PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE

Balanced Fund

 A fund seeking capital growth and current income from stocks and bonds.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Balanced Fund, Inc.
Prospectus

May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  8
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions          11
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   15
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  18
              -----------------------------------------------
              Understanding Performance Information        20
              -----------------------------------------------
              Investment Policies and Practices            20
              -----------------------------------------------
              Financial Highlights                         29
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         31
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        32
              -----------------------------------------------
              Purchasing Additional Shares                 33
              -----------------------------------------------
              Exchanging and Redeeming Shares              34
              -----------------------------------------------
              Rights Reserved by the Funds                 36
              -----------------------------------------------
              Information About Your Services              36
              -----------------------------------------------
              T. Rowe Price Brokerage                      39
              -----------------------------------------------
              Investment Information                       40
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 41
              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide capital growth, current income, and preservation of
   capital through a portfolio of stocks and fixed-income securities.


 What is the fund's principal investment strategy?

   We normally invest approximately 60% of total assets in U.S. and foreign
   common stocks and 40% in fixed-income securities. We will invest at least 25%
   of total assets in senior fixed-income securities.

   When deciding upon asset allocations, the manager may favor fixed-income
   securities if the economy is expected to slow sufficiently to hurt corporate
   profit growth. The opposite may be true when strong economic growth is
   expected. When selecting particular stocks to purchase, the manager will
   examine relative values and prospects among growth- and value-oriented
   stocks, domestic and international stocks, and small- to large-cap stocks.
   Domestic stocks are drawn from the overall U.S. market while international
   equities are selected primarily from large companies in developed countries.
   This process draws heavily upon T. Rowe Price's proprietary stock research
   expertise.

   Much the same security selection process applies to bonds. For example, when
   deciding on whether to adjust allocations to high-yield (junk) bonds, the
   manager will weigh such factors as the outlook for the economy and corporate
   earnings and the yield advantage lower-rated bonds offer over
   investment-grade bonds. Bonds are primarily investment grade (top four credit
   ratings) and are chosen from across the entire government, corporate, and
   mortgage-backed bond market. Maturities will reflect the manager's outlook
   for interest rates.


   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   We may also invest in other securities, including futures, options, and
   swaps, in keeping with the fund's objective.

   Securities may be sold for a variety of reasons, such as to effect a change
   in asset allocation, secure a gain, limit a loss, or redeploy assets into
   more promising opportunities.




T. ROWE PRICE                                 2
   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?

   The fund's program of investing in stocks, bonds, and money market securities
   exposes it to a variety of risks. Each of these is proportional to the

   percentage of assets the fund has in these securities. . The risks include:

  . Risks of stock investing  Stock prices can fall because of weakness in the
   broad market, a particular industry, or specific holdings. The market as a
   whole can decline for many reasons, including adverse political or economic
   developments here or abroad, changes in investor psychology, or heavy
   institutional selling. The prospects for an industry or company may
   deteriorate because of a variety of factors, including disappointing earnings
   or changes in the competitive environment. In addition, our assessment of
   companies held in the fund may prove incorrect, resulting in losses or poor
   performance even in a rising market. Finally, a fund's investment approach
   could fall out of favor with the investing public, resulting in lagging
   performance versus other types of funds.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.

  . Risks of bond investing  Bonds have two main sources of risk. Interest rate
   risk is the decline in bond prices that usually accompanies a rise in
   interest rates. Longer-maturity bonds typically suffer greater declines than
   those with shorter maturities. Mortgage securities can react somewhat
   differently than regular bonds to interest rate changes. Falling rates can
   cause losses of principal due to increased mortgage prepayments. Rising rates
   can lead to decreased prepayments and greater volatility. Credit risk is the
   chance that any fund holding could have its credit downgraded, or that a bond
   issuer will default (fail to make timely payments of interest or principal),
   potentially reducing the fund's income level and share price.

   While the fund expects to invest primarily in investment-grade bonds, it may
   also hold high-yield (junk) bonds, including those with the lowest rating.
   Investment-grade bonds are those rated from the highest (AAA) to medium (BBB)
   quality, and high-yield bonds are rated BB and lower. The latter are
   speculative since their issuers are more vulnerable to financial setbacks and
   recession than more creditworthy companies, but BBB rated bonds may have
   speculative elements as well. High-yield bond issuers include small companies
   lacking the history or capital to merit investment-grade status, former blue
   chip companies downgraded because of financial problems, and firms with heavy
   debt loads.




MORE ABOUT THE FUND                           3
  . Risks of foreign securities  To the extent the fund invests in foreign
   stocks and bonds, it is also subject to the special risks associated with
   such investments whether denominated in U.S. dollars or foreign currencies.
   These risks include potentially adverse political and economic developments
   overseas, greater volatility, less liquidity, and the possibility that
   foreign currencies will decline against the dollar, lowering the value of
   securities denominated in those currencies.

  . Derivatives risk  To the extent the fund uses futures and options, it is
   exposed to additional volatility and potential losses.


   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. Generally, the fund is intended for those seeking a
   middle-of-the-road approach that emphasizes stocks for their higher capital
   appreciation potential but retains a significant income component to temper
   principal volatility.

   If you are investing for principal safety and liquidity, you should consider
   a money market fund.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 4



                      Calendar Year Total Returns
  "92"   "93"     "94"    "95"    "96"     "97"   "98"   "99"    "00"     "01"
 --------------------------------------------------------------------------------
                                  
 7.71   13.35  -2.05  24.88  14.57  18.97  15.97  10.26   2.09    -3.98
 --------------------------------------------------------------------------------



                  Quarter ended    Total return

 Best quarter        12/31/98         12.22%
 Worst quarter        9/30/01         -6.87%




 Table 1  Average Annual Total Returns

                                        Periods ended December 31, 2001
                                        1 year     5 years   10 years/a/
 --------------------------------------
                                    
  Balanced Fund
  Returns before taxes                  -3.98%      8.32%       9.82%
  Returns after taxes on
  distributions                         -5.49       6.80        7.92
  Returns after taxes on
  distributions and sale of fund
  shares                                -2.06       6.17        7.27
  Merrill Lynch-Wilshire Capital
  Markets
  Index/b/                              -5.21       8.70       10.12
  Combined Index Portfolio/c/           -4.78       8.86       10.10
  Lipper Balanced Fund Index            -3.24       8.37        9.54
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.

 /a/
   Performance prior to 9/1/92, reflects managers other than T. Rowe Price.

 /b/       Wilshire data calculated as of 1/8/02.

 /c/An unmanaged portfolio of 50% domestic stocks (S&P 500 Stock Index), 40%
   bonds (Lehman Brothers U.S. Aggregate Index), and 10% international stocks
   (MSCI EAFE Index).




MORE ABOUT THE FUND                           5
 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.



 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.47%
  Other expenses                                             0.36%
  Total annual fund operating expenses                       0.83%
 --------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $85         $265         $460          $1,025
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   The fund offers a way to balance the potential capital appreciation of common
   stocks with the income and relative stability of bonds over the long term. It
   should be less volatile than an all-stock fund. The fund's broad
   diversification means that you are not putting all your eggs in one basket.
   While there is no guarantee, spreading investments across several types of
   assets could reduce the fund's overall volatility, since prices of stocks and
   bonds may respond differently to changes in economic conditions and interest
   rate levels. A rise in bond prices, for example, could help offset a fall in
   stock prices. Money market securities should have a stabilizing influence. In
   addition, the steady income provided by bonds and money market securities
   contributes positively to total return, cushioning the impact of any price
   declines or enhancing price increases.




T. ROWE PRICE                                 6
 How does the portfolio manager try to reduce risk?

   Consistent with the fund's objective, the portfolio manager uses various
   tools to try to reduce risk and increase total return, including:


  . Diversification of assets to reduce the impact of a single holding or sector
   on the fund's net asset value.
  . Thorough research of stocks, bonds, and other securities by our analysts to
   find the most favorable investment opportunities.
  . Gradual shifts in stock, bond, and money market allocations to take
   advantage of market opportunities and changing economic conditions.


   3 We regularly review the asset allocation and may make gradual changes,
     within allowed ranges, based on our outlook for the economy, interest
     rates, and financial markets. The fund will not attempt to time short-term
     market swings.


 Why include foreign securities?


   The fund may invest up to 25% of its total assets in foreign stocks and
   bonds, which offer advantages but also increase risk. The potential
   advantages are extra diversification and enhanced returns. Since foreign
   stock and bond markets may move independently from U.S. securities, they
   could reduce the fund's price fluctuations while offering a way to
   participate in markets that may generate attractive returns. However, if U.S.
   and foreign markets move in the same direction, the positive or negative
   effect on the fund's share price could be magnified.


   3 For a discussion of the effects of currency exchange rate fluctuations and
     other special risks of foreign investing, please see Investment Policies
     and Practices.


 How is a bond's price affected by changes in interest rates?

   When interest rates rise, a bond's price usually falls, and vice versa. In
   general, the longer a bond's maturity, the greater the price increase or
   decrease in response to a given change in rates, as shown in Table 3.




MORE ABOUT THE FUND                           7


 Table 3  How Interest Rates May Affect Bond Prices

                                         Price of a $1,000 face value bond if interest rates:
  Bond maturity   Coupon                         Increase                                  Decrease
                                  1 percent                   2 percent            1 percent     2 percent
              
  1 year         2.07%               $990                        $981                $1,010        $1,020
  5 years        4.30                 957                         915                 1,046         1,094
  10 years       5.05                 926                         858                 1,082         1,171
  30 years       5.47                 868                         762                 1,164         1,371
 ------------------------------------------------------------------------------------------------------------------





 Coupons reflect yields on Treasury securities as of December 31, 2001. The
 table may not be representative of price changes for mortgage-backed securities
 because of prepayments. This is an illustration and does not represent expected
 yields or share price changes of any T. Rowe Price fund.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




MORE ABOUT THE FUND                           9
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




T. ROWE PRICE                                 10
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




MORE ABOUT THE FUND                           11
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 4  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








T. ROWE PRICE                                 12

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




MORE ABOUT THE FUND                           13
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.



   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




T. ROWE PRICE                                 14
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




MORE ABOUT THE FUND                           15
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions
   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




T. ROWE PRICE                                 16
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




MORE ABOUT THE FUND                           17
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?


   The fund was incorporated in Maryland in 1991 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives. On August
   31, 1992, the fund acquired substantially all of the assets of Axe-Houghton
   Fund B pursuant to an Agreement and Plan of Reorganization. As a result of
   that transaction, the fund succeeded to the performance record of
   Axe-Houghton Fund B. The performance record of the fund prior to September 1,
   1992, is the result of investment managers other than T. Rowe Price.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.




MORE ABOUT THE FUND                           19
 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).


   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Richard T. Whitney, Chairman, Stephen W. Boesel, Nathaniel S. Levy, Raymond
   A. Mills, Edmund M. Notzon, and Mark J. Vaselkiv. The committee chairman has
   day-to-day responsibility for managing the portfolio and works with the
   committee in developing and executing the fund's investment program. Mr.
   Whitney has been chairman of the fund's committee since 1994. He joined T.
   Rowe Price in 1985 and has been managing investments since 1986.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion

   at December 31, 2001, the group fee was 0.32%. .  The individual fund fee is
   0.15%.




T. ROWE PRICE                                 20
 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------

   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are dis-




MORE ABOUT THE FUND                           21
   cussed with shareholders in fund reports. Fund investment restrictions and
   policies apply at the time of investment. A later change in circumstances
   will not require the sale of an investment if it was proper at the time it
   was made.


   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities


   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.

   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased




T. ROWE PRICE                                 22
   where the issuer has omitted, or is in danger of omitting, payment of its
   dividend. Such investments would be made primarily for their capital
   appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 25%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.




MORE ABOUT THE FUND                           23
   Debt Securities
   A bond or money market instrument is usually an interest-bearing security- an
   IOU-issued by companies or governmental units. The issuer has a contractual
   obligation to pay interest at a stated rate on specific dates and to repay
   principal (the bond's face value) on a specified date. An issuer may have the
   right to redeem or "call" a bond before maturity, and the investor may have
   to reinvest the proceeds at lower market rates. Money market securities and
   bonds (such as zero coupon bonds) may also be issued in discounted form to
   reflect the rate of interest paid. In such a case, no coupon interest is
   paid, but the security's price is discounted so that the interest is realized
   when the security matures at face value.

   A bond's annual interest income, set by its coupon rate, is usually fixed for
   the life of the bond. Its yield (income as a percent of current price) will
   fluctuate to reflect changes in interest rate levels. Except for adjustable
   rate instruments,
   a money market security's interest rate, as reflected in the coupon rate or
   discount, is usually fixed for the life of the security. Its current yield
   (coupon or discount as a percent of current price) will fluctuate to reflect
   changes in interest rate levels. A bond's price usually rises when interest
   rates fall, and vice versa, so its yield stays current.

   Bonds may be unsecured (backed by the issuer's general creditworthiness only)
   or secured (also backed by specified collateral).

   Certain bonds have interest rates, adjusted periodically. These interest rate
   adjustments tend to minimize fluctuations in the bonds' principal values. The
   maturity of those securities may be shortened under certain conditions.

   Bonds may be senior or subordinated obligations. Senior obligations generally
   have the first claim on a corporation's earnings and assets and, in the event
   of liquidation, are paid before subordinated debt.

   In addition to conventional corporate bonds, some of the debt securities in
   which the fund may invest are described below. Unless otherwise indicated
   here or in the fund's overall program, there is no limit on the amount that
   may be committed to any of these securities.

   Asset-Backed Securities

   An underlying pool of assets, such as credit card or automobile trade
   receivables or corporate loans or bonds, backs these bonds and provides the
   interest and principal payments to investors. On occasion, the pool of assets
   may also include a swap obligation, which is used to change the cash flows on
   the underlying assets. As an example, a swap may be used to allow floating
   rate assets to back a fixed-rate obligation. Credit quality depends primarily
   on the quality of the underlying assets, the level of credit support, if any,
   provided by the structure or by a third-party insurance wrap, and the credit
   quality of the swap counterparty, if any. The underlying assets (i.e., loans)
   are sometimes subject to prepayments,




T. ROWE PRICE                                 24
   which can shorten the security's weighted average life and may lower its
   return. The value of these securities also may change because of actual or
   perceived changes in the creditworthiness of the originator, the servicing
   agent, the financial institution providing the credit support, or the swap
   counterparty.

   Mortgage-Backed Securities

   The fund may invest in a variety of mortgage-backed securities. Mortgage
   lenders pool individual home mortgages with similar characteristics to back a
   certificate or bond, which is sold to investors such as the fund. Interest
   and principal payments generated by the underlying mortgages are passed
   through to the investors. The "big three" issuers are the Government National
   Mortgage Association (GNMA), the Federal National Mortgage Association
   (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac).
   GNMA certificates are backed by the full faith and credit of the U.S.
   government, while others, such as Fannie Mae and Freddie Mac certificates,
   are only supported by the ability to borrow from the U.S. Treasury or by the
   credit of the agency. Private mortgage bankers and other institutions also
   issue mortgage-backed securities.

   Mortgage-backed securities are subject to scheduled and unscheduled principal
   payments as homeowners pay down or prepay their mortgages. As these payments
   are received, they must be reinvested when interest rates may be higher or
   lower than on the original mortgage security. Therefore, these securities are
   not an effective means of locking in long-term interest rates. In addition,
   when interest rates fall, the pace of mortgage prepayments picks up. These
   refinanced mortgages are paid off at face value (par), causing a loss for any
   investor who may have purchased the security at a price above par. In such an
   environment, this risk limits the potential price appreciation of these
   securities and can negatively affect the fund's net asset value. When rates
   rise, the prices of mortgage-backed securities can be expected to decline,
   although historically these securities have experienced smaller price
   declines than comparable quality bonds. In addition, when rates rise and
   prepayments slow, the effective duration of mortgage-backed securities
   extends, resulting in increased volatility.

   Additional mortgage-backed securities in which the fund may invest include:

  . Collateralized Mortgage Obligations (CMOs) CMOs are debt securities that are
   fully collateralized by a portfolio of mortgages or mortgage-backed
   securities. All interest and principal payments from the underlying mortgages
   are passed through to the CMOs in such a way as to create some classes with
   more stable average lives than the underlying mortgages and other classes
   with more volatile average lives. CMO classes may pay fixed or variable rates
   of interest, and certain classes have priority over others with respect to
   the receipt of prepayments.




MORE ABOUT THE FUND                           25
  . Stripped Mortgage Securities Stripped mortgage securities (a type of
   potentially high-risk derivative) are created by separating the interest and
   principal payments generated by a pool of mortgage-backed securities or a CMO
   to create additional classes of securities. Generally, one class receives
   only interest payments (IOs), and another receives principal payments (POs).
   Unlike with other mortgage-backed securities and POs, the value of IOs tends
   to move in the same direction as interest rates. The fund can use IOs as a
   hedge against falling prepayment rates (interest rates are rising) and/or a
   bear market environment. POs can be used as a hedge against rising prepayment
   rates (interest rates are falling) and/or a bull market environment. IOs and
   POs are acutely sensitive to interest rate changes and to the rate of
   principal prepayments.

   A rapid or unexpected increase in prepayments can severely depress the price
   of IOs, while a rapid or unexpected decrease in prepayments could have the
   same effect on POs. Of course, under the opposite conditions these securities
   may appreciate in value. These securities can be very volatile in price and
   may have lower liquidity than most other mortgage-backed securities. Certain
   non-stripped CMO classes may also exhibit these qualities, especially those
   that pay variable rates of interest that adjust inversely with, and more
   rapidly than, short-term interest rates. In addition, if interest rates rise
   rapidly and prepayment rates slow more than expected, certain CMO classes, in
   addition to losing value, can exhibit characteristics of longer-term
   securities and become more volatile. There is no guarantee that fund
   investments in CMOs, IOs, or POs will be successful, and fund total return
   could be adversely affected as a result.

   Operating policy  The fund may invest up to 20% of its total assets in
   mortgage-backed securities, including 10% in stripped mortgage securities.

   High-Yield, High-Risk Bonds
   The total return and yield of lower-quality (high-yield, high-risk) bonds,
   commonly referred to as "junk" bonds, can be expected to fluctuate more than
   the total return and yield of higher-quality, shorter-term bonds, but not as
   much as those of common stocks. Junk bonds (those rated below BBB or in
   default) are regarded as predominantly speculative with respect to the
   issuer's continuing ability to meet principal and interest payments.


   Operating policy  The fund may purchase any type of noninvestment-grade debt
   security (or junk bond) including those in default. The fund will not
   purchase this type of security if it would have more than 10% of its total
   assets invested in such securities. Fund investments in convertible
   securities are not subject to this limit.


   3 The fund may continue to hold a security that has been downgraded or loses
     its investment-grade rating after purchase.




T. ROWE PRICE                                 26
   Hybrid Instruments

   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount or interest rate of a hybrid could be tied (positively or
   negatively) to the price of some commodity, currency, or securities index or
   another interest rate (each a "benchmark"). Hybrids can be used as an
   efficient means of pursuing a variety of investment goals, including currency
   hedging, duration management and increased total return. Hybrids may or may
   not bear interest or pay dividends. The value of a hybrid or its interest
   rate may be a multiple of a benchmark and, as a result, may be leveraged and
   move (up or down) more steeply and rapidly than the benchmark. These
   benchmarks may be sensitive to economic and political events , commodity
   shortages and currency devaluations, which cannot be readily foreseen by the
   purchaser of a hybrid. Under certain conditions, the redemption value of a
   hybrid could be zero. Thus, an investment in a hybrid may entail significant
   market risks that are not associated with a similar investment in a
   traditional, U.S. dollar-denominated bond that has a fixed principal amount
   and pays a fixed rate or floating rate of interest. The purchase of hybrids
   also exposes the fund to the credit risk of the issuer of the hybrid. These
   risks may cause significant fluctuations in the net asset value of the fund.



   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.


 Types of Investment Management Practices

   Reserve Position

   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.




MORE ABOUT THE FUND                           27
   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices,
   interest rates, bond prices, and foreign currencies; as an efficient means of
   adjusting fund overall exposure to certain markets; in an effort to enhance
   income; to protect the value of portfolio securities; as a cash management
   tool; and to adjust portfolio duration. Call or put options may be

   purchased or sold on securities, financial indices, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.




T. ROWE PRICE                                 28
   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which would reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   When-Issued Securities and Forward Commitment Contracts
   The fund may purchase securities on a when-issued or delayed delivery basis
   or may purchase or sell securities on a forward commitment basis. The price
   of these securities is fixed at the time of the commitment to buy, but
   delivery and payment can take place a month or more later. During the interim
   period, the market value of the securities can fluctuate, and no interest
   accrues to the purchaser. At the time of delivery, the value of the
   securities may be more or less than the purchase or sale price. To the extent
   the fund remains fully or almost fully invested (in securities with a
   remaining maturity of more than one year) at the same time it purchases these
   securities, there will be greater fluctuations in that fund's net asset value
   than if the fund did not purchase them.

   Portfolio Turnover

   The fund will not generally trade in securities (either common stocks or
   bonds) for short-term profits, but, when circumstances warrant, securities
   may be purchased and sold without regard to the length of time held. A high
   turnover rate may increase transaction costs, result in additional capital
   gain distributions, and reduce fund total return. The fund cannot accurately
   predict its annual portfolio




MORE ABOUT THE FUND                           29
   turnover rate for either the equity or fixed-income portion of its portfolio;
   however, the fund's portfolio turnover rates are shown in the Financial
   Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 5, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




T. ROWE PRICE                                 30


 Table 5  Financial Highlights

                                      Year ended December 31
                             1997     1998     1999     2000     2001
 ------------------------------------------------------------------------------
                         

  Net asset value,
  beginning of period       $14.48   $16.54   $18.59   $19.69   $19.17
  Income From Investment Operations
  Net investment income       0.53     0.53     0.53     0.54     0.51
                            ----------------------------------------------
  Net gains or losses on
  securities (both            2.18     2.08     1.34    (0.13)   (1.29)
  realized and unrealized)
                            ----------------------------------------------
  Total from investment
  operations                  2.71     2.61     1.87     0.41    (0.78)
  Less Distributions
  Dividends (from net        (0.53)   (0.52)   (0.54)   (0.53)   (0.52)
  investment income)
                            ----------------------------------------------
  Distributions (from        (0.12)   (0.04)   (0.23)   (0.40)   (0.38)
  capital gains)
                            ----------------------------------------------
  Returns of capital            --       --       --       --       --
                            ----------------------------------------------
  Total distributions        (0.65)   (0.56)   (0.77)   (0.93)   (0.90)
                            ----------------------------------------------
  Net asset value,          $16.54   $18.59   $19.69   $19.17   $17.49
  end of period
                            ----------------------------------------------
  Total return               18.97%   15.97%   10.26%    2.09%   (3.98)%
  Ratios/Supplemental Data
  Net assets, end of        $1,219   $1,650   $2,091   $1,896   $1,791
  period (in millions)
                            ----------------------------------------------
  Ratio of expenses to        0.81%    0.78%    0.79%    0.79%    0.83%
  average net assets
                            ----------------------------------------------
  Ratio of net income to      3.36%    3.04%    2.80%    2.75%    2.84%
  average net assets
                            ----------------------------------------------
  Portfolio turnover rate     15.5%    12.5%    20.7%    16.5%    36.0%
 ------------------------------------------------------------------------------






 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




T. ROWE PRICE                                 32
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




MORE ABOUT THE FUND                           33

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




T. ROWE PRICE                                 34
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




MORE ABOUT THE FUND                           35
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




T. ROWE PRICE                                 36
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




MORE ABOUT THE FUND                           37
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




T. ROWE PRICE                                 38
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




MORE ABOUT THE FUND                           39
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




T. ROWE PRICE                                 40
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




MORE ABOUT THE FUND                           41

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.





To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
                                                                  F68-040 5/1/02
                                                      1940 Act File No. 811-6275


PROSPECTUS

                                                                 May 1, 2002
T. ROWE PRICE

Capital
Appreciation Fund

 A relatively conservative stock fund seeking long-term capital growth.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Capital Appreciation Fund
Prospectus


May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  7
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions          10
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   14
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  17
              -----------------------------------------------
              Understanding Performance Information        18
              -----------------------------------------------
              Investment Policies and Practices            19
              -----------------------------------------------
              Financial Highlights                         24
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         26
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        27
              -----------------------------------------------
              Purchasing Additional Shares                 28
              -----------------------------------------------
              Exchanging and Redeeming Shares              29
              -----------------------------------------------
              Rights Reserved by the Funds                 31
              -----------------------------------------------
              Information About Your Services              31
              -----------------------------------------------
              T. Rowe Price Brokerage                      34
              -----------------------------------------------
              Investment Information                       35
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 36
              -----------------------------------------------





 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks maximum long-term capital appreciation by investing primarily
   in common stocks, and it may also hold fixed-income and other securities to
   help preserve principal value in uncertain or declining markets.


 What is the fund's principal investment strategy?

   We will invest primarily in the common stocks of established U.S. companies
   we believe to have above-average potential for capital growth. Common stocks
   typically constitute at least half of total assets. The remaining assets are
   generally invested in other securities, including convertible securities,
   corporate and government debt, foreign securities, futures, and options, in
   keeping with the fund's objective.

   Our common stocks generally fall into one of two categories: the larger
   category comprises long-term core holdings whose prices when we buy them are
   considered low in terms of company assets, earnings, or other factors; and
   the smaller category comprises opportunistic investments whose prices we
   expect to rise in the short term but not necessarily over the long term.
   Since we attempt to prevent losses as well as achieve gains, we typically use
   a value approach in selecting investments. Our in-house research team seeks
   to identify companies that seem undervalued by various measures, such as
   price/book value, and may be temporarily out of favor but have good prospects
   for capital appreciation. We may establish relatively large positions in
   companies we find particularly attractive.

