N-CSR 1 exf.txt T. ROWE PRICE EQUITY INDEX 500 FUND Item 1. Report to Shareholders DECEMBER 31, 2004 EQUITY MARKET INDEX FUNDS Annual Report T. Rowe Price -------------------------------------------------------------------------------- The views and opinions in this report were current as of December 31, 2004. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the fund's future investment intent. The report is certified under the Sarbanes-Oxley Act of 2002, which requires mutual funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects. -------------------------------------------------------------------------------- Reports on the Web Sign up for our E-mail Program, and you can begin to receive updated fund reports and prospectuses online rather than through the mail. Log in to your account at troweprice.com formore information. T. Rowe Price Equity Market Index Funds -------------------------------------------------------------------------------- Fellow Shareholders U.S. stocks rose moderately in the second half of 2004, capping a second consecutive year of gains. Equities declined through mid-August as economic growth moderated amid rising short-term interest rates, surging energy costs, and a heated presidential campaign. Stock prices rose as oil prices backed away from their late-October peak of $55 per barrel, and gains accelerated following the reelection of President Bush. High-profile corporate deals and mergers late in the year were also supportive. By year-end, several major indexes were at or near their highest levels of the year. Market Environment The economy continued to expand in the second half of 2004, overcoming a mid-year period of softness that was largely attributable to heightened consumer and business caution amid rising oil prices and a tight presidential election race. Both of these concerns eased in the fourth quarter, as the price of oil fell sharply from its recent high and investors welcomed the uncontested presidential election result. The Federal Reserve continued to unwind its highly accommodative monetary policy in the last six months, though this was not to the detriment of the equity market. Beginning on June 30, the central bank raised the federal funds target rate gradually from 1.00% to 2.25% in five quarter-point increments. Small-cap shares outperformed their larger counterparts in the second half of 2004 and for the full year: the Russell 2000 Index returned 10.83% and 18.33%, respectively, versus 7.19% and 10.88% for the S&P 500 Index. As measured by various Russell indexes, growth stocks lagged value across all market capitalizations in both periods. The market for initial public offerings (IPOs) picked up dramatically in 2004, as investors seemed willing to embrace more investment risk than in recent years. According to Thomson Financial, 249 companies went public in 2004 versus 85 in 2003, as reported by The Wall Street Journal. However, as measured by the Dow Jones Wilshire 5000 Composite Index (Wilshire 5000), the universe of publicly traded companies based in the U.S. continued to shrink: there were 4,971 companies in the index at the end of 2004 versus 5,033 six months ago and 5,213 at the end of 2003. Heightened merger activity is one of the primary reasons. Also, some very small companies have been delisting from the major exchanges or taking themselves private, possibly due to the rising costs of complying with securities laws and regulations that were implemented following the corporate scandals of recent years. Sector Performance As measured by the Wilshire 5000, every major sector in the U.S. stock market produced positive returns in both the second half of 2004 and the entire year. Since mid-year, utilities, energy, and telecommunication services were among the strongest sectors. The materials and consumer discretionary sectors also performed well, but health care and information technology shares lagged due to weakness among pharmaceuticals and semiconductors, respectively. Consumer staples stocks were also sluggish. For the entire year, energy stocks far surpassed other sectors, but utility, telecommunication services, industrials and business services, and materials companies also performed well. Health care and information technology stocks generated only slight gains. Wilshire 5000 Returns by Sector -------------------------------------------------------------------------------- Periods Ended 12/31/04 6 Months 12 Months -------------------------------------------------------------------------------- Consumer Discretionary 12.55% 15.00% Consumer Staples 2.31 9.29 Energy 16.73 33.46 Financials 10.58 14.01 Health Care 0.62 4.77 Industrials and Business Services 10.58 18.69 Information Technology 3.01 2.33 Materials 15.01 18.69 Telecommunication Services 15.12 19.12 Utilities 18.64 23.54 Equity Index 500 Fund Your fund returned 7.03% in the second half of 2004 and 10.51% for the entire year. As shown in the table, the fund closely tracked the performance of its benchmark, the S&P 500 Stock Index, in both periods. The fund usually lags slightly due to annual operating and management expenses. Performance Comparison -------------------------------------------------------------------------------- Periods Ended 12/31/04 6 Months 12 Months -------------------------------------------------------------------------------- Equity Index 500 Fund 7.03% 10.51% S&P 500 Stock Index 7.19 10.88 The financials sector (20.6% of equities as of December 31, 2004) contributed the most to fund performance in the last six months. Most underlying industries produced gains, led by commercial banks such as Bank of America, Wachovia, and Wells Fargo. Companies tied to the capital markets also had a favorable year, led by Merrill Lynch. Other financial industries were less robust. Insurance stocks lagged, pressured by New York Attorney General Eliot Spitzer's allegations of bid-rigging against insurance broker Marsh & McLennan--one of our largest performance detractors--and by the broadening of his investigation into insurance industry practices. (Please see the fund's portfolio of investments for a complete listing of fund holdings and the amount each represents in the portfolio.) Consumer discretionary shares (11.9% of equities) also performed well. Stocks of hotels, restaurants, and companies associated with leisure activities paced the sector's advance, especially McDonald's, Starbucks, and cruise ship operator Carnival. Specialty retailers also rose, led by home improvement specialists Home Depot and Lowe's. Stocks of several media companies struggled, though industry titans Comcast, Time Warner, and Disney contributed substantially to fund performance. Automobile companies lagged. Industrials and business services (11.8% of equities) generally produced positive returns, though index heavyweight GE, which was the fund's second-largest contributor to our results, represented a substantial portion of the sector's gains. Machinery stocks, led by Caterpillar, plowed ahead as the economy continued its expansion. Other industries also moved forward, including air freight and railroads, though the commercial services and supply industry was the sector's caboose. Portfolio Characteristics -------------------------------------------------------------------------------- Extended Equity Total Equity Equity As of 12/31/04 Index 500 Market Index Market Index -------------------------------------------------------------------------------- Market Cap (Investment- Weighted Median) $55.7 billion $27.4 billion $2.3 billion Earnings Growth Rate Estimated Next 5 Years * 11.5% 11.8% 14.0% P/E Ratio (Based on Next 12 Months' Estimated Earnings) * 17.8X 17.9X 19.0X * Source data: IBES. Forecasts are in no way indicative of future investment returns. Energy stocks (7.1% of equities) were fueled by the highest U.S. oil prices in 21 years. Nearly every energy stock in the fund and the index produced gains in the last six months, though much of the sector's contribution to our results stems from the favorable performance of ExxonMobil. Telecommunication services shares (3.3% of equities) also connected with investors, as industry fundamentals showed signs of stabilization and improvement, with Verizon Communications, Sprint, and SBC Communications among our top contributors. In addition, utilities (2.9% of equities) gained as investors sought higher-yielding securities in an environment of low interest rates. Information technology stocks (16.1% of equities) were disappointing in the second half of 2004, though a robust rebound in the fourth quarter offset third-quarter losses. Technology shares lagged as strength in makers of computers and peripherals, especially IBM, Dell, and Apple Computer, was offset by weakness in semiconductor and, to a lesser extent, communications equipment companies. In fact, chip giant Intel and networking behemoth Cisco Systems, bellwethers of each industry, were two of our worst contributors to performance. The health care sector (12.7% of equities) detracted from fund performance the most in the last six months. Although a few health care providers and service companies performed very well, such as UnitedHealth Group and WellPoint, pharmaceutical stocks Pfizer and Merck fell sharply amid concerns about heightened cardiovascular risks and other undesirable side effects from various drugs following Merck's worldwide withdrawal of its Vioxx arthritis medicine. There were 20 changes to the composition of the S&P 500 in 2004, 10 of which occurred in the last six months. Companies that joined the index included Compass Bancshares, CIT Group, and Archstone-Smith Trust in the financials sector; health care companies Laboratory Corporation of America and Fisher Scientific; and News Corp. and Coach in the consumer discretionary sector. Notable departures from the index include PeopleSoft, which was acquired by software giant Oracle after a protracted fight; WellPoint, which merged with Anthem; and AT&T Wireless, which was bought by Cingular Wireless, jointly owned by SBC Communications and BellSouth. (Please see the table on page 10 for a list of all index additions and deletions in 2004.) Total Equity Market Index Fund Your fund returned 8.20% in the second half of 2004 and 12.22% for the full year. The fund closely tracked the performance of the Dow Jones Wilshire 5000 Composite Index (formerly the Wilshire Performance Comparison -------------------------------------------------------------------------------- Periods Ended 12/31/04 6 Months 12 Months -------------------------------------------------------------------------------- Total Equity Market Index Fund 8.20% 12.22% Dow Jones Wilshire 5000 Composite Index * 8.37 12.62 * Dow Jones Wilshire 5000 returns through 12/31/04, calculated as of 1/10/05. 