<PAGE>
FUND PROFILE
______________, 1999
T. Rowe Price Short-Term U.S. Government Fund
A bond fund for investors seeking higher than money market income, high credit
quality and minimal price fluctuation.
This profile summarizes key information about the fund that is included in the
fund's prospectus. The fund's prospectus includes additional information about
the fund, including a more detailed description of the risks associated with
investing in the fund that you may want to consider before you invest. You may
obtain the prospectus and other information about the fund at no cost by
calling 1-800-XXX-XXXX, or by visiting our Web site at www.troweprice.com.
1. What is the fund's objective?
The fund seeks the highest current income consistent with minimal share-price
fluctuation.
2. What is the fund's principal investment strategy?
We will invest primarily in a diversified portfolio of short-term U.S.
government-backed securities. At least 65% of total assets will normally
consist of: Treasury issues; government-backed fixed-rate, adjustable-rate,
and balloon mortgage securities, including collateralized mortgage
obligations (CMOs); and government agency notes and bonds. Mortgage-backed
securities, such as those issued by the Government National Mortgage
Association (Ginnie Mae), the Federal National Mortgage Association (Fannie
Mae), and the Federal Home Loan Mort-
<PAGE>
gage Association (Freddie Mac), tend to offer higher yields than Treasuries
with comparable maturities but with little or no additional credit risk.
Up to 35% of the fund's assets may be invested in non-government securities
such as corporate notes and bonds and asset-backed securities. These
securities must meet the fund's high credit-quality standards and be rated AA
or higher by at least one major rating agency at the time of purchase or, if
unrated, must have a T. Rowe Price equivalent. Within this broad structure,
investment decisions reflect the manager's outlook for interest rates and the
economy as well as the relative prices and yields of the various securities.
While the fund's effective average maturity will not exceed three years,
there is no limit on the effective maturity of individual issues at the time
of purchase.
We also may make limited investments in derivatives, which can provide higher
yields and in some cases reduce interest-rate risk; certain derivative
securities, however, could make the portfolio more risky.
Further information about the fund's investments, including a review of
market conditions and fund strategies and their impact on performance, is
available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-XXX-XXXX.
3. What are the main risks of investing in the fund?
. Interest rate risk Investors in the fund should be concerned primarily with
this risk. An increase in interest rates could cause the fund's share price
to fall, resulting in a loss of principal for the investor. That's because
the bonds and notes in the fund's portfolio become less attractive to other
investors when securities with higher yields become available. Even issues
whose principal and interest payments are guaranteed can decline in price if
rates rise. The fund carries considerably less interest rate risk than
longer-term bond funds, which limits the fund's potential for both losses and
gains.
. Prepayment risk and extension risk Because the fund can invest extensively
in mortgage-backed securities, it has special risks related to changing
interest rates. A mortgage-backed bond, unlike most other bonds, can be hurt
when interest rates fall, because homeowners tend to refinance and prepay
principal. The loss of high-yielding underlying mortgages and the
reinvestment of proceeds at lower interest rates can reduce the bond's
potential price gain in response to falling interest rates, reduce the bond's
yield, or even cause the bond's price to fall below what an investor paid for
it, resulting in a capital loss. Any of these developments could cause a
decrease in the fund's income, share price, or total return.
Extension risk refers to a rise in interest rates that causes a fund's
average maturity to lengthen unexpectedly due to a drop in mortgage
prepayments. This would increase the fund's sensitivity to rising rates and
its potential for price declines.
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Due to its high credit quality, the risk that the fund will experience
declines in price and income as a result of credit downgrades or defaults is
limited. However, while Treasury and Ginnie Mae securities are backed by the
full faith and credit of the U.S. government, those sold by Fannie Mae and
Freddie Mac are not. Fannie Mae and Freddie Mac are privately owned,
government-chartered corporations that pool mortgages and guarantee the
timely payment of interest and ultimate payment of principal. Of course, the
fund's nongovernment securities do not carry any type of U.S. government
guarantee.The fund may continue to hold a security that has been downgraded
or loses its investment grade rating after purchase.
. Other risks Shareholders are also exposed to derivatives risk, the
potential that our investments in these complex and volatile instruments
could affect the fund's share price. In addition to CMOs and better known
instruments such as futures and options, other derivatives used in limited
fashion by the fund include interest-only (IO) and principal-only (PO)
securities known as "strips." The value of these instruments is derived from
an underlying pool of mortgage-backed securities or a CMO. All these
instruments can be highly volatile, and their value can fall dramatically in
response to rapid or unexpected changes in the mortgage or interest rate
environment.
