January 16, 2001
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: T. Rowe Price Index Trust, Inc.
consisting of its series:
T. Rowe Price Equity Index 500 Fund
T. Rowe Price Extended Equity market Index Fund
T. Rowe Price Total Equity market Index Fund
File No.: 033-32859/811-5986
T. Rowe Price International Index Fund, Inc.
consisting of its series:
T. Rowe Price International Equity Index Fund
File No.: 333-44961/811-10063
T. Rowe Price U.S. Bond Index Fund, Inc.
File No.: 333-45018/811-10093
To Whom It May Concern:
In accordance with the provisions of Rule 497 of the Securities Act of 1933, we
are hereby filing the above-captioned Funds' Prospectus dated May 1, 2000
(October 31, 2000 for International Equity Index Fund and U.S. Bond Index Fund)
revised to December 15, 2000, which will be used for the offer and sale of Fund
shares. The Prospectus combines information from three different Registration
Statements for marketing purposes.
If you have any questions about this filing, please call me at 410-345-6601, or
in my absence, Danielle Nicholson Smith at 410-345-4621.
Sincerely,
/s/Forrest R. Foss
Forrest R. Foss
<PAGE>
May 1, 2000(October 31, 2000 forInternational EquityIndex Fund andU.S. Bond
Index Fund)revised toDecember 15, 2000
PROSPECTUS
T. Rowe Price Index Funds
Equity Index 500
Extended Equity Market Index
Total Equity Market Index
International Equity Index
U.S. Bond Index
Five funds seeking to match performance of broad indices of common stocks and
bonds.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
TROWEPRICERAMLOGO
<PAGE>
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 International Index Fund, Inc.
T. Rowe Price International Equity Index Fund
T. Rowe Price U.S. Bond Index Fund, Inc.
T. Rowe Price U.S. Bond Index Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ABOUT THE FUND
1 S
Objective, Strategy, Risks, and Expenses 1
-----------------------------------------------
Other Information About the Fund 12
s
-----------------------------------------------
Some Basics of Fixed Income Investing 1
3
-----------------------------------------------
ABOUT YOUR ACCOUNT
2
Pricing Shares and Receiving 16
Sale Proceeds
-----------------------------------------------
Useful Information on
Distributions 18
and Taxes
-----------------------------------------------
Transaction Procedures and 21
Special Requirements
-----------------------------------------------
MORE ABOUT THE FUND
3 S
Organization and Management 24
-----------------------------------------------
Understanding Performance Information 26
-----------------------------------------------
Investment Policies and Practices 27
-----------------------------------------------
Financial Highlights 35
-----------------------------------------------
INVESTING WITH T. ROWE PRICE
4
Account Requirements 39
and Transaction Information
-----------------------------------------------
Opening a New Account 39
-----------------------------------------------
Purchasing Additional Shares 41
-----------------------------------------------
Exchanging and Redeeming 41
Shares
-----------------------------------------------
Rights Reserved by the Funds 43
-----------------------------------------------
Information About Your Services 44
-----------------------------------------------
T. Rowe Price 46
Brokerage
-----------------------------------------------
Investment Information 47
-----------------------------------------------
</TABLE>
Prospectus
May 1, 2000 (October 31, 2000 for International Equity Index Fund
and U.S. Bond Index Fund) revised to December 15, 2000
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $179 billion for more than eight million
individual and institutional investor accounts as of December 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.
<PAGE>
ABOUT THE FUNDS
OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
----------------------------------------------------------
To help you decide whether these funds are appropriate for you, this section
reviews their major characteristics.
What is each fund's objective?
Equity Index 500 Fund (formerly the Equity Index Fund)
To match the performance of the Standard & Poor's 500 Stock Index/(R)/. The
S&P 500 is made up of primarily large-capitalization companies that represent
a broad spectrum of the U.S. economy and a substantial part of the U.S. stock
market's total capitalization. (Market capitalization is the number of a
company's outstanding shares multiplied by the market price per share.)
Extended Equity Market Index Fund
To match the performance of the U.S. stocks not included in the S&P 500.
These are primarily small- and mid-capitalization stocks (market
capitalization below the 1,000 largest companies in the U.S. stock market and
between the 200 and 1,000 largest, respectively). We use the Wilshire 4500
Completion Index to represent this universe.
Total Equity Market Index Fund
To match the performance of the entire U.S. stock market. We use the Wilshire
5000 Total Market Index to represent the market as a whole. Because the
largest stocks in the index carry the most weight, large-capitalization
stocks make up a substantial majority of the Wilshire 5000's value.
International Equity Index Fund
To provide long-term capital growth. We use the FTSE Developed ex North
America Index(TM), an equity market index based on the market capitalization
of over 1,000 predominately large companies listed in about 20 countries,
including Japan, the U.K., and developed countries in Continental Europe and
the Pacific Rim.
U.S. Bond Index Fund
To match the total return performance of the U.S. investment-grade bond
market. We use the Lehman Brothers U.S. Aggregate Index, which typically
includes more than 5,000 fixed-income securities with an overall intermediate
to long-range dollar-weighted average maturity. The range was 8.4 to 9.0
years for the last five years ending December 31, 1999, although it will vary
with market conditions.
<PAGE>
T. ROWE PRICE 2
The inclusion of a stock or bond in the S&P 500 Index, the Wilshire, the
FTSE(TM), or the Lehman Brothers indices is not an endorsement by Standard &
Poor's, Wilshire Associates, FTSE, or Lehman Brothers of the stock or bond as
an investment, nor are S&P, Wilshire, FTSE, and Lehman Brothers sponsors of
the funds or in any way affiliated with them.
What is each fund's principal investment strategy?
The Equity Index 500 Fund invests substantially all of its assets in all of
the stocks in the S&P 500 Index. We attempt to maintain holdings of each
stock in proportion to its weight in the index. This is known as a full
replication strategy.
Standard & Poor's constructs the index by first identifying major industry
categories and then allocating a representative sample of the larger and more
liquid stocks in those industries to the index. S&P weights each stock
according to its total market value. For example, the 50 largest companies in
the index may account for over 50% of its value.
The Extended Equity Market Index Fund uses a sampling strategy, investing
substantially all of its assets in a group of stocks representative of the
Wilshire 4500 Index. The fund does not attempt to fully replicate the index
by owning each of the stocks in it. Despite its name, the Wilshire 4500
includes more than 6,500 stocks.
The Total Equity Market Index Fund also uses a sampling strategy, investing
substantially all of its assets in a broad spectrum of small-, mid-, and
large-capitalization stocks representative of the Wilshire 5000 Index.
In an attempt to recreate the Wilshire indices, we select stocks in terms of
industry, size, and other characteristics. For example, if technology stocks
made up 15% of the Wilshire index, the Extended Equity Market Index Fund
would invest about 15% of its assets in technology stocks with similar
characteristics. Several factors are considered in selecting representative
stocks, including historical price movement, market capitalization,
transaction costs, and others.
The International Equity Index Fund will attempt to match the performance of
the FTSE Developed ex North America Index by using a full replication
strategy, investing substantially all of its assets in all of the stocks in
the index. We attempt to own every stock in the index in proportion to its
weight in the index. The index is constructed by selecting the countries it
covers, sorting the market by industry groups, and targeting a significant
portion of them for inclusion in the index.
The U.S. Bond Index Fund also uses a sampling strategy, investing
substantially all fund assets in bonds specifically represented in the Lehman
Brothers U.S. Aggregate Index. Under this approach, we will consider each
broad segment of the benchmark - government bonds, mortgages, and corporate
issues - and within
<PAGE>
ABOUT THE FUNDS 3
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.
