, 1999
Henry H. Hopkins


T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.

ARTICLES OF AMENDMENT

T. Rowe Price Tax-Exempt Money Fund, Inc., a Maryland corporation, having its principal office in the City of Baltimore, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: The Charter of the Corporation is hereby amended by deleting in its entirety Articles FIFTH and SEVENTH of the Articles of Incorporation and substituting in lieu thereof the following:

FIFTH: (a) The total number of shares of stock of all classes and series which the Corporation shall have the authority to issue is Five Billion (5,000,000,000) shares of capital stock of the par value of One Cent ($0.01) per share, and of the aggregate par value of Fifty Million Dollars ($50,000,000). All of such shares are classified as "COMMON STOCK" of the "T. ROWE PRICE TAX-EXEMPT MONEY" series. The Board of Directors may classify and reclassify any unissued shares of capital stock (whether or not such shares have been previously classified or reclassified) by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption of such shares of stock.

(b)

The following is a description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption of the shares of Common Stock classified as the "T. ROWE PRICE TAX-EXEMPT MONEY" series and any additional series of Common Stock of the Corporation (unless provided otherwise by the Board of Directors with respect to any such additional series at the time it is established and designated):

(1)ASSETS BELONGING TO SERIES. All consideration received by the Corporation from the issue or sale of shares of a particular series, together with all assets in which such consideration is invested or reinvested, all income, earnings, profits and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation of such assets, and any funds or payments derived from any investment or reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to that series for all purposes, subject only to the rights of creditors, and shall be so recorded upon the books of account of the Corporation. Such consideration, assets, income, earnings, profits and proceeds, together with any General Items allocated to that series as provided in the following sentence, are herein referred to collectively as "assets belonging to" that series. In the event that there are any assets, income, earnings, profits or proceeds which are not readily identifiable as belonging to any particular series (collectively, "GENERAL ITEMS"), such General Items shall be allocated by or under the supervision of the Board of Directors to and among any one or more of the series established and designated from time to time in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable; and any General Items so allocated to a particular series shall belong to that series. Each such allocation by the Board of Directors shall be conclusive and binding for all purposes.

(2)

LIABILITIES OF SERIES. The assets belonging to each particular series shall be charged with the liabilities of the Corporation in respect of that series and all expenses, costs, charges and reserves attributable to that series, and any general liabilities, expenses, costs, charges or reserves of the Corporation which are not readily identifiable as pertaining to any particular series, shall be allocated and charged by or under the supervision of the Board of Directors to and among any one or more of the series established and designated from time to time in such manner and on such basis as the Board of Directors, in its sole discretion, deems fair and equitable. The liabilities, expenses, costs, charges and reserves allocated and so charged to a series are herein referred to


collectively as "liabilities of" that series. Each allocation of liabilities, expenses, costs, charges and reserves by or under the supervision of the Board of Directors shall be conclusive and binding for all purposes.

(3)

DIVIDENDS AND DISTRIBUTIONS. Dividends and capital gains distributions on shares of a particular series may be paid with such frequency, in such form and in such amount as the Board of Directors may determine by resolution adopted from time to time, or pursuant to a standing resolution or resolutions adopted only once or with such frequency as the Board of Directors may determine, after providing for actual and accrued liabilities of that series. All dividends on shares of a particular series shall be paid only out of the income belonging to that series and all capital gains distributions on shares of a particular series shall be paid only out of the capital gains belonging to that series. All dividends and distributions on shares of a particular series shall be distributed pro rata to the holders of that series in proportion to the number of shares of that series held by such holders at the date and time of record established for the payment of such dividends or distributions, except that in connection with any dividend or distribution program or procedure, the Board of Directors may determine that no dividend or distribution shall be payable on shares as to which the shareholder's purchase order and/or payment have not been received by the time or times established by the Board of Directors under such program or procedure. Dividends and distributions may be paid in cash, property or additional shares of the same or another series, or a combination thereof, as determined by the Board of Directors or pursuant to any program that the Board of Directors may have in effect at the time for the election by shareholders of the form in which dividends or distributions are to be paid. Any such dividend or distribution paid in shares shall be paid at the current net asset value thereof.

(4)

VOTING. On each matter submitted to a vote of the shareholders, each holder of shares shall be entitled to one vote for each share standing in his name on the books of the Corporation, irrespective of the series thereof, and all shares of all series shall vote as a single class ("SINGLE CLASS VOTING"); provided, however, that (i) as to any matter with respect to which a separate vote of any series is required by the Investment Company Act or by the Maryland General Corporation Law, such requirement as to a separate vote by that series shall apply in lieu of Single Class Voting; (ii) in the event that the separate vote requirement referred to in (i) above applies with respect to one or more series, then, subject to (iii) below, the shares of all other series shall vote as a single class; and (iii) as to any matter which does not affect the interest of a particular series, including liquidation of another series as described in subsection (7) below, only the holders of shares of the one or more affected series shall be entitled to vote.

(5)

REDEMPTION BY SHAREHOLDERS. Each holder of shares of a particular series shall have the right at such times as may be permitted by the Corporation to require the Corporation to redeem all or any part of his shares of that series, at a redemption price per share equal to the net asset value per share of that series next determined after the shares are properly tendered for redemption, less such redemption fee or sales charge, if any, as may be established by the Board of Directors in its sole discretion and disclosed in the current Prospectus or Statement of Additional Information for the Corporation. Payment of the redemption price shall be in cash; provided, however, that if the Board of Directors determines, which determination shall be conclusive, that conditions exist which make payment wholly in cash unwise or undesirable, the Corporation may, to the extent and in the manner permitted by the Investment Company Act, make payment wholly or partly in securities or other assets belonging to the series of which the shares being redeemed are a part, at the value of such securities or assets used in such determination of net asset value. Notwithstanding the foregoing, the Corporation may postpone payment of the redemption price and may suspend the right of the holders of shares of any series to require the Corporation to redeem shares of that series during any period or at any time when and to the extent permissible under the Investment Company Act.

(6)REDEMPTION BY CORPORATION. The Board of Directors may cause the Corporation to redeem at net asset value the shares of any series from a holder (i) if the Board of Directors of the Corporation determines in its sole discretion that failure to so redeem such shares may have materially adverse consequences to the holders of shares of the Corporation or any series, or (ii)


upon such other conditions with respect to the maintenance of shareholder accounts of a minimum amount as may from time to time be established by the Board of Directors in its sole discretion and disclosed in the Prospectus or Statement of Additional Information for the Corporation.

(7)

LIQUIDATION. In the event of the liquidation of a particular series, the shareholders of the series that is being liquidated shall be entitled to receive, as a class, when and as declared by the Board of Directors, the excess of the assets belonging to that series over the liabilities of that series. The holders of shares of any particular series shall not be entitled thereby to any distribution upon liquidation of any other series. The assets so distributable to the shareholders of any particular series shall be distributed among such shareholders in proportion to the number of shares of that series held by them and recorded on the books of the Corporation. The liquidation of any particular series in which there are shares then outstanding may be authorized by vote of a majority of the Board of Directors then in office, subject to the approval of a majority of the outstanding voting securities of that series, as defined in the Investment Company Act, and without the vote of the holders of shares of any other series. The liquidation of a particular series may be accomplished, in whole or in part, by the transfer of assets of such series to another series or by the exchange of shares of such series for the shares of another series.

(8)

NET ASSET VALUE PER SHARE. The net asset value per share of any series shall be the quotient obtained by dividing the value of the net assets of that series (being the value of the assets belonging to that series less the liabilities of that series) by the total number of shares of that series outstanding, all as determined by or under the direction of the Board of Directors in accordance with generally accepted accounting principles and the Investment Company Act. Subject to the applicable provisions of the Investment Company Act, the Board of Directors, in its sole discretion, may prescribe and shall set forth in the By-Laws of the Corporation or in a duly adopted resolution of the Board of Directors such bases and times for determining the value of the assets belonging to, and the net asset value per share of outstanding shares of, each series, or the net income attributable to such shares, as the Board of Directors deems necessary or desirable. The Board of Directors shall have full discretion, to the extent not inconsistent with the Maryland General Corporation Law and the Investment Company Act, to determine which items shall be treated as income and which items as capital and whether any item of expense shall be charged to income or capital. Each such determination and allocation shall be conclusive and binding for all purposes.

The Board of Directors may determine to maintain the net asset value per share of any series at a designated constant dollar amount and in connection therewith may adopt procedures not inconsistent with the Investment Company Act for the continuing declaration of income attributable to that series as dividends and for the handling of any losses attributable to that series. Such procedures may provide that in the event of any loss, each shareholder shall be deemed to have contributed to the capital of the Corporation attributable to that series his pro rata portion of the total number of shares required to be canceled in order to permit the net asset value per share of that series to be maintained, after reflecting such loss, at the designated constant dollar amount. Each shareholder of the Corporation shall be deemed to have agreed, by his investment in any series with respect to which the Board of Directors shall have adopted any such procedure, to make the contribution referred to in the preceding sentence in the event of any such loss.

(9)CONVERSION OR EXCHANGE RIGHTS. Subject to compliance with the requirements of the Investment Company Act, the Board of Directors shall have the authority to provide that holders of shares of any series shall have the right to convert or exchange said shares into shares of one or more other classes or series of shares in accordance with such requirements and procedures as may be established by the Board of Directors and as disclosed in the Corporation's current Prospectus or Statement of Additional Information.

(c)

The shares of Common Stock of the Corporation, or of any series of Common Stock of the Corporation to the extent such Common Stock is divided into series, may be further subdivided into classes (which may, for convenience of reference, be referred by a term other than "class"). Unless otherwise provided in the Articles Supplementary establishing such classes, all such shares, or all shares of a series of Common Stock in a series, shall have identical voting, dividend, and liquidation rights. Shares of the classes shall also be


subject to such front-end sales loads, contingent deferred sales charges, expenses (including, without limitation, distribution expenses under a Rule 12b-1 plan and administrative expenses under an administration or service agreement, plan or other arrangement, however designated), conversion rights, and class voting rights as shall be consistent with Maryland law, the Investment Company Act of 1940, and the rules and regulations of the National Association of Securities Dealers and shall be contained in Articles Supplementary establishing such classes.

(d)For the purposes hereof and of any articles supplementary to the charter providing for the classification or reclassification of any shares of capital stock or of any other charter document of the Corporation (unless otherwise provided in any such articles or document), any class or series of stock of the Corporation shall be deemed to rank:

(1)prior to another class or series either as to dividends or upon liquidation, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable on liquidation, dissolution or winding up, as the case may be, in preference or priority to holders of such other class or series;

(2)

on a parity with another class or series either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates or redemption or liquidation price per share thereof be different from those of such others, if the holders of such class or series of stock shall be entitled to receipt of dividends or amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective dividend rates or redemption or liquidation prices, without preference or priority over the holders of such other class or series; and

(3)junior to another class or series either as to dividends or upon liquidation, if the rights of the holders of such class or series shall be subject or subordinate to the rights of the holders of such other class or series in respect of the receipt of dividends or the amounts distributable upon liquidation, dissolution or winding up, as the case may be.

(e)

Unless otherwise prohibited by law, so long as the Corporation is registered as an open-end management investment company under the Investment Company Act, the Board of Directors shall have the power and authority, without the approval of the holders of any outstanding shares, to increase or decrease the number of shares of capital stock or the number of shares of capital stock of any class or series that the Corporation has authority to issue.

(f)

The Corporation may issue and sell fractions of shares of capital stock having pro rata all the rights of full shares, including, without limitation, the right to vote and to receive dividends, and wherever the words "share" or "shares" are used in the charter or By-Laws of the Corporation, they shall be deemed to include fractions of shares, where the context does not clearly indicate that only full shares are intended.

(g)

The Corporation shall not be obligated to issue certificates representing shares of any class or series of capital stock. At the time of issue or transfer of shares without certificates, the Corporation shall provide the shareholder with such information as may be required under the Maryland General Corporation Law.

SEVENTH: (a) The following provisions are hereby adopted for the purpose of defining, limiting, and regulating the powers of the Corporation and of the directors and shareholders:

(1)

The Board of Directors is hereby empowered to authorize the issuance from time to time of shares of its stock of any class or series, whether now or hereafter authorized, or securities convertible into shares of its stock of any class or series, whether now or hereafter authorized, for such consideration as may be deemed advisable by the Board of Directors and without any action by the shareholders.

(2)

No holder of any stock or any other securities of the Corporation, whether now or hereafter authorized, shall have any preemptive right to subscribe for or purchase any stock or any other securities of the Corporation other than such, if any, as the Board of Directors, in its sole discretion, may determine and at such price or prices and upon such other terms as the Board of Directors, in its sole discretion, may fix; and any stock or other securities which the Board of Directors may determine to offer for subscription may, as the Board of Directors in its sole


discretion shall determine, be offered to the holders of any class, series or type of stock or other securities at the time outstanding to the exclusion of the holders of any or all other classes, series or types of stock or other securities at the time outstanding.

(3)The Board of Directors of the Corporation shall, consistent with applicable law, have power in its sole discretion to determine from time to time in accordance with sound accounting practice or other reasonable valuation methods what constitutes annual or other net profits, earnings, surplus, or net assets in excess of capital; to determine that retained earnings or surplus shall remain in the hands of the Corporation; to set apart out of any funds of the Corporation such reserve or reserves in such amount or amounts and for such proper purpose or purposes as it shall determine and to abolish any such reserve or any part thereof; to distribute and pay distributions or dividends in stock, cash or other securities or property, out of surplus or any other funds or amounts legally available therefor, at such times and to the shareholders of record on such dates as it may, from time to time, determine; and to determine whether and to what extent and at what times and places and under what conditions and regulations the books, accounts and documents of the Corporation, or any of them, shall be open to the inspection of shareholders, except as otherwise provided by statute or by the By-Laws, and, except as so provided, no shareholder shall have any right to inspect any book, account or document of the Corporation unless authorized so to do by resolution of the Board of Directors.

(4)

Notwithstanding any provision of law requiring the authorization of any action by a greater proportion than a majority of the total number of shares of all classes and series of capital stock or of the total number of shares of any class or series of capital stock entitled to vote as a separate class, such action shall be valid and effective if authorized by the affirmative vote of the holders of a majority of the total number of shares of all classes and series outstanding and entitled to vote thereon, or of the class or series entitled to vote thereon as a separate class, as the case may be, except as otherwise provided in the charter of the Corporation.

(5)The Corporation reserves the right from time to time to make any amendments of its charter which may now or hereafter be authorized by law, including any amendments changing the terms or contract rights, as expressly set forth in its charter, of any of its outstanding stock by classification, reclassification or otherwise.

(b)

The enumeration and definition of particular powers of the Board of Directors included in the foregoing shall in no way be limited or restricted by reference to or inference from the terms of any other clause of this or any other Article of the charter of the Corporation, or construed as or deemed by inference or otherwise in any manner to exclude or limit any powers conferred upon the Board of Directors under the General Laws of the State of Maryland now or hereafter in force.

SECOND: The amendment does not change the outstanding capital stock of the Corporation or the aggregate par value thereof.

THIRD: The Board of Directors of the Corporation declared these Articles to be advisable and adopted them at a meeting of the Board of Directors held on July 22, 1998. The Board of Directors then recommended that these Amendments to the Articles be submitted to the stockholders for approval.

FOURTH: At a meeting of the stockholders held on October 15, 1998, the Corporation's Common Stock, the only class of capital stock of the Corporation entitled to vote, adopted and approved these Articles of Amendment.

FIFTH: The foregoing amendment shall be effective as of 12:01 a.m. on October 16, 1998.

IN WITNESS WHEREOF, T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC., has caused these Articles of Amendment to be signed in its name and on its behalf by its Chairman of the Board, and witnessed by its Secretary, on October 16, 1998, and its Chairman of the Board acknowledges under penalties of perjury that these Articles of Amendment are the corporate act of the Corporation and that to the best of his knowledge, information, and belief, these matters and facts set forth herein with respect to the authorization and approval thereof, are true in all material respects.

T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.

                          /s/William T. Reynolds

                          By: _______________________________________

                                 William T. Reynolds, Chairman of the Board



ATTEST:

/s/Patricia S. Lippert

________________________

Patricia S. Lippert, Secretary


T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.

ARTICLES OF AMENDMENT

T. Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc., a Maryland corporation, having its principal office in Baltimore City, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST: The Charter of the Corporation is hereby amended by deleting in its entirety Article SECOND paragraph (a) of the Articles of Incorporation and substituting in lieu thereof the following:

"(a)

The name of the corporation (which is hereinafter called the "Corporation") is:

T. Rowe Price Tax-Free Intermediate Bond Fund, Inc."

SECOND: The amendment does not change the outstanding capital stock of the Corporation or the aggregate par value thereof.

THIRD: The foregoing Amendment to the Charter of the Corporation has been approved by the Board of Directors and is limited to a change expressly permitted by Section 2-605 of the Maryland General Corporation Law.

FOURTH: The Corporation is registered as an open-end company under the Investment Company Act of 1940.

FIFTH: The foregoing amendment shall be effective as of 12:01 a.m. on November 1, 1998.

IN WITNESS WHEREOF, T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC., has caused these presents to be signed in its name and on its behalf by its Vice President, and witnessed by its Secretary, on October 27, 1998.

T. ROWE PRICE TAX-FREE INSURED
INTERMEDIATE BOND FUND, INC.

                               /s/Henry H. Hopkins
                         By:  __________________________________________
                               Henry H. Hopkins, Vice President

ATTEST:

/s/Patricia S. Lippert
________________________________
Patricia S. Lippert, Secretary


THE UNDERSIGNED, the Vice President of T. Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc., who executed on behalf of the Corporation the foregoing Articles of Amendment of which this certificate is made a part, hereby acknowledges in the name and on behalf of the Corporation the foregoing Articles of Amendment to be the corporate act of the Corporation and hereby certifies to the best of his knowledge, information, and belief the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury.

 /s/Henry H. Hopkins
__________________________________
 Henry H. Hopkins, Vice President


T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.

ARTICLES SUPPLEMENTARY
CLASSIFYING AUTHORIZED STOCK

T. Rowe Price Tax-Exempt Money Fund, Inc., a Maryland corporation, having its principal office in Baltimore City, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that:

FIRST:

The total number of shares of stock of all classes and series which the Corporation initially has authority to issue is Five Billion (5,000,000,000) shares of capital stock (par value $.001 per share), amounting in aggregate par value to Fifty Million Dollars ($50,000,000). All of such shares are initially classified as the "Common Stock" class of the Tax-Exempt Money Fund. Pursuant to authority expressly granted by Article Fifth of the Articles of Incorporation of the Corporation, as amended from time to time (the "Charter"), the Board of Directors has duly authorized the creation of a new class of stock to be known as the Tax-Exempt Money PLUS Common Stock class of the Tax-Exempt Money Fund.
Each such class shall consist, until further changed, of the lesser of (x) 5,000,000,000 shares or (y) the number of shares that could be issued by issuing all of the shares of the Corporation currently or hereafter authorized less the total number of shares of the Corporation then issued and outstanding of all other classes. The Tax-Exempt Money PLUS Common Stock class shall represent the same interest in the Corporation and have identical voting, dividend, liquidation, and other rights with the Common Stock of the Corporation; provided, however, that notwithstanding anything in the charter of the Corporation to the contrary:

(1) Expenses uniquely related to the Tax-Exempt Money PLUS class of Common Stock (including, without limitation, distribution expenses under a Rule 12b-1 plan and administrative expenses under an administration or service agreement, plan or other arrangement, however designated) shall be borne by that Class, and shall be appropriately reflected (in the manner determined by the Board of Directors) in the net asset value, dividends, distribution and liquidation rights of the shares of that Class, all as the Board of Directors may determine by resolution from time to time, and shall be described in the prospectus or statement of additional information for such Class as and to the extent required by the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. As of the date hereof, the Tax-Exempt Money PLUS shares shall not be subject to any Rule 12b-1 distribution fees.

(2) As to any matter with respect to which a separate vote of any Class is required by the Investment Company Act (including, without limitation, approval of any plan, agreement or other arrangement referred to in subsection (1) above), such requirement as to a separate vote by that Class shall apply in lieu of any voting requirements established by the Maryland General Corporation Law. As to any matter which does not affect the interest of the Tax-Exempt Money PLUS class of Common Stock, only the holders of shares of the affected Class or Classes shall be entitled to vote.


SECOND:

The shares aforesaid have been duly classified by the Board of Directors pursuant to authority and power contained in the Charter of the Corporation.
These Articles Supplementary do not increase the aggregate authorized capital stock of the Corporation.

IN WITNESS WHEREOF, T. Rowe Price Tax-Exempt Money Fund, Inc. has caused these presents to be signed in its name and on its behalf by its Chairman of the Board and witnessed by its Secretary on October 16, 1998.

WITNESS: T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.

/s/Patricia S. Butcher          /s/William T. Reynolds
________________________ By:   ____________________________________
------------------------       ------------------------------------
Patricia S. Butcher, Secretary William T. Reynolds, Chairman of the Board

THE UNDERSIGNED, Chairman of the Board of T. Rowe Price Tax-Exempt Money Fund, Inc., who executed on behalf of the Corporation Articles Supplementary of which this certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury.

 /s/William T. Reynolds
____________________________________
------------------------------------
 William T. Reynolds, Chairman of the Board


The Custodian Agreement dated January 28, 1998, as amended, between State Street Bank and Trust Company and T. Rowe Price Funds.


L:\Trpprod\Edg\Agmts.edg\98Custod.edg


CUSTODIAN AGREEMENT

THIS AGREEMENT is made as of January 28, 1998 by and between each entity set forth on Appendix A hereto (as such Appendix A may be amended from time to time) which executes a copy of this Agreement (each referred to herein as the "FUND"), and State Street Bank and Trust Company, a Massachusetts trust company with its principal place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the "CUSTODIAN").

WITNESSETH:

WHEREAS, each Fund desires to retain the Custodian to act as custodian of certain of the assets of the Fund, and the Custodian is willing to provide such services to each Fund, upon the terms and conditions hereinafter set forth; and

WHEREAS, except as otherwise set forth herein, this Agreement is intended to supersede that certain custodian contract among the parties hereto dated September 28, 1987, as amended; and

WHEREAS, the Funds have retained CHASE MANHATTAN BANK, N.A. to act as the Funds' custodian with respect to the assets of each such Fund to be held outside of the United States of America (except as otherwise set forth in this Agreement) pursuant to a written custodian agreement (the "FOREIGN CUSTODIAN AGREEMENT"),

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, each of the parties hereto agrees as follows:

SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT.