As with any mutual fund, there can be no guarantee the fund will achieve its
objective.
. The fund's share price may decline, so when you sell your shares, you may
lose money. An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
4. How can I tell if the fund is appropriate for me?
Consider your investment goals, your time horizon for achieving them, and
your tolerance for risk. This fund is expected to be a good choice for
investors seeking more income than provided by very short-term investments,
such as money market funds and CDs, with less principal risk than longer-term
investments. If you are investing primarily for principal safety and
liquidity, you should consider a money market fund. Unlike a CD, an
investment in the fund is not guaranteed by the federal government. The fund
should not represent your complete investment program or be used for
short-term trading purposes.
The fund can be used in both regular and tax-deferred accounts, such as IRAs.
<PAGE>
5. How has the fund performed in the past?
The bar chart and the average annual total return table indicate risk by
illustrating how much returns can differ from one year to the next. The
fund's past performance is no guarantee of its future returns.
<TABLE>
INSERT USG PROFILE BAR CHART
HERE
<CAPTION>
Calendar Year Total Returns
-------------------------------
<S> <C>
1992 3.96%
1993 2.77
1994 -0.63
1995 11.11
1996 4.30
1997 6.65
1998 6.89
-------------------------------
</TABLE>
The fund can also experience short-term performance swings. The best calendar
quarter return during the years depicted in the chart was 3.56% in the third
quarter of 1998, and the worst was -0.80% in the second quarter of 1994.
<TABLE>
Average Annual Total Returns
<CAPTION>
Periods ended December 31, 1998
Since inception
1 year 5 years (9/30/91)
<S> <C> <C> <C> <S>
Short-Term U.S. Government Fund 6.89% 5.59% 5.05%
-----------------------------------------
Salomon 6-month Treasury Bill Index 5.28 5.29 4.83
2-year Treasury Note 6.60 .82 .19
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</TABLE>
These figures include changes in principal value, reinvested dividends, and
capital gain distributions.
6. What fees or expenses will I pay?
The fund is 100% no load. There are no fees or charges to buy or sell fund
shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
are no 12b-1 fees.
<PAGE>
<TABLE>
Fees and Expenses of the Fund
<CAPTION>
Annual fund operating expenses
(expenses that are deducted from fund assets)
-----------------------------
<S> <C> <S>
0.42%
Management fee /a/
Other expenses 0.39%
Total annual fund 0.81%
operating expenses /a/
Amount of fee
waiver/reimbursement 0.11%
Net expenses 0.70%
---------------------------------------------------------------------------------
</TABLE>
/a/
The fund's management fee and total expense ratio would have been 0.42% and
0.81%, respectively, had T. Rowe Price not agreed to waive fees and bear
certain expenses in accordance with its expense limitations. Effective
January 1, 1994, T. Rowe Price agreed to waive its fees and bear any
expenses through May 31, 1996, to the extent such fees and expenses would
cause the fund's ratio of expenses to average net assets to exceed 0.70%.
Effective March 1, 1997, T. Rowe Price agreed to extend the expense
limitation for a period of two years and three months through May 31, 1998.
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 0.70%. However, no reimbursement will be made after May 31,
1998 (for the first agreement); after May 31, 2000 (for the second
agreement); or if it would result in the expense ratio exceeding 0.70%.
Example. The following table gives you a rough idea of how expense ratios
may translate into dollars and helps you to compare the cost of investing in
this fund with that of other funds. Although your actual costs may be higher
or lower, the table shows how much you would pay if operating expenses remain
the same, the expense limitation currently in place is not renewed, you
invest $10,000, you earn a 5% annual return, and you hold the investment for
the following periods:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <S>
1 year 3 years 5 years 10 years
$72 $236 $428 $984
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</TABLE>
7. Who manages the fund?
The fund is managed by T. Rowe Price Associates. Founded in 1937, T. Rowe
Price and its affiliates manage investments for individual and institutional
accounts. The company offers a comprehensive array of stock, bond, and money
market funds directly to the investing public.
Heather R. Landon manages the fund day-to-day and has been chairman of its
Investment Advisory Committee since 1998. She has been managing investments
for T. Rowe Price since 1986.
The following questions and answers about buying and selling shares and
services do not apply to employer-sponsored retirement plans. If you are a
participant in one of these plans, please call your plan's toll-free number
for additional information.