The fund's manager will invest substantially all fund assets in bonds
specifically represented in the index. As a result, 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 securities may also be purchased, such as collateralized mortgage
obligations (CMOs) and certain types of derivatives, provided they have
similar characteristics to index securities but potentially offer more
attractive prices, yields, or liquidity. Derivatives, such as futures and
options, will not exceed 10% of the fund's total assets. This flexibility in
investing is intended to help the manager keep the fund's composition in line
with the index and minimize deviations in performance between the fund and
the index. While there is no guarantee, the investment manager expects the
correlation between the fund and the index to be at least .95. A correlation
of 1.00 means the returns of the fund and the index move in the same
direction (but not necessarily by the same amount). A correlation of 0.00
means movements in the fund are unrelated to movements in the index.
All funds except U.S. Bond Index
T. Rowe Price continually compares the composition of all four funds to that
of the indices. If a misweighting develops, the portfolios are rebalanced in
an effort to bring them into line with their respective indices. When
investing cash flow, the funds may purchase stocks, stock index futures, or
stock options (up to 10% of total assets for the International Equity Index
Fund). This approach is intended to minimize any deviations in performance.
<TABLE>
Table 1 Index Funds Comparison Guide
<CAPTION>
<C>
Fund
Equity Index 500
Extended Equity Market Index
Total Equity Market Index
International Equity Index
U.S. Bond Index
-------------------------------
<CAPTION>
<S>
Fund
Equity Index 500
Extended Equity Market Index
Total Equity Market Index
International Equity Index
U.S. Bond Index
-------------------------------
</TABLE>
<PAGE>
T. ROWE PRICE 4
Each fund may sell securities to better align its portfolio with the
characteristics of its benchmark or satisfy redemption requests. However, the
U.S. Bond Index is not required to sell specific bond issues that have been
removed from the index.
. For details about each fund's investment program, please see the Investment
Policies and Practices section.
What are the main risks of investing in the funds?
Equity Index 500, Extended Equity Market Index, and Total Equity Market Index
Funds
Each fund is designed to track broad segments of the U.S. stock
market--whether they are rising or falling. Markets as a whole can decline
for many reasons, including adverse political or economic developments here
or abroad, changes in investor psychology, or heavy institutional selling.
While there is no guarantee, the Equity Index 500 Fund should tend to be less
volatile than the other two portfolios because of its focus on larger-cap
stocks. The fund emphasizes large-cap stocks, which may at times lag shares
of smaller, faster-growing companies. It may also pay a modest dividend that
can help offset losses in falling markets.
The Extended Equity Market Index Fund will be subject to the greater risks
associated with small- and mid-cap stocks. Smaller companies often have
limited product lines, markets, or financial resources, and may depend on a
small group of inexperienced managers. The securities of small companies may
have limited marketability and liquidity and are often subject to more abrupt
or erratic market movements than shares of larger companies or the major
market averages. The very nature of investing in smaller companies involves
greater risk than is customarily associated with large-cap companies.
While there is no guarantee, the Total Equity Market Index Fund is expected
to have a risk level between the other two funds, and should have higher
dividends than the Extended Equity Market Index Fund.
The use of sampling for the Extended Equity and Total Equity funds will
likely result in some deviation from their respective indices. In addition,
for all three index funds, returns are likely to be slightly below those of
the indices because the funds have fees and transaction expenses while
indices have none. The timing of cash flows and a fund's size can also
influence returns. While there is no guarantee, the investment manager
expects the correlation between the funds and their respective indices to be
at least .95. A correlation of 1.00 means the return of a fund can be
completely explained by the return of an index. Investments in futures and
options are subject to additional volatility and potential losses.
International Equity Index Fund
<PAGE>
ABOUT THE FUNDS 5
As with all stock funds, the fund's share price can fall because of weakness
in one or more of its primary equity markets, a particular industry, or
specific holdings. Stock markets can decline for many reasons, including
adverse political or economic developments, changes in investor psychology,
or heavy institutional selling. The prospects for an industry or company may
deteriorate because of a variety of factors, including disappointing earnings
or changes in the competitive environment.
Funds that invest overseas generally carry more risk than funds that invest
strictly in U.S. assets. Even investments in countries with highly developed
economies are subject to significant risks. For example, Japanese stocks were
in a steep decline for much of the 1990s. Some particular risks affecting
this fund include the following:
. Currency risk This refers to a decline in the value of a foreign currency
versus the U.S. dollar, which reduces the dollar value of securities
denominated in that currency. The overall impact on a fund's holdings can be
significant, unpredictable, and long-lasting depending on the currencies
represented in the portfolio and how each one appreciates or depreciates in
relation to the U.S. dollar. Under normal conditions, the fund does not
expect to hedge its currency exposure.
. Geographic risk The economies and financial markets of various regions can
be highly interdependent and may decline all at the same time.
. Other risks of foreign investing Risks can result from varying stages of
economic and political development, differing regulatory environments,
trading days, and accounting standards, and higher transaction costs of
non-U.S. markets. Investments outside the United States could be subject to
governmental actions such as capital or currency controls, nationalization of
a company or industry, expropriation of assets, or high taxes that have an
adverse effect on the fund.
. While certain countries have made progress in economic growth,
liberalization, fiscal discipline, and political and social stability, there
is no assurance these trends will continue.
. Tracking error The fund's returns are likely to be below those of the index
because the fund has fees and transaction costs while the index has none. The
timing of cash flows and the fund's size can also influence returns. For
example, the fund's failure to reach a certain asset size may limit its
ability to purchase all the stocks in the index and achieve full replication.
. Futures/options risk To the extent the fund uses futures and options, it is
exposed to additional volatility and potential losses.
<PAGE>
T. ROWE PRICE 6
U.S. Bond Index Fund
This fund is designed to track the performance of investment-grade bonds,
regardless of whether they are rising or falling. In addition, index funds
carry the same overall risks as the indices 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
because the Lehman Brothers U.S. Aggregate Index has typically had an
intermediate to long weighted average maturity. An increase in interest rates
will likely cause the fund's share price to fall, resulting in a loss of
principal (see Table 4). That's because the bonds and fixed-income securities
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. Therefore, this fund 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 to
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.
. Derivatives risk This is 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
<PAGE>
ABOUT THE FUNDS 7
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
expenses while indices have none. The timing of cash flows and the fund's
size can also influence returns.
All Funds
Since each fund is passively managed and seeks to remain fully invested at
all times, assets cannot be shifted from one stock or bond or group of stocks
or bonds to another based on their prospects, or from stocks into bonds or
cash equivalents in an attempt to cushion the impact of a market decline.
Therefore, actively managed funds may outperform these funds.
As with any mutual fund, there can be no guarantee the funds will achieve
their objectives.
. Each fund's share price may decline, 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 the inherent risk of bond, common stock, and international
investments. The segments of the market to which you want exposure and the
degree of volatility you can accept in pursuit of income or long-term capital
gains can guide you in choosing among the funds. The fund or funds you select
should not represent your complete investment program or be used for
short-term trading purposes.
If you seek a relatively low-cost way of participating in the U.S. equity
markets through a passively managed portfolio, the Equity Index 500, Extended
Equity Market Index, or Total Equity Market Index Funds could be an
appropriate part of your overall investment strategy.
The S&P 500 Index is one of the most widely tracked stock indices in the
world. If you want to closely match the performance of the mostly large-cap
stocks in this index, with the same level of risk, the Equity Index 500 Fund
may be an appropriate choice.
<PAGE>
T. ROWE PRICE 8
If you seek potentially higher returns, can assume greater risk, and want
broad exposure to small- and mid-cap stocks, you may wish to invest in the
Extended Equity Market Index Fund.
If your risk profile is between that of the Equity Index 500 Fund and
Extended Equity Market Index Fund, and you would like to participate in the
entire U.S. stock market, you may want to consider the Total Equity Market
Index Fund.
If you want to diversify your domestic stock portfolio by adding exposure to
an index of developed international stock markets, and can accept the risks
that accompany foreign investments, the International Equity Index Fund could
be an appropriate part of your overall investment strategy.
. Equity investors should have a long-term investment horizon and be willing
to wait out bear markets.
If you seek a low-cost way to participate in the U.S. investment-grade bond
market through a fund that tracks a well-known benchmark, the U.S. Bond Index
Fund may be an appropriate investment.
