<PAGE>
<PAGE>
PROSPECTUS
March 1, 1998 revised to January 15, 1999
Summit Income Funds
A choice of corporate bond, government mortgage, and money market funds for
income-oriented investors.
<PAGE>
FACTS AT A GLANCE
Summit Income Funds
Investment Goals
Money fund Preservation of capital, liquidity, and the highest level of income
consistent with these goals.
Bond funds Highest level of income consistent with each fund's prescribed
investment program.
As with all mutual funds, these funds may not achieve their goals.
Strategy and Risk/Reward
Cash Reserves Fund Invests principally in the highest-quality U.S.
dollar-denominated money market securities. Average maturity will not exceed 90
days. YOUR INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Risk/Reward Lowest.
Limited-Term Bond Fund Invests primarily in investment-grade corporate bonds.
Average effective maturity will range between one and five years.
Risk/Reward Moderate income level and share price fluctuation.
GNMA Fund Invests primarily in mortgage-backed certificates issued by the
Government National Mortgage Association (GNMA) as well as in other U.S.
government agency securities. Effective maturity will vary between three and 12
years.
Risk/Reward Expected to provide higher income than the Limited-Term Bond Fund
accompanied by potentially greater share price fluctuation.
Investor Profile
Investors who seek higher yields for the fixed income portion of their
portfolio and can meet the funds' $25,000 initial purchase requirement.
Appropriate for tax-deferred retirement plans.
Fees and Charges
100% no load. No fees or charges to buy or sell shares or to reinvest
dividends; no 12b-1 marketing fees; free telephone exchange among T. Rowe Price
funds.
Investment Manager
Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc. ("T. Rowe Price") and its affiliates managed over $124 billion for more
than six million individual and institutional investor accounts as of December
31, 1997.
This prospectus contains information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about the
funds, dated March 1, 1998, has been filed with the Securities and Exchange
Commission and is incorporated by reference in this prospectus. To obtain a
free copy, call 1-800-638-5660.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
T. Rowe Price Summit Funds, Inc.
Prospectus
March 1, 1998, revised to January 15, 1999
<TABLE>
CONTENTS
<CAPTION>
<S> <C> <C> <C>
1 ABOUT THE FUNDS
Transaction and Fund Expenses 2
---------------------------------------------
Financial Highlights 3
---------------------------------------------
Fund, Market, and Risk Characteristics 5
---------------------------------------------
2 ABOUT YOUR ACCOUNT
Pricing Shares and Receiving 14
Sale Proceeds
---------------------------------------------
Distributions and Taxes 15
---------------------------------------------
Transaction Procedures and 18
Special Requirements
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3 MORE ABOUT THE FUNDS
Organization and Management 21
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Understanding Performance Information 23
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Investment Policies and Practices 24
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4 INVESTING WITH T. ROWE PRICE
Account Requirements 35
and Transaction Information
---------------------------------------------
Opening a New Account 35
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Purchasing Additional Shares 37
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Exchanging and Redeeming 37
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Rights Reserved by the Fund 38
---------------------------------------------
Shareholder Services 39
---------------------------------------------
Discount Brokerage 41
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Investment Information 42
---------------------------------------------
</TABLE>
<PAGE>
ABOUT THE FUNDS
1
TRANSACTION AND FUND EXPENSES
----------------------------------------------------------
o Expense ratios for the Summit Funds are substantially below their industry
averages.
Each T. Rowe Price Summit Fund has a single, all-inclusive fee covering
investment management and operating expenses. This fee will not fluctuate. In
contrast, most mutual funds have a fixed management fee plus a fee for
operating expenses that varies according to a number of other factors. (See
"How are fund expenses determined?" under Organization and Management.)
Shareholder Transaction Expenses in Table 1 shows that you pay no sales
charges. All the money you invest in a fund goes to work for you, subject to
the fees explained below. Annual Fund Expenses shows how much it will cost to
operate each fund for a year, based on fiscal year expenses. These are costs
you pay indirectly because they are deducted from each fund's total assets
before the daily share price is calculated and before dividends and other
distributions are made. In other words, you will not see these expenses on
your account statement.
o Like all T. Rowe Price funds, these funds are 100% no load.
<TABLE>
Table 1
<CAPTION>
<S> <C> <C> <C> <C> <C>
Shareholder Transaction
Expenses Cash Reserves Limited-Term Bond GNMA
Sales charge "load" on None None None
purchases
---------------------------------------------------------------------
Sales charge "load" on None None None
reinvested distributions
---------------------------------------------------------------------
Redemption fees None None None
---------------------------------------------------------------------
Exchange fees None None None
Annual Fund Expenses Percentage of Fiscal Average Net Assets
Management fee/a/ 0.45% 0.55% 0.60%
---------------------------------------------------------------------
Marketing fees (12b-1) None None None
---------------------------------------------------------------------
Total other (shareholder
servicing, custodial, 0.00% 0.00% 0.00%
auditing, etc.)/a/
---------------------------------------------------------------------
Total fund expenses/a/ 0.45% 0.55% 0.60%
- -------------------------------------------------------------------------------
</TABLE>
/a/ The management fee includes operating expenses.
Note:
The funds charge a $5 fee for wire redemptions under $5,000, subject to change
without notice.
<PAGE>
ABOUT THE FUNDS 3
. Hypothetical example Assume you invest $1,000, the fund returns 5% annually,
expense ratios remain as listed previously, and you close your account at the
end of the time periods shown. Your expenses would be:
<TABLE>
Table 2
<CAPTION>
Hypothetical Fund Expenses
Fund 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C> <C> <C>
Cash Reserves $5 $14 $25 $57
-----------------------------------------------------------
Limited-Term Bond 6 18 31 69
-----------------------------------------------------------
GNMA 6 19 33 75
- ---------------------------------------------------------------------
</TABLE>
o Table 2 is just an example; actual expenses can be higher or lower than
those shown.
FINANCIAL HIGHLIGHTS
----------------------------------------------------------
Table 3, 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 financial statements, which are included
in its annual report and are incorporated by reference into the Statement of
Additional Information (available upon request). The financial statements in
each fund's annual report were audited by Coopers & Lybrand L.L.P., the
funds' independent accountants.
<PAGE>
T. ROWE PRICE 4
<TABLE>
Table 3 Financial Highlights
<CAPTION>
Income From Investment Activities Less Distributions
Period Net Asset Net Net Realized Total From Net In Tax Total
Ended Value, Investment & Unrealized Investment vestment Return Distrib
Beginning Income (Loss) Gain (Loss) Activities Income Capital butions
of Period on Investments
Cash Reserves Fund
<S> <C> <C> <C> <C> <C> <C> <C>
1994/a/ $ 1.000 $0.035 -- $ 0.035 $(0.035) -- $(0.035)
1995 1.000 0.055 -- 0.055 (0.055) -- (0.055)
1996 1.000 0.051 -- 0.051 (0.051) -- (0.051)
1997 1.000 0.052 -- 0.052 (0.052) -- (0.052)
Limited-Term Bond Fund
1994/a/ $ 5.00 $0.33 $(0.36) $(0.03) $(0.33) -- $(0.33)
1995 4.64 0.32 0.01 0.33 (0.31) $(0.01) (0.32)
1996 4.65 0.30 (0.05) 0.25 (0.29) (0.01) (0.30)
1997 4.60 0.29 0.01 0.30 (0.28) (0.01) (0.29)
GNMA Fund
1994/a/ $10.00 $0.69 $(0.85) $(0.16) $(0.69) -- $(0.69)
1995 9.15 0.70 0.66 1.36 (0.67) $(0.03) (0.70)
1996 9.81 0.67 (0.16) 0.51 (0.62) (0.05) (0.67)
1997 9.65 0.67 0.18 0.85 (0.64) (0.03) (0.67)
------------------------------------------------------------------------
<CAPTION>
Net Asset Value
Net Asset
Value,
End of Period
Cash Reserves Fund
<C>
$1.000
-----------------
1.000
-----------------
1.000
-----------------
1.000
$4.64
-----------------
4.65
-----------------
4.60
-----------------
4.61
$9.15
-----------------
9.81
-----------------
9.65
-----------------
9.83
- ----------------------
-----
</TABLE>
<TABLE>
Table 3 Financial Highlights (continued)
<CAPTION>
Returns, Ratios, and Supplemental Data
Period Total Return Ratio of Ratio of Net
Ended (Includes Net Assets Expenses to Investment Portfolio
Reinvested ($ Thousands) Average Net Income to Turnover
Distributions) Assets Average Net Rate
Assets
---------
<S> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash Reserves Fund
1994/a/ 3.60% $ 186,523 0.45%/b/ 4.03%/b/ --
---------------------------------------------------------------------------------------------
1995 5.68 433,464 0.45 5.55 --
---------------------------------------------------------------------------------------------
1996 5.23 741,561 0.45 5.09 --
---------------------------------------------------------------------------------------------
1997 5.33 1,303,120 0.45 5.18
Limited-Term Bond Fund
1994/a/ (0.71)% $ 21,116 0.55%/b/ 6.98%/b/ 296.0%/b/
---------------------------------------------------------------------------------------------
1995 7.36 27,004 0.55 6.85 84.3
---------------------------------------------------------------------------------------------
1996 5.48 25,984 0.55 6.43 116.1
---------------------------------------------------------------------------------------------
1997 6.73 29,620 0.55 6.28 74.5
GNMA Fund
1994/a/ (1.67)% $ 17,184 0.60%/b/ 7.31%/b/ 61.5%/b/
---------------------------------------------------------------------------------------------
1995 15.43 22,777 0.60 7.40 173.8
---------------------------------------------------------------------------------------------
1996 5.47 24,718 0.60 6.99 136.1
---------------------------------------------------------------------------------------------
1997 9.17 29,530 0.60 6.91 111.8
- -------------------------------------------------------------------------------------------------------
</TABLE>
/a/For the period October 29, 1993 (commencement of operations) to October 31,
1994.