Each Fund hereby employs the Custodian as the custodian of certain of its assets, including those securities it desires to be held within the United States of America ("DOMESTIC SECURITIES") and those securities it desires to be held outside the United States of America (the "UNITED STATES") which are (i) not held on the Funds' behalf by CHASE MANHATTAN BANK, N.A. pursuant to the Foreign Custodian Agreement and (ii) described with greater particularity in
Section 3 hereof (such securities shall be referred to herein as "FOREIGN SECURITIES"). Each Fund agrees to deliver to the Custodian all domestic securities, foreign securities and cash owned by it from time to time, and all payments of income, payments of principal or capital distributions received by it with respect to


securities held by it hereunder, and the cash consideration received by it for such new or treasury shares of capital stock of each Fund as may be issued or sold from time to time ("SHARES"). The Custodian shall not be responsible for any property of any Fund held or received by such Fund (i) not delivered to the Custodian, or (ii) held in the custody of CHASE MANHATTAN BANK N.A.

The Custodian is authorized to employ one or more sub-custodians located within the United States, provided that the Custodian shall have obtained the written acknowledgment of the Fund with respect to such employment. The Custodian is authorized to employ sub-custodians located outside the United States as noted on Schedule A attached hereto (as such Schedule A may be amended from time to time). The Custodian shall have no more or less responsibility or liability to any Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian and shall not release any sub-custodian from any responsibility or liability unless so agreed in writing by the Custodian and the applicable Fund. With the exception of State Street Bank and Trust Company (London branch), the Custodian shall not be liable for losses arising from the bankruptcy, insolvency or receivership of any sub-custodian located outside the United States.

SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUNDS HELD BY THE CUSTODIAN IN THE UNITED STATES.

SECTION 2.1
HOLDING SECURITIES. The Custodian shall hold and physically segregate for the account of each Fund all non-cash property to be held by it in the United States, including all domestic securities owned by the Fund other than (a) securities which are maintained pursuant to Section 2.9 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the United States Department of the Treasury and certain federal agencies (each, a "U.S. SECURITIES SYSTEM") and (b) commercial paper of an issuer for which the Custodian acts as issuing and paying agent ("DIRECT PAPER") which is deposited and/or maintained in the Direct Paper system of the Custodian (the "DIRECT PAPER SYSTEM") pursuant to Section 2.10.

SECTION 2.2
DELIVERY OF INVESTMENTS. The Custodian shall release and deliver domestic investments owned by a Fund held by the Custodian or in a U.S. Securities System account of the Custodian or in the Custodian's Direct Paper System account ("DIRECT PAPER SYSTEM ACCOUNT") only upon receipt of Proper Instructions, which


may be continuing instructions when agreed to by the parties, and only in the following cases:

1)Upon sale of such investments for the account of the Fund and receipt of payment therefor;

2)Upon the receipt of payment in connection with any repurchase agreement related to such investments entered into by the Fund;

3)
In the case of a sale effected through a U.S. Securities System, in accordance with the provisions of Section 2.9 hereof;

4)
To the depository agent in connection with tender or other similar offers for portfolio investments of the Fund;

5)
To the issuer thereof or its agent when such investments are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian;

6)
To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.8 or into the name or nominee name of any sub-custodian appointed pursuant to Section 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian;

7)
Upon the sale of such investments for the account of the Fund, to the broker or its clearing agent, against a receipt, for examination in accordance with usual "street delivery" custom; provided that in any such case the Custodian shall have no responsibility or liability for any loss arising from the delivery of such investments prior to receiving payment for such investments except as may arise from the Custodian's own negligence or willful misconduct;


8)For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the investments of the issuer of such investments, or pursuant to provisions for conversion contained in such investments, or pursuant to any deposit agreement; provided that, in any such case, the new investments and cash, if any, are to be delivered to the Custodian;

9)In the case of warrants, rights or similar investments, the surrender thereof in the exercise of such warrants, rights or similar investments or the surrender of interim receipts or temporary investments for definitive investments; provided that, in any such case, the new investments and cash, if any, are to be delivered to the Custodian or against a receipt;

10)
For delivery in connection with any loans of investments made on behalf of the Fund, but only against receipt of adequate collateral as agreed upon from time to time by the Fund or its duly-appointed agent (which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, or such other property as the Fund may agree), except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of investments owned by the Fund prior to the receipt of such collateral in the absence of the Custodian's negligence or willful misconduct;

11)
For delivery as security in connection with any borrowing by the Fund requiring a pledge of assets by the Fund, but only against receipt of amounts borrowed, except where additional collateral is required to secure a borrowing already made, subject to Proper Instructions, further securities may be released and delivered for that purpose;

12)
For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and a member of The National Association of Securities Dealers, Inc. ("NASD"),


relating to compliance with the rules of The Options Clearing Corporation, the rules of any registered national securities exchange or of any similar organization or organizations, or under the Investment Company Act of 1940, as amended from time to time (the "1940 ACT"), regarding escrow or other arrangements in connection with transactions by the Fund;

13)
For delivery in accordance with the provisions of any agreement among the Fund, the Custodian, and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any similar organization or organizations, or under the 1940 Act, regarding account deposits in connection with transactions by the Fund;

14)
Upon receipt of instructions from the transfer agent for the Fund (the "TRANSFER AGENT"), for delivery to such Transfer Agent or to the holders of shares in connection with distributions in kind, as may be described from time to time in the Fund's currently effective prospectus, statement of additional information or other offering documents (all, as amended, supplemented or revised from time to time, the "PROSPECTUS"), in satisfaction of requests by holders of Shares for repurchase or redemption; and

15)
For any other purpose, but only upon receipt of Proper Instructions specifying (a) the investments to be delivered, (b) setting forth the purpose for which such delivery is to be made, and (c) naming the person or persons to whom delivery of such investments shall be made.

SECTION 2.3
REGISTRATION OF INVESTMENTS. Domestic investments held by the Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Custodian which nominee shall be assigned exclusively to the Fund, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Fund, or in the name or nominee name of any agent appointed pursuant to Section 2.8 or in the name or nominee name of any sub-custodian appointed pursuant to Section 1. All securities accepted by the Custodian on behalf of the Fund under the terms of


this Agreement shall be in good deliverable form. If, however, the Fund directs the Custodian to maintain securities in "street name", the Custodian shall utilize its best efforts only to timely collect income due the Fund on such securities and to notify the Fund of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers.

SECTION 2.4
BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund, other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act. Monies held by the Custodian for the Fund may be deposited by the Custodian to its credit as custodian in the banking department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable in the performance of its duties hereunder; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the 1940 Act, and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall be approved by vote of a majority of the board of directors or the board of trustees of the applicable Fund (as appropriate and in each case, the "BOARD").
Such funds shall be deposited by the Custodian in its capacity as custodian and shall be withdrawable by the Custodian only in that capacity.

SECTION 2.5
COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the Custodian shall collect on a timely basis all income and other payments with respect to United States registered investments held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the investments business, and shall collect on a timely basis all income and other payments with respect to United States bearer investments if, on the date of payment by the issuer, such investments are held by the Custodian or its agent thereof and shall credit such income, as collected, to the Fund's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due, collect interest when due on investments held hereunder, and receive and collect all stock dividends, rights and other items of like nature as and when they become due and payable. With respect to income due the Fund on United States investments of the Fund loaned (pursuant to the provisions of Section 2.2
(10))


in accordance with a separate agreement between the Fund and the Custodian in its capacity as lending agent, collection thereof shall be in accordance with the terms of such agreement. Except as otherwise set forth in the immediately preceding sentence, income due the Fund on United States investments of the Fund loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund; the Custodian will have no duty or responsibility in connection therewith other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Fund is properly entitled.

SECTION 2.6
PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when agreed to by the parties, the Custodian shall, from monies of the Fund held by the Custodian, pay out such monies in the following cases only:

1)Upon the purchase of domestic investments, options, futures contracts or options on futures contracts for the account of the Fund but only (a) against the delivery of such investments, or evidence of title to such options, futures contracts or options on futures contracts, to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the 1940 Act to act as a custodian and has been designated by the Custodian as its agent for this purpose in accordance with Section 2.8) registered in the name of the Fund or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a U.S. Securities System, in accordance with the conditions set forth in Section 2.9 hereof; (c) in the case of a purchase involving the Direct Paper System, in accordance with the conditions set forth in Section 2.10 hereof; or (d) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign, such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions;

2)
In connection with conversion, exchange or surrender of investments owned by the Fund as set forth in Section 2.2 hereof;


3)
For the redemption or repurchase of Shares as set forth in Section 4 hereof;

4)
For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund: interest, taxes, management fees, accounting fees, transfer agent fees, legal fees, and operating expenses of the Fund (whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses);

5) For the payment of any dividends declared by the Board;

6)For payment of the amount of dividends received in respect of investments sold short;

7)
For repayment of a loan upon redelivery of pledged securities and upon surrender of the note(s), if any, evidencing the loan; or

8)
In connection with any repurchase agreement entered into by the Fund with respect to which the collateral is held by the Custodian, the Custodian shall act as the Fund's "securities intermediary"( as that term is defined in Part 5 of Article 8 of the Massachusetts Uniform Commercial Code, as amended), and, as securities intermediary, the Custodian shall take the following steps on behalf of the Fund: (a) provide the Fund with notification of the receipt of the purchased securities, and (b), by book-entry identify on the books of the Custodian as belonging to the Fund uncertificated securities registered in the name of the Fund and held in the Custodian's account at the Federal Reserve Bank. In connection with any repurchase agreement entered into by the Fund with respect to which the collateral is not held by the Custodian, the Custodian shall (a) provide the Fund with such notification as it may receive with respect to such collateral, and (b), by book-entry or otherwise, identify as belonging to the Fund securities as shown in the Custodian's account on the books of the entity appointed by the Fund to hold such collateral.

9)
For any other purpose, but only upon receipt of Proper Instructions specifying (a) the amount of such payment,


(b) setting forth the purpose for which such payment is to be made, and (c) naming the person or persons to whom such payment is to be made.

SECTION 2.7
LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED. In any and every case where payment for purchase of domestic securities for the account of the Fund is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund to so pay in advance, the Custodian shall be absolutely liable to the Fund for such securities to the same extent as if the securities had been received by the Custodian.

SECTION 2.8
APPOINTMENT OF AGENTS. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company, which is itself qualified under the 1940 Act to act as a custodian, as its agent to carry out such of the provisions of this Section 2 as the Custodian may from time to time direct; provided, however, that the appointment of any such agent shall not relieve the Custodian of its responsibilities or liabilities hereunder.

SECTION 2.9
DEPOSIT OF INVESTMENTS IN U.S. SECURITIES SYSTEMS. The Custodian may deposit and/or maintain domestic investments owned by the Fund in a U.S. Securities System in accordance with applicable Federal Reserve Board and United States Securities and Exchange Commission ("SEC") rules and regulations, if any, subject to the following provisions:

1)
The Custodian may keep domestic investments of the Fund in a U.S. Securities System provided that such investments are represented in an account of the Custodian in the U.S. Securities System ("ACCOUNT") which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers;

2)
The records of the Custodian with respect to domestic investments of the Fund which are maintained in a U.S. Securities System shall identify by book-entry those investments belonging to the Fund;

3)
The Custodian shall pay for domestic investments purchased for the account of the Fund upon (i) receipt of advice from the U.S. Securities System that such investments have been transferred to the Account, and


(ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Fund. The Custodian shall transfer domestic investments sold for the account of the Fund upon (i) receipt of advice from the U.S. Securities System that payment for such investments has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Fund. Copies of all advices from the U.S. Securities System of transfers of domestic investments for the account of the Fund shall identify the Fund, be maintained for the Fund by the Custodian and be provided to the Fund at its request. Upon request, the Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund in the form of a written advice or notice and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transactions in the U.S. Securities System for the account of the Fund;

4)
The Custodian shall provide the Fund with any report obtained by the Custodian on the U.S. Securities System's accounting system, internal accounting control and procedures for safeguarding domestic investments deposited in the U.S. Securities System;

5)
The Custodian shall have received from the Fund the initial or annual certificate, as the case may be, described in Section 10 hereof; and

6)
Anything to the contrary in this Agreement notwithstanding, the Custodian shall be liable to the Fund for any loss or damage to the Fund resulting from use of the U.S. Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees, or from failure of the Custodian or any such agent to enforce effectively such rights as it may have against the U.S. Securities System. At the election of the Fund, the Fund shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the U.S. Securities System or any other person which the Custodian may have as a consequence of any such loss, expense or damage if and to the extent that


the Fund has not been made whole for any such loss, expense or damage.

SECTION 2.10
FUND ASSETS HELD IN THE DIRECT PAPER SYSTEM. The Custodian may deposit and/or maintain investments owned by the Fund in the Direct Paper System subject to the following provisions:

1)
No transaction relating to investments in the Direct Paper System will be effected in the absence of Proper Instructions;

2)
The Custodian may keep investments of the Fund in the Direct Paper System only if such investments are represented in the Direct Paper System Account, which account shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers;

3)
The records of the Custodian with respect to investments of the Fund which are maintained in the Direct Paper System shall identify by book-entry those investments belonging to the Fund;

4)
The Custodian shall pay for investments purchased for the account of the Fund upon the making of an entry on the records of the Custodian to reflect such payment and transfer of investments to the account of the Fund. The Custodian shall transfer investments sold for the account of the Fund upon the making of an entry on the records of the Custodian to reflect such transfer and receipt of payment for the account of the Fund;

5)
The Custodian shall furnish the Fund confirmation of each transfer to or from the account of the Fund, in the form of a written advice or notice, of Direct Paper on the next business day following such transfer and shall furnish to the Fund copies of daily transaction sheets reflecting each day's transaction in the Direct Paper System for the account of the Fund; and

6)
The Custodian shall provide the Fund with any report on its system of internal accounting control as the Fund may reasonably request from time to time.

SECTION 2.11
SEGREGATED ACCOUNT. The Custodian shall, upon receipt of Proper Instructions, establish and maintain a segregated


account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or investments, including investments maintained in an account by the Custodian pursuant to Section 2.10 hereof, (i) in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, (ii) for purposes of segregating cash or government investments in connection with options purchased, sold or written by the Fund or commodity futures contracts or options thereon purchased or sold by the Fund, (iii) for the purposes of compliance by the Fund with the procedures required by 1940 Act Release No. 10666, or any other procedures subsequently required under the 1940 Act relating to the maintenance of segregated accounts by registered investment companies, and (iv) for other purposes, but only, in the case of clause (iv) upon receipt of Proper Instructions specifying (a) the investments to be delivered, (b) setting forth the purpose for which such delivery is to be made, and (c) naming the person or persons to whom delivery of such investments shall be made.

SECTION 2.12
OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership and other certificates and affidavits for all United States federal and state tax purposes in connection with receipt of income or other payments with respect to domestic investments of the Fund held by it hereunder and in connection with transfers of such investments.

SECTION 2.13
PROXIES. The Custodian shall, with respect to the domestic investments held hereunder, cause to be promptly executed by the registered holder of such investments, if the investments are registered otherwise than in the name of the Fund or a nominee of the Fund, all proxies without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials received by the Custodian and all notices received relating to such investments.

SECTION 2.14
COMMUNICATIONS RELATING TO FUND INVESTMENTS. Subject to the provisions of
Section 2.3, the Custodian shall transmit promptly to the Fund all written information (including, without limitation, pendency of calls and maturities of domestic investments and expirations of rights in connection therewith and notices of


exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian in connection with the domestic investments being held for the Fund pursuant to this Agreement. With respect to tender or exchange offers, the Custodian shall transmit to the Fund all written information received by the Custodian, any agent appointed pursuant to Section 2.8 hereof, or any sub-custodian appointed pursuant to Section 1 hereof, from issuers of the domestic investments whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian at least two (2) New York Stock Exchange business days prior to the time such action must be taken under the terms of the tender, exchange offer or other similar transaction, and it will be the responsibility of the Custodian to timely transmit to the appropriate person(s) such notice.
Where the Fund provides the Custodian with less than two (2) New York Stock Exchange business days notice of its desired action, the Custodian shall use its best efforts to timely transmit the Fund's notice to the appropriate person. It is expressly noted that the parties may agree to alternative procedures with respect to such two (2) New York Stock Exchange business days notice period on a selective and individual basis.

SECTION 2.15
REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS. The Custodian shall provide the Fund, at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding investments, futures contracts and options on futures contracts, including domestic investments deposited and/or maintained in a U.S. Securities System, relating to the services provided by the Custodian under this Agreement. Such reports shall be of sufficient scope and detail, as may reasonably be required by the Fund, to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and if there are no such inadequacies the reports shall so state.

SECTION 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO CERTAIN PROPERTY OF THE FUNDS HELD OUTSIDE OF THE UNITED STATES

SECTION 3.1
DEFINITIONS. The following capitalized terms shall have the respective following meanings:

"FOREIGN SECURITIES SYSTEM" means a clearing agency or a securities depository listed on Schedule A hereto.


"FOREIGN SUB-CUSTODIAN" means a foreign banking institution set forth on Schedule A hereto.

SECTION 3.2
HOLDING SECURITIES. The Custodian shall identify on its books as belonging to the Funds the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Funds, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Funds which are maintained in such account shall identify those securities as belonging to the Funds and (ii) the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian.

SECTION 3.3
FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign Securities System in a designated country only through arrangements implemented by the Foreign Sub-Custodian in such country pursuant to the terms of this Agreement.

SECTION 3.4 TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.

3.4.1.
Delivery of Foreign Securities. The Custodian or a Foreign Sub-Custodian shall release and deliver foreign securities of the Funds held by such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:

(i)

upon the sale of such foreign securities for the Funds in accordance with reasonable market practice in the country where such foreign securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment; or (B) in the case of a sale effected through a Foreign Securities System in accordance with the rules governing the operation of the Foreign Securities System;

(ii)

in connection with any repurchase agreement related to foreign securities;


(iii)

to the depository agent in connection with tender or other similar offers for foreign securities of the Funds;

(iv)

to the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable;

(v)

to the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units;

(vi)

to brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Foreign Sub-Custodian's own negligence or willful misconduct;

(vii)for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement;

(viii)

in the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities;

(ix)

or delivery as security in connection with any borrowing by the Funds requiring a pledge of assets by the Funds;

(x)in connection with trading in options and futures contracts, including delivery as original margin and variation margin;


(xi) in connection with the lending of foreign securities; and

(xii)

for any other proper purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper Fund purpose, and naming the person or persons to whom delivery of such securities shall be made.

3.4.2.
Payment of Fund Monies. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of a Fund in the following cases only:

(i)upon the purchase of foreign securities for the Fund, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such foreign securities; or (B) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System;

(ii)

in connection with the conversion, exchange or surrender of foreign securities of the Fund;

(iii)

for the payment of any expense or liability of the Fund, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Agreement, legal fees, accounting fees, and other operating expenses;

(iv)

for the purchase or sale of foreign exchange or foreign exchange contracts for the Fund, including transactions executed with or through the Custodian or its Foreign Sub-Custodians;

(v)in connection with trading in options and futures contracts, including delivery as original margin and variation margin;


(vii)

in connection with the borrowing or lending of foreign securities; and

(viii)

for any other proper Fund purpose, but only upon receipt of Proper Instructions specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper Fund purpose, and naming the person or persons to whom such payment is to be made.

3.4.3.
Market Conditions. Notwithstanding any provision of this Agreement to the contrary, settlement and payment for foreign securities received for the account of the Funds and delivery of foreign securities maintained for the account of the Funds may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering foreign securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such foreign securities from such purchaser or dealer.

SECTION 3.5
REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the custody of a Foreign Custodian (other than bearer securities) shall be registered in the name of the applicable Fund or in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a Fund under the terms of this Agreement unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice.

SECTION 3.6
BANK ACCOUNTS. A bank account or bank accounts opened and maintained outside the United States on behalf of a Fund with a Foreign Sub-Custodian shall be subject only to draft or order by the Custodian or such Foreign Sub-Custodian, acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Fund.

SECTION 3.7
COLLECTION OF INCOME. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the foreign securities held hereunder to which the Funds shall be entitled and shall credit such income, as


collected, to the applicable Fund. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures.

SECTION 3.8
PROXIES. With respect to the foreign securities held under this Section 3, the Custodian will use reasonable commercial efforts to facilitate the exercise of voting and other shareholder proxy rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights.

SECTION 3.9
COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall transmit promptly to the Fund written information (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith) received by the Custodian in connection with the foreign securities being held for the account of the Fund. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund written information so received by the Custodian in connection with the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer.

SECTION 3.10
LIABILITY OF FOREIGN SUB-CUSTODIANS AND FOREIGN SECURITIES SYSTEMS. Each agreement pursuant to which the Custodian employs as a Foreign Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties and, to the extent possible, to indemnify, and hold harmless, the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian's performance of such obligations. At the Fund's election, the Funds shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Funds have not been made whole for any such loss, damage, cost, expense, liability or claim.

SECTION 3.11
TAX LAW. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Custodian as custodian of the Funds by


the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of the Fund to notify the Custodian of the obligations imposed on the Fund or the Custodian as custodian of the Funds by the tax law of countries set forth on Schedule A hereto, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which the Fund has provided such information.

SECTION 4. PAYMENTS FOR REPURCHASES OR REDEMPTIONS AND SALES OF SHARES.

From such funds as may be available for the purpose, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares which have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares, the Custodian is authorized upon receipt of, and in accordance with, instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such written procedures and controls as may be mutually agreed upon from time to time between the Fund and the Custodian.

The Custodian shall receive from the distributor for the Shares or from the Transfer Agent and deposit to the account of the Fund such payments as are received by the distributor or the Transfer Agent, as the case may be, for Shares issued or sold from time to time. The Custodian will notify the Fund and the Transfer Agent of any payments for Shares received by it from time to time.

SECTION 5. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF NET ASSET VALUE AND NET INCOME.