   The fund's approach differs from that of many other funds. We work as hard to
   reduce risk as to maximize gains and may seek to realize gains rather than
   lose them in market declines. In addition, we search for the best risk/reward
   values among all types of securities. The portion of the fund invested in a
   particular type of security, such as common stocks, results largely from
   case-by-case investment decisions, and the size of the fund's cash reserves
   may reflect the manager's ability to find companies that meet valuation
   criteria rather than his market outlook.

   Bonds and convertible securities may be purchased to gain additional exposure
   to a company or for their income or other features; maturity and quality are
   not necessarily major considerations. The fund may also purchase other
   securities, including futures and options, in keeping with the fund's
   investment objective.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.




T. ROWE PRICE                                 2
   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?

   The fund's value approach carries the risk that the market will not recognize
   a security's intrinsic value for a long time, or that a stock judged to be
   undervalued may actually be appropriately priced. If the fund has large
   holdings in a relatively small number of companies, disappointing performance
   by those companies will have a more adverse impact on the fund than would be
   the case with a more diversified fund. Our opportunistic trading approach and
   willingness to realize gains could result in higher taxable capital gain
   distributions than other stock funds. A sizable cash or fixed-income position
   may hinder the fund from participating fully in a strong, rapidly rising bull
   market. In addition, significant exposure to bonds increases the risk that
   the fund's share value could be hurt by rising interest rates or credit
   downgrades or defaults. Convertible securities are also exposed to price
   fluctuations of the company's stock.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.




MORE ABOUT THE FUND                           3
 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you are looking for a relatively conservative way
   to invest for capital growth in the equity market and are willing to accept
   price declines, the fund could be appropriate for you. This fund should not
   represent your complete investment program or be used for short-term trading
   purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 4



                      Calendar Year Total Returns
  "92"   "93"    "94"    "95"    "96"     "97"    "98"   "99"    "00"    "01"
 ----------------------------------------------------------------------------------
                                  
 9.36   15.66  3.80   22.57  16.82   16.20    5.77   7.07  22.17   10.26
 ----------------------------------------------------------------------------------



                  Quarter ended    Total return

 Best quarter        6/30/99          10.53%
 Worst quarter       9/30/01          -4.14%




 Table 1  Average Annual Total Returns

                                        Periods ended December 31, 2001
                                        1 year     5 years     10 years
 ------------------------------------------------------------------------------
                                    
  Capital Appreciation Fund
  Returns before taxes                   10.26%     12.13%      12.79%
  Returns after taxes on
  distributions                           8.62       8.71        9.74
  Returns after taxes on
  distributions and sale of fund
  shares                                  6.66       8.55        9.35
  S&P 500 Stock Index                   -11.89      10.70       12.94
  Lipper Mid-Cap Value Fund Index         6.73       9.76       11.61
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.




MORE ABOUT THE FUND                           5


 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.62%
  Other expenses                                             0.24%
  Total annual fund operating expenses                       0.86%
 --------------------------------------------------------------------------------------





 *Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
  paid to the fund. Accounts with less

  than a $2,000 balance (with certain exceptions) are subject to a $10 fee. See
  Transaction Procedures and Special

  Requirements - Account Maintenance and Small Account Fees.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $88         $274         $477          $1,061
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   The fund's attempt to cushion the effects of market declines on the share
   price could reduce the fund's overall risk (volatility) relative to that of
   the broad stock market. In addition, the fund's willingness to seek
   appreciation opportunities outside the stock market may also aid performance
   when stocks are declining. The fund's primary emphasis on common stocks could
   allow it to participate in favorable stock market trends.


 How does the fund select stocks for the portfolio?

   The fund generally uses a value approach, which means looking for companies
   whose stocks and other securities appear to be undervalued or out of favor
   with investors.

   Possible indicators of an undervalued stock include:

  . above-average dividend yield relative to the S&P 500;
  . low price/earnings ratio relative to the S&P 500;
  . low price/book ratio relative to the market, competitors, or historic norms;
   and




T. ROWE PRICE                                 6
  . low stock price relative to a company's underlying value measured by assets,
   earnings, cash flow, or business franchises. Ratios that measure this include
   price/book value and price/cash flow.

   The fund's value emphasis may lead to a contrarian approach, resulting in
   purchases of stocks or other securities shunned by investors due to earnings
   setbacks, unfavorable industry or economic conditions, or negative publicity.
   Such investments may be attractive to the fund if their prices appear to be
   excessively discounted and prospects for appreciation are considered
   favorable.


 What are some examples of undervalued situations?

   There are numerous situations in which a company's value may not be reflected
   in its stock price. For example, a company may own a substantial amount of
   real estate that is valued on its financial statements well below market
   levels. If those properties were to be sold, or if their hidden value became
   recognized in some other manner, the company's stock price could rise. In
   another example, a company's management could spin off an unprofitable
   division into a separate company, potentially increasing the value of the
   parent. Or, in the reverse, a parent company could spin off a profitable
   division that has not drawn the attention it deserves, potentially resulting
   in higher valuations for both entities.

   Sometimes new management can revitalize companies that have grown or lost
   their focus, eventually leading to improved profitability. Management could
   increase shareholder value by using excess cash flow to pay down debt, buying
   back outstanding shares of common stock, or raising the dividend.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




T. ROWE PRICE                                 8
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




MORE ABOUT THE FUND                           9
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




T. ROWE PRICE                                 10
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








MORE ABOUT THE FUND                           11

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




T. ROWE PRICE                                 12
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.

   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss must be reclassified to a long-term loss to the extent of any
   long-term capital gain




MORE ABOUT THE FUND                           13
   distribution received during the period you held the shares. Gains and losses
   from the sale of foreign currencies and the foreign currency gain or loss
   resulting from the sale of a foreign debt security can increase or decrease
   an ordinary income dividend. Net foreign currency losses may cause monthly or
   quarterly dividends to be reclassified as a return of capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




T. ROWE PRICE                                 14
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




MORE ABOUT THE FUND                           15
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




T. ROWE PRICE                                 16
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was organized as a Massachusetts business trust in 1986 and is a
   "diversified, open-end investment company," or mutual fund. Mutual funds pool
   money received from shareholders and invest it to try to achieve specified
   objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:

  . Receive a proportional interest in income and capital gain distributions.
  . Cast one vote per share on certain fund matters, including the election of
   fund trustees, changes in fundamental policies, or approval of changes in the
   fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Trustees that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




T. ROWE PRICE                                 18

   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Stephen W. Boesel, Chairman, Arthur B. Cecil III, David M. Lee, Charles M.
   Ober, Brian C. Rogers, Robert M. Rubino, and David J. Wallack. The committee
   chairman has day-to-day responsibility for managing the portfolio and works
   with the committee in developing and executing the fund's investment program.
   Mr. Boesel has been chairman of the fund's committee since 2001. He has been
   managing investments since joining T. Rowe Price in 1973.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------




   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion

   at December 31, 2001, the group fee was 0.32%. .  The individual fund fee is
   0.30%.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in
   our education and informational materials; in T. Rowe Price advertisements;
   and
   in the media.




MORE ABOUT THE FUND                           19
 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.

   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these




T. ROWE PRICE                                 20
   restrictions provide a useful level of detail about fund investments,
   investors should not view them as an accurate gauge of the potential risk of
   such investments. For example, in a given period, a 5% investment in hybrid
   instruments could have significantly more of an impact on a fund's share
   price than its weighting in the portfolio. The net effect of a particular
   investment depends on its volatility and the size of its overall return in
   relation to the performance of all other fund investments.

   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or




MORE ABOUT THE FUND                           21
   depreciation of the underlying stock into which they are convertible, but to
   a lesser degree. In recent years, convertibles have been developed which
   combine higher or lower current income with options and other features.
   Warrants are options to buy a stated number of shares of common stock at a
   specified price anytime during the life of the warrants (generally, two or
   more years). Warrants can be highly volatile, have no voting rights, and pay
   no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 25%
   of total assets.

   Fixed-Income Securities
   From time to time, we may invest in debt securities of any type, including
   municipal securities, without regard to quality or rating. Such securities
   would be purchased in companies, municipalities, or entities which meet the
   investment criteria for the fund. The price of a bond fluctuates with changes
   in interest rates, generally rising when interest rates fall and falling when
   interest rates rise.

   High-Yield, High-Risk Bonds
   The total return and yield of lower-quality (high-yield, high-risk) bonds,
   commonly referred to as "junk" bonds, can be expected to fluctuate more than
   the total return and yield of higher-quality, shorter-term bonds, but not as
   much as those of common stocks. Junk bonds (those rated below BBB or in
   default) are regarded as predominantly speculative with respect to the
   issuer's continuing ability to meet principal and interest payments.


   Operating policy  The fund may purchase any type of noninvestment-grade debt
   security (or junk bond) including those in default. The fund will not
   purchase this type of security if it would have more than 15% of its total
   assets invested in such securities. Fund investments in convertible
   securities are not subject to this limit.




T. ROWE PRICE                                 22
   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices


   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.




MORE ABOUT THE FUND                           23
   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some




T. ROWE PRICE                                 24
   future date at a specified exchange rate. However, futures, swaps, and
   options on these instruments may also be used. In certain circumstances, a
   "proxy currency" may be substituted for the currency in which the investment
   is denominated, a strategy known as "proxy hedging." If the fund were to
   engage in any of these foreign currency transactions, they would be primarily
   to protect a fund's foreign securities from adverse currency movements
   relative to the dollar. Such transactions involve the risk that anticipated
   currency movements will not occur, which would reduce fund total return.
   There are certain markets, including many emerging markets, where it is not
   possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------

   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




MORE ABOUT THE FUND                           25


 Table 4  Financial Highlights

                                          Year ended December 31
                               1997     1998     1999     2000     2001
 -------------------------------------------------------------------------------
                           

  Net asset value,
  beginning of period         $14.47   $14.71   $13.22   $12.51   $13.95
  Income From Investment Operations
  Net investment income         0.50     0.49     0.51     0.44     0.39
                              ---------------------------------------------
  Net gains or losses on
  securities (both realized     1.82     0.34     0.41     2.27     1.03
  and unrealized)
                              ---------------------------------------------
  Total from investment
  operations                    2.32     0.83     0.92     2.71     1.42
  Less Distributions
  Dividends (from net          (0.50)   (0.50)   (0.50)   (0.45)   (0.38)
  investment income)
                              ---------------------------------------------
  Distributions (from          (1.58)   (1.82)   (1.13)   (0.82)   (0.35)
  capital gains)
                              ---------------------------------------------
  Returns of capital              --       --       --       --       --
                              ---------------------------------------------
  Total distributions          (2.08)   (2.32)   (1.63)   (1.27)   (0.73)
                              ---------------------------------------------
  Net asset value,            $14.71   $13.22   $12.51   $13.95   $14.64
  end of period
                              ---------------------------------------------
  Total return                 16.20%    5.77%    7.07%   22.17%   10.26%
  Ratios/Supplemental Data
  Net assets, end of period   $1,060   $1,004   $  856   $  914   $1,405
  (in millions)
                              ---------------------------------------------
  Ratio of expenses to          0.64%    0.62%    0.88%    0.87%    0.86%
  average net assets
                              ---------------------------------------------
  Ratio of net income to        3.17%    3.04%    3.44%    3.22%    2.85%
  average net assets
                              ---------------------------------------------
  Portfolio turnover rate       48.3%    52.6%    28.3%    32.4%    25.1%
 -------------------------------------------------------------------------------






 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




MORE ABOUT THE FUND                           27
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




T. ROWE PRICE                                 28

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




MORE ABOUT THE FUND                           29
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




T. ROWE PRICE                                 30
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




MORE ABOUT THE FUND                           31
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




T. ROWE PRICE                                 32
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




MORE ABOUT THE FUND                           33
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




T. ROWE PRICE                                 34
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




MORE ABOUT THE FUND                           35
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




T. ROWE PRICE                                 36

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202

                                                              F72-040 5/1/02

                                                  1940 Act File No. 811-4519


PROSPECTUS
                                                                     May 1, 2002

T. ROWE PRICE

Capital
Opportunity Fund

 A diversified equity fund seeking long-term capital appreciation.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Capital Opportunity Fund, Inc.
Prospectus

May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  6
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions           9
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   13
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  16
              -----------------------------------------------
              Understanding Performance Information        17
              -----------------------------------------------
              Investment Policies and Practices            18
              -----------------------------------------------
              Financial Highlights                         23
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         25
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        26
              -----------------------------------------------
              Purchasing Additional Shares                 27
              -----------------------------------------------
              Exchanging and Redeeming Shares              28
              -----------------------------------------------
              Rights Reserved by the Funds                 30
              -----------------------------------------------
              Information About Your Services              30
              -----------------------------------------------
              T. Rowe Price Brokerage                      33
              -----------------------------------------------
              Investment Information                       34
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 35
              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks superior capital appreciation over time by investing primarily
   in U.S. common stocks.


 What is the fund's principal investment strategy?

   The fund uses a disciplined portfolio construction process whereby it weights
   each sector approximately the same as the Standard & Poor's 500 Stock
   Index/(R) / (S&P 500 Index). Individual holdings within each sector, and
   their weights within the portfolio, can vary substantially from the S&P 500
   Index.

   A team of T. Rowe Price equity analysts is directly responsible for selecting
   stocks for the fund. Analysts select stocks from the industries they cover
   based on rigorous fundamental analysis that assesses the quality of the
   business franchise, earnings growth potential for the company, and stock
   valuation. The fund seeks to take full advantage of the analysts' focused
   expertise in their industries. The Director of Equity Research supervises the
   analysts and has responsibility for the overall structure of the fund. The
   Director of Systematic Research oversees the quantitative analysis that helps
   the analysts manage their industry-specific portfolios.


   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   The fund will generally remain fully invested (less than 5% cash reserves)
   and will be sector and style neutral when compared to the S&P 500 Index.
   While the majority of assets will be invested in large-capitalization U.S.
   common stocks, small- and mid-capitalization and foreign stocks may also be
   purchased in keeping with fund objectives. Futures and options may be
   employed from time to time to manage flows of cash into and out of the fund.
   Securities may be sold for a variety of reasons, such as to secure gains,
   limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.




T. ROWE PRICE                                 2
 What are the main risks of investing in the fund?

   The fund's potential investments in growth stocks could result in greater
   volatility because such stocks can have sharp price declines if their
   earnings disappoint investors. The fund's potential investment in value
   stocks carries the risk that the market will not recognize a security's
   intrinsic value for a long time, or that a stock judged to be undervalued may
   actually be appropriately priced. Small and medium-sized companies held by
   the fund should generally be more volatile than larger companies. There is no
   guarantee that the fund's investment approach will succeed.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?


   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you can accept the greater risk of investing in
   an aggressively managed fund in an effort to achieve superior capital
   appreciation, the fund may be an appropriate part of your overall investment
   strategy. The fund should not represent your complete investment program or
   be used for short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.




MORE ABOUT THE FUND                           3
 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




           Calendar Year Total Returns
  "95"    "96"     "97"      "98"      "99"     "00"       "01"
 ---------------------------------------------------------------
                                 
 46.51   16.76   15.87   14.70   11.50    -6.32    -10.10
 ---------------------------------------------------------------



                 Quarter ended     Total return

 Best quarter      12/31/98           21.97%
 Worst quarter      9/30/98          -18.00%





T. ROWE PRICE                                 4


 Table 1  Average Annual Total Returns

                                                Periods ended
                                              December 31, 2001
                                                         Since inception
                                      1 year   5 years     (11/30/94)
 ------------------------------------------------------------------------------
                                  
  Capital Opportunity Fund
  Returns before taxes               -10.10%     4.53%       11.96%
  Returns after taxes on
  distributions                      -10.13      1.99         9.34
  Returns after taxes on
  distributions and sale of fund
  shares                              -6.15      3.20         9.31
  S&P 500 Stock Index                -11.89     10.70        15.95
  Lipper Large-Cap Core Fund Index   -12.83      9.59        13.93
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.



 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.67%
  Other expenses                                             0.58%
  Total annual fund operating expenses                       1.25%
 --------------------------------------------------------------------------------------





 *
   Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with less than a $2,000 balance (with certain
   exceptions) are subject to a $10 fee. See Transaction Pro

   cedures and Special Requirements - Account Maintenance and Small Account
   Fees.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:




MORE ABOUT THE FUND                           5



      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $127        $397         $686          $1,511
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   The fund offers the possibility of attractive returns through an
   opportunistic approach to stock selection, without limitations on the types
   of issues that can be bought. This flexible approach may provide superior
   returns over time.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.






 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




MORE ABOUT THE FUND                           7
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




T. ROWE PRICE                                 8
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                            
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




MORE ABOUT THE FUND                           9
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








T. ROWE PRICE                                 10

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




MORE ABOUT THE FUND                           11
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.

   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss must be reclassified to a long-term loss to the extent of any
   long-term capital gain




T. ROWE PRICE                                 12
   distribution received during the period you held the shares. Gains and losses
   from the sale of foreign currencies and the foreign currency gain or loss
   resulting from the sale of a foreign debt security can increase or decrease
   an ordinary income dividend. Net foreign currency losses may cause monthly or
   quarterly dividends to be reclassified as a return of capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




MORE ABOUT THE FUND                           13
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




T. ROWE PRICE                                 14
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




MORE ABOUT THE FUND                           15
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 1994 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:

  . Receive a proportional interest in income and capital gain distributions.
  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




MORE ABOUT THE FUND                           17

   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   William J. Stromberg, Director of Equity Research and Chairman, Jill L.
   Hauser, Michael W. Holton, and Richard T. Whitney, Director of Systematic
   Research. Day-to-day responsibility for managing the fund's investments is
   shared by the Advisory Committee and a group of T. Rowe Price equity research
   analysts.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------




   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion

   at December 31, 2001, the group fee was 0.32%. .  The individual fund fee is
   0.35%.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in
   our education and informational materials; in T. Rowe Price advertisements;
   and
   in the media.




T. ROWE PRICE                                 18
 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.

   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these




MORE ABOUT THE FUND                           19
   restrictions provide a useful level of detail about fund investments,
   investors should not view them as an accurate gauge of the potential risk of
   such investments. For example, in a given period, a 5% investment in hybrid
   instruments could have significantly more of an impact on a fund's share
   price than its weighting in the portfolio. The net effect of a particular
   investment depends on its volatility and the size of its overall return in
   relation to the performance of all other fund investments.

   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 65% of

   total assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.




T. ROWE PRICE                                 20
   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 20%
   of total assets.

   Fixed-Income Securities
   From time to time, we may invest in debt securities of any type, including
   municipal securities, without regard to quality or rating. Such securities
   would be purchased in companies, municipalities, or entities which meet the
   investment criteria for the fund. The price of a bond fluctuates with changes
   in interest rates, generally rising when interest rates fall and falling when
   interest rates rise.

   High-Yield, High-Risk Bonds
   The total return and yield of lower-quality (high-yield, high-risk) bonds,
   commonly referred to as "junk" bonds, can be expected to fluctuate more than
   the total return and yield of higher-quality, shorter-term bonds, but not as
   much as those of common stocks. Junk bonds (those rated below BBB or in
   default) are regarded as predominantly speculative with respect to the
   issuer's continuing ability to meet principal and interest payments.




MORE ABOUT THE FUND                           21

   Operating policy  The fund may purchase any type of noninvestment-grade debt
   security (or junk bond) including those in default. The fund will not
   purchase this type of security if it would have more than 10% of its total
   assets invested in such securities. Fund investments in convertible
   securities are not subject to this limit.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.




T. ROWE PRICE                                 22
   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect




MORE ABOUT THE FUND                           23
   the risks of owning the underlying securities they are designed to track,
   although lack of liquidity in an ETF could result in it being more volatile
   and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------

   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available




T. ROWE PRICE                                 24
   upon request). The total returns in the table represent the rate that an
   investor would have earned or lost on an investment in the fund (assuming
   reinvestment of all dividends and distributions and no payment of account or
   (if applicable) redemption fees). The financial statements in the annual
   report were audited by the fund's independent accountants,
   PricewaterhouseCoopers LLP.



 Table 4  Financial Highlights

                                            Year ended December 31
                           1997        1998        1999       2000       2001
 --------------------------------------------------------------------------------------
                      

  Net asset value,
  beginning of period    $  15.75   $  16.62    $  18.11    $ 15.69    $ 13.26
  Income From Investment Operations
  Net investment income      0.01      (0.07)      (0.01)     (0.01)      0.01
                         ---------------------------------------------------------
  Net gains or losses
  on securities (both
  realized and               2.45       2.44        1.86      (0.94)     (1.35)
  unrealized)
                         ---------------------------------------------------------
  Total from investment
  operations                 2.46       2.37        1.85      (0.95)     (1.34)
  Less Distributions
  Dividends (from net          --         --          --         --      (0.01)
  investment income)
                         ---------------------------------------------------------
  Distributions (from       (1.59)     (0.88)      (4.27)     (1.48)        --
  capital gains)
                         ---------------------------------------------------------
  Returns of capital           --         --          --         --         --
                         ---------------------------------------------------------
  Total distributions       (1.59)     (0.88)      (4.27)     (1.48)     (0.01)
                         ---------------------------------------------------------
  Net asset value,       $  16.62   $  18.11    $  15.69    $ 13.26    $ 11.91
  end of period
                         ---------------------------------------------------------
  Total return              15.87%     14.70%      11.50%     (6.32)%   (10.10)%
  Ratios/Supplemental Data
  Net assets, end of     $109,055   $124,812    $109,057    $93,422    $76,786
  period (in thousands)
                         ---------------------------------------------------------
  Ratio of expenses to       1.35%      1.35%       1.26%      1.15%      1.25%
  average net assets
                         ---------------------------------------------------------
  Ratio of net income        0.04%     (0.44)%     (0.06)%    (0.05)%     0.08%
  to average net assets
                         ---------------------------------------------------------
  Portfolio turnover         85.0%      73.8%      133.1%      64.7%      53.6%
  rate
 --------------------------------------------------------------------------------------







 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




T. ROWE PRICE                                 26
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




MORE ABOUT THE FUND                           27

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




T. ROWE PRICE                                 28
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




MORE ABOUT THE FUND                           29
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




T. ROWE PRICE                                 30
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




MORE ABOUT THE FUND                           31
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




T. ROWE PRICE                                 32
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




MORE ABOUT THE FUND                           33
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




T. ROWE PRICE                                 34
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




MORE ABOUT THE FUND                           35

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.






T. ROWE PRICE                                 36



To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.

A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.

For performance, prices,
account information, or
 24 hours, 7 days
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.

 For directions, call
 1-800-225-5132 or
 Three Financial Center
 386 Washington Street
 1900 Spring Road
 Suite 104
 Warner Center
 21800 Oxnard Street
 Suite 270
 51 JFK Parkway, 1st Floor
 1990 N. California Blvd.
 Suite 100
 4200 West Cypress Street
 900 17th Street, N.W.
 1600 Tysons Boulevard
 Suite 150

T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202

                                                              F08-040 5/1/02

1940 Act File No. 811-07225


PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE

Developing
Technologies
Fund

 An aggressive stock fund seeking long-term capital growth through investments
 in companies expected to benefit from newer technologies.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Developing Technologies Fund, Inc.
Prospectus

May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  7
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions          10
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   14
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  17
              -----------------------------------------------
              Understanding Performance Information        19
              -----------------------------------------------
              Investment Policies and Practices            19
              -----------------------------------------------
              Financial Highlights                         24
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         26
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        27
              -----------------------------------------------
              Purchasing Additional Shares                 28
              -----------------------------------------------
              Exchanging and Redeeming Shares              29
              -----------------------------------------------
              Rights Reserved by the Funds                 31
              -----------------------------------------------
              Information About Your Services              31
              -----------------------------------------------
              T. Rowe Price Brokerage                      34
              -----------------------------------------------
              Investment Information                       35
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 36
              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide long-term capital growth.


 What is the fund's principal investment strategy?


   We will invest at least 80% of net assets in the common stocks of companies
   we expect to generate a majority of their revenues from the advancement and
   use of developing technologies. Our primary emphasis will be on emerging
   companies that are developing new technologies and services with attractive
   long-term growth prospects, in our view. Some of the industries likely to be
   included in the portfolio are:

  . communications - voice, data, and wireless;

  . Internet infrastructure - hardware, software, and networking equipment;

  . semiconductors - components and equipment;

  . computers - hardware and software; and

  . e-commerce (companies doing business through the internet) and data
   processing services.


   We will invest across a broad range of small, medium, and large companies,
   although our initial emphasis will primarily be on emerging technology stocks
   with higher growth potential than may be possible with established technology
   companies. However, the portfolio may also contain stocks of companies with
   more proven records of developing and marketing breakthroughs in technology.
   The fund will look for opportunities to invest in suitable developing
   technology companies through initial public offerings (IPOs). Stock selection
   emphasizes a growth approach based on comprehensive research that evaluates a
   company's prospects for above-average, sustainable earnings growth. The
   portfolio may include companies that are not directly involved in technology
   research and development, but that should benefit from advances in the field.

   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.




T. ROWE PRICE                                 2
   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including up to 30% in foreign stocks (established and
   developing countries), futures, and options, in keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?