/b/ Annualized.
<PAGE>
ABOUT THE FUNDS 5
FUND, MARKET, AND RISK CHARACTERISTICS: WHAT TO EXPECT
----------------------------------------------------------
To help you decide which of the T. Rowe Price Summit Funds may be appropriate
for you, this section takes a closer look at their special benefits, their
investment objectives and approaches, and the fixed income markets in which
they invest.
How do I benefit from investing in the T. Rowe Price Summit Funds?
You gain the advantages of funds that are tailored specifically to the needs
of self-directed individuals with substantial assets to invest in fixed
income securities. The funds offer such investors three key benefits:
. Access to professionally managed, diversified portfolios of fixed income
securities.
. A low-cost structure that translates into higher returns, all else being
equal.
. Services designed to help you manage your investments more effectively and
efficiently.
How do the funds achieve their low-cost advantage?
The advantage reflects their more favorable ratio of expenses to assets. The
$25,000 initial purchase requirement means that the average account balance
in each Summit Fund is high. Since shareholder recordkeeping costs - a
substantial portion of fund expenses - are basically the same for all sizes
of accounts, a fund with larger account balances can spread the expenses over
more investment dollars, achieving a low overall expense ratio. Expenses are
deducted from fund assets before dividends are paid, as explained previously,
so lower costs result in higher dividends for Summit Fund shareholders.
What services can I expect to be available?
Unlike some mutual funds, low costs do not mean any reduction in service for
Summit Fund investors. On the contrary, you will not only receive the wide
range of services available to all T. Rowe Price shareholders, but you'll
also have access to a special group of fixed income service representatives
and timely market information to help you manage your accounts.
<TABLE>
Table 4
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Differences Among Funds
Credit-Quality Expected Share Expected Average
Fund Categories Income Price Fluctuation Maturity
Cash Reserves Two highest Lowest Stable 90 days or less
-------------------------------------------------------------------------------------------
Limited-Term Bond Primarily four highest Moderate Moderate 1 to 5 years
-------------------------------------------------------------------------------------------
GNMA Two highest Highest Higher 3 to 12 years
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
T. ROWE PRICE 6
What is each fund's objective and investment program?
Cash Reserves Fund
The fund's objectives are preservation of capital, liquidity, and, consistent
with these, the highest possible current income. The fund invests in a
diversified portfolio of U.S. dollar-denominated money market securities
issued in the U.S. and abroad, and generally will not invest more than 5% of
its total assets in securities of any one issuer. The fund's yield will
fluctuate in response to changes in interest rates, but the share price is
managed to remain stable at $1.00. Unlike most bank accounts or certificates
of deposit, the fund is not insured or guaranteed by the U.S. government.
The fund invests at least 95% of its total assets in securities receiving the
highest short-term credit rating assigned by at least two established rating
agencies, by one rating agency if the security is rated by only one, or, if
unrated, the equivalent rating as established by T. Rowe Price. The fund's
dollar-weighted average maturity will not exceed 90 days. It will purchase
securities with maturities of 13 months or less.
Limited-Term Bond Fund
The fund's objective is a high level of income consistent with moderate
fluctuation in principal value. The fund will invest at least 65% of total
assets in short- and intermediate-term, investment-grade bonds. There are no
maturity limitations on individual securities purchased, but the fund's
dollar-weighted average effective maturity (discussed later in this section)
will not exceed five years. Targeting effective maturity provides additional
flexibility in portfolio management but, all else being equal, could result
in higher volatility than would be true of a fund targeting a stated maturity
or maturity range.
At least 90% of the fund portfolio will be invested in securities rated in
the four highest credit categories (investment-grade securities) by a
nationally recognized rating agency or, if unrated, of equivalent quality as
determined by T. Rowe Price. Investment-grade securities include a range of
securities from the highest rated to medium quality (BBB). Securities in the
BBB category are more vulnerable to adverse economic conditions or changing
circumstances, and securities at the lower end of the BBB category may have
certain speculative characteristics. In an effort to enhance yield, up to 10%
of assets can be invested in below investment-grade securities, commonly
referred to as "junk" bonds, including those with the lowest rating. The
fund's income level should be higher than the money fund's, but its share
price will vary.
GNMA Fund
The fund's objective is a high level of income and maximum credit protection
by investing at least 65% of total assets in GNMA certificates backed by the
full faith and credit of the U.S. government. Up to 35% of assets can be
invested in other types of high-quality securities (AAA or AA), such as
direct obligations of the U.S.
<PAGE>
ABOUT THE FUNDS 7
government, securities of other U.S. government-sponsored agencies, privately
issued mortgage securities, and corporate bonds. The fund's effective
maturity generally will vary between three and 12 years and will be
influenced by principal prepayments of GNMA and other mortgage-backed
securities. Prices of GNMAs and other mortgage-backed securities fluctuate
like other fixed income securities of comparable maturity but may have less
appreciation potential when interest rates decline, because prepayments
usually increase. Prepayments of mortgage-backed securities that were
purchased at a price over face value (par) result in a capital loss. The fund
should provide the highest income of these three funds but is expected to
experience greater share price fluctuation.
o For more detailed descriptions of each fund's securities, see Investment
Policies and Practices and the Statement of Additional Information.
How does each fund's credit quality relate to its investment objective?
Investing exclusively in high-quality securities helps the Cash Reserves Fund
pursue its primary goal - stability of principal. To secure higher income
with moderate principal fluctuation, the Limited-Term Bond Fund invests at
least 90% of assets in investment-grade securities, which provide a wider
range of income opportunities with some additional credit risk. The balance
may consist of securities rated below investment grade, including those with
the lowest rating. In keeping with its emphasis on high income consistent
with credit safety, the GNMA Fund's investments are all high quality. Like
all portfolio holdings, these securities are subject to rigorous credit
research conducted by T. Rowe Price analysts. (For further discussion, see
Investment Policies and Practices - High Yield Investing.)
What are the most important influences on the bond funds' performance?
Performance (total return) is determined by the change in each fund's share
price and by the income level over a given period. Both components are
affected by changes in interest rates.
Each fund's share price will generally move in the opposite direction of
interest rates. For example, as interest rates rise, share price will likely
decline. Rising rates provide the opportunity for the fund's income to
increase, but it is unlikely that the higher income by itself will entirely
offset the fall in price.
The maturity and type of securities in each fund's portfolio determine just
how much the share price rises or falls when rates change. Generally, when
rates fall, long-term securities rise more in price than short-term
securities, and vice versa. Mortgage-backed securities usually follow this
pattern but, because of prepayments, would not be expected to rise as much in
price as Treasury or corporate bonds.
<PAGE>
T. ROWE PRICE 8
You will find more information about the types of securities each fund may
own and how they may perform further on in this section and in Section 3.
What are the main risks of investing in these funds?