Each fund can be used in both regular and tax-deferred accounts, such as
IRAs.
How has each fund performed in the past?
The bar charts 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 for the Equity Index 500, Extended Equity
Market Index, and Total Equity Market Index Funds. Because both the
International Equity Index and U.S. Bond Index Funds commenced operations in
2000, there is no historical performance information shown here. Performance
history will be presented after the funds have been in operation for one
calendar year. Fund past performance is no guarantee of future returns.
The funds can also experience short-term performance swings, as shown by the
best and worst calendar quarter returns during the years depicted in the
charts.
<TABLE>
<CAPTION>
Calendar Year Total Returns
Fund "91" "92" "93" "94" "95" "96" "97" "98" "99"
--------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <S>
Equity Index 500 29.21 7.19 9.42 1.01 37.16 22.65 32.87 28.31 20.64
Extended Equity
Market Index -- -- -- -- -- -- -- -- 33.72
Total Equity -- -- -- -- -- -- -- -- 23.25
Market Index
--------------------------------------------------------------------------------------------
</TABLE>
Equity Index 500 Fund Quarter ended Total return
Best quarter 12/31/9821.31%
Worst quarter 9/30/98 -9.97%
<PAGE>
ABOUT THE FUNDS 9
Extended Equity Market Index Fund Quarter ended Total return
Best quarter 12/31/9928.48%
Worst quarter 9/30/99 -6.44%
Total Equity Market Index Fund Quarter ended Total return
Best quarter 12/31/9917.85%
Worst quarter 9/30/99 -6.49%
<PAGE>
T. ROWE PRICE 10
<TABLE>
Table 2 Average Annual Total Returns
<CAPTION>
Periods ended December 31, 1999
1 year 5 years Since inception Inception date
----------------------------
<S> <C> <C> <C> <S>
Equity Index 500 Fund 20.64% 28.18% 18.67% 3/30/90
S&P 500 Stock Index 21.04 28.56 19.08
Extended Equity Market
Index Fund 33.72% -- 23.61% 1/31/98
Wilshire 4500 Index* 35.49 -- 23.28
Total Equity Market Index
Fund 23.25% -- 24.30% 1/31/98
Wilshire 5000 Index* 23.56 -- 24.30
------------------------------------------------------------------------------
</TABLE>
These figures include changes in principal value, reinvested dividends, and
capital gain distributions, if any.
*Wilshire data calculated as of 01/06/00.
What fees or expenses will I pay?
The funds are 100% no load. However, the Equity Index 500, Extended Equity
Market Index, Total Equity Market Index, and U.S. Bond Index Funds charge a
redemption fee of 0.50%, payable to the funds, on shares held less than six
months. The International Equity Index Fund charges a redemption fee of 1%,
payable to the fund, on shares held less than six months.
The Extended Equity Market Index, Total Equity Market Index, International
Equity Index, and U.S. Bond Index Funds each have a single, all-inclusive fee
covering investment management and ordinary recurring operating expenses
(other than fees and expenses for the funds' independent directors). These
fees 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.
There are no other fees or charges to buy or sell fund shares, reinvest
dividends, or exchange into other T. Rowe Price funds. There are no 12b-1
fees. Redemption proceeds of less than $5,000 sent by wire are subject to a
$5 fee paid to the fund.
<PAGE>
ABOUT THE FUNDS 11
<TABLE>
Table 3 Fees and Expenses of the Funds
<CAPTION>
Shareholder fees (fees
paid directly from your Annual fund operating expenses
investment) (expenses that are deducted from fund assets)
Account Total annual Fee waiver/
Redemption Maintenance Management Other fund operating expense Net
Fund fee/a/ fee/b/ fee expenses expenses reimbursement expenses
<S> <C> <C> <C> <C> <C> <C> <C> <S>
Equity Index 500 0.50% $10 0.15 %/c/ 0.26%/d/ 0.41% 0.06% 0.35%/c/
-------------------------------------------------------------------------------------------
Extended Equity 0.50 10 0.40/ e/ -- 0.40 -- 0.40/e/
Market Index
-------------------------------------------------------------------------------------------
Total Equity Market 0.50 10 0.40/ e/ -- 0.40 -- 0.40/e/
Index
-------------------------------------------------------------------------------------------
International 1.00 10 0.50/e/ -- 0.50 -- 0.50/e/
Equity Index
-------------------------------------------------------------------------------------------
U.S. Bond Index 0.50 10 0.30/e/ -- 0.30 -- 0.30/e/
----------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/On shares purchased and held for less than six months (details under
Contingent Redemption Fees in Pricing Shares and Receiving Sale Proceeds).
/b/A $2.50 quarterly fee is charged for accounts with balances less than
$10,000.
/c/
To limit the fund's expenses, T. Rowe Price contractually obligated itself to
waive its fees and bear any expenses through December 31, 2000, which would
cause the fund's ratio of expenses to average net assets to exceed 0.35%.
Effective January 1, 2001, T. Rowe Price agreed to extend this expense
limitation for a period of two years through December 31, 2002. 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 0.35%; however, no reimbursement will be made after December 31,
2004, or if it would result in the expense ratio exceeding 0.35%. Any amounts
reimbursed will have the effect of increasing fees otherwise paid by the
fund.
/d/Expenses have been restated to reflect the 0.35% expense cap in effect
January 1, 2000.
/e/ 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
these funds with that of other mutual funds. Although your actual costs may
be higher or lower, the table shows how much you would pay if operating
expenses remain the same, the expense limitation currently in place is not
renewed (if applicable), you invest $10,000, earn a 5% annual return, and
hold the investment for the following periods and then redeem:
<TABLE>
<CAPTION>
Fund 1 year 3 years 5 years 10 years
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <S>
Equity Index 500 $36 $126 $224 $512
------------------------------------
Extended Equity Market Index 41 128 224 505
------------------------------------
Total Equity Market Index 41 128 224 505
-----------------------------------------
International Equity Index* 51 160 -- --
-----------------------------------------
U.S. Bond Index* 31 97 -- --
------------------------------------------------------------------------
</TABLE>
* Due to the funds' commencement of operations, November 30, 2000, no numbers
will be provided for the 5 and 10 years.
<PAGE>
T. ROWE PRICE 12
OTHER INFORMATION ABOUT THE FUNDS
----------------------------------------------------------
How does a stock or bond index mutual fund differ from the typical stock or
bond mutual fund?
Both types of index funds are passively managed, attempting to deviate as
little as possible from a particular benchmark. Since fewer resources are
devoted to researching stocks or bonds, and portfolio turnover (the buying
and selling of securities) is low, an index fund incurs lower costs than the
average equity or bond fund. The typical equity or bond fund is actively
managed, meaning the manager makes purchase and sell decisions based on a
particular security's prospects in pursuit of the fund's investment
objective. In addition, index funds are almost entirely invested in stocks or
bonds while actively managed funds often hold cash for strategic and
defensive purposes.
What specific markets are included in the FTSE Developed ex North America
Index?
International Equity Index Fund
The countries in the index as of October 1, 2000, were: Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, and United Kingdom.
Countries may be removed or added to the index at any time. The index's
performance reflects the reinvestment of all dividends and capital gains.
What types of securities are included in the Lehman Brothers U.S. Aggregate
Index?
U.S. Bond Index Fund
The index represents the U.S. investment-grade fixed-rate bond market, with
components for government and corporate securities, mortgage pass-through
securities, and asset-backed securities. To be included in the index, a
security must be dollar-denominated; have at least one year to final
maturity; have a $150 million par amount outstanding; and be rated investment
grade by a major rating service.
What are some of the funds' potential rewards?
All Funds
. Because the funds are passively managed, their expenses are lower than the
average actively managed fund. Assuming all other factors are equal, lower
expenses can increase a fund's total return.
. Lower turnover should mean smaller capital gain distributions, which can
raise a fund's after-tax returns.