   An investment in the fund entails substantial risk. Technology stocks are
   particularly volatile and subject to greater price swings, up and down, than
   the broad market. Therefore, the prospects for superior gains are balanced by
   the possibility of above-average losses. It is possible that companies whose
   products and services first appear promising may not succeed over the long
   term; they may succumb to intense competition or could quickly become
   obsolete in a rapidly developing marketplace. Earnings projections for
   developing companies that are not met can result in sharp price declines.
   This is true even in a generally rising stock market environment. A portfolio
   focused primarily on these types of stocks is likely to be much more volatile
   than one with broader diversification that includes investments in diverse
   economic sectors. These risks are increased by significant exposure to
   smaller, unseasoned companies (those with less than a three-year operating
   history), and newly public companies. These companies may not have
   established products, experienced management, or an earnings history and
   their stocks may lack liquidity.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of the declining foreign currencies, political instability,
   economic decline, illiquid markets, and governmental interference associated
   with various foreign markets, especially developing ones. Investments in
   futures and options, if any, are subject to additional volatility and
   potential losses.




                                             3
   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you seek a very aggressive approach to capital
   growth through investments in companies involved with newer, developing
   technologies, and can accept the potential for extreme volatility, the fund
   could be an appropriate part of your overall investment strategy. This fund
   should not represent your complete investment program or be used for
   short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the year depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 4



            Calendar Year Total Returns
                        "01"
 -------------------------------------------------
  

 -30.58
 -------------------------------------------------



                    Quarter ended   Total return
 Best quarter         12/31/01        62.30%
 Worst quarter       9/30/01        -43.83%




 Table 1  Average Annual Total Returns

                                                 Periods ended
                                               December 31, 2001
                                                       Since inception
                                          1 year          (8/31/00)
 ------------------------------------------------------------------------------
                                    
  Developing Technologies Fund
  Returns before taxes                    -30.58%          -40.49%
  Returns after taxes on
  distributions                           -30.58           -40.68
  Returns after taxes on
  distributions and sale of fund
  shares                                  -18.62           -31.84
  S&P 500 Stock Index                     -11.89           -17.86
  Lipper Science & Technology Fund        -34.72           -51.31
  Index
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.


 What fees or expenses will I pay?


   The fund is 100% no load. However, the fund charges a 1.00% redemption fee,
   payable to the fund, on shares held less than one year. There are no other
   fees or charges to buy or sell fund shares, reinvest dividends, or exchange
   into other T. Rowe Price funds. There are no 12b-1 fees.




                                             5


 Table 2  Fees and Expenses of the Fund*

   Shareholder fees (fees paid directly from your investment)
  Redemption fee                        1.00%/a/
                 Annual fund operating expenses
          (expenses that are deducted from fund assets)
 -----------------------------------------------------------------
                                     
  Management fee                                   0.92  %
  Other expenses                                   1.19  %
  Total annual fund operating expenses             2.11  %
  Fee waiver/reimbursement                     0.61    %/b/
  Net expenses                                     1.50  %/b/
 -----------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.

 /a/
   On shares purchased and held for less than one year (details under Contingent
   Redemption Fee in Pricing Shares and Receiving Sale Proceeds).

 /b/
   To limit the fund's expenses during its initial period of operations, T. Rowe
   Price has contractually obligated itself to waive fees and bear any expenses
   through December 31, 2002, that would cause the ratio of expenses to average
   net assets to exceed 1.50%. Fees waived or expenses paid or assumed under
   this agreement are subject to reimbursement to T. Rowe Price by the fund
   whenever the fund's expense ratio is below 1.50%; however, no reimbursement
   will be made after December 31, 2004, or if it would result in the expense
   ratio exceeding 1.50%.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, the expense limitation currently in place is not renewed,
   you invest $10,000, earn a 5% annual return, and hold the investment for the
   following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $153        $602        $1,078         $2,393
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   The fund's program reflects the view of T. Rowe Price that companies
   benefiting from developing technologies offer significant opportunities for
   outstanding long-term growth. As the information revolution continues to
   overshadow the industrial revolution, new companies are emerging that will
   become the blue chip leaders of the future. Companies offering innovative new
   products and services in a dynamic marketplace driven by entrepreneurial
   energy can enjoy




T. ROWE PRICE                                 6
   exceptional growth, which is often reflected in rapidly rising stock prices.
   Of course, the intense competition for market share often results in sharp
   stock price volatility.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




T. ROWE PRICE                                 8
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




                                             9
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




T. ROWE PRICE                                 10
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








                                             11

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




T. ROWE PRICE                                 12
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.



   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




                                             13
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




T. ROWE PRICE                                 14
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




                                             15
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




T. ROWE PRICE                                 16
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 2000 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




T. ROWE PRICE                                 18
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Michael F. Sola, Chairman, Giri Devulapally, Robert N. Gensler, Eric M.
   Gerster, Jill L. Hauser, Jeff Rottinghaus, and Wenhua Zhang. The committee
   chairman has day-to-day responsibility for managing the portfolio and works
   with the committee in developing and executing the fund's investment program.
   Mr. Sola was elected chairman of the fund's committee in 2000. He joined T.
   Rowe Price in 1994 as an investment analyst, and has been managing
   investments since 1997.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion

   at December 31, 2001, the group fee was 0.32%. .  The individual fund fee is
   0.60%.




                                             19
 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are dis-




T. ROWE PRICE                                 20
   cussed with shareholders in fund reports. Fund investment restrictions and
   policies apply at the time of investment. A later change in circumstances
   will not require the sale of an investment if it was proper at the time it
   was made.


   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities.




                                             21
   While most preferred stocks pay a dividend, preferred stock may be purchased
   where the issuer has omitted, or is in danger of omitting, payment of its
   dividend. Such investments would be made primarily for their capital
   appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 30%
   of total assets.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.




T. ROWE PRICE                                 22
   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.




                                             23
   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased on securities, financial indices, and

   foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transac-




T. ROWE PRICE                                 24
   tions involve the risk that anticipated currency movements will not occur,
   which could reduce fund total return. There are certain markets, including
   many emerging markets, where it is not possible to engage in effective
   foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




                                             25


 Table 4  Financial Highlights

                                       8/31/00*
                                        through    Year ended December 31
                                       12/31/00
                                      -------------         2001
 -------------------------------------             -----------------------------
                           

  Net asset value,
  beginning of period                 $ 10.00            $  7.13
  Income From Investment Operations
  Net investment income                 (0.02)/a/          (0.05)/a/
                              ---------------------------------------------
  Net gains or losses on
  securities (both realized             (2.76)             (2.13)
  and unrealized)
                              ---------------------------------------------
  Total from investment
  operations                            (2.78)             (2.18)
  Less Distributions
  Dividends (from net                      --                 --
  investment income)
                                      -------------------------------------
  Distributions (from                   (0.09)                --
  capital gains)
                              ---------------------------------------------
  Returns of capital                       --                 --
                                      -------------------------------------
  Total distributions                   (0.09)                --
                              ---------------------------------------------
  Net asset value,                    $  7.13            $  4.95
  end of period
                              ---------------------------------------------
  Total return                         (27.89)%/a/        (30.58)%/a/
  Ratios/Supplemental Data
  Net assets, end of period           $18,167            $26,647
  (in thousands)
                              ---------------------------------------------
  Ratio of expenses to                   1.50%/ab/          1.50%/a/
  average net assets
                              ---------------------------------------------
  Ratio of net income to                (0.86)%/ab/        (1.27)%/a/
  average net assets
                              ---------------------------------------------
  Portfolio turnover rate               232.6%/b/          107.5%
 -------------------------------------------------------------------------------





 * Inception date.

 /a/
   Excludes expenses in excess of a 1.50% voluntary expense limitation in effect
   through 12/31/02.

 /b/      Annualized.




 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




                                             27
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




T. ROWE PRICE                                 28

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




                                             29
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




T. ROWE PRICE                                 30
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




                                             31
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




T. ROWE PRICE                                 32
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




                                             33
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




T. ROWE PRICE                                 34
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




                                             35
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




T. ROWE PRICE                                 36

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
                                                                 F133-040 5/1/02
1940 Act File No. 811-10003


PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE

Diversified Small-
Cap Growth Fund

 An aggressive fund seeking long-term appreciation through a widely diversified
 portfolio of small-cap growth stocks.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Diversified Small-Cap Growth Fund, Inc.
Prospectus

May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  7
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions          10
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   14
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  17
              -----------------------------------------------
              Understanding Performance Information        19
              -----------------------------------------------
              Investment Policies and Practices            19
              -----------------------------------------------
              Financial Highlights                         24
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         26
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        27
              -----------------------------------------------
              Purchasing Additional Shares                 28
              -----------------------------------------------
              Exchanging and Redeeming Shares              29
              -----------------------------------------------
              Rights Reserved by the Funds                 31
              -----------------------------------------------
              Information About Your Services              31
              -----------------------------------------------
              T. Rowe Price Brokerage                      34
              -----------------------------------------------
              Investment Information                       35
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 36
              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks long-term growth of capital by investing primarily in common
   stocks of small growth companies.


 What is the fund's principal investment strategy?

   We will invest at least 80% of the fund's net assets in small-cap growth
   companies defined as those whose market capitalization is within the range of
   or smaller than the bottom 100 companies in the Standard & Poor's 500 Stock
   Index. (A company's market "capitalization" is found by multiplying its
   shares outstanding by its stock price.) The portfolio will be very broadly
   diversified, and the top 25 holdings will not constitute a large portion of
   assets. This broad diversification should minimize the effects of individual
   security selection on fund performance.

   We use a number of quantitative models designed by T. Rowe Price to identify
   key characteristics of small-cap growth stocks. Based on these models, and
   fundamental company research, stocks are selected in a "top down" manner so
   that the portfolio as a whole reflects characteristics we consider important,
   such as valuations (price/earnings or price/book value ratios, for example)
   and projected earnings growth. In building the investment models and
   adjusting them as needed, we draw on T. Rowe Price's extensive experience in
   all aspects of small-cap growth investing--research, portfolio strategy, and
   trading.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?


   Investing in small companies involves greater risk than is customarily
   associated with larger companies. Stocks of small companies are subject to
   more abrupt or erratic price movements than larger-company stocks. Small
   companies often




T. ROWE PRICE                                 2
   have limited product lines, markets, or financial resources, and their
   managements may lack depth and experience. Such companies seldom pay
   significant dividends that could cushion returns in a falling market.

   Growth stocks can have steep price declines if their earnings disappoint
   investors. Since the fund will typically be fully invested in this market
   sector, investors are fully exposed to its volatility.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?


   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you seek capital growth over a long period and
   are comfortable with the fund's risk profile, it could be appropriate for a
   portion of your stock investments. This fund should not represent your
   complete investment program or be used for short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.




                                             3
 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




           Calendar Year Total Returns
      "98"            "99"             "00"	"01"
 --------------------------------------------------------
                               	
      3.58           27.69            -8.29	-9.81
 --------------------------------------------------------



                  Quarter ended     Total return

 Best quarter       12/31/99           27.00%
 Worst quarter       9/30/01          -25.46%






T. ROWE PRICE                                 4


 Table 1  Average Annual Total Returns

                                                 Periods ended
                                               December 31, 2001
                                                       Since inception
                                          1 year          (6/30/97)
 ------------------------------------------------------------------------------
                                    
  Diversified Small-Cap Growth Fund
  Returns before taxes                     -9.81%           3.58%
  Returns after taxes on
  distributions                            -9.81            3.40
  Returns after taxes on
  distributions and sale of fund
  shares                                   -5.97            2.89
  Russell 2000 Growth Index                -9.23            2.03
  Lipper Small-Cap Growth Fund Index      -12.75            7.62
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.


 What fees or expenses will I pay?


   The fund is 100% no load. However, the fund charges a 1.00% redemption fee,
   payable to the fund, on shares held less than six months. There are no other
   fees or charges to buy or sell fund shares, reinvest dividends, or exchange
   into other T. Rowe Price funds. There are no 12b-1 fees.




 Table 2  Fees and Expenses of the Fund*

   Shareholder fees (fees paid directly from your investment)
  Redemption fee                        1.00%/a/
                 Annual fund operating expenses
          (expenses that are deducted from fund assets)
 -----------------------------------------------------------------
                                     
  Management fee                                   0.67%
  Other expenses                                   0.68%
  Total annual fund operating expenses             1.35%
  Fee waiver/reimbursement                        0.10%/b/
  Net expenses                                    1.25%/c/
 -----------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.

 /a/On shares purchased and held for less than six months (details under
   Contingent Redemption Fee in Pricing Shares and Receiving Sale Proceeds).

 /b/
   Effective May 1, 2002, T. Rowe Price contractually obligated itself to waive
   its fees and bear any expenses through April 30, 2004, to the extent such
   fees or expenses would cause the fund's ratio of expenses to average net
   assets to exceed 1.25%. Fees waived or expenses paid or assumed under this
   agreement are subject to reim-




                                             5
   bursement to T. Rowe Price by the fund whenever the fund's expense ratio is
   below 1.25%; however, no reimbursement will be made after April 30, 2006, or
   if it would result in the expense ratio exceeding 1.25%. Any amounts
   reimbursed have the effect of increasing fees otherwise paid by the fund. The
   fund operated under a previous expense limitation for which T. Rowe Price may
   be reimbursed.


 /c/
   Expenses have been restated to reflect the 1.25% expense cap in effect May 1,
   2002.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, the expense limitation currently in place is not renewed,
   you invest $10,000, earn a 5% annual return, and hold the investment for the
   following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $127        $407         $720          $1,606
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What is meant by a "small-cap growth company"?

   These companies are still in the process of developing and are expected by T.
   Rowe Price to achieve long-term earnings growth rates that reach new highs
   over time. For purposes of this fund, a small company is defined as one whose
   market capitalization is within the range of or smaller than the bottom 100
   companies in the Standard & Poor's 500 Stock Index. As of December 31, 2001,
   this included companies with market capitalizations under approximately $3.2
   billion, but the upper size limit will vary with market fluctuations.


   3 Growth investors look for companies with above-average earnings gains.


 Does the fund invest only in small-cap growth stocks?

   Most of the stocks purchased by the fund will be in the size range described
   above. However, the fund may on occasion purchase a stock whose market
   capitalization exceeds the range, and it will not automatically sell a stock
   just because the company's market capitalization has grown beyond the upper
   end of the range.


 How is the fund's portfolio constructed?

   The fund manager will use a number of proprietary quantitative models to
   identify and measure the major, often unique, characteristics of stocks in
   the small-cap growth sector. Among other factors, the models may reflect the
   degree of institutional ownership of stocks in this sector. Based on these
   models, stocks




T. ROWE PRICE                                 6
   are selected in a "top down" manner so that the portfolio as a whole reflects
   the specific characteristics that the manager considers important, such as
   valuations (e.g., price/earnings or price/book value ratios) and projected
   earnings growth. The fund's resulting high degree of diversification reduces
   the effects of individual security selection on fund performance.


 How does the fund benefit from T. Rowe Price's expertise in small-cap growth
 investing?

   Our extensive experience in all aspects of small-cap growth
   investing-research, trading, portfolio strategy-provides the foundation for
   the decisions and judgment needed to develop the fund's quantitative
   investment strategies. In essence, the fund manager leverages this
   fundamental expertise through computer technology to build the relevant
   investment models, to assess how well the models capture important small-cap
   growth stock attributes, and to adjust them as needed over time. Thus, both
   qualitative and quantitative expertise is harnessed in attempting to optimize
   long-term performance.


 What are some potential advantages of this approach?

   The fund's program offers several benefits for investors who want to
   diversify their equity portfolios by adding exposure to the small-cap growth
   investment sector. First, small companies may offer greater opportunity for
   capital appreciation than larger, more established companies. Second, the
   fund's broad diversification may make it less volatile than small-cap growth
   funds that have more concentrated portfolios. Third, portfolio turnover
   should be lower than in the average small-cap fund, which may reduce the
   investor's potential capital gains tax exposure.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




T. ROWE PRICE                                 8
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




                                             9
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




T. ROWE PRICE                                 10
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








                                             11

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




T. ROWE PRICE                                 12
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions
   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.





   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




                                             13
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




T. ROWE PRICE                                 14
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions
   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




                                             15
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




T. ROWE PRICE                                 16
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 1997 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




T. ROWE PRICE                                 18
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Paul W. Wojcik, Chairman, Krista M. Kennedy, John H. Laporte, Donald J.
   Peters, and Richard T. Whitney. The committee chairman has day-to-day
   responsibility for managing the portfolio and works with the committee in
   developing and executing the fund's investment program. Mr. Wojcik was
   elected chairman of the fund's committee in 2000. He joined T. Rowe Price in
   1996 and has been responsible for the development of systematic research and
   trading tools. Prior to joining T. Rowe Price he was a senior
   programmer/analyst at Fidelity Investments.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion

   at December 31, 2001, the group fee was 0.32%. .  The individual fund fee is
   0.35%.




                                             19
 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------

   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are dis-




T. ROWE PRICE                                 20
   cussed with shareholders in fund reports. Fund investment restrictions and
   policies apply at the time of investment. A later change in circumstances
   will not require the sale of an investment if it was proper at the time it
   was made.


   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities.




                                             21
   While most preferred stocks pay a dividend, preferred stock may be purchased
   where the issuer has omitted, or is in danger of omitting, payment of its
   dividend. Such investments would be made primarily for their capital
   appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 10%
   of total assets.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.




T. ROWE PRICE                                 22
   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.




                                             23
   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transac-




T. ROWE PRICE                                 24
   tions involve the risk that anticipated currency movements will not occur,
   which could reduce fund total return. There are certain markets, including
   many emerging markets, where it is not possible to engage in effective
   foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




                                             25


 Table 4  Financial Highlights

                         6/30/97/*/
                           through              Year ended December 31
                          12/31/97
                         ------------- 1998        1999        2000        2001
 ------------------------             ----------------------------------------------------
                      

  Net asset value,
  beginning of period    $ 10.00      $ 10.70     $ 11.05     $ 14.11     $ 12.54
  Income From Investment Operations
  Net investment income    (0.03)/a/    (0.09)/a/   (0.11)/a/   (0.12)/a/   (0.13)
                         ------------------------------------------------------------
  Net gains or losses
  on securities (both
  realized and             0.74/b/       0.46        3.17       (1.05)      (1.10)
  unrealized)
                         ------------------------------------------------------------
  Total from investment
  operations                0.71         0.37        3.06       (1.17)      (1.23)
  Less Distributions
  Dividends (from net         --           --          --          --          --
  investment income)
                         ------------------------------------------------------------
  Distributions (from      (0.01)       (0.03)         --                      --
  capital gains)                                                (0.40)
                         ------------------------------------------------------------
  Returns of capital          --           --          --          --          --
                         ------------------------------------------------------------
  Total distributions      (0.01)       (0.03)         --       (0.40)         --
                         ------------------------------------------------------------
  Redemption fees added       --         0.01          --          --          --
  to paid in capital
                         ------------------------------------------------------------
  Net asset value,       $ 10.70      $ 11.05     $ 14.11     $ 12.54     $ 11.31
  end of period
                         ------------------------------------------------------------
  Total return              7.10%/ a/    3.58%/a/   27.69%/a/   (8.29)%/a/  (9.81)%
  Ratios/Supplemental Data
  Net assets, end of
  period                 $72,071      $70,444     $74,804     $85,101     $72,171
  (in thousands)
                         ------------------------------------------------------------
  Ratio of expenses to      1.25%/ac/    1.25%/a/    1.25%/a/    1.25%/a/    1.35%
  average net assets
                         ------------------------------------------------------------
  Ratio of net income      (0.67)%/ac/  (0.83)%/a/  (0.99)%/a/  (0.91)%/a/  (1.15)%
  to average net assets
                         ------------------------------------------------------------
  Portfolio turnover        13.4%        39.8%       49.4%       66.0%       30.3%
  rate
 -----------------------------------------------------------------------------------------





 /*/       Inception date.

 /a/
   Excludes expenses in excess of a 1.25% voluntary expense limitation in effect
   through December 31, 2000.

 /b/The amount presented is calculated pursuant to a methodology prescribed by
   the Securities and Exchange Commission for a share outstanding throughout the
   period. This amount is inconsistent with the fund's aggregate gains and
   losses because of the timing of sales and redemptions of the fund's shares in
   relation to fluctuating market values for the investment portfolio.

 /c/      Annualized.


 INVESTING WITH T. ROWE PRICE

 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




                                             27
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




T. ROWE PRICE                                 28

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




                                             29
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




T. ROWE PRICE                                 30
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




                                             31
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




T. ROWE PRICE                                 32
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




                                             33
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




T. ROWE PRICE                                 34
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




                                             35
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




T. ROWE PRICE                                 36

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
                                                                  F20-040 5/1/02
1940 Act File No. 811-08203


PROSPECTUS

                                                                 May 1, 2002
T. ROWE PRICE

Financial Services
Fund

 A stock fund seeking long-term capital appreciation and modest current income
 through investments in financial services companies.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Financial Services Fund, Inc.
Prospectus


May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  6
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions           9
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   13
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  16
              -----------------------------------------------
              Understanding Performance Information        18
              -----------------------------------------------
              Investment Policies and Practices            18
              -----------------------------------------------
              Financial Highlights                         24
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         25
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        26
              -----------------------------------------------
              Purchasing Additional Shares                 27
              -----------------------------------------------
              Exchanging and Redeeming Shares              28
              -----------------------------------------------
              Rights Reserved by the Funds                 30
              -----------------------------------------------
              Information About Your Services              30
              -----------------------------------------------
              T. Rowe Price Brokerage                      33
              -----------------------------------------------
              Investment Information                       34
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 35
              -----------------------------------------------





 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks long-term growth of capital and a modest level of income.


 What is the fund's principal investment strategy?


   The fund will invest at least 80% of net assets in the common stocks of
   companies in the financial services industry. In addition, the fund may
   invest in companies deriving substantial revenues (at least 50%) from
   conducting business with the industry, such as providers of financial
   software.

   For purposes of selecting investments, we define financial services broadly.
   It includes (but is not limited to) the following:

  . regional and money center banks;

  . insurance companies;

  . home, auto, and other specialty finance companies;

  . securities brokerage firms and electronic trading networks;

  . investment management firms;

  . publicly traded, government-sponsored financial enterprises;

  . thrift and savings banks;

  . financial conglomerates;

  . foreign financial services companies; and

  . electronic transaction processors for financial services companies.

   Stock selection is based on fundamental, bottom-up analysis that seeks to
   identify companies with good appreciation prospects. The fund will have no
   restrictions on the market capitalization (stock price multiplied by shares
   outstanding) of its holdings. We may use both growth and value approaches in
   selecting investments. In the growth area, we will try to identify companies
   with capable management, attractive business niches, sound financial and
   accounting practices, and a demonstrated ability to increase revenues,
   earnings, and cash flow consistently. In the value area, the manager will
   seek companies whose current stock prices appear undervalued in terms of
   earnings, projected cash flow, or asset value per share, that have growth
   potential temporarily unrecognized by the market, or that may be temporarily
   out of favor. Many companies held by the fund are expected to pay a dividend.


   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could




T. ROWE PRICE                                 2
   increase in value for a variety of reasons, including a change in management,
   an extraordinary corporate event, or a temporary imbalance in the supply of
   or demand for the securities.


   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?

   Since the fund will be concentrated in the financial services industry, it
   will be less diversified than stock funds investing in a broader range of
   industries and, therefore, could experience significant volatility.
   Generally, the fund represents greater potential risk than a more diversified
   fund, although the dividends paid by financial services companies moderate
   this risk to some extent. Financial services companies may be hurt when
   interest rates rise sharply, although not all companies are affected equally.
   The stocks may also be vulnerable to rapidly rising inflation.

   Many companies in this field can possess growth characteristics, but the
   industry is not generally perceived to be dynamic or aggressive, which could
   dampen fund performance compared with more aggressive funds.

   The fund's investments in growth stocks could result in greater volatility
   because of the generally higher valuations of these stocks. The fund's use of
   the value approach carries the risks that the market will not recognize a
   security's intrinsic value for a long time, or that a stock judged to be
   undervalued may actually be appropriately priced.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.




T. ROWE PRICE ACCOUNT INFORMATION             3
   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you can accept the risks of investing in a
   single-industry fund in an effort to achieve significant capital
   appreciation, and you seek to participate in the growth prospects of the
   financial services sector, the fund could be an appropriate part of your
   overall investment strategy. This fund should not represent your complete
   investment program or be used for short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 4



           Calendar Year Total Returns
    "97"        "98"        "99"         "00"        "01"
 -----------------------------------------------------
                                   
   41.44       11.55        1.70      36.76     -3.13
 -----------------------------------------------------



                  Quarter ended     Total return

 Best quarter        9/30/00           22.76%
 Worst quarter       9/30/98          -20.07%




 Table 1  Average Annual Total Returns

                                                Periods ended
                                              December 31, 2001
                                                         Since inception
                                      1 year   5 years      (9/30/96)
 ------------------------------------------------------------------------------
                                  

  Returns before taxes                -3.13%    16.28%       18.24%
  Returns after taxes on
  distributions                       -5.08     14.76        16.75
  Returns after taxes on
  distributions and sale of fund
  shares                              -0.49     13.12        14.88
  S&P 500 Stock Index                -11.89     10.70        11.85
  Lipper Financial Services Fund      -6.79     12.07        13.91
  Index
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.