Since they are managed to maintain a $1.00 share price, money market funds
should have little risk of principal loss. However, the potential for
realizing a loss of principal in a bond or money market fund could derive
from:
. Interest rate or market risk The decline in bond prices that accompanies a
rise in the overall level of interest rates (please see Table 5). A sharp and
unexpected rise in interest rates could cause a money fund's price to drop
below one dollar. However, the very short-term securities held in money
market portfolios - a means of achieving an overall fund objective of
principal stability - reduces their potential for price fluctuation.
. Credit risk The chance that any of a fund's holdings will have its credit
rating downgraded or will default (fail to make scheduled interest and
principal payments), potentially reducing a fund's income level and share
price. Money funds invest in very high-rated securities, thus reducing this
risk.
. Currency risk The possibility that a fund's foreign holdings will be
adversely affected by fluctuations in currency markets.
o The share price and yield of the Limited-Term Bond and GNMA Funds will
fluctuate with changing market conditions and interest rate levels. When
you sell your shares, you may lose money. The yield of the Cash Reserves
Fund will fluctuate, and while there is no guarantee, the fund is managed
to maintain a $1.00 price per share.
How does the portfolio manager try to reduce risk?
Consistent with each fund's objective, the portfolio manager actively seeks
to reduce risk and increase total return. Risk management tools include:
. Diversification of assets to reduce the impact of a single holding on the
funds' net asset values.
. Thorough credit research by our own analysts.
. Adjustment of fund duration to try to reduce the negative impact of rising
interest rates or take advantage of the benefits of falling rates. (Duration
is a more accurate measure than maturity of a fund's sensitivity to interest
rate changes.)
<PAGE>
ABOUT THE FUNDS 9
What are the major differences between money market and bond funds?
. Price Bond funds have fluctuating share prices. Money market funds are
managed to maintain a stable share price.
. Maturity Short- and intermediate-term bond funds have longer average
maturities (from one to 10 years) than money market funds (90 days or less).
Longer-term bond funds have the longest average maturities (10 years or
more).
. Income Short- and intermediate-term bond funds typically offer more income
than money market funds and less income than longer-term bond funds.
What are derivatives and can these funds invest in them?
The term derivative is used to describe financial instruments whose value is
derived from an underlying security (e.g., a stock or bond) or a market
benchmark (e.g., an interest rate index). Many types of investments
representing a wide range of potential risks and rewards fall under the
"derivatives" umbrella - from conventional instruments, such as callable
bonds, futures, and options, to more exotic investments, such as stripped
mortgage securities and structured notes. While the term "derivative" only
recently became widely known among the investing public, derivatives have in
fact been employed by investment managers for many years.
Each fund will invest in derivatives only if the expected risks and rewards
are consistent with its objective, policies, and overall risk profile as
described in this prospectus. The money fund does not invest in high-risk,
highly leveraged derivatives. The bond funds limit their use of derivatives
to situations in which they may enable the fund to accomplish the following:
increase yield; hedge against a decline in principal value; invest in
eligible asset classes with greater efficiency and lower cost than is
possible through direct investment; or adjust portfolio duration.
The bond funds will not invest in any high-risk, highly leveraged derivative
instrument that is expected to cause the price volatility of the portfolio to
be meaningfully different from that of 1) an intermediate-term
investment-grade bond for the Limited-Term Bond Fund; or 2) a long-term
investment-grade bond for the GNMA Fund.
The following are some characteristics of mortgage-backed securities.
What are mortgage-backed securities and who issues them?
Mortgage lenders pool individual home mortgages with similar characteristics
to back a certificate or bond, which is then sold to investors. Interest and
principal payments generated by the underlying mortgages are passed through
to the investors. The "big three" issuers of mortgage-backed securities are
the
<PAGE>
T. ROWE PRICE 10
Government National Mortgage Association (Ginnie Mae), the Federal National
Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage
Corporation (Freddie Mac). Private mortgage bankers also issue these
securities.
What are the main differences between GNMAs and other mortgage-backed
securities?
GNMA is part of the Department of Housing and Urban Development (HUD), so
GNMA's guarantee of timely interest and principal payments is backed by the
full faith and credit of the U.S. government. Fannie Mae and Freddie Mac are
privately owned, government-sponsored agencies which issue their own
guarantees for interest and principal payments on the mortgage-backed
securities they issue. Their securities do not have a direct U.S. government
guarantee but are of very high credit quality. Privately issued
mortgage-backed securities carry no government guarantees. For this and other
reasons, all these securities usually offer higher yields than GNMAs.
Do mortgage-backed securities usually behave like other high-quality bonds?
Generally yes, with some exceptions. 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 their 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 lengthens, resulting in increased volatility and
greater exposure to price declines if rates continue to rise.
You may want to review some fundamentals that apply to all fixed income
investments.
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>
ABOUT THE FUNDS 11
Is a fund's "yield" the same thing as the "total return"?
Not for bond funds. The total return reported for a fund is the result of
reinvested distributions (income and capital gains) and the change in share
price for a given time period. Income is always a positive contributor to
total return and can enhance a rise in share price or serve as an offset to a
drop in share price. Since money funds are managed to maintain a stable share
price, their yield and total return should be the same.
What is "credit quality" and how does it affect a fund's yield?
Credit quality refers to a bond issuer's expected ability to make all
required interest and principal payments in a timely manner. Because highly
rated issuers represent less risk, they can borrow at lower interest rates
than less creditworthy issuers. Therefore, a fund investing in high-quality
securities should have a lower yield than an otherwise comparable fund
investing in lower-credit-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 before their stated maturity dates 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 such an environment, a bond's
"effective maturity" is usually its nearest call date. For example, the
effective maturity of mortgage-backed bonds is determined by the rate at
which homeowners pay down the principal on the underlying mortgages.
A bond mutual fund has no maturity in the strict sense of the word, but it
does have an average maturity and an average effective maturity. This number
is an average of the stated or effective maturities of the underlying bonds,
with each bond's maturity "weighted" by the percentage of fund assets it
represents. Funds that target effective maturities would use the effective
(rather than stated) maturities of the underlying instruments when computing
the average. Targeting effective maturity provides additional flexibility in
portfolio management but, all else being equal, could result in higher
volatility than a fund targeting a stated maturity or maturity range.
What is a bond fund's "duration"?
Duration is a calculation that seeks to measure the price sensitivity of a
bond or a bond fund to changes in interest rates. It measures bond price
sensitivity to interest rate changes more accurately than maturity because it
takes into account the time value of cash flows generated over the bond's
life. Future interest and principal payments are discounted to reflect their
present value and then are
<PAGE>
T. ROWE PRICE 12
multiplied by the number of years they will be received to produce a value
that is expressed in years, i.e., the duration. Effective duration takes into
account call features and sinking fund payments that may shorten a bond's
life.
Since duration can also be computed for bond funds, you can estimate the
effect of interest rates on a fund's share price. Simply multiply the fund's
duration (available for T. Rowe Price bond funds in our shareholder reports)
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.
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 interest rates, as shown in Table
5.
<TABLE>
Table 5
<CAPTION>
How Interest Rates Affect Bond Prices
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> <S> <C> <C> <C> <C> <C> <C>
1 year 5.50% $ 991 $981 $ 1,010 $1,020
-------------------------------------------------------------------------------------------
5 years 5.71 958 918 1,044 1,091
-------------------------------------------------------------------------------------------
10 years 5.74 928 863 1,079 1,166
-------------------------------------------------------------------------------------------
30 years 5.93 874 772 1,156 1,351
- -----------------------------------------------------------------------------------------------------
</TABLE>
Coupons reflect yields on Treasury securities as of December 31, 1997. 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.
Since the average effective maturity of bonds held by the Limited-Term Bond
Fund is expected to be no more than five years, the fund's share price, like
the value of the underlying bonds in its portfolio, should fluctuate less
than a fund that holds bonds with longer average effective maturities. If
mortgage prepayments should accelerate in a falling interest rate
environment, GNMA securities may appreciate less than shown in the example
above. The amount of appreciation would depend on the characteristics of the
mortgages, such as their coupon or maturity.
<PAGE>
ABOUT THE FUNDS 13
Do money market securities react to changes in interest rates?
Yes. As interest rates change, the prices of money market securities
fluctuate, but changes are usually small because of their very short
maturities. Investments are typically held until maturity in a money fund to
help the fund maintain a $1.00 share price.
How can I decide which fund is most appropriate for me?
Consider your investment goals, your time horizon for achieving them, and
your tolerance for risk. Use Table 4, which summarizes each fund's main
characteristics, to help choose a fund (or funds) for your particular needs.