<PAGE>
ABOUT THE FUNDS 13
All funds except U.S. Bond Index Fund
. Stocks have historically been among the most rewarding investments, although
past performance is no guarantee of future results. Each fund offers
investors the opportunity to diversify their assets among many industries and
individual stocks through a single investment.
. Index investing provides investors with a convenient and relatively low-cost
way to approximate the performance of either the entire stock market or a
segment of it.
International Equity Index Fund
. Investing abroad increases the opportunities available to you. Some foreign
countries may have greater potential for economic growth than the U.S.
Foreign investments also provide effective diversification for an all-U.S.
portfolio, since historically their returns have not moved in sync with U.S.
stocks over long time periods. Investing a portion of your overall portfolio
in foreign stock funds can enhance your diversification while providing the
opportunity to boost long-term returns.
Equity Index 500 and Total Equity Market Index Funds
. Most of the stocks in the S&P 500 and many in the Wilshire 5000 pay a
dividend, which, when reinvested, is an important capital building component.
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 funds may purchase as well as types of management
practices the funds may use.
You should also review the information in Section 2 that discusses contingent
redemption fees and account maintenance fees.
SOME BASICS OF FIXED INCOME INVESTING
----------------------------------------------------------
U.S. Bond Index Fund
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.)
<PAGE>
T. ROWE PRICE 14
Is yield the same as total return?
Not for bond funds. A fund's total return is the result of reinvested
distributions from income and capital gains and the change in share price for
a given period. Income is always a positive contributor to total return and
can either enhance a rise in share price or help offset a price decline.
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. For example, the rate at which homeowners pay
down their mortgage principal determines the effective maturity of
mortgage-backed bonds.
A bond mutual fund has no real maturity, but it does have a weighted average
maturity and a weighted 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.
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 is expressed in years,
like maturity, but it is a better indicator of price sensitivity 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.
<PAGE>
ABOUT THE FUNDS 15
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 shareholder reports show
duration.)
How is a bond'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 4.
<TABLE>
Table 4 How Interest Rates May Affect Bond Prices
<CAPTION>
Price per $1,000 of bond face value if interest rates:
Bond maturity Coupon Increase Decrease
1 point 2 points 1 point 2 points
<S> <C> <C> <C> <C> <C> <S>
1 year 6.08% $991 $981 $1,010 $1,019
5 years 5.84 958 919 1,044 1,090
10 years 5.80 928 863 1,079 1,165
30 years 5.88 874 771 1,057 1,353
------------------------------------------------------------------------------------------------------------------
</TABLE>
Coupons reflect yields on Treasury securities as of September 30, 2000. The
table may not be as representative of price changes for mortgage-backed
securities because of prepayments. This is an illustration and does not
represent expected yields or share price changes of any T. Rowe Price fund.
<PAGE>
ABOUT YOUR ACCOUNT
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 the
funds 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.
International Equity Index Fund
The fund's portfolio securities usually are valued on the basis of the most
recent closing market prices at 4 p.m. ET when the fund calculates its NAV.
Most of the securities in which the fund invests, however, are traded in
markets that close before that time. For securities primarily traded in the
Far East, for example, the most recent closing prices may be as much as 15
hours old at 4 p.m. Normally, developments that could affect the values of
portfolio securities that occur between the close of the foreign market and 4
p.m. ET will not be reflected in the fund's NAV. However, if the fund
determines that such developments are so significant that they will, in its
judgment, clearly and materially affect the value of the fund's securities,
the fund may adjust the previous closing prices to reflect what it believes
to be the fair value of the securities as of 4 p.m. ET. The fund may fair
value securities in other situations, for example, when a particular foreign
market is closed but the fund is open.
. 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 and employer-sponsored retirement 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.
<PAGE>
ABOUT THE FUNDS 17
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.
ACH is an 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 ACH
transfer should be credited the second business day after the sale. Proceeds
sent by bank wire should be credited to your account the first business day
after the sale.
. Exception: Under certain circumstances and when deemed to be in a fund's
best interest, your proceeds may not be sent for up to seven calendar days
after we receive your redemption request.
. If for some reason we cannot accept your request to sell shares, we will
contact you.
Contingent Redemption Fee
These funds can experience substantial price fluctuations and are intended
for long-term investors. Short-term "market timers" who engage in frequent
purchases and redemptions can disrupt the funds' investment programs and
create additional transaction costs that are borne by all shareholders. For
these reasons, the funds assess a 0.50% (1% for International Equity Index
Fund) fee on redemptions (including exchanges) of fund shares held for less
than six months.
Redemption fees are paid to the funds to help offset transaction costs and to
protect the funds' long-term shareholders. The funds will use the "first-in,
first-out" (FIFO) method to determine the six-months holding period. Under
this method, the date of the redemption or exchange will be compared with the
earliest purchase date of shares held in the account. If this holding period
is less than six months, the fee will be charged.
<PAGE>
T. ROWE PRICE 18
The fee does not apply to any shares purchased through reinvested
distributions (dividends and capital gains), shares held in retirement plans,
such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
money purchase pension accounts, or to shares redeemed through designated
systematic withdrawal plans. The fee does apply to shares held in other IRA
accounts and to shares purchased through automatic investment plans
(described under Shareholder Services). The fee may apply to shares in
retirement plans held in broker omnibus accounts.
In determining "six months," the funds will use the anniversary date of a
transaction. Thus, shares purchased on January 1, 2001, for example, will be
subject to the fee if they are redeemed on or prior to June 30, 2001. If they
are redeemed on or after July 1, 2001, they will not be subject to the fee.
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 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
U.S. Bond Index Fund
. The U.S. Bond Index Fund declares 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 ordinarily 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
<PAGE>
ABOUT THE FUNDS 19
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.
Equity Index 500, Extended Market Index, and Total Market Index Funds
. The Equity Index 500 Fund declares and pays dividends (if any) quarterly.
. The Extended Market Index, and Total Market Index Funds declare and pay
dividends (if any) annually.
. A portion of fund dividends may be eligible for the 70% deduction for
dividends received by corporations.
International Equity Index Fund
. The fund declares and pays dividends (if any) annually.
. The dividends of the fund will not be eligible for the 70% deduction for
dividends received by corporations, if, as expected, none of the fund's
income consists of dividends paid by U.S. corporations.
All Funds
Capital gains
. A capital gain or loss is the difference between the purchase and sale price
of a security.
. If a fund has net capital gains for the year (after subtracting any capital
losses), they are usually declared and paid in December to shareholders of
record on a specified date that month. If a second distribution is necessary,
it is usually declared and paid during the first quarter of the following
year.
Tax Information
. You will be sent timely information for your tax filing needs.
You need to be aware of the possible tax consequences when:
. You sell fund shares, including an exchange from one fund to another.
. A fund makes a distribution to your account.
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.
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
<PAGE>
T. ROWE PRICE 20
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
All Funds
In January, you will be sent Form 1099-DIV indicating the tax status of any
dividend and capital gain distributions made to you. This information will
also be reported to the IRS. Distributions are generally taxable to you for
the year in which they were paid. You will be sent any additional information
you need to determine your taxes on fund distributions, such as the portion
of your dividends, if any, that may be exempt from state income taxes.
The tax treatment of a capital gain distribution is determined by how long
the fund held the portfolio securities, not how long you held 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 must 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.
International Equity Index Fund
Distributions resulting from the sale of certain foreign currencies and debt
securities, to the extent of foreign exchange gains, are taxed as ordinary
income or loss. If the fund pays nonrefundable taxes to foreign governments
during the year, the taxes will reduce the fund's dividends but will still be
included in your taxable income. However, you may be able to claim an
offsetting credit or deduction on your tax return for your portion of foreign
taxes paid by the fund.
. Distributions are taxable whether reinvested in additional shares or
received in cash.
Tax effect of buying shares before a capital gain or dividend 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. There-
<PAGE>
ABOUT THE FUNDS 21
fore, 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.
. The preceding tax information summary does not apply to retirement accounts,
such as IRAs, which are not subject to current tax.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
----------------------------------------------------------
. Following these procedures helps assure timely and accurate transactions.
