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October 31, 2000
FUND PROFILE
T. ROWE PRICE
U.S. Bond Index Fund
A bond fund that seeks to match the performance of a broad U.S. bond index.
This profile summarizes key information about the fund that is included in the
fund's prospectus. The fund's prospectus includes additional information about
the fund, including a more detailed description of the risks associated with
investing in the fund that you may want to consider before you invest. You may
obtain the prospectus and other information about the fund at no cost by calling
1-800-638-5660, or by visiting our Web site at www.troweprice.com.
(T. ROWE PRICE RAM LOGO)
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What is the fund's objective?
The fund seeks to match the total return performance of the U.S.
investment-grade bond market.
What is the fund's principal investment strategy?
The fund's managers will use passive investment management techniques in an
effort to closely match the performance of the overall U.S. investment-grade
bond market, as represented by the Lehman Brothers Aggregate Bond Index.
Because this Lehman index typically includes more than 5,000 fixed-income
securities, and the cost of owning and trading such a large number of
securities would be prohibitive, the fund intends to use a sampling strategy.
Under this approach, we will consider each broad segment of the benchmark -
government bonds, mortgages, and corporate issues - and within each segment
select a set of U.S. dollar-denominated bonds that is representative of key
benchmark traits. The most important of these traits are interest rate
sensitivity, credit quality, and sector diversification, although other
characteristics will be reflected.
As part of this strategy, we expect to own U.S. government and agency
obligations, mortgage- and asset-backed securities, corporate bonds and U.S.
dollar-denominated securities of foreign issuers. Other types of bonds may
also be purchased so long as the overall portfolio has similar traits as the
index.
The fund's manager will invest substantially all fund assets in bonds
specifically represented in the index. However, we may purchase securities
not held in the index, such as certain types of derivatives, if they have the
same characteristics as index securities but offer more attractive prices or
yields.
T. Rowe Price continually compares the composition of the fund to that of the
index. If a misweighting develops, the portfolio is rebalanced in an effort
to bring it into line with the index. When investing cash flow, the fund may
purchase bonds, futures, options or other derivatives. This approach is
intended to minimize any deviations in performance between the index and the
fund.
The fund may sell securities to better align the portfolio with the
characteristics of its benchmark or to satisfy redemption requests. However,
the fund is not required to sell specific bond issues that have been removed
from the index. The inclusion of a bond in the Lehman Brothers Aggregate Bond
Index is in no way an endorsement by Lehman Brothers of the bond as an
investment, nor is Lehman Brothers a sponsor of the fund or in any way
affiliated with it.
Further information about the fund's investments, including a review of
market conditions and fund strategies and their impact on performance, is
available in the annual and semiannual shareholder reports. To obtain free
copies of either of these documents, call 1-800-638-5660.
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What are the main risks of investing in the fund?
This fund is designed to track the performance of investment-grade bonds,
regardless of whether they are rising or falling. Because index funds are
passively managed and fully invested at all times, assets can not be shuffled
from one bond or group of bonds to another based on their prospects in an
attempt to cushion the impact of a market decline. Therefore, actively
managed funds may outperform index funds. In addition, index funds carry the
same overall risks as the indexes they are designed to track. The following
are the principal risks the fund may face:
. Interest rate risk Investors should be concerned primarily with this risk.
An increase in interest rates could cause the fund's share price to fall,
resulting in a loss of principal. That's because the bonds and notes in the
fund's portfolio become less attractive to other investors when securities
with higher yields become available. Even GNMAs and other securities whose
principal and interest payments are guaranteed by the U.S. government can
decline in price if rates rise. The longer a bond's maturity, the greater its
potential for price declines if rates rise and for price gains if rates fall.
Because the fund may invest in bonds of any maturity, it carries more
interest rate risk than short-term bond funds.
. Credit risk This is the chance that any of a fund's holdings will have its
credit rating downgraded or will default (fail to make scheduled interest or
principal payments), potentially reducing the fund's income level and share
price. While the fund's overall credit quality is investment grade (AAA-BBB),
BBB securities are more susceptible to adverse economic conditions and some
may have speculative characteristics.