5000 Total Market Index) in both periods, as shown in the table on page 4, but slightly lagged due to annual operating and management expenses. Because the Wilshire 5000 includes about 5,000 publicly traded companies, it is impractical for us to buy shares of each. Instead, we use sampling strategies in an attempt to match the performance of the index. We manage the portfolio so that its characteristics--including sector allocations and price/earnings ratios--closely resemble those of the index. At the end of December, the fund owned stocks of nearly 2,000 companies. Sector Diversification -------------------------------------------------------------------------------- Percent of Extended Equities Equity Total Equity Equity As of 12/31/04 Index 500 Market Index Market Index -------------------------------------------------------------------------------- Consumer Discretionary 11.9% 13.8% 18.8% Consumer Staples 10.5 9.2 4.7 Energy 7.1 6.7 5.5 Financials 20.6 21.7 25.2 Health Care 12.7 12.5 11.5 Industrials and Business Services 11.8 10.9 10.0 Information Technology 16.1 16.0 15.3 Materials 3.1 3.4 4.5 Telecommunication Services 3.3 2.8 1.6 Trusts 0.0 0.0 0.0 Utilities 2.9 3.0 2.9 Other and Reserves 0.0 0.0 0.0 Note: The numbers in this table may not match the sector percentages in each fund's portfolio of investments, which are calculated as a percentage of net assets. In general, what was true about the performance of the 500 Fund in the last six months was also true for this fund: financials, consumer discretionary, and industrials and business services companies were among the fund's top contributors to performance, while the information technology and health care sectors lagged. The Wilshire 5000, which represents the entire U.S. stock market, includes all S&P 500 companies. In fact, the S&P 500 represents about 76% of the Wilshire 5000's total market value. The largest components of the Wilshire index--as with the S&P 500--have the greatest influence on performance. In addition, the percentage weightings of the major sectors are somewhat similar, as shown in the Sector Diversification table above. Extended Equity Market Index Fund Your fund returned 11.74% in the second half of 2004 and 18.38% for the entire year. The fund closely tracked the performance of the Dow Jones Wilshire 4500 Completion Index (formerly the Wilshire 4500 Completion Index) in both periods but lagged slightly due to annual operating and management expenses. Performance Comparison -------------------------------------------------------------------------------- Periods Ended 12/31/04 6 Months 12 Months -------------------------------------------------------------------------------- Extended Equity Market Index Fund 11.74% 18.38% Dow Jones Wilshire 4500 Completion Index * 12.04 18.57 * Dow Jones Wilshire 4500 returns through 12/31/04, calculated as of 1/10/05. The index includes nearly 4,500 small- and mid-cap companies, so it is impractical for us to buy shares of each. Instead, we use sampling strategies (just as we do with the Total Equity Market Index Fund) in an attempt to match the performance of the index. At the end of December, the fund held more than 2,400 stocks. The financials sector (25.2% of equities as of December 31, 2004) contributed the most to fund performance in the last six months. Real estate investment trusts (REITs) paced the sector's advance, as the real estate market remained healthy and investors sought the attractive yields offered by REITs in an environment of low interest rates. Commercial banks also performed well, while other financial industries were less robust. The consumer discretionary sector (18.8% of equities) produced strong gains in the second half of 2004. Media companies Liberty Media, Sirius Satellite Radio, and Cox Radio were some of our largest individual contributors to fund performance. Stocks of hotels, restaurants, and companies associated with leisure activities also fared well, led by MGM Mirage. Automobile companies, as with their larger peers, lagged other industries in the sector. Internet and catalog retailers were dragged lower by weakness in Amazon.com, one of the fund's largest detractors. (Please see the fund's portfolio of investments for a complete listing of fund holdings and the amount each represents in the portfolio.) Stocks in the industrials and business services sector (10.0% of equities) generally performed well in the last six months. Most underlying industries contributed to our results, but machinery and road and rail stocks were two of the stronger areas. Airline stocks struggled, however, amid high jet fuel costs, weak fundamentals throughout much of the industry, and poor investor sentiment toward the entire group. Information technology shares (15.3% of equities) were lackluster in the last six months, as gains in the fourth quarter offset losses in the third. Most of the sector's contribution to fund performance was attributable to the powerful returns generated by Google, which had one of the largest IPOs in 2004, in the Internet and software services industry. Other industries produced modest gains, but semiconductor stocks struggled along with their larger brethren. Health care stocks (11.5% of equities) rose modestly in the last six months. Health care providers and service companies contributed the most, led by UnitedHealth Group, PacifiCare Health Systems, and WellChoice. Pharmaceutical stocks trailed other industries as sentiment toward the group was tainted by the woes of several large-cap drug makers. Year-End Distributions On December 13, 2004, the Equity Market Index Funds' Board of Directors declared fourth-quarter dividends: o $0.22 per share for the Equity Index 500 Fund, o $0.16 per share for the Total Equity Market Index Fund, and o $0.09 per share for the Extended Equity Market Index Fund. There were no year-end capital gain distributions. The dividends were paid on December 15 to shareholders of record on December 13. You should have received your check or statement reflecting the dividends, as well as IRS Form 1099-DIV summarizing this information for 2004 tax purposes. Outlook U.S. stocks have risen for two consecutive years, which has not occurred since 1998-1999. Favorable fundamentals driving the market--including solid corporate earnings growth, relatively low inflation and interest rates, and a pickup in merger activity--suggest that stocks could continue to rise in 2005. However, returns are likely to be more moderate than in the last two years. Although the Federal Reserve is determined to continue raising short-term interest rates at a "measured" pace, any acceleration of inflation or economic growth could trigger a more aggressive response from the central bank. In addition, concerns about the weakening U.S. dollar or the burgeoning trade and federal budget deficits could add upward pressure to interest rates, which would not be welcomed by equity investors. In any event, we do not worry about how the market or various equity sectors may perform as the tug of war between bullish and bearish forces plays itself out. Our task is to track the broad equity market indexes with the assets you have entrusted to us, and we appreciate your confidence in our investment management abilities. Respectfully submitted, E. Frederick Bair Chairman of the funds' Investment Advisory Committee January 14, 2005 The committee chairman has day-to-day responsibility for managing the portfolios and works with committee members in developing and executing each fund's investment program. New Weighting Methodology for S&P Indexes -------------------------------------------------------------------------------- Beginning in 2005, Standard & Poor's will change its methodology for weighting stocks in some of its domestic equity indexes, including the S&P 500 Stock Index, the S&P MidCap 400 Index, and the S&P SmallCap 600 Index. At present, S&P weights stocks in each index based on their market capitalization, which is calculated by multiplying the stock's price by the number of shares outstanding. Under the new "float-weighting" methodology, the weights will be determined based on the value of shares that are available for trading. According to S&P, this would exclude shares that are "closely held by other publicly traded companies, control groups or government agencies." Standard & Poor's has adopted the following timetable to smooth the transition to the new weighting methodology: o From January 1, 2005, through March 18, 2005, S&P will continue to calculate index weightings using the full market capitalization of each stock. o From March 19, 2005, through September 16, 2005, S&P index weighting calculations will reflect a partial implementation of the free-float methodology to reduce the disruptions that might otherwise occur to the index without a transition period. o After September 16, 2005, S&P will calculate index weightings using a full free-float adjustment. T. Rowe Price will continue to benchmark the Equity Index 500 Fund against the official S&P 500 Index benchmark. We will gradually shift to the full free-float methodology in tandem with the index. -------------------------------------------------------------------------------- Risks of Investing As with all stock mutual funds, the funds' share prices can fall because of weakness in the stock market, a particular industry, or specific holdings. Stock markets can decline for many reasons, including adverse political or economic developments, changes in investor psychology, or heavy institutional selling. The prospects for an industry or company may deteriorate because of a variety of factors, including disappointing earnings or changes in the competitive environment. Glossary Dow Jones Wilshire 4500 Completion Index: Tracks the performance of all stocks in the Dow Jones Wilshire 5000 Composite Index, excluding those in the S&P 500 Stock Index. Dow Jones Wilshire 5000 Composite Index: Tracks the performance of the most active stocks in the broad U.S. market. Fed funds target rate: An overnight lending rate set by the Federal Reserve and used by banks to meet reserve requirements. Banks also use the fed funds rate as a benchmark for their prime lending rates. Russell 2000 Index: Tracks the stocks of 2000 small U.S. companies. S&P 500 Stock Index: Tracks the stocks of 500 mostly large U.S. companies. T. Rowe Price Equity Market Index Funds -------------------------------------------------------------------------------- The Evolving S&P 500 Stock Index -------------------------------------------------------------------------------- Changes in the index in 2004 Additions Deletions -------------------------------------------------------------------------------- Affiliated