T. ROWE PRICE ACCOUNT INFORMATION             5


 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.67%
  Other expenses                                             0.30%
  Total annual fund operating expenses                       0.97%
 --------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $99         $309         $536          $1,190
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   The fund's investment program reflects the view of T. Rowe Price that several
   trends in financial services offer opportunities for significant long-term
   capital appreciation. For investors who currently have a broad exposure to
   equities, the fund provides a way to focus on an area of the economy
   undergoing substantial change as well as rapid growth in a number of fields,
   such as asset management. The potential rewards of investing in such a
   focused fund include higher returns than the overall market. However, the
   fund also has the potential for greater losses than the overall market if
   these sectors do not perform well.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




T. ROWE PRICE ACCOUNT INFORMATION             7
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




T. ROWE PRICE                                 8
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                            
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




T. ROWE PRICE ACCOUNT INFORMATION             9
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








T. ROWE PRICE                                 10

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




T. ROWE PRICE ACCOUNT INFORMATION             11
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions
   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.





   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




T. ROWE PRICE                                 12
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




T. ROWE PRICE ACCOUNT INFORMATION             13
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




T. ROWE PRICE                                 14
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




T. ROWE PRICE ACCOUNT INFORMATION             15
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 1996 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:

  . Receive a proportional interest in income and capital gain distributions.
  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




T. ROWE PRICE ACCOUNT INFORMATION             17
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Anna M. Dopkin, Chairman, Jeff Arricale, Abigail J. Fulton, Michael W.
   Holton, Joseph M. Milano, Larry J. Puglia, Robert W. Sharps, William J.
   Stromberg, and J. David Wagner. The committee chairman has day-to-day
   responsibility for managing the fund and works with the committee in
   developing and executing the fund's investment program. Ms. Dopkin was
   elected chairman of the fund's committee in 2000. She joined T. Rowe Price in
   1996 as an investment analyst and has specialized in the financial services
   area. Prior to joining T. Rowe Price she worked at Goldman Sachs for six and
   a half years in the Mortgage Securities Department in New York and London.


   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------




   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion

   at December 31, 2001, the group fee was 0.32%. .  The individual fund fee is
   0.35%.




T. ROWE PRICE                                 18
 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are dis-




T. ROWE PRICE ACCOUNT INFORMATION             19
   cussed with shareholders in fund reports. Fund investment restrictions and
   policies apply at the time of investment. A later change in circumstances
   will not require the sale of an investment if it was proper at the time it
   was made.


   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Operating policy  In accordance with SEC rules, the fund will not purchase
   the security of any company which in its most recent fiscal year derived more
   than 15% of its gross revenues from securities-related activities (defined by
   the SEC as activities as a broker, dealer, underwriter, or investment
   adviser) if, immediately after such purchase, the fund:

  . would own more than 5% of any class of equity securities of the company;
  . would own more than 10% of the outstanding principal amount of the company's
   debt securities; or
  . would have invested more than 5% of its total assets in securities of such
   company.




T. ROWE PRICE                                 20
   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.





T. ROWE PRICE ACCOUNT INFORMATION             21
   Operating policy  Fund investments in foreign securities are limited to 30%
   of total assets.

   Financial Services Industry Concentration
   The fund will concentrate its investments in the financial services industry
   as defined in this prospectus.

   Fundamental policy  As a matter of fundamental policy, the fund will
   concentrate (invest more than 25% of its total assets) in the financial
   services industry as defined in this prospectus.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve




T. ROWE PRICE                                 22
   position provides flexibility in meeting redemptions, paying expenses, and in
   the timing of new investments and can serve as a short-term defense during
   periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.




T. ROWE PRICE ACCOUNT INFORMATION             23
   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates
   are shown in the Financial Highlights table.




T. ROWE PRICE                                 24
 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.



 Table 4  Financial Highlights

                                        Year ended December 31
                           1997        1998       1999       2000       2001
 ------------------------            --------------------------------------------------
                      

  Net asset value,
  beginning of period    $  11.31    $  15.56   $  16.82   $  16.12   $  21.38
  Income From Investment Operations
  Net investment income     0.10/a/      0.16       0.10       0.10       0.15
                         ---------------------------------------------------------
  Net gains or losses
  on securities (both
  realized and               4.58        1.60       0.15       5.80      (0.86)
  unrealized)
                         ---------------------------------------------------------
  Total from investment
  operations                 4.68        1.76       0.25       5.90      (0.71)
  Less Distributions
  Dividends (from net       (0.10)      (0.16)     (0.10)     (0.09)     (0.15)
  investment income)
                         ---------------------------------------------------------
  Distributions (from       (0.33)      (0.34)     (0.85)     (0.55)     (1.68)
  capital gains)
                         ---------------------------------------------------------
  Returns of capital           --          --         --         --         --
                         ---------------------------------------------------------
  Total distributions       (0.43)      (0.50)     (0.95)     (0.64)     (1.83)
                         ---------------------------------------------------------
  Net asset value,       $  15.56    $  16.82   $  16.12   $  21.38   $  18.84
  end of period
                         ---------------------------------------------------------
  Total return              41.44%/a/   11.55%      1.70%     36.76%     (3.13)%
  Ratios/Supplemental Data
  Net assets, end of
  period                 $177,335    $224,277   $159,031   $337,041   $308,635
  (in thousands)
                         ---------------------------------------------------------
  Ratio of expenses to       1.25%/a/    1.19%      1.14%      1.00%      0.97%
  average net assets
                         ---------------------------------------------------------
  Ratio of net income        1.15%/a/    0.94%      0.50%      0.69%      0.69%
  to average net assets
                         ---------------------------------------------------------
  Portfolio turnover         46.0%       46.8%      37.1%      32.5%      54.8%
  rate
 --------------------------------------------------------------------------------------





 /a/
   Excludes expenses in excess of a 1.25% voluntary expense limitation in effect
   through December 31, 1998.





 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




T. ROWE PRICE                                 26
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




T. ROWE PRICE ACCOUNT INFORMATION             27

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




T. ROWE PRICE                                 28
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




T. ROWE PRICE ACCOUNT INFORMATION             29
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




T. ROWE PRICE                                 30
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




T. ROWE PRICE ACCOUNT INFORMATION             31
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




T. ROWE PRICE                                 32
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




T. ROWE PRICE ACCOUNT INFORMATION             33
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




T. ROWE PRICE                                 34
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




T. ROWE PRICE ACCOUNT INFORMATION             35

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202

                                                              F17-040 5/1/02

1940 Act File No. 811-07749


PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE

Global Technology
Fund

 An aggressive stock fund seeking long-term capital growth through investments
 in companies around the world expected to benefit from technological progress.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Global Technology Fund, Inc.
Prospectus

May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  6
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions           9
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   13
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  16
              -----------------------------------------------
              Understanding Performance Information        18
              -----------------------------------------------
              Investment Policies and Practices            18
              -----------------------------------------------
              Financial Highlights                         25
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         26
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        27
              -----------------------------------------------
              Purchasing Additional Shares                 28
              -----------------------------------------------
              Exchanging and Redeeming Shares              29
              -----------------------------------------------
              Rights Reserved by the Funds                 31
              -----------------------------------------------
              Information About Your Services              31
              -----------------------------------------------
              T. Rowe Price Brokerage                      34
              -----------------------------------------------
              Investment Information                       35
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 36
              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide long-term capital growth.


 What is the fund's principal investment strategy?


   We will invest at least 80% of net assets in the common stocks of companies
   we expect to generate a majority of their revenues from the development,
   advancement, and use of technology. Our primary emphasis will be on the
   common stocks of leading technology companies around the world. We normally
   expect to invest a minimum of 30% of the portfolio in established and
   emerging foreign markets and the balance in the U.S. Some of the industries
   and companies likely to be included in the portfolio are:

  . communications-voice, data, and wireless;

  . Internet infrastructure-hardware, software, and networking equipment;

  . semiconductors-components and equipment;

  . computer-hardware and software;

  . e-commerce (companies doing business through the Internet) and data
   processing services; and

  . media and entertainment.

   The growth of the Internet and the widespread availability of communications
   services are breaking down regional boundaries. Therefore, we will invest
   across a broad range of global enterprises.


   Stock selection generally reflects a growth approach based on intensive
   research that assesses a company's fundamental prospects for above-average
   earnings. Holdings can range from small, unseasoned companies developing new
   technologies to blue chip firms with established track records of developing
   and marketing technology. Investments may also include companies that should
   benefit from technological advances even if they are not directly involved in
   research and development. The fund may invest in suitable technology
   companies through initial public offerings (IPOs).

   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.




T. ROWE PRICE                                 2
   While most assets will be invested in common stocks, other securities may
   also be purchased, including futures and options, in keeping with fund
   objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?

   Since this fund is focused on technology industries, it is less diversified
   than stock funds investing in a broader range of industries and, therefore,
   could experience significant volatility. In addition, technology stocks
   historically have experienced unusually wide price swings, both up and down.
   The potential for wide variation in performance reflects the special risks
   common to companies in the rapidly changing field of technology. For example,
   products or services that at first appear promising may not prove
   commercially successful or may become obsolete quickly. Earnings
   disappointments and intense competition for market share can result in sharp
   price declines.

   The level of risk will rise to the extent that the fund has significant
   exposure to smaller, unseasoned (those with less than a three-year operating
   history), and newly public companies. These companies may not have
   established products, experienced management, or an earnings history and
   their stocks may lack liquidity and be very volatile.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Since the fund will invest a sizable portion of its assets in foreign
   securities, it will be subject to the risk that some holdings may lose value
   because of the declining foreign currencies, political instability, economic
   decline, illiquid markets, and governmental interference associated with
   various foreign markets, especially developing ones. Investments in futures
   and options, if any, are subject to additional volatility and potential
   losses.




MORE ABOUT THE FUND                           3
   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you seek an aggressive approach to capital growth
   through investment in worldwide technology stocks, and you can accept the
   potential for above-average price fluctuations, the fund could be an
   appropriate part of your overall investment strategy. This fund should not
   represent your complete investment program or be used for short-term trading
   purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the year depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 4



            Calendar Year Total Returns
                        "01"
 -------------------------------------------------
  

 -36.07
 -------------------------------------------------



                    Quarter ended   Total return
 Best quarter       12/31/01             39.71%
 Worst quarter       9/30/01                -39.39%




 Table 1  Average Annual Total Returns

                                                 Periods ended
                                               December 31, 2001
                                                       Since inception
                                          1 year          (9/29/00)
 ------------------------------------------------------------------------------
                                    
  Global Technology Fund
  Returns before taxes                    -36.07%           -44.77%
  Returns after taxes on
  distributions                           -36.07            -44.77
  Returns after taxes on
  distributions and sale of fund
  shares                                  -21.97            -35.23
  S&P 500 Stock Index                     -11.89            -15.28
  Lipper Science & Technology Fund        -34.72           -49.39*
  Index
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.

 * Since 9/30/00.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.




MORE ABOUT THE FUND                           5


 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                            0.77%
  Other expenses                                            0.92%
  Total annual fund operating expenses                      1.69%
  Fee waiver/reimbursement                                  0.19%/a/
  Net expenses                                              1.50%/a/
 --------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.

 /a/
   To limit the fund's expenses during its initial period of operations, T. Rowe
   Price has contractually obligated itself to waive fees and bear any expenses
   through December 31, 2002, that would cause the ratio of expenses to average
   net assets to exceed 1.50%. Fees waived or expenses paid or assumed under
   this agreement are subject to reimbursement to T. Rowe Price by the fund
   whenever the fund's expense ratio is below 1.50%; however, no reimbursement
   will be made after December 31, 2004, or if it would result in the expense
   ratio exceeding 1.50%.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, the expense limitation currently in place is not renewed,
   you invest $10,000, earn a 5% annual return, and hold the investment for the
   following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $153        $514         $900          $1,982
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   The fund's program reflects the view of T. Rowe Price that companies
   benefiting from rapid advances in technology throughout the world offer
   significant opportunities for superior long-term growth. Leading global
   companies providing
   cutting-edge products and services enjoy the potential for exceptional
   growth, which is often reflected in rapidly rising stock prices.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




MORE ABOUT THE FUND                           7
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




T. ROWE PRICE                                 8
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




MORE ABOUT THE FUND                           9
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








T. ROWE PRICE                                 10

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




MORE ABOUT THE FUND                           11
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.



   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




T. ROWE PRICE                                 12
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




MORE ABOUT THE FUND                           13
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




T. ROWE PRICE                                 14
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




MORE ABOUT THE FUND                           15
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 2000 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:

  . Receive a proportional interest in income and capital gain distributions.
  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




MORE ABOUT THE FUND                           17
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Robert N. Gensler, Chairman, Giri Devulapally, Donald J. Easley, Eric M.
   Gerster, Jill L. Hauser, Stephen C. Jansen, Anh Lu, Joseph M. Milano, Jeff
   Rottinghaus, Michael F. Sola, and Wenhua Zhang. The committee chairman has
   day-to-day responsibility for managing the portfolio and works with the
   committee in developing and executing the fund's investment program. Mr.
   Gensler has been a member of the committee since its inception and was
   elected chairman in 2002. He is also chairman of the Investment Advisory
   Committee for the Media & Telecommunications Fund. He joined T. Rowe Price
   as an investment analyst in 1993.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------




   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion


   at December . 31, 2001, the group fee was 0.32%. .  The individual fund fee
   is 0.45%.




T. ROWE PRICE                                 18
 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are dis-




MORE ABOUT THE FUND                           19
   cussed with shareholders in fund reports. Fund investment restrictions and
   policies apply at the time of investment. A later change in circumstances
   will not require the sale of an investment if it was proper at the time it
   was made.


   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities.




T. ROWE PRICE                                 20
   While most preferred stocks pay a dividend, preferred stock may be purchased
   where the issuer has omitted, or is in danger of omitting, payment of its
   dividend. Such investments would be made primarily for their capital
   appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities
   Investments are expected to be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks described below.
   These risks are heightened for investments in developing countries, and there
   is no limit on the amount of fund foreign investments that may be made in
   such countries.

   Operating policy  There is no limit on fund investments in foreign
   securities.

   Risks of Foreign Securities
   Stock prices of foreign and U.S. companies are subject to many of the same
   influences, such as general economic conditions, company and industry
   earnings prospects, and investor psychology. However, investing in foreign
   securities also involves additional risks that can increase the potential for
   losses. Normally, these risks are significantly greater for investments in
   emerging markets.

  . Currency fluctuations  Transactions in foreign securities are often
   conducted in local currencies, so dollars must often be exchanged for another
   currency when a stock is bought or sold or a dividend is paid. Likewise,
   share price quotations and total return information reflect conversion into
   dollars. Fluctuations in foreign exchange rates can significantly increase or
   decrease the dollar value of a foreign investment, boosting or offsetting its
   local market return. For example, if a French stock rose 10% in price during
   a year, but the U.S. dollar gained 5% against the French franc during that
   time, the U.S. investor's return would be reduced to 5%. This is because the
   franc would "buy" fewer dollars at the end of the year than at the beginning,
   or, conversely, a dollar would buy more francs.




MORE ABOUT THE FUND                           21
   The fund's total return will be affected by currency fluctuations. The exact
   amount of the impact depends on the currencies represented in the portfolio
   and how each one appreciates or depreciates in relation to the U.S. dollar.


   3 Exchange rate movements can be large, unpredictable, and last for extended
     periods.

  . Political and economic factors  The economies, markets, and political
   structures of a number of the countries in which the fund can invest do not
   compare favorably with the U.S. and other mature economies in terms of wealth
   and stability. Therefore, investments in these countries will be riskier and
   more subject to erratic and abrupt price movements. This is especially true
   for emerging markets. However, even investments in countries with highly
   developed economies are subject to risk. For example, Japanese securities
   markets historically have experienced wide swings in value.

   Some economies are less well developed, overly reliant on particular
   industries, and more vulnerable to the ebb and flow of international trade,
   trade barriers, and other protectionist or retaliatory measures. This makes
   investment in such markets significantly riskier than in other countries.
   Many countries have legacies and the risk of hyperinflation and currency
   devaluations versus the dollar (which adversely affects returns to U.S.
   investors) and may be overly dependent on foreign capital (a risk that is
   exacerbated by big currency movements). Investments in countries that have
   recently begun moving away from central planning and state-owned industries
   toward free markets should be regarded as speculative.


   3 While certain countries have made progress in economic growth,
     liberalization, fiscal discipline, and political and social stability,
     there is no assurance these trends will continue.

   Certain countries have histories of instability and political upheaval that
   could cause their governments to act in a detrimental or hostile manner
   toward private enterprise or foreign investment. Actions such as capital
   controls, nationalizing a company or industry, expropriating assets, or
   imposing punitive taxes could have a severe effect on security prices and
   impair a fund's ability to repatriate capital or income. Significant external
   risks, including war, currently affect some countries. Governments in many
   emerging market countries participate to a significant degree in their
   economies and securities markets.

  . Legal, regulatory, and operational  Certain countries lack uniform
   accounting, auditing, and financial reporting standards, have less
   governmental supervision of financial markets than in the U.S., do not honor
   legal rights enjoyed in the U.S., and have settlement practices, such as
   delays, which could subject a fund to risks of loss not customary in the U.S.
   In addition, securities markets in these




T. ROWE PRICE                                 22
   countries have substantially lower trading volumes than U.S. markets,
   resulting in less liquidity and more volatility.

   Fixed-Income Securities
   From time to time, we may invest in corporate and government fixed-income
   securities without regard to quality. These securities would be purchased in
   companies that meet fund investment criteria. The price of a bond fluctuates
   with changes in interest rates, generally rising when interest rates fall and
   falling when interest rates rise. Below investment grade, or "junk bonds,"
   can be more volatile and have a greater risk of default than investment grade
   bonds.

   Operating policy  Fund investments in fixed income securities are limited to
   5% of total assets.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no




MORE ABOUT THE FUND                           23
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.




T. ROWE PRICE                                 24
   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates
   are shown in the Financial Highlights table.




MORE ABOUT THE FUND                           25
 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.



 Table 4  Financial Highlights

                                 09/29/00*
                                  through      Year ended December 31
                                 12/31/00
                              -----------------         2001
 -----------------------------                 -----------------------------
                           

  Net asset value,
  beginning of period           $  10.00             $  7.43
  Income From Investment Operations
  Net investment income            (0.01)              (0.06)/b/
                              -----------------------------------------
  Net gains or losses on
  securities (both realized        (2.56)              (2.62)
  and unrealized)
                              -----------------------------------------
  Total from investment
  operations                       (2.57)              (2.68)
  Less Distributions
  Dividends (from net                 --                  --
  investment income)
                              -----------------------------------------
  Distributions (from                 --                  --
  capital gains)
                              -----------------------------------------
  Returns of capital                  --                  --
                              -----------------------------------------
  Total distributions                 --                  --
                              -----------------------------------------
  Net asset value,              $   7.43             $  4.75
  end of period
                              -----------------------------------------
  Total return                    (25.70)%            (36.07)%/b/
  Ratios/Supplemental Data
  Net assets, end of period     $131,168             $84,120
  (in thousands)
                              -----------------------------------------
  Ratio of expenses to              1.37%/a/            1.50%/b/
  average net assets
                              -----------------------------------------
  Ratio of net income to           (0.25)%/a/          (1.08)%/b/
  average net assets
                              -----------------------------------------
  Portfolio turnover rate          123.6%/a/           189.2%
 ---------------------------------------------------------------------------




 /*/       Inception date.

 /a/      Annualized.


 /b/
  Excludes expenses in excess of a 1.50% voluntary expense limitation in effect
  through December 31, 2002.


 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




MORE ABOUT THE FUND                           27
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




T. ROWE PRICE                                 28

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




MORE ABOUT THE FUND                           29
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




T. ROWE PRICE                                 30
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




MORE ABOUT THE FUND                           31
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




T. ROWE PRICE                                 32
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




MORE ABOUT THE FUND                           33
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




T. ROWE PRICE                                 34
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




MORE ABOUT THE FUND                           35
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




T. ROWE PRICE                                 36

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
                                                                 F132-040 5/1/02
1940 Act File No. 811-09995


PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE

Growth & Income
Fund

 A stock fund seeking long-term capital growth and an attractive level of
 current income.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Growth & Income Fund, Inc.
Prospectus

May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  6
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions           9
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   13
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  16
              -----------------------------------------------
              Understanding Performance Information        18
              -----------------------------------------------
              Investment Policies and Practices            18
              -----------------------------------------------
              Financial Highlights                         24
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         25
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        26
              -----------------------------------------------
              Purchasing Additional Shares                 27
              -----------------------------------------------
              Exchanging and Redeeming Shares              28
              -----------------------------------------------
              Rights Reserved by the Funds                 30
              -----------------------------------------------
              Information About Your Services              30
              -----------------------------------------------
              T. Rowe Price Brokerage                      33
              -----------------------------------------------
              Investment Information                       34
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 35
              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide long-term capital growth, a reasonable level of
   current income, and increasing future income through investments primarily in
   dividend-paying common stocks.


 What is the fund's principal investment strategy?


   Our primary focus is on capital appreciation. We will use fundamental,
   bottom-up research and both growth and value approaches in identifying stocks
   we believe have good prospects for capital growth over time. Among the many
   characteristics we look for are seasoned management, leadership positions in
   growing industries, and strong financial fundamentals. In many instances, we
   analyze free cash flow because it can allow a company to increase dividends,
   repurchase shares, or make acquisitions. While investments may include
   mid-size companies, large-capitalization companies are expected to
   predominate.

   In selecting growth stocks, we generally look for companies with
   above-average earnings growth and a lucrative niche in the economy that
   allows them to sustain earnings momentum even during times of slow economic
   growth. When applying a value analysis, we seek companies with good future
   prospects whose current stock prices seem undervalued relative to the general
   market, the industry average, or the company's historical valuation based on
   earnings, cash flow, book value, or dividends.


   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including convertible securities, foreign stocks,
   futures, and options, in keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.




T. ROWE PRICE                                 2
 What are the main risks of investing in the fund?

   Since the fund can hold both growth and value stocks, its share price can be
   affected by the particular risks associated with each type of investment.
   Stocks with growth characteristics can have relatively wide price swings as a
   result of the high valuations they may carry. Because earnings expectations
   often drive their stock prices, earnings disappointments can result in sharp
   price declines. Stocks with value characteristics carry the risk that
   investors will not recognize their intrinsic value for a long time or that
   their low prices are actually appropriate. While the fund will seek
   dividend-paying stocks, the overall income level is not expected to play a
   meaningful role in cushioning its share price against market declines.
   Convertible securities have a lower yield than regular bonds of comparable
   quality and are subject to price declines associated with stocks, although
   generally to a lesser degree.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If long-term capital appreciation is a primary goal
   and you can accept the risks associated with common stocks, including both
   growth and value stocks, the fund may be appropriate for you. This fund
   should not represent your complete investment program or be used for
   short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.




MORE ABOUT THE FUND                           3
   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




                      Calendar Year Total Returns
 "92"    "93"    "94"    "95"    "96"     "97"   "98"   "99"   "00"   "01"
 ----------------------------------------------------------------------------
                               
15.33  12.96  -0.15  30.92  25.64  23.53  9.96   3.78    8.97   -2.17
 ----------------------------------------------------------------------------



                  Quarter ended     Total return

 Best quarter       6/30/97           12.90%
 Worst quarter       9/30/01           -10.75%






T. ROWE PRICE                                 4


 Table 1  Average Annual Total Returns

                                        Periods ended December 31, 2001
                                        1 year     5 years     10 years
 ------------------------------------------------------------------------------
                                    

  Returns before taxes                   -2.17%      8.49%      12.39%
  Returns after taxes on
  distributions                          -3.41       6.36       10.20
  Returns after taxes on
  distributions and sale of fund
  shares                                 -0.85       6.42        9.65
  S&P 500 Stock Index                   -11.89      10.70       12.94
  Lipper Large-Cap Core Fund Index      -12.83       9.59       11.47
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.



 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.57%
  Other expenses                                             0.24%
  Total annual fund operating expenses                       0.81%
 --------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $83         $259         $450          $1,002
    ----------------------------------------------------








MORE ABOUT THE FUND                           5
 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   Common stocks in general offer a way to invest for long-term growth of
   capital. Growth stocks, which will typically be well represented in the
   portfolio, are frequently rewarded with price increases when rising earnings
   expectations are met or exceeded. To the extent the portfolio includes a
   significant number of value stocks, it could perform better than the overall
   market in a correction or bear market.


 What is meant by a "growth" investment approach?

   Thomas Rowe Price, Jr. pioneered the growth stock theory of investing over 60
   years ago. It is based on the premise that inflation represents a more
   serious long-term threat to an investor's portfolio than stock market
   fluctuations or recessions. Mr. Price believed that when a company's earnings
   grow faster than both inflation and the economy in general, the market will
   eventually reward its long-term earnings growth with a higher stock price.
   However, investors should be aware that, during periods of adverse economic
   and market conditions, stock prices may fall despite favorable earnings
   trends.


   3 Growth investors look for companies with above-average earnings gains.


 What is meant by a "value" investment approach?

   Value investors seek to invest in companies whose stock prices are low in
   relation to their real worth or future prospects. By identifying companies
   whose stocks are currently out of favor or misunderstood, value investors
   hope to realize significant appreciation as other investors recognize the
   stock's intrinsic value and the price rises accordingly.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




MORE ABOUT THE FUND                           7
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




T. ROWE PRICE                                 8
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




MORE ABOUT THE FUND                           9
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                           
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








T. ROWE PRICE                                 10

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




MORE ABOUT THE FUND                           11
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions
   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.