The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board to keep the books of account of the Fund and/or compute the net asset value per Share of the outstanding Shares or, if directed in writing


to do so by the Fund, shall itself keep such books of account and/ or compute such net asset value per Share. If so directed, the Custodian shall also (i) calculate daily the net income of the Fund as described in the Prospectus and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income, and/ or (ii) advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of the Fund shall be made at the time or times described from time to time in the Prospectus.

SECTION 6. PROPER INSTRUCTIONS.

"Proper Instructions," as such term is used throughout this Agreement, means either (i) a writing, including a facsimile transmission, signed by one or more persons as set forth on, and in accordance with, an "Authorized Persons List," as such term is defined herein (each such instruction a "Written Proper Instruction"), (ii) a "Client Originated Electronic Financial Instruction," as such term is defined in the Data Access Services Addendum hereto, given in accordance with the terms of such Addendum, or (iii) instructions received by the Custodian from a third party in accordance with any three-party agreement which requires a segregated asset account in accordance with Section 2.11.

Each Written Proper Instruction shall set forth a brief description of the type of transaction involved (choosing from among the types of transactions set forth on the Authorized Persons List), including a specific statement of the purpose for which such action is requested, and any modification to a Written Proper Instruction must itself be a Written Proper Instruction and subject to all the provisions herein relating to Written Proper Instructions. The Fund will provide the Custodian with an "Authorized Persons List," which list shall set forth (a) the names of the individuals (each an "Authorized Person") who are authorized by the Board to give Written Proper Instructions with respect to the transactions described therein, and (b) the number of Authorized Persons whose signature or approval, as the case may be, is necessary for the Custodian to be able to act in accordance with such Written Proper Instructions with respect to a particular type of transaction. The Custodian may accept oral instructions or instructions delivered via electronic mail as Proper Instructions if the Custodian reasonably believes such instructions to have been given by an Authorized Person or Persons (as appropriate to the type of transaction); provided, however, that in no event will instructions delivered orally or via electronic mail be considered Proper


Instructions with respect to transactions involving the movement of cash, securities or other assets of a Fund. The Custodian shall be entitled to rely upon instructions given in accordance with an Authorized Persons List until it actually receives written notice from the Board of the applicable Fund to the contrary.

SECTION 7. EVIDENCE OF AUTHORITY.

Subject to Section 9 hereof, the Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper reasonably and in good faith believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a copy of a vote of the Board, certified by the secretary or an assistant secretary of the applicable Fund, as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Board described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary.

SECTION 8. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY.

The Custodian may in its discretion and without express authority from the Fund:

1)
make payments to itself or others for minor expenses of handling investments or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the Fund;

2) surrender investments in temporary form for investments in definitive form;

3) endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and

4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the investments and property of the Fund except as otherwise directed by the Board.

SECTION 9. RESPONSIBILITY OF CUSTODIAN.


The Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. Notwithstanding anything to the contrary herein, the Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, and it shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence. In order for the indemnification provision contained in this Section to apply, it is understood that if in any case the Fund may be asked by the Custodian to indemnify or hold the Custodian harmless, the Fund shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the Custodian will use reasonable care to identify, and notify the Fund promptly concerning, any situation which presents or appears likely to present the probability of such a claim for indemnification. The Fund shall have the option to defend the Custodian against any claim which may be the subject of a claim for indemnification hereunder, and in the event that the Fund so elects, it will notify the Custodian thereof and, thereupon, (i) the Fund shall take over complete defense of the claim and (ii) the Custodian shall initiate no further legal or other expenses with respect to such claim. The Custodian shall in no case confess any claim or make any compromise with respect to any claim for which it will seek indemnity from the Fund except with the Fund's prior written consent. Nothing herein shall be construed to limit any right or cause of action on the part of the Custodian under this Agreement which is independent of any right or cause of action on the part of the Fund. The Custodian shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund or other such counsel as agreed to by the parties) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall be entitled to rely upon, and shall have no duty of inquiry with respect to, the accuracy of any representation or warranty given to it by the Fund or any duly-authorized employee or agent thereof, and shall be without liability for any action reasonably taken or omitted by it in reliance thereon. Regardless of whether assets held pursuant to this Agreement are maintained in the custody of a foreign banking institution, a foreign securities depository, or a branch or affiliate of a U.S. bank, the Custodian shall not be liable for any loss, damage, cost, expense, liability


The Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. Notwithstanding anything to the contrary herein, the Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, and it shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence. In order for the indemnification provision contained in this Section to apply, it is understood that if in any case the Fund may be asked by the Custodian to indemnify or hold the Custodian harmless, the Fund shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the Custodian will use reasonable care to identify, and notify the Fund promptly concerning, any situation which presents or appears likely to present the probability of such a claim for indemnification. The Fund shall have the option to defend the Custodian against any claim which may be the subject of a claim for indemnification hereunder, and in the event that the Fund so elects, it will notify the Custodian thereof and, thereupon, (i) the Fund shall take over complete defense of the claim and (ii) the Custodian shall initiate no further legal or other expenses with respect to such claim. The Custodian shall in no case confess any claim or make any compromise with respect to any claim for which it will seek indemnity from the Fund except with the Fund's prior written consent. Nothing herein shall be construed to limit any right or cause of action on the part of the Custodian under this Agreement which is independent of any right or cause of action on the part of the Fund. The Custodian shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund or other such counsel as agreed to by the parties) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall be entitled to rely upon, and shall have no duty of inquiry with respect to, the accuracy of any representation or warranty given to it by the Fund or any duly-authorized employee or agent thereof, and shall be without liability for any action reasonably taken or omitted by it in reliance thereon. Regardless of whether assets held pursuant to this Agreement are maintained in the custody of a foreign banking institution, a foreign securities depository, or a branch or affiliate of a U.S. bank, the Custodian shall not be liable for any loss, damage, cost, expense, liability


If the Fund requires the Custodian to take any action with respect to investments, which action involves the payment of money or which action may, in the reasonable opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund being liable for the payment of money or incurring liability of some other form, the Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it.

If the Custodian, or any of its affiliates, subsidiaries or agents, advances cash or investments to the Fund for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement), or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Fund shall be security therefor, and should the Fund fail to repay the Custodian promptly the Custodian shall be entitled to utilize available cash and to dispose of the Fund assets to the extent necessary to obtain reimbursement, provided that the Custodian gives the Fund reasonable notice to repay such cash or securities advanced, and provided further that such notice requirement shall not preclude the Custodian's right to assert and execute on such lien.

Except as may arise from the Custodian's own negligence or willful misconduct, or the negligence or willful misconduct of a subcustodian or agent appointed by the Custodian, the Fund agrees to indemnify and hold the Custodian harmless from and against any and all costs, expenses, losses, damages, charges, reasonable counsel fees, payments and liabilities which may be asserted against the Custodian (i) acting in accordance with any Proper Instruction, or (ii) for any acts or omissions of CHASE MANHATTAN BANK N.A.

Notwithstanding any provision herein to the contrary, to the extent the Custodian is found to be liable hereunder for any loss, liability, claim, expense or damage, the Custodian shall be liable only for such loss, liability, claim, expense or damage which was reasonably foreseeable.


SECTION 10. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT.

This Agreement shall become effective as of the date of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto, and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing in the case of a termination by the Fund, and not sooner than one hundred eighty (180) days after the date of such delivery or mailing in the case of termination by the Custodian; provided, however that the Custodian shall not act under Section 2.9 hereof in the absence of receipt of an initial certificate of a Fund's secretary, or an assistant secretary thereof, that the Board has approved the initial use of a particular U.S. Securities System, as required by the 1940 Act or any applicable Rule thereunder, and that the Custodian shall not act under
Section 2.10 hereof in the absence of receipt of an initial certificate of a Fund's secretary, or an assistant secretary thereof, that the Board has approved the initial use of the Direct Paper System; provided further, however, that the Fund shall not amend or terminate this Agreement in contravention of any applicable federal or state regulations, or any provision of the Fund's articles of incorporation, agreement of trust, by-laws and/or registration statement (as applicable, the "GOVERNING DOCUMENTS"); and further provided that the Fund may at any time by action of its Board (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by the United States Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction.

Upon termination of the Agreement, the Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its reasonable costs, expenses and disbursements, provided that the Custodian shall not incur any costs, expenses or disbursements specifically in connection with such termination unless it has received prior approval from the Fund, such approval not to be unreasonably withheld.


SECTION 11. SUCCESSOR CUSTODIAN.

If a successor custodian shall be appointed by the Board, the Custodian shall, upon termination, deliver to such successor custodian at the offices of the Custodian, duly endorsed and in the form for transfer, all investments and other properties then held by it hereunder, and shall transfer to an account of the successor custodian all of the Fund's investments held in a Securities System. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a copy of a vote of the Board, certified by the secretary or an assistant secretary of the applicable Fund, deliver at the offices of the Custodian and transfer such investments, funds and other properties in accordance with such vote. In the event that no written order designating a successor custodian or certified copy of a vote of the Board shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the 1940 Act, doing business in Boston, Massachusetts, or New York, New York, of its own selection and having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $100,000,000, all property held by the Custodian under this Agreement and to transfer to an account of such successor custodian all of the Fund's investments held in any Securities System; thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement.

In the event that any property held pursuant to this Agreement remains in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the certified copy of the vote referred to or of the Board to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such property, and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect.

SECTION 12. GENERAL.

SECTION 12.1
COMPENSATION OF CUSTODIAN. The Custodian shall be entitled to compensation for its services and reimbursement of its expenses as Custodian as agreed upon from time to time between the Fund and the Custodian.


SECTION 12.2
MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts.

SECTION 12.3
RECORDS. The Custodian shall create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of the Fund under the 1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the SEC. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of investments owned by the Fund and held by the Custodian hereunder, and shall, when requested to do so by an officer of the Fund, and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations.

SECTION 12.4
OPINION OF FUND'S INDEPENDENT ACCOUNTANT. The Custodian shall take all reasonable action as the Fund may from time to time request to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A, the preparation of the Fund's Form N-SAR, the preparation of any other annual reports to the SEC with respect to the Fund, and with respect to any other requirements of the SEC.

SECTION 12.5
INTERPRETIVE AND ADDITIONAL PROVISIONS. In connection with the operation of this Agreement, the Custodian and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Governing Documents. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement.

SECTION 12.6
BOND. The Custodian shall at all times maintain a bond in such form and amount as is acceptable to the Fund, which shall be issued by a reputable fidelity insurance company authorized to do business in the place where such bond is issued, against larceny and embezzlement, covering each officer and employee of


the Custodian who may, singly or jointly with others, have access to securities or funds of the Fund, either directly or through authority to receive and carry out any certificate instruction, order request, note or other instrument required or permitted by this Agreement. The Custodian agrees that it shall not cancel, terminate or modify such bond insofar as it adversely affects the Fund except after written notice given to the Fund not less than 10 days prior to the effective date of such cancellation, termination or modification. The Custodian shall, upon request, furnish to the Fund a copy of each such bond and each amendment thereto.

SECTION 12.7
CONFIDENTIALITY. The Custodian agrees to treat all records and other information relative to the Fund and its prior, present or future shareholders as confidential, and the Custodian, on behalf of itself and its employees, agrees to keep confidential all such information except, after prior notification to and approval in writing by the Fund, which approval shall not be unreasonably withheld and may not be withheld where the Custodian may be exposed to civil or criminal contempt proceedings for failure to comply when requested to divulge such information by duly constituted authorities, or when so requested by the Fund.

SECTION 12.8
EXEMPTION FROM LIEN. Except as set forth in Section 9 hereof, the securities and other assets held by the Custodian hereunder shall not be subject to lien or charge of any kind in favor of the Custodian or any person claiming through the Custodian. Nothing herein shall be deemed to deprive the Custodian of its right to invoke any and all remedies available at law or equity to collect amounts due it under this Agreement.

SECTION 12.9
ASSIGNMENT. This Agreement may not be assigned by either party without the written consent of the other, except that either party may assign its rights and obligations hereunder to a party controlling, controlled by, or under common control with such party.

SECTION 12.10 PRIOR AGREEMENTS. Without derogating the rights established thereunder prior to the date of this Agreement, this Agreement supersedes and terminates, as of the date hereof, all prior agreements between the Fund and the Custodian relating to the custody of Fund assets.

SECTION 12.11 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts taken together shall constitute but one and the same Agreement.


SECTION 12.12 NOTICES. Any notice, instruction or other instrument required to be given hereunder may be delivered in person to the offices of the parties as set forth herein during normal business hours or delivered prepaid registered mail or by telex, cable or telecopy to the parties at the following addresses or such other addresses as may be notified by any party from time to time.

To any Fund:       c/o T. ROWE PRICE ASSOCIATES, INC.
                   100 East Pratt Street
                   Baltimore, Maryland 21202
                   Attention:  Carmen Deyesu
                   Telephone:  410-345-6658
                   Telecopy:  410-685-8827/8830

To the Custodian: STATE STREET BANK AND TRUST COMPANY
1776 Heritage Drive
North Quincy, Massachusetts 02171, U.S.A.
Attention: Carol C. Ayotte
Telephone: 617-985-6894
Telecopy: 617-537-6321

Such notice, instruction or other instrument shall be deemed to have been served in the case of a registered letter at the expiration of five business days after posting, in the case of cable twenty-four hours after dispatch and, in the case of telex, immediately on dispatch and if delivered outside normal business hours it shall be deemed to have been received at the next time after delivery when normal business hours commence and in the case of cable, telex or telecopy on the business day after the receipt thereof. Evidence that the notice was properly addressed, stamped and put into the post shall be conclusive evidence of posting.

SECTION 12.13 ENTIRE AGREEMENT. This Agreement (including all schedules, appendices, exhibits and attachments hereto) constitutes the entire Agreement between the parties with respect to the subject matter hereof.

SECTION 12.14 HEADINGS NOT CONTROLLING. Headings used in this Agreement are for reference purposes only and shall not be deemed a part of this Agreement.

SECTION 12.15 SURVIVAL. All provisions regarding indemnification, confidentiality, warranty, liability and limits thereon shall survive following the expiration or termination of this Agreement.


SECTION 12.16 SEVERABILITY. In the event any provision of this Agreement is held illegal, void or unenforceable, the balance shall remain in effect.

SECTION 12.17 THE PARTIES. All references herein to the "Fund" are to each of the funds listed on Appendix A hereto individually, as if this Agreement were between such individual Fund and the Custodian. In the case of a series fund or trust, all references to the "Fund" are to the individual series or portfolio of such fund or trust, or to such fund or trust on behalf of the individual series or portfolio, as appropriate. Any reference in this Agreement to "the parties" shall mean the Custodian and such other individual Fund as to which the matter pertains. Each Fund hereby represents and warranties that (i) it has the requisite power and authority under applicable laws and its Governing Documents to enter into and perform this Agreement, (ii) all requisite proceedings have been taken to authorize it to enter into and perform this Agreement, and (iii) its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Fund or any law or regulation applicable to it.

SECTION 12.18 DIRECTORS AND TRUSTEES. It is understood and is expressly stipulated that neither the holders of Shares nor any member of the Board be personally liable hereunder. Whenever reference is made herein to an action required to be taken by the Board, such action may also be taken by the Board's executive committee.

SECTION 12.19 MASSACHUSETTS BUSINESS TRUST. With respect to any Fund which is a party to this Agreement and which is organized as a Massachusetts business trust, the term "Fund" means and refers to the trustees from time to time serving under the applicable trust agreement of such trust, as the same may be amended from time to time (the "DECLARATION OF TRUST"). It is expressly agreed that the obligations of any such Fund hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of the Fund personally, but bind only the trust property of the Fund as set forth in the applicable Declaration of Trust. In the case of each Fund which is a Massachusetts business trust (in each case, a "TRUST"), the execution and delivery of this Agreement on behalf of the Trust has been authorized by the trustees, and signed by an authorized officer, of the Trust, in each case acting in such capacity and not individually, and neither such authorization by the trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them


individually, but shall bind only the trust property of the Trust as provided in its Declaration of Trust.

SECTION 12.20 REPRODUCTION OF DOCUMENTS. This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

SECTION 12.21 SHAREHOLDER COMMUNICATIONS ELECTION. SEC Rule 14b-2 requires banks which hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, the Custodian needs the Fund to indicate whether it authorizes the Custodian to provide the Fund's name, address, and share position to requesting companies whose securities the Fund owns. If the Fund tells the Custodian "no", the Custodian will not provide this information to requesting companies. If the Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the Custodian is required by the rule to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund. For the Fund's protection, the Rule prohibits the requesting company from using the Fund's name and address for any purpose other than corporate communications. Please indicate below whether the Fund consents or objects by checking one of the alternatives below.

YES [ ]
The Custodian is authorized to release the Fund's name, address, and share positions.

NO [X]
The Custodian is not authorized to release the Fund's name, address, and share positions.


DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT

Addendum to the Custodian Agreement (as defined below) between each fund listed on Appendix A to the Custodian Agreement, as such Appendix A is amended from time to time (each such fund listed on Appendix A shall be individually referred to herein as the "FUND"), and State Street Bank and Trust Company ("STATE STREET").

PREAMBLE

WHEREAS, State Street has been appointed as custodian of certain assets of the Fund pursuant to a certain Custodian Agreement (the "CUSTODIAN AGREEMENT") dated as of January 28, 1998, and amended thereafter from time to time;

WHEREAS, State Street has developed and utilizes proprietary accounting and other systems, including State Street's proprietary Multicurrency HORIZON/R/ Accounting System, in its role as custodian of the Fund, and maintains certain Fund-related data ("FUND DATA") in databases under the control and ownership of State Street (the "DATA ACCESS SERVICES"); and

WHEREAS, State Street makes available to the Fund (and certain of the Fund's agents as set forth herein) certain Data Access Services solely for the benefit of the Fund, and intends to provide additional services, consistent with the terms and conditions of this Addendum.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and for other good and valuable consideration, the parties agree as follows:

1. SYSTEM AND DATA ACCESS SERVICES

a.
System. Subject to the terms and conditions of this Addendum and solely for the purpose of providing access to Fund Data as set forth herein, State Street hereby agrees to provide the Fund, or certain third parties approved by State Street that serve as the Fund's investment advisors, investment managers or fund accountants (the "FUND ACCOUNTANTS") or as the Fund's independent auditors (the "AUDITOR"), with access to State Street's Multicurrency HORIZON/R/ Accounting System and the other information systems described in Attachment A (collectively, the "SYSTEM") on a remote basis solely on the computer hardware, system software and telecommunication links described in Attachment B (the "DESIGNATED

CONFIGURATION") or on any designated substitute or back-up equipment configuration consented to in writing by State Street, such consent not to be unreasonably withheld.

b.
Data Access Services. State Street agrees to make available to the Fund the Data Access Services subject to the terms and conditions of this Addendum and such data access operating standards and procedures as may be issued by State Street from time to time. The Fund shall be able to access the System to (i) originate electronic instructions to State Street in order to (a) effect the transfer or movement of cash or securities held under custody by State Street or
(b) transmit accounting or other information (the transactions described in
(i)(a) and (i)(b) above are referred to herein as "CLIENT ORIGINATED ELECTRONIC FINANCIAL INSTRUCTIONS"), and (ii) access data for the purpose of reporting and analysis, which shall all be deemed to be Data Access Services for purposes of this Addendum.

c.
Additional Services. State Street may from time to time agree to make available to the Fund additional Systems that are not described in the attachments to this Addendum. In the absence of any other written agreement concerning such additional systems, the term "SYSTEM" shall include, and this Addendum shall govern, the Fund's access to and use of any additional System made available by State Street and/or accessed by the Fund.

2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE

State Street and the Fund acknowledge that in connection with the Data Access Services provided under this Addendum, the Fund will have access, through the Data Access Services, to Fund Data and to functions of State Street's proprietary systems; provided, however that in no event will the Fund have direct access to any third party systems-level software that retrieves data for, stores data from, or otherwise supports the System.

3. LIMITATION ON SCOPE OF USE

a.
Designated Equipment; Designated Locations. The System and the Data Access Services shall be used and accessed solely on and through the Designated Configuration at the offices of the Fund or the Fund Accountants in Baltimore, Maryland or Owings Mills, Maryland ("DESIGNATED LOCATIONS").

b.
Designated Configuration; Trained Personnel. State Street and the Fund shall be responsible for supplying, installing

and maintaining the Designated Configuration at the Designated Locations. State Street and the Fund agree that each will engage or retain the services of trained personnel to enable both parties to perform their respective obligations under this Addendum. State Street agrees to use commercially reasonable efforts to maintain the System so that it remains serviceable, provided, however, that State Street does not guarantee or assure uninterrupted remote access use of the System.

c.
Scope of Use. The Fund will use the System and the Data Access Services only for the processing of securities transactions, the keeping of books of account for the Fund and accessing data for purposes of reporting and analysis. The Fund shall not, and shall cause its employees and agents not to (i) permit any unauthorized third party to use the System or the Data Access Services, (ii) sell, rent, license or otherwise use the System or the Data Access Services in the operation of a service bureau or for any purpose other than as expressly authorized under this Addendum, (iii) use the System or the Data Access Services for any fund, trust or other investment vehicle), other than as set forth herein, without the prior written consent of State Street, (iv) allow access to the System or the Data Access Services through terminals or any other computer or telecommunications facilities located outside the Designated Locations, (v) allow or cause any information (other than portfolio holdings, valuations of portfolio holdings, and other information reasonably necessary for the management or distribution of the assets of the Fund) transmitted from State Street's databases, including data from third party sources, available through use of the System or the Data Access Services to be redistributed or retransmitted to another computer, terminal or other device for other than use for or on behalf of the Fund or (vi) modify the System in any way, including without limitation developing any software for or attaching any devices or computer programs to any equipment, system, software or database which forms a part of or is resident on the Designated Configuration.

d.
Other Locations. Except in the event of an emergency or of a planned System shutdown, the Fund's access to services performed by the System or to Data Access Services at the Designated Locations may be transferred to a different location only upon the prior written consent of State Street. In the event of an emergency or System shutdown, the Fund may use any back-up site included in the Designated Configuration or any other back-up site agreed to by State Street, which agreement will not be unreasonably withheld. The Fund may secure from State Street the right to access the System or the Data Access Services through computer and telecommunications

facilities or devices complying with the Designated Configuration at additional locations only upon the prior written consent of State Street and on terms to be mutually agreed upon by the parties.

e.
Title. Title and all ownership and proprietary rights to the System, including any enhancements or modifications thereto, whether or not made by State Street, are and shall remain with State Street.

f.
No Modification. Without the prior written consent of State Street, the Fund shall not modify, enhance or otherwise create derivative works based upon the System, nor shall the Fund reverse engineer, decompile or otherwise attempt to secure the source code for all or any part of the System.

g.
Security Procedures. The Fund shall comply with data access operating standards and procedures and with user identification or other password control requirements and other security procedures as may be issued from time to time by State Street for use of the System on a remote basis and to access the Data Access Services. The Fund shall have access only to the Fund Data and authorized transactions agreed upon from time to time by State Street and, upon notice from State Street, the Fund shall discontinue remote use of the System and access to Data Access Services for any security reasons cited by State Street; provided, that, in such event, State Street shall, for a period not less than 180 days (or such other shorter period specified by the Fund) after such discontinuance, assume responsibility to provide accounting services under the terms of the Custodian Agreement.

h.
Inspections. State Street shall have the right to inspect the use of the System and the Data Access Services by the Fund, the Fund Accountants and the Auditor to ensure compliance with this Addendum. The on-site inspections shall be upon prior written notice to Fund, the Fund Accountants and the Auditor and at reasonably convenient times and frequencies so as not to result in an unreasonable disruption of the Fund's or the Fund Accountants' or the Auditor respective businesses.