. The fund may continue to hold a security that has been downgraded or loses
its investment-grade rating after purchase.
. Prepayment risk and extension risk A mortgage-backed bond, unlike most other
bonds, can be hurt when interest rates fall, because homeowners tend to
refinance and prepay principal. The loss of high-yielding, underlying
mortgages and the reinvestment of proceeds at lower interest rates can reduce
the bond's potential price gain in response to falling interest rates, reduce
the bond's yield, or even cause the bond's price to fall below what an
investor paid for it, resulting in a capital loss. Any of these developments
could cause a decrease in the fund's income, share price, or total return.
Extension risk refers to a rise in interest rates that causes a fund's
average maturity to lengthen unexpectedly due to a drop in mortgage
prepayments. This would increase the fund's sensitivity to rising rates and
its potential for price declines.
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. Derivatives risk Shareholders are also exposed to derivatives risk, the
potential that our investments in these complex and volatile instruments
could affect the fund's share price. In addition to CMOs and better-known
instruments such as futures, other derivatives that may be used in limited
fashion by the fund include interest-only (IO) and principal-only (PO)
securities known as "strips." The value of these instruments is derived from
an underlying pool of mortgage-backed securities or a CMO. All these
instruments can be highly volatile, and their value can fall dramatically in
response to rapid or unexpected changes in the mortgage or interest rate
environment.
. Tracking error Differences between the composition of the fund and its
index, as well as differences in pricing sources, will likely result in
tracking error, or the risk that fund performance will not match that of the
index. Tracking error will also result because the fund incurs fees and
transaction expenses while indices have none. The timing of cash flows and
the fund's size can also influence returns.
As with any mutual fund, there can be no guarantee the fund will achieve its
objective.
. The fund's share price may decline, so when you sell your shares, you may
lose money.
How can I tell if the fund is appropriate for me?
Consider your investment goals, your time horizon for achieving them, and
your tolerance for risk. If you seek a low-cost way to participate in the
U.S. investment-grade bond market through a passively managed fund that
tracks a well-known benchmark, the fund may be an appropriate investment.
The fund can be used in both regular and tax-deferred accounts, such as IRAs.
. The fund should not represent your complete investment program or be used
for short-term trading purposes.
How has the fund performed in the past?
Because the fund commenced operations in 2000, there is no historical
performance information shown here. Performance history will be available in
the prospectus after the fund has been in operation for one calendar year.
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. Redemption proceeds of less than $5,000 sent by wire are
subject to a $5 fee paid to the fund.
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The fund has a single, all-inclusive fee covering investment management and
operating expenses. This fee will not fluctuate. In contrast, most mutual
funds have a fixed management fee plus a fee for operating expenses that
varies according to a number of other factors.
<TABLE>
Table 1 Fees and Expenses of the Fund
<CAPTION>
Annual fund operating expenses
(expenses that are deducted from fund assets)
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<S> <C>
Management fee NEED%/a// /
Other expenses NEED%
Total annual fund operating NEED%/a// /
expenses
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</TABLE>
/a/ The management fee includes operating expenses.
Example. The following table gives you a rough idea of how expense ratios
may translate into dollars and helps you to compare the cost of investing in
this fund with that of other mutual funds. Although your actual costs may be
higher or lower, the table shows how much you would pay if operating expenses
remain the same, you invest $10,000, earn a 5% annual return, and hold the
investment for the following periods and then redeem:
<TABLE>
<CAPTION>
1 year 3 years
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<S> <C>
$NEED $NEED
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</TABLE>
Who manages the fund?
The fund is managed by T. Rowe Price Associates, Inc. Founded in 1937, T.
Rowe Price and its affiliates manage investments for individual and
institutional accounts. The company offers a comprehensive array of stock,
bond, and money market funds directly to the investing public.
Edmund M. Notzon manages the fund day-to-day and has been chairman of its
Investment Advisory Committee since its inception. He has been managing
investments since joining T. Rowe Price in 1989.
Note: The following questions and answers about buying and selling shares and
services do not apply to employer-sponsored retirement plans. If you are a
participant in one of these plans, please call your plan's toll-free number for
additional information.
How can I purchase shares?