   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




T. ROWE PRICE                                 12
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




MORE ABOUT THE FUND                           13
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




T. ROWE PRICE                                 14
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




MORE ABOUT THE FUND                           15
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 1982 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight
   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




MORE ABOUT THE FUND                           17
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Robert W. Sharps, Chairman, Stephen W. Boesel, Arthur B. Cecil III, Giri
   Devulapally, Michael W. Holton, David M. Lee, Jeff Rottinghaus, Robert W.
   Smith, and R. Candler Young. The committee chairman has day-to-day
   responsibility for managing the portfolio and works with the committee in
   developing and executing the fund's investment program. Mr. Sharps was
   elected chairman of the fund's committee in 2000. He joined T. Rowe Price in
   1997 and has been responsible for the coverage of financial services stocks,
   with an emphasis on the banking and brokerage industries. Prior to joining
   T. Rowe Price he was a Senior Consultant at KPMG Peat Marwick from 1993 to
   1995 and attended the Wharton School of Business from 1995-1997.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion

   at December 31, 2001, the group fee was 0.32%. .  The individual fund fee is
   0.25%.




T. ROWE PRICE                                 18
 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are dis-




MORE ABOUT THE FUND                           19
   cussed with shareholders in fund reports. Fund investment restrictions and
   policies apply at the time of investment. A later change in circumstances
   will not require the sale of an investment if it was proper at the time it
   was made.


   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks and, to a lesser degree,
   other types of securities as described below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities.




T. ROWE PRICE                                 20
   While most preferred stocks pay a dividend, preferred stock may be purchased
   where the issuer has omitted, or is in danger of omitting, payment of its
   dividend. Such investments would be made primarily for their capital
   appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 25%
   of total assets.

   Fixed-Income Securities
   From time to time, we may invest in debt securities of any type, including
   municipal securities, without regard to quality or rating. Such securities
   would be purchased in companies, municipalities, or entities which meet the
   investment criteria for the fund. The price of a bond fluctuates with changes
   in interest rates, generally rising when interest rates fall and falling when
   interest rates rise.




MORE ABOUT THE FUND                           21
   High-Yield, High-Risk Bonds
   The total return and yield of lower-quality (high-yield, high-risk) bonds,
   commonly referred to as "junk" bonds, can be expected to fluctuate more than
   the total return and yield of higher-quality, shorter-term bonds, but not as
   much as those of common stocks. Junk bonds (those rated below BBB or in
   default) are regarded as predominantly speculative with respect to the
   issuer's continuing ability to meet principal and interest payments.


   Operating policy  The fund may purchase any type of noninvestment-grade debt
   security (or junk bond) including those in default. The fund will not
   purchase this type of security if it would have more than 10% of its total
   assets invested in such securities. Fund investments in convertible
   securities are not subject to this limit.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no




T. ROWE PRICE                                 22
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.




MORE ABOUT THE FUND                           23
   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates
   are shown in the Financial Highlights table.




T. ROWE PRICE                                 24
 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




 Table 4  Financial Highlights

                                       Year ended December 31
                             1997     1998     1999     2000     2001
 ------------------------------------------------------------------------------
                         

  Net asset value,
  beginning of period       $22.63   $26.36   $26.25   $24.44   $24.44
  Income From Investment Operations
  Net investment income       0.55     0.55     0.49     0.34     0.25
                            ----------------------------------------------
  Net gains or losses on
  securities (both            4.71     2.00     0.46     1.83    (0.83)
  realized and unrealized)
                            ----------------------------------------------
  Total from investment
  operations                  5.26     2.55     0.95     2.17    (0.58)
  Less Distributions
  Dividends (from net        (0.56)   (0.53)   (0.51)   (0.34)   (0.26)
  investment income)
                            ----------------------------------------------
  Distributions (from        (0.97)   (2.13)   (2.25)   (1.83)   (0.78)
  capital gains)
                            ----------------------------------------------
  Returns of capital            --       --       --       --       --
                            ----------------------------------------------
  Total distributions        (1.53)   (2.66)   (2.76)   (2.17)   (1.04)
                            ----------------------------------------------
  Net asset value,          $26.36   $26.25   $24.44   $24.44   $22.82
  end of period
                            ----------------------------------------------
  Total return               23.53%    9.96%    3.78%    8.97%   (2.17)%
  Ratios/Supplemental Data
  Net assets, end of        $3,447   $3,563   $3,440   $2,989   $2,394
  period (in millions)
                            ----------------------------------------------
  Ratio of expenses to        0.78%    0.77%    0.77%    0.77%    0.81%
  average net assets
                            ----------------------------------------------
  Ratio of net income to      2.22%    2.03%    1.78%    1.35%    1.08%
  average net assets
                            ----------------------------------------------
  Portfolio turnover rate     15.7%    20.5%    20.3%    80.3%    65.9%
 ------------------------------------------------------------------------------






 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




T. ROWE PRICE                                 26
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




MORE ABOUT THE FUND                           27

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




T. ROWE PRICE                                 28
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




MORE ABOUT THE FUND                           29
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




T. ROWE PRICE                                 30
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




MORE ABOUT THE FUND                           31
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




T. ROWE PRICE                                 32
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




MORE ABOUT THE FUND                           33
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




T. ROWE PRICE                                 34
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




MORE ABOUT THE FUND                           35

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.





To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
                                                                  F54-040 5/1/02
                                                      1940 Act File No. 811-3566


PROSPECTUS

                                                                 May 1, 2002
T. ROWE PRICE

Growth Stock
Fund

 A stock fund seeking long-term capital appreciation through well-established
 growth companies.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Growth Stock Fund, Inc.
Prospectus


May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  6
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions           9
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   13
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  16
              -----------------------------------------------
              Understanding Performance Information        17
              -----------------------------------------------
              Investment Policies and Practices            18
              -----------------------------------------------
              Financial Highlights                         23
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         25
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        26
              -----------------------------------------------
              Purchasing Additional Shares                 27
              -----------------------------------------------
              Exchanging and Redeeming Shares              28
              -----------------------------------------------
              Rights Reserved by the Funds                 30
              -----------------------------------------------
              Information About Your Services              30
              -----------------------------------------------
              T. Rowe Price Brokerage                      33
              -----------------------------------------------
              Investment Information                       34
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 35
              -----------------------------------------------





 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide long-term capital growth and, secondarily,
   increasing dividend income through investments in the common stocks of
   well-established growth companies.


 What is the fund's principal investment strategy?


   We will invest at least 80% of net assets in the common stocks of a
   diversified group of growth companies. We mostly seek investments in
   companies that have the ability to pay increasing dividends through strong
   cash flow. We generally look for companies with an above-average rate of
   earnings growth and a lucrative niche in the economy that gives them the
   ability to sustain earnings momentum even during times of slow economic
   growth. As growth investors, we believe that when a company increases its
   earnings faster than both inflation and the overall economy, the market will
   eventually reward it with a higher stock price.

   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.




T. ROWE PRICE                                 2
 What are the main risks of investing in the fund?


   Growth stocks can be volatile for several reasons. Since these companies
   usually invest a high portion of earnings in their businesses, they may lack
   the dividends of value stocks that can cushion stock prices in a falling
   market. Also, earnings disappointments often lead to sharply falling prices
   because investors buy growth stocks in anticipation of superior earnings
   growth.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you are willing to accept the risk of investing
   in established growth stocks in an effort to achieve long-term capital
   growth, the fund could be appropriate for you. This fund should not represent
   your complete investment program or be used for short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.




MORE ABOUT THE FUND                           3
 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




                      Calendar Year Total Returns
 "92"    "93"     "94"    "95"    "96"    "97"    "98"    "99"    "00"   "01"
 -----------------------------------------------------------------------------
                                 
 5.99   15.56   0.89  30.97  21.70  26.57   27.41  22.15   0.27  -9.79
 -----------------------------------------------------------------------------



                  Quarter ended    Total return

 Best quarter       12/31/98          23.12%
 Worst quarter       3/31/01         -14.96%





T. ROWE PRICE                                 4


 Table 1  Average Annual Total Returns

                                        Periods ended December 31, 2001
                                        1 year     5 years     10 years
 ------------------------------------------------------------------------------
                                    
  Growth Stock Fund
  Returns before taxes                   -9.79%     12.25%      13.38%
  Returns after taxes on
  distributions                         -10.13       9.08       10.67
  Returns after taxes on
  distributions and sale of fund
  shares                                 -5.79       9.65       10.59
  S&P 500 Stock Index                   -11.89      10.70       12.94
  Lipper Large-Cap Growth Fund Index    -23.87       7.50       10.60
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.



 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.57%
  Other expenses                                             0.20%
  Total annual fund operating expenses                       0.77%
 --------------------------------------------------------------------------------------





 *Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
  paid to the fund. Accounts with less

  than a $2,000 balance (with certain exceptions) are subject to a $10 fee. See
  Transaction Procedures and Special

  Requirements - Account Maintenance and Small Account Fees.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $79         $246         $428           $954
    ----------------------------------------------------








MORE ABOUT THE FUND                           5
 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?


   The market frequently rewards growth stocks with price increases when
   expectations are met or exceeded. Common stocks in general offer a way to
   invest for long-term growth of capital.


 What is meant by a "growth" investment approach?

   Thomas Rowe Price, Jr. pioneered the growth stock theory of investing over 60
   years ago. It is based on the premise that inflation represents a more
   serious long-term threat to an investor's portfolio than stock market
   fluctuations or recessions. Mr. Price believed that when a company's earnings
   grow faster than both inflation and the economy in general, the market will
   eventually reward its long-term earnings growth with a higher stock price.
   However, investors should be aware that, during periods of adverse economic
   and market conditions, stock prices may fall despite favorable earnings
   trends.


   3 Growth investors look for companies with above-average earnings gains.


 What does the fund look for when selecting growth stocks?

   The fund generally looks for companies with one or more of the following:

  . An above-average growth rate  Superior growth in earnings and cash flow.

  . Operations in "fertile fields"  The ability to sustain earnings momentum
   even
   during economic slowdowns by operating in industries or service sectors where
   earnings and dividends can outpace inflation and the overall economy.

  . A profitable niche  A lucrative niche in the economy that enables the
   company to expand even during times of slow growth. Ideally, profit margins
   should be widening due to economic factors rather than one-time events such
   as lower taxes.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




MORE ABOUT THE FUND                           7
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




T. ROWE PRICE                                 8
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




MORE ABOUT THE FUND                           9
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








T. ROWE PRICE                                 10

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




MORE ABOUT THE FUND                           11
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.



   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




T. ROWE PRICE                                 12
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




MORE ABOUT THE FUND                           13
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




T. ROWE PRICE                                 14
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




MORE ABOUT THE FUND                           15
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 1950 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




MORE ABOUT THE FUND                           17
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Robert W. Smith, Chairman, Giri Devulapally, Anna M. Dopkin, Robert N.
   Gensler, Kris H. Jenner, Larry J. Puglia, and Robert W. Sharps. The committee
   chairman has day-to-day responsibility for managing the portfolio and works
   with the committee in developing and executing the fund's investment program.
   Mr. Smith has been the fund's chairman since 1997. He joined T. Rowe Price in
   1992 and has been managing investments since 1987.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion


   at December . 31, 2001, the group fee was 0.32%. .  The individual fund fee
   is 0.25%.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in
   our education and informational materials; in T. Rowe Price advertisements;
   and
   in the media.




T. ROWE PRICE                                 18
 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.

   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these




MORE ABOUT THE FUND                           19
   restrictions provide a useful level of detail about fund investments,
   investors should not view them as an accurate gauge of the potential risk of
   such investments. For example, in a given period, a 5% investment in hybrid
   instruments could have significantly more of an impact on a fund's share
   price than its weighting in the portfolio. The net effect of a particular
   investment depends on its volatility and the size of its overall return in
   relation to the performance of all other fund investments.

   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.




T. ROWE PRICE                                 20
   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 30%
   of total assets.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.




MORE ABOUT THE FUND                           21
   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.


   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to




T. ROWE PRICE                                 22
   changes in securities prices and foreign currencies; as an efficient means of
   adjusting fund overall exposure to certain markets; in an effort to enhance
   income; to protect the value of portfolio securities; and as a cash
   management tool. Call or put options may be purchased or sold on securities,
   financial indi

   ces, and foreign currencies.


   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.




MORE ABOUT THE FUND                           23
   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------

   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




T. ROWE PRICE                                 24


 Table 4 Financial Highlights

                                      Year ended December 31

                             1997     1998     1999     2000     2001
 ------------------------------------------------------------------------------
                         

  Net asset value,
  beginning of period       $26.18   $28.99   $32.07   $33.27   $27.20
  Income From Investment Operations
  Net investment income       0.23     0.22     0.11     0.07     0.09
                            ----------------------------------------------
  Net gains or losses on
  securities (both            6.65     7.38     6.61     0.21    (2.76)
  realized and unrealized)
                            ----------------------------------------------
  Total from investment
  operations                  6.88     7.60     6.72     0.28    (2.67)
  Less Distributions
  Dividends (from net        (0.20)   (0.25)   (0.10)   (0.07)   (0.08)
  investment income)
                            ----------------------------------------------
  Distributions (from        (3.87)   (4.27)   (5.42)   (6.28)   (0.27)
  capital gains)
                            ----------------------------------------------
  Returns of capital             -        -        -        -        -
                            ----------------------------------------------
  Total distributions        (4.07)   (4.52)   (5.52)   (6.35)   (0.35)
                            ----------------------------------------------
  Net asset value,          $28.99   $32.07   $33.27   $27.20   $24.18
  end of period
                            ----------------------------------------------
  Total return               26.57%   27.41%   22.15%    0.27%   (9.79)%
  Ratios/Supplemental Data
  Net assets, end of        $3,988   $5,041   $5,672   $5,428   $4,685
  period (in millions)
                            ----------------------------------------------
  Ratio of expenses to        0.75%    0.74%    0.74%    0.73%    0.77%
  average net assets
                            ----------------------------------------------
  Ratio of net income to      0.75%    0.67%    0.31%    0.20%    0.34%
  average net assets
                            ----------------------------------------------
  Portfolio turnover rate     40.9%    54.8%    55.8%    74.3%    64.1%
 ------------------------------------------------------------------------------






 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




T. ROWE PRICE                                 26
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




MORE ABOUT THE FUND                           27

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




T. ROWE PRICE                                 28
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




MORE ABOUT THE FUND                           29
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




T. ROWE PRICE                                 30
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




MORE ABOUT THE FUND                           31
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




T. ROWE PRICE                                 32
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




MORE ABOUT THE FUND                           33
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account Access-
Brokerage, you will pay a commission of $19.95 for up to 1,000 shares plus $.02
for each share over 1,000. Option trades entered through Account Access-
Brokerage save you 10% over our standard commission schedule. All trades are
subject to a $35 minimum commission except stock trades placed through Account
Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




T. ROWE PRICE                                 34
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




MORE ABOUT THE FUND                           35

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202

                                                              F40-040 5/1/02

                                                   1940 Act File No. 811-579


PROSPECTUS

                                                                 May 1, 2002
T. ROWE PRICE


Growth Stock
Fund--Advisor
Class

 A stock fund seeking long-term capital appreciation through well-established
 growth companies. This class of shares is sold only
 through financial intermediaries.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Growth Stock Fund, Inc.

  T. Rowe Price Growth Stock Fund-Advisor Class
Prospectus


May 1, 2002




      
              ABOUT THE FUND
1
              Objective, Strategy, Risks, and Expenses    1

              -----------------------------------------------
              Other Information About the Fund            5

              -----------------------------------------------


              T. ROWE PRICE ACCOUNT
2             INFORMATION
              Pricing Shares and Receiving                7
              Sale Proceeds
              -----------------------------------------------
              Useful Information on
              Distributions                               8
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                 10
              Special Requirements
              -----------------------------------------------


              MORE ABOUT THE FUND
3
              Organization and Management                12

              -----------------------------------------------
              Understanding Performance Information      14

              -----------------------------------------------
              Investment Policies and Practices          15

              -----------------------------------------------
              Financial Highlights                       19

              -----------------------------------------------


              INVESTING WITH T. ROWE PRICE
4
              Account Requirements                       21
              and Transaction Information
              -----------------------------------------------
              Purchasing Additional Shares               22

              -----------------------------------------------
              Rights Reserved by the Fund                22
              s
              -----------------------------------------------
              T. Rowe Price                              24
               Privacy Policy
              -----------------------------------------------





 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

   A word about the fund's name and structure. Growth Stock Fund - Advisor Class
   is a share class of T. Rowe Price Growth Stock Fund. The Advisor Class is not
   a separate mutual fund. It is sold only through brokers, dealers, banks,
   insurance companies, and other financial intermediaries that provide various
   distribution and administrative services.


 What is the fund's objective?


   The fund seeks to provide long-term capital growth and, secondarily,
   increasing dividend income through investments in the common stocks of
   well-established growth companies.


 What is the fund's principal investment strategy?


   We will invest at least 80% of net assets in the common stocks of a
   diversified group of growth companies. We mostly seek investments in
   companies that have the ability to pay increasing dividends through strong
   cash flow. We generally look for companies with an above-average rate of
   earnings growth and a lucrative niche in the economy that gives them the
   ability to sustain earnings momentum even during times of slow economic
   growth. As growth investors, we believe that when a company increases its
   earnings faster than both inflation and the overall economy, the market will
   eventually reward it with a higher stock price.

   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.




T. ROWE PRICE                                 2
 What are the main risks of investing in the fund?

   Growth stocks can be volatile for several reasons. Since these companies
   usually invest a high portion of earnings in their businesses, they may lack
   the dividends of value stocks that can cushion stock prices in a falling
   market. Also, earnings disappointments often lead to sharply falling prices
   because investors buy growth stocks in anticipation of superior earnings
   growth.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?


   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you are investing through an intermediary and can
   accept the risk of investing in established growth stocks in an effort to
   achieve long-term capital growth, the Growth Stock Fund-Advisor Class could
   be appropriate for you. This fund should not represent your complete
   investment program or be used for short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.




                                             3
 How has the fund performed in the past?


   Growth Stock Fund-Advisor Class began operations on December 31, 2001, and
   does not have a full calendar year of performance history. As a point of
   comparison, however, the following bar chart and table show calendar year
   returns for the existing class of the Growth Stock Fund.

   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




                      Calendar Year Total Returns
 "92"    "93"     "94"    "95"    "96"    "97"    "98"    "99"    "00"   "01"
 -----------------------------------------------------------------------------
                                 
 5.99   15.56   0.89  30.97  21.70  26.57   27.41  22.15   0.27  -9.79
 -----------------------------------------------------------------------------



                  Quarter ended    Total return

 Best quarter       12/31/98          23.12%
 Worst quarter       3/31/01         -14.96%





T. ROWE PRICE                                 4


 Table 1  Average Annual Total Returns/a/

                                        Periods ended December 31, 2001
                                        1 year     5 years     10 years
 ------------------------------------------------------------------------------
                                    
  Growth Stock Fund
  Returns before taxes                   -9.79%     12.25%      13.38%
  Returns after taxes on
  distributions                         -10.13       9.08       10.67
  Returns after taxes on
  distributions and sale of fund
  shares                                 -5.79       9.65       10.59
  S&P 500 Stock Index                   -11.89      10.70       12.94
  Lipper Large-Cap Growth Fund Index    -23.87       7.50       10.60
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.

 /a/Because the Growth Stock Fund-Advisor Class is expected to have higher
   expenses than the existing class of the Growth Stock Fund, its performance,
   had it existed over the periods shown, would have been lower. The existing
   class of the Growth Stock Fund and the Growth Stock Fund-Advisor Class share
   the same portfolio. Shares of the existing class of the fund are offered in a
   separate prospectus.


 What fees or expenses will I pay?

   The numbers in the next table provide an estimate of how much it will cost to
   operate the Advisor Class for a year. These are costs you pay indirectly
   because they are deducted from net assets before the daily share price is
   calculated.




 Table 2  Fees and Expenses of the Advisor Class*

                                                         Annual fund operating expenses
                                                  (expenses that are deducted from fund assets)
 -----------------------------------------------------------------------------------------------
                                              
  Management fee                                                     0.57%/a/
  Distribution and service (12b-1) fees                              0.25%
  Other expenses                                                     0.20%
  Total annual fund operating expenses                               1.02%/a/
 -----------------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund.

 /a/To limit the class's expenses during its initial period of operations, T.
   Rowe Price is contractually obligated to bear any expenses (other than
   management fees) through December 31, 2003, that would cause the class's
   ratio of expenses to average net assets to exceed 1.10%. Expenses paid or
   assumed under this agreement are subject to reimbursement to T. Rowe Price by
   the fund whenever the class's expense ratio is below 1.10%; however, no
   reimbursement will be made after December 31, 2005, or if it would result in
   the expense ratio exceeding 1.10%. Any amounts reimbursed will have the
   effect of increasing fees otherwise paid by the class.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   class with that of other mutual funds. Although your actual costs may be
   higher or lower,




                                             5
   the table shows how much you would pay if operating expenses remain the same,
   the expense limitation currently in place is not renewed, you invest $10,000,
   earn a 5% annual return, and hold the investment for the following periods
   and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $104        $325         $563          $1,248
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   The market frequently rewards growth stocks with price increases when
   expectations are met or exceeded. Common stocks in general offer a way to
   invest for long-term growth of capital.


 What is meant by a "growth" investment approach?

   Thomas Rowe Price, Jr. pioneered the growth stock theory of investing over 60
   years ago. It is based on the premise that inflation represents a more
   serious long-term threat to an investor's portfolio than stock market
   fluctuations or recessions. Mr. Price believed that when a company's earnings
   grow faster than both inflation and the economy in general, the market will
   eventually reward its long-term earnings growth with a higher stock price.
   However, investors should be aware that, during periods of adverse economic
   and market conditions, stock prices may fall despite favorable earnings
   trends.


   3 Growth investors look for companies with above-average earnings gains.


 What does the fund look for when selecting growth stocks?

   The fund generally looks for companies with one or more of the following:

  . An above-average growth rate  Superior growth in earnings and cash flow.

  . Operations in "fertile fields"  The ability to sustain earnings momentum
   even
   during economic slowdowns by operating in industries or service sectors where
   earnings and dividends can outpace inflation and the overall economy.

  . A profitable niche  A lucrative niche in the economy that enables the
   company to expand even during times of slow growth. Ideally, profit margins
   should be widening due to economic factors rather than one-time events such
   as lower taxes.




T. ROWE PRICE                                 6
 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION
 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------
   Here are some procedures you should know when investing in shares of the T.
   Rowe Price Advisor Class.


 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for each
   class of shares is calculated at the close of the New York Stock Exchange,
   normally 4 p.m. ET, each day the New York Stock Exchange is open for
   business. To calculate the NAV, the fund's assets are valued and totaled,
   liabilities are subtracted, and each class's proportionate share of the
   balance, called net assets, is divided by the number of shares outstanding of
   that class. Market values are used to price stocks and bonds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


 How your purchase, sale, or exchange price is determined

   Advisor Class shares are intended for purchase and may be held only through
   various third-party intermediaries including brokers, dealers, banks,
   insurance companies, retirement plan recordkeepers and others. Consult your
   intermediary to find out about how to purchase, sell, or exchange your
   shares, cut-off times, and other applicable procedures for these
   transactions. The intermediary may charge a fee for its services.


   The fund may have an agreement with your intermediary that permits the
   intermediary to accept orders on behalf of the fund until 4 p.m. ET. In such
   cases, if your order is received by the intermediary in good form by 4 p.m.
   ET and transmitted to the fund and paid for in accordance with the agreement,
   it will be priced at the next NAV computed after the intermediary received
   your order.




T. ROWE PRICE                                 8
   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted by the fund or an intermediary may be changed in
   case of an emergency or if the New York Stock Exchange closes at a time other
   than 4 p.m. ET.

   How proceeds are received
   Normally, the fund transmits proceeds to intermediaries for redemption orders
   received in good form on either the next or third business day after receipt,
   depending on the arrangement with the intermediary. Under certain
   circumstances and when deemed to be in the fund's best interests, proceeds
   may not be sent for up to seven calendar days after receipt of the redemption
   order. You must contact your intermediary about procedures for receiving your
   redemption proceeds.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


 Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   No interest will accrue on amounts represented by uncashed distribution or
   redemption checks.

   Income dividends

  . The funds declare and pay dividends (if any) quarterly for the Equity Income
   Fund-Advisor Class; declare daily and pay monthly for the High Yield
   Fund-Advisor Class and International Bond Fund-Advisor Class; and declare and
   pay annually for all other Advisor Classes.
  . A portion of fund dividends (other than High Yield Fund-Advisor Class and
   International Stock Fund-Advisor Class) may be eligible for the 70% deduction
   for dividends received by corporations to the extent the funds' income
   consists of dividends paid by U.S. corporations.
  . The dividends of High Yield Fund-Advisor Class and International Stock
   Fund-Advisor Class will not be eligible for the 70% deduction for dividends
   received by corporations, if, as expected, none of the funds' income consists
   of dividends paid by U.S. corporations.




                                             9
   Capital gains payments
  . A capital gain or loss is the difference between the purchase and sale price
   of a security.
  . If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.


 Tax Information

   You should contact your intermediary for the tax information that will be
   sent to you and reported to the IRS.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . The fund makes a distribution to your account.

   Taxes on fund redemptions
   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is still a sale for tax purposes.