Purchase Conditions
Nonpayment
If you pay with a check or ACH transfer that does not clear or if your
payment is not timely received, 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 account 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; type of check
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks.
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. (The 10-day hold does not apply to purchases paid for by
bank wire 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 to verify the identity of the shareholder.
If these procedures are followed, the funds and their agents are not liable
for any losses that may occur from acting on unauthorized instructions. A
confirmation is sent promptly after a transaction. Please review it carefully
and contact T. Rowe Price immediately about any transaction you believe to be
unauthorized. All telephone conversations are recorded.
<PAGE>
T. ROWE PRICE 22
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 in your account or accounts controlled by you can disrupt
management of a fund and raise its expenses. To deter such activity, the
funds have 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 one sale involving the same fund
within any 120-day period. For example, if you are in fund A, you can move
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, or
if your trade activity involves market timing, 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 and 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, you can make one purchase and one sale involving the same fund within
any 120-day period. If you exceed this limit or if you hold fund shares for
less than 60 calendar days, you are in violation of our excessive trading
policy. Systematic purchases and redemptions are exempt from this 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.
<PAGE>
ABOUT THE FUNDS 23
Account Maintenance Fee
The account maintenance fee, paid to the fund, is charged on a quarterly
basis usually during the last week of a calendar quarter. On the day of the
assessment, accounts with balances below $10,000 will be charged the fee.
Please note that the fee will be charged to accounts that fall below $10,000
due to market fluctuations, redemptions or exchanges. When an account with
less than $10,000 is closed either through redemption or exchange, the fee
will be charged and deducted from the proceeds. The fee will apply to IRA
accounts. The fee does not apply to retirement plans directly registered with
T. Rowe Price Services, or accounts maintained by intermediaries through
NSCC/(R)/ Networking.
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.
<PAGE>
MORE ABOUT THE FUNDS
ORGANIZATION AND MANAGEMENT
----------------------------------------------------------
How are the funds organized?
T. Rowe Price Index Trust, Inc. was incorporated in Maryland in 1989. It
consists of three series and each is an open-end investment company, or
mutual fund. The Equity Index 500 Fund was established in 1990, and the
Extended Equity Market Index and Total Equity Market Index Funds were
established in 1997. The Equity Index 500 Fund was originally established as
the Equity Index Fund but changed its name effective January 30, 1998. The
International Equity Index and the U.S. Bond Index Funds were incorporated in
Maryland in 2000 as open-end investment companies. Mutual funds pool money
received from shareholders and invest it to try to achieve specified
objectives.
. Shareholders benefit from T. Rowe Price's 63 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 do so except when certain matters, such as
a change in fundamental policies, must be decided. In addition, shareholders
representing at least 10% of all eligible votes may call a special meeting,
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.
<PAGE>
ABOUT THE FUNDS 25
Who runs the funds?
General Oversight
Each fund is governed by a Board of Directors that meets regularly to review
fund investments, performance, expenses, and other business affairs. The
Board elects the fund's officers. The policy of each fund is that a majority
of Board members are independent of T. Rowe Price Associates, Inc. (T. Rowe
Price) and T. Rowe Price International.
. All decisions regarding the purchase and sale of fund investments are made
by T. Rowe Price or, for the International Equity Index Fund, T. Rowe Price
International - specifically by each fund's portfolio managers.
Equity Index 500, Extended Equity Market Index, and Total Equity Market Index
Funds
Portfolio Management
Each fund has an Investment Advisory Committee with the following members:
Richard T. Whitney, Chairman, Eugene F. Bair, Raymond A. Mills, Ph.D., M.
Christine Munoz. The committee chairman has day-to-day responsibility for
managing the portfolio and works with the committee in developing and
executing each fund's investment program. Mr. Whitney has been a member of
each fund's committee since the funds' inceptions. He joined T. Rowe Price in
1985 and has been managing investments since 1986.
International Equity Index Fund
Investment Manager
T. Rowe Price International is responsible for the selection and management
of the fund's portfolio investments. The company is a wholly owned subsidiary
of T. Rowe Price Associates and the successor to Rowe Price-Fleming
International, Inc. (Price-Fleming). Price-Fleming was a joint venture
established in 1979 and was 50% owned by T. Rowe Price Associates and 50%
owned by Flemings. In 2000, T. Rowe Price Associates became the sole owner of
Price-Fleming and renamed the company T. Rowe Price International. The U.S.
office of T. Rowe Price International is located at 100 East Pratt Street,
Baltimore, Maryland 21202. Offices are also located in London, Paris, Tokyo,
Singapore, Hong Kong, and Buenos Aires.
Portfolio Management
The fund has an Investment Advisory Committee with the following members:
Raymond A. Mills, Ph.D., Chairman, M. Christine Munoz, and Richard T.
Whitney. The committee chairman has day-to-day responsibility for managing
the fund and works with the committee in developing and executing the fund's
investment program. Mr. Mills has been chairman of the fund's committee since
<PAGE>
T. ROWE PRICE 26
its inception. He has been managing investments since 1998. From 1994 until
joining T. Rowe Price in 1997 as an investment analyst, Mr. Mills was a
Principal Systems Engineer with The Analytic Sciences Corporation.
U.S. Bond Index Fund
Portfolio Management
The fund has an Investment Advisory Committee with the following members:
Edmund M. Notzon, Chairman, Connice A. Bavely, Patrick S. Cassidy, Jerome A.
Clark, Michael J. Grogan, Peter D. Leiser, Jr., Mary J. Miller, Vernon A.
Reid, Jr., Daniel O. Shackelford, and Charles M. Shriver. The committee
chairman has day-to-day responsibility for managing the fund and works with
the committee in developing and executing the fund's investment program. Mr.
Notzon has been chairman of the fund's committee since its inception. He has
been managing investments since joining T. Rowe Price in 1989.
All Funds
The Management Fee
Each fund's fee is as follows: 0.15% for the Equity Index 500 Fund, 0.30% for
the U.S. Bond Index Fund, 0.40% for the Extended Equity Market Index and
Total Equity Market Index Funds, and 0.50% for the International Equity Index
Fund, based on average daily net assets. The funds calculate and accrue the
fees daily. For the Extended Equity Market Index, Total Equity Market Index,
International Equity Index, and U.S. Bond Index Funds, the management fee
includes ordinary recurring operating expenses, but does not cover interest,
taxes, brokerage, non-recurring and extraordinary items or fees and expenses
for the funds' independent directors.
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 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.
<PAGE>
ABOUT THE FUNDS 27
Advertisements 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, an investment could have a
10-year positive cumulative return despite experiencing some negative years
during that time.
Average Annual Total Return
This is always hypothetical and should not be confused with actual
year-by-year results. It smooths out 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 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 advertised or SEC yield is found by determining the net income per share
(as defined by the Securities and Exchange Commission) 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-also called the
standardized yield-may differ from the dividend yield.
INVESTMENT POLICIES AND PRACTICES
----------------------------------------------------------
This section takes a detailed look at some of the types of fund securities
and the various kinds of investment practices that may be used in day-to-day
portfolio management. Fund investments are subject to further restrictions
and risks described in the Statement of Additional Information.
Shareholder approval is required to substantively change fund objectives and
certain investment restrictions noted in the following section as
"fundamental policies." The managers also follow certain "operating policies"
which can be
<PAGE>
T. ROWE PRICE 28
changed without shareholder approval. However, significant changes are
discussed with shareholders in fund reports. Fund investment restrictions and
policies are adhered to at the time of investment. 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 fund holdings, fund 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 achieve fund objectives.
Types of Portfolio Securities
All Funds
In seeking to meet their investment objectives, each fund may invest in any
type of security or instrument (including certain potentially high-risk
derivatives described in this section) whose investment characteristics are
consistent with the fund's investment program. The following pages describe
various types of fund securities and investment management practices.
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 the funds.
These limitations do not apply to the purchase of securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities.