Fill out the New Account Form and return it with your check in the postpaid
envelope. The minimum initial purchase is $2,500 ($1,000 for IRAs and gifts
or transfers to minors). The minimum subsequent investment is $100 ($50 for
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IRAs, gifts or transfers to minors, or Automatic Asset Builder). You can also
open an account by bank wire, by exchanging from another T. Rowe Price fund,
or by transferring assets from another financial institution.
How can I sell shares?
You may redeem or sell any portion of your account on any business day.
Simply write to us or call. You can also access your account at any time via
Tele*Access /(R)/ or our Web site. We offer convenient exchange among our
entire family of domestic and international funds. Restrictions may apply in
special circumstances, and some redemption requests need a signature
guarantee. A $5 fee is charged for wire redemptions under $5,000.
When will I receive income and capital gain distributions?
The fund distributes income monthly and net capital gains, if any, at
year-end. For regular accounts, income and short-term gains are taxable at
ordinary income rates, and long-term gains are taxable at the capital gains
rate. Distributions are reinvested automatically in additional shares unless
you choose another option, such as receiving a check. Distributions paid to
IRAs and employer-sponsored retirement plans are automatically reinvested.
What services are available?
A wide range, including but not limited to:
. retirement plans for individuals and large and small businesses;
. automated information and transaction services by telephone or computer;
. electronic transfers between fund and bank accounts;
. automatic investing and automatic exchange;
. brokerage services; and
. asset manager accounts.
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T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
www.troweprice.com
(LOGO)
F134-035 10/31/00
T. Rowe Price Investment Services, Inc., Distributor
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NEW ACCOUNT FORM (LOGO)
You may purchase shares of a T. Rowe Price fund after
reviewing the information in the profile or after requesting
and reviewing the fund's prospectus (and other information).
Please note: an IRA will not be established using this form.
If you want to open an IRA, call 1-800-638-5660 to request
an IRA New Account Form.
Mail this form to: T. Rowe Price
P.O. Box 17300, Baltimore, MD 21298-9353
For help with this form, call toll free 1-800-638-5660.
Please do not remove the mailing label from this form.
1 PROVIDE YOUR TAX IDENTIFICATION NUMBER
Owner's or Minor's Social Security or Tax ID Number
(Use Minor's Social Security Number for Custodial Account)
_ _ _ _ _ _ _ _ _
Joint Owner's or Custodian's Social Security or Tax ID Number
_ _ _ _ _ _ _ _ _
2 DESIGNATE TYPE OF ACCOUNT AND OWNER NAME(S)
Please print in CAPITAL LETTERS. Choose one:
__ Individual or Joint Account.*
*Joint tenancy with right of survivorship unless you instruct otherwise.
Owner's Name (First, Middle Initial, Last)
________________________________
Title: Mr. Ms. Mrs. Dr.
Joint Owner's Name (First, Middle Initial, Last)
________________________________
Title: Mr. Ms. Mrs. Dr.
__ Custodial Account.
Uniform Gift or Transfer to Minors Act (UGMA or UTMA)
Custodian's Name (First, Middle Initial, Last)
________________________________
Minor's Name (First, Middle Initial, Last)
________________________________
State of Residence (Minor's or Custodian's)
________________________________
__ Trust, Corporation, Business, or Other Entity Account.*
*Please attach the first and last pages of the trust agreement or a copy
of
the corporate resolution.
Name of Trust, Corporation, or Other Entity
_________________________________________________________
Trustee Names or Type of Entity
________________________________________________________
Name of Trust Beneficiary (Optional) Date of Trust Agreement
________________ __-__-__
month day year
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FUND PROFILE
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__ Check this box if your organization is incorporated or tax-exempt under
Section 501(a) of the Internal Revenue Code, a qualified retirement plan
under Section 401(a), or a custodial account under Section 403(b)(7),
and
you DO NOT want us to file information returns on your behalf.
3 PROVIDE YOUR ADDRESS
Street Address or P.O. Box
__________________________________________________
__________________________________________________
City State
____________________ __
ZIP Code
_ _ _ _ _ - _ _ _ _
4 PROVIDE OTHER ACCOUNT DATA
Daytime Phone Ext.
