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October 1, 2000
FUND PROFILE
T. ROWE PRICE
Short-TermBond Fund
A bond fund seeking higher than money market income and minimal share price
fluctuation.
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.
TROWEPRICELOGO
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FUND PROFILE
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What is the fund's objective?
The fund seeks a high level of income consistent with minimal fluctuation in
principal value and liquidity.
What is the fund's principal investment strategy?
We invest in a diversified portfolio of short- and intermediate-term
investment-grade corporate, government, and mortgage-backed securities. We
may also invest in bank obligations, collateralized mortgage obligations,
foreign securities, and hybrids. Normally, at least 65% of total assets will
be invested in short-term bonds. The fund's average effective maturity will
not exceed three years, and no security's effective maturity will exceed
seven years when purchased. (An issue's effective maturity is based on its
nearest call date rather than its maturity date.) We will purchase only
securities that are rated within the four highest credit categories (AAA, AA,
A, BBB) by at least one national rating agency or, if unrated, that have a T.
Rowe Price equivalent rating.
Within this broad structure, investment decisions reflect the manager's
outlook for interest rates and the economy as well as the prices and yields
of the various securities. For example, if rates are expected to fall, the
manager may seek longer-term securities (within the fund's program) that
would provide higher yields and appreciation potential.
We may also invest in other securities, including futures and options, in
keeping with the fund's objective.
The fund 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.
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.
What are the main risks of investing in the fund?
Unlike money market funds, which are managed to maintain a stable share
price, the fund's price can decline. The share price, yield, and overall
return will be affected by the following:
. 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 can decline in price if rates
rise. The longer a
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FUND PROFILE
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bond's maturity, the greater its potential for price declines if rates rise,
and for price gains if rates fall.
. 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. While the fund's overall credit quality is investment grade, BBB
securities may be 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 Because the fund can invest extensively
in mortgage-backed securities, it has special risks related to changing
interest rates. 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.
. Foreign investing risk To the extent the fund holds foreign bonds, it will
be subject to special risks whether the bonds are denominated in U.S. dollars
or foreign currencies. These risks include potentially adverse political and
economic developments overseas, greater volatility, lower liquidity, and the
possibility that foreign currencies will decline against the dollar, lowering
the value of securities denominated in those currencies and possibly the
fund's share price. Currency risk can affect the fund to the extent that it
holds nondollar foreign bonds.
In addition, derivative securities held by the fund can be unusually
volatile, and a small position could cause a significant loss.
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. An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
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FUND PROFILE
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How can I tell if the fund is appropriate for me?
Consider your investment goals, your time horizon for achieving them, and
your tolerance for risk. The fund is designed for individuals seeking a
higher level of income than money market funds provide and who can accept the
risk of modest price declines. If you are investing primarily for principal
safety and liquidity, you should consider a money market fund.
The fund can be used in both regular and tax-deferred accounts, such as IRAs.
. The fund should not represent your complete investment program or be used
for short-term trading purposes.
How has the fund performed in the past?
The bar chart showing calendar year returns and the average annual total
return table indicate risk by illustrating how much returns can differ from
one year to the next and over time. Fund 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 during the years depicted in the
chart.
LOGO
<TABLE>
<CAPTION>
Calendar Year Total Returns
"90" "91" "92" "93" "94" "95" "96" "97" "98" "99"
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.63 11.21 5.02 6.62 -2.92 9.74 3.91 6.29 6.18 2.29
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</TABLE>
Quarter ended Total return
Best quarter 9/30/91 4.19%
Worst quarter 12/31/94 -1.46%
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<TABLE>
Table 1 Average Annual Total Returns
<CAPTION>
Periods ended 09/30/2000
1 year 5 years 10 years
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<S> <C> <C> <C>
Short-Term Bond Fund 6.09% 5.41% 5.62%
Lehman Brothers 1-3 Yr US
Gov't/Credit Index 5.99 5.96 6.54
Lipper Short Investment Grade Debt 5.73 5.42 6.29
Funds Average
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</TABLE>
These figures include changes in principal value, reinvested dividends, and
capital gain distributions, if any.
Lehman indices do not reflect the deduction of any fees or expenses.
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.
<TABLE>
Table 2 Fees and Expenses of the Fund
<CAPTION>
Annual fund operating expenses
(expenses that are deducted from fund assets)
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<S> <C> <S>
Management fee 0.42%/ /
Other expenses 0.30%
Total annual fund operating
expenses 0.72%/ /
Fee waiver/reimbursement
Net expenses 0.55%/a/
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</TABLE>
/a/Effective October 1, 2000, T. Rowe Price contractually obligated itself to
waive any fees and bear any expenses through May 31, 2002, to the extent such
fees or expenses would cause the fund's ratio of expenses to average net
assets to exceed 0.55%. Fees waived or expenses paid or assumed under this
agreement are subject to reimbursement to T. Rowe Price whenever the fund's
expense ratio is below 0.55%; however, no reimbursement will be made after
May 31, 2004, or if it would result in the expense ratio exceeding 0.55%.
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, the expense limitation currently in place is not renewed,
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 5 years 10 years
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<S> <C> <C> <C>
$56 $195 $366 $862
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</TABLE>
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FUND PROFILE
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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.
Edward A. Wiese manages the fund day-to-day and has been chairman of its
Investment Advisory Committee since 1995. He joined T. Rowe Price in 1984 and
has been managing investments since 1985.
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
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.
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;
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. electronic transfers between fund and bank accounts;
. automatic investing and automatic exchange;
. brokerage services; and
. asset manager accounts.
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
www.troweprice.com
LOGO
RPS F55-035
T. Rowe Price Investment Services, Inc., Distributor
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