4. PROPRIETARY INFORMATION

a.
Proprietary Information. The Fund acknowledges and State Street represents that the System and the databases, computer programs, screen formats, report formats, interactive design techniques, documentation and other information made available to the Fund by State Street as part of the Data Access Services and

through the use of the System constitute copyrighted, trade secret, or other proprietary information of substantial value to State Street. Any and all such information provided by State Street to the Fund shall be deemed proprietary and confidential information of State Street (hereinafter "PROPRIETARY INFORMATION"). The Fund agrees that it will hold such Proprietary Information in the strictest confidence and secure and protect it in a manner consistent with its own procedures for the protection of its own confidential information and to take appropriate action by instruction or agreement with its employees or agents who are permitted access to the Proprietary Information to satisfy its obligations hereunder. The Fund further acknowledges that State Street shall not be required to provide the Fund Accountants or the Auditor with access to the System unless it has first received from the Fund Accountants and the Auditor an undertaking with respect to State Street's Proprietary Information in the form of Attachment C and/or Attachment C-1 to this Addendum. The Fund shall use all commercially reasonable efforts to assist State Street in identifying and preventing any unauthorized use, copying or disclosure of the Proprietary Information or any portions thereof or any of the logic, formats or designs contained therein.

b.
Cooperation. Without limitation of the foregoing, the Fund shall advise State Street immediately in the event the Fund learns or has reason to believe that any person to whom the Fund has given access to the Proprietary Information, or any portion thereof, has violated or intends to violate the terms of this Addendum, and the Fund will, at its reasonable expense, cooperate with State Street in seeking injunctive or other equitable relief in the name of the Fund or State Street against any such person.

c.
Injunctive Relief. The Fund acknowledges that the disclosure of any Proprietary Information, or of any information which at law or equity ought to remain confidential, will immediately give rise to continuing irreparable injury to State Street inadequately compensable in damages at law. In addition, State Street shall be entitled to obtain immediate injunctive relief against the breach or threatened breach of any of the foregoing undertakings, in addition to any other legal remedies which may be available.

d.
Survival. The provisions of this Section 4 shall survive the termination of this Addendum.

5. LIMITATION ON LIABILITY

a.
Standard of Care and Limitation on Amount and Time for Bringing Action. State Street shall be held to a standard of reasonable care with respect to all of its duties and obligations under this Addendum. The Fund agrees that any liability of State Street to the Fund or any third party arising with respect to the System or State Street's provision of Data Access Services under this Data Access Services Addendum shall be limited to the amount paid by the Fund for the preceding 24 months for such services. The foregoing limitation shall relate solely to State Street's provision of the Data Access Services pursuant to this Addendum and is not intended to limit State Street's responsibility to perform in accordance with the Custodian Agreement, including its duty to act in accordance with Proper Instructions. In no event shall State Street be liable to the Fund or any other party pursuant to this Addendum for any special, indirect, punitive or consequential damages even if advised of the possibility of such damages. No action, regardless of form, arising out of the terms of this Addendum may be brought by the Fund more than two years after the Fund has knowledge that the cause of action has arisen.

b.
Limited Warranties. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY STATE STREET.

c.
Third-Party Data. Organizations from which State Street may obtain certain data included in the System or the Data Access Services are solely responsible for the contents of such data, and State Street shall have no liability for claims arising out of the contents of such third-party data, including, but not limited to, the accuracy thereof.

d.
Regulatory Requirements. As between State Street and the Fund, the Fund shall be solely responsible for the accuracy of any accounting statements or reports produced using the Data Access Services and the System and the conformity thereof with any requirements of law.

e.
Force Majeure. Neither party shall be liable for any costs or damages due to delay or nonperformance under this Data Access Services Addendum arising out of any cause or event beyond such party's control, including, without limitation, cessation of services hereunder or any damages resulting therefrom to the other party as a result of work stoppage, power or other mechanical

failure, computer virus, natural disaster, governmental action, or communication disruption.

6. INDEMNIFICATION

The Fund agrees to indemnify and hold State Street harmless from any loss, damage or expense including reasonable attorney's fees, (a "loss") suffered by State Street arising from (i) the negligence or willful misconduct in the use by the Fund of the Data Access Services or the System, including any loss incurred by State Street resulting from a security breach at the Designated Locations or committed by the Fund's employees or agents or the Fund Accountants or the and Auditor, and (ii) any loss resulting from incorrect Client Originated Electronic Financial Instructions. State Street shall be entitled to rely on the validity and authenticity of Client Originated Electronic Financial Instructions without undertaking any further inquiry as long as such instruction is undertaken in conformity with security procedures established by State Street from time to time.

7. FEES

Fees and charges for the use of the System and the Data Access Services and related payment terms shall be as set forth in the custody fee schedule in effect from time to time between the parties (the "FEE SCHEDULE"). Any tariffs, duties or taxes imposed or levied by any government or governmental agency by reason of the transactions contemplated by this Addendum, including, without limitation, federal, state and local taxes, use, value added and personal property taxes (other than income, franchise or similar taxes which may be imposed or assessed against State Street) shall be borne by the Fund. Any claimed exemption from such tariffs, duties or taxes shall be supported by proper documentary evidence delivered to State Street.

8. TRAINING, IMPLEMENTATION AND CONVERSION

a.
Training. State Street agrees to provide training, at a designated State Street training facility or at the Designated Locations, to the Fund's personnel in connection with the use of the System on the Designated Configuration. The Fund agrees that it will set aside, during regular business hours or at other times agreed upon by both parties, sufficient time to enable all operators of the System and the Data Access Services, designated by the Fund, to receive the training offered by State Street pursuant to this Addendum.

b.
Installation and Conversion. State Street and the Fund shall be responsible for the technical installation and conversion ("INSTALLATION AND CONVERSION") of the Designated Configuration. The Fund shall have the following responsibilities in connection with Installation and Conversion of the System:

(i)

The Fund shall be solely responsible for the timely acquisition and maintenance of the hardware and software that attach to the Designated Configuration in order to use the Data Access Services at the Designated Locations, and

(ii)

State Street and the Fund each agree that they will assign qualified personnel to actively participate during the Installation and Conversion phase of the System implementation to enable both parties to perform their respective obligations under this Addendum.

9. SUPPORT

During the term of this Addendum, State Street agrees to provide the support services set out in Attachment D to this Addendum.

10. TERM

a.
Term. This Addendum shall become effective on the date of its execution by

State Street and shall remain in full force and effect until terminated as herein provided.

b.
Termination. Either party may terminate this Addendum (i) for any reason by giving the other party at least one-hundred and eighty (180) days' prior written notice in the case of notice of termination by State Street to the Fund or thirty (30) days' notice in the case of notice from the Fund to State Street of termination; or (ii) immediately for failure of the other party to comply with any material term and condition of the Addendum by giving the other party written notice of termination. In the event the Fund shall cease doing business, shall become subject to proceedings under the bankruptcy laws (other than a petition for reorganization or similar proceeding) or shall be adjudicated bankrupt, this Addendum and the rights granted hereunder shall, at the option of State Street, immediately terminate with notice to the Fund. This Addendum shall in any event terminate as to any Fund within ninety (90) days after the termination of the Custodian Agreement.

c.
Termination of the Right to Use. Upon termination of this Addendum for any reason, any right to use the System and access to the Data Access Services shall terminate and the Fund shall immediately cease use of the System and the Data Access Services. Immediately upon termination of this Addendum for any reason, the Fund shall return to State Street all copies of documentation and other Proprietary Information in its possession; provided, however, that in the event that either party terminates this Addendum or the Custodian Agreement for any reason other than the Fund's breach, State Street shall provide the Data Access Services for a period of time and at a price to be agreed upon in writing by the parties.

11. MISCELLANEOUS

a.Year 2000. State Street will take all steps necessary to ensure that its

products (and those of its third-party suppliers) reflect the available state of the art technology to offer products that are Year 2000 compliant, including, but not limited to, century recognition of dates, calculations that correctly compute same century and multi-century formulas and date values, and interface values that reflect the date issues arising between now and the next one-hundred years. If any changes are required, State Street will make the changes to its products at no cost to the Fund and in a commercially reasonable time frame and will require third-party suppliers to do likewise.

b.
Assignment; Successors. This Addendum and the rights and obligations of the Fund and State Street hereunder shall not be assigned by either party without the prior written consent of the other party, except that State Street may assign this Addendum to a successor of all or a substantial portion of its business, or to a party controlling, controlled by, or under common control with State Street.

c.
Survival. All provisions regarding indemnification, warranty, liability and limits thereon, and confidentiality and/or protection of proprietary rights and trade secrets shall survive the termination of this Addendum.

d.
Entire Agreement. This Addendum and the attachments hereto constitute the entire understanding of the parties hereto with respect to the Data Access Services and the use of the System and supersedes any and all prior or contemporaneous representations or agreements, whether oral or written, between the parties as such may relate to the Data Access Services or the System, and cannot

be modified or altered except in a writing duly executed by the parties. This Addendum is not intended to supersede or modify the duties and liabilities of the parties hereto under the Custodian Agreement or any other agreement between the parties hereto except to the extent that any such agreement specifically refers to the Data Access Services or the System. No single waiver or any right hereunder shall be deemed to be a continuing waiver.

e. Severability. If any provision or provisions of this Addendum shall be held to be invalid, unlawful, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired.

f.
Governing Law. This Addendum shall be interpreted and construed in accordance with the internal laws of The Commonwealth of Massachusetts without regard to the conflict of laws provisions thereof.

ATTACHMENT A

MULTICURRENCY HORIZON/R/ ACCOUNTING SYSTEM
SYSTEM PRODUCT DESCRIPTION

I. The Multicurrency HORIZON/R/ Accounting System is designed to provide lot level portfolio and general ledger accounting for SEC and ERISA type requirements and includes the following services: 1) recording of general ledger entries; 2) calculation of daily income and expense; 3) reconciliation of daily activity with the trial balance, and 4) appropriate automated feeding mechanisms to (i) domestic and international settlement systems, (ii) daily, weekly and monthly evaluation services, (iii) portfolio performance and analytic services,
(iv) customer's internal computing systems and (v) various State Street provided information services products.

II. GlobalQuest/R/ GlobalQuest/R/ is designed to provide customer access to the following information maintained on The Multicurrency HORIZON/R/ Accounting System: 1) cash transactions and balances; 2) purchases and sales; 3) income receivables; 4) tax refund; 5) daily priced positions; 6) open trades; 7) settlement status; 8) foreign exchange transactions; 9) trade history; and 10) daily, weekly and monthly evaluation services.

III. HORIZON/R/ Gateway. HORIZON/R/ Gateway provides customers with the ability to (i) generate reports using information maintained on the Multicurrency HORIZON/R/ Accounting System which may be viewed or printed at the customer's location; (ii) extract and download data from the Multicurrency HORIZONR Accounting System; and (iii) access previous day and historical data. The following information which may be accessed for these purposes: 1) holdings; 2) holdings pricing; 3) transactions, 4) open trades; 5) income;
6) general ledger and 7) cash.

IV. State Street Interchange. State Street Interchange is an open information delivery architecture wherein proprietary communication products, data formats and workstation tools are replaced by industry standards and is designed to enable the connection of State Street's network to customer networks, thereby facilitating the sharing of information.
ATTACHMENT C

UNDERTAKING
(FUND ACCOUNTANTS)


The undersigned understands that in the course of its employment as Fund Accountant to each fund listed on Appendix A (as amended from time to time) to that certain Custodian Agreement dated as of January 28, 1998 (the "FUND"), it will have access to State Street Bank and Trust Company's Multicurrency HORIZON Accounting System and other information systems (collectively, the "SYSTEM").

The undersigned acknowledges that the System and the databases, computer programs, screen formats, report formats, interactive design techniques, documentation, and other information made available to the Undersigned by State Street Bank and Trust Company ("STATE STREET") as part of the Data Access Services provided to the Fund and through the use of the System constitute copyrighted, trade secret, or other proprietary information of substantial value to State Street. Any and all such information provided by State Street to the Undersigned shall be deemed proprietary and confidential information of State Street (hereinafter "PROPRIETARY INFORMATION"). The undersigned agrees that it will hold such Proprietary Information in confidence and secure and protect it in a manner consistent with its own procedures for the protection of its own confidential information and to take appropriate action by instruction or agreement with its employees who are permitted access to the Proprietary Information to satisfy its obligations hereunder.

The undersigned will not attempt to intercept data, gain access to data in transmission, or attempt entry into any system or files for which it is not authorized. It will not intentionally adversely affect the integrity of the System through the introduction of unauthorized code or data, or through unauthorized deletion.

Upon notice by State Street for any reason, any right to use the System and access to the Data Access Services shall terminate and the Undersigned shall immediately cease use of the System and the Data Access Services. Immediately upon notice by State Street for any reason, the undersigned shall return to State Street all copies of documentation and other Proprietary Information in its possession.


[The Fund Accountants]

By:       ______________________________

Title:    ______________________________

Date:     ______________________________


ATTACHMENT C-1

UNDERTAKING
(AUDITOR)

The undersigned understands that in the course of its employment as Auditor to each fund listed on Appendix A (as amended from time to time) to that certain Custodian Agreement dated as of January 28, 1998 (the "FUND") it will have access to State Street Bank and Trust Company's Multicurrency HORIZON Accounting System and other information systems (collectively, the "SYSTEM").

The undersigned acknowledges that the System and the databases, computer programs, screen formats, report formats, interactive design techniques, documentation, and other information made available to the Undersigned by State Street Bank and Trust Company ("STATE STREET") as part of the Data Access Services provided to the Fund and through the use of the System constitute copyrighted, trade secret, or other proprietary information of substantial value to State Street. Any and all such information provided by State Street to the Undersigned shall be deemed proprietary and confidential information of State Street (hereinafter "PROPRIETARY INFORMATION"). The undersigned agrees that it will hold such Proprietary Information in confidence and secure and protect it in a manner consistent with its own procedures for the protection of its own confidential information and to take appropriate action by instruction or agreement with its employees who are permitted access to the Proprietary Information to satisfy its obligations hereunder.

The undersigned will not attempt to intercept data, gain access to data in transmission, or attempt entry into any system or files for which it is not authorized. It will not intentionally adversely affect the integrity of the System through the introduction of unauthorized code or data, or through unauthorized deletion.

Upon notice by State Street for any reason, any right to use the System and access to the Data Access Services shall terminate and the Undersigned shall immediately cease use of the System and the Data Access Services. Immediately upon notice by State Street for any reason, the undersigned shall return to State Street all copies of documentation and other Proprietary Information in its possession.


           [The Auditor]

By:       ______________________________

Title:    ______________________________

Date:     ______________________________


ATTACHMENT D

SUPPORT

During the term of this Addendum, State Street agrees to provide the following on-going support services:

a.
Telephone Support. The Fund Designated Persons may contact State Street's HORIZON/R/ Help Desk and Fund Assistance Center between the hours of 8 a.m. and 6 p.m. (Eastern time) on all business days for the purpose of obtaining answers to questions about the use of the System, or to report apparent problems with the System. From time to time, the Fund shall provide to State Street a list of persons who shall be permitted to contact State Street for assistance (such persons being referred to as the "FUND DESIGNATED PERSONS").

b.
Technical Support. State Street will provide technical support to assist the Fund in using the System and the Data Access Services. The total amount of technical support provided by State Street shall not exceed 10 resource days per year. State Street shall provide such additional technical support as is expressly set forth in the fee schedule in effect from time to time between the parties (the "FEE SCHEDULE"). Technical support, including during installation and testing, is subject to the fees and other terms set forth in the Fee Schedule.

c. Maintenance Support. State Street shall use commercially reasonable efforts to correct system functions that do not work according to the System Product Description as set forth on Attachment A in priority order in the next scheduled delivery release or otherwise as soon as is practicable.

d.
System Enhancements. State Street will provide to the Fund any enhancements to the System developed by State Street and made a part of the System; provided that State Street offer the Fund reasonable training on the enhancement.
Charges for system enhancements shall be as provided in the Fee Schedule. State Street retains the right to charge for related systems or products that may be developed and separately made available for use other than through the System.

e.
Custom Modifications. In the event the Fund desires custom modifications in connection with its use of the System, the Fund shall make a written request to State Street providing specifications for the desired modification. Any custom

modifications may be undertaken by State Street in its sole discretion in accordance with the Fee Schedule.

f.
Limitation on Support. State Street shall have no obligation to support the Fund's use of the System: (1) for use on any computer equipment or telecommunication facilities which does not conform to the Designated Configuration or (ii) in the event the Fund has modified the System in breach of this Addendum.

In WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and on its behalf by its duly authorized representative as of the date and year first written above.

T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.

T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST


Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund New Jersey Tax-Free Bond Fund Georgia Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST

California Tax-Free Bond Fund

California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.

U.S. Treasury Intermediate Fund

U.S. Treasury Long-Term Fund U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.

T. Rowe Price Equity Index 500 Fund

T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.

Spectrum Growth Fund

Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.

T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.

T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund


T. ROWE PRICE EQUITY SERIES, INC.

T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio

T. ROWE PRICE FIXED INCOME SERIES, INC.

T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. T. ROWE PRICE SMALL CAP STOCK FUND, INC.
T. Rowe Price Small Cap Stock Fund
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE TAX EFFICIENT BALANCED FUND, INC. RESERVE INVESTMENT FUNDS, INC.
Government Reserve Investment Fund Reserve Investment Fund


SIGNATURE ATTESTED TO: EXECUTED ON BEHALF OF EACH FUND:

      /s/Suzanne E. Fraunhoffer                /s/Carmen Deyesu
By:   _____________________                By:____________________
Name:  Suzanne E. Fraunhoffer               Name: Carmen Deyesu
Title: Legal Assistant                      Title: Treasurer for
                                            each of the foregoing

SIGNATURE ATTESTED TO:
STATE STREET BANK AND TRUST COMPANY

      /s/Glenn Ciotti                          /s/Ronald E. Logue
By:   _____________________                By:____________________
Name:  Glenn Ciotti                         Name: Ronald E. Logue
Title: VP & Assoc. Counsel                  Title: Executive Vice
                                           President


SCHEDULE A

COUNTRY          SUBCUSTODIAN            CENTRAL DEPOSITORY

United Kingdom   State Street Bank      None;
                 and Trust Company      The Bank of England,
                                        The Central Gilts Office (CGO);
                                        The Central Moneymarkets Office (CMO)

Euroclear (The Euroclear System)/ State Street London Limited


APPENDIX A

T. ROWE PRICE GROWTH STOCK FUND, INC.
T. ROWE PRICE NEW HORIZONS FUND, INC.
T. ROWE PRICE NEW ERA FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
T. ROWE PRICE INTERNATIONAL FUNDS, INC.

T. Rowe Price International Bond Fund T. Rowe Price International Stock Fund T. Rowe Price International Discovery Fund T. Rowe Price European Stock Fund T. Rowe Price New Asia Fund T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund T. Rowe Price Latin America Fund T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund
T. ROWE PRICE GROWTH & INCOME FUND, INC.
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE TAX-FREE INCOME FUND, INC. T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. T. ROWE PRICE HIGH YIELD FUND, INC. T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. T. ROWE PRICE NEW AMERICA GROWTH FUND T. ROWE PRICE EQUITY INCOME FUND T. ROWE PRICE GNMA FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Tax-Free Bond Fund Virginia Short-Term Tax-Free Bond Fund New Jersey Tax-Free Bond Fund Georgia Tax-Free Bond Fund Florida Insured Intermediate Tax-Free Fund


T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund

California Tax-Free Money Fund
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. T. ROWE PRICE SMALL-CAP VALUE FUND, INC. INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund
T. ROWE PRICE U.S. TREASURY FUNDS, INC.

U.S. Treasury Intermediate Fund

U.S. Treasury Long-Term Fund U.S. Treasury Money Fund
T. ROWE PRICE INDEX TRUST, INC.

T. Rowe Price Equity Index 500 Fund

T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund
T. ROWE PRICE SPECTRUM FUND, INC.

Spectrum Growth Fund

Spectrum Income Fund
Spectrum International Fund
T. ROWE PRICE BALANCED FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.

T. ROWE PRICE MID-CAP GROWTH FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.

T. ROWE PRICE DIVIDEND GROWTH FUND, INC. T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio


T. ROWE PRICE FIXED INCOME SERIES, INC.

T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund
T. ROWE PRICE VALUE FUND, INC.
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. T. ROWE PRICE CORPORATE INCOME FUND, INC. T. ROWE PRICE HEALTH SCIENCES FUND, INC. T. ROWE PRICE MID-CAP VALUE FUND, INC. INSTITUTIONAL DOMESTIC EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. T. ROWE PRICE FINANCIAL SERVICES FUND, INC. T. ROWE PRICE REAL ESTATE FUND, INC. T. ROWE PRICE SMALL CAP STOCK FUND, INC.
T. Rowe Price Small Cap Stock Fund
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. T. ROWE PRICE TAX EFFICIENT BALANCED FUND, INC. RESERVE INVESTMENT FUNDS, INC.
Government Reserve Investment Fund Reserve Investment Fund


AMENDMENT NO. 1
TO CUSTODIAN CONTRACT BETWEEN
STATE STREET BANK AND TRUST COMPANY AND
THE T. ROWE PRICE FUNDS

The Custodian Contract of January 28, 1998, between State Street Bank and Trust Company and each of the Parties listed on Appendix A thereto is hereby further amended, as of November 4, 1998, by adding thereto T. Rowe Price Index Trust, Inc., on behalf of T. Rowe Price International Funds, Inc., on behalf of T. Rowe Price International Growth & Income Fund.