   Taxes on fund distributions

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss must be reclassified to a long-term loss to the extent of any
   long-term capital gain distribution received during the period you held the
   shares. Gains and losses from the sale of foreign currencies and the foreign
   currency gain or loss resulting from the sale of a foreign debt security can
   increase or decrease an ordinary income dividend. Net foreign currency losses
   may cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly




T. ROWE PRICE                                 10
   dividends to be reclassified as a return of capital. Entering into certain
   options, futures, swaps, and forward foreign exchange contracts and
   transactions may result in the application of the mark-to-market and straddle
   provisions of the Internal Revenue Code. These provisions could result in a
   fund being required to distribute gains on such transactions even though it
   did not close the contracts during the year or receive cash to pay such
   distributions. A fund may not be able to reduce its distributions for losses
   on such transactions to the extent of unrealized gains in offsetting
   positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain or dividend distribution
   If you buy shares shortly before or on the "record date" -  the date that
   establishes you as the person to receive the upcoming distribution - you will
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains or income and unrealized appreciation, which may
   result in future taxable distributions. Such distributions can occur even in
   a year when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.



 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------
 Purchase Conditions for Intermediaries

   Nonpayment

   If the fund receives a check or ACH transfer that does not clear or the
   payment is not received in a timely manner, your purchase may be canceled.
   Any losses or expenses incurred by the fund or transfer agent will be the
   responsibility of the intermediary. The fund and its agents have the right to
   reject or cancel any purchase, exchange, or redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.




                                             11
 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold
   If an intermediary sells shares that it just purchased and paid for by check
   or ACH transfer, the fund will process the redemption but will generally
   delay sending the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. (The 10-day hold does not apply to purchases paid for by
   bank wire.)

   Redemptions over $250,000
   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.


 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.


   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of the fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

   You can make one purchase and one sale or one sale and one purchase involving
   the same fund within any 120-day period. If you exceed this limit or if you
   hold fund shares for less than 60 calendar days, you are in violation of our
   excessive trading policy. Systematic purchases and redemptions are exempt
   from this policy. Transactions accepted by intermediaries in violation of
   this excessive trading policy or from persons believed to be market timers
   are subject to rejection or cancellation by the funds.


 Signature Guarantees


   An intermediary may need to obtain a signature guarantee in certain
   situations and should consult its T. Rowe Price Financial Institution
   Services representative.

   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?


   The fund was incorporated in Maryland in 1950 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders of each class into a single portfolio and try to achieve
   specified objectives. In 2001, the fund issued a separate class of shares
   known as the Advisor Class.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:

  . Receive a proportional interest in income and capital gain distributions of
   the class.


   The income dividends for Growth Stock Fund-Advisor Class shares will
   generally differ from those of the regular Growth Stock Fund shares to the
   extent that the expense ratio of Growth Stock Fund-Advisor Class shares
   differs.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract. Growth Stock Fund-Advisor Class shareholders
   have

   exclusive voting rights on matters affecting only the Growth Stock
   Fund-Advisor

   Class shares.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.




                                             13
 Who runs the fund?

   General Oversight
   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).


   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Robert W. Smith, Chairman, Giri Devulapally, Anna M. Dopkin, Robert N.
   Gensler, Kris H. Jenner, Larry J. Puglia, and Robert W. Sharps. The committee
   chairman has day-to-day responsibility for managing the portfolio and works
   with the committee in developing and executing the fund's investment program.
   Mr. Smith has been the fund's chairman since 1997. He joined T. Rowe Price in
   1992 and has been managing investments since 1987.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion

   at December 31, 2001, the group fee was 0.32%. .  The individual fund fee is
   0.25%.




T. ROWE PRICE                                 14
 Distribution, Shareholder Servicing, and Recordkeeping Fees


   Growth Stock Fund-Advisor Class has adopted a 12b-1 plan under which it pays
   a fee at the rate of up to 0.25% of its daily net assets per year to various
   intermediaries for distribution and servicing of its shares. These payments
   may be more or less than the costs incurred by the intermediaries. Because
   the fees are paid from the Advisor Class net assets on an ongoing basis, they
   will increase the cost of your investment and, over time, could result in
   your paying more than with other types of sales charges. The Advisor Class
   may also separately compensate intermediaries at a rate of up to 0.10% of
   daily net assets per year for various recordkeeping and transfer agent
   services they perform.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.




                                             15
 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.

   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.


   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.





T. ROWE PRICE                                 16
   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.





                                             17
   Operating policy  Fund investments in foreign securities are limited to 30%
   of total assets.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.




T. ROWE PRICE                                 18
   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.




                                             19
   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------

   Growth Stock Fund-Advisor Class first issued shares on December 31, 2001, and
   therefore has no financial history. As a point of comparison, however, Table
   3 provides historical information about the Growth Stock Fund because Growth

   Stock Fund-Advisor Class has the same management program and investment
   portfolio. (Prior to the inception of Growth Stock Fund-Advisor Class, Growth
   Stock Fund had no other share classes.) This information is based on a single
   share of the Growth Stock Fund outstanding throughout each of its fiscal
   years.




T. ROWE PRICE                                 20

   This table is part of the Growth Stock Fund's financial statements, which are
   included in its annual report and are incorporated by reference into the
   Statement of Additional Information (available upon request). The total
   returns in the table represent the rate that an investor would have earned or
   lost on an investment in the fund (assuming reinvestment of all dividends and
   distributions). The financial statements in the annual report were audited by
   the fund's independent accountants, PricewaterhouseCoopers LLP.

   Had the Growth Stock Fund-Advisor Class existed during the period reflected
   in the table, some financial information would be different because of its
   higher anticipated expense ratio.



 Table 3 Financial Highlights

                                      Year ended December 31

                             1997     1998     1999     2000     2001
 ------------------------------------------------------------------------------
                         

  Net asset value,
  beginning of period       $26.18   $28.99   $32.07   $33.27   $27.20
  Income From Investment Operations
  Net investment income       0.23     0.22     0.11     0.07     0.09
                            ----------------------------------------------
  Net gains or losses on
  securities (both            6.65     7.38     6.61     0.21    (2.76)
  realized and unrealized)
                            ----------------------------------------------
  Total from investment
  operations                  6.88     7.60     6.72     0.28    (2.67)
  Less Distributions
  Dividends (from net        (0.20)   (0.25)   (0.10)   (0.07)   (0.08)
  investment income)
                            ----------------------------------------------
  Distributions (from        (3.87)   (4.27)   (5.42)   (6.28)   (0.27)
  capital gains)
                            ----------------------------------------------
  Returns of capital             -        -        -        -        -
                            ----------------------------------------------
  Total distributions        (4.07)   (4.52)   (5.52)   (6.35)   (0.35)
                            ----------------------------------------------
  Net asset value,          $28.99   $32.07   $33.27   $27.20   $24.18
  end of period
                            ----------------------------------------------
  Total return               26.57%   27.41%   22.15%    0.27%   (9.79)%
  Ratios/Supplemental Data
  Net assets, end of        $3,988   $5,041   $5,672   $5,428   $4,685
  period (in millions)
                            ----------------------------------------------
  Ratio of expenses to        0.75%    0.74%    0.74%    0.73%    0.77%
  average net assets
                            ----------------------------------------------
  Ratio of net income to      0.75%    0.67%    0.31%    0.20%    0.34%
  average net assets
                            ----------------------------------------------
  Portfolio turnover rate     40.9%    54.8%    55.8%    74.3%    64.1%
 ------------------------------------------------------------------------------






 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

The intermediary must provide us with its certified Social Security or tax
identification number (TIN). Otherwise, federal law requires the funds to
withhold a percentage (currently 30%) of dividends, capital gain distributions,
and redemptions, and may subject the intermediary or account holder to an IRS
fine. If this information is not received within 60 days after the account is
established, the account may be redeemed at the fund's NAV on the redemption
date.

                                                              The information in
                                                         this section is for use
                                     by intermediaries only. Shareholders of the
   Advisor Class should contact their intermediary for information regarding the
 intermediary's policies on purchasing, exchanging, and redeeming fund shares as
                             well as initial and subsequent investment minimums.
All initial and subsequent investments by intermediaries must be made by bank
wire.

Opening a New Account
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts


Intermediaries should call Financial Institution Services for an account number
and assignment to a dedicated service representative and give the following wire
information to their bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number


Complete a New Account Form and mail it to one of the appropriate addresses
listed below. Intermediaries must also enter into a separate agreement with the
fund or its agent.

via U.S. Postal Service
T. Rowe Price Financial Institution Services
P.O. Box 17603
Baltimore, MD 21297-1603




T. ROWE PRICE                                 22
via private carriers/overnight services
T. Rowe Price Financial Institution Services
Four Financial Center
4515 Painters Mill Road
Owings Mills, MD 21117-4842



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------
$100 minimum purchase; $50 minimum for retirement plans, Automatic Asset
Builder, and gifts or transfers to minors (UGMA/UTMA) accounts

                                                                         By Wire
Intermediaries should call Financial Institution Services or use the wire
instructions listed in Opening a New Account.

                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Intermediaries should call
their Financial Institution Services representative.

                                                                     Redemptions

Unless otherwise indicated, redemption proceeds will be wired to the
intermediary's designated bank. Intermediaries should contact their Financial
Institution Services representative.



 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to refuse
any purchase or exchange order; (2) to cancel or rescind any purchase or
exchange order (including, but not limited to, orders deemed to result in
excessive trading, market timing, fraud, or 5% ownership) upon notice to the
intermediary within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (3)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (4) to otherwise modify
the conditions of purchase and any services at any time; and (5) to act on




                                             23
instructions reasonably believed to be genuine. These actions will be taken
when, in the sole discretion of management, they are deemed to be in the best
interest of the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.




T. ROWE PRICE                                 24

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.






                                             25



T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202

A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. Fund reports and other fund information are
available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. Copies of this information may be obtained, after paying a
duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the
Public Reference Room, Washington D.C. 20549-0102.

                                                   1940 Act File No. 811-579

                                                             E240-040 5/1/02


PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE

Health Sciences
Fund

 An aggressive stock fund seeking long-term capital growth through investments
 in companies expected to benefit from changes in the health care, medicine, or
 life sciences fields.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Health Sciences Fund, Inc.
Prospectus

May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  7
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions          10
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   14
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  17
              -----------------------------------------------
              Understanding Performance Information        19
              -----------------------------------------------
              Investment Policies and Practices            19
              -----------------------------------------------
              Financial Highlights                         24
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         26
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        27
              -----------------------------------------------
              Purchasing Additional Shares                 28
              -----------------------------------------------
              Exchanging and Redeeming Shares              29
              -----------------------------------------------
              Rights Reserved by the Funds                 31
              -----------------------------------------------
              Information About Your Services              31
              -----------------------------------------------
              T. Rowe Price Brokerage                      34
              -----------------------------------------------
              Investment Information                       35
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 36
              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks long-term capital appreciation.


 What is the fund's principal investment strategy?


   We will invest at least 80% of net assets in the common stocks of companies
   engaged in the research, development, production, or distribution of products
   or services related to health care, medicine, or the life sciences
   (collectively termed "health sciences"). While the fund can invest in
   companies of any size, the majority of fund assets are expected to be
   invested in large- and mid-capitalization companies.

   We divide the health sciences industry into four main areas: pharmaceuticals,
   health care services companies, products and devices providers, and
   biotechnology firms. Our allocation among these four areas will vary
   depending on the relative potential we see within each area and the outlook
   for the overall health sciences sector.

   The fund will use fundamental, bottom-up analysis that seeks to identify
   high-quality companies and the most compelling investment opportunities. In
   general, the fund will follow a growth investment strategy, seeking companies
   whose earnings are expected to grow faster than inflation and the economy in
   general. When stock valuations seem unusually high, however, a "value"
   approach, which gives preference to seemingly undervalued companies, may be
   emphasized.


   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.




T. ROWE PRICE                                 2
 What are the main risks of investing in the fund?

   Since this fund is concentrated in the health sciences industry, it is less
   diversified than stock funds investing in a broader range of industries and,
   therefore, could experience significant volatility. It may invest a
   considerable portion of assets in companies in the same business, such as
   pharmaceuticals, or in related businesses, such as hospital management and
   managed care.

   Developments that could adversely affect the fund's share price include:

  . increased competition within the health care industry;

  . changes in legislation or government regulations;

  . reductions in government funding;

  . product liability or other litigation; and

  . the obsolescence of popular products.

   The level of risk will be increased to the extent that the fund has
   significant exposure to smaller or unseasoned companies (those with less than
   a three-year operating history), which may not have established products or
   more experienced management.

   Growth stocks can have steep declines if their earnings disappoint investors.
   The value approach carries the risk that the market will not recognize a
   security's intrinsic value for a long time, or that a stock judged to be
   undervalued may actually be appropriately priced.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.




MORE ABOUT THE FUND                           3
 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you seek an aggressive approach to capital growth
   through investment in health sciences stocks, and can accept the potential
   for above-average price fluctuations, the fund could be an appropriate part
   of your overall investment strategy. This fund should not represent your
   complete investment program or be used for short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 4



         Calendar Year Total Returns
   "96"      "97"      "98"      "99"      "00"    "01"
 ------------------------------------------------------
                              
  26.75    19.41    22.37    7.97     52.19   -5.97
 ------------------------------------------------------



                  Quarter ended    Total return

 Best quarter        6/30/01          22.24%
 Worst quarter       3/31/01         -25.39%




 Table 1  Average Annual Total Returns

                                                Periods ended
                                              December 31, 2001
                                                         Since inception
                                      1 year   5 years     (12/29/95)
 ------------------------------------------------------------------------------
                                  
  Health Sciences Fund
  Returns before taxes                -5.97%    17.69%        19.14%
  Returns after taxes on
  distributions                       -6.49     15.56         17.09
  Returns after taxes on
  distributions and sale of fund
  shares                              -3.59     13.95         15.36
  S&P 500 Stock Index                -11.89     10.70         12.64
  Lipper Health/Biotechnology Fund   -10.46     16.61        15.99*
  Index
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.

 * Since 12/31/95.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.




MORE ABOUT THE FUND                           5


 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.67%
  Other expenses                                             0.35%
  Total annual fund operating expenses                       1.02%
 --------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $104        $325         $563          $1,248
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   The fund's program reflects the view of T. Rowe Price that rapid advances in
   the health care, medicine, and life sciences fields offer substantial
   opportunities for superior long-term capital appreciation. The health care
   field is experiencing unprecedented change, and there have been significant
   efforts by consumers, corporations, insurers, and governments to slow
   escalating costs. At the same time, the aging of the American population
   could result in a higher portion of gross domestic product being spent on
   health care and medicine in the future. Industry consolidation, the shift
   from medical treatment to prevention, quicker approval of new drugs, the
   possible restructuring of Medicare/Medicaid, and the prolonging of life
   through new technology are major forces transforming health sciences
   companies. These factors could present very favorable prospects over the long
   term for companies that can provide quality products and services at a
   competitive price.




T. ROWE PRICE                                 6
 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




T. ROWE PRICE                                 8
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




MORE ABOUT THE FUND                           9
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




T. ROWE PRICE                                 10
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








MORE ABOUT THE FUND                           11

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




T. ROWE PRICE                                 12
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions
   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.





   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




MORE ABOUT THE FUND                           13
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




T. ROWE PRICE                                 14
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




MORE ABOUT THE FUND                           15
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




T. ROWE PRICE                                 16
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 1995 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




T. ROWE PRICE                                 18
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Kris H. Jenner, M.D., D. Phil., Chairman, Laurie M. Bertner, John H. Laporte,
   Christopher R. Leonard, Jay S. Markowitz, Charles G. Pepin, and John C.A.
   Sherman. The committee chairman has day-to-day responsibility for managing
   the fund and works with the committee in developing and executing the fund's
   investment program. Dr. Jenner was elected chairman of the fund's committee
   in 2000. He joined T. Rowe Price as an analyst in 1997 and has been managing
   investments since 1998. From 1995 through 1997, while on leave from the
   general surgery residency program at the Johns Hopkins Hospital, he was a
   post doctoral fellow at the Brigham and Women's Hospital, Harvard Medical
   School.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------




   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion

   at December 31, 2001, the group fee was 0.32%. .  The individual fund fee is
   0.35%.




MORE ABOUT THE FUND                           19
 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are dis-




T. ROWE PRICE                                 20
   cussed with shareholders in fund reports. Fund investment restrictions and
   policies apply at the time of investment. A later change in circumstances
   will not require the sale of an investment if it was proper at the time it
   was made.


   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities.




MORE ABOUT THE FUND                           21
   While most preferred stocks pay a dividend, preferred stock may be purchased
   where the issuer has omitted, or is in danger of omitting, payment of its
   dividend. Such investments would be made primarily for their capital
   appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 35%
   of total assets.

   Health Sciences Industry Concentration
   The fund will concentrate its investments in the health sciences industry as
   defined by this prospectus. As noted, the fund's narrower investment focus
   and concentration in a relatively volatile part of the market will likely
   make this fund's NAV fluctuate more than that of a broadly diversified
   portfolio.

   Fundamental policy  As a matter of fundamental policy, the fund will
   concentrate (invest more than 25% of its total assets) in the health sciences
   industry as defined in this prospectus.




T. ROWE PRICE                                 22
   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.




MORE ABOUT THE FUND                           23
   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some




T. ROWE PRICE                                 24
   future date at a specified exchange rate. However, futures, swaps, and
   options on these instruments may also be used. In certain circumstances, a
   "proxy currency" may be substituted for the currency in which the investment
   is denominated, a strategy known as "proxy hedging." If the fund were to
   engage in any of these foreign currency transactions, they would be primarily
   to protect a fund's foreign securities from adverse currency movements
   relative to the dollar. Such transactions involve the risk that anticipated
   currency movements will not occur, which could reduce fund total return.
   There are certain markets, including many emerging markets, where it is not
   possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




MORE ABOUT THE FUND                           25


 Table 4  Financial Highlights

                                           Year ended December 31
                            1997        1998        1999        2000        2001
 ------------------------            -----------------------------------------------------
                      

  Net asset value,
  beginning of period    $  12.27    $  13.66    $  16.01    $  15.93    $  21.70
  Income From Investment Operations
  Net investment income     (0.03)      (0.04)      (0.04)      (0.03)      (0.11)
                         ------------------------------------------------------------
  Net gains or losses
  on securities (both
  realized and               2.39        3.05        1.22        8.28       (1.20)
  unrealized)
                         ------------------------------------------------------------
  Total from investment
  operations                 2.36        3.01        1.18        8.25       (1.31)
  Less Distributions
  Dividends (from net          --          --          --          --          --
  investment income)
                         ------------------------------------------------------------
  Distributions (from       (0.97)      (0.66)      (1.26)      (2.48)      (0.31)
  capital gains)
                         ------------------------------------------------------------
  Returns of capital           --          --          --          --          --
                         ------------------------------------------------------------
  Total distributions       (0.97)      (0.66)      (1.26)      (2.48)      (0.31)
                         ------------------------------------------------------------
  Net asset value,       $  13.66    $  16.01    $  15.93    $  21.70    $  20.08
  end of period
                         ------------------------------------------------------------
  Total return              19.41%      22.37%       7.97%      52.19%      (5.97)%
  Ratios/Supplemental Data
  Net assets, end of     $271,351    $316,573    $302,510    $971,867    $960,787
  period (in thousands)
                         ------------------------------------------------------------
  Ratio of expenses to       1.18%       1.16%       1.11%       0.98%       1.02%
  average net assets
                         ------------------------------------------------------------
  Ratio of net income       (0.21)%     (0.25)%     (0.25)%     (0.22)%     (0.60)%
  to average net assets
                         ------------------------------------------------------------
  Portfolio turnover        104.4%       85.7%       81.9%      110.6%       74.6%
  rate
 -----------------------------------------------------------------------------------------






 INVESTING WITH T. ROWE PRICE

 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




MORE ABOUT THE FUND                           27
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




T. ROWE PRICE                                 28

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




MORE ABOUT THE FUND                           29
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




T. ROWE PRICE                                 30
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




MORE ABOUT THE FUND                           31
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




T. ROWE PRICE                                 32
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




MORE ABOUT THE FUND                           33
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




T. ROWE PRICE                                 34
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account Access-
Brokerage, you will pay a commission of $19.95 for up to 1,000 shares plus $.02
for each share over 1,000. Option trades entered through Account Access-
Brokerage save you 10% over our standard commission schedule. All trades are
subject to a $35 minimum commission except stock trades placed through Account
Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




MORE ABOUT THE FUND                           35
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




T. ROWE PRICE                                 36

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
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                                                                  F10-040 5/1/02
1940 Act File No. 811-07381


PROSPECTUS
                                                                     May 1, 2002
  (Equity Index 500, Extended Equity Market Index, and Total Equity Market Index
                                                                          Funds)
                                                                   March 1, 2002
                                                     (International Equity Index
                                                      and U.S. Bond Index Funds)

T. ROWE PRICE INDEX FUNDS

   Equity Index 500
   Extended Equity Market Index
   Total Equity Market Index
   International Equity Index
   U.S. Bond Index

 Five funds seeking to match performance of broad indices of common stocks and
 bonds.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Index Trust, Inc.
  T. Rowe Price Equity Index 500 Fund
  T. Rowe Price Extended Equity Market Index Fund
  T. Rowe Price Total Equity Market Index Fund
T. Rowe Price International Index Fund, Inc.
  T. Rowe Price International Equity Index Fund
T. Rowe Price U.S. Bond Index Fund, Inc.
  T. Rowe Price U.S. Bond Index Fund
Prospectus

May 1, 2002
(Equity Index 500, Extended Equity Market Index, and Total Equity Market Index
Funds)
March 1, 2002
(International Equity Index
and U.S. Bond Index Funds)




      
1             ABOUT THE FUNDS
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Funds            13
              -----------------------------------------------
              Some Basics of Fixed-Income Investing        14
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                 17
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions          20
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   24
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUNDS
              Organization and Management                  27
              -----------------------------------------------
              Understanding Performance Information        29
              -----------------------------------------------
              Investment Policies and Practices            30
              -----------------------------------------------
              Financial Highlights                         38
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         44
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        45
              -----------------------------------------------
              Purchasing Additional Shares                 46
              -----------------------------------------------
              Exchanging and Redeeming Shares              47
              -----------------------------------------------
              Rights Reserved by the Funds                 49
              -----------------------------------------------
              Information About Your Services              49
              -----------------------------------------------
              T. Rowe Price Brokerage                      52
              -----------------------------------------------
              Investment Information                       53
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 54
              -----------------------------------------------




The U.S. Bond Index, Equity Index 500, Extended Equity Market Index, and Total
Equity Market Index Funds are managed by T. Rowe Price Associates, Inc., which
was founded in 1937 and managed $156.3 billion as of December 31, 2001.

The International Equity Index Fund is managed by T. Rowe Price International,
Inc., which managed over $24.4 billion in foreign stocks and bonds as of
December 31, 2001, through its offices in Baltimore, London, Tokyo, Singapore,
Hong Kong, Buenos Aires, and Paris.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUNDS
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is each fund's objective?

   Equity Index 500 Fund seeks to match the performance of the Standard & Poor's
   500 Stock Index/(R)/. The S&P 500 is made up of primarily
   large-capitalization companies that represent a broad spectrum of the U.S.
   economy and a substantial part of the U.S. stock market's total
   capitalization. (Market capitalization is the number of a company's
   outstanding shares multiplied by the market price per share.)

   Extended Equity Market Index Fund seeks to match the performance of the U.S.
   stocks not included in the S&P 500. These are primarily small- and mid-
   capitalization stocks (market capitalization below the 1,000 largest
   companies in the U.S. stock market and between the 200 and 1,000 largest,
   respectively). We use the Wilshire 4500 Completion Index to represent this
   universe.

   Total Equity Market Index Fund seeks to match the performance of the entire
   U.S. stock market. We use the Wilshire 5000 Total Market Index to represent
   the market as a whole. Because the largest stocks in the index carry the most
   weight, large-capitalization stocks make up a substantial majority of the
   Wilshire 5000's value.


   International Equity Index Fund seeks to provide long-term capital growth. We
   use the FTSE(TM) International Limited ("FTSE") Developed ex North America
   Index, an equity market index based on the market capitalization of over
   1,000 predominately large companies listed in 21 countries, including Japan,
   the U.K., and developed countries in Continental Europe and the Pacific Rim.


   U.S. Bond Index Fund seeks to match the total return performance of the U.S.
   investment-grade bond market. We use the Lehman Brothers U.S. Aggregate
   Index, which typically includes more than 5,000 fixed-income securities with
   an overall intermediate to long average maturity. The range was 7.7 to 9.0
   years for the last five years ending December 31, 2001, although it will vary
   with market conditions.

   The inclusion of a stock or bond in the S&P 500, the Wilshire, the FTSE(TM),
   or the Lehman Brothers indices is not an endorsement by Standard & Poor's,
   Wilshire Associates, FTSE(TM), or Lehman Brothers of the stock or bond as an
   investment, nor are S&P, Wilshire, FTSE(TM), and Lehman Brothers sponsors of
   the funds or in any way affiliated with them.

   Standard & Poor's, S&P, S&P 500 Index, Standard & Poor's 500, and 500 are
   trademarks of McGraw-Hill, Inc. and have been licensed for use by the fund.



T. ROWE PRICE                                 2
   Wilshire and Wilshire 5000 are registered service marks of Wilshire
   Associates Incorporated of Santa Monica, California.

   "FTSE(TM)" is a trademark jointly owned by the London Stock Exchange Limited
   and The Financial Times Limited and is used by FTSE International Limited
   under license.


 What is each fund's principal investment strategy?

   Equity Index 500 Fund invests substantially all of its assets in all of the
   stocks in the S&P 500 Index. We attempt to maintain holdings of each stock in
   proportion to its weight in the index. This is known as a full replication
   strategy.

   Standard & Poor's constructs the index by first identifying major industry
   categories and then allocating a representative sample of the larger and more
   liquid stocks in those industries to the index. S&P weights each stock
   according to its total market value. For example, the 50 largest companies in
   the index may account for over 50% of its value.