Computer Services American Greetings Archstone-Smith Trust AT&T Wireless Caremark RX Bank One Corp. CIT Group Charter One Financial Coach Concord EFS Compass Bancshares Crance E*TRADE Financial Deluxe Fisher Scientific FleetBoston Financial Freescale Semiconductor John Hancock Financial Services Gilead Sciences PeopleSoft Hospira Regions Financial Corporation L-3 Communication South Trust Laboratory Corporation of America Sprint PCS M&T Bank Thomas & Betts Mylan Laboratories Travelers Property Casualty News Corp. Tupperware Regions Financial Union Planters Sovereign Bancorp WellPoint Health Networks Valero Energy Winn-Dixie XTO Energy Worthington Industries T. Rowe Price Equity Market Index Funds -------------------------------------------------------------------------------- Portfolio Highlights -------------------------------------------------------------------------------- Twenty-Five Largest Holdings Percent of Net Assets 12/31/04 Equity Index 500 Fund -------------------------------------------------------------------------------- GE 3.3% ExxonMobil 2.8 Microsoft 2.5 Citigroup 2.1 Wal-Mart 1.9 -------------------------------------------------------------------------------- Pfizer 1.7 Bank of America 1.6 Johnson & Johnson 1.6 American International Group 1.5 IBM 1.4 -------------------------------------------------------------------------------- Intel 1.3 Procter & Gamble 1.2 J.P. Morgan Chase 1.2 Cisco Systems 1.1 Altria Group 1.1 -------------------------------------------------------------------------------- Verizon Communications 1.0 ChevronTexaco 1.0 Wells Fargo 0.9 Dell 0.9 Coca-Cola 0.9 -------------------------------------------------------------------------------- UPS 0.8 Home Depot 0.8 Time Warner 0.8 PepsiCo 0.8 SBC Communications 0.7 -------------------------------------------------------------------------------- Total 34.9% T. Rowe Price Equity Market Index Funds -------------------------------------------------------------------------------- Portfolio Highlights -------------------------------------------------------------------------------- Twenty-Five Largest Holdings Percent of Net Assets 12/31/04 Total Equity Market Index Fund -------------------------------------------------------------------------------- GE 2.5% ExxonMobil 2.2 Microsoft 1.9 Citigroup 1.6 Wal-Mart 1.5 -------------------------------------------------------------------------------- Pfizer 1.3 Bank of America 1.3 Johnson & Johnson 1.2 American International Group 1.1 IBM 1.1 -------------------------------------------------------------------------------- Intel 1.0 Procter & Gamble 0.9 J.P. Morgan Chase 0.9 Berkshire Hathaway 0.9 Cisco Systems 0.9 -------------------------------------------------------------------------------- Altria Group 0.8 ChevronTexaco 0.7 Verizon Communications 0.7 Dell 0.7 Wells Fargo 0.7 -------------------------------------------------------------------------------- Coca-Cola 0.7 Home Depot 0.6 UPS 0.6 PepsiCo 0.6 Time Warner 0.6 -------------------------------------------------------------------------------- Total 27.0% T. Rowe Price Equity Market Index Funds -------------------------------------------------------------------------------- Portfolio Highlights -------------------------------------------------------------------------------- Twenty-Five Largest Holdings Percent of Net Assets 12/31/04 Extended Equity Market Index Fund -------------------------------------------------------------------------------- Berkshire Hathaway 3.5% Kraft Foods 1.6 Genentech 1.5 Google 1.4 Liberty Media 0.9 -------------------------------------------------------------------------------- DIRECTV 0.6 IAC/InterActiveCorp 0.5 Amazon.com 0.5 Las Vegas Sands 0.4 Juniper Networks 0.4 -------------------------------------------------------------------------------- Fox Entertainment Group 0.4 Genworth Financial 0.4 MGM Mirage 0.3 Royal Caribbean Cruises 0.3 UnionBancal 0.3 -------------------------------------------------------------------------------- Vornado Realty Trust 0.3 D. R. Horton 0.3 Sirius Satellite Radio 0.2 Enterprise Products Partners 0.2 Washington Post 0.2 -------------------------------------------------------------------------------- XTO Energy 0.2 Kmart Corporation 0.2 Lennar 0.2 Harman International 0.2 Liberty Media International 0.2 -------------------------------------------------------------------------------- Total 15.2% T. Rowe Price Equity Market Index Funds -------------------------------------------------------------------------------- Growth of $10,000 -------------------------------------------------------------------------------- This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which may include a broad-based market index and a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes. [Graphic Omitted] Equity Index 500 Fund -------------------------------------------------------------------------------- As of 12/31/04 Equity Index 500 Fund $ 30,401 S&P 500 Stock Index $ 31,258 Equity Index S&P 500 500 Fund Stock Index 12/94 $ 10,000 $ 10,000 12/95 13,716 13,758 12/96 16,824 16,917 12/97 22,354 22,561 12/98 28,683 29,008 12/99 34,602 35,112 12/00 31,383 31,915 12/01 27,564 28,122 12/02 21,441 21,907 12/03 27,510 28,190 12/04 30,401 31,258 Average Annual Compound Total Return -------------------------------------------------------------------------------- This table shows how the fund and its benchmark would have performed if their actual (or cumulative) returns for the periods shown had been earned at a constant rate. Periods Ended 12/31/04 1 Year 5 Years 10 Years -------------------------------------------------------------------------------- Equity Index 500 Fund 10.51% -2.56% 11.76% S&P 500 Stock Index 10.88 -2.30 12.07 Current performance may be higher or lower than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or loss when you sell your shares. For the most recent month-end performance information, please visit our Web site (troweprice.com) or contact a T. Rowe Price representative at 1-800-225-5132. The fund charges a redemption fee of 0.5% on shares held for 90 days or less. The performance information shown does not reflect the deduction of the redemption fee. If it did, the performance would be lower. Average annual total return figures include changes in principal value, reinvested dividends, and capital gain distributions. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. When assessing performance, investors should consider both short- and long-term returns. T. Rowe Price Equity Market Index Funds -------------------------------------------------------------------------------- Growth of $10,000 -------------------------------------------------------------------------------- This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which may include a broad-based market index and a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes. [Graphic Omitted] Total Equity Market Index Fund -------------------------------------------------------------------------------- As of 12/31/04 Total Equity Market Index Fund $ 14,014 Dow Jones Wilshire 5000 Composite Index $ 14,118 Total Equity Dow Jones Market Wilshire 5000 Index Fund Composite Index 1/30/98 $ 10,000 $ 10,000 12/98 12,320 12,276 12/99 15,184 15,169 12/00 13,615 13,516 12/01 12,090 12,033 12/02 9,531 9,523 12/03 12,488 12,536 12/04 14,014 14,118 Average Annual Compound Total Return -------------------------------------------------------------------------------- This table shows how the fund and its benchmark would have performed if their actual (or cumulative) returns for the periods shown had been earned at a constant rate. Since Inception Periods Ended 12/31/04 1 Year 5 Years (1/30/98) -------------------------------------------------------------------------------- Total Equity Market Index Fund 12.22% -1.59% 5.00% Dow Jones Wilshire 5000 Composite Index 12.62 -1.42 5.11 Dow Jones Wilshire 5000 returns through 12/31/04, calculated as of 1/10/05. Current performance may be higher or lower than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or loss when you sell your shares. For the most recent month-end performance information, please visit our Web site (troweprice.com) or contact a T. Rowe Price representative at 1-800-225-5132. The fund charges a redemption fee of 0.5% on shares held for 90 days or less. The performance information shown does not reflect the deduction of the redemption fee. If it did, the performance would be lower. Average annual total return figures include changes in principal value, reinvested dividends, and capital gain distributions. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. When assessing performance, investors should consider both short- and long-term returns. T. Rowe Price Equity Market Index Funds -------------------------------------------------------------------------------- Growth of $10,000 -------------------------------------------------------------------------------- This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which may include a broad-based market index and a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes. [Graphic Omitted] Extended Equity Market Index Fund -------------------------------------------------------------------------------- As of 12/31/04 Extended Equity Market Index Fund $ 15,878 Dow Jones Wilshire 4500 Completion Index $ 15,988 Extended Dow Jones Equity Market Wilshire 4500 Index Fund Completion Index 1/30/98 $ 10,000 $ 10,000 12/98 11,229 11,021 12/99 15,016 14,932 12/00 12,677 12,577 12/01 11,467 11,404 12/02 9,389 9,375 12/03 13,412 13,492 12/04 15,878 15,988 Average Annual Compound Total Return -------------------------------------------------------------------------------- This table shows how the fund and its benchmark would have performed if their actual (or cumulative) returns for the periods shown had been earned at a constant rate. Since Inception Periods Ended 12/31/04 1 Year 5 Years (1/30/98) -------------------------------------------------------------------------------- Extended Equity Market Index Fund 18.38% 1.12% 6.91% Dow Jones Wilshire 4500 Completion Index 18.57 1.38 7.02 Dow Jones Wilshire 4500 returns through 12/31/04, calculated as of 1/10/05. Current performance may be higher or lower than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or loss when you sell your shares. For the most recent month-end performance information, please visit our Web site (troweprice.com) or contact a T. Rowe Price representative at 1-800-225-5132. The fund charges a redemption fee of 0.5% on shares held for 90 days or less. The performance information shown does not reflect the deduction of the redemption fee. If it did, the performance would be lower. Average annual total return figures include changes in principal value, reinvested dividends, and capital gain distributions. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. When assessing performance, investors should consider both short- and long-term returns. T. Rowe Price Equity Market Index Funds -------------------------------------------------------------------------------- Fund Expense Example -------------------------------------------------------------------------------- As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs such as redemption fees or sales loads and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the most recent six-month period and held for the entire period. Actual Expenses The first line of each of the following tables ("Actual") provides information about actual account values and actual expenses. You may use the information in this line, together with your account balance, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The information on the second line of each table ("Hypothetical") is based on hypothetical account values and expenses derived from the fund's actual expense ratio and an assumed 5% per year rate of return before expenses (not the fund's actual return). You may compare the ongoing costs of investing in the fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. Note: T. Rowe Price charges an account maintenance fee that is not included in the accompanying tables. The account maintenance fee is charged on a quarterly basis, usually during the last week of a calendar quarter, and applies to accounts with balances below $10,000 on the day of the assessment. The fee is charged to accounts that fall below $10,000 for any reason, including market fluctuations, redemptions, or exchanges. When an account with less than $10,000 is closed either through redemption or exchange, the fee is charged and deducted from the proceeds. The fee applies to IRA accounts, but not to retirement plans directly registered with T. Rowe Price Services, or accounts maintained by intermediaries through NSCC(RT) Networking. If you are subject to the fee, keep it in mind when you are estimating the ongoing expenses of investing in the fund and when comparing the expenses of this fund with other funds. You should also be aware that the expenses shown in the tables highlight only your ongoing costs and do not reflect any transaction costs, such as redemption fees or sales loads. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. To the extent a fund charges transaction costs, however, the total cost of owning that fund is higher. T. Rowe Price Equity Index 500 Fund -------------------------------------------------------------------------------- Beginning Ending Expenses Paid Account Value Account Value During Period* 7/1/04 12/31/04 7/1/04 to 12/31/04 -------------------------------------------------------------------------------- Actual $1,000 $1,070.30 $1.82 Hypothetical (assumes 5% return before expenses) 1,000 1,023.38 1.78 * Expenses are equal to the fund's annualized expense ratio for the six-month period (0.35%), multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (184) divided by the days in the year (366) to reflect the half-year period. T. Rowe Price Total Equity Market Index Fund -------------------------------------------------------------------------------- Beginning Ending Expenses Paid Account Value Account Value During Period* 7/1/04 12/31/04 7/1/04 to 12/31/04 -------------------------------------------------------------------------------- Actual $1,000 $1,082.00 $2.09 Hypothetical (assumes 5% return before expenses) 1,000 1,023.13 2.03 * Expenses are equal to the fund's annualized expense ratio for the six-month period (0.40%), multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (184) divided by the days in the year (366) to reflect the half-year period. T. Rowe Price Extended Equity Market Index Fund -------------------------------------------------------------------------------- Beginning Ending Expenses Paid Account Value Account Value During Period* 7/1/04 12/31/04 7/1/04 to 12/31/04 -------------------------------------------------------------------------------- Actual $1,000 $1,117.40 $2.13 Hypothetical (assumes 5% return before expenses) 1,000 1,023.13 2.03 * Expenses are equal to the fund's annualized expense ratio for the six-month period (0.40%), multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (184) divided by the days in the year (366) to reflect the half-year period. DECEMBER 31, 2004 EQUITY INDEX 500 FUND Annual Report -- Financial Statements T. ROWE PRICE T. ROWE PRICE EQUITY INDEX 500 FUND -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a share outstanding throughout each period -------------------------------------------------------------------------------- Year Ended 12/31/04 12/31/03 12/31/02 12/31/01 12/31/00 NET ASSET VALUE Beginning of period $ 29.95 $ 23.67 $ 30.84 $ 35.50 $ 39.56 Investment activities Net investment income (loss) 0.51* 0.37* 0.34* 0.32* 0.33* Net realized and unrealized gain (loss) 2.61 6.28 (7.17) (4.65) (3.98) Total from investment activities 3.12 6.65 (6.83) (4.33) (3.65) Distributions Net investment income (0.51) (0.37) (0.34) (0.33) (0.33) Net realized gain -- -- -- -- (0.08) Total distributions (0.51) (0.37) (0.34) (0.33) (0.41) NET ASSET VALUE End of period $ 32.56 $ 29.95 $ 23.67 $ 30.84 $ 35.50 ------------------------------------------------ Ratios/Supplemental Data Total return^ 10.51%* 28.31%* (22.21)%* (12.17)%* (9.30)%* Ratio of total expenses to average net assets 0.35%* 0.35%* 0.35%* 0.35%* 0.35%* Ratio of net investment income (loss) to average net assets 1.69%* 1.44%* 1.27%* 1.00%* 0.85%* Portfolio turnover rate 6.4% 1.2% 6.6% 4.0% 9.1% Net assets, end of period (in millions) $ 4,789 $ 3,885 $ 2,708 $ 3,473 $ 4,045 ^Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions and payment of no redemption or account fees. *Excludes expenses in excess of a 0.35% contractual expense limitation in effect through 4/30/05. The accompanying notes are an integral part of these financial statements. T. ROWE PRICE EQUITY INDEX 500 FUND -------------------------------------------------------------------------------- December 31, 2004 PORTFOLIO OF INVESTMENTS (1) Shares/$ Par Value -------------------------------------------------------------------------------- (Cost and value in $ 000s) COMMON STOCKS 97.0% CONSUMER DISCRETIONARY 11.5% Auto Components 0.2% Cooper Tire (ss.) 29,473 635 Dana 62,003 1,075 Delphi (ss.) 233,458 2,106 Goodyear Tire & Rubber *(ss.) 70,370 1,032 Johnson Controls 78,594 4,986 Visteon (ss.) 56,750 554 10,388 Automobiles 0.6% Ford Motor 753,867 11,037 GM (ss.) 232,885 9,329 Harley-Davidson (ss.) 120,986 7,350 27,716 Distributors 0.1% Genuine Parts 71,620 3,156 3,156 Hotels, Restaurants & Leisure 1.5% Carnival 259,893 14,977 Darden Restaurants 65,097 1,806 Harrah's Entertainment (ss.) 45,571 3,048 Hilton 159,046 3,617 International Game Technology 141,924 4,879 Marriott, Class A 93,772 5,906 McDonald's 514,379 16,491 Starbucks * 164,571 10,263 Starwood Hotels & Resorts Worldwide, Class B 86,107 5,029 Wendy's 47,385 1,860 Yum! Brands 120,267 5,674 73,550 Household Durables 0.5% Black & Decker 33,564 2,965 Centex 50,136 2,987 Fortune Brands 59,344 4,580 KB Home 18,734 1,956 Leggett & Platt 77,846 2,213 Maytag (ss.) 31,779 671 Newell Rubbermaid (ss.) 114,278 2,764 Pulte 51,778 3,303 Snap-On (ss.) 23,950 823 Stanley Works 33,387 1,636 Whirlpool 27,153 1,879 25,777 Internet & Catalog Retail 0.7% eBay * 272,152 31,646 31,646 Leisure Equipment & Products 0.2% Brunswick 39,517 1,956 Eastman Kodak (ss.) 118,072 3,808 Hasbro 72,349 1,402 Mattel 168,559 3,285 10,451 Media 3.9% Clear Channel Communications 237,102 7,940 Comcast, Class A * 909,282 30,261 Disney 842,263 23,415 Dow Jones (ss.) 32,813 1,413 Gannett 104,552 8,542 Interpublic Group * 176,455 2,364 Knight-Ridder 31,475 2,107 McGraw-Hill 77,800 7,122 Meredith 21,014 1,139 New York Times, Class A 60,068 2,451 News Corp, Class A *(ss.) 1,070,200 19,970 Omnicom 76,837 6,479 Time Warner * 1,883,574 36,617 Tribune (ss.) 130,627 5,504 Univision Communications, Class A * 132,143 3,868 Viacom, Class B 698,231 25,409 184,601 Multiline Retail 1.1% Big Lots *(ss.) 49,120 596 Dillards, Class A (ss.) 33,167 891 Dollar General 134,133 2,786 Family Dollar Stores 68,157 2,129 Federated Department Stores 69,273 4,003 J.C. Penney 117,571 4,867 Kohl's * 141,100 6,938 May Department Stores 118,631 3,488 Nordstrom 56,914 2,660 Sears (ss.) 87,322 4,456 Target 370,641 19,247 52,061 Specialty Retail 2.3% Autonation *(ss.) 107,500 2,065 AutoZone * 33,895 3,095 Bed Bath & Beyond * 124,057 4,941 Best Buy 134,023 7,964 Circuit City 83,087 1,299 GAP 359,119 7,585 Home Depot 904,223 38,646 Lowes 316,501 18,227 Office Depot *(ss.) 129,407 2,247 OfficeMax (ss.) 38,508 1,208 RadioShack 65,077 2,140 Sherwin-Williams 58,949 2,631 Staples 203,662 6,865 The Limited 166,491 3,833 Tiffany (ss.) 59,109 1,890 TJX Companies 202,089 5,078 Toys "R" Us * 87,978 1,801 111,515 Textiles, Apparel, & Luxury Goods 0.4% Coach * 77,800 4,388 Jones Apparel Group 50,312 1,840 Liz Claiborne 45,127 1,905 Nike, Class B 108,335 9,825 Reebok 23,730 1,044 V. F. (ss.) 45,247 2,505 21,507 Total Consumer Discretionary 552,368 CONSUMER STAPLES 10.2% Beverages 2.2% Anheuser-Busch 327,975 16,638 Brown-Forman, Class B 49,622 2,416 Coca-Cola 996,091 41,467 Coca-Cola Enterprises 192,965 4,023 Coors, Class B (ss.) 15,359 1,162 Pepsi Bottling Group 103,361 2,795 PepsiCo 693,877 36,221 104,722 Food & Staples Retailing 3.1% Albertsons (ss.) 151,425 3,616 Costco Wholesale 189,468 9,172 CVS 163,401 7,364 Kroger * 305,187 5,353 Safeway * 185,644 3,665 Supervalu 55,073 1,901 Sysco 263,392 10,054 Wal-Mart 1,739,659 91,889 Walgreen 419,969 16,114 149,128 Food Products 1.3% Archer-Daniels-Midland 269,435 6,011 Campbell Soup 168,318 5,031 ConAgra 215,134 6,336 General Mills 149,194 7,417 Heinz 143,198 5,583 Hershey Foods 101,554 5,640 Kellogg 170,699 7,623 McCormick (ss.) 55,200 2,131 Sara Lee 324,950 7,844 Wrigley 91,804 6,352 59,968 Household Products 1.8% Clorox 62,223 3,667 Colgate-Palmolive 217,905 11,148 Kimberly-Clark 202,200 13,307 Procter & Gamble 1,044,340 57,522 85,644 Personal Products 0.6% Alberto Culver, Class B (ss.) 37,441 1,819 Avon 194,806 7,539 Gillette 410,004 18,360 27,718 Tobacco 1.2% Altria Group 845,171 51,640 Reynolds American (ss.) 61,000 4,794 UST (ss.) 67,843 3,264 59,698 Total Consumer Staples 486,878 ENERGY 6.9% Energy Equipment & Services 0.9% Baker Hughes 136,898 5,841 BJ Services 66,867 3,112 Halliburton 182,244 7,151 Nabors Industries * 61,976 3,179 Noble Drilling *(ss.) 55,500 2,761 Rowan *(ss.) 43,960 1,139 Schlumberger 241,856 16,192 Transocean * 132,043 5,597 44,972 Oil & Gas 6.0% Amerada Hess (ss.) 37,205 3,065 Anadarko Petroleum 102,244 6,626 Apache 135,076 6,831 Ashland 28,786 1,681 Burlington Resources 161,282 7,016 ChevronTexaco 867,836 45,570 ConocoPhillips 283,302 24,599 Devon Energy 199,602 7,768 El Paso Corporation 265,925 2,766 EOG Resources 49,326 3,520 ExxonMobil 2,656,307 136,162 Kerr-McGee 62,243 3,597 Kinder Morgan 51,462 3,763 Marathon Oil 142,298 5,352 Occidental Petroleum 162,072 9,459 Sunoco 30,518 2,494 Unocal 108,636 4,697 Valero Energy 105,400 4,785 Williams Companies 227,498 3,706 XTO Energy 39,000 1,380 284,837 Total Energy 329,809 FINANCIALS 20.0% Capital Markets 2.8% Bank of New York 320,798 10,721 Bear Stearns 42,352 4,333 Charles Schwab 559,846 6,696 E*TRADE Financial * 150,900 2,256 Federated Investors, Class B 44,400 1,350 Franklin Resources 102,132 7,114 Goldman Sachs 199,425 20,748 Janus Capital Group 99,297 1,669 Lehman Brothers 111,761 9,777 Mellon Financial 173,737 5,405 Merrill Lynch 384,565 22,985 Morgan Stanley 451,191 25,050 Northern Trust 90,983 4,420 State Street 137,586 6,758 T. Rowe Price Group ! 