T. ROWE PRICE BALANCED FUND, INC.

T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.

T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund

T. ROWE PRICE CAPITAL APPRECIATION FUND

T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.

T. ROWE PRICE CORPORATE INCOME FUND, INC.

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

T. ROWE PRICE DIVIDEND GROWTH FUND, INC.

T. ROWE PRICE EQUITY INCOME FUND

T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio

T. ROWE PRICE FINANCIAL SERVICES FUND, INC.

T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio


T. ROWE PRICE GNMA FUND

T. ROWE PRICE GROWTH & INCOME FUND, INC.

T. ROWE PRICE GROWTH STOCK FUND, INC.

T. ROWE PRICE HEALTH SCIENCES FUND, INC.

T. ROWE PRICE HIGH YIELD FUND, INC.

T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund T. Rowe Price Extended Equity Market Index Fund T. Rowe Price Total Equity Market Index Fund

INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund

INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund

T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Bond Fund
T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund

T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio

T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.

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

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

T. ROWE PRICE NEW AMERICA GROWTH FUND


T. ROWE PRICE NEW ERA FUND, INC.

T. ROWE PRICE NEW HORIZONS FUNDS, INC.

T. ROWE PRICE NEW INCOME FUND, INC.

T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund

T. ROWE PRICE PRIME RESERVE FUND, INC.

T. ROWE PRICE REAL ESTATE FUND, INC.

RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund

T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.

T. ROWE PRICE SHORT-TERM BOND FUND, INC.

T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.

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

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

T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund

T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund Florida Intermediate Tax-Free Fund
Georgia Tax-Free Bond Fund

T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.


T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.

T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.

T. ROWE PRICE TAX-FREE INCOME FUND, INC.

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

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

T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund

T. ROWE PRICE SUMMIT FUNDS, INC.
T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund

T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund

T. ROWE PRICE VALUE FUND, INC.

      /s/Henry H. Hopkins
By:  _____________________________________
      Henry H. Hopkins, Vice President

STATE STREET BANK AND TRUST COMPANY

      /s/Carol C. Ayotte
By:  _____________________________________
      Carol C. Ayotte, Vice President


The Transfer Agency and Service Agreement between T. Rowe Price Services, Inc. and T. Rowe Price Funds, dated January 1, 1999.


TRANSFER AGENCY AND SERVICE AGREEMENT

between

T. ROWE PRICE SERVICES, INC.

and

THE T. ROWE PRICE FUNDS


TABLE OF CONTENTS

PAGE

Article A                            Terms of Appointment 2
Article B                        Duties of Price Services 3
       1.  Receipt of Orders/Payments                   3
       2.  Redemptions                                  5
       3.  Transfers                                    6
       4.  Confirmations                                7
       5.  Returned Checks and ACH Debits               7
       6.  Redemption of Shares under Ten Day Hold      7
       7.  Dividends, Distributions and Other Corporate Actions 9
       8.  Unclaimed Payments and Certificates         10
       9.  Books and Records                           10
       10. Authorized Issued and Outstanding Shares    12
       11. Tax Information                             13
       12. Information to be Furnished to the Fund     13
       13. Correspondence                              13
       14. Lost or Stolen Securities                   14
       15. Telephone Services                          14
       16. Collection of Shareholder Fees              14
       17. Form N-SAR                                  14
       18. Cooperation With Accountants                15
       19. Blue Sky                                    15
       20.  Banking Services for the PLUS Classes       15
       21. Other Services                              17

Article C Fees and Out-of-Pocket Expenses 17
1. Fees and Out-of-Pocket Expenses - All Funds 17
2. Fees and Out-of-Pocket Expenses - PLUS Classes of Shares 19 Article DRepresentations and Warranties of the Price Services 19 Article E Representations and Warranties of the Fund 20 Article F Standard of Care/Indemnification 20 Article G Dual Interests 23 Article H Documentation 23 Article I References to Price Services 24 Article JCompliance with Governmental Rules and Regulations 25 Article K Ownership of Software and Related Material 25 Article L Quality Service Standards 25 Article M As of Transactions 25


Article N Term and Termination of Agreement 28 Article O Notice 29 Article P Assignment 29 Article Q Amendment/Interpretive Provisions 29 Article R Further Assurances 29 Article S Maryland Law to Apply 29 Article T Merger of Agreement 30 Article U Counterparts 30 Article V The Parties 30 Article WDirectors, Trustees, Shareholders and Massachusetts Business Trust 30 Article X Captions 31


TRANSFER AGENCY AND SERVICE AGREEMENT

AGREEMENT made as of the first day of January, 1999, by and between T. ROWE PRICE SERVICES, INC., a Maryland corporation having its principal office and place of business at 100 East Pratt Street, Baltimore, Maryland 21202 ("PRICE SERVICES"), and EACH FUND WHICH IS LISTED ON APPENDIX A (as such Appendix may be amended from time to time) and which evidences its agreement to be bound hereby by executing a copy of this Agreement (each such Fund individually hereinafter referred to as "THE FUND", whose definition may be found in Article V); WHEREAS, the Fund desires to appoint Price Services as its transfer agent, dividend disbursing agent and agent in connection with certain other activities, and Price Services desires to accept such appointment; WHEREAS, Price Services represents that it is registered with the Securities and Exchange Commission as a Transfer Agent under Section 17A of the Securities Exchange Act of 1934 ("'34 ACT") and will notify each Fund promptly if such registration is revoked or if any proceeding is commenced before the Securities and Exchange Commission which may lead to such revocation; WHEREAS, Price Services has the capability of providing shareholder services on behalf of the Funds for the accounts of shareholders in the Funds, including banks and brokers on behalf of underlying clients; WHEREAS, Price Services has the capability of providing special banking services, including debit card and unlimited check writing services ("BANKING SERVICES") for the T. Rowe Price Prime Reserve Fund - PLUS Class of Shares and T. Rowe Price Tax-Exempt Money Fund - PLUS Class of Shares ("PLUS CLASSES");


WHEREAS, certain of the Funds are named investment options under various tax-sheltered retirement plans including, but not limited to, individual retirement accounts, Sep-IRA's, SIMPLE plans, deferred compensation plans, 403(b) plans, and profit sharing, thrift, and money purchase pension plans for self-employed individuals and professional partnerships and corporations, (collectively referred to as "RETIREMENT PLANS"); WHEREAS, Price Services also has the capability of providing special services, on behalf of the Funds, for the accounts of shareholders participating in these Retirement Plans ("RETIREMENT ACCOUNTS").
WHEREAS, Price Services may subcontract or jointly contract with other parties, on behalf of the Funds to perform certain of the functions and services described herein including services to Retirement Plans and Retirement Accounts; WHEREAS, Price Services may also enter into, on behalf of the Funds, certain banking relationships to perform various banking services including, but not limited to, check deposits, check disbursements, automated clearing house transactions ("ACH") and wire transfers.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows:
A. TERMS OF APPOINTMENT Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints Price Services to act, and Price Services agrees to act, as the Fund's transfer agent, dividend disbursing agent and agent in connection with: (1) the Fund's authorized and issued shares of its common stock or shares of beneficial interest (all such stock and shares to be referred to as "SHARES"); (2) any dividend reinvestment or other services provided to the shareholders of the Fund

("SHAREHOLDERS"), including, without limitation, any periodic investment plan or periodic withdrawal program; and (3) certain Retirement Plan and Retirement Accounts as agreed upon by the parties.
The parties to the Agreement hereby acknowledge that from time to time, Price Services and T. Rowe Price Trust Company may enter into contracts ("OTHER CONTRACTS") with employee benefit plans and/or their sponsors for the provision of certain plan participant services to Retirement Plans and Retirement Accounts. Compensation paid to Price Services pursuant to this Agreement is with respect to the services described herein and not with respect to services provided under Other Contracts.
B. DUTIES OF PRICE SERVICES Price Services agrees that it will perform the following services:
1. RECEIPT OF ORDERS/PAYMENTS Receive for acceptance, orders/payments for the purchase of Shares and promptly deliver payment and appropriate documentation thereof to the authorized custodian of the Fund (the "CUSTODIAN"). Upon receipt of any check or other instrument drawn or endorsed to it as agent for, or identified as being for the account of, the Fund, Price Services will process the order as follows:
.
Examine the check to determine if the check conforms to the Funds' acceptance procedures (including certain third-party check procedures). If the check conforms, Price Services will endorse the check and include the date of receipt, will process the same for payment, and deposit the net amount to the parties agreed upon designated bank account prior to such deposit in the Custodial account, and will notify the Fund and the Custodian, respectively, of such deposits (such notification to be given on a daily basis of the total amount deposited to said accounts during the prior business day);

.
Subject to guidelines mutually agreed upon by the Funds and Price Services, excess balances, if any, resulting from deposit in these designated bank accounts will be invested and the income therefrom will be used to offset fees which would otherwise be charged to the Funds under this Agreement; .
Ensure that any documentation received from Shareholder is in "good order" and all appropriate documentation is received to establish an account.
.
Open a new account, if necessary, and credit the account of the investor with the number of Shares to be purchased according to the price of the Fund's Shares in effect for purchases made on that date, subject to any instructions which the Fund may have given to Price Services with respect to acceptance of orders for Shares;
.
Maintain a record of all unpaid purchases and report such information to the Fund daily;
.
Process periodic payment orders, as authorized by investors, in accordance with the payment procedures mutually agreed upon by both parties; .
Receive monies from Retirement Plans and determine the proper allocation of such monies to the Retirement Accounts based upon instructions received from Retirement Plan participants or Retirement Plan administrators ("ADMINISTRATORS");
. Process orders received from recordkeepers and banks and brokers for omnibus accounts in accordance with internal policies and procedures established in executed agency agreements and other agreements negotiated with banks and brokers; and
. Process telephone orders for purchases of Fund shares from the Shareholder's bank account (via wire or ACH) to the Fund in accordance with procedures mutually agreed upon by both parties.


Upon receipt of funds through the Federal Reserve Wire System that are designated for purchases in Funds which declare dividends at 12:00 p.m. (or such time as set forth in the Fund's current prospectus), Price Services shall promptly notify the Fund and the Custodian of such deposit.
2. REDEMPTIONS Receive for acceptance redemption requests, including telephone redemptions and requests received from Administrators for distributions to participants or their designated beneficiaries or for payment of fees due the Administrator or such other person, including Price Services, and deliver the appropriate documentation thereof to the Custodian. Price Services shall receive and stamp with the date of receipt, all requests for redemptions of Shares (including all certificates delivered to it for redemption) and shall process said redemption requests as follows, subject to the provisions of Section 6 hereof:
.
Examine the redemption request and, for written redemptions, the supporting documentation, to determine that the request is in good order and all requirements have been met;
.
Notify the Fund on the next business day of the total number of Shares presented and covered by all such requests;
.For those Funds that impose redemption fees, calculate the fee owed on the redemption in accordance with the guidelines established between the Fund and Price Services;
.
As set forth in the prospectus of the Fund, and in any event, on or prior to the seventh (7th) calendar day succeeding any such request for redemption, Price Services shall, from funds available in the accounts maintained by Price Services as agent for the Funds, pay the applicable redemption price in accordance with the current prospectus of the Fund, to the investor, participant, beneficiary, Administrator or such other person, as the case may be;
.
Instruct custodian to wire redemption proceeds to a designated bank account of Price

Services. Subject to guidelines mutually agreed upon by the Funds and Price Services, excess balances, if any, resulting from deposit in these bank

accounts will be invested and the income therefrom will be used to offset fees which would otherwise be charged to the Funds under this Agreement; .
If any request for redemption does not comply with the Fund's requirements, Price Services shall promptly notify the investor of such fact, together with the reason therefore, and shall effect such redemption at the price in effect at the time of receipt of all appropriate documents; .

Make such withholdings as may be required under applicable Federal tax laws; .
In the event redemption proceeds for the payment of fees are to be wired through the Federal Reserve Wire System or via ACH, Price Services shall cause such proceeds to be wired in Federal funds or via ACH to the bank account designated by Shareholder; and
.
Process periodic redemption orders as authorized by the investor in accordance with the periodic withdrawal procedures for Systematic Withdrawal Plan ("SWP") and systematic ACH redemptions mutually agreed upon by both parties.
Procedures and requirements for effecting and accepting redemption orders from investors by telephone, Tele*Access, computer, or written instructions shall be established by mutual agreement between Price Services and the Fund consistent with the Fund's current prospectus.
3. TRANSFERS Effect transfers of Shares by the registered owners thereof upon receipt of appropriate instructions and documentation and examine such instructions for conformance with appropriate procedures and requirements. In this regard, Price Services, upon receipt of a proper request for transfer, including any transfer involving the surrender of certificates of Shares, is authorized to

transfer, on the records of the Fund, Shares of the Fund, including cancellation of surrendered certificates, if any, to credit a like amount of Shares to the transferee.
4. CONFIRMATIONS Mail all confirmations and statements as well as other enclosures requested by the Fund to the shareholder, and in the case of Retirement Accounts, to the Administrators, as may be required by the Funds or by applicable Federal or state law.
5. RETURNED CHECKS AND ACH DEBITS In order to minimize the risk of loss to the Fund by reason of any check being returned unpaid, Price Services will promptly identify and follow-up on any check or ACH debit returned unpaid. For items returned, Price Services may telephone the investor and/or redeposit the check or debit for collection or cancel the purchase, as deemed appropriate. Price Services and the Funds will establish procedures for the collection of money owed the Fund from investors who have caused losses due to these returned items.
6. REDEMPTION OF SHARES UNDER A HOLD .
UNCOLLECTED FUNDS. Shares purchased by personal, corporate, or governmental check, or by ACH will be considered uncollected until the tenth calendar date (the seventh business date for PLUS Classes) (following the trade date of the trade ("UNCOLLECTED FUNDS");
.
GOOD FUNDS. Shares purchased by treasurer's, cashier, certified, or official check, or by wire transfer will be considered collected immediately ("GOOD FUNDS"). Absent information to the contrary (i.e., notification from the payee institution), Uncollected Funds will be considered Good Funds on the tenth calendar day (the seventh business day for the PLUS Classes) following trade date.
. REDEMPTION OF UNCOLLECTED FUNDS

.
Shareholders making telephone requests for redemption of shares purchased with Uncollected Funds will be given two options:
1.
The Shareholder will be permitted to exchange to a money market fund to preserve principal until the payment is deemed Good Funds; 2.
The redemption can be processed utilizing the same procedures for written redemptions described below.
.
If a written redemption request is made for shares where any portion of the payment for said shares is in Uncollected Funds, and the request is in good order, Price Services will promptly obtain the information relative to the payment necessary to determine when the payment becomes Good Funds. The redemption will be processed in accordance with normal procedures, and the proceeds will be held until confirmation that the payment is Good Funds. On the seventh (7th) calendar day after trade date, and each day thereafter until either confirmation is received or the tenth (10th) calendar day (the seventh business day for the PLUS Classes), Price Services will call the paying institution to request confirmation that the check or ACH in question has been paid. On the tenth calendar day (the seventh business day for the PLUS Classes) after trade date, the redemption proceeds will be released, regardless of whether confirmation has been received.
. CHECKWRITING REDEMPTIONS. . Daily, all checkwriting redemptions $10,000 and over reported as Uncollected Funds or insufficient funds will be reviewed. An attempt will be made to contact the shareholder to make good the funds (through wire, exchange, transfer). Generally by 12:00 p.m. the same day, if the matter

has not been resolved, the redemption request will be rejected and the check


returned to the Shareholder.
.All checkwriting redemptions under $10,000 reported as Uncollected or insufficient funds will be rejected and the check returned to the Shareholder. The Funds and Services may agree to contact shareholders presenting checks under $10,000 reported as insufficient to obtain alternative instructions for payment.
.
CONFIRMATIONS OF AVAILABLE FUNDS. The Fund expects that situations may develop whereby it would be beneficial to determine if a person who has placed an order for Shares has sufficient funds in his or her checking account to cover the payment for the Shares purchased. When this situation occurs, Price Services may call the bank in question and request that it confirm that sufficient funds to cover the purchase are currently credited to the account in question. Price Services will maintain written documentation or a recording of each telephone call which is made under the procedures outlined above. None of the above procedures shall preclude Price Services from inquiring as to the status of any check received by it in payment for the Fund's Shares as Price Services may deem appropriate or necessary to protect both the Fund and Price Services. If a conflict arises between Section 2 and this Section 6, Section 6 will govern.
7. DIVIDENDS, DISTRIBUTIONS AND OTHER CORPORATE ACTIONS
.
The Fund will promptly inform Price Services of the declaration of any dividend, distribution, stock split or any other distributions of a similar kind on account of its Capital Stock.
.
Price Services shall act as Dividend Disbursing Agent for the Fund, and as such, shall prepare and make income and capital gain payments to investors. As Dividend Disbursing Agent, Price Services will on or before the payment date of any such dividend or distribution, notify the Custodian of the estimated amount required to pay any portion of said dividend or distribution

which is payable in cash, and the Fund agrees that on or about the payment date of such distribution, it shall instruct the Custodian to make available to Price Services sufficient funds for the cash amount to be paid out. If an investor is entitled to receive additional Shares by virtue of any such distribution or dividend, appropriate credits will be made to his or her account.
8. UNCLAIMED PAYMENTS AND CERTIFICATES In accordance with procedures agreed upon by both parties, report abandoned property to appropriate state and governmental authorities of the Fund. Price Services shall, 90 days prior to the annual reporting of abandoned property to each of the states, make reasonable attempts to locate Shareholders for which
(a) checks, tax forms, statements or confirms have been returned; (b) for which accounts have aged outstanding checks; or (c) accounts with share balances that have been coded with stop mail and meet the dormancy period guidelines specified in the individual states. Price Services shall make reasonable attempts to contact shareholders for those accounts which have significant aged outstanding checks and those checks meet a specified dollar threshold. Price Services shall also comply with applicable securities regulation with respect to searching for lost shareholders.
9. BOOKS AND RECORDS Maintain records showing for each Shareholder's account, Retirement Plan or Retirement Account, as the case may be, the following:
. Names, address and tax identification number;
. Number of Shares held;

.

Certain historical information regarding the account of each Shareholder,


including dividends and distributions distributed in cash or invested in Shares; .
Pertinent information regarding the establishment and maintenance of Retirement Plans and Retirement Accounts necessary to properly administer each account; .
Information with respect to the source of dividends and distributions allocated among income (taxable and nontaxable income), realized short-term gains and realized long-term gains;
.
Any stop or restraining order placed against a Shareholder's account; .

Information with respect to withholdings on domestic and foreign accounts; .
Any instructions from a Shareholder including, all forms furnished by the Fund and executed by a Shareholder with respect to (i) dividend or distribution elections, and (ii) elections with respect to payment options in connection with the redemption of Shares;
.
Any correspondence relating to the current maintenance of a Shareholder's account;
.