8. How can I purchase shares?
Fill out and return a New Account Form in the postpaid envelope, along with
your check. The minimum initial purchase is $2,500 ($1,000 for IRAs and gifts
<PAGE>
or transfers to minors) or $50 if investing through Automatic Asset Builder.
The minimum subsequent investment is $100 ($50 for IRAs, gifts or transfers
to minors, or Automatic Asset Builder). You can also open an account by bank
wire, by exchanging from another T. Rowe Price fund, or by transferring
assets from another financial institution.
9. How can I sell shares?
You may redeem or sell any portion of your regular or IRA account on any
business day. Simply write to us or call. You can also access your account at
any time via Tele*Access /(R)/ or our Web site. We offer free exchange among
our entire family of domestic and international funds. Restrictions may apply
in special circumstances, and some redemption requests need a signature
guarantee. A $5 fee is charged for wire redemptions under $5,000.
10. When will I receive income and capital gain distributions?
The fund distributes income monthly and net capital gains, if any, at
year-end. For regular accounts, income and short-term gains are taxable at
ordinary income rates, and long-term gains are taxable at the capital gains
rate. Distributions are reinvested automatically in additional shares unless
you choose another option, such as receiving a check. Distributions paid to
IRAs and employer-sponsored retirement plans are automatically reinvested.
11. What services are available?
A wide range, including but not limited to:
. retirement plans for individuals and large and small businesses;
. automated information and transaction services by telephone or computer;
. electronic transfers between fund and bank accounts;
. automatic investing and automatic exchange;
. brokerage services;
. asset manager accounts.
<PAGE>
To Open a Mutual Fund, Asset Manager, or Brokerage Account
Investor Services
1-800-XXX-XXXX
For Information on Existing Accounts
Shareholder Services
1-800-225-5132
For Yields and Prices and Account Transactions
Tele*Access/(R)/
1-800-638-2587 24 hours, 7 days
For Fund Information and Account Transactions on the Internet
www.troweprice.com
Investor Centers
101 East Lombard St. Baltimore, MD 21202
T. Rowe Price Financial Center 10090 Red Run Blvd. Owings Mills, MD 21117
Farragut Square 900 17th Street, N.W. Washington, D.C. 20006
ARCO Tower 31st Floor 515 South Flower St. Los Angeles, CA 90071
4200 West Cypress St. 10th Floor Tampa, FL 33607
Headquarters
100 East Pratt Street Baltimore, MD 21202
<PAGE>
NEW ACCOUNT FORM (LOGO)
You may purchase shares of a T. Rowe Price fund after
reviewing the information in the profile or after requesting
and reviewing the fund's prospectus (and other information).
Please note: an IRA will not be established using this form.
If you want to open an IRA, call 1-800-638-5660 to request
an IRA New Account Form.
Mail this form to: T. Rowe Price
P.O. Box 17300, Baltimore, MD 21298-9353
For help with this form, call toll free 1-800-638-5660.
Please do not remove the mailing label from this form.
1 PROVIDE YOUR TAX IDENTIFICATION NUMBER
Owner's or Minor's Social Security or Tax ID Number
(Use Minor's Social Security Number for Custodial Account)
_ _ _ _ _ _ _ _ _
Joint Owner's or Custodian's Social Security or Tax ID Number
_ _ _ _ _ _ _ _ _
2 DESIGNATE TYPE OF ACCOUNT AND OWNER NAME(S)
Please print in CAPITAL LETTERS. Choose one:
__ Individual or Joint Account.*
*Joint tenancy with right of survivorship unless you instruct otherwise.
Owner's Name (First, Middle Initial, Last)
________________________________
Title: Mr. Ms. Mrs. Dr.
Joint Owner's Name (First, Middle Initial, Last)
________________________________
Title: Mr. Ms. Mrs. Dr.
__ Custodial Account.
Uniform Gift or Transfer to Minors Act (UGMA or UTMA)
Custodian's Name (First, Middle Initial, Last)
________________________________
Minor's Name (First, Middle Initial, Last)
________________________________
State of Residence (Minor's or Custodian's)
________________________________
__ Trust, Corporation, Business, or Other Entity Account.*
*Please attach the first and last pages of the trust agreement or a copy
of
the corporate resolution.
Name of Trust, Corporation, or Other Entity
_________________________________________________________
Trustee Names or Type of Entity
________________________________________________________
<PAGE>
Name of Trust Beneficiary (Optional) Date of Trust Agreement
________________ __-__-__
month day year
__ Check this box if your organization is incorporated or tax-exempt under
Section 501(a) of the Internal Revenue Code, a qualified retirement plan
under Section 401(a), or a custodial account under Section 403(b)(7),
and
you DO NOT want us to file information returns on your behalf.