51,913 3,229 132,511 Commercial Banks 5.8% AmSouth (ss.) 147,117 3,810 Bank of America 1,663,012 78,145 BB&T (ss.) 227,436 9,564 Comerica 70,156 4,281 Compass Bancshares 50,200 2,443 Fifth Third Bancorp (ss.) 234,646 11,094 First Horizon National (ss.) 51,211 2,208 Huntington Bancshares 95,408 2,364 KeyCorp 167,155 5,667 M&T Bank (ss.) 47,500 5,123 Marshall & Ilsley 92,302 4,080 National City 279,468 10,494 North Fork Bancorporation 194,845 5,621 PNC Financial Services Group 116,519 6,693 Regions Financial (ss.) 189,776 6,754 SunTrust 151,886 11,221 Synovus Financial (ss.) 127,445 3,642 U.S. Bancorp 770,822 24,142 Wachovia 660,802 34,758 Wells Fargo 696,657 43,297 Zions Bancorp 36,365 2,474 277,875 Consumer Finance 1.3% American Express 514,137 28,982 Capital One Financial 99,509 8,380 MBNA 526,622 14,845 Providian Financial * 122,081 2,011 SLM Corporation 178,565 9,533 63,751 Diversified Financial Services 3.7% CIT Group 86,100 3,945 Citigroup 2,134,163 102,824 J.P. Morgan Chase 1,463,491 57,091 Moody's 60,806 5,281 Principal Financial Group 128,071 5,243 174,384 Insurance 4.1% ACE Limited 116,509 4,981 AFLAC 209,073 8,330 Allstate 282,912 14,632 Ambac Financial Group 44,104 3,622 American International Group 1,069,671 70,245 Aon (ss.) 128,278 3,061 Chubb (ss.) 79,280 6,097 Cincinnati Financial 68,258 3,021 Hartford Financial Services 120,664 8,363 Jefferson Pilot (ss.) 56,177 2,919 Lincoln National 72,059 3,364 Loews 76,427 5,373 Marsh & McLennan 216,409 7,120 MBIA (ss.) 58,664 3,712 MetLife 307,244 12,446 Progressive Corporation 81,943 6,952 Prudential 212,730 11,692 SAFECO (ss.) 55,679 2,909 St. Paul Companies 276,181 10,238 Torchmark 45,241 2,585 UnumProvident (ss.) 123,714 2,219 XL Capital 57,190 4,441 198,322 Real Estate 0.5% Apartment Investment & Management, Class A, REIT 39,100 1,507 Archstone-Smith Trust, REIT (ss.) 80,100 3,068 Equity Office Properties, REIT 165,433 4,817 Equity Residential, REIT (ss.) 115,485 4,178 Plum Creek Timber, REIT 75,304 2,895 ProLogis, REIT 76,200 3,302 Simon Property Group, REIT 90,937 5,881 25,648 Thrifts & Mortgage Finance 1.8% Countrywide Credit 239,134 8,850 Fannie Mae 398,847 28,402 Freddie Mac 283,593 20,901 Golden West Financial 126,310 7,758 MGIC Investment (ss.) 40,794 2,811 Sovereign Bancorp 139,700 3,150 Washington Mutual 358,505 15,158 87,030 Total Financials 959,521 HEALTH CARE 12.3% Biotechnology 1.3% Amgen * 521,756 33,471 Applera (ss.) 83,265 1,741 Biogen Idec * 138,527 9,227 Chiron *(ss.) 77,558 2,585 Genzyme * 101,795 5,911 Gilead Sciences * 178,800 6,256 MedImmune * 103,347 2,802 61,993 Health Care Equipment & Supplies 2.2% Bausch & Lomb (ss.) 21,748 1,402 Baxter International 252,899 8,735 Becton, Dickinson 104,301 5,924 Biomet 104,237 4,523 Boston Scientific * 348,230 12,380 C R Bard 43,276 2,769 Fisher Scientific *(ss.) 48,200 3,007 Guidant 131,124 9,454 Hospira * 64,144 2,149 Medtronic 496,648 24,668 Millipore * 20,723 1,032 PerkinElmer 52,476 1,180 St. Jude Medical * 147,192 6,172 Stryker 163,674 7,897 Thermo Electron * 67,672 2,043 Waters Corporation *(ss.) 49,999 2,339 Zimmer Holdings * 100,134 8,023 103,697 Health Care Providers & Services 2.2% Aetna 60,460 7,542 AmerisourceBergen 45,585 2,675 Cardinal Health 177,337 10,312 Caremark RX * 191,200 7,539 CIGNA (ss.) 56,300 4,592 Express Scripts * 32,000 2,446 HCA (ss.) 172,489 6,893 Health Management, Class A (ss.) 98,693 2,242 Humana * 65,388 1,941 IMS Health 94,465 2,193 Laboratory Corporation of America * 56,700 2,825 Manor Care 34,671 1,229 McKesson 120,114 3,779 Medco * 112,325 4,673 Quest Diagnostics (ss.) 41,800 3,994 Tenet Healthcare *(ss.) 192,628 2,115 UnitedHealth Group 269,094 23,688 WellPoint * 121,707 13,996 104,674 Pharmaceuticals 6.6% Abbott Laboratories 641,347 29,919 Allergan 54,488 4,417 Bristol Myers Squibb 800,170 20,500 Eli Lilly 464,602 26,366 Forest Laboratories * 151,636 6,802 Johnson & Johnson 1,220,664 77,415 King Pharmaceuticals *(ss.) 96,574 1,198 Merck 912,640 29,332 Mylan Laboratories (ss.) 112,700 1,993 Pfizer 3,096,875 83,275 Schering-Plough 606,104 12,656 Watson Pharmaceuticals *(ss.) 43,930 1,441 Wyeth 546,169 23,261 318,575 Total Health Care 588,939 INDUSTRIALS & BUSINESS SERVICES 11.4% Aerospace & Defense 2.0% Boeing 345,782 17,901 General Dynamics 82,357 8,615 Goodrich 49,439 1,614 Honeywell International 354,157 12,541 L-3 Communication 47,200 3,457 Lockheed Martin 183,096 10,171 Northrop Grumman 152,194 8,273 Raytheon 184,499 7,164 Rockwell Collins 72,051 2,842 United Technologies 210,424 21,747 94,325 Air Freight & Logistics 1.1% Fedex 123,912 12,204 Ryder System 26,618 1,272 UPS, Class B 460,879 39,387 52,863 Airlines 0.1% Delta *(ss.) 57,423 429 Southwest Airlines 322,834 5,256 5,685 Building Products 0.2% American Standard * 88,260 3,647 Masco 183,555 6,705 10,352 Commercial Services & Supplies 0.9% Allied Waste Industries *(ss.) 130,971 1,215 Apollo Group, Class A * 75,844 6,121 Avery Dennison 44,670 2,679 Cendant 433,434 10,134 Cintas (ss.) 71,102 3,119 Equifax 55,095 1,548 H&R Block (ss.) 68,188 3,341 Pitney Bowes 94,103 4,355 R.R. Donnelley * 88,871 3,136 Robert Half International 70,361 2,071 Waste Management 237,900 7,123 44,842 Construction & Engineering 0.0% Fluor (ss.) 34,310 1,870 1,870 Electrical Equipment 0.4% American Power Conversion (ss.) 81,366 1,741 Cooper Industries, Class A 39,153 2,658 Emerson Electric 171,944 12,053 Power-One *(ss.) 37,900 338 Rockwell Automation 75,087 3,721 20,511 Industrial Conglomerates 4.6% 3M 320,590 26,311 GE 4,352,599 158,870 Textron 57,002 4,206 Tyco International 828,173 29,599 218,986 Machinery 1.5% Caterpillar 139,486 13,601 Cummins Engine (ss.) 17,961 1,505 Danaher 126,202 7,245 Deere 101,899 7,581 Dover 84,030 3,524 Eaton 62,878 4,550 Illinois Tool Works 123,488 11,445 Ingersoll-Rand, Class A 71,572 5,747 ITT Industries 37,576 3,174 Navistar *(ss.) 29,270 1,288 PACCAR (ss.) 71,361 5,743 Pall (ss.) 51,393 1,488 Parker Hannifin 48,892 3,703 70,594 Road & Rail 0.5% Burlington Northern Santa Fe 152,148 7,198 CSX (ss.) 87,834 3,521 Norfolk Southern 161,905 5,859 Union Pacific 107,379 7,221 23,799 Trading Companies & Distributors 0.1% W. W. Grainger 37,362 2,489 2,489 Total Industrials & Business Services 546,316 INFORMATION TECHNOLOGY 15.6% Communications Equipment 2.6% ADC Telecommunications *(ss.) 328,429 880 Andrew * 68,100 928 Avaya * 189,033 3,251 CIENA *(ss.) 245,495 820 Cisco Systems * 2,707,774 52,260 Comverse Technology * 79,892 1,953 Corning * 577,537 6,798 JDS Uniphase *(ss.) 602,511 1,910 Lucent Technologies *(ss.) 1,814,865 6,824 Lucent Technologies, Warrants 12/10/07 * 34,630 55 Motorola 996,966 17,148 QUALCOMM 673,992 28,577 Scientific-Atlanta (ss.) 62,724 2,071 Tellabs * 189,522 1,628 125,103 Computers & Peripherals 3.8% Apple Computer * 165,822 10,679 Dell * 1,021,548 43,048 EMC * 988,556 14,700 Gateway *(ss.) 157,122 944 Hewlett-Packard 1,242,506 26,055 IBM 684,576 67,485 Lexmark International, Class A * 53,567 4,553 NCR * 38,288 2,651 Network Appliance *(ss.) 148,515 4,934 QLogic * 38,661 1,420 Sun Microsystems * 1,380,826 7,429 183,898 Electronic Equipment & Instruments 0.3% Agilent Technologies *(ss.) 199,164 4,800 Jabil Circuit * 81,854 2,094 Molex 77,332 2,320 Sanmina-SCI *(ss.) 217,397 1,841 Solectron * 400,414 2,134 Symbol Technologies 98,049 1,696 Tektronix 37,039 1,119 16,004 Internet Software & Services 0.5% Monster Worldwide *(ss.) 48,107 1,618 Yahoo! * 564,396 21,267 22,885 IT Services 1.1% Affiliated Computer Services, Class A *(ss.) 53,000 3,190 Automatic Data Processing 240,280 10,656 Computer Sciences * 77,645 4,377 Convergys * 57,364 860 Electronic Data Systems (ss.) 210,712 4,868 First Data 339,877 14,458 Fiserv * 80,323 3,228 Paychex 153,871 5,244 Sabre Holdings, Class A 56,514 1,252 SunGard Data Systems * 118,626 3,361 Unisys * 135,184 1,376 52,870 Office Electronics 0.1% Xerox * 390,574 6,644 6,644 Semiconductor & Semiconductor Equipment 3.0% Advanced Micro Devices *(ss.) 158,065 3,481 Altera * 151,246 3,131 Analog Devices 155,194 5,730 Applied Materials * 698,059 11,937 Applied Micro Circuits * 135,978 572 Broadcom, Class A * 132,605 4,281 Freescale Semiconductor, Class B * 159,688 2,932 Intel 2,600,116 60,817 KLA-Tencor * 81,239 3,784 Linear Technology 126,670 4,910 LSI Logic *(ss.) 163,765 897 Maxim Integrated Products 134,545 5,703 Micron Technology * 247,523 3,057 National Semiconductor (ss.) 146,994 2,639 Novellus Systems * 58,491 1,631 NVIDIA * 69,979 1,649 PMC-Sierra *(ss.) 69,810 785 Teradyne *(ss.) 79,206 1,352 Texas Instruments 710,658 17,496 Xilinx 142,849 4,235 141,019 Software 4.2% Adobe Systems 98,714 6,193 Autodesk 94,338 3,580 BMC Software *(ss.) 90,514 1,684 Citrix Systems * 69,430 1,703 Computer Associates (ss.) 240,185 7,460 Compuware * 162,187 1,049 Electronic Arts * 125,378 7,733 Intuit * 79,488 3,498 Mercury Interactive * 38,026 1,732 Microsoft 4,466,094 119,290 Novell *(ss.) 160,589 1,084 Oracle * 2,100,687 28,822 Parametric Technology *(ss.) 107,104 631 Siebel Systems * 204,415 2,146 Symantec * 259,300 6,680 VERITAS Software * 177,271 5,061 198,346 Total Information Technology 746,769 MATERIALS 3.0% Chemicals 1.6% Air Products and Chemicals 93,563 5,424 Dow Chemical 388,824 19,251 DuPont 408,932 20,058 Eastman Chemical 31,517 1,819 Ecolab 106,334 3,736 Engelhard 50,059 1,535 Great Lakes Chemical 21,392 609 Hercules * 44,786 665 International Flavors & Fragrances 39,330 1,685 Monsanto 108,614 6,033 PPG Industries 70,528 4,807 Praxair 134,080 5,920 Rohm & Haas 92,325 4,084 Sigma Aldrich 28,412 1,718 77,344 Construction Materials 0.0% Vulcan Materials 42,367 2,314 2,314 Containers & Packaging 0.2% Ball 46,132 2,029 Bemis 42,798 1,245 Pactiv * 61,304 1,551 Sealed Air * 34,673 1,847 Temple-Inland 23,044 1,576 8,248 Metals & Mining 