For example, only the money fund is designed to provide principal stability,
which makes it a good choice for money you may need for near-term or
unexpected expenses. However, if you are investing for the highest possible
income and can tolerate some price fluctuation, you should consider a
longer-term bond fund.
o The fund or funds you select should not be relied upon as a complete
investment program nor be used for short-term trading purposes.
Is there other information I need to review before making a decision?
Be sure to read Investment Policies and Practices in Section 3, which
discusses the principal types of portfolio securities that the funds may
purchase as well as the types of management practices that the funds may use.
<PAGE>
ABOUT YOUR ACCOUNT
2
PRICING SHARES AND RECEIVING SALE PROCEEDS
----------------------------------------------------------
Here are some procedures you should know when investing in a T. Rowe Price
fixed income fund.
How and when shares are priced
Bond and money funds
The share price (also called "net asset value" or NAV per share) for a fund
is calculated at 4 p.m. ET each day the New York Stock Exchange is open for
business. To calculate the NAV, the fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. Amortized cost is used to value money fund
securities.
o 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.
Fund shares may be purchased through various third parties, including banks,
brokers, investment advisers, and recordkeepers (intermediaries). Where
authorized by a fund, orders will be priced at the NAV next computed after
receipt by the intermediary. Consult with 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
o When filling out the New Account Form, you may wish to give yourself the
widest range of options for receiving proceeds from a sale.
If your request is received by 4 p.m. ET in correct form, proceeds are
usually sent on the next business day. Proceeds can be sent to you by mail or
to your bank account by Automated Clearing House (ACH) transfer or bank wire.
Proceeds sent by ACH transfer should be credited the second day after the
sale.
<PAGE>
ABOUT YOUR ACCOUNT 15
ACH is an automated method of initiating payments from, and receiving
payments in, your financial institution account. ACH is a payment system
supported by over 20,000 banks, savings banks, and credit unions, which
electronically exchanges the transactions primarily through the Federal
Reserve Banks. Proceeds sent by bank wire should be credited to your account
the next business day.
. Exception: Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to five business days
after we receive your sale or exchange request. If you were exchanging into a
bond or money fund, your new investment would not begin to earn dividends
until the sixth business day.
o If for some reason we cannot accept your request to sell shares, we will
contact you.
USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
----------------------------------------------------------
o All net investment income and realized capital gains are distributed to
shareholders.
Dividends and Other Distributions
Dividend and capital gain distributions are reinvested in additional fund
shares in your account unless you select another option on your New Account
Form. The advantage of reinvesting distributions arises from compounding;
that is, you receive income dividends and capital gain distributions on a
rising number of shares.
Distributions not reinvested are paid by check or transmitted to your bank
account via ACH. If the Post Office cannot deliver your check, or if your
check remains uncashed for six months, the fund reserves the right to
reinvest your distribution check in your account at the NAV on the business
day of the reinvestment and to reinvest all subsequent distributions in
shares of the fund. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
Income dividends
. Money funds declare income dividends daily to shareholders of record as of
12 noon ET on that day. Wire purchase orders received before 12 noon ET
receive the dividend for that day. Other purchase orders receive the dividend
on the next business day after payment has been received.
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T. ROWE PRICE 16
. Bond funds declare income dividends daily at 4 p.m. ET to shareholders of
record at that time provided payment has been received on the previous
business day.
. Bond and money funds pay dividends on the first business day of each month.
. Bond and money fund shares will earn dividends through the date of
redemption; also, shares redeemed on a Friday or prior to a holiday will
continue to earn dividends until the next business day. Generally, if you
redeem all of your shares at any time during the month, you will also receive
all dividends earned through the date of redemption in the same check. When
you redeem only a portion of your shares, all dividends accrued on those
shares will be reinvested, or paid in cash, on the next dividend payment
date.
Capital gains
o Since money funds are managed to maintain a constant share price, they are
not expected to make capital gain distributions.
. A capital gain or loss is the difference between the purchase and sale price
of a security.
. If a fund has net capital gains for the year (after subtracting any capital
losses), they are usually declared and paid in December to shareholders of
record on a specified date that month.
Tax Information
o 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.
. The 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 new accounts or those opened by exchange in
1983 or later, we will provide you with the gain or loss of 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."
<PAGE>
ABOUT YOUR ACCOUNT 17
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
o The following summary does not apply to retirement accounts, such as IRAs,
which are tax-deferred until you withdraw money from them.
In January, you will be sent Form 1099-DIV, indicating the tax status of any
dividend and capital gain distribution made to you. This information will
also be reported to the IRS. All distributions made by a fund are taxable to
you for the year in which they were paid. The only exception is that
distributions declared during the last three months of a calendar year and
paid in January are taxed as though they were paid by December 31. You will
be sent any additional information you need to determine your taxes on fund
distributions, such as the portion of your dividend, 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. Recent changes in the tax code revised
capital gain holding periods for long-term gains. Gains on securities held
more than 12 months but not more than 18 months are taxed at a maximum rate
of 28%, and gains on securities held for more than 18 months are taxed at a
maximum rate of 20%. If you realize a loss on the sale or exchange of fund
shares held six months or less, your short-term loss recognized is
reclassified to long term to the extent of any net capital gain distribution
received.
If distributions arising from transactions in foreign currencies or
securities reduce a fund's net income, a portion of its dividends may be
classified as a return of capital. Tax treatment of distributions is
explained in year-end tax information we send.
o Distributions are taxable whether reinvested in additional shares or
received in cash.
Tax effect of buying shares before a capital gain distribution
If you buy shares shortly before or on the "record date" - the date that
establishes you as the person to receive the upcoming distribution - you will
receive a portion of the money you just invested in the form of a taxable
distribution. Therefore, you may also 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. When these
amounts are eventually distributed, they are taxable.
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T. ROWE PRICE 18
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
----------------------------------------------------------
o Following these procedures helps assure timely and accurate transactions.
Purchase Conditions
Nonpayment
If your payment is not received or you pay with a check or ACH transfer that
does not clear, your purchase will be canceled. You will be responsible for
any losses or expenses incurred by the fund or transfer agent, and the fund
can redeem shares you own in this or another identically registered T. Rowe
Price fund as reimbursement. The fund and its agents have the right to reject
or cancel any purchase, exchange, or redemption due to nonpayment.
U.S. dollars
All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks.
Sale (Redemption) Conditions
10-day hold
If you sell shares that you just purchased and paid for by check or ACH
transfer, the fund will process your redemption but will generally delay
sending you the proceeds for up to 10 calendar days to allow the check or
transfer to clear. If your redemption request was sent by mail or mailgram,
proceeds will be mailed no later than the seventh calendar day following
receipt unless the check or ACH transfer has not cleared. If, during the
clearing period, we receive a check drawn against your bond or money market
account, it will be returned marked "uncollected." (The 10-day hold does not
apply to the following: purchases paid for by bank wire; cashier's,
certified, or treasurer's checks; or automatic purchases through your
paycheck.)
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 box that states that you do not want these services. Personal computer
transactions must be authorized separately. T. Rowe Price funds use
reasonable procedures (including shareholder identity verification) to
confirm that instructions given by telephone are genuine and 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 losses that may result from acting on the instructions given. A
confirmation is sent promptly after a transaction. All telephone
conversations are recorded.
<PAGE>
ABOUT YOUR ACCOUNT 19
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
o T. Rowe Price may bar excessive traders from purchasing shares.
Frequent trades, involving either substantial fund assets or a substantial
portion of your account or accounts controlled by you, can disrupt management
of the fund and raise its expenses. We define "excessive trading" as
exceeding one purchase and sale involving the same fund within any 120-day
period.
For example, you are in fund A. You can move substantial assets from fund A
to fund B and, within the next 120 days, sell your shares in fund B to return
to fund A or move to fund C.
If you exceed the number of trades just described, you may be barred
indefinitely from further purchases of T. Rowe Price funds.
Three types of transactions are exempt from excessive trading guidelines: 1)
trades solely between money market funds; 2) redemptions that are not part of
exchanges; and 3) systematic purchases or redemptions (see Shareholder
Services).
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 $10,000. If your balance
is below $10,000 for three months or longer, we have the right to close your
account after giving you 60 days in which to increase your balance.
Signature Guarantees
o 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.
<PAGE>
T. ROWE PRICE 20
. 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
3
ORGANIZATION AND MANAGEMENT
----------------------------------------------------------
How are the funds organized?