Certificate numbers and denominations for any Shareholder holding certificates; .
Any information required in order for Price Services to perform the calculations contemplated under this Agreement.
Price Services shall maintain files and furnish statistical and other information as required under this Agreement and as may be agreed upon from time to time by both parties or required by applicable law. However, Price Services reserves the right to delete, change or add any information to the files maintained; provided such deletions, changes or additions do not contravene the terms of this Agreement or applicable law and do not materially reduce the level of services described in this Agreement. Price Services shall also use its best efforts to obtain additional statistical and other


information as each Fund may reasonably request for additional fees as may be agreed to by both parties.
Any such records maintained pursuant to Rule 31a-1 under the Investment Company Act of 1940 ("THE ACT") will be preserved for the periods and maintained in a manner prescribed in Rule 31a-2 thereunder. Disposition of such records after such prescribed periods shall be as mutually agreed upon by the Fund and Price Services. The retention of such records, which may be inspected by the Fund at reasonable times, shall be at the expense of the Fund. All records maintained by Price Services in connection with the performance of its duties under this Agreement will remain the property of the Fund and, in the event of termination of this Agreement, will be delivered to the Fund as of the date of termination or at such other time as may be mutually agreed upon.
All books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except after prior notification to and approval by the other party hereto, which approval shall not be unreasonably withheld and may not be withheld where Price Services or the Fund may be exposed to civil or criminal contempt proceedings for failure to comply; when requested to divulge such information by duly constituted governmental authorities; or after so requested by the other party hereto.
10. AUTHORIZED ISSUED AND OUTSTANDING SHARES Record the issuance of Shares of the Fund and maintain, pursuant to Rule 17Ad-10(e) of the '34 Act, a record of the total number of Shares of the Fund which are authorized, issued and outstanding, based upon data provided to it by the Fund. Price Services shall also provide the Fund

on a regular basis the total number of Shares which are authorized and issued and outstanding. Price Services shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issuance or sale of such Shares.
11. TAX INFORMATION Prepare and file with the Internal Revenue Service and with other appropriate state agencies and, if required, mail to investors, those returns for reporting dividends and distributions paid as required to be so filed and mailed, and shall withhold such sums required to be withheld under applicable Federal income tax laws, rules, and regulations. Additionally, Price Services will file and, as applicable, mail to investors, any appropriate information returns required to be filed in connection with Retirement Plan processing, such as 1099R, 5498, as well as any other appropriate forms that the Fund or Price Services may deem necessary. The Fund and Price Services shall agree to procedures to be followed with respect to Price Services' responsibilities in connection with compliance with back-up withholding and other tax laws.
12. INFORMATION TO BE FURNISHED TO THE FUND Furnish to the Fund such information as may be agreed upon between the Fund and Price Services including any information that the Fund and Price Services agree is necessary to the daily operations of the business.
13. CORRESPONDENCE Promptly and fully answer correspondence from shareholders and Administrators relating to Shareholder Accounts, Retirement Accounts, transfer agent procedures, and such other correspondence as may from time to time be mutually agreed upon with the Funds. Unless otherwise instructed, copies of all correspondence will be retained by Price Services in accordance with

applicable law and procedures.
14. LOST OR STOLEN SECURITIES Pursuant to Rule 17f-1 of the '34 Act, report to the Securities Information Center and/or the FBI or other appropriate person on Form X-17-F-1A all lost, stolen, missing or counterfeit securities. Provide any other services relating to lost, stolen or missing securities as may be mutually agreed upon by both parties.
15. TELEPHONE SERVICES Maintain a Telephone Servicing Staff of representatives ("REPRESENTATIVES") sufficient to timely respond to all telephonic inquiries reasonably foreseeable. The Representatives will also effect telephone purchases, redemptions, exchanges, and other transactions mutually agreed upon by both parties, for those Shareholders who have authorized telephone services. The Representatives shall require each Shareholder effecting a telephone transaction to properly identify himself/herself before the transaction is effected, in accordance with procedures agreed upon between by both parties. Procedures for processing telephone transactions will be mutually agreed upon by both parties. Price Services will also be responsible for providing Tele*Access, On-Line Access and such other Services as may be offered by the Funds from time to time. Price Services will maintain a special Shareholder Servicing staff to service certain Shareholders with substantial relationships with the Funds.
16. COLLECTION OF SHAREHOLDER FEES

Calculate and notify shareholders of any fees owed the Fund, its affiliates or its agents. Such fees include the small account fee IRA custodial fee and wire fee.
17. FORM N-SAR Maintain such records, if any, as shall enable the Fund to fulfill the requirements of Form

N-SAR.
18. COOPERATION WITH ACCOUNTANTS Cooperate with each Fund's independent public accountants and take all reasonable action in the performance of its obligations under the Agreement to assure that the necessary information is made available to such accountants for the expression of their opinion without any qualification as to the scope of their examination, including, but not limited to, their opinion included in each such Fund's annual report on Form N-SAR and annual amendment to Form N-1A.
19. BLUE SKY

Provide to the Fund or its agent, on a daily, weekly, monthly and quarterly basis, and for each state in which the Fund's Shares are sold, sales reports and other materials for blue sky compliance purposes as shall be agreed upon by the parties.
20. BANKING SERVICES FOR THE PLUS CLASSES .
DETERMINE SHAREHOLDER ELIGIBILITY FOR BANKING SERVICES. Pursuant to mutually agreed upon procedures, Price Services shall determine shareholder eligibility for Banking Services offered by the PLUS Classes. Such procedures include, but are not limited to, for existing shareholders, review of account history (identification of any previously returned investment checks or ACH transactions, redemptions of uncollected funds, etc.) and for new investors, review of credit bureau and suspicious activity fraud reports.
.CARD ISSUANCE. Once a shareholder is approved for Banking Services, Price Services shall transmit new card orders to the debit card processing bank which will produce and mail new cards and PIN numbers to PLUS Classes' shareholders. For existing shareholders, Price Services shall also cause the bank to reissue cards prior to expiration date.

.
TRANSMISSION OF DATA TO AND FROM BANK. On a daily basis, Price Services shall receive information from the debit card processing bank. In this regard, Price Services shall, after card transaction information is received from the debit card processing bank, process all debit card transaction detail against each shareholder's PLUS Class collected account balance. On each business day, Price Services shall cause information regarding the available limit of each PLUS Class shareholder account to be transmitted to the debit card processing bank by a time designated by the bank.
.
REDEMPTION ORDERS RECEIVED FOR PLUS CLASS ACCOUNTS. Representatives shall follow mutually agreed upon procedures to ensure that the shareholder's PLUS Class collected account balance is reviewed and decremented with authorized debit card transactions before processing any mutual fund redemption or exchange transactions.
.
DISPUTED DEBIT CARD TRANSACTIONS/FRAUD. Price Services shall receive information from PLUS Class shareholders regarding disputed debit card transactions and forward this information to the bank who will investigate the reported disputed transaction. Price Services will follow procedures developed between it and the bank for resolving such disputes and for provisionally crediting the shareholder's account. Price Services shall also assist in the monitoring of shareholder activity for fraud.
21. OTHER SERVICES Provide such other services as may be mutually agreed upon between Price Services and the Fund.
C. FEES AND OUT-OF-POCKET EXPENSES
1. FEES AND OUT-OF-POCKET EXPENSES - ALL FUNDS.

Each Fund shall pay to Price Services and/or its agents for its Transfer Agent Services hereunder, fees computed as set forth in Schedule A attached. Except as provided below, Price Services will be responsible for all expenses relating to the providing of Services. Each Fund, however, will reimburse Price Services for the following out-of-pocket expenses and charges incurred in providing Services:
.
POSTAGE. The cost of postage and freight for mailing materials to Shareholders and Retirement Plan participants, or their agents, including overnight delivery, UPS and other express mail services and special courier services required to transport mail between Price Services locations and mail processing vendors.
.
PROXIES. The cost to mail proxy cards and other material supplied to it by the Fund and costs related to the receipt, examination and tabulation of returned proxies and the certification of the vote to the Fund.
. COMMUNICATIONS . PRINT. The printed forms used internally and externally for documentation and processing Shareholder and Retirement Plan participant, or their agent's inquiries and requests; paper and envelope supplies for letters, notices, and other written communications sent to Shareholders and Retirement Plan participants, or their agents. . PRINT & MAIL HOUSE. The cost of internal and third party printing and mail house services, including printing of statements and reports. . VOICE AND DATA. The cost of equipment (including associated maintenance), supplies and services used for communicating with and servicing Shareholders of the Fund and Retirement Plan participants, or their agents, and other Fund offices or other agents of either the


Fund or Price Services. These charges shall include:
.
telephone toll charges (both incoming and outgoing, local, long distance and mailgrams); and
.
data and telephone expenses to communicate with shareholders and transfer shareholders between T. Rowe Price facilities.
.
Production support, service enhancements and custom reporting for the shareholder mainframe recordkeeping system.
.
RECORD RETENTION. The cost of maintenance and supplies used to maintain, microfilm, copy, record, index, display, retrieve, and store, in microfiche or microfilm form, documents and records.
.
DISASTER RECOVERY. The cost of services, equipment, facilities and other charges necessary to provide disaster recovery for any and all services listed in this Agreement.
Out-of-pocket costs will be billed at cost to the Funds. Allocation of monthly costs among the Funds will generally be made based upon the number of Shareholder and Retirement Accounts serviced by Price Services each month. Some invoices for these costs will contain costs for both the Funds and other funds serviced by Price Services. These costs will be allocated based on a reasonable allocation methodology. Where possible, such as in the case of inbound and outbound WATS charges, allocation will be made on the actual distribution or usage.
2. FEES AND OUT-OF-POCKET EXPENSES - PLUS CLASSES OF SHARES
Notwithstanding anything to the contrary in Section 21, the fees and out-of-pocket expenses set forth in Section C(1) above with respect to the PLUS Classes shall be charged as follows:
. All out-of-pocket expenses described in Section C(1) above shall be charged to the Class in the same manner as if the Class was its own Price Fund. In addition, each PLUS Class shall pay

the following out-of-pocket expenses charged by the debit card processing bank:
. Plastic stock and labels for the debit cards;
. User tapes and automated voice response unit used to assist shareholders whose cards have been lost or stolen;
. Ad hoc reports prepared by the bank; and
. Checkbooks.
D. REPRESENTATIONS AND WARRANTIES OF PRICE SERVICES
Price Services represents and warrants to the Fund that:
1. It is a corporation duly organized and existing and in good standing under the laws of Maryland;
2. It is duly qualified to carry on its business in Maryland, California and Florida;
3. It is empowered under applicable laws and by its charter and by-laws to enter into and perform this Agreement;
4. All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement;
5. It is registered with the Securities and Exchange Commission as a Transfer Agent pursuant to Section 17A of the '34 Act; and
6. It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement.
E. REPRESENTATIONS AND WARRANTIES OF THE FUND The Fund represents and warrants to Price Services that:
1. It is a corporation or business trust duly organized and existing and in good standing under the laws of Maryland or Massachusetts, as the case may be;

2. It is empowered under applicable laws and by its Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws to enter into and perform this Agreement;
3. All proceedings required by said Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws have been taken to authorize it to enter into and perform this Agreement;
4. It is an investment company registered under the Act; and
5. A registration statement under the Securities Act of 1933 ("THE '33 ACT") is currently effective and will remain effective, and appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale.
F. STANDARD OF CARE/INDEMNIFICATION Notwithstanding anything to the contrary in this Agreement:
1. Price Services shall not be liable to any Fund for any act or failure to act by it or its agents or subcontractors on behalf of the Fund in carrying or attempting to carry out the terms and provisions of this Agreement provided Price Services has acted in good faith and without negligence or willful misconduct and selected and monitored the performance of its agents and subcontractors with reasonable care.
2. The Fund shall indemnify and hold Price Services harmless from and against all losses, costs, damages, claims, actions and expenses, including reasonable expenses for legal counsel, incurred by Price Services resulting from: (i) any action or omission by Price Services or its agents or subcontractors in the performance of their duties hereunder; (ii) Price Services acting upon instructions believed by it to have been executed by a duly authorized officer of the Fund; or (iii) Price Services acting upon information provided by the Fund in form and under policies agreed to by Price Services and the Fund. Price Services shall not be entitled to such indemnification in respect

of actions or omissions constituting negligence or willful misconduct of Price Services or where Price Services has not exercised reasonable care in selecting or monitoring the performance of its agents or subcontractors.
3. Except as provided in Article M of this Agreement, Price Services shall indemnify and hold harmless the Fund from all losses, costs, damages, claims, actions and expenses, including reasonable expenses for legal counsel, incurred by the Fund resulting from the negligence or willful misconduct of Price Services or which result from Price Services' failure to exercise reasonable care in selecting or monitoring the performance of its agents or subcontractors. The Fund shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or willful misconduct of such Fund or its agents or subcontractors; unless such negligence or misconduct is attributable to Price Services.
4. In determining Price Services' liability, an isolated error or omission will normally not be deemed to constitute negligence when it is determined that:
. Price Services had in place "appropriate procedures;" .the employee(s) responsible for the error or omission had been reasonably trained and were being appropriately monitored; and . the error or omission did not result from wanton or reckless conduct on the part of the employee(s). It is understood that Price Services is not obligated to have in place separate procedures to prevent each and every conceivable type of error or omission. The term "appropriate procedures" shall mean procedures reasonably designed to prevent and detect errors and omissions. In determining the reasonableness of such procedures, weight will be given to such factors as are appropriate,


including the prior occurrence of any similar errors or omissions when such procedures were in place and transfer agent industry standards in place at the time of the occurrence.
5. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes or other causes reasonably beyond its control, such party shall not be liable to the other party for any loss, cost, damage, claim, action or expense resulting from such failure to perform or otherwise from such causes.
6. In order that the indemnification provisions contained in this Article E shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim, or to defend against said claim in its own name or in the name of the other party. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent.
7. Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement.
G. DUAL INTERESTS It is understood that some person or persons may be directors, officers, or shareholders of both the Funds and Price Services (including Price Services's affiliates), and that the existence of any such dual interest shall not affect the validity of this Agreement or of any transactions hereunder except as otherwise provided by a specific provision of applicable law.

H. DOCUMENTATION .As requested by Price Services, the Fund shall promptly furnish to Price Services the following:
.A certified copy of the resolution of the Directors/Trustees of the Fund authorizing the appointment of Price Services and the execution and delivery of this Agreement;
.
A copy of the Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws of the Fund and all amendments thereto; .As applicable, specimens of all forms of outstanding and new stock/share certificates in the forms approved by the Board of Directors/Trustees of the Fund with a certificate of the Secretary of the Fund as to such approval; .
All account application forms and other documents relating to Shareholders' accounts;
.
An opinion of counsel for the Fund with respect to the validity of the stock, the number of Shares authorized, the status of redeemed Shares, and the number of Shares with respect to which a Registration Statement has been filed and is in effect; and
. A copy of the Fund's current prospectus. The delivery of any such document for the purpose of any other agreement to which the Fund and Price Services are or were parties shall be deemed to be delivery for the purposes of this Agreement. . As requested by Price Services, the Fund will also furnish from time to time the following documents:
.
Each resolution of the Board of Directors/Trustees of the Fund authorizing the original issue of its Shares;

.
Each Registration Statement filed with the Securities and Exchange Commission and amendments and orders thereto in effect with respect to the sale of Shares with respect to the Fund;
.A certified copy of each amendment to the Articles of Incorporation or Declaration of Trust, and the By-Laws of the Fund; .
Certified copies of each vote of the Board of Directors/Trustees authorizing officers to give instructions to the Transfer Agent; .
Such other documents or opinions which Price Services, in its discretion, may reasonably deem necessary or appropriate in the proper performance of its duties; and
. Copies of new prospectuses issued. Price Services hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Fund for safekeeping of stock certificates, check forms and facsimile signature imprinting devices, if any; and for the preparation or use, and for keeping account of, such certificates, forms and devices.
I. REFERENCES TO PRICE SERVICES Each Fund agrees not to circulate any printed matter which contains any reference to Price Services without the prior approval of Price Services, excepting solely such printed matter that merely identifies Price Services as agent of the Fund. The Fund will submit printed matter requiring approval to Price Services in draft form, allowing sufficient time for review by Price Services and its legal counsel prior to any deadline for printing.

J. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS
Except as otherwise provided in the Agreement and except for the accuracy of information furnished to the Fund by Price Services, each Fund assumes full responsibility for the preparation, contents and distribution of its prospectuses and compliance with all applicable requirements of the Act, the '34 Act, the '33 Act, and any other laws, rules and regulations of governmental authorities having jurisdiction over the Fund. Price Services shall be responsible for complying with all laws, rules and regulations of governmental authorities having jurisdiction over transfer agents and their activities.
K. OWNERSHIP OF SOFTWARE AND RELATED MATERIAL All computer programs, magnetic tapes, written procedures and similar items purchased and/or developed and used by Price Services in performance of the Agreement shall be the property of Price Services and will not become the property of the Fund.
L. QUALITY SERVICE STANDARDS Price Services and the Fund may from time to time agree to certain quality service standards, as well as incentives and penalties with respect to Price Services' hereunder.
M. AS OF TRANSACTIONS For purposes of this Article M, the term "TRANSACTION" shall mean any single or "related transaction" (as defined below) involving the purchase or redemption of Shares (including exchanges) that is processed at a time other than the time of the computation of the Fund's net asset value per Share next computed after receipt of any such transaction order by Price Services due to an act or omission of Price Services. "AS OF PROCESSING" refers to the processing of these Transactions. If more than one Transaction ("RELATED TRANSACTION") in the Fund is caused by or

occurs as a result of the same act or omission, such transactions shall be aggregated with other transactions in the Fund and be considered as one Transaction.
. REPORTING Price Services shall:
1.
Utilize a system to identify all Transactions, and shall compute the net effect of such Transactions upon the Fund on a daily, monthly and rolling 365 day basis. The monthly and rolling 365 day periods are hereafter referred to as "CUMULATIVE".
2.
Supply to the Fund, from time to time as mutually agreed upon, a report summarizing the Transactions and the daily and Cumulative net effects of such Transactions both in terms of aggregate dilution and loss ("DILUTION") or gain and negative dilution ("GAIN") experienced by the Fund, and the impact such Gain or Dilution has had upon the Fund's net asset value per Share.
3.
With respect to any Transaction which causes Dilution to the Fund of $100,000 or more, immediately provide the Fund: (i) a report identifying the Transaction and the Dilution resulting therefrom, (ii) the reason such Transaction was processed as described above, and (iii) the action that Price Services has or intends to take to prevent the reoccurrence of such as of processing ("REPORT").
. LIABILITY 1. It will be the normal practice of the Funds not to hold Price Services liable with respect to any Transaction which causes Dilution to any single Fund of less than $25,000. Price Services will, however, closely monitor for each Fund the daily and Cumulative Gain/Dilution which is caused by Transactions of less than $25,000. When the Cumulative Dilution to any Fund


exceeds 3/10 of 1% per share, Price Services, in consultation with counsel to the Fund, will make appropriate inquiry to determine whether it should take any remedial action. Price Services will report to the Board of Directors/Trustees of the Fund ("Board") any action it has taken.
2.
Where a Transaction causes Dilution to a Fund greater than $25,000 ("SIGNIFICANT TRANSACTION"), but less than $100,000, Price Services will review with Counsel to the Fund the circumstances surrounding the underlying Transaction to determine whether the Transaction was caused by or occurred as a result of a negligent act or omission by Price Services. If it is determined that the Dilution is the result of a negligent action or omission by Price Services, Price Services and outside counsel for the Fund will negotiate settlement. All such Significant Transactions will be reported to the Audit Committee at its annual meeting (unless the settlement fully compensates the Fund for any Dilution). Any Significant Transaction, however, causing Dilution in excess of the lesser of $100,000 or a penny per share will be promptly reported to the Board and resolved at the next scheduled Board Meeting. Settlement for Significant Transactions causing Dilution of $100,000 or more will not be entered into until approved by the Board. The factors to consider in making any determination regarding the settlement of a Significant Transaction would include but not be limited to:
.

Procedures and controls adopted by Price Services to prevent As Of Processing; .
Whether such procedures and controls were being followed at the time of the Significant Transaction;
.
The absolute and relative volume of all transactions processed by Price Services on the day of the Significant Transaction; .

The number of Transactions processed by Price Services during prior relevant


periods, and the net Dilution/Gain as a result of all such Transactions to the Fund and to all other Price Funds;
.
The prior response of Price Services to recommendations made by the Funds regarding improvement to Price Services' As Of Processing procedures.
3. In determining Price Services' liability with respect to a Significant Transaction, an isolated error or omission will normally not be deemed to constitute negligence when it is determined that:
. Price Services had in place "appropriate procedures". . the employee(s) responsible for the error or omission had been reasonably trained and were being appropriately monitored; and . the error or omission did not result from wanton or reckless conduct on the part of the employee(s). It is understood that Price Services is not obligated to have in place separate procedures to prevent each and every conceivable type of error or omission. The term "appropriate procedures" shall mean procedures reasonably designed to prevent and detect errors and omissions. In determining the reasonableness of such procedures, weight will be given to such factors as are appropriate, including the prior occurrence of any similar errors or omissions when such procedures were in place and transfer agent industry standards in place at the time of the occurrence.
N. TERM AND TERMINATION OF AGREEMENT
. This Agreement shall run for a period of one (1) year from the date first written above and will be renewed from year to year thereafter unless terminated by either party as provided hereunder.
. This Agreement may be terminated by the Fund upon one hundred twenty (120) days' written

notice to Price Services; and by Price Services, upon three hundred sixty-five
(365) days' writing notice to the Fund.
. Upon termination hereof, the Fund shall pay to Price Services such compensation as may be due as of the date of such termination, and shall likewise reimburse for out-of-pocket expenses related to its services hereunder.
O. NOTICE Any notice as required by this Agreement shall be sufficiently given (i) when sent to an authorized person of the other party at the address of such party set forth above or at such other address as such party may from time to time specify in writing to the other party; or (ii) as otherwise agreed upon by appropriate officers of the parties hereto.
P. ASSIGNMENT Neither this Agreement nor any rights or obligations hereunder may be assigned either voluntarily or involuntarily, by operation of law or otherwise, by either party without the prior written consent of the other party, provided this shall not preclude Price Services from employing such agents and subcontractors as it deems appropriate to carry out its obligations set forth hereunder.
Q. AMENDMENT/INTERPRETIVE PROVISIONS The parties by mutual written agreement may amend this Agreement at any time. In addition, in connection with the operation of this Agreement, Price Services and the Fund may agree from time to time on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions are to be signed by all parties and annexed hereto,

but no such provision shall contravene any applicable Federal or state law or regulation and no such interpretive or additional provision shall be deemed to be an amendment of this Agreement.
R. FURTHER ASSURANCES Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.
S. MARYLAND LAW TO APPLY This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of Maryland.
T. MERGER OF AGREEMENT This Agreement, including the attached Appendices and Schedules supersedes any prior agreement with respect to the subject hereof, whether oral or written.
U. COUNTERPARTS This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instruments.
V. THE PARTIES All references herein to "the Fund" are to each of the Funds listed on Appendix A individually, as if this Agreement were between such individual Fund and Price Services. In the case of a series Fund or trust, all references to "the Fund" are to the individual series or portfolio of such Fund or trust, or to such Fund or trust on behalf of the individual series or portfolio, as appropriate. The "Fund" also includes any T. Rowe Price Funds which may be established after the execution of this Agreement. Any reference in this Agreement to "the parties" shall mean Price Services and such other individual Fund as to which the matter pertains.

W. DIRECTORS, TRUSTEES AND SHAREHOLDERS AND MASSACHUSETTS BUSINESS TRUST
It is understood and is expressly stipulated that neither the holders of Shares in the Fund nor any Directors or Trustees of the Fund shall be personally liable hereunder.
With respect to any Fund which is a party to this Agreement and which is organized as a Massachusetts business trust, the term "Fund" means and refers to the trustees from time to time serving under the applicable trust agreement (Declaration of Trust) of such Trust as the same may be amended from time to time. It is expressly agreed that the obligations of any such Trust hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but bind only the trust property of the Trust, as provided in the Declaration of Trust of the Trust. The execution and delivery of this Agreement has been authorized by the trustees and signed by an authorized officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them, but shall bind only the trust property of the Trust as provided in its Declaration of Trust.
X. CAPTIONS The captions in the Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers.
T. ROWE PRICE SERVICES, INC.         T. ROWE PRICE FUNDS

   /s/Wayne D. O'Melia             /s/Carmen F. Deyesu
BY: __________________________ BY: ___________________________
    --------------------------     ---------------------------

DATED: 3/24/99                     DATED: 3/26/99


APPENDIX A

T. ROWE PRICE BALANCED FUND, INC.

T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CALIFORNIA TAX-FREE
INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund

T. ROWE PRICE CAPITAL APPRECIATION FUND

T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.