0.7% Alcoa 359,498 11,295 Allegheny Technologies 37,976 823 Freeport McMoRan Copper Gold, Class B (ss.) 74,360 2,843 Newmont Mining 182,976 8,126 Nucor 66,134 3,461 Phelps Dodge 39,608 3,918 USX-U.S. Steel Group (ss.) 46,651 2,391 32,857 Paper & Forest Products 0.5% Georgia-Pacific 105,527 3,955 International Paper 200,909 8,438 Louisiana Pacific (ss.) 46,118 1,233 MeadWestvaco 83,313 2,823 Neenah Paper * 6,127 200 Weyerhaeuser 98,418 6,616 23,265 Total Materials 144,028 TELECOMMUNICATION SERVICES 3.2% Diversified Telecommunication Services 2.9% Alltel (ss.) 126,289 7,421 AT&T (ss.) 326,797 6,229 BellSouth (ss.) 752,287 20,906 Centurytel 55,028 1,952 Citizens Communications (ss.) 135,370 1,867 Qwest Communications *(ss.) 752,816 3,342 SBC Communications 1,364,747 35,169 Sprint 604,951 15,033 Verizon Communications 1,140,826 46,215 138,134 Wireless Telecommunication Services 0.3% Nextel Communications, Class A * 457,520 13,726 13,726 Total Telecommunication Services 151,860 UTILITIES 2.9% Electric Utilities 2.0% Allegheny Energy *(ss.) 55,515 1,094 Ameren 79,309 3,977 American Electric Power 162,533 5,581 CenterPoint Energy (ss.) 126,546 1,430 CINergy (ss.) 74,726 3,111 Consolidated Edison 99,953 4,373 DTE Energy (ss.) 70,723 3,050 Edison International (ss.) 134,353 4,303 Entergy 93,154 6,296 Exelon 272,336 12,002 FirstEnergy 135,393 5,349 FPL Group 76,465 5,716 PG&E * 166,617 5,545 Pinnacle West Capital 37,497 1,665 PPL 78,276 4,171 Progress Energy 101,942 4,612 Southern Company 304,303 10,200 Teco Energy (ss.) 80,504 1,235 TXU 98,373 6,351 XCEL Energy 166,477 3,030 93,091 Gas Utilities 0.1% KeySpan 67,049 2,645 NICOR (ss.) 19,026 703 NiSource 111,165 2,532 Peoples Energy 14,826 652 6,532 Multi-Utilities & Unregulated Power 0.8% AES * 266,833 3,648 Calpine *(ss.) 215,729 850 CMS Energy *(ss.) 77,220 807 Constellation Energy Group 71,988 3,147 Dominion Resources (ss.) 136,937 9,276 Duke Energy 393,460 9,966 Dynegy, Class A *(ss.) 149,585 691 Public Service Enterprise (ss.) 98,049 5,076 Sempra Energy 95,695 3,510 36,971 Total Utilities 136,594 Total Common Stocks (Cost $3,690,750) 4,643,082 SHORT-TERM INVESTMENTS 3.3% Money Market Fund 3.0% T. Rowe Price Reserve Investment Fund, 2.28% #! 145,661,489 145,661 145,661 U.S. Treasury Obligations 0.3% U.S. Treasury Bills, 1.702%, 1/27/05 (ss.)++ 14,000,000 13,983 13,983 Total Short-Term Investments (Cost $159,644) 159,644 SECURITIES LENDING COLLATERAL 3.8% Money Market Trust 3.8% State Street Bank and Trust Company of New Hampshire N.A. Securities Lending Quality Trust units, 2.28% # 181,904,287 181,904 Total Securities Lending Collateral (Cost $181,904) 181,904 FUTURES CONTRACTS 0.0% Variation margin receivable (payable) on open futures contracts (2) (135) Total Futures Contracts (135) Total Investments in Securities 104.1% of Net Assets (Cost $4,032,298) $4,984,495 ---------- (1) Denominated in U.S. dollars unless otherwise noted # Seven-day yield * Non-income producing (ss.) All or a portion of this security is on loan at December 31, 2004 -- See Note 2 ++ All or a portion of this security is pledged to cover margin requirements on futures contracts at December 31, 2004. ! Affiliated company -- See Note 4 REIT Real Estate Investment Trust T. ROWE PRICE EQUITY INDEX 500 FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (2) Open Futures Contracts at December 31, 2004 were as follows: ($ 000s) Contract Unrealized Expiration Value Gain (Loss) ---------- -------- ----------- Long, 150 S&P 500 contracts, $3,091 par of 1.702% U.S. Treasury Bills pledged as initial margin 3/05 $ 45,514 $ 1,256 Long, 1,434 S&P Mini 500 contracts, $5,909 par of 1.702% U.S. Treasury Bills pledged as initial margin 3/05 87,022 1,759 Net payments (receipts) of variation margin to date (3,150) Variation margin receivable (payable) on open futures contracts $ (135) -------- The accompanying notes are an integral part of these financial statements. T. ROWE PRICE EQUITY INDEX 500 FUND -------------------------------------------------------------------------------- December 31, 2004 STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------------------------------------------- (In thousands except shares and per share amounts) Assets Investments in securities, at value Affiliated companies (cost $147,514) $ 148,890 Non-affiliated companies (cost $3,884,784) 4,835,605 Total investments in securities 4,984,495 Other assets 51,732 Total assets 5,036,227 Liabilities Total liabilities 247,528 NET ASSETS $ 4,788,699 --------------- Net Assets Consist of: Undistributed net realized gain (loss) $ (167,136) Net unrealized gain (loss) 955,347 Paid-in-capital applicable to 147,054,720 shares of $0.01 par value capital stock outstanding; 1,000,000,000 shares of the Corporation authorized 4,000,488 NET ASSETS $ 4,788,699 --------------- NET ASSET VALUE PER SHARE $ 32.56 --------------- The accompanying notes are an integral part of these financial statements. T. ROWE PRICE EQUITY INDEX 500 FUND -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS -------------------------------------------------------------------------------- ($ 000s) Year Ended 12/31/04 Investment Income (Loss) Income Dividend $ 86,660 Securities lending 171 Interest 101 Total income 86,932 Expenses Shareholder servicing 8,040 Investment management 6,404 Custody and accounting 319 Prospectus and shareholder reports 258 Registration 91 Legal and audit 21 Directors 11 Miscellaneous 321 Reductions/repayments of fees and expenses Investment management fees (waived) repaid (515) Total expenses 14,950 Expenses paid indirectly (2) Net expenses 14,948 Net investment income (loss) 71,984 Realized and Unrealized Gain (Loss) Net realized gain (loss) Affiliated securities 48 Non affiliated securities 115,744 Futures 9,983 Net realized gain (loss) 125,775 Change in net unrealized gain (loss) Securities 246,764 Futures (658) Change in net unrealized gain (loss) 246,106 Net realized and unrealized gain (loss) 371,881 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 443,865 --------------- The accompanying notes are an integral part of these financial statements. T. ROWE PRICE EQUITY INDEX 500 FUND -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS -------------------------------------------------------------------------------- ($ 000s) Year Ended 12/31/04 12/31/03 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 71,984 $ 45,797 Net realized gain (loss) 125,775 15,501 Change in net unrealized gain (loss) 246,106 763,875 Increase (decrease) in net assets from operations 443,865 825,173 Distributions to shareholders Net investment income (72,492) (45,987) Capital share transactions * Shares sold 1,445,896 927,373 Distributions reinvested 71,092 45,115 Shares redeemed (985,161) (574,733) Redemption fees received 62 79 Increase (decrease) in net assets from capital share transactions 531,889 397,834 Net Assets Increase (decrease) during period 903,262 1,177,020 Beginning of period 3,885,437 2,708,417 End of period $ 4,788,699 $ 3,885,437 --------------------------- (Including undistributed net investment income of $0 at 12/31/04 and $248 at 12/31/03) *Share information Shares sold 47,307 35,870 Distributions reinvested 2,286 1,698 Shares redeemed (32,289) (22,258) Increase (decrease) in shares outstanding 17,304 15,310 The accompanying notes are an integral part of these financial statements. T. ROWE PRICE EQUITY INDEX 500 FUND -------------------------------------------------------------------------------- December 31, 2004 NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price Index Trust, Inc. (the trust) is registered under the Investment Company Act of 1940 (the 1940 Act). The Equity Index 500 Fund (the fund), a diversified, open-end management investment company, is one portfolio established by the trust. The fund commenced operations on March 30, 1990. The fund seeks to match the performance of the Standard & Poor's 500 Stock Index(RT). The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates made by fund management. Valuation The fund values its investments and computes its net asset value per share at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for business. Equity securities listed or regularly traded on a securities exchange or in the over-the-counter market are valued at the last quoted sale price at the time the valuations are made, except for OTC Bulletin Board securities, which are valued at the mean of the latest bid and asked prices. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day are valued at the mean of the latest bid and asked prices. Debt securities with original maturities of less than one year are valued at amortized cost in local currency, which approximates fair value when combined with accrued interest. Investments in mutual funds are valued at the mutual fund's closing net asset value per share on the day of valuation. Financial futures contracts are valued at closing settlement prices. Other investments, including restricted securities, and those for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by the T. Rowe Price Valuation Committee, established by the fund's Board of Directors. Rebates and Credits Subject to best execution, the fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the fund in cash. Commission rebates are included in realized gain on securities in the accompanying financial statements and totaled $3,000 for the year ended December 31, 2004. Additionally, the fund earns credits on temporarily uninvested cash balances at the custodian that reduce the fund's custody charges. Custody expense in the accompanying financial statements is presented before reduction for credits, which are reflected as expenses paid indirectly. Redemption Fees A 0.5% fee is assessed on redemptions of fund shares held less than 90 days to deter short-term trading and protect the interests of long-term shareholders. Redemption fees are withheld from proceeds that shareholders receive from the sale or exchange of fund shares. The fees are paid to the fund, and have the primary effect of increasing paid-in capital. The fees may cause the redemption price per share to differ from the net asset value per share. In-Kind Redemptions In certain circumstances, the fund may distribute portfolio securities rather than cash as payment for a redemption of fund shares (in-kind redemption). For financial reporting purposes, the fund recognizes a gain on in-kind redemptions to the extent the value of the distributed securities on the date of redemption exceeds the cost of those securities. Gains and losses realized on in-kind redemptions are not recognized for tax purposes, and are reclassified from undistributed realized gain (loss) to paid-in capital. During the year ended December 31, 2004, the fund realized $118,299,000 of net gain on $199,324,000 of in-kind redemptions. Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Premiums and discounts on debt securities are amortized for financial reporting purposes. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Payments ("variation margin") made or received to settle the daily fluctuations in the value of futures contracts are recorded as unrealized gains or losses until the contracts are closed. Unsettled variation margin on futures contracts is included in investments in securities, and unrealized gains and losses on futures contracts are included in the change in net unrealized gain or loss in the accompanying financial statements. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared and paid on a quarterly basis. Capital gain distributions, if any, are declared and paid by the fund, typically on an annual basis. During the year ended December 31, 2004, the fund received a one-time special dividend on a security held in its portfolio (Microsoft Corp.). The dividend, which totaled $13,663,000, represents 15.8% of dividend income reflected in the accompanying financial statements and is not expected to recur. Other In the normal course of business, the fund enters into contracts that provide general indemnifications. The fund's maximum exposure under these arrangements is dependent on claims that may be made against the fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote. NOTE 2 - INVESTMENT TRANSACTIONS Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks or enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the fund's prospectus and Statement of Additional Information. Futures Contracts During the year ended December 31, 2004, the fund was a party to futures contracts, which provide for the future sale by one party and purchase by another of a specified amount of a specific financial instrument at an agreed upon price, date, time, and place. Risks arise from possible illiquidity of the futures market and from movements in security values. Securities Lending The fund lends its securities to approved brokers to earn additional income. It receives as collateral cash and U.S. government securities valued at 102% to 105% of the value of the securities on loan. Cash collateral is invested in a money market pooled trust managed by the fund's lending agent in accordance with investment guidelines approved by fund management. Collateral is maintained over the life of the loan in an amount not less than the value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the fund the next business day. Although risk is mitigated by the collateral, the fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities. Securities lending revenue recognized by the fund consists of earnings on invested collateral and borrowing fees, net of any rebates to the borrower and compensation to the lending agent. At December 31, 2004, the value of loaned securities was $177,269,000; aggregate collateral consisted of $181,904,000 in the money market pooled trust. Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $758,666,000 and $265,479,000, respectively, for the year ended December 31, 2004. NOTE 3 - FEDERAL INCOME TAXES No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable income and gains. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions determined in accordance with tax regulations may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. Distributions during the year ended December 31, 2004 totaled $72,492,000 and were characterized as ordinary income for tax purposes. At December 31, 2004, the tax-basis components of net assets were as follows: -------------------------------------------------------------------------------- Unrealized appreciation $ 1,305,730,000 Unrealized depreciation (353,397,000) Net unrealized appreciation (depreciation) 952,333,000 Capital loss carryforwards (164,122,000) Paid-in capital 4,000,488,000 Net assets $ 4,788,699,000 --------------- Federal income tax regulations require the fund to treat the gain/loss on certain open futures contracts as realized on the last day of the tax year; accordingly, $3,015,000 of unrealized gains reflected in the accompanying financial statements were realized for tax purposes as of December 31, 2004. The fund intends to retain realized gains to the extent of available capital loss carryforwards for federal income tax purposes. During the year ended December 31, 2004, the fund utilized $6,306,000 of capital loss carryforwards. As of December 31, 2004, the fund had $49,385,000 of capital loss carryforwards that expire in 2009, and $114,737,000 that expire in 2010. For the year ended December 31, 2004, the fund recorded the following permanent reclassifications to reflect tax character. Reclassifications to paid-in capital relate primarily to redemptions in kind and per share rounding of distributions. Results of operations and net assets were not affected by these reclassifications. -------------------------------------------------------------------------------- Undistributed net investment income $ 260,000 Undistributed net realized gain (118,299,000) Paid-in capital 118,039,000 At December 31, 2004, the cost of investments for federal income tax purposes was $4,035,312,000. NOTE 4 - RELATED PARTY TRANSACTIONS The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The investment management agreement between the fund and the manager provides for an annual investment management fee equal to 0.15% of the fund's average daily net assets. The fee is computed daily and paid monthly. At December 31, 2004, investment management fee payable totaled $640,000. The fund is also subject to a contractual expense limitation through April 30, 2005. During the limitation period, the manager is required to waive its management fee and reimburse the fund for any expenses, excluding interest, taxes, brokerage commissions, and extraordinary expenses, that would otherwise cause the fund's ratio of total expenses to average net assets (expense ratio) to exceed its expense limitation of 0.35%. Through April 30, 2007, the fund is required to repay the manager for expenses previously reimbursed and management fees waived to the extent its net assets have grown or expenses have declined sufficiently to allow repayment without causing the fund's expense ratio to exceed its expense limitation. Pursuant to this agreement, at December 31, 2004, management fees waived remain subject to repayment by the fund in the following amounts: $1,304,000 through December 31, 2005, and $515,000 through April 30, 2007. In addition, the fund has entered into service agreements with Price Associates and two wholly owned subsidiaries of Price Associates (collectively, Price). Price Associates computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the fund's transfer and dividend disbursing agent. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. For the year ended December 31, 2004, expenses incurred pursuant to these service agreements were $105,000 for Price Associates, $2,403,000 for T. Rowe Price Services, Inc., and $2,108,000 for T. Rowe Price Retirement Plan Services, Inc. At period-end, a total of $496,000 of these expenses was payable. Additionally, the fund is one of several mutual funds in which certain college savings plans managed by Price Associates may invest. As approved by the fund's Board of Directors, shareholder servicing costs associated with each college savings plan are borne by the fund in proportion to the average daily value of its shares owned by the college savings plan. For the year ended December 31, 2004, the fund was charged $826,000 for shareholder servicing costs related to the college savings plans, of which $602,000 was for services provided by Price and $70,000 was payable at period-end. At December 31, 2004, approximately 7.3% of the outstanding shares of the fund were held by college savings plans. The fund is also one of several mutual funds sponsored by Price Associates (underlying Price funds) in which the T. Rowe Price Retirement Funds (Retirement Funds) may invest. The Retirement Funds do not invest in the underlying Price funds for the purpose of exercising management or control. Pursuant to a special servicing agreement, expenses associated with the operation of the Retirement Funds are borne by each underlying Price fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by the Retirement Funds. Expenses allocated under this agreement are reflected as shareholder servicing expense in the accompanying financial statements. For the year ended December 31, 2004, the fund was allocated $1,206,000 of Retirement Funds' expenses, of which $823,000 related to services provided by Price and $112,000 was payable at period-end. At December 31, 2004, approximately 14.4% of the outstanding shares of the fund were held by the Retirement Funds. Consistent with its investment objective, the fund may invest in T. Rowe Price Group, Inc. Additionally, the fund may invest in the T. Rowe Price Reserve Investment Fund and the T. Rowe Price Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by Price Associates and affiliates of the fund. The Reserve Funds are offered as cash management options to mutual funds, trusts, and other accounts managed by Price Associates and/or its affiliates, and are not available for direct purchase by members of the public. The Reserve Funds pay no investment management fees. During the year ended December 31, 2004, dividend income from the Reserve Funds totaled $1,382,000, and the value of shares of the Reserve Funds held at December 31, 2004 and December 31, 2003 was $145,661,000 and $92,421,000, respectively. During the year ended December 31, 2004, dividend income from T. Rowe Price Group, Inc. totaled $40,000, and the value of shares of T. Rowe Price Group, Inc. held at December 31, 2004 and December 31, 2003 was $3,229,000 and $2,215,000, respectively. T. ROWE PRICE EQUITY INDEX 500 FUND -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -------------------------------------------------------------------------------- To the Board of Directors of T. Rowe Price Index Trust, Inc. and Shareholders of T. Rowe Price Equity Index 500 Fund In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Equity Index 500 Fund (one of the portfolios comprising T. Rowe Price Index Trust, Inc., hereafter referred to as the "Fund") at December 31, 2004, and the results of its operations, the changes in its net assets and the financial highlights for each of the fiscal periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Baltimore, Maryland February 11, 2005 T. ROWE PRICE EQUITY INDEX 500 FUND -------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/04 -------------------------------------------------------------------------------- We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements. For taxable non-corporate shareholders, $72,492,000 of the fund's income represents qualified dividend income subject to the 15% rate category. For corporate shareholders, $72,492,000 of the fund's income qualifies for the dividends-received deduction. INFORMATION ON PROXY VOTING POLICIES, PROCEDURES, AND RECORDS -------------------------------------------------------------------------------- A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each fund's Statement of Additional Information, which you may request by calling 1-800-225-5132 or by accessing the SEC's Web site, www.sec.gov. The description of our proxy voting policies and procedures is also available on our Web site, www.troweprice.com. To access it, click on the words "Company Info" at the top of our homepage for individual investors. Then, in the window that appears, click on the "Proxy Voting Policy" navigation button in the top left corner. Each fund's most recent annual proxy voting record is available on our Web site and through the SEC's Web site. To access it through our Web site, follow the directions above, then click on the words "Proxy Voting Record" at the bottom of the Proxy Voting Policy page. HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS -------------------------------------------------------------------------------- The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available electronically on the SEC's Web site (www.sec.gov); hard copies may be reviewed and copied at the SEC's Public Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330. T. ROWE PRICE EQUITY INDEX 500 FUND -------------------------------------------------------------------------------- ABOUT THE FUND'S DIRECTORS AND OFFICERS -------------------------------------------------------------------------------- Your fund is governed by a Board of Directors that meets regularly to review investments, performance, compliance matters, advisory fees, expenses, and other business affairs, and is responsible for protecting the interests of shareholders. The majority of the fund's directors are independent of T. Rowe Price Associates, Inc. (T. Rowe Price); "inside" directors are officers of T. Rowe Price. The Board of Directors elects the fund's officers, who are listed in the final table. The business address of each director and officer is 100 East Pratt Street, Baltimore, MD 21202. The Statement of Additional Information includes additional information about the fund directors and is available without charge by calling a T. Rowe Price representative at 1-800-225-5132. Independent Directors Name (Year of Birth) Principal Occupation(s) During Past 5 Years Year Elected * and Directorships of Other Public Companies Anthony W. Deering Director, Chairman of the Board, President, (1945) and Chief Executive Officer, The Rouse 2001 Company, real estate developers; Director, Mercantile Bank (4/03 to present) Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an (1943) acquisition and management advisory firm 1994 David K. Fagin Director, Golden Star Resources Ltd., Canyon (1938) Resources Corp. (5/00 to present), and 1994 Pacific Rim Mining Corp. (2/02 to present); Chairman and President, Nye Corp. Karen N. Horn Managing Director and President, Global (1943) Private Client Services, Marsh Inc. 2003 (1999-2003); Managing Director and Head of International Private Banking, Bankers Trust (1996-1999); Director, Eli Lilly and Company and Georgia Pacific (5/04 to present) F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates, (1934) Inc., consulting environmental and civil 2001 engineers John G. Schreiber Owner/President, Centaur Capital Partners, (1946) Inc., a real estate investment company; 2001 Partner, Blackstone Real Estate Advisors, L.P.; Director, AMLI Residential Properties Trust and The Rouse Company, real estate developers *Each independent director oversees 112 T. Rowe Price portfolios and serves until retirement, resignation, or election of a successor. Inside Directors Name (Year of Birth) Year Elected * [Number of T. Rowe Price Principal Occupation(s) During Past 5 Years and Portfolios Overseen] Directorships of Other Public Companies James A.C. Kennedy, CFA Director and Vice President, T. Rowe Price and (1953) T. Rowe Price Group, Inc.; Director, T. Rowe Price 1997 Global Investment Services Limited and T. Rowe [43] Price International, Inc. James S. Riepe Director and Vice President, T. Rowe Price; Vice (1943) Chairman of the Board, Director, and Vice 1990 President, T. Rowe Price Group, Inc.; Chairman of [112] the Board and Director, T. Rowe Price Global Asset Management Limited, T. Rowe Price Global Investment Services Limited, T. Rowe Price Investment Services, Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Services, Inc.; Chairman of the Board, Director, President, and Trust Officer, T. Rowe Price Trust Company; Director, T. Rowe Price International, Inc.; Chairman of the Board, Index Trust *Each inside director serves until retirement, resignation, or election of a successor. Officers Name (Year of Birth) Title and Fund(s) Served Principal Occupation(s) Jeanne M. Aldave (1971) Assistant Vice President, T. Rowe Price Vice President, Index Trust E. Frederick Bair,CFA,CPA (1969) Executive Vice President, Vice President, T. Rowe Price and Index Trust T. Rowe Price Trust Company Stephen V. Booth, CPA (1961) Vice President, T. Rowe Price, T. Rowe Price Vice President, Index Trust Group, Inc., and T. Rowe Price Trust Company Joseph A. Carrier (1960) Vice President, T. Rowe Price, T. Rowe Price Treasurer, Index Trust Group, Inc., T. Rowe Price Investment Services, Inc., and T. Rowe Price Trust Company Wendy R. Diffenbaugh (1953) Vice President, T. Rowe Price Vice President, Index Trust Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years. Roger L. Fiery III, CPA (1959) Vice President, T. Rowe Price, T. Rowe Price Vice President, Index Trust Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Trust Company John R. Gilner (1961) Chief Compliance Officer and Vice President, Chief Compliance Officer, T. Rowe Price; Vice President, T. Rowe Price Index Trust Investment Services, Inc., and T. Rowe Price Group, Inc. Gregory S. Golczewski (1966) Vice President, T. Rowe Price and T. Rowe Vice President, Index Trust Price Trust Company Ann M. Holcomb, CFA (1972) Vice President, T. Rowe Price Vice President, Index Trust Henry H. Hopkins (1942) Director and Vice President, T. Rowe Price Vice President, Index Trust Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Trust Company; Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Retirement Plan Services, Inc. Patricia B. Lippert (1953) Assistant Vice President, T. Rowe Price and Secretary, Index Trust T. Rowe Price Investment Services, Inc. Sudhir Nanda, PhD, CFA (1959) Vice President, T. Rowe Price and T. Rowe Vice President, Index Trust Price Group, Inc. Ken D. Uematsu, CFA (1966) Employee, T. Rowe Price Assistant Vice President, Index Trust Julie L. Waples (1970) Vice President, T. Rowe Price Vice President, Index Trust Richard T. Whitney, CFA (1958) Vice President, T. Rowe Price, T. Rowe Price President, Index Trust Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Trust Company Mary C. Wojciechowski, CFA (1962) Vice President, T. Rowe Price and T. Rowe Vice President, Index Trust Price Trust Company Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years. Item 2. Code of Ethics. The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report. Item 3. Audit Committee Financial Expert. The registrant's Board of Directors/Trustees has determined that Mr. David K. Fagin qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Fagin is considered independent for purposes of Item 3 of Form N-CSR. Item 4. Principal Accountant Fees and Services. (a) - (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrant's principal accountant were as follows: 2004 2003 Audit Fees $12,316 $13,495 Audit-Related Fees 1,736 830 Tax Fees 3,340 3,505 All Other Fees - 124 Audit fees include amounts related to the audit of the registrant's annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant's financial statements, specifically the issuance of a report on internal controls. Tax fees include amounts related to tax compliance, tax planning, and tax advice. Other fees include the registrant's pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrant's Board of Directors/Trustees. (e)(1) The registrant's audit committee has adopted a policy whereby audit and non-audit services performed by the registrant's principal accountant for the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularly scheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimis amount is not permitted. (2) No services included in (b) - (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Less than 50 percent of the hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. (g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant's principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $903,000 and $821,000, respectively, and were less than the aggregate fees billed for those same periods by the registrant's principal accountant for audit services rendered to the T. Rowe Price Funds. (h) All non-audit services rendered in (g) above were pre-approved by the registrant's audit committee. Accordingly, these services were considered by the registrant's audit committee in maintaining the principal accountant's independence. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. Schedule of Investments. Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of Matters to a Vote of Security Holders. Not applicable. Item 11. Controls and Procedures. (a) The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of this filing and have concluded that the registrant's disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) The registrant's principal executive officer and principal financial officer are aware of no change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is attached. (2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached. (3) Written solicitation to repurchase securities issued by closed-end companies: not applicable. (b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. T. Rowe Price Index Trust, Inc. By /s/ James S. Riepe ----------------------------------- James S. Riepe Principal Executive Officer Date February 18, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ James S. Riepe ----------------------------------- James S. Riepe Principal Executive Officer Date February 18, 2005 By /s/ Joseph A. Carrier ----------------------------------- Joseph A. Carrier Principal Financial Officer Date February 18, 2005