The T. Rowe Price Summit Funds, Inc. (the "Corporation") was incorporated in
Maryland in 1993 and is a "diversified, open-end investment company," or
mutual fund. Mutual funds pool money received from shareholders and invest it
to try to achieve specified objectives.
Currently, the Corporation consists of three series: Summit Cash Reserves
Fund, Summit Limited-Term Bond Fund, and Summit GNMA Fund, each of which
represents a separate class of shares and has different objectives and
investment policies. Each of the Summit Funds was established in 1993.
o Shareholders benefit from T. Rowe Price's 61 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 the 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, in order to avoid
unnecessary costs to fund shareholders, do not intend to do so except when
certain matters, such as a change in a fund's fundamental policies, are to 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 a
voting card for you to mail back.
<PAGE>
T. ROWE PRICE 22
Who runs each fund?
General Oversight
The Corporation is governed by a Board of Directors that meets regularly to
review the funds' investments, performance, expenses, and other business
affairs. The Board elects the Corporation's officers. The policy of the
Corporation is that a majority of Board members will be independent of T.
Rowe Price.
o All decisions regarding the purchase and sale of fund investments are made
by T. Rowe Price - specifically by each fund's portfolio managers.
Portfolio Management
Each fund has an Investment Advisory Committee whose chairman has day- to-day
responsibility for managing the fund and works with the committee in
developing and executing the fund's investment program. The Investment
Advisory Committees comprise the following members:
. Cash Reserves Fund Edward A. Wiese, Chairman, Patrice Berchtenbreiter Ely,
Brian E. Burns, Robert P. Campbell, James M. McDonald, Joan R. Potee, Robert
M. Rubino, and Gwendolyn G. Wagner. Mr. Wiese joined T. Rowe Price in 1984
and has been managing investments since 1985.
. Limited-Term Bond Fund Edward A. Wiese, Chairman, Robert P. Campbell,
Christy M. DiPietro, Charles B. Hill, Cheryl A.Mickel, Robert M. Rubino,
Thomas E. Tewksbury, and Gwendolyn G. Wagner. Mr. Wiese joined T. Rowe Price
in 1984 and has been managing investments since 1985.
. GNMA Fund Deborah L. Boyer, Chairman, Connice A. Bavely, Heather R. Landon,
James M. McDonald, Edmund M. Notzon, and Gwendolyn G. Wagner. Ms. Boyer
joined T. Rowe Price in 1996, and from 1993-1996 was an assistant vice
president and government bond trader for First Chicago Capital Markets.
Marketing
T. Rowe Price Investment Services, Inc., a wholly owned subsidiary of T. Rowe
Price, distributes (sells) shares of these and all other T. Rowe Price funds.
Shareholder Services
T. Rowe Price Services, Inc., another wholly owned subsidiary, acts as the
funds' transfer and dividend disbursing agent and provides shareholder and
administrative services. Services for certain types of retirement plans are
provided by T. Rowe Price Retirement Plan Services, Inc., also a wholly owned
subsidiary. The address for each is 100 East Pratt St., Baltimore, MD 21202.
How are fund expenses determined?
Under the management agreement, all expenses of the funds will be paid by T.
Rowe Price, except interest, taxes, brokerage commissions, directors' fees
and expenses (including counsel fees and expenses), and extraordinary
<PAGE>
MORE ABOUT THE FUNDS 23
expenses. The Board of Directors of the funds reserves the right to impose
additional fees against shareholder accounts to defray expenses which would
otherwise be paid by T. Rowe Price under the management agreement. The Board
does not anticipate levying such charges; such a fee, if charged, may be
retained by the fund or paid to T. Rowe Price.
The Management Fee
Each fund pays T. Rowe Price an annual all-inclusive fee based on its average
daily net assets. The funds calculate and accrue the fee daily. (See
Transaction and Fund Expenses.)
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 Insights articles; in T.
Rowe Price advertisements; and in the media.
Total Return
This tells you how much an investment in a fund has changed in value over a
given time period. It reflects any net increase or decrease in the share
price and assumes that all dividends and capital gains (if any) paid during
the period were reinvested in additional shares. Including reinvested
distributions means that total return numbers include the effect of
compounding, i.e., you receive income and capital gain distributions on a
rising number of shares.
Advertisements for a fund may include cumulative or compound average annual
total return figures, which may be compared with various indices, other
performance measures, or other mutual funds.
o Total return is the most widely used performance measure. Detailed
performance information is included in each fund's annual and semiannual
shareholder reports and in the quarterly Performance Update, which are all
available without charge.
Cumulative Total Return
This is the actual rate of return on an investment for a specified period. A
cumulative return does not indicate how much the value of the investment may
have fluctuated between the beginning and end of the period specified.
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T. ROWE PRICE 24
Average Annual Total Return
This is always hypothetical. Working backward from the actual cumulative
return, it tells you what constant year-by-year return would have produced
the actual cumulative return. By smoothing out all the variations in annual
performance, it gives you an idea of the investment's annual contribution to
your portfolio, provided you held it for the entire period in question.
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 funds' net
asset values. 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 money fund may advertise a current yield, reflecting the latest seven-day
income annualized, or an "effective" yield, which assumes the income has been
reinvested in the fund.
For the bond funds, the advertised or "SEC" yield is found by determining the
net income per share (as defined by the SEC) earned by the fund during a
30-day base period and dividing this amount by the per share price on the
last day of the base period. The SEC yield may differ from the dividend
yield.
o You will see frequent references to a fund's yield in our reports, in
advertisements, in media stories, and so on.
INVESTMENT POLICIES AND PRACTICES
----------------------------------------------------------
This section takes a detailed look at some of the types of securities each
fund may hold in its portfolio and the various kinds of investment practices
that may be used in day-to-day portfolio management. The funds' investment
programs are subject to further restrictions and risks described in the
Statement of Additional Information.
Shareholder approval is required to substantively change a fund's objectives
and certain investment restrictions noted in the following section as
"fundamental policies." The managers also follow certain "operating
policies," which can be changed without shareholder approval. However,
significant changes are discussed with shareholders in fund reports. Each
fund adheres to applicable investment restrictions and policies at the time
it makes an investment. A later change in circumstances will not require the
sale of an investment if it was proper at the time it was made.
<PAGE>
MORE ABOUT THE FUNDS 25
Each fund's holdings of certain kinds of investments cannot exceed maximum
percentages of total assets, which are set forth in this prospectus. For
instance, the Limited-Term Bond Fund is not permitted to invest more than 10%
of total assets in hybrid instruments. While these restrictions provide a
useful level of detail about a fund's investment program, investors should
not view them as an accurate gauge of the potential risk of such investments.
For example, in a given period, a 5% investment in hybrid instruments could
have significantly more of an impact on the Limited-Term Bond Fund's share
price than its weighting in the portfolio. The net effect of a particular
investment depends on its volatility and the size of its overall return in
relation to the performance of all the fund's other investments.
Changes in the funds' holdings, the funds' performance, and the contribution
of various investments are discussed in the shareholder reports sent to you.
o Fund managers have considerable leeway in choosing investment strategies
and selecting securities they believe will help each fund achieve its
objective.
Types of Portfolio Securities
In seeking to meet their investment objectives, the funds may invest in any
type of security or instrument whose investment characteristics are
consistent with the funds' investment programs. For the bond funds, but not
the Cash Reserves Fund, these investments may include potentially high-risk
derivatives (described in this section). The following pages describe the
principal types of portfolio securities and investment management practices
of the funds.
Fundamental policy A 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 more than 10% of the voting
securities of the issuer would be held by the fund. These limitations do not
apply to a fund's purchases of securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities.
Operating policy (money fund only) Except as permitted by Rule 2a-7 under the
Investment Company Act of 1940, the money fund will not purchase a security
if, as a result, more than 5% of its total assets would be invested in
securities of a single issuer. Under Rule 2a-7, the 5% limit, among other
things, does not apply to purchases of U.S. government securities or
securities subject to certain types of guarantees. Additionally, the fund may
invest up to 25% of its total assets in the first tier securities (as defined
by Rule 2a-7) of a single issuer for a period of up to three business days.
<PAGE>
T. ROWE PRICE 26
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 current.
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.
Money Market Securities
The main types of money market securities in which the funds can invest are:
. Commercial paper Unsecured promissory notes that corporations typically
issue to finance current operations and other expenditures.
. Treasury bills Debt obligations sold at discount and repaid at face value by
the U.S. Treasury. Bills mature in one year or less and are backed by the
full faith and credit of the U.S. government.