3 PROVIDE YOUR ADDRESS
Street Address or P.O. Box
__________________________________________________
__________________________________________________
City State
____________________ __
ZIP Code
_ _ _ _ _ - _ _ _ _
4 PROVIDE OTHER ACCOUNT DATA
Daytime Phone Ext.
_ _ _ _ _ _ - _ _ _ _ _ _ _ _
Evening Phone Ext.
_ _ _ _ _ _ - _ _ _ _ _ _ _ _
Date of Birth (Owner/Minor)
Date of Birth (Joint Owner/Custodian)
_ _ - _ _ - _ _ _ _ - _ _ - _ _
month day year month day year
__ U.S. Citizen __ Resident Alien
__ Nonresident Alien. My permanent foreign address for tax purposes is:
_____________________________________
_____________________________________
Owner's Occupation / Employer Name (Optional)
_____________________________________
Employer Address (Optional)
__________________________________________________________________________
5 SELECT YOUR FUND(S)
Please print the fund name(s) exactly as listed inside the Investment Kit you
received with this form. Fill in the amount of your investment for each fund.
The minimum initial investment is $2,500 per fund ($1,000 for UGMAs/UTMAs)
but is waived if you use Automatic Asset Builder (see Sections 6 and 7E).
Fund Name Amount
__________________________________ $________
Fund Name Amount
__________________________________ $________
Fund Name Amount
__________________________________ $________
<PAGE>
Fund Name Amount
__________________________________ $________
Total Investment$________
6 CHOOSE YOUR INVESTMENT METHOD
A. __ By check.
Make payable to T. Rowe Price Funds. (Otherwise it may be returned.)
B. __ By Automatic Asset Builder.
See Section 7E for instructions.
C. __ By wire.
Please call 1-800-225-5132 for the following information and wiring
instructions:
Account Number
_ _ _ _ _ _ _ _ _ _ - _
Date of Wire
_ _ - _ _ - _ _
month day year
(over, please)
7 SELECT YOUR ACCOUNT SERVICE OPTIONS
A. TO RECEIVE YOUR DISTRIBUTIONS
Your dividends and capital gains will be reinvested unless you indicate
------
otherwise.
__ Pay dividends and capital gains to me by check.
__ Transfer dividends and capital gains to my bank account.
(Please complete Section 7C if you elect this option.)
__ Pay dividends to me by check and reinvest capital gains.
B. TO EXCHANGE AND REDEEM FUND SHARES
You can use the telephone or your personal computer to check your account
balance, redeem shares, or make exchanges among any identically registered
accounts unless you check the boxes below.
------
__ I do NOT want telephone/computer exchange.
__ I do NOT want telephone/computer redemption.
C. TO MAKE TRANSFERS BETWEEN YOUR BANK AND T. ROWE PRICE
This service makes purchasing or redeeming fund shares even more convenient.
Simply call a T. Rowe Price representative or Tele*Access (R) and your
transaction
will be processed by electronically moving money between your bank
account and your mutual fund accounts.
Transfers occur only when you initiate them ($100 minimum) and are made
through the Automated Clearing House (ACH) network or by wire.* This service
becomes available approximately 20 days after your application is
processed. Since you initiate transfers by phone or computer, be sure that
you did not decline the phone/computer redemption service above.
<PAGE>
__ Check this box to set up this service. YOU MUST ALSO ATTACH A BLANK,
VOIDED CHECK (other than your investment check) from your bank
account to this form.
Any co-owner of your bank account who is not a co-owner of
---
your mutual fund account must sign below.
X___________________________________________
Bank Account Co-owner's Signature
*There is a $5 fee for wire redemptions under $5,000 but no fee for ACH
transactions.
ATTACH VOIDED CHECK HERE
D. TO SET UP CHECKWRITING
You can write checks for $500 or more on all T. Rowe Price money market and
bond fund accounts (except the High Yield and Emerging Markets Bond funds).
Those authorized to write checks should read the checking agreement and sign
below.