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

T. ROWE PRICE EQUITY INCOME FUND

T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio

T. ROWE PRICE FINANCIAL SERVICES FUND, INC.

T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio

T. ROWE PRICE GNMA FUND

T. ROWE PRICE GROWTH & INCOME FUND, INC.

T. ROWE PRICE GROWTH STOCK FUND, INC.


T. ROWE PRICE HEALTH SCIENCES FUND, INC.
T. ROWE PRICE HIGH YIELD FUND, INC.

T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund

INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund

INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund

T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund

T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.

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

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

T. ROWE PRICE NEW AMERICA GROWTH FUND


T. ROWE PRICE NEW ERA FUND, INC.

T. ROWE PRICE NEW HORIZONS FUNDS, INC.

T. ROWE PRICE NEW INCOME FUND, INC.

T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund

T. ROWE PRICE PRIME RESERVE FUND, INC.
T. Rowe Price Prime Reserve Fund-PLUS Class

T. ROWE PRICE REAL ESTATE FUND, INC.

RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund

T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.

T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.

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

T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund


T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund

T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.

T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. Rowe Price Tax-Exempt Money Fund - PLUS Class

T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.

T. ROWE PRICE TAX-FREE INCOME FUND, INC.

T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.

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

T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund

T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund

T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. on behalf of the:
T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund

T. ROWE PRICE VALUE FUND, INC.


The Agreement between T. Rowe Price Associates, Inc. and T. Rowe Price Funds for Fund Accounting Services, dated January 1, 1999.


AGREEMENT
BETWEEN
T. ROWE PRICE ASSOCIATES, INC.
AND
THE T. ROWE PRICE FUNDS
FOR
FUND ACCOUNTING SERVICES


                               TABLE OF CONTENTS
                                                      Page

Article A Terms of Appointment/Duties of Price Associates 1

Article B                 Fees and Out-of-Pocket Expenses 3

Article CRepresentations and Warranties of Price Associates 3

Article D      Representations and Warranties of the Fund 4

Article E      Ownership of Software and Related Material 4

Article F                       Quality Service Standards 4

Article G                Standard of Care/Indemnification 4

Article H                                  Dual Interests 7

Article I                                   Documentation 7

Article J                   Recordkeeping/Confidentiality 7

Article KCompliance with Governmental Rules and Regulations 8

Article L              Terms and Termination of Agreement 8

Article M                                          Notice 8

Article N                                      Assignment 9

Article O               Amendment/Interpretive Provisions 9

Article P                              Further Assurances 9

Article Q                           Maryland Law to Apply 9

Article R                             Merger of Agreement 10

Article S                                    Counterparts 10

Article T                                     The Parties 10

Article UDirectors, Trustee and Shareholders and Massachusetts Business Trust 10

Article V                                        Captions 11


AGREEMENT made as of the first day of January, 1999, by and between T. ROWE PRICE ASSOCIATES, INC., a Maryland corporation having its principal office and place of business at 100 East Pratt Street, Baltimore, Maryland 21202 ("PRICE ASSOCIATES"), and each Fund which is listed on Appendix A (as such Appendix may be amended from time to time) and which evidences its agreement to be bound hereby by executing a copy of this Agreement (each such Fund individually hereinafter referred to as "THE FUND", whose definition may be found in Article T);
WHEREAS, Price Associates has the capability of providing the Funds with certain accounting services ("ACCOUNTING SERVICES"); WHEREAS, the Fund desires to appoint Price Associates to provide these Accounting Services and Price Associates desires to accept such appointment; WHEREAS, the Board of Directors of the Fund has authorized the Fund to utilize various pricing services for the purpose of providing to Price Associates securities prices for the calculation of the Fund's net asset value. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows:
A. TERMS OF APPOINTMENT/DUTIES OF PRICE ASSOCIATES
Subject to the terms and conditions set forth in this Agreement, the Fund hereby employs and appoints Price Associates to provide, and Price Associates agrees to provide, the following Accounting Services:
1. Maintain for each Fund a daily trial balance, a general ledger, subsidiary records and capital stock accounts;
2. Maintain for each Fund an investment ledger, including amortized bond and foreign dollar denominated costs where applicable;
3. Maintain for each Fund all records relating to the Fund's income and expenses;

4. Provide for the daily valuation of each Fund's portfolio securities and the computation of each Fund's daily net asset value per share ("NAV"). Such daily valuations shall be made in accordance with the valuation policies established by each of the Fund's Board of Directors including, but not limited to, the utilization of such pricing valuation sources and/or pricing services as determined by the Boards. Price Associates shall have no liability for any losses or damages incurred by the Fund as a result of erroneous portfolio security evaluations provided by such designated sources and/or pricing services; provided that, Price Associates reasonably believes the prices are accurate, has adhered to its normal verification control procedures, and has otherwise met the standard of care as set forth in Article G of this Agreement;
5. Provide daily cash flow and transaction status information to each Fund's adviser;
6. Authorize the payment of Fund expenses, either through instruction of custodial bank or utilization of custodian's automated transfer system;
7. Prepare for each Fund such financial information that is reasonably necessary for shareholder reports, reports to the Board of Directors and to the officers of the Fund, reports to the Securities and Exchange Commission, the Internal Revenue Service and other Federal and state regulatory agencies;
8. Provide each Fund with such advice that may be reasonably necessary to properly account for all financial transactions and to maintain the Fund's accounting procedures and records so as to insure compliance with generally accepted accounting and tax practices and rules;
9. Maintain for each Fund all records that may be reasonably required in connection with the audit performed by each Fund's independent accountant, the Securities and Exchange Commission, the Internal Revenue Service or such other Federal or state regulatory agencies; and


10. Cooperate with each Fund's independent public accountants and take all reasonable action in the performance of its obligations under the Agreement to assure that the necessary information is made available to such accountants for the expression of their opinion without any qualification as to the scope of their examination including, but not limited to, their opinion included in each such Fund's annual report on Form N-SAR and annual amendment to Form N-1A.
B. FEES AND OUT-OF-POCKET EXPENSES Each Fund shall pay to Price Associates for its Accounting Services hereunder, fees as set forth in the Schedule attached hereto. In addition, each Fund will reimburse Price Associates for out-of-pocket expenses such as postage, printed forms, voice and data transmissions, record retention, disaster recovery, third party vendors, equipment leases and other similar items as may be agreed upon between Price Associates and the Fund. Some invoices will contain costs for both the Funds and other funds serviced by Price Associates. In these cases, a reasonable allocation methodology will be used to allocate these costs to the Funds.
C. REPRESENTATIONS AND WARRANTEES OF PRICE ASSOCIATES
Price Associates represents and warrants to the Fund that:
1. It is a corporation duly organized and existing in good standing under the laws of Maryland.
2. It is duly qualified to carry on its business in Maryland.
3. It is empowered under applicable laws and by its charter and By-Laws to enter into and perform this Agreement.
4. All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement.
5. It has, and will continue to have, access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement.

D. REPRESENTATIONS AND WARRANTIES OF THE FUND The Fund represents and warrants to Price Associates that:
1. It is a corporation or business trust, as the case may be, duly organized and existing and in good standing under the laws of Maryland or Massachusetts, as the case may be.
2. It is empowered under applicable laws and by its Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws have been taken to authorize it to enter into and perform this Agreement.
3. All proceedings required by said Articles of Incorporation or Declaration of Trust, as the case may be, and By-Laws have been taken to authorize it to enter into and perform this Agreement.
E. OWNERSHIP OF SOFTWARE AND RELATED MATERIAL All computer programs, magnetic tapes, written procedures, and similar items purchased and/or developed and used by Price Associates in performance of this Agreement shall be the property of Price Associates and will not become the property of the Funds.
F. QUALITY SERVICE STANDARDS Price Associates and the Fund may, from time to time, agree to certain quality service standards, with respect to Price Associates' services hereunder.
G. STANDARD OF CARE/INDEMNIFICATION Notwithstanding anything to the contrary in this Agreement:
1. Where a pricing error results in loss or dilution to a Fund of less than $10,000, the determination of liability for the error will be made by Price Associates. Where a pricing error results in loss or dilution to a Fund of $10,000 or more but less than $100,000, liability for the error will be resolved through negotiations between Fund Counsel and Price Associates. Where a pricing error results in loss or dilution to a Fund of the lesser of 1/2 of 1% of NAV or $100,000 or more, the error will be promptly reported to the Board of Directors of the Fund (unless the Fund is fully

compensated for the loss or dilution), provided that final settlement with respect to such errors will not be made until approved by the Board of Directors of the Fund. A summary of all pricing errors and their effect on the Funds will be reported to the Funds? Audit Committee on an annual basis. In determining the liability of Price Associates for a pricing error, an error or omission will not be deemed to constitute negligence when it is determined that:
o Price Associates had in place "appropriate procedures and an adequate system of internal controls;"
o the employee responsible for the error or omission had been reasonably trained and was being appropriately monitored; and
o the error or omission did not result from wanton or reckless conduct on the part of the employee. It is understood that Price Associates is not obligated to have in place separate procedures to prevent each and every conceivable type of error or omission. The term "appropriate procedures and adequate system of internal controls" shall mean procedures and controls reasonably designed to prevent and detect errors and omissions. In determining the reasonableness of such procedures and controls, weight will be given to such factors as are appropriate, including the prior occurrence of any similar errors or omissions, when such procedures and controls were in place and fund accounting industry standards in place at the time of the error.
2. The Fund shall indemnify and hold Price Associates harmless from and against all losses, costs, damages, claims, actions, and expenses, including reasonable expenses for legal counsel, incurred by Price Associates resulting from: (i) any action or omission by Price Associates or its agents or subcontractors in the performance of their duties hereunder; (ii) Price Associates acting upon instructions believed by it to have been executed by a duly authorized officer of the Fund; or (iii) Price Associates acting upon information provided by the Fund in form and under policies


agreed to by Price Associates and the Fund. Price Associates shall not be entitled to such indemnification in respect of actions or omissions constituting negligence or willful misconduct of Price Associates or where Price Associates has not exercised reasonable care in selecting or monitoring the performance of its agents or subcontractors.
3. Price Associates shall indemnify and hold harmless the Fund from all losses, costs, damages, claims, actions and expenses, including reasonable expenses for legal counsel, incurred by the Fund resulting from the negligence or willful misconduct of Price Associates or which result from Price Associates' failure to exercise reasonable care in selecting or monitoring the performance of its agents or subcontractors. The Fund shall not be entitled to such indemnification with respect to actions or omissions constituting negligence or willful misconduct of such Fund or its agents or subcontractors; unless such negligence or misconduct is attributable to Price Associates.
4. In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes or other causes reasonably beyond its control, such party shall not be liable to the other party for any loss, cost, damage, claim, action or expense resulting from such failure to perform or otherwise from such causes.
5. In order that the indemnification provisions contained in this Article G shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the option to participate with the party seeking indemnification in the defense of such claim, or to defend against said claim in its own name or in the name of the other party. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other party's prior written consent.


6. Neither party to this Agreement shall be liable to the other party for consequential damages under any provision of this Agreement.
H. DUAL INTERESTS It is understood that some person or persons may be directors, officers, or shareholders of both the Fund and Price Associates (including Price Associates' affiliates), and that the existence of any such dual interest shall not affect the validity of this Agreement or of any transactions hereunder except as otherwise provided by a specific provision of applicable law.
I. DOCUMENTATION As requested by Price Associates, the Fund shall promptly furnish to Price Associates such documents as it may reasonably request and as are necessary for Price Associates to carry out its responsibilities hereunder.
J. RECORDKEEPING/CONFIDENTIALITY
1. Price Associates shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable, provided that Price Associates shall keep all records in such form and in such manner as required by applicable law, including the Investment Company Act of 1940 ("THE ACT") and the Securities Exchange Act of 1934 ("THE '34 ACT").
2. Price Associates and the Fund agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except: (a) after prior notification to and approval in writing by the other party hereto, which approval shall not be unreasonably withheld and may not be withheld where Price Associates or Fund may be exposed to civil or criminal contempt proceedings for failure to comply; (b) when requested to divulge such information by duly constituted governmental authorities; or (c) after so requested by the other party hereto.

K. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS
Except as otherwise provided in the Agreement and except for the accuracy of information furnished to the Funds by Price Associates, each Fund assumes full responsibility for the preparation, contents and distribution of its prospectuses, and for complying with all applicable requirements of the Act, the '34 Act, the Securities Act of 1933 (the "33 ACT"), and any laws, rules and regulations of governmental authorities having jurisdiction over the Funds.
L. TERM AND TERMINATION OF AGREEMENT
1. This Agreement shall run for a period of one (1) year from the date first written above and will be renewed from year to year thereafter unless terminated by either party as provided hereunder.
2. This Agreement may be terminated by the Fund upon sixty (60) days' written notice to Price Associates; and by Price Associates, upon three hundred sixty-five (365) days' writing notice to the Fund.
3. Upon termination hereof, the Fund shall pay to Price Associates such compensation as may be due as of the date of such termination, and shall likewise reimburse for out-of-pocket expenses related to its services hereunder.
M. NOTICE Any notice as required by this Agreement shall be sufficiently given (i) when sent to an authorized person of the other party at the address of such party set forth above or at such other address as such party may from time to time specify in writing to the other party; or (ii) as otherwise agreed upon by appropriate officers of the parties hereto.
N. ASSIGNMENT Neither this Agreement nor any rights or obligations hereunder may be assigned either voluntarily or involuntarily, by operation of law or otherwise, by either party without the prior written consent

of the other party, provided this shall not preclude Price Associates from employing such agents and subcontractors as it deems appropriate to carry out its obligations set forth hereunder.
O. AMENDMENT/INTERPRETIVE PROVISIONS The parties by mutual written agreement may amend this Agreement at any time. In addition, in connection with the operation of this Agreement, Price Associates and the Fund may agree from time to time on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions are to be signed by all parties and annexed hereto, but no such provision shall contravene any applicable Federal or state law or regulation and no such interpretive or additional provision shall be deemed to be an amendment of this Agreement.
P. FURTHER ASSURANCES Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.
Q. MARYLAND LAW TO APPLY This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of Maryland.
R. MERGER OF AGREEMENT This Agreement, including the attached Appendix and Schedule supersedes any prior agreement with respect to the subject hereof, whether oral or written.
S. COUNTERPARTS This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instruments.

T. THE PARTIES All references herein to "the Fund" are to each of the Funds listed on Appendix A individually, as if this Agreement were between such individual Fund and Price Associates. In the case of a series Fund or trust, all references to "the Fund" are to the individual series or portfolio of such Fund or trust, or to such Fund or trust on behalf of the individual series or portfolio, as appropriate. The "Fund" also includes any T. Rowe Price Funds which may be established after the execution of this Agreement. Any reference in this Agreement to "the parties" shall mean Price Associates and such other individual Fund as to which the matter pertains.
U. DIRECTORS, TRUSTEES AND SHAREHOLDERS AND MASSACHUSETTS BUSINESS TRUST
It is understood and is expressly stipulated that neither the holders of shares in the Fund nor any Directors or Trustees of the Fund shall be personally liable hereunder.
With respect to any Fund which is a party to this Agreement and which is organized as a Massachusetts business trust, the term "Fund" means and refers to the trustees from time to time serving under the applicable trust agreement (Declaration of Trust) of such Trust as the same may be amended from time to time. It is expressly agreed that the obligations of any such Trust hereunder shall not be binding upon any of the trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but bind only the trust property of the Trust, as provided in the Declaration of Trust of the Trust. The execution and delivery of this Agreement has been authorized by the trustees and signed by an authorized officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them, but shall bind only the trust property of the Trust as provided in its Declaration of Trust.

V. CAPTIONS The captions in the Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in their names and on their behalf under their seals by and through their duly authorized officers.

T. ROWE PRICE ASSOCIATES, INC. T. ROWE PRICE FUNDS

   /s/Alvin Younger, Jr.              /s/Carmen F. Deyesu
BY: ____________________________

BY:
    -------------------------------------------------------------

DATED: 3/25/99                   DATED: 3/26/99
       -------                          -------


APPENDIX A

T. ROWE PRICE BALANCED FUND, INC.

T. ROWE PRICE BLUE CHIP GROWTH FUND
T. ROWE PRICE CALIFORNIA TAX-FREE
INCOME TRUST
California Tax-Free Bond Fund
California Tax-Free Money Fund

T. ROWE PRICE CAPITAL APPRECIATION FUND

T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
T. ROWE PRICE CORPORATE INCOME FUND, INC.

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

T. ROWE PRICE EQUITY INCOME FUND

T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio T. Rowe Price Personal Strategy Balanced Portfolio T. Rowe Price Mid-Cap Growth Portfolio

T. ROWE PRICE FINANCIAL SERVICES FUND, INC.

T. ROWE PRICE FIXED INCOME SERIES, INC.
T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio

T. ROWE PRICE GNMA FUND

T. ROWE PRICE GROWTH & INCOME FUND, INC.

T. ROWE PRICE GROWTH STOCK FUND, INC.

T. ROWE PRICE HEALTH SCIENCES FUND, INC.


T. ROWE PRICE HIGH YIELD FUND, INC.

T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Equity Market Index Fund
T. Rowe Price Total Equity Market Index Fund

INSTITUTIONAL EQUITY FUNDS, INC.
Mid-Cap Equity Growth Fund

INSTITUTIONAL INTERNATIONAL FUNDS, INC.
Foreign Equity Fund

T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price International Bond Fund
T. Rowe Price International Discovery Fund T. Rowe Price International Stock Fund
T. Rowe Price European Stock Fund
T. Rowe Price New Asia Fund
T. Rowe Price Global Government Bond Fund T. Rowe Price Japan Fund
T. Rowe Price Latin America Fund
T. Rowe Price Emerging Markets Bond Fund T. Rowe Price Emerging Markets Stock Fund T. Rowe Price Global Stock Fund
T. Rowe Price International Growth & Income Fund

T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.

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

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

T. ROWE PRICE NEW AMERICA GROWTH FUND

T. ROWE PRICE NEW ERA FUND, INC.

T. ROWE PRICE NEW HORIZONS FUNDS, INC.

T. ROWE PRICE NEW INCOME FUND, INC.


T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC.
T. Rowe Price Personal Strategy Balanced Fund T. Rowe Price Personal Strategy Growth Fund T. Rowe Price Personal Strategy Income Fund

T. ROWE PRICE PRIME RESERVE FUND, INC.
T. Rowe Price Prime Reserve Fund-PLUS Class

T. ROWE PRICE REAL ESTATE FUND, INC.

RESERVE INVESTMENT FUNDS, INC.
Reserve Investment Fund
Government Reserve Investment Fund

T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.

T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.

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

T. ROWE PRICE SPECTRUM FUND, INC.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund

T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Maryland Tax-Free Bond Fund
Maryland Short-Term Tax-Free Bond Fund
New York Tax-Free Bond Fund
New York Tax-Free Money Fund
New Jersey Tax-Free Bond Fund
Virginia Tax-Free Bond Fund
Virginia Short-Term Tax-Free Bond Fund
Florida Insured Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund

T. ROWE PRICE TAX-EFFICIENT BALANCED FUND, INC.


T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. Rowe Price Tax-Exempt Money Fund - PLUS Class

T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.

T. ROWE PRICE TAX-FREE INCOME FUND, INC.

T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.

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

T. ROWE PRICE U.S. TREASURY FUNDS, INC.
U.S. Treasury Intermediate Fund
U.S. Treasury Long-Term Fund
U.S. Treasury Money Fund

T. ROWE PRICE SUMMIT FUNDS, INC. on behalf of the:
T. Rowe Price Summit Cash Reserves Fund
T. Rowe Price Summit Limited-Term Bond Fund T. Rowe Price Summit GNMA Fund

T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. on behalf of the:
T. Rowe Price Summit Municipal Money Market Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Income Fund

T. ROWE PRICE VALUE FUND, INC.


CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post-Effective Amendment No. 35 to the Registration Statement on Form N-1A (the "Registration Statement") of our report dated March 17, 1999, relating to the financial statements and financial highlights appearing in the February 28, 1999 Annual Report to Shareholders of the T. Rowe Price Tax-Exempt Money Fund, Inc., which is incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Independent Accountants" in the Statement of Additional Information.

/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP

Baltimore, Maryland
April 22, 1999

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A (the "Registration Statement") of our report dated March 17, 1999, relating to the financial statements and financial highlights appearing in the February 28, 1999 Annual Report to Shareholders of the T. Rowe Price Tax-Free Short-Intermediate Fund, Inc., which is incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Independent Accountants" in the Statement of Additional Information.

/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP

Baltimore, Maryland
April 22, 1999


CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post-Effective Amendment No. 9 to the Registration Statement on Form N-1A (the "Registration Statement") of our report dated March 17, 1999, relating to the financial statements and financial highlights appearing in the February 28, 1999 Annual Report to Shareholders of the T. Rowe Price Tax-Free Intermediate Bond Fund, Inc., which is incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Independent Accountants" in the Statement of Additional Information.

/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP

Baltimore, Maryland
April 22, 1999

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post-Effective Amendment No. 45 to the Registration Statement on Form N-1A (the "Registration Statement") of our report dated March 17, 1999, relating to the financial statements and financial highlights appearing in the February 28, 1999 Annual Report to Shareholders of the T. Rowe Price Tax-Free Income Fund, Inc., which is incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Independent Accountants" in the Statement of Additional Information.

/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP

Baltimore, Maryland
April 22, 1999


CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post-Effective Amendment No. 21 to the Registration Statement on Form N-1A (the "Registration Statement") of our report dated March 17, 1999, relating to the financial statements and financial highlights appearing in the February 28, 1999 Annual Report to Shareholders of the T. Rowe Price Tax-Free High Yield Fund, Inc., which is incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Financial Highlights" in the Prospectus and under the heading "Independent Accountants" in the Statement of Additional Information.

/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP

Baltimore, Maryland
April 22, 1999


ARTICLE 6
CIK: 0000315748
NAME: T. ROWE PRICE TAX EXEMPT MONEY FUND, INC.