All Funds except U.S. Bond Index
Hybrid Instruments
These instruments (a type of potentially high-risk derivative) can combine
the characteristics of securities, futures, and options. For example, the
principal amount, redemption, or conversion terms of a security could be
related to the market price of some commodity, currency, or securities index.
Such securities may earn interest or pay dividends at below market or even
relatively nominal rates. Under some conditions, the redemption value of such
an investment could be zero.
. Hybrids have volatile prices and limited liquidity, and their use may not be
successful.
Operating policy Fund investments in hybrid instruments are limited to 10%
of total assets.
<PAGE>
ABOUT THE FUNDS 29
International Equity Index Fund
The fund must invest at least 80% of its total assets in securities that make
up the FTSE Developed ex North America Index.
Fundamental policy The fund will not invest more than 25% of its total
assets (concentrate) in any single industry except to the extent the index
concentrates in that industry.
U.S. Bond Index Fund The fund must invest at least 80% of its total assets in
securities that comprise the Lehman Brothers U.S. Aggregate Index. Bonds
purchased by the fund that are removed from the index will not be counted as
part of the 80% requirement.
Fundamental policy The fund will not invest more than 25% of its total
assets (concentrate) in any single industry except to the extent the index
concentrates in that particular industry.
Bonds
A bond is an interest-bearing security - an IOU - issued by companies or
governmental units. The issuer has 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. An issuer may have the right to redeem or "call"
a bond before maturity, and the investor may have to reinvest the proceeds at
lower market rates.
A bond's annual interest income, set by its coupon rate, is usually fixed for
the life of the bond. Its yield (income as a percent of current price) will
fluctuate to reflect changes in interest rate levels. A bond's price usually
rises when interest rates fall, and vice versa, so its yield stays consistent
with current market conditions.
Bonds may be unsecured (backed by the issuer's general creditworthiness only)
or secured (also backed by specified collateral).
Certain bonds have interest rates that are adjusted periodically. These
interest rate adjustments tend to minimize fluctuations in the bonds'
principal values. The maturity of those securities may be shortened under
certain specified conditions.
Bonds may be designated as senior or subordinated obligations. Senior
obligations generally have the first claim on a corporation's earnings and
assets and, in the event of liquidation, are paid before subordinated debt.
Foreign Securities
Investments may be made in U.S. dollar-denominated foreign securities. 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;
<PAGE>
T. ROWE PRICE 30
potentially lower liquidity and higher volatility; possible problems arising
from accounting and disclosure, settlement, and regulatory practices that
differ from U.S. standards.
Asset-Backed Securities
An underlying pool of assets, such as credit card or automobile trade
receivables or corporate loans or bonds, backs these bonds and provides the
interest and principal payments to investors. Credit quality depends
primarily on the quality of the underlying assets and the level of credit
support, if any, provided by the issuer. The underlying assets (i.e., loans)
are sometimes subject to prepayments which can shorten the security's
weighted average life and may lower its return. The value of these securities
also may change because of actual or perceived changes in the
creditworthiness of the originator, servicing agent, or of the financial
institution providing the credit support.
Mortgage-Backed Securities
The fund may invest in a variety of mortgage-backed securities. Mortgage
lenders pool individual home mortgages with similar characteristics to back a
certificate or bond, which is sold to investors such as the fund. Interest
and principal payments generated by the underlying mortgages are passed
through to the investors. The "big three" issuers are the Government National
Mortgage Association (GNMA), the Federal National Mortgage Association
(Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac).
GNMA certificates are backed by the full faith and credit of the U.S.
government, while others, such as Fannie Mae and Freddie Mac certificates,
are only supported by the ability to borrow from the U.S. Treasury or
supported only by the credit of the agency. Private mortgage bankers and
other institutions also issue mortgage-backed securities.
Mortgage-backed securities are subject to scheduled and unscheduled principal
payments as homeowners pay down or prepay their mortgages. As these payments
are received, they must be reinvested when interest rates may be higher or
lower than on the original mortgage security. Therefore, these securities are
not an effective means of locking in long-term interest rates. In addition,
when interest rates fall, the pace of mortgage prepayments picks up. These
refinanced mortgages are paid off at face value (par), causing a loss for any
investor who may have purchased the security at a price above par. In such an
environment, this risk limits the potential price appreciation of these
securities and can negatively affect the fund's net asset value. When rates
rise, the prices of mortgage-backed securities can be expected to decline,
although historically these securities have experienced smaller price
declines than comparable quality bonds. In addition, when rates rise and
prepayments slow, the effective duration of mortgage-backed securities
extends, resulting in increased volatility.
Additional mortgage-backed securities in which the fund may invest include:
<PAGE>
ABOUT THE FUNDS 31
. Collateralized Mortgage Obligations (CMOs) CMOs are debt securities that are
fully collateralized by a portfolio of mortgages or mortgage-backed
securities. All interest and principal payments from the underlying mortgages
are passed through to the CMOs in such a way as to create some classes with
more stable average lives than the underlying mortgages and other classes
with more volatile average lives. CMO classes may pay fixed or variable rates
of interest, and certain classes have priority over others with respect to
the receipt of prepayments.
. Stripped Mortgage Securities Stripped mortgage securities (a type of
potentially high-risk derivative) are created by separating the interest and
principal payments generated by a pool of mortgage-backed securities or a CMO
to create additional classes of securities. Generally, one class receives
only interest payments (IOs), and another receives principal payments (POs).
Unlike with other mortgage-backed securities and POs, the value of IOs tends
to move in the same direction as interest rates. The funds can use IOs as a
hedge against falling prepayment rates (interest rates are rising) and/or a
bear market environment. POs can be used as a hedge against rising prepayment
rates (interest rates are falling) and/or a bull market environment. IOs and
POs are acutely sensitive to interest rate changes and to the rate of
principal prepayments.
A rapid or unexpected increase in prepayments can severely depress the price
of IOs, while a rapid or unexpected decrease in prepayments could have the
same effect on POs. Of course, under the opposite conditions these securities
may appreciate in value. These securities can be very volatile in price and
may have lower liquidity than most other mortgage-backed securities. Certain
non-stripped CMO classes may also exhibit these qualities, especially those
that pay variable rates of interest that adjust inversely with, and more
rapidly than, short-term interest rates. In addition, if interest rates rise
rapidly and prepayment rates slow more than expected, certain CMO classes, in
addition to losing value, can exhibit characteristics of longer-term
securities and become more volatile. There is no guarantee that fund
investments in CMOs, IOs, or POs will be successful, and fund total return
could be adversely affected as a result.
Hybrid Instruments
These instruments (a type of potentially high-risk derivative) can combine
the characteristics of securities, futures, and options. For example, the
principal amount or interest rate of a hybrid could be tied (positively or
negatively) to the price of some commodity, currency, or securities index or
another interest rate (each a "benchmark"). Hybrids can be used as an
efficient means of pursuing a variety of investment goals, including duration
management, and increased total return. Hybrids may or may not bear interest
or pay dividends. The value of a hybrid or its interest rate may be a
multiple of a benchmark and, as a result, may be leveraged and move (up or
down) more steeply and rapidly than the benchmark. These benchmarks may be
sensitive to economic and political events
<PAGE>
T. ROWE PRICE 32
which cannot be readily foreseen by the purchaser of a hybrid. Under certain
conditions, the redemption value of a hybrid could be zero. Thus, an
investment in a hybrid may entail significant market risks that are not
associated with a similar investment in a traditional, U.S.
dollar-denominated bond that has a fixed principal amount and pays a fixed
rate or floating rate of interest. The purchase of hybrids also exposes the
fund to the credit risk of the issuer of the hybrid. These risks may cause
significant fluctuations in the net asset values of the fund.
One type of hybrid the fund may purchase is the bond index swap. The fund
would purchase these in an effort to mimic all or a portion of the index. An
index swap can help the fund replicate the index when the fund is small or
when investing cash flow.
. Hybrids can have volatile prices and limited liquidity, and their use may
not be successful.