. Certificates of deposit Receipts for funds deposited at banks that guarantee
a fixed interest rate over a specified time period.
. Repurchase agreements Contracts, usually involving U.S. government
securities, that require one party to repurchase securities at a fixed price
on a designated date.
. Banker's acceptances Bank-issued commitments to pay for merchandise sold in
the import/export market.
. Agency notes Debt obligations of agencies sponsored by the U.S. government
that are not backed by the full faith and credit of the United States.
. Medium-term notes Unsecured corporate debt obligations that are continuously
offered in a broad range of maturities and structures.
. Bank notes Unsecured obligations of a bank that rank on an equal basis with
other kinds of deposits but do not carry FDIC insurance.
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MORE ABOUT THE FUNDS 27
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. On occasion, the pool of assets
may also include a swap obligation, which is used to change the cash flows on
the underlying assets. As an example, a swap may be used to allow floating
rate assets to back a fixed rate obligation. Credit quality depends primarily
on the quality of the underlying assets, the level of credit support, if any,
provided by the issuer, and the credit quality of the swap counterparty, if
any. The underlying assets (i.e., loans) are subject to prepayments, which
can shorten the securities' weighted average life and may lower their return.
The value of these securities also may change because of actual or perceived
changes in the creditworthiness of the originator, the servicing agent, the
financial institution providing the credit support, or the swap counterparty.
There is no limit on the funds' investment in these securities.
Mortgage-Backed Securities (bond funds)
The funds may invest in a variety of mortgage-backed securities. For a
general description of mortgage-backed securities, see Fund, Market, and Risk
Characteristics: What to Expect. Mortgage-related securities in which the
funds may invest include:
. GNMA Certificates GNMA certificates evidence interests in a pool of
underlying mortgages with a maximum life of 15 or 30 years. However, due to
both scheduled and unscheduled principal payments, GNMA certificates have a
shorter average life and, therefore, less principal volatility than a
comparable 30-year bond. Since prepayment rates vary widely, it is not
possible to accurately predict the average life of a particular GNMA pool.
However, it is standard industry practice to treat new issues of GNMA
certificates as 30-year mortgage-backed securities having an average life of
no greater than 12 years. Because the expected average life is a better
indicator of the maturity characteristics of GNMA certificates, principal
volatility and yield may be more comparable to 10-year Treasury bonds.
. GNMA Project Pass-Through Securities These securities are issued by GNMA for
multifamily projects, i.e., low to moderate income housing, nursing homes,
apartment rehabilitation, housing for the elderly or handicapped, and the
like. Unlike GNMA "modified pass-through certificates," these bonds provide
call protection for a term stated in the issue. The project loans can be made
to either private enterprise or nonprofit groups. There are penalties
assessed for prepayments during the call-protected period, creating a
disincentive for early prepayment. These bonds incorporate the same
standardized procedures as single-family pass-through certificates, and full
and timely payment of principal and interest is guaranteed by GNMA.
Operating policy The GNMA Fund will invest at least 65% of its assets in GNMA
mortgage-backed securities.
<PAGE>
T. ROWE PRICE 28
. 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, in most cases,
more definite maturities than is the case with the underlying mortgages. CMOs
may pay fixed or variable rates of interest, and certain CMOs have priority
over others with respect to the receipt of prepayments.
Operating policy The Limited-Term Bond and GNMA Funds may invest up to 20%
and 30% of their assets, respectively, in CMOs.
. 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. These securities are very volatile in price and may have
lower liquidity than most other mortgage-backed securities. Certain
non-stripped CMOs 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 CMOs, in addition to losing
value, can exhibit characteristics of longer-term securities and become more
volatile. There is no guarantee the funds' investments in CMOs, IOs, or POs
will be successful, and the funds' total returns could be adversely affected
as a result.
Operating policy The bond funds may invest up to 10% of their total assets in
stripped mortgage securities.
Hybrid Instruments (bond funds)
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 currency
hedging, duration management, and increased total return. Hybrids may not
bear interest or pay dividends. The
<PAGE>
MORE ABOUT THE FUNDS 29
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, such as commodity shortages and currency devaluations,
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
funds to the credit risk of the issuer of the hybrid. These risks may cause
significant fluctuations in the net asset value of the funds.
o Hybrids can have volatile prices and limited liquidity, and their use by
the funds may not be successful.
Operating policy The bond funds may invest up to 10% of their total assets in
hybrid instruments.
High-Yield/High-Risk Investing (Limited-Term Bond Fund)
The total return and yield of lower-quality (high-yield/high-risk) bonds,
commonly referred to as "junk," can be expected to fluctuate more than the
total return and yield of higher-quality bonds. Junk bonds (those rated below
BBB or in default) are regarded as predominantly speculative with respect to
the issuer's ability to meet principal and interest payments. Successful
investment in lower-medium- and low-quality bonds involves greater investment
risk and is highly dependent on T. Rowe Price's credit analysis. A real or
perceived economic downturn, or rising interest rates, could cause a decline
in high-yield bond prices by lessening the ability of issuers to make
principal and interest payments. These bonds are often thinly traded and can
be more difficult to sell and value accurately than high-quality bonds.
Because objective pricing data may be less available, judgment may play a
greater role in the valuation process.
Operating policy The Limited-Term Bond Fund will not purchase a non-
investment-grade debt security (or junk bond) if immediately after such
purchase the fund would have more than 10% of its total assets invested in
such securities.
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 No fund will invest more than 15% of its net assets (10% for
Cash Reserves) in illiquid securities.
<PAGE>
T. ROWE PRICE 30
Foreign Securities (Cash Reserves and Limited-Term Bond Funds)
The Limited-Term Bond Fund may invest in foreign securities, including
nondollar-denominated securities traded outside of the U.S. The Cash Reserves
and Limited-Term Bond Funds may invest without limitation in
dollar-denominated securities of foreign issuers. Such investments increase a
portfolio's diversification and may enhance return, but they also involve
some special risks such as exposure to potentially adverse local political
and economic developments; nationalization and exchange controls; potentially
lower liquidity and higher volatility; possible problems arising from
accounting, disclosure, settlement, and regulatory practices that differ from
U.S. standards; and the chance that fluctuations in foreign exchange rates
will decrease the investment's value (favorable changes can increase its
value). To the extent the funds invest in developing countries, these risks
are increased.
Operating policy The Limited-Term Bond and Cash Reserves Funds may invest
without limitation in U.S. dollar-denominated debt securities of foreign
issuers, foreign branches of U.S. banks, and U.S. branches of foreign banks.
The Limited-Term Bond Fund may invest up to 10% of its total assets
(excluding reserves) in non-U.S. dollar-denominated fixed income securities
principally traded in financial markets outside the U.S.
Types of Management Practices
Reserve Position (bond funds)
Each fund will hold a certain portion of its assets in money market reserves.
Each fund's reserve position can consist of shares of one or more T. Rowe
Price internal money market funds as well as short-term, high-quality U.S.
and foreign dollar-denominated money market securities, including repurchase
agreements. For temporary, defensive purposes, the funds may invest without
limitation in money market reserves. The reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new
investments and can serve as a short-term defense during periods of unusual
market volatility.
Borrowing Money and Transferring Assets
Each fund can borrow money from banks as a temporary measure for emergency
purposes, to facilitate redemption requests, or for other purposes consistent
with each fund's investment objective and program. Such borrowings may be
collateralized with fund assets, subject to restrictions.
Fundamental policy Borrowings may not exceed 33 1/3% of total fund
assets.
Operating policies Each fund may not transfer as collateral any portfolio
securities except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33 1/3% of the
fund's total assets. Each fund may not purchase additional securities when
borrowings exceed 5% of total assets.
<PAGE>
MORE ABOUT THE FUNDS 31
Futures and Options (bond funds)
Futures (a type of potentially high-risk derivative) are often used to manage
or hedge risk because they enable the investor to buy or sell an asset in the
future at an agreed-upon price. Options (another type of potentially
high-risk derivative) give the investor the right, but not the obligation, to
buy or sell an asset at a predetermined price in the future. Each fund may
buy and sell futures and options contracts for any number of reasons,
including: to manage its exposure to changes in interest rates, bond prices,
and foreign currencies; as an efficient means of adjusting its overall
exposure to certain markets; in an effort to enhance income; to protect the
value of portfolio securities; and to adjust portfolio duration. The funds
may purchase, sell, or write call and put options on securities, financial
indices, and foreign currencies.