_ _ _ _ _ _ - _ _ _ _ _ _ _ _
Evening Phone Ext.
_ _ _ _ _ _ - _ _ _ _ _ _ _ _
Date of Birth (Owner/Minor)
Date of Birth (Joint Owner/Custodian)
_ _ - _ _ - _ _ _ _ - _ _ - _ _
month day year month day year
__ U.S. Citizen __ Resident Alien
__ Nonresident Alien. My permanent foreign address for tax purposes is:
_____________________________________
_____________________________________
Owner's Occupation / Employer Name (Optional)
_____________________________________
Employer Address (Optional)
__________________________________________________________________________
5 SELECT YOUR FUND(S)
Please print the fund name(s) exactly as listed inside the Investment Kit you
received with this form. Fill in the amount of your investment for each fund.
The minimum initial investment is $2,500 per fund ($1,000 for UGMAs/UTMAs)
but is waived if you use Automatic Asset Builder (see Sections 6 and 7E).
Fund Name Amount
__________________________________ $________
Fund Name Amount
__________________________________ $________
Fund Name Amount
__________________________________ $________
Fund Name Amount
__________________________________ $________
Total Investment$________
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6 CHOOSE YOUR INVESTMENT METHOD
A. __ By check.
Make payable to T. Rowe Price Funds. (Otherwise it may be returned.)
B. __ By Automatic Asset Builder.
See Section 7E for instructions.
C. __ By wire.
Please call 1-800-225-5132 for the following information and wiring
instructions:
Account Number
_ _ _ _ _ _ _ _ _ _ - _
Date of Wire
_ _ - _ _ - _ _
month day year
(over, please)
7 SELECT YOUR ACCOUNT SERVICE OPTIONS
A. TO RECEIVE YOUR DISTRIBUTIONS
Your dividends and capital gains will be reinvested unless you indicate
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otherwise.
__ Pay dividends and capital gains to me by check.
__ Transfer dividends and capital gains to my bank account.
(Please complete Section 7C if you elect this option.)
__ Pay dividends to me by check and reinvest capital gains.
B. TO EXCHANGE AND REDEEM FUND SHARES
You can use the telephone or your personal computer to check your account
balance, redeem shares, or make exchanges among any identically registered
accounts unless you check the boxes below.
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__ I do NOT want telephone/computer exchange.
__ I do NOT want telephone/computer redemption.
C. TO MAKE TRANSFERS BETWEEN YOUR BANK AND T. ROWE PRICE
This service makes purchasing or redeeming fund shares even more convenient.
Simply call a T. Rowe Price representative or Tele*Access (R) and your
transaction
will be processed by electronically moving money between your bank
account and your mutual fund accounts.
Transfers occur only when you initiate them ($100 minimum) and are made
through the Automated Clearing House (ACH) network or by wire.* This service
becomes available approximately 20 days after your application is
processed. Since you initiate transfers by phone or computer, be sure that
you did not decline the phone/computer redemption service above.
__ Check this box to set up this service. YOU MUST ALSO ATTACH A BLANK,
VOIDED CHECK (other than your investment check) from your bank
account to this form.
Any co-owner of your bank account who is not a co-owner of
---
your mutual fund account must sign below.
X___________________________________________
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Bank Account Co-owner's Signature
*There is a $5 fee for wire redemptions under $5,000 but no fee for ACH
transactions.
ATTACH VOIDED CHECK HERE
D. TO SET UP CHECKWRITING
You can write checks for $500 or more on all T. Rowe Price money market and
bond fund accounts (except the High Yield and Emerging Markets Bond funds).
Those authorized to write checks should read the checking agreement and sign
below.
By signing this form, I agree to all of State Street Bank's checking account
rules, and to any conditions and limitations on redeeming checks from the
T. Rowe Price Funds. I also agree that:
(1) This form applies to any other identically registered T. Rowe Price
fund checking account I establish later;
(2) If I am subject to IRS backup withholding, I may write checks only on
money fund accounts;
(3) State Street Bank and the Fund reserve the right to change, revoke, or
close any checking account;
(4) The signatures are authentic, and, for organizations, I have submitted
an original or certified resolution authorizing the individuals with legal
capacity to sign and act on behalf of the organization.