Private Placements
These securities are sold directly to a small number of investors, usually
institutions. Unlike public offerings, such securities are not registered
with the SEC. Although certain of these securities may be readily sold, for
example, under Rule 144A, others may be illiquid, and their sale may involve
substantial delays and additional costs.
Operating policy Fund investments in illiquid securities are limited to 15%
of net assets.
Types of Investment Management Practices
Reserve Position
Each fund will hold a certain portion of its assets in cash or cash
equivalents. Each fund's reserve position can consist of shares of a T. Rowe
Price internal money market fund and U.S. and foreign dollar-denominated
money market securities, including repurchase agreements, in the two highest
rating categories, maturing in one year or less. The reserve position
provides flexibility in meeting redemptions, paying expenses, and in the
timing of new investments.
Borrowing Money and Transferring Assets
Fund borrowings may be made from banks and other T. Rowe Price funds for
temporary emergency purposes to facilitate redemption requests, or for other
purposes consistent with fund policies as set forth in this prospectus. Such
borrowings may be collateralized with fund assets, subject to restrictions.
Fundamental policy Borrowings may not exceed 33/1//\\/3/\\% of total fund
assets.
<PAGE>
ABOUT THE FUNDS 33
Operating policy Fund transfers of portfolio securities as collateral will
not be made except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
total assets. Fund purchases of additional securities will not be made when
borrowings exceed 5% of total assets.
Futures and Options
The funds may make such investments to provide an efficient means of
maintaining liquidity while being invested in the market, to facilitate
trading or to reduce transaction costs. The funds may also purchase call
options on stock indices or bonds. Such options would be used in a manner
similar to the funds' use of futures.
Futures contracts and options prices can be highly volatile; using them could
lower the funds' total returns and the potential loss from the use of futures
can exceed the funds' initial investment in such contracts.
Operating policies Futures: Initial margin deposits and premiums on options
used for non-hedging purposes will not exceed 5% of each fund's net asset
value. Options on bonds or indices: The funds will not commit more than 5% of
total assets to premiums when purchasing call options.
Lending of Portfolio Securities
Fund securities may be lent to broker-dealers, other institutions, or other
persons to earn additional income. The principal risk is the potential
insolvency of the broker-dealer or other borrower. In this event, a fund
could experience delays in recovering its securities, and capital losses.
Fundamental policy The value of loaned securities may not exceed
33/1//\\/3/\\% of total fund assets.
U.S. Bond Index Fund
When-Issued Securities and Forward Commitment Contracts
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 fund investments 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.
<PAGE>
T. ROWE PRICE 34
All Funds
Portfolio Turnover
Each fund will not generally trade in securities for short-term profits, but,
under unusual circumstances, securities may be purchased and sold without
regard to the length of time held. The portfolio turnover rates for the
fiscal years ending December 31 for the Equity Index 500, Extended Equity
Market Index and Total Equity Market Index Funds are listed in the table in
the Financial Highlights section.
Standard & Poor's (Equity Index 500 Fund)
Although S&P obtains information for inclusion in or for use in the
calculation of the S&P 500 Index from sources which S&P considers reliable,
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein. S&P makes no warranty, express or
implied, as to results to be obtained by the fund, or any other person or
entity from the use of the S&P 500 Index or any data included therein. S&P
makes no express or implied warranties, and expressly disclaims all
warranties of merchantability or fitness for a particular purpose with
respect to the S&P 500 Index or any data included therein. Standard & Poor's,
S&P, S&P 500 Index, Standard & Poor's 500, and 500 are trademarks of
McGraw-Hill, Inc. and have been licensed for use by the fund. The fund is not
sponsored, endorsed, sold, or promoted by S&P, and S&P makes no
representation regarding the advisability of investing in the fund.
Wilshire Associates, Incorporated (Extended Equity Market Index and Total
Equity Market Index Funds)
Wilshire and Wilshire 5000 are registered service marks of Wilshire
Associates Incorporated of Santa Monica, California.
These funds are not sponsored, endorsed, sold, or promoted by Wilshire, and
Wilshire makes no representation regarding the advisability of investing in
these funds.
Because of the challenges of compiling data for very large indices, Wilshire
may frequently revise or restate the historical performance data of the
Wilshire 4500 Completion Index and the Wilshire 5000 Total Market Index. As a
result, the performance of the Extended Equity Market Index Fund or the Total
Equity Market Index Fund over short-term periods may appear to differ from
the results of its benchmark.
FTSE (International Equity Index Fund)
The shares of the fund are not in any way sponsored, endorsed, sold, or
promoted by FTSE International Limited ("FTSE") or by the London Stock
Exchange Limited (the "Exchange") or by the Financial Times Limited ("FT"),
and FTSE, the Exchange and FT do not make any warranty or representation
whatsoever, expressly or impliedly, either as to the results to be obtained
from
<PAGE>
ABOUT THE FUNDS 35
the use of the FTSE Developed ex North America Index ("the Index") and/or the
figure at which the said Index stands at any particular time on any
particular day or otherwise. The Index is compiled and calculated by FTSE.
However, FTSE, the Exchange, and FT shall not be liable (whether in
negligence or otherwise) to any person for any error in the Index and FTSE,
the Exchange, and FT shall not be under any obligation to advise any person
of any error therein.
"FTSE/(TM)/", "FT-SE(R)", and "Footsie(R)" are trademarks of the London Stock
Exchange Limited and The Financial Times Limited and are used by FTSE
International Limited under license. "All-World" is a trademark of FTSE
International Limited.
Lehman Brothers (U.S. Bond Index Fund)
The inclusion of a bond in the Lehman Brothers U.S. Aggregate 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.
FINANCIAL HIGHLIGHTS
----------------------------------------------------------
Equity Index 500, Extended Equity Market Index, and Total Equity Market Index
Funds
Table 5, 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 tables represent the rate that an investor would have earned
or lost on an investment in each fund (assuming reinvestment of all dividends
and distributions and no payment of account or (if applicable) redemption
fees). The financial statements in the annual report were audited by the
funds' independent accountants, PricewaterhouseCoopers LLP.
<PAGE>
T. ROWE PRICE 36
<TABLE>
Table 5 Financial Highlights
<CAPTION>
Year ended December 31
Equity Index 500 1995 1996 1997 1998 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 13.09 $ 17.21 $ 20.34 $ 26.38 $ 33.38
Income From Investment Operations
Net investment income 0.39/a/ 0.38/b/ 0.35/b/ 0.33/c/ 0.34/c/
------------------------------------------------------------------
Net gains or losses on
securities (both realized 4.43 3.47 6.28 7.10 6.49
and unrealized)
------------------------------------------------------------------
Total from investment
operations 4.82 3.85 6.63 7.43 6.83
Less Distributions
Dividends (from net (0.40) (0.38) (0.34) (0.34) (0.34)
investment income)
------------------------------------------------------------------
Distributions (from (0.30) (0.34) (0.25) (0.09) (0.31)
capital gains)
------------------------------------------------------------------
Returns of capital -- -- -- -- --
------------------------------------------------------------------
Total distributions (0.70) (0.72) (0.59) (0.43) (0.65)
------------------------------------------------------------------
Net asset value, $ 17.21 $ 20.34 $ 26.38 $ 33.38 $ 39.56
end of period
------------------------------------------------------------------
Total return 37.16%/a/ 22.65%/b/ 32.87%/b/ 28.31%/c/ 20.64%/c/
Ratios/Supplemental Data
Net assets, end of period $457,256 $807,655 $1,908,321 $3,347,493 $5,049,091
(in thousands)
------------------------------------------------------------------
Ratio of expenses to 0.45%/a/ 0.40%/b/ 0.40%/b/ 0.40%/c/ 0.40%/c/
average net assets
------------------------------------------------------------------
Ratio of net income to 2.54%/a/ 2.05%/b/ 1.49%/b/ 1.17%/c/ 0.98%/c/
average net assets
------------------------------------------------------------------
Portfolio turnover rate 1.3% 1.3% 0.7% 4.7% 5.2%
-----------------------------------------------------------------------------------------------
</TABLE>
/a/
Excludes expenses in excess of a 0.45% voluntary expense limitation in effect
through December 31, 1995.