   Extended Equity Market Index Fund uses a sampling strategy, investing
   substantially all of its assets in a group of stocks representative of the
   Wilshire 4500 Index. The fund does not attempt to fully replicate the index
   by owning each of the stocks in it. Despite its name, the Wilshire 4500
   includes more than 5,500 stocks.

   Total Equity Market Index Fund also uses a sampling strategy, investing
   substantially all of its assets in a broad spectrum of small-, mid-, and
   large-capitalization stocks representative of the Wilshire 5000 Index. The
   Wilshire 5000 includes approximately 6,000 stocks.

   In an attempt to recreate the Wilshire indices, we select stocks in terms of
   industry, size, and other characteristics. For example, if technology stocks
   made up 15% of the Wilshire 4500 Index, the Extended Equity Market Index Fund
   would invest about 15% of its assets in technology stocks with similar
   characteristics. Several factors are considered in selecting representative
   stocks, including historical price movement, market capitalization,
   transaction costs, and others.

   International Equity Index Fund seeks to match the performance of the
   FTSE(TM) Developed ex North America Index by using a full replication
   strategy. This involves investing substantially all of its assets in all of
   the stocks in the index in proportion to each stock's weight in the index.
   The index is constructed by selecting the countries it covers, sorting the
   market by industry groups, and
   targeting a significant portion of them for inclusion in the index. Until the
   fund reaches a sufficient size, it will use a sampling strategy, investing in
   a group of stocks that is representative of the index.



                                             3
   U.S. Bond Index Fund also uses a sampling strategy, investing substantially
   all fund assets in bonds specifically represented in the Lehman Brothers U.S.
   Aggregate Index. Within each broad segment of the benchmark, such as
   government bonds, mortgages, and corporate issues, we will select a set of
   U.S. dollar-denominated bonds that represents key benchmark traits. The most
   important of these traits are interest rate sensitivity, credit quality, and
   sector diversification, although other characteristics will be reflected. The
   fund's holdings will normally include U.S. government and agency obligations,
   mortgage- and asset-backed securities, corporate bonds, and U.S.
   dollar-denominated securities of foreign issuers.

   All funds

   T. Rowe Price continually compares the composition of all funds to that of
   the indices. If a misweighting develops, the portfolios are rebalanced in an
   effort to bring them into line with their respective indices. In addition to
   stocks, the stock funds may purchase exchange traded funds, stock index
   futures, or stock options in an effort to minimize any deviations in
   performance with their indices. In addition to its normal investments, the
   bond fund may purchase collateralized mortgage obligations (CMOs) and certain
   types of derivatives, provided they have similar characteristics to index
   securities but potentially offer more attractive prices, yields, or
   liquidity. Derivatives, such as futures and options, will not exceed 10% of
   the fund's total assets. This flexibility in investing is intended to help
   the manager keep the fund's composition in line with the index and minimize
   deviations in performance between the fund and the index.



 Table 1  Index Funds Comparison Guide

                                           
                         Investment               Principal types
  Fund                   emphasis                 of securities

  Equity Index 500       S&P 500 stocks           Large-cap
                         -------------------------------------------------
  Extended Equity        Broad market apart from  Small- and mid-cap
  Market Index           S&P 500 stocks           stocks
                         -------------------------------------------------
  Total Equity Market    Broad market including   Blend of small-,
  Index                  S&P 500 stocks           large-, and mid-cap
                                                  stocks
                         -------------------------------------------------
  International Equity   FTSE(TM) Developed ex    Large companies in 21
  Index                  North America Index      countries, including
                                                  Japan, the U.K., and
                                                  developed countries in
                                                  Continental Europe and
                                                  the Pacific Rim
                         -------------------------------------------------
  U.S. Bond Index        Lehman Brothers U.S.     U.S. investment-grade
                         Aggregate Index          bonds
 ------------------------------------------------------------------------------






T. ROWE PRICE                                 4
   While there is no guarantee, the investment manager expects the correlation
   between each fund and its index to be at least .95. A correlation of 1.00
   means the returns of the fund and the index move in the same direction (but
   not necessarily by the same amount). A correlation of 0.00 means movements in
   the fund are unrelated to movements in the index.


   Each fund may sell securities to better align its portfolio with the
   characteristics of its benchmark or satisfy redemption requests. However, the
   funds are not required to sell specific issues that have been removed from
   their respective
   indices.


   3 For details about each fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the funds?

   Equity Index 500, Extended Equity Market Index, Total Equity Market Index,
   and International Equity Index Funds

   The funds are designed to track broad segments of the U.S. and foreign stock
   markets--whether they are rising or falling. Markets as a whole can decline
   for many reasons, including adverse political or economic developments here
   or abroad, changes in investor psychology, or heavy institutional selling.

   Since each fund is passively managed and seeks to remain fully invested at
   all times, assets cannot be shifted from one stock or group of stocks to
   another based on their prospects, or from stocks into bonds or cash
   equivalents in an attempt to cushion the impact of a market decline.
   Therefore, actively managed funds may outperform these funds.

   Equity Index 500 Fund  While there is no guarantee, this fund should tend to
   be less volatile than the other three stock portfolios because of its focus
   on U.S., larger-cap stocks. The fund emphasizes large-cap stocks, which may
   at times lag shares of smaller, faster-growing companies. It may also pay a
   modest dividend that can help offset losses in falling markets.

   Extended Equity Market Index Fund  This fund will be subject to the greater
   risks associated with small- and mid-cap stocks. Smaller companies often have
   limited product lines, markets, or financial resources, and may depend on a
   small group of inexperienced managers. The securities of small companies may
   have limited marketability and liquidity and are often subject to more abrupt
   or erratic market movements than shares of larger companies or the major
   market averages. The very nature of investing in smaller companies involves
   greater risk than is customarily associated with large-cap companies.



                                             5
   Total Equity Market Index Fund  While there is no guarantee, this fund is
   expected to have a risk level between the other two U.S. funds, and should
   have higher dividends than the Extended Equity Market Index Fund.


   International Equity Index Fund  Funds that invest overseas generally carry
   more risk than funds that invest strictly in U.S. assets. Even investments in
   countries with highly developed economies are subject to significant risks.
   Some particular risks affecting this fund include the following:


  . Currency risk  This refers to a decline in the value of a foreign currency
   versus the U.S. dollar, which reduces the dollar value of securities
   denominated in that currency. The overall impact on a fund's holdings can be
   significant, unpredictable, and long-lasting depending on the currencies
   represented in the portfolio and how each one appreciates or depreciates in
   relation to the U.S. dollar. Under normal conditions, the fund does not
   expect to hedge its currency exposure.

  . Geographic risk  The economies and financial markets of various regions can
   be interdependent and may all decline at the same time.

  . Other risks of foreign investing  Risks can result from the varying stages
   of economic and political development, differing regulatory environments,
   trading days, and accounting standards, and higher transaction costs of
   non-U.S. markets. Investments outside the United States could be subject to
   governmental actions such as capital or currency controls, nationalization of
   a company or industry, expropriation of assets, or imposition of high taxes.


   3 While certain countries have made progress in economic growth,
     liberalization, fiscal discipline, and political and social stability,
     there is no assurance these trends will continue.

   All stock funds

   Tracking error  The use of sampling for the Extended Equity Market Index and
   Total Equity Market Index Funds will likely result in some deviation from
   their respective indices. In addition, for all four index funds, returns are
   likely to be slightly below those of the indices because the funds have fees
   and transaction expenses while indices have none. The timing of cash flows
   and a fund's size can also influence returns. For example, a fund's failure
   to reach a certain asset size may limit its ability to purchase all the
   stocks in the index and achieve full replication.

   Futures/options risk  To the extent the funds use futures and options, they
   are exposed to additional volatility and potential losses.



T. ROWE PRICE                                 6
   U.S. Bond Index Fund

   U.S. Bond Index Fund  This fund is designed to track the performance of
   investment-grade bonds, regardless of whether they are rising or falling.
   Because index funds are passively managed and fully invested at all times,
   assets cannot be shifted from one bond or group of bonds to another based on
   their prospects in an attempt to cushion the impact of a market decline.
   Therefore, actively managed funds may outperform index funds. In addition,
   index funds carry the same overall risks as the indexes they are designed to
   track. The following are the principal risks of the fund:

  . Interest rate risk  Investors should be concerned primarily with this risk
   because the Lehman Brothers U.S. Aggregate Index has typically had an
   intermediate to long weighted average maturity. An increase in interest rates
   will likely cause the fund's share price to fall, resulting in a loss of
   principal (see Table 4). That's because the bonds and fixed-income securities
   in the fund's portfolio become less attractive to other investors when
   securities with higher yields become available. Even GNMAs and other
   securities whose principal and interest payments are guaranteed can decline
   in price if rates rise. Generally speaking, the longer a bond's maturity, the
   greater its potential for price declines if rates rise and for price gains if
   rates fall. Therefore, this fund carries more interest rate risk than
   short-term bond funds.

  . Credit risk  This is the chance that any of the fund's holdings will have
   its credit rating downgraded or will default (fail to make scheduled interest
   or principal payments), potentially reducing the fund's income level and
   share price.

   Investment-grade (AAA to BBB) securities have relatively low financial risk
   and a relatively high probability of future payment. However, securities
   rated BBB are more susceptible to adverse economic conditions and may have
   speculative characteristics.


   3 The fund may continue to hold a security that has been downgraded or loses
     its investment-grade rating after purchase.


  . Prepayment risk and extension risk A mortgage-backed bond, unlike most other
   bonds, can be hurt when interest rates fall, because homeowners tend to
   refinance and prepay principal. Receiving increasing prepayments in a falling
   interest rate environment causes the average maturity of the portfolio to
   shorten, reducing its potential for price gains. It also requires the fund to
   reinvest proceeds at lower interest rates, which reduces the portfolio's
   total return, reduces its yield, and may even cause certain bonds' prices to
   fall below what the fund paid for them, resulting in a capital loss. Any of
   these developments could cause a decrease in the fund's income, share price,
   or total return.



                                             7
   Extension risk refers to a rise in interest rates that causes a fund's
   average maturity to lengthen unexpectedly due to a drop in mortgage
   prepayments. This would increase the fund's sensitivity to rising rates and
   its potential for price declines.

  . Derivatives risk  Shareholders are also exposed to derivatives risk, the
   potential that our investments in these complex and volatile instruments
   could affect the fund's share price. In addition to CMOs and better-known
   instruments such as swaps and futures, other derivatives that may be used in
   limited fashion by the fund include interest-only (IO) and principal-only
   (PO) securities known as "strips." The value of these instruments is derived
   from an underlying pool of mortgage-backed securities or a CMO. Some of these
   instruments can be highly volatile, and their value can fall dramatically in
   response to rapid or unexpected changes in the mortgage, interest rate, or
   economic environment.

  . Tracking error  Differences between the composition of the fund and its
   index, as well as differences in pricing sources, will likely result in
   tracking error, or the risk that fund performance will not match that of the
   index. Tracking error will also result because the fund incurs fees and
   transaction expenses while indices have none. The timing of cash flows and
   the fund's size can also influence returns.


   All funds

   As with any mutual fund, there can be no guarantee the funds will achieve
   their objectives.


   3 Each fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell which fund is most appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. The segments of the market to which you want
   exposure and the degree of volatility you can accept in pursuit of income or
   long-term capital gains can guide you in choosing among the funds. The fund
   or funds you select should not represent your complete investment program or
   be used for short-term trading purposes.

   If you seek a relatively low-cost way of participating in the U.S. equity
   markets through a passively managed portfolio, the Equity Index 500, Extended
   Equity Market Index, or Total Equity Market Index Funds could be an
   appropriate part of your overall investment strategy.



T. ROWE PRICE                                 8
   The S&P 500 Index is one of the most widely tracked stock indices in the
   world. If you want to closely match the performance of the mostly large-cap
   stocks in this index, with the same level of risk, the Equity Index 500 Fund
   may be an appropriate choice.

   If you seek potentially higher returns, can assume greater risk, and want
   broad exposure to small- and mid-cap stocks, you may wish to invest in the
   Extended Equity Market Index Fund.

   If your risk profile is between that of the Equity Index 500 Fund and
   Extended Equity Market Index Fund, and you would like to participate in the
   entire U.S. stock market, you may want to consider the Total Equity Market
   Index Fund.


   If you want to diversify your domestic stock portfolio by adding exposure to
   an index of developed international stock markets and can accept the risks
   that accompany foreign investments, the International Equity Index Fund could
   be an appropriate part of your overall investment strategy.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.

   If you seek a low-cost way to participate in the U.S. investment-grade bond
   market through a fund that tracks a well-known benchmark, the U.S. Bond Index
   Fund may be an appropriate investment.

   Each fund can be used in both regular and tax-deferred accounts, such as
   IRAs.


 How has each fund performed in the past?

   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The funds can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.



                                             9



                                              Calendar Year Total Returns
          Fund                "92"     "93"    "94"    "95"     "96"    "97"   "98"   "99"    "00"    "01"
 ---------------------------------------------------------------------------------------------------------
                                                             
  Equity Index 500        7.19   9.42    1.01   37.16  22.65  32.87  28.31  20.64   -9.30  -12.17
  Extended Equity
  Market Index                --     --        --         --       --       --       --     33.72  -15.58   -9.55
  Total Equity
  Market Index                --     --        --         --       --       --       --     23.25  -10.33  -11.20
  International
  Equity Index                  --     --        --         --       --       --      --       --        --      -21.36
  U.S. Bond Index            --     --        --         --       --       --      --      --         --         7.87
 ----------------------------------------------------------------------------------------------------------


 Equity Index 500              Quarter ended   Total return
  Best quarter                          12/31/98         21.31%
  Worst quarter                         9/30/01        -14.68%

 Extended Equity Market Index  Quarter ended   Total return
  Best quarter                                     12/31/99          28.48%
  Worst quarter                                  9/30/01         -21.01%

 Total Equity Market Index     Quarter ended   Total return
  Best quarter                                  12/31/99        17.85%
  Worst quarter                               9/30/01        -15.92%

 International Equity Index    Quarter ended   Total return
  Best quarter                             12/31/01         6.20%
  Worst quarter                           9/30/01        -14.81%

U.S. Bond Index                Quarter ended   Total return
 Best quarter                             9/30/01         4.51%
 Worst quarter                        12/31/01         0.13%





                                             11


 Table 2  Average Annual Total Returns

                                    Periods ended December 31, 2001
                                           Shorter of 10 years
                         1 year   5 years  or since inception    Inception date
 ------------------------
                      
  Equity Index 500 Fund
  Returns before taxes   -12.17%  10.38%          12.56%            3/30/90
  Returns after taxes
  on distributions       -12.55    9.77           11.57
  Returns after taxes
  on distributions and
  sale of fund shares     -7.42    8.32           10.23
  S&P 500 Stock Index    -11.89   10.70           12.94
  Extended Equity Market Index Fund
  Returns before taxes    -9.55       -            3.55             1/30/98
  Returns after taxes
  on distributions       -10.35       -            2.24
  Returns after taxes
  on distributions and
  sale of fund shares     -5.62       -            2.44
  Wilshire 4500
  Completion Index*       -9.33       -            3.41
  Total Equity Market Index Fund
  Returns before taxes   -11.20       -            4.96             1/30/98
  Returns after taxes
  on distributions       -11.55       -            4.44
  Returns after taxes
  on distributions and
  sale of fund shares     -6.81       -            3.80
  Wilshire 5000 Total
  Market Index*          -10.97       -            4.84
  International Equity Index Fund
  Returns before taxes   -21.36       -          -18.03             11/30/00
  Returns after taxes
  on distributions       -21.54       -          -18.16
  Returns after taxes
  on distributions and
  sale of fund shares    -12.92       -          -14.40
  FTSE/TM/ Developed ex
  North America Index    -20.96       -          -17.12
  U.S. Bond Index Fund
  Returns before taxes     7.87       -            9.24             11/30/00
  Returns after taxes
  on distributions         5.49       -            6.79
  Returns after taxes
  on distributions and
  sale of fund shares      4.75       -            6.17
  Lehman Brothers U.S.     8.44       -            9.61
  Aggregate Index
 -------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.

 *Wilshire data calculated as of 1/9/02.



T. ROWE PRICE                                 12
 What fees or expenses will I pay?

   The funds are 100% no load. However, the funds charge a redemption fee,
   payable to the funds, on shares held less than six months. The fee is 1% for
   International Equity Index Fund and 0.50% for the other funds. The purpose of
   the fee is to discourage short-term trading, which increases transaction
   costs for the funds.


   The Extended Equity Market Index, Total Equity Market Index, International
   Equity Index, and U.S. Bond Index Funds each have a single fee covering
   investment management and ordinary recurring operating expenses (other than
   fees and expenses for the funds' independent directors). In contrast, most
   mutual funds have a fixed management fee plus a fee for operating expenses.


   There are no other fees or charges to buy or sell fund shares, reinvest
   dividends, or exchange into other T. Rowe Price funds. There are no 12b-1
   fees.



 Table 3  Fees and Expenses of the Funds*

                    Shareholder fees (fees
                    paid directly from your                  Annual fund operating expenses
                          investment)                (expenses that are deducted from fund assets)
                                  Account                           Total annual    Fee waiver/
                    Redemption  maintenance  Management   Other    fund operating     expense        Net
       Fund           fee/a/      fee/b/        fee      expenses     expenses     reimbursement  expenses
                 

  Equity Index 500   0.50%       $10           0.15%      0.25%        0.40%          0.05%/c/     0.35%/c/
                    -----------------------------------------------------------------------------------------
  Extended Equity    0.50        10            0.40///d/    --         0.40             --         0.40///d/
  Market Index
                    -----------------------------------------------------------------------------------------
  Total Equity       0.50        10            0.40///d/    --         0.40             --         0.40///d/
  Market Index
                    -----------------------------------------------------------------------------------------
  International      1.00        10            0.50///d/    --         0.50             --         0.50///d/
  Equity Index
                    -----------------------------------------------------------------------------------------
  U.S. Bond Index    0.50        10            0.30///d/    --         0.30             --         0.30///d/
 ------------------------------------------------------------------------------------------------------------





 *Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
  paid to the fund. Accounts with less

  than a $2,000 balance (with certain exceptions) are subject to a $10 fee. See
  Transaction Procedures and Special

  Requirements - Account Maintenance and Small Account Fees.

 /a/       On shares purchased and held for less than six months.

 /b/A $2.50 quarterly fee is charged for accounts with balances less than
   $10,000.


 /c/Effective January 1, 2001, T. Rowe Price contractually obligated itself to
   waive its fees and bear any expenses through December 31, 2003, to the extent
   such fees or expenses would cause the fund's ratio of expenses to average net
   assets to exceed 0.35%. Fees waived or expenses paid or assumed under this
   agreement are subject to reimbursement to T. Rowe Price by the fund whenever
   the fund's expense ratio is below 0.35%; however, no reimbursement will be
   made after December 31, 2005, or if it would result in the expense ratio
   exceeding 0.35%. Any amounts reimbursed will have the effect of increasing
   fees otherwise paid by the fund. The fund operated under a previous expense
   limitation for which T. Rowe Price may be reimbursed.

 /d/       The management fee includes operating expenses.



                                             13
   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in
   these funds with that of other mutual funds. Although your actual costs may
   be higher or lower, the table shows how much you would pay if operating
   expenses remain the same, the expense limitation currently in place is not
   renewed (if applica

   ble), you invest $10,000, earn a 5% annual return, and hold the investment
   for the following periods and then redeem:




     Fund                          1 year  3 years  5 years  10 years
    ------------------------------------------------------------------------
                                
     Equity Index 500               $36     $118     $214      $495
                                   ------------------------------------
     Extended Equity Market Index    41      128      224       505
                                   ------------------------------------
     Total Equity Market Index       41      128      224       505
                                   ------------------------------------
     International Equity Index      51      160      279       628
                                   ------------------------------------
     U.S. Bond Index                 31       97      169       381
    ------------------------------------------------------------------------






 OTHER INFORMATION ABOUT THE FUNDS
 ----------------------------------------------------------

 How does a stock or bond index mutual fund differ from the typical stock or
 bond mutual fund?

   Both types of index funds are passively managed, attempting to deviate as
   little as possible from a particular benchmark. Since fewer resources are
   devoted to researching stocks or bonds, and portfolio turnover (the buying
   and selling of securities) is low, an index fund incurs lower costs than the
   average equity or bond fund. The typical equity or bond fund is actively
   managed, meaning the manager makes purchase and sell decisions based on a
   particular security's prospects in pursuit of the fund's investment
   objective. In addition, index funds are almost entirely invested in stocks or
   bonds while actively managed funds often hold cash for strategic and
   defensive purposes.

   International Equity Index Fund


 What specific markets are included in the FTSE(TM) Developed ex North America
 Index?

   The countries in the index as of January 1, 2002, were: Australia, Austria,
   Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland,
   Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain,
   Sweden, Switzerland, and United Kingdom.

   Countries may be removed or added to the index at any time. The index's
   performance reflects the reinvestment of all dividends and capital gains.



T. ROWE PRICE                                 14
   U.S. Bond Index Fund


 What types of securities are included in the Lehman Brothers U.S. Aggregate
 Index?

   The index represents the U.S. investment-grade fixed-rate bond market, with
   components for government and corporate securities, mortgage pass-through
   securities, and asset-backed securities. To be included in the index, a
   security must be U.S. dollar-denominated; have at least one year to final
   maturity; have a $150 million par amount outstanding; and be rated investment
   grade by a major rating service.

   All funds


 What are some of the funds' potential rewards?

  . Index investing provides investors with a convenient and relatively low-cost
   way to approximate the performance of a particular market.

  . Because the funds are passively managed, their expenses are lower than the
   average actively managed fund. Assuming all other factors are equal, lower
   expenses can increase a fund's total return.

  . Lower turnover should mean smaller capital gain distributions, which can
   raise a fund's after-tax returns.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the funds may purchase as well as types of management
   practices the funds may use.



 SOME BASICS OF FIXED-INCOME INVESTING
 ----------------------------------------------------------
   U.S. Bond Index Fund


 Is a fund's yield fixed or will it vary?

   It will vary. The yield is calculated every day by dividing a fund's net
   income per share, expressed at annual rates, by the share price. Since both
   income and share price will fluctuate, a fund's yield will also vary.
   (Although money fund prices are stable, income is variable.)


 Is yield the same as total return?

   Not for bond funds. A fund's total return is the result of reinvested
   distributions from income and capital gains and the change in share price for
   a given period. Income is always a positive contributor to total return and
   can either enhance a rise in share price or help offset a price decline.



                                             15
 What is credit quality and how does it affect yield?

   Credit quality refers to a bond issuer's expected ability to make all
   required interest and principal payments on time. Because highly rated
   issuers represent less risk, they can borrow at lower interest rates than
   less creditworthy issuers. Therefore, a fund investing in high-quality
   securities should have a lower yield than an otherwise comparable fund
   investing in lower-quality securities.


 What is meant by a bond fund's maturity?

   Every bond has a stated maturity date when the issuer must repay the bond's
   entire principal value to the investor. However, many bonds are "callable,"
   meaning their principal can be repaid earlier, on or after specified call
   dates. Bonds are most likely to be called when interest rates are falling
   because the issuer can refinance at a lower rate, just as a homeowner
   refinances a mortgage. In that environment, a bond's "effective maturity" is
   usually its nearest call date. For example, the rate at which homeowners pay
   down their mortgage principal

   determines the effective maturity of mortgage-backed bonds.

   A bond mutual fund has no real maturity, but it does have a weighted average
   maturity and a weighted average effective maturity. Each of these numbers is
   an average of the stated or effective maturities of the underlying bonds,
   with each bond's maturity "weighted" by the percentage of fund assets it
   represents. Some funds target effective maturities rather than stated
   maturities when computing the average. This provides additional flexibility
   in portfolio management.


 What is meant by a bond fund's duration?

   Duration is a calculation that seeks to measure the price sensitivity of a
   bond or a bond fund to changes in interest rates. It is expressed in years,
   like maturity, but it is a better indicator of price sensitivity than
   maturity because it takes into account the time value of cash flows generated
   over the bond's life. Future interest and principal payments are discounted
   to reflect their present value and then are multiplied by the number of years
   they will be received to produce a value expressed in years - the duration.
   "Effective" duration takes into account call features and sinking fund
   payments that may shorten a bond's life.

   Since duration can also be computed for bond funds, you can estimate the
   effect of interest rates on share prices by multiplying fund duration by an
   expected change in interest rates. For example, the price of a bond fund with
   a duration of five years would be expected to fall approximately 5% if rates
   rose by one percentage point. (T. Rowe Price shareholder reports show
   duration.)


 How is a bond's price affected by changes in interest rates?

   When interest rates rise, a bond's price usually falls, and vice versa. In
   general, the longer a bond's maturity, the greater the price increase or
   decrease in response to a given change in rates, as shown in Table 4.



T. ROWE PRICE                                 16

 Table 4  How Interest Rates May Affect Bond Prices

                                         Price of a $1,000 face value bond if interest rates:
  Bond maturity   Coupon                         Increase                                  Decrease
                                  1 percent                   2 percent            1 percent     2 percent
              

  1 year         2.07%               $990                        $981                $1,010        $1,020
  5 years        4.30                 957                         915                 1,046         1,094
  10 years       5.05                 926                         858                 1,082         1,171
  30 years       5.47                 868                         762                 1,164         1,371
 ------------------------------------------------------------------------------------------------------------------



 Coupons reflect yields on Treasury securities as of December 31, 2001. The
 table may not be representative of price changes for mortgage-backed securities
 because of prepayments. This is an illustration and does not represent expected
 yields or share price changes of any T. Rowe Price fund.