(Do not detach this section from the rest of the form.)
_____________________________________________________
Fund Name Fund Name
_____________________________________________________
Print Name of Owner, Custodian, or Trustee
X___________________________________________________
Signature Date
_____________________________________________________
Print Name of Joint Owner, Co-trustee, Corporate Officer, etc.
X___________________________________________________
Signature Date
How many signatures do you require on checks?
__ Only one owner __ All owners
G00-008 6/30/98
E. TO SET UP AUTOMATIC ASSET BUILDER
This service allows you to automatically invest in your fund account through
your
bank account and/or payroll deduction each month (minimum $50 per fund).
___ Check this box to invest from your bank account.
Be sure to complete Section 7C and fill in the information below.
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Fund Name
__________________________________________________________________________
Amount Day of Month You Would Like to Invest
__________________________________ ____
Fund Name
__________________________________________________________________________
Amount Day of Month You Would Like to Invest
_____________________ ___
Fund Name
__________________________________________________________________________
Amount Day of Month You Would Like to Invest
_____________________ ___
Fund Name
__________________________________________________________________________
Amount Day of Month You Would Like to Invest
_____________________ ___
____ Check this box to invest through payroll deduction.
T. Rowe Price will mail you instructions for this service.
8 SIGN YOUR NEW ACCOUNT FORM
By signing this form, I certify that:
- I agree to be bound by the terms of the prospectus for each fund in which
I am investing. If I am purchasing shares after reviewing a fund profile, I
understand that I will receive the prospectus after I purchase shares in the
fund. I have the authority and legal capacity to purchase mutual fund shares,
am of legal age in my state, and believe each investment is suitable for me.
- I authorize T. Rowe Price, the Funds, their affiliates and agents to act on
any
instructions believed to be genuine for any service authorized on this form,
including telephone/computer services. The Funds use reasonable procedures
(including shareholder identity verification) to confirm that instructions
given by telephone/computer are genuine, and the Funds 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 may be liable for any
loss that may result from acting on instructions given.) I understand that
anyone who can properly identify my account(s) can make phone/computer
transactions on my behalf.
- The Funds can redeem shares from my account(s) to reimburse a fund for
any loss due to nonpayment or other indebtedness.
- By selecting the electronic transfer service in Section 7C, I hereby authorize
T. Rowe Price to initiate credit and debit entries to my (our) account at the
Financial Institution indicated and for the Financial Institution to credit or
debit the same to such account through the Automated Clearing House
(ACH) system, subject to the rules of the Financial Institution, ACH, and the
Fund. T. Rowe Price may correct any transaction error with a debit or credit
to my Financial Institution account and/or Fund account. THIS AUTHORIZATION,
including any credit or debit entries initiated thereunder, is in full
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force and effect until I notify T. Rowe Price of its revocation by telephone
or in writing and T. Rowe Price has had sufficient time to act on it.
- Under penalties of perjury, the tax identification number(s) shown on
this form is correct. If I fail to give the correct number or fail to sign this
form, T. Rowe Price may reject, restrict, or redeem my investment. I may
also be subject to IRS backup withholding (currently 31%) on all
distributions and redemptions, and I may be subject to a $50 IRS penalty.
- Under penalties of perjury, I am NOT subject to IRS backup withholding
because 1) I have not been notified, or 2) notification has been revoked
(cross out "NOT" if you are currently subject to withholding), or 3) I have
indicated in Section 4 that I am a nonresident alien and certify that for
dividends I am not a U.S. citizen or resident (or I am filing for a foreign
corporation, partnership, estate, or trust).
- For clarification on any of these certification issues, please contact us for
assistance.
- The IRS does not require your consent to any provision of this document
other than the certifications required to avoid backup withholding.
PLEASE SIGN HERE
X__________________________________________________
Signature of Owner, Custodian, or Trustee Date
X__________________________________________________
Signature of Joint Owner, Co-trustee, Corporate Officer, etc. Date
Thank you for your investment. You will receive a confirmation shortly.
8
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