/b/
Excludes expenses in excess of a 0.40% voluntary expense limitation in effect
through December 31, 1997.
/c/
Excludes expenses in excess of a 0.40% voluntary expense limitation in effect
through December 31, 1999.
<PAGE>
ABOUT THE FUNDS 37
<TABLE>
Table 5 Financial Highlights (continued)
<CAPTION>
01/30/98/*/ Year ended December 31
through
Extended Equity 12/31/98
Market Index ----------------- 1999
----------------------------- -----------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 10.00 $ 11.02
Income From Investment Operations
Net investment income 0.08 0.10
-----------------------------------------
Net gains or losses on
securities (both realized 1.13 3.56
and unrealized)
-----------------------------------------
Total from investment
operations 1.21 3.66
Less Distributions
Dividends (from net (0.08) (0.10)
investment income)
-----------------------------------------
Distributions (from (0.11) (0.53)
capital gains)
-----------------------------------------
Returns of capital -- --
-----------------------------------------
Total distributions (0.19) (0.63)
-----------------------------------------
Net asset value, $ 11.02 $ 14.05
end of period
-----------------------------------------
Total return 12.29% 33.72%
Ratios/Supplemental Data
Net assets, end of period $20,743 $54,219
(in thousands)
-----------------------------------------
Ratio of expenses to 0.40%/a/ 0.40%
average net assets
-----------------------------------------
Ratio of net income to 1.15%/a/ 1.04%
average net assets
-----------------------------------------
Portfolio turnover rate 26.3%/a/ 23.4%
---------------------------------------------------------------------------
</TABLE>
/a/ Annualized.
/*/ Inception date.
<PAGE>
T. ROWE PRICE 38
<TABLE>
Table 5 Financial Highlights (continued)
<CAPTION>
01/30/98/*/ Year ended December 31
through
Total Equity 12/31/98
Market Index ----------------- 1999
----------------------------- -----------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 10.00 $ 12.19
Income From Investment Operations
Net investment income 0.11 0.12
-----------------------------------------
Net gains or losses on
securities (both realized 2.20 2.69
and unrealized)
-----------------------------------------
Total from investment
operations 2.31 2.81
Less Distributions
Dividends (from net (0.12) (0.11)
investment income)
-----------------------------------------
Distributions (from -- (0.12)
capital gains)
-----------------------------------------
Returns of capital -- --
-----------------------------------------
Total distributions (0.12) (0.23)
-----------------------------------------
Net asset value, $ 12.19 $ 14.77
end of period
-----------------------------------------
Total return 23.19% 23.25%
Ratios/Supplemental Data
Net assets, end of period $61,210 $199,427
(in thousands)
-----------------------------------------
Ratio of expenses to 0.40%/a/ 0.40%
average net assets
-----------------------------------------
Ratio of net income to 1.33%/a/ 0.98%
average net assets
-----------------------------------------
Portfolio turnover rate 1.9%/a/ 3.2%
---------------------------------------------------------------------------
</TABLE>
/a/ Annualized.
/*/ Inception date.
<PAGE>
INVESTING WITH T. ROWE PRICE
ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
----------------------------------------------------------
Tax Identification Number
We must have your correct Social Security or 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.
Employer-Sponsored Retirement Plans and Institutional Accounts T. Rowe Price
Trust Company 1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. 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 ($25,000 minimum initial investment for
Summit Funds only)
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, except for IRA Roll-
<PAGE>
T. ROWE PRICE 40
over checks that are properly endorsed. In addition, T. Rowe Price does not
accept purchases made by credit card check.
via U.S. Postal Service
T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21297-1300
via private carriers/overnight services
T. Rowe Price Account Services Mailcode 17300 4515 Painters Mill Road Owings
Mills, MD 21117-4903
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 previously.
Note: No services will be established and IRS penalty withholding may occur
until we receive a signed New Account Form. Also, retirement plan accounts and
IRAs cannot be opened by wire.
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 back cover and
obtain a receipt.
<PAGE>
ABOUT THE FUNDS 41
PURCHASING ADDITIONAL SHARES
----------------------------------------------------------
$100 minimum purchase ($1,000 minimum purchase for Summit Funds); $50 minimum
for retirement plans, Automatic Asset Builder, and gifts or transfers to minors
(UGMA/UTMA) accounts ($100 minimum for Summit Funds)
By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder 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.
via U.S. 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.)
<PAGE>
T. ROWE PRICE 42
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. Please note that large redemption requests may be routed to
a service representative.
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, one year, or two years, 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 or Tele*Access (if you have
previously authorized these 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 specify 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:
For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services P.O. Box 17302 Baltimore, MD 21297-1302
via private carriers/overnight services
T. Rowe Price Account Services Mailcode 17302 4515 Painters Mill Road Owings
Mills, MD 21117-4903
<PAGE>
ABOUT THE FUNDS 43
For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company P.O. Box 17479 Baltimore, MD 21297-1479
via private carriers/overnight services
T. Rowe Price Trust Company Mailcode 17479 4515 Painters Mill Road Owings Mills,
MD 21117-4903
Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.
RIGHTS RESERVED BY THE FUNDS
----------------------------------------------------------
T. Rowe Price funds and their 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; and (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.
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T. ROWE PRICE 44
In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of the fund, except upon approval of the fund's management.
INFORMATION ABOUT YOUR SERVICES
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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)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.
Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days
Tele*Access
24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms,
<PAGE>
ABOUT THE FUNDS 45
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 authorizing this service, 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
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, Emerging Markets Bond, or
U.S. Bond Index 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.
Automatic Investing
$50 minimum ($100 minimum for Summit Funds) You can invest automatically in
several different ways, including:
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T. ROWE PRICE 46
Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) 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
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To Open an Account 1-800-638-5660 For Existing Brokerage Customers
1-800-225-7720
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 entered through Tele-Trader save you an additional
10% on commissions. For stock trades entered through Internet-Trader, you will
pay a commission of $24.95 for up to 1,000 shares plus $.02 for each share over
1,000. Option trades entered through Internet-Trader save you 10% over our
standard commission schedule. All trades are subject to a $35 minimum commission
except stock trades placed through Internet-Trader.
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.
Dividend Reinvestment Service
If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Dividend payments
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ABOUT THE FUNDS 47
must be $10.00 or greater to qualify for reinvestment. Most securities listed on
national securities exchanges or on Nasdaq are eligible for this service.
/*Services //v//ary //b//y //f//irm./
/T. Rowe Price// Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./
INVESTMENT INFORMATION
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To help shareholders monitor their 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 P.O. Box 17630, Baltimore, Maryland 21297-1630.
The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a 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.
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T. ROWE PRICE 48
<PAGE>
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.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.
Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at [email protected], or by writing the Public Reference
Room, Washington D.C. 20549-0102.
Walk-in
Investor Centers
For directions, call 1-800-225-5132 or visit our Web site
Baltimore Area
Downtown
105 East Lombard Street
Owings Mills
Three Financial Center 4515 Painters Mill Road
Boston Area
386 Washington Street Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center 21800 Oxnard Street Suite 270 Woodland Hills
Tampa
4200 West Cypress Street 10th Floor
Washington, D.C.
900 17th Street, N.W. Farragut Square
For Mutual Fund or T. Rowe Price Brokerage Information
Investor Services
1-800-638-5660 TDD
1-800-367-0763
For Existing Accounts
Shareholder Services
1-800-225-5132
For Performance, Prices, Account Information, or to Conduct Transactions
Tele*Access/(R)/
24 hours, 7 days 1-800-638-2587
Internet Address
www.troweprice.com
Plan Account Line
For retirement plan investors: The appropriate 800 number appears on your
retirement account statement.
LOGO
T. Rowe Price Associates, Inc. 100 East Pratt Street Baltimore, MD 21202
C50-040 12/15/00
1940 Act File No. 811-5986