Futures contracts and options may not always be successful hedges; their
prices can be highly volatile. Using them could lower each fund's total
return, and the potential loss from the use of futures can exceed each fund's
initial investment in such contracts.
Operating policies Futures: Initial margin deposits and premiums on options
used for non-hedging purposes will not equal more than 5% of each fund's net
asset value. Options on securities: The total market value of securities
against which each fund writes call or put options may not exceed 25% of its
total assets. Each fund will not commit more than 5% of its total assets to
premiums when purchasing call or put options.
Interest Rate Swaps (bond funds)
The funds may enter into various interest rate transactions (a type of
potentially high-risk derivative investment), such as interest rate swaps and
the purchase or sale of interest rate caps, collars, and floors, to preserve
a return or spread on a particular investment or portion of its portfolio, to
create synthetic securities, or to structure transactions designed for other
purposes.
Operating policy The bond funds will not invest more than 10% of their total
assets in interest rate swaps.
Managing Foreign Currency Risk (Limited-Term Bond Fund)
Investors in foreign securities may "hedge" their exposure to potentially
unfavorable currency changes by purchasing a contract to exchange one
currency for another on some future date at a specified exchange rate. In
certain circumstances, a "proxy currency" may be substituted for the currency
in which the investment is denominated, a strategy known as "proxy hedging."
The fund may also use these contracts to create a synthetic bond - issued by
a U.S. company, for example, but with the dollar component transformed into a
foreign currency. Although foreign currency transactions will be used
primarily to protect the
<PAGE>
T. ROWE PRICE 32
fund's foreign securities from adverse currency movements relative to the
dollar, they involve the risk that anticipated currency movements will not
occur and the fund's total return could be reduced.
Operating policy The Limited-Term Bond Fund will not commit more than 10% of
its total assets to forward currency contracts.
Lending of Portfolio Securities
Like other mutual funds, each fund may lend securities 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, each fund could experience delays in recovering its securities
and possibly capital losses.
Fundamental policy The value of loaned securities may not exceed
33 1/3% of total fund assets.
When-Issued Securities (all funds) and Forward Commitment Contracts (bond
funds)
The funds 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 each fund's investment in these securities. The price of these
securities is fixed at the time of the commitment to buy, but delivery and
payment can take place a month or more later. During the interim period, the
market value of the securities can fluctuate, and no interest accrues to the
purchaser. At the time of delivery, the value of the securities may be more
or less than the purchase or sale price. To the extent each 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.
Portfolio Turnover (bond funds)
Although the funds will not generally trade for short-term profits,
circumstances may warrant a sale without regard to the length of time a
security was held. A high turnover rate may increase transaction costs and
result in additional taxable gains. The Limited-Term Bond and GNMA Funds'
annualized portfolio turnover rates for the fiscal years ended October 31 are
listed in Table 6.
<TABLE>
Table 6
<CAPTION>
<S> <C> <C> <C> <C> <C>
Portfolio Turnover Rates
Fund 1995 1996 1997
Summit Limited-Term Bond Fund 84.3% 116.1% 74.5%
-------------------------------------------------------------
Summit GNMA Fund 173.8% 136.1% 111.8%
- -----------------------------------------------------------------------
</TABLE>
<PAGE>
MORE ABOUT THE FUNDS 33
Bond Ratings and High-Yield Bonds
Larger bond issues are evaluated by rating agencies such as Moody's and
Standard & Poor's on the basis of the issuer's ability to meet all required
interest and principal payments. The highest ratings are assigned to issuers
perceived to be the best credit risks. T. Rowe Price research analysts also
evaluate all portfolio holdings, including those rated by an outside agency.
Other things being equal, lower-rated bonds have higher yields due to greater
risk. High-yield bonds, also called "junk" bonds, are those rated below BBB.
Table 7 shows the rating scale used by the major rating agencies, and Table 8
provides an explanation of quality ratings. T. Rowe Price considers publicly
available ratings but emphasizes its own credit analysis when selecting
investments.
<TABLE>
Table 7
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C><C> <C> <C> <C> <C> <C>
Ratings of Corporate Debt Securities
Moody's Standard Fitch
Investors & Poor's Investors
Service, Inc. Corporation Service, Inc. Definition
Long Term Aaa AAA AAA Highest quality
-------------------------------------------------------------------------------------------------------------------
Aa AA AA High quality
-------------------------------------------------------------------------------------------------------------------
A A A Upper medium grade
-------------------------------------------------------------------------------------------------------------------
Baa BBB BBB Medium grade
-------------------------------------------------------------------------------------------------------------------
Ba BB BB Speculative
-------------------------------------------------------------------------------------------------------------------
B B B Highly speculative
-------------------------------------------------------------------------------------------------------------------
Caa CCC, CC CCC, CC Vulnerable to default
-------------------------------------------------------------------------------------------------------------------
Ca C C Default is imminent
-------------------------------------------------------------------------------------------------------------------
C D DDD, DD, D Probably in default
Moody's S&P Fitch
Commercial P-1 Superior quality A-1+ Extremely strong quality F-1+ Exceptionally strong quality
Paper A-1 Strong quality F-1 Very strong quality
-------------------------------------------------------------------------------------------------------------------
P-2 Strong quality A-2 Satisfactory quality F-2 Good credit quality
-------------------------------------------------------------------------------------------------------------------
P-3 Acceptable quality A-3 Adequate quality F-3 Fair credit quality
B Speculative quality F-5 Weak credit quality
C Doubtful quality
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
T. ROWE PRICE 34
<TABLE>
Table 8
<CAPTION>
<S> <C> <C> <C> <C>
Explanation of Quality Ratings
Bond
Rating Explanation
Moody's Investors Aaa Highest quality, smallest degree of
Service, Inc. investment risk.
-------------------------------------------------
Aa High quality; together with Aaa
bonds, they compose the high-grade
bond group.
-------------------------------------------------
A Upper-medium-grade obligations; many
favorable investment attributes.
-------------------------------------------------
Baa Medium-grade obligations; neither
highly protected nor poorly secured.
Interest and principal appear
adequate for the present, but
certain protective elements may be
lacking or may be unreliable over
any great length of time.
-------------------------------------------------
Ba More uncertain with speculative
elements. Protection of interest and
principal payments not well
safeguarded in good and bad times.
-------------------------------------------------
B Lack characteristics of desirable
investment; potentially low
assurance of timely interest and
principal payments or maintenance of
other contract terms over time.
-------------------------------------------------
Caa Poor standing, may be in default;
elements of danger with respect to
principal or interest payments.
-------------------------------------------------
Ca Speculative in high degree; could be
in default or have other marked
shortcomings.
-------------------------------------------------
C Lowest rated. Extremely poor
prospects of ever attaining
investment standing.
-------------------------------------------------
Standard & Poor's AAA Highest rating; extremely strong
Corporation capacity to pay principal and
interest.
-------------------------------------------------
AA High quality; very strong capacity
to pay principal and interest.
-------------------------------------------------
A Strong capacity to pay principal and
interest; somewhat more susceptible
to the adverse effects of changing
circumstances and economic
conditions.
-------------------------------------------------
BBB Adequate capacity to pay principal
and interest; normally exhibit
adequate protection parameters, but
adverse economic conditions or
changing circumstances more likely
to lead to weakened capacity to pay
principal and interest than for
higher-rated bonds.
-------------------------------------------------
BB, B, Predominantly speculative with
CCC, CC respect to the issuer's capacity to
meet required interest and principal
payments. BB-lowest degree of
speculation;
CC-the highest degree of
speculation. Quality and protective
characteristics outweighed by large
uncertainties or major risk exposure
to adverse conditions.
-------------------------------------------------
D In default.
-------------------------------------------------
AAA Highest quality; obligor has
exceptionally strong ability to pay
Fitch Investors interest and repay principal, which
Service, Inc. is unlikely to be affected by
reasonably foreseeable events.
-------------------------------------------------
AA Very high quality; obligor's ability
to pay interest and repay principal
is very strong. Because bonds rated
in the AAA and AA categories are not
significantly vulnerable to
foreseeable future developments,
short-term debt of these issuers is
generally rated F-1+.
-------------------------------------------------
A High quality; obligor's ability to
pay interest and repay principal is
considered to be strong, but may be
more vulnerable to adverse changes
in economic conditions and
circumstances than higher-rated
bonds.