PERIOD TYPE YEAR
FISCAL YEAR END FEB 28 1999
PERIOD END FEB 28 1999
INVESTMENTS AT COST 714,808
INVESTMENTS AT VALUE 714,808
RECEIVABLES 19,496
ASSETS OTHER 596
OTHER ITEMS ASSETS 0
TOTAL ASSETS 734,900
PAYABLE FOR SECURITIES 3,260
SENIOR LONG TERM DEBT 0
OTHER ITEMS LIABILITIES 16,863
TOTAL LIABILITIES 20,123
SENIOR EQUITY 0
PAID IN CAPITAL COMMON 714,606
SHARES COMMON STOCK 714,809
SHARES COMMON PRIOR 0
ACCUMULATED NII CURRENT 151
OVERDISTRIBUTION NII 151
ACCUMULATED NET GAINS 20
OVERDISTRIBUTION GAINS 20
ACCUM APPREC OR DEPREC 0
NET ASSETS 714,777
DIVIDEND INCOME 0
INTEREST INCOME 26,031
OTHER INCOME 0
EXPENSES NET 3,940
NET INVESTMENT INCOME 22,091
REALIZED GAINS CURRENT 20
APPREC INCREASE CURRENT 0
NET CHANGE FROM OPS 22,111
EQUALIZATION 0
DISTRIBUTIONS OF INCOME (22,091)
DISTRIBUTIONS OF GAINS 0
DISTRIBUTIONS OTHER 0
NUMBER OF SHARES SOLD 689,687
NUMBER OF SHARES REDEEMED (736,449)
SHARES REINVESTED 20,762
NET CHANGE IN ASSETS (25,980)
ACCUMULATED NII PRIOR 142
ACCUMULATED GAINS PRIOR 142
OVERDISTRIB NII PRIOR 0
OVERDIST NET GAINS PRIOR 0
GROSS ADVISORY FEES 3,177
INTEREST EXPENSE 0
GROSS EXPENSE 3,943
AVERAGE NET ASSETS 752,848
PER SHARE NAV BEGIN 1.000
PER SHARE NII 0.036
PER SHARE GAIN APPREC 0
PER SHARE DIVIDEND (0.036)
PER SHARE DISTRIBUTIONS 0
RETURNS OF CAPITAL 0
PER SHARE NAV END 1.000
EXPENSE RATIO 0.52
AVG DEBT OUTSTANDING 0
AVG DEBT PER SHARE 0

ARTICLE 6
CIK: 0000758003
NAME: T. ROWE PRICE TAX FREE HIGH YIELD FUND, INC.


PERIOD TYPE YEAR
FISCAL YEAR END FEB 28 1999
PERIOD END FEB 28 1999
INVESTMENTS AT COST 1,258,570
INVESTMENTS AT VALUE 1,347,890
RECEIVABLES 50,839
ASSETS OTHER 181
OTHER ITEMS ASSETS 0
TOTAL ASSETS 1,398,910
PAYABLE FOR SECURITIES 37,486
SENIOR LONG TERM DEBT 0
OTHER ITEMS LIABILITIES 4,293
TOTAL LIABILITIES 41,779
SENIOR EQUITY 0
PAID IN CAPITAL COMMON 1,271,894
SHARES COMMON STOCK 108,347
SHARES COMMON PRIOR 98116
ACCUMULATED NII CURRENT 68
OVERDISTRIBUTION NII 68
ACCUMULATED NET GAINS (4,151)
OVERDISTRIBUTION GAINS (4,151)
ACCUM APPREC OR DEPREC 89320
NET ASSETS 1,357,131
DIVIDEND INCOME 0
INTEREST INCOME 78,221
OTHER INCOME 0
EXPENSES NET 9,317
NET INVESTMENT INCOME 68,904
REALIZED GAINS CURRENT 9,608
APPREC INCREASE CURRENT (17,235)
NET CHANGE FROM OPS 61,277
EQUALIZATION 0
DISTRIBUTIONS OF INCOME (68,904)
DISTRIBUTIONS OF GAINS (6,383)
DISTRIBUTIONS OTHER 0
NUMBER OF SHARES SOLD 24,041
NUMBER OF SHARES REDEEMED (17,959)
SHARES REINVESTED 4,149
NET CHANGE IN ASSETS 115,141
ACCUMULATED NII PRIOR 66
ACCUMULATED GAINS PRIOR 66
OVERDISTRIB NII PRIOR (7,683)
OVERDIST NET GAINS PRIOR (7,683)
GROSS ADVISORY FEES 8,119
INTEREST EXPENSE 0
GROSS EXPENSE 9,330
AVERAGE NET ASSETS 1,306,129
PER SHARE NAV BEGIN 12.66
PER SHARE NII 0.66
PER SHARE GAIN APPREC (0.07)
PER SHARE DIVIDEND (0.66)
PER SHARE DISTRIBUTIONS (0.06)
RETURNS OF CAPITAL 0
PER SHARE NAV END 12.53
EXPENSE RATIO 0.71
AVG DEBT OUTSTANDING 0
AVG DEBT PER SHARE 0

ARTICLE 6
CIK: 0000730200
NAME: T. ROWE PRICE TAX FREE SHORT INTERMEDIATE FUND, INC.


PERIOD TYPE YEAR
FISCAL YEAR END FEB 28 1999
PERIOD END FEB 28 1999
INVESTMENTS AT COST 444,897
INVESTMENTS AT VALUE 455,088
RECEIVABLES 5,184
ASSETS OTHER 88
OTHER ITEMS ASSETS 0
TOTAL ASSETS 460,360
PAYABLE FOR SECURITIES 0
SENIOR LONG TERM DEBT 0
OTHER ITEMS LIABILITIES 1,041
TOTAL LIABILITIES 1,041
SENIOR EQUITY 0
PAID IN CAPITAL COMMON 448,840
SHARES COMMON STOCK 85,281
SHARES COMMON PRIOR 81762
ACCUMULATED NII CURRENT 18
OVERDISTRIBUTION NII 18
ACCUMULATED NET GAINS 270
OVERDISTRIBUTION GAINS 270
ACCUM APPREC OR DEPREC 10,191
NET ASSETS 459,319
DIVIDEND INCOME 0
INTEREST INCOME 20,626
OTHER INCOME 0
EXPENSES NET 2,385
NET INVESTMENT INCOME 18,241
REALIZED GAINS CURRENT 2,173
APPREC INCREASE CURRENT 962
NET CHANGE FROM OPS 21,376
EQUALIZATION 0
DISTRIBUTIONS OF INCOME (18,241)
DISTRIBUTIONS OF GAINS (1,702)
DISTRIBUTIONS OTHER 0
NUMBER OF SHARES SOLD 20,210
NUMBER OF SHARES REDEEMED (19,568)
SHARES REINVESTED 2,877
NET CHANGE IN ASSETS 20,368
ACCUMULATED NII PRIOR 17
ACCUMULATED GAINS PRIOR 17
OVERDISTRIB NII PRIOR (199)
OVERDIST NET GAINS PRIOR (199)
GROSS ADVISORY FEES 1,895
INTEREST EXPENSE 0
GROSS EXPENSE 2,385
AVERAGE NET ASSETS 449,430
PER SHARE NAV BEGIN 5.37
PER SHARE NII 0.22
PER SHARE GAIN APPREC 0.04
PER SHARE DIVIDEND (0.22)
PER SHARE DISTRIBUTIONS (0.02)
RETURNS OF CAPITAL 0
PER SHARE NAV END 5.39
EXPENSE RATIO 0.53
AVG DEBT OUTSTANDING 0
AVG DEBT PER SHARE 0

ARTICLE 6
CIK: 0000892899
NAME: T. ROWE PRICE TAX FREE INTERMEDIATE BOND FUND, INC.


PERIOD TYPE YEAR
FISCAL YEAR END FEB 28 1999
PERIOD END FEB 28 1999
INVESTMENTS AT COST 114,113
INVESTMENTS AT VALUE 119,647
RECEIVABLES 1,552
ASSETS OTHER 95
OTHER ITEMS ASSETS 0
TOTAL ASSETS 121,324
PAYABLE FOR SECURITIES 0
SENIOR LONG TERM DEBT 0
OTHER ITEMS LIABILITIES 271
TOTAL LIABILITIES 271
SENIOR EQUITY 0
PAID IN CAPITAL COMMON 115,216
SHARES COMMON STOCK 10,876
SHARES COMMON PRIOR 9784
ACCUMULATED NII CURRENT 54
OVERDISTRIBUTION NII 54
ACCUMULATED NET GAINS 248
OVERDISTRIBUTION GAINS 248
ACCUM APPREC OR DEPREC 5,535
NET ASSETS 121,053
DIVIDEND INCOME 0
INTEREST INCOME 5,720
OTHER INCOME 0
EXPENSES NET 741
NET INVESTMENT INCOME 4,979
REALIZED GAINS CURRENT 559
APPREC INCREASE CURRENT 454
NET CHANGE FROM OPS 5,992
EQUALIZATION 0
DISTRIBUTIONS OF INCOME (4,979)
DISTRIBUTIONS OF GAINS (303)
DISTRIBUTIONS OTHER 0
NUMBER OF SHARES SOLD 2,443
NUMBER OF SHARES REDEEMED (1,718)
SHARES REINVESTED 367
NET CHANGE IN ASSETS 12,797
ACCUMULATED NII PRIOR 54
ACCUMULATED GAINS PRIOR 54
OVERDISTRIB NII PRIOR (8)
OVERDIST NET GAINS PRIOR (8)
GROSS ADVISORY FEES 438
INTEREST EXPENSE 0
GROSS EXPENSE 741
AVERAGE NET ASSETS 114,448
PER SHARE NAV BEGIN 11.06
PER SHARE NII 0.48
PER SHARE GAIN APPREC 0.10
PER SHARE DIVIDEND (0.48)
PER SHARE DISTRIBUTIONS (0.03)
RETURNS OF CAPITAL 0
PER SHARE NAV END 11.13
EXPENSE RATIO 0.65
AVG DEBT OUTSTANDING 0
AVG DEBT PER SHARE 0

ARTICLE 6
CIK: 0000202927
NAME: T. ROWE PRICE TAX FREE INCOME FUND, INC.


PERIOD TYPE YEAR
FISCAL YEAR END FEB 28 1999
PERIOD END FEB 28 1999
INVESTMENTS AT COST 1,344,238
INVESTMENTS AT VALUE 1,466,648
RECEIVABLES 41,180
ASSETS OTHER (88)
OTHER ITEMS ASSETS 0
TOTAL ASSETS 1,507,740
PAYABLE FOR SECURITIES 20,049
SENIOR LONG TERM DEBT 0
OTHER ITEMS LIABILITIES 4,213
TOTAL LIABILITIES 4,262
SENIOR EQUITY 0
PAID IN CAPITAL COMMON 1,360,354
SHARES COMMON STOCK 149,214
SHARES COMMON PRIOR 140333
ACCUMULATED NII CURRENT 659
OVERDISTRIBUTION NII 659
ACCUMULATED NET GAINS 55
OVERDISTRIBUTION GAINS 55
ACCUM APPREC OR DEPREC 122,410
NET ASSETS 1,483,478
DIVIDEND INCOME 0
INTEREST INCOME 80,888
OTHER INCOME 0
EXPENSES NET 7,881
NET INVESTMENT INCOME 73,007
REALIZED GAINS CURRENT 6,787
APPREC INCREASE CURRENT (2,157)
NET CHANGE FROM OPS 77,637
EQUALIZATION 0
DISTRIBUTIONS OF INCOME (73,007)
DISTRIBUTIONS OF GAINS (5,851)
DISTRIBUTIONS OTHER 0
NUMBER OF SHARES SOLD 20,963
NUMBER OF SHARES REDEEMED (17,320)
SHARES REINVESTED 5,238
NET CHANGE IN ASSETS 87,190
ACCUMULATED NII PRIOR 659
ACCUMULATED GAINS PRIOR 659
OVERDISTRIB NII PRIOR (881)
OVERDIST NET GAINS PRIOR (881)
GROSS ADVISORY FEES 6,800
INTEREST EXPENSE 0
GROSS EXPENSE 7,884
AVERAGE NET ASSETS 1,441,636
PER SHARE NAV BEGIN 9.95
PER SHARE NII 0.50
PER SHARE GAIN APPREC 0.03
PER SHARE DIVIDEND (0.05)
PER SHARE DISTRIBUTIONS (0.04)
RETURNS OF CAPITAL 0
PER SHARE NAV END 9.94
EXPENSE RATIO 0.55
AVG DEBT OUTSTANDING 0
AVG DEBT PER SHARE 0

ARTICLE 6
CIK: 0000315748
NAME: T ROWE PRICE TAX EXEMPT MONEY FUND, INC.
SERIES:
NUMBER: 01
NAME: T. ROWE PRICE TAX EXEMPT MONEY PLUS FUND
MULTIPLIER: 1000


PERIOD TYPE OTHER
FISCAL YEAR END FEB 28 1998
PERIOD END AUG 28 1998
INVESTMENTS AT COST 0
INVESTMENTS AT VALUE 0
RECEIVABLES 0
ASSETS OTHER 0
OTHER ITEMS ASSETS 0
TOTAL ASSETS 0
PAYABLE FOR SECURITIES 0
SENIOR LONG TERM DEBT 0
OTHER ITEMS LIABILITIES 0
TOTAL LIABILITIES 0
SENIOR EQUITY 0
PAID IN CAPITAL COMMON 0
SHARES COMMON STOCK 0
SHARES COMMON PRIOR 0
ACCUMULATED NII CURRENT 0
OVERDISTRIBUTION NII 0
ACCUMULATED NET GAINS 0
OVERDISTRIBUTION GAINS 0
ACCUM APPREC OR DEPREC 0
NET ASSETS 0
DIVIDEND INCOME 0
INTEREST INCOME 0
OTHER INCOME 0
EXPENSES NET 0
NET INVESTMENT INCOME 0
REALIZED GAINS CURRENT 0
APPREC INCREASE CURRENT 0
NET CHANGE FROM OPS 0
EQUALIZATION 0
DISTRIBUTIONS OF INCOME 0
DISTRIBUTIONS OF GAINS 0
DISTRIBUTIONS OTHER 0
NUMBER OF SHARES SOLD 0
NUMBER OF SHARES REDEEMED 0
SHARES REINVESTED 0
NET CHANGE IN ASSETS 0
ACCUMULATED NII PRIOR 0
ACCUMULATED GAINS PRIOR 0
OVERDISTRIB NII PRIOR 0
OVERDIST NET GAINS PRIOR 0
GROSS ADVISORY FEES 0
INTEREST EXPENSE 0
GROSS EXPENSE 0
AVERAGE NET ASSETS 0
PER SHARE NAV BEGIN 0
PER SHARE NII 0
PER SHARE GAIN APPREC 0
PER SHARE DIVIDEND 0
PER SHARE DISTRIBUTIONS 0
RETURNS OF CAPITAL 0
PER SHARE NAV END 0
EXPENSE RATIO 0
AVG DEBT OUTSTANDING 0
AVG DEBT PER SHARE 0

T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST

(on behalf of California Tax-Free Bond Fund California Tax-Free Money Fund)
T. ROWE PRICE CORPORATE INCOME FUND, INC.

T. ROWE PRICE FIXED INCOME SERIES, INC.

(on behalf of T. Rowe Price Limited-Term Bond Portfolio T. Rowe Price Prime Reserve Portfolio)
T. ROWE PRICE GNMA FUND

T. ROWE PRICE HIGH YIELD FUND, INC.
T. ROWE PRICE NEW INCOME FUND, INC.
T. ROWE PRICE PRIME RESERVE FUND, INC.
RESERVE INVESTMENT FUNDS, INC.

(on behalf of Government Reserve Investment Fund Reserve Investment Fund)
T. ROWE PRICE SHORT-TERM BOND FUND, INC.
T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
(on behalf of Florida Insured Intermediate Tax-Free Fund Georgia Tax-Free Bond Fund Maryland Short-Term Tax-Free Bond Fund Maryland Tax-Free Bond Fund New Jersey Tax-Free Bond Fund New York Tax-Free Bond Fund New York Tax-Free Money Fund Virginia Short-Term Tax-Free Bond Fund Virginia Tax-Free Bond Fund)
T. ROWE PRICE SUMMIT FUNDS, INC.
(on behalf of T. Rowe Price Summit Cash Reserves Fund T. Rowe Price Summit GNMA Fund T. Rowe Price Summit Limited-Term Bond Fund)
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.
(on behalf of T. Rowe Price Summit Municipal Income Fund T. Rowe Price Summit Municipal Intermediate Fund T. Rowe Price Summit Municipal Money Market Fund)
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.

T. ROWE PRICE TAX-FREE INCOME FUND, INC.
T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC.
and
T. ROWE PRICE U.S. TREASURY FUNDS, INC.

(on behalf of U.S. Treasury Intermediate Fund U.S. Treasury Long-Term Fund U.S. Treasury Money Fund)

POWER OF ATTORNEY

RESOLVED, that the Corporations/Trusts (collectively the "Corporations/Trusts" and individually the "Corporation/Trust") and each of its directors/trustees do hereby constitute and authorize, William T. Reynolds,


Joel H. Goldberg, and Henry H. Hopkins, and each of them individually, their true and lawful attorneys and agents to take any and all action and execute any and all instruments which said attorneys and agents may deem necessary or advisable to enable the Corporation/Trust to comply with the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and any rules, regulations, orders or other requirements of the United States Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of 1933, as amended, of shares of the Corporation/Trust, to be offered by the Corporation/Trust, and the registration of the Corporation/Trust under the Investment Company Act of 1940, as amended, including specifically, but without limitation of the foregoing, power and authority to sign the name of the Corporation/Trust on its behalf, and to sign the names of each of such directors/trustees and officers on his behalf as such director/trustee or officer to any amendment or supplement (including Post-Effective Amendments) to the Registration Statement on Form N-1A of the Corporation/Trust filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Registration Statement on Form N-1A of the Corporation/Trust under the Investment Company Act of 1940, as amended, and to any instruments or documents filed or to be filed as a part of or in connection with such Registration Statement.

IN WITNESS WHEREOF, the above named Corporations/Trusts have caused these presents to be signed and the same attested by its Secretary, each thereunto duly authorized by its Board of Directors/Trustees, and each of the undersigned has hereunto set his hand and seal as of the day set opposite his name.

ALL CORPORATIONS/TRUSTS

/s/Carmen F. Deyesu
____________________________        Treasurer (Principal Financial Officer)
April 22, 1998
Carmen F. Deyesu

/s/Calvin W. Burnett
____________________________        Director/Trustee April 22, 1998
Calvin W. Burnett

/s/Anthony W. Deering
____________________________        Director/Trustee April 22, 1998
Anthony W. Deering

/s/F. Pierce Linaweaver
____________________________        Director/Trustee April 22, 1998
F. Pierce Linaweaver

/s/John G. Schreiber
____________________________        Director/Trustee April 22, 1998
John G. Schreiber

(Signatures Continued)


JAMES S. RIEPE, Director

T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.

JAMES S. RIEPE, Vice President and Director/Trustee

T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST

T. ROWE PRICE CORPORATE INCOME FUND, INC.

T. ROWE PRICE FIXED INCOME SERIES, INC.

T. ROWE PRICE GNMA FUND

T. ROWE PRICE HIGH YIELD FUND, INC.

T. ROWE PRICE NEW INCOME FUND, INC.

T. ROWE PRICE PRIME RESERVE FUND, INC.

RESERVE INVESTMENT FUNDS, INC.

T. ROWE PRICE SHORT-TERM BOND FUND, INC.

T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.

T. ROWE PRICE STATE TAX-FREE INCOME TRUST

T. ROWE PRICE SUMMIT FUNDS, INC.

T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.

T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.

T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.

T. ROWE PRICE TAX-FREE INCOME FUND, INC.

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

T. ROWE PRICE U.S. TREASURY FUNDS, INC.

/s/James S. Riepe
____________________________                      April 22, 1998
James S. Riepe

(Signatures Continued)


M. DAVID TESTA, Director/Trustee

T. ROWE PRICE CALFORNIA TAX-FREE INCOME TRUST

T. ROWE PRICE CORPORATE INCOME FUND, INC.

T. ROWE PRICE FIXED INCOME SERIES, INC.

T. ROWE PRICE GNMA FUND

T. ROWE PRICE HIGH YIELD FUND, INC.

T. ROWE PRICE NEW INCOME FUND, INC.

T. ROWE PRICE PRIME RESERVE FUND, INC.

RESERVE INVESTMENT FUNDS, INC.

T. ROWE PRICE SHORT-TERM BOND FUND, INC.

T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.

T. ROWE PRICE STATE TAX-FREE INCOME TRUST

T. ROWE PRICE SUMMIT FUNDS, INC.

T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.

T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.

T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.

T. ROWE PRICE TAX-FREE INCOME FUND, INC.

T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.

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

T. ROWE PRICE U.S. TREASURY FUNDS, INC.

/s/M. David Testa
____________________________                      April 22, 1998
M. David Testa

(Signatures Continued)


WILLIAM T. REYNOLDS, Chairman of the Board (Principal Executive Officer)

T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST

T. ROWE PRICE CORPORATE INCOME FUND, INC.

T. ROWE PRICE FIXED INCOME SERIES, INC.

T. ROWE PRICE HIGH YIELD FUND, INC.

T. ROWE PRICE NEW INCOME FUND, INC.

T. ROWE PRICE PRIME RESERVE FUND, INC.

RESERVE INVESTMENT FUNDS, INC.

T. ROWE PRICE SHORT-TERM BOND FUND, INC.

T. ROWE PRICE SHORT-TERM U.S. GOVERNMENT FUND, INC.

T. ROWE PRICE STATE TAX-FREE INCOME TRUST

T. ROWE PRICE SUMMIT FUNDS, INC.

T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC.

T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC.

T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC.

T. ROWE PRICE TAX-FREE INCOME FUND, INC.

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

WILLIAM T. REYNOLDS, Director/Trustee

T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.

T. ROWE PRICE U.S. TREASURY FUNDS, INC.

T. ROWE PRICE GNMA FUND

/s/William T. Reynolds
____________________________                      April 22, 1998
William T. Reynolds

(Signatures Continued)


T. ROWE PRICE GNMA FUND

T. ROWE PRICE U.S. TREASURY FUNDS, INC.

/s/Peter Van Dyke
____________________________        President     April 22, 1998
Peter Van Dyke

T. ROWE PRICE TAX-FREE INSURED INTERMEDIATE BOND FUND, INC.

/s/Charles B. Hill
____________________________        President     April 22, 1998
Charles B. Hill

ATTEST:



/s/Patricia S. Butcher
____________________________
Patricia S. Butcher, Secretary