By signing this form, I agree to all of State Street Bank's checking account
rules, and to any conditions and limitations on redeeming checks from the
T. Rowe Price Funds. I also agree that:
(1) This form applies to any other identically registered T. Rowe Price
fund checking account I establish later;
(2) If I am subject to IRS backup withholding, I may write checks only on
money fund accounts;
(3) State Street Bank and the Fund reserve the right to change, revoke, or
close any checking account;
(4) The signatures are authentic, and, for organizations, I have submitted
an original or certified resolution authorizing the individuals with legal
capacity to sign and act on behalf of the organization.
(Do not detach this section from the rest of the form.)
_____________________________________________________
Fund Name Fund Name
_____________________________________________________
Print Name of Owner, Custodian, or Trustee
X___________________________________________________
Signature Date
_____________________________________________________
Print Name of Joint Owner, Co-trustee, Corporate Officer, etc.
X___________________________________________________
Signature Date
How many signatures do you require on checks?
__ Only one owner __ All owners
G00-008 6/30/98
<PAGE>
E. TO SET UP AUTOMATIC ASSET BUILDER
This service allows you to automatically invest in your fund account through
your
bank account and/or payroll deduction each month (minimum $50 per fund).
___ Check this box to invest from your bank account.
Be sure to complete Section 7C and fill in the information below.
Fund Name
__________________________________________________________________________
Amount Day of Month You Would Like to Invest
__________________________________ ____
Fund Name
__________________________________________________________________________
Amount Day of Month You Would Like to Invest
_____________________ ___
Fund Name
__________________________________________________________________________
Amount Day of Month You Would Like to Invest
_____________________ ___
Fund Name
__________________________________________________________________________
Amount Day of Month You Would Like to Invest
_____________________ ___
____ Check this box to invest through payroll deduction.
T. Rowe Price will mail you instructions for this service.
8 SIGN YOUR NEW ACCOUNT FORM
By signing this form, I certify that:
- - I agree to be bound by the terms of the prospectus for each fund in which
I am investing. If I am purchasing shares after reviewing a fund profile, I
understand that I will receive the prospectus after I purchase shares in the
fund. I have the authority and legal capacity to purchase mutual fund shares,
am of legal age in my state, and believe each investment is suitable for me.
- - I authorize T. Rowe Price, the Funds, their affiliates and agents to act on
any
instructions believed to be genuine for any service authorized on this form,
including telephone/computer services. The Funds use reasonable procedures
(including shareholder identity verification) to confirm that instructions
given by telephone/computer are genuine, and the Funds are not liable for
acting on these instructions. (If these procedures are not followed, it is the
opinion of certain regulatory agencies that the Funds may be liable for any
loss that may result from acting on instructions given.) I understand that
anyone who can properly identify my account(s) can make phone/computer
transactions on my behalf.
- - The Funds can redeem shares from my account(s) to reimburse a fund for
any loss due to nonpayment or other indebtedness.
<PAGE>
- - By selecting the electronic transfer service in Section 7C, I hereby authorize
T. Rowe Price to initiate credit and debit entries to my (our) account at the
Financial Institution indicated and for the Financial Institution to credit or
debit the same to such account through the Automated Clearing House
(ACH) system, subject to the rules of the Financial Institution, ACH, and the
Fund. T. Rowe Price may correct any transaction error with a debit or credit
to my Financial Institution account and/or Fund account. THIS AUTHORIZATION,
including any credit or debit entries initiated thereunder, is in full
force and effect until I notify T. Rowe Price of its revocation by telephone
or in writing and T. Rowe Price has had sufficient time to act on it.
- - Under penalties of perjury, the tax identification number(s) shown on
this form is correct. If I fail to give the correct number or fail to sign this
form, T. Rowe Price may reject, restrict, or redeem my investment. I may
also be subject to IRS backup withholding (currently 31%) on all
distributions and redemptions, and I may be subject to a $50 IRS penalty.
- - Under penalties of perjury, I am NOT subject to IRS backup withholding
because 1) I have not been notified, or 2) notification has been revoked
(cross out "NOT" if you are currently subject to withholding), or 3) I have
indicated in Section 4 that I am a nonresident alien and certify that for
dividends I am not a U.S. citizen or resident (or I am filing for a foreign
corporation, partnership, estate, or trust).
- - For clarification on any of these certification issues, please contact us for
assistance.
- - The IRS does not require your consent to any provision of this document
other than the certifications required to avoid backup withholding.
PLEASE SIGN HERE
X__________________________________________________
Signature of Owner, Custodian, or Trustee Date
X__________________________________________________
Signature of Joint Owner, Co-trustee, Corporate Officer, etc. Date
Thank you for your investment. You will receive a confirmation shortly.
8
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