-------------------------------------------------
BBB Satisfactory credit quality;
obligor's ability to pay interest
and repay principal is considered
adequate. Unfavorable changes in
economic conditions and
circumstances are more likely to
adversely affect these bonds and
impair timely payment. The
likelihood that the ratings of these
bonds will fall below investment
grade is higher than for
higher-rated bonds.
-------------------------------------------------
BB, CCC, Not investment grade; predominantly
CC, C speculative with respect to the
issuer's capacity to repay interest
and repay principal in accordance
with the terms of the obligation for
bond issues not in default. BB is
the least speculative. C is the most
speculative.
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
INVESTING WITH T. ROWE PRICE
4
ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
----------------------------------------------------------
Tax Identification Number
We must have your correct Social Security or corporate tax identification number
on a signed New Account Form or W-9 Form. Otherwise, federal law requires the
funds to withhold a percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed, priced at the NAV on the date of redemption.
Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Shareholder Services promptly.
Employer-Sponsored Retirement Plans and Institutional Accounts T. Rowe Price
Trust Company 1-800-492-7670 1-410-625-6585
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
----------------------------------------------------------
$25,000 minimum initial investment
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
address on the next page. We do not accept third party checks to open new
accounts, except for IRA Rollover checks that are properly endorsed.
<PAGE>
T. ROWE PRICE 36
Regular Mail
T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21298-9353
Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Account Services 10090 Red Run Blvd. Owings Mills, MD 21117
By Wire
Call Investor Services for an account number and give the following wire
information to your bank:
PNC Bank, N.A. (Pittsburgh) ABA# 043000096 T. Rowe Price [fund name] Account#
1004397951 name of owner(s) and account number
Complete a New Account Form and mail it to one of the appropriate addresses
listed above.
Note: No services will be established and IRS penalty withholding may occur
until a signed New Account Form is received. Also, retirement plans cannot be
opened by wire.
By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Shareholder Services). The new account will have the
same registration as the account from which you are exchanging. Services for the
new account may be carried over by telephone request if preauthorized on the
existing account. For limitations on exchanging, see explanation of Excessive
Trading under Transaction Procedures and Special Requirements.
In Person
Drop off your New Account Form at any location listed on the cover and obtain a
receipt.
<PAGE>
INVESTING WITH T. ROWE PRICE 37
PURCHASING ADDITIONAL SHARES
----------------------------------------------------------
$1,000 minimum purchase; $100 minimum for retirement plans, Automatic Asset
Builder, and gifts or transfers to minors (UGMA/UTMA) accounts
By ACH Transfer
Use Tele*Access or your personal computer or call Investor Services if you have
established electronic transfers using the ACH network.
By Wire
Call Shareholder Services or use the wire address 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 address shown below 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.
Regular Mail
T. Rowe Price Funds Account Services P.O. Box 89000 Baltimore, MD 21289-1500
/(For mailgrams, express, registered, or certified mail, 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
----------------------------------------------------------
By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer, Tele*Access (if you have
previously authorized telephone services), mailgram, or express mail. For
exchange policies, please see Transaction Procedures and Special Requirements
- -Excessive Trading.
<PAGE>
T. ROWE PRICE 38
Redemption proceeds can be mailed to your account address, sent by ACH transfer,
or wired to your bank (provided your bank information is already on file). For
charges, see Electronic Transfers - By Wire under Shareholder Services.
By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to indicate any fund you
are exchanging out of and the fund or funds you are exchanging into. Please mail
to the appropriate address below. 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).
Regular Mail
For nonretirement and IRA accounts
T. Rowe Price Account Services P.O. Box 89000 Baltimore, MD 21289-0220
For employer-sponsored retirement accounts
T. Rowe Price Trust Company P.O. Box 89000 Baltimore, MD 21289-0300
/(For mailgrams, express, registered, or certified mail, see Opening a / /New
Account.)/
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 FUND
----------------------------------------------------------
The fund and its agents reserve the right to waive or lower investment minimums;
to accept initial purchases by telephone or mailgram; to refuse any purchase
order; to cancel or rescind any purchase or
<PAGE>
INVESTING WITH T. ROWE PRICE 39
exchange (for excessive trading or fraud) 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; 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; to otherwise modify the conditions of purchase
and any services at any time; or to act on instructions believed to be genuine.
SHAREHOLDER SERVICES
----------------------------------------------------------
Shareholder Services 1-800-225-5132 1-410-625-6500 Investor Services
1-800-638-5660 1-410-547-2308
Many services are available to you as a T. Rowe Price shareholder; some you
receive automatically, and others you must authorize 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 reviews some of the principal services currently offered. Our Services
Guide contains detailed descriptions of these and other services.
If you are a new T. Rowe Price investor, you will receive a Services Guide with
our Welcome Kit.
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: IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs (profit sharing, money
purchase pension), 401(k), and 403(b)(7). For information on IRAs, call Investor
Services. For information on all other retirement plans, including our no-load
variable annuity, please call our Trust Company at 1-800-492-7670.
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
<PAGE>
T. ROWE PRICE 40
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.) Some of the
T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on shares held for
less than six months or one year, as specified in the prospectus. The fee is
paid to the fund.
Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days
Tele*Access
24-hour service via toll-free number enables you to (1) access information on
fund yields, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, duplicate
statements, and tax forms; and (3) initiate purchase, redemption, and exchange
transactions in your accounts (see Electronic Transfers below).
T. Rowe Price OnLine
24-hour service via dial-up modem provides the same services as Tele*Access but
on a personal computer. Please call Investor Services for an information guide.
After obtaining proper authorization, account transactions may also be conducted
on the Internet.
Plan Account Line 1-800-401-3279
Plan Account Line
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the 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.
<PAGE>
INVESTING WITH T. ROWE PRICE 41
Checkwriting
(Not available for equity funds, or the High Yield or Emerging Markets Bond
Funds) You may write an unlimited number of free checks on any money market
fund, and most bond funds, with a minimum of $500 per check. Keep in mind,
however, that a check results in a redemption; a check written on a bond fund
will create a taxable event which you and we must report to the IRS.
Automatic Investing
($100 minimum) You can invest automatically in several different ways,
including:
Automatic Asset Builder
You instruct us to move $50 or more from your bank account, or you can instruct
your employer to send all or a portion of your paycheck to the fund or funds you
designate.
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.
DISCOUNT BROKERAGE
----------------------------------------------------------
To open an account 1-800-638-5660 For existing discount brokerage investors
1-800-225-7720
This additional service gives you the opportunity to easily consolidate all of
your investments with one company. Through our discount brokerage, you can buy
and sell individual securities - stocks, bonds, options, and others - at
commission savings over full-service brokers. We also provide a wide range of
services, including:
Automated telephone and on-line services
You can enter trades, access quotes, and review account information 24 hours a
day, seven days a week. Any trades executed through these programs save you an
additional 10% on commissions.
Note: Discount applies to our current commission schedule, subject to our $35
minimum commission.
<PAGE>
T. ROWE PRICE 42
Investor information
A variety of informative reports, such as our Brokerage Insights series, S&P
Market Month newsletter, and select stock reports can help you better evaluate
economic trends and investment opportunities.
Dividend Reinvestment Service
Virtually all stocks held in customer accounts are eligible for this service -
free of charge.
/Discount Brokerage is a division of //T. Rowe Price// Investment / /Services,
Inc., Member NASD/SIPC./
INVESTMENT INFORMATION
----------------------------------------------------------
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety of
information in addition to account statements.
Shareholder Reports
Fund managers' reviews of their strategies and results. If several members of a
household own the same fund, only one fund report is mailed to that address. To
receive additional copies, please call Shareholder Services or write to us at
100 East Pratt Street, Baltimore, Maryland 21202.
The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies.
Performance Update
A quarterly review of all T. Rowe Price fund results.
Insights
Educational reports on investment strategies and financial markets.
Investment Guides
Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, How to Choose a Bond Fund, Personal
Strategy Planner, Retirees Financial Guide, Retirement Planning Kit, and Tax
Considerations for Investors.
<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
timely, informative reports.
To Open a Mutual Fund Account
Investor Services
1-800-638-5660
1-410-547-2308
For Existing Accounts
Shareholder Services
1-800-225-5132
1-410-625-6500
For Yields, Prices, Account Information, or to Conduct Transactions
Tele*Access/(R)/
1-800-638-2587 24 hours, 7 days
To Open a Discount Brokerage Account
1-800-638-5660
Plan Account Line
1-800-401-3279
For retirement plan
investors
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
Internet Address
www.troweprice.com
C09-040 1/15/99