 T. ROWE PRICE ACCOUNT INFORMATION
   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.



T. ROWE PRICE                                 18
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions
   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.

   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.



                                             19
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee
   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.



T. ROWE PRICE                                 20
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.

   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


 Dividends and Other Distributions

   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.

   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.


 Table 5  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------






                                             21

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.



T. ROWE PRICE                                 22
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions
   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.

   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss must be reclassified to a long-term loss to the extent of any
   long-term capital gain




                                             23
   distribution received during the period you held the shares. Gains and losses
   from the sale of foreign currencies and the foreign currency gain or loss
   resulting from the sale of a foreign debt security can increase or decrease
   an ordinary income dividend. Net foreign currency losses may cause monthly or
   quarterly dividends to be reclassified as a return of capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging
   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.



T. ROWE PRICE                                 24
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions
   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000
   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.



                                             25
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).


  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




T. ROWE PRICE                                 26
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.

  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:

  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.
  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.

   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUNDS
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How are the funds organized?

   T. Rowe Price Index Trust, Inc. was incorporated in Maryland in 1989. It
   consists of three series and each is an open-end investment company, or
   mutual fund. The Equity Index 500 Fund was established in 1990, and the
   Extended Equity Market Index and Total Equity Market Index Funds were
   established in 1997. The Equity Index 500 Fund was originally established as
   the Equity Index Fund but changed its name effective January 30, 1998. The
   International Equity Index and the U.S. Bond Index Funds were incorporated in
   Maryland in 2000 as open-end investment companies. Mutual funds pool money
   received from shareholders and invest it to try to achieve specified
   objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.



T. ROWE PRICE                                 28
 Who runs the funds?

   General Oversight

   Each fund is governed by a Board of Directors that meets regularly to review
   fund investments, performance, expenses, and other business affairs. The
   Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price) and T. Rowe
   Price International, Inc. (T. Rowe Price International).


   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price or, for the International Equity Index Fund, T. Rowe Price
     International  -  specifically by each fund's portfolio managers.

   Equity Index 500, Extended Equity Market Index, and Total Equity Market Index
   Funds

   Portfolio Management

   Each fund has an Investment Advisory Committee with the following members:
   Richard T. Whitney, Chairman, Eugene F. Bair, Ann M. Holcomb, Raymond A.
   Mills, Ph.D., and M. Christine Munoz. The committee chairman has day-to-day
   responsibility for managing the portfolio and works with the committee in
   developing and executing each fund's investment program. Mr. Whitney has been
   a member of each fund's committee since the funds' inceptions. He joined T.
   Rowe

   Price in 1985 and has been managing investments since 1986.

   International Equity Index Fund

   Investment Manager
   T. Rowe Price International is responsible for the selection and management
   of each fund's portfolio investments. The company, a wholly owned subsidiary
   of T. Rowe Price Associates, is the successor to Rowe Price-Fleming
   International. The U.S. office of T. Rowe Price International is located at
   100 East Pratt Street, Baltimore, Maryland 21202. Offices are also located in
   London, Tokyo, Singapore, Hong Kong, Buenos Aires, and Paris.

   Portfolio Management
   The fund has an Investment Advisory Committee with the following members:
   Raymond A. Mills, Ph.D., Chairman, Jeanne M. Aldave, M. Christine Munoz, and
   Richard T. Whitney. The committee chairman has day-to-day responsibility for
   managing the fund and works with the committee in developing and executing
   the fund's investment program. Mr. Mills has been chairman of the fund's
   committee since its inception. He has been managing investments since 1998.
   From 1994 until joining T. Rowe Price in 1997 as an investment analyst, Mr.
   Mills was a Principal Systems Engineer with The Analytic Sciences
   Corporation.



                                             29
   U.S. Bond Index Fund

   Portfolio Management
   The fund has an Investment Advisory Committee with the following members:
   Edmund M. Notzon III, Chairman, Connice A. Bavely, Patrick S. Cassidy, Peter
   D. Leiser, Jr., Mary J. Miller, Vernon A. Reid, Jr., and Charles M. Shriver.
   The committee chairman has day-to-day responsibility for managing the fund
   and works with the committee in developing and executing the fund's
   investment program. Mr. Notzon has been chairman of the fund's committee
   since its inception. He has been managing investments since joining T. Rowe
   Price in 1989.

   All funds

   The Management Fee
   Each fund's fee is as follows: 0.15% for the Equity Index 500 Fund, 0.30% for
   the U.S. Bond Index Fund, 0.40% for the Extended Equity Market Index and
   Total Equity Market Index Funds, and 0.50% for the International Equity Index
   Fund, based on average daily net assets. The funds calculate and accrue the
   fees daily. For the Extended Equity Market Index, Total Equity Market Index,
   International Equity Index, and U.S. Bond Index Funds, the management fee
   includes ordinary recurring operating expenses, but does not cover interest,
   taxes, brokerage, non-recurring and extraordinary items or fees and expenses
   for the funds' independent directors.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.



T. ROWE PRICE                                 30
 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.


 Yield

   The current or "dividend" yield on a fund or any investment tells you the
   relationship between the investment's current level of annual income and its
   price on a particular day. The dividend yield reflects the actual income paid
   to shareholders for a given period, annualized, and divided by the price at
   the end of the period. For example, a fund providing $5 of annual income per
   share and a price of $50 has a current yield of 10%. Yields can be calculated
   for any time period.

   The advertised or SEC yield is found by determining the net income per share
   (as defined by the Securities and Exchange Commission) earned by a fund
   during a 30-day base period and dividing this amount by the per share price
   on the last day of the base period. The SEC yield-also called the
   standardized yield-may differ from the dividend yield.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.

   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.



                                             31
   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   All funds

   In seeking to meet their investment objectives, the funds may invest in any
   type of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with their investment programs. The following pages describe
   various types of fund securities and investment management practices.

   Each fund must invest at least 80% of its net assets in securities that make
   up its respective index.


   Fundamental policy  Each fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the funds.
   These limitations do

   not apply to each fund's purchase of securities issued or guaranteed by the
   U.S.

   government, its agencies, or instrumentalities.

   All funds except U.S. Bond Index Fund

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   U.S. Bond Index and International Equity Index Funds

   Fundamental policy  The funds will not invest more than 25% of their total
   assets (concentrate) in any single industry except to the extent the index
   concentrates in that industry.



T. ROWE PRICE                                 32
   U.S. Bond Index Fund

   Bonds
   A bond is an interest-bearing security. The issuer has a contractual
   obligation to pay interest at a stated rate on specific dates and to repay
   principal (the bond's face value) on a specified date. An issuer may have the
   right to redeem or "call" a bond before maturity, and the investor may have
   to reinvest the proceeds at lower market rates.

   A bond's annual interest income, set by its coupon rate, is usually fixed for
   the life of the bond. Its yield (income as a percent of current price) will
   fluctuate to reflect changes in interest rate levels. A bond's price usually
   rises when interest rates fall, and vice versa, so its yield stays consistent
   with current market conditions.

   Bonds may be unsecured (backed by the issuer's general creditworthiness only)
   or secured (also backed by specified collateral). Bonds include asset- and
   mortgage-backed securities.

   Certain bonds have interest rates that are adjusted periodically. These
   interest rate adjustments tend to minimize fluctuations in the bonds'
   principal values. The maturity of those securities may be shortened under
   certain specified conditions.

   Bonds may be designated as senior or subordinated obligations. Senior
   obligations generally have the first claim on a corporation's earnings and
   assets and, in the event of liquidation, are paid before subordinated debt.

   Foreign Securities
   Investments may be made in U.S. dollar-denominated foreign securities. Such
   investments increase a portfolio's diversification and may enhance return,
   but they also involve some special risks such as exposure to potentially
   adverse local political and economic developments; nationalization and
   exchange controls; potentially lower liquidity and higher volatility; and
   possible problems arising from accounting and disclosure, settlement, and
   regulatory practices that differ from U.S. standards.

   Asset-Backed Securities
   An underlying pool of assets, such as credit card or automobile trade
   receivables or corporate loans or bonds, backs these bonds and provides the
   interest and principal payments to investors. On occasion, the pool of assets
   may also include a swap obligation, which is used to change the cash flows on
   the underlying assets. As an example, a swap may be used to allow floating
   rate assets to back a fixed-rate obligation. Credit quality depends primarily
   on the quality of the underlying assets, the level of credit support, if any,
   provided by the structure or by a third-party insurance wrap, and the credit
   quality of the swap counterparty,



                                             33
   if any. The underlying assets (i.e., loans) are sometimes subject to
   prepayments, which can shorten the security's weighted average life and may
   lower its return. The value of these securities also may change because of
   actual or perceived changes in the creditworthiness of the originator, the
   servicing agent, the financial institution providing the credit support, or
   the swap counterparty.

   Mortgage-Backed Securities
   The fund may invest in a variety of mortgage-backed securities. Mortgage
   lenders pool individual home mortgages with similar characteristics to back a
   certificate or bond, which is sold to investors such as the fund. Interest
   and principal payments generated by the underlying mortgages are passed
   through to the investors. The "big three" issuers are the Government National
   Mortgage Association (GNMA), the Federal National Mortgage Association
   (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac).
   GNMA certificates are backed by the full faith and credit of the U.S.
   government, while others, such as Fannie Mae and Freddie Mac certificates,
   are only supported by the ability to borrow from the U.S. Treasury or by the
   credit of the agency. Private mortgage bankers and other institutions also
   issue mortgage-backed securities.

   Mortgage-backed securities are subject to scheduled and unscheduled principal
   payments as homeowners pay down or prepay their mortgages. As these payments
   are received, they must be reinvested when interest rates may be higher or
   lower than on the original mortgage security. Therefore, these securities are
   not an effective means of locking in long-term interest rates. In addition,
   when interest rates fall, the pace of mortgage prepayments picks up. These
   refinanced mortgages are paid off at face value (par), causing a loss for any
   investor who may have purchased the security at a price above par. In such an
   environment, this risk limits the potential price appreciation of these
   securities and can negatively affect the fund's net asset value. When rates
   rise, the prices of mortgage-backed securities can be expected to decline,
   although historically these securities have experienced smaller price
   declines than comparable quality bonds. In addition, when rates rise and
   prepayments slow, the effective duration of mortgage-backed securities
   extends, resulting in increased volatility.

   Additional mortgage-backed securities in which the fund may invest include:


  . Collateralized Mortgage Obligations CMOs are debt securities that are fully
   collateralized by a portfolio of mortgages or mortgage-backed securities. All
   interest and principal payments from the underlying mortgages are passed
   through to the CMOs in such a way as to create some classes with more stable
   average lives than the underlying mortgages and other classes with more
   volatile average lives. CMO classes may pay fixed or variable rates of
   interest, and certain classes have priority over others with respect to the
   receipt of prepayments.



T. ROWE PRICE                                 34

  . Stripped Mortgage Securities Stripped mortgage securities (a type of
   potentially high-risk derivative) are created by separating the interest and
   principal payments generated by a pool of mortgage-backed securities or a CMO
   to create additional classes of securities. Generally, one class receives
   only interest payments (IOs), and another receives principal payments (POs).
   Unlike with other mortgage-backed securities and POs, the value of IOs tends
   to move in the same direction as interest rates. The fund can use IOs as a
   hedge against falling prepayment rates (interest rates are rising) and/or a
   bear market environment. POs can be used as a hedge against rising prepayment
   rates (interest rates are falling) and/or a bull market environment. IOs and
   POs are acutely sensitive to interest rate changes and to the rate of
   principal prepayments.

   A rapid or unexpected increase in prepayments can severely depress the price
   of IOs, while a rapid or unexpected decrease in prepayments could have the
   same effect on POs. Of course, under the opposite conditions these securities
   may appreciate in value. These securities can be very volatile in price and
   may have lower liquidity than most other mortgage-backed securities. Certain
   non-stripped CMO classes may also exhibit these qualities, especially those
   that pay variable rates of interest that adjust inversely with, and more
   rapidly than, short-term interest rates. In addition, if interest rates rise
   rapidly and prepayment rates slow more than expected, certain CMO classes, in
   addition to losing value, can exhibit characteristics of longer-term
   securities and become more volatile. There is no guarantee that fund
   investments in CMOs, IOs, or POs will be successful, and fund total return
   could be adversely affected as a result.

  . Commercial Mortgage-Backed Securities (CMBS) CMBS are securities created
   from a pool of commercial mortgage loans, such as loans for hotels, shopping
   centers, office buildings, apartment buildings, etc. Interest and principal
   payments from the loans are passed on to the investor according to a schedule
   of payments. Credit quality depends primarily on the quality of the loans
   themselves and on the structure of the particular deal. Generally, deals are
   structured with senior and subordinate classes. The amount of subordination
   is determined by the rating agencies who rate the individual classes of the
   structure. Commercial mortgages are generally structured with prepayment
   penalties, which greatly reduces prepayment risk to the investor. However,
   the value of these securities may change because of actual or perceived
   changes in the creditworthiness of the individual borrowers, their tenants,
   the servicing agents, or the general state of commercial real estate. There
   is no limit on fund investments in these securities.

   Hybrid Instruments

   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount or interest rate of a hybrid could be tied (positively or
   negatively) to the price of some commodity, currency, or securities index or
   another interest rate




                                             35
   (each a "benchmark"). Hybrids can be used as an efficient means of pursuing a
   variety of investment goals, including duration management and increased
   total return. Hybrids may or may not bear interest or pay dividends. The
   value of a hybrid or its interest rate may be a multiple of a benchmark and,
   as a result, may be leveraged and move (up or down) more steeply and rapidly
   than the benchmark. These benchmarks may be sensitive to economic and
   political events which cannot be readily foreseen by the purchaser of a
   hybrid. Under certain conditions, the redemption value of a hybrid could be
   zero. Thus, an investment in a hybrid may entail significant market risks
   that are not associated with a similar investment in a traditional, U.S.
   dollar-denominated bond that has a fixed principal amount and pays a fixed
   rate or floating rate of interest. The purchase of hybrids also exposes the
   fund to the credit risk of the issuer of the hybrid. These risks may cause
   significant fluctuations in the net asset value of the fund.

   One type of hybrid the fund may purchase is the bond index swap. The fund
   would purchase these in an effort to mimic all or a portion of the index. An
   index swap can help the fund replicate the index when the fund is small or
   when investing cash flow.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   All funds

   Reserve Position
   Each fund will hold a certain portion of its assets in cash or cash
   equivalents. Each fund's reserve position can consist of shares of a T. Rowe
   Price internal money market fund and U.S. and foreign dollar-denominated
   money market securities, including repurchase agreements, in the two highest
   rating categories, maturing in one year or less. The reserve position
   provides flexibility in meeting redemptions, paying expenses, and in the
   timing of new investments.



T. ROWE PRICE                                 36
   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options
   The funds may make such investments to provide an efficient means of
   maintaining liquidity while being invested in the market, to facilitate
   trading or to reduce transaction costs. The funds may also purchase call
   options on stock indices or bonds (U.S. Bond Index Fund). Such options would
   be used in a manner similar to the funds' use of futures.

   Futures contracts and options prices can be highly volatile; using them could
   lower the funds' total returns and the potential loss from the use of futures
   can exceed the funds' initial investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for non-hedging purposes will not exceed 5% of each fund's net asset
   value. Options on bonds or indices: The funds will not commit more than 5% of
   total assets to premiums when purchasing call options.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   All funds except U.S. Bond Index Fund

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting



                                             37
   purchase of underlying securities. The risks of owning an ETF generally
   reflect the risks of owning the underlying securities they are designed to
   track, although lack of liquidity in an ETF could result in it being more
   volatile and ETFs have management fees which increase their costs.

   U.S. Bond Index Fund

   When-Issued Securities and Forward Commitment Contracts

   The fund may purchase securities on a when-issued or delayed delivery basis
   or may purchase or sell securities on a forward commitment basis. There is no
   limit on fund investments in these securities. The price of these securities
   is fixed at the time of the commitment to buy, but delivery and payment can
   take place a month or more later. During the interim period, the market value
   of the securities can fluctuate, and no interest accrues to the purchaser. At
   the time of delivery, the value of the securities may be more or less than
   the purchase or sale price. To the extent fund remains fully or almost fully
   invested (in securities with a remaining maturity of more than one year) at
   the same time it purchases these securities, there will be greater
   fluctuations in the fund's net asset value than if the fund did not purchase
   them.

   All funds

   Portfolio Turnover
   Turnover is an indication of frequency of trading. Each fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   portfolio turnover rates for the funds are shown in the Financial Highlights
   table.

   Standard & Poor's (Equity Index 500 Fund)
   Although S&P obtains information for inclusion in or for use in the
   calculation of the S&P 500 Index from sources which S&P considers reliable,
   S&P does not guarantee the accuracy and/or the completeness of the S&P 500
   Index or any data included therein. S&P makes no warranty, express or
   implied, as to results to be obtained by the fund, or any other person or
   entity from the use of the S&P 500 Index or any data included therein. S&P
   makes no express or implied warranties, and expressly disclaims all
   warranties of merchantability or fitness for a particular purpose with

   respect to the S&P 500 Index or any data included therein. . The fund is not
   sponsored, endorsed, sold, or promoted by S&P, and S&P makes no
   representation regarding the advisability of investing in the fund.



T. ROWE PRICE                                 38
   Wilshire Associates, Incorporated (Extended Equity Market Index and Total
   Equity Market Index Funds)
   These funds are not sponsored, endorsed, sold, or promoted by Wilshire, and
   Wilshire makes no representation regarding the advisability of investing in
   these funds.

   Because of the challenges of compiling data for very large indices, Wilshire
   may frequently revise or restate the historical performance data of the
   Wilshire 4500 Completion Index and the Wilshire 5000 Total Market Index. As a
   result, the performance of the Extended Equity Market Index Fund or the Total
   Equity Market Index Fund over short-term periods may appear to differ from
   the results of its benchmark.

   FTSE(TM) (International Equity Index Fund)
   The shares of the fund are not in any way sponsored, endorsed, sold, or
   promoted by FTSE(TM) or by the London Stock Exchange Limited (the "Exchange")
   or by the Financial Times Limited ("FT"), and FTSE(TM), the Exchange and FT
   do not make any warranty or representation whatsoever, expressly or
   impliedly, either as to the results to be obtained from the use of the
   FTSE(TM) Developed ex North America Index ("the Index") and/or the figure at
   which the said Index stands at any particular time on any particular day or
   otherwise. The Index is compiled and calculated by FTSE(TM).

   FTSE(TM), the Exchange, and FT shall not be liable (whether in negligence or
   otherwise) to any person for any error in the Index and FTSE(TM), the
   Exchange, and FT shall not be under any obligation to advise any person of
   any error therein.

   Lehman Brothers (U.S. Bond Index Fund)
   The inclusion of a bond in the Lehman Brothers U.S. Aggregate Index is in no
   way an endorsement by Lehman Brothers of the bond as an investment, nor is
   Lehman Brothers a sponsor of the fund or in any way affiliated with it.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------

   Table 6, which provides information about each fund's financial history, is
   based on a single share outstanding throughout the periods shown. Each fund's
   section
   of the table is part of the fund's financial statements, which are included
   in its annual report and are incorporated by reference into the Statement of
   Additional Information (available upon request). The total returns in the
   table represent the rate that an investor would have earned or lost on an
   investment in each fund (assuming reinvestment of all dividends and
   distributions and no payment of



                                             39
   account or (if applicable) redemption fees). The financial statements in the
   annual report were audited by the funds' independent accountants,
   PricewaterhouseCoopers LLP.



 Table 6  Financial Highlights

                                              Year ended December 31

  Equity Index 500             1997       1998       1999       2000         2001
 --------------------------------------------------------------------------------------------
                           

  Net asset value,
  beginning of period         $20.34     $26.38     $33.38     $39.56      $ 35.50
  Income From Investment Operations
  Net investment income        0.35/a/    0.33/a/    0.34/a/    0.33/a/      0.32/a/
                              ---------------------------------------------------------------
  Net gains or losses on
  securities (both realized     6.28       7.10       6.49      (3.98)       (4.65)
  and unrealized)
                              ----------------------------------------------------------
  Total from investment
  operations                    6.63       7.43       6.83      (3.65)       (4.33)
  Less Distributions
  Dividends (from net          (0.34)     (0.34)     (0.34)     (0.33)       (0.33)
  investment income)
                              ----------------------------------------------------------
  Distributions (from          (0.25)     (0.09)     (0.31)     (0.08)          --
  capital gains)
                              ----------------------------------------------------------
  Returns of capital              --         --         --         --           --
                              ----------------------------------------------------------
  Total distributions          (0.59)     (0.43)     (0.65)     (0.41)       (0.33)
                              ----------------------------------------------------------
  Net asset value,            $26.38     $33.38     $39.56     $35.50      $ 30.84
  end of period
                              ----------------------------------------------------------
  Total return                 32.87%/a/  28.31%/a/  20.64%/a/  (9.30)%/a/  (12.17)%/a/
  Ratios/Supplemental Data
  Net assets, end of period   $1,908     $3,347     $5,049     $4,045      $ 3,473
  (in millions)
                              ----------------------------------------------------------
  Ratio of expenses to          0.40%/a/   0.40%/a/   0.40%/a/   0.35%/a/     0.35%/a/
  average net assets
                              ----------------------------------------------------------
  Ratio of net income to        1.49%/a/   1.17%/a/   0.98%/a/   0.85%/a/     1.00%/a/
  average net assets
                              ----------------------------------------------------------
  Portfolio turnover rate        0.7%       4.7%       5.2%       9.1%         4.0%
 --------------------------------------------------------------------------------------------



 /a/
   Excludes expenses in excess of a 0.40% voluntary expense limitation in effect
   through December 31, 1999, and a 0.35% voluntary expense limitation in effect
   through December 31, 2001.



T. ROWE PRICE                                 40

 Table 6  Financial Highlights (continued)

                              1/30/98/*/     Year ended December 31
                               through
  Extended Equity              12/31/98
  Market Index                ------------ 1999      2000       2001
 -----------------------------            -------------------------------------
                           

  Net asset value,
  beginning of period         $ 10.00     $ 11.02   $ 14.05    $ 11.12
  Income From Investment Operations
  Net investment income          0.08        0.10      0.09       0.10
                              --------------------------------------------
  Net gains or losses on
  securities (both realized      1.13        3.56     (2.26)     (1.17)
  and unrealized)
                              --------------------------------------------
  Total from investment
  operations                     1.21        3.66     (2.17)     (1.07)
  Less Distributions
  Dividends (from net           (0.08)      (0.10)    (0.09)     (0.10)
  investment income)
                              --------------------------------------------
  Distributions (from           (0.11)      (0.53)    (0.67)     (0.18)
  capital gains)
                              --------------------------------------------
  Returns of capital               --          --        --         --
                              --------------------------------------------
  Total distributions           (0.19)      (0.63)    (0.76)     (0.28)
                              --------------------------------------------
  Net asset value,            $ 11.02     $ 14.05   $ 11.12    $  9.77
  end of period
                              --------------------------------------------
  Total return                  12.29%      33.72%   (15.58)%    (9.55)%
  Ratios/Supplemental Data
  Net assets, end of period   $20,743     $54,219   $86,322    $77,331
  (in thousands)
                              --------------------------------------------
  Ratio of expenses to           0.40%/a/    0.40%     0.40%      0.40%
  average net assets
                              --------------------------------------------
  Ratio of net income to         1.15%/a/    1.04%     0.78%      0.96%
  average net assets
                              --------------------------------------------
  Portfolio turnover rate        26.3%/a/    23.4%     30.5%      31.3%
 ------------------------------------------------------------------------------



 /*/       Inception date.

 /a/      Annualized.



                                             41

 Table 6  Financial Highlights (continued)

                           1/30/98/*/       Year ended December 31
                            through
  Total Equity              12/31/98
  Market Index             ------------  1999       2000        2001
 --------------------------            ----------------------------------------
                        

  Net asset value,
  beginning of period      $ 10.00     $  12.19   $  14.77    $  13.02
  Income From Investment Operations
  Net investment income       0.11         0.12       0.12        0.11
                           -----------------------------------------------
  Net gains or losses on
  securities (both
  realized and                2.20         2.69      (1.64)      (1.57)
  unrealized)
                           -----------------------------------------------
  Total from investment
  operations                  2.31         2.81      (1.52)      (1.46)
  Less Distributions
  Dividends (from net        (0.12)       (0.11)     (0.11)      (0.11)
  investment income)
                           -----------------------------------------------
  Distributions (from           --        (0.12)     (0.12)      (0.01)
  capital gains)
                           -----------------------------------------------
  Returns of capital            --           --         --          --
                           -----------------------------------------------
  Total distributions        (0.12)       (0.23)     (0.23)      (0.12)
                           -----------------------------------------------
  Net asset value,         $ 12.19     $  14.77   $  13.02    $  11.44
  end of period
                           -----------------------------------------------
  Total return               23.19%       23.25%    (10.33)%    (11.20)%
  Ratios/Supplemental Data
  Net assets, end of
  period                   $61,210     $199,427   $206,058    $197,775
  (in thousands)
                           -----------------------------------------------
  Ratio of expenses to        0.40%/a/     0.40%      0.40%       0.40%
  average net assets
                           -----------------------------------------------
  Ratio of net income to      1.33%/a/     0.98%      0.85%       0.98%
  average net assets
                           -----------------------------------------------
  Portfolio turnover rate      1.9%/a/      3.2%       7.6%        8.6%
 ------------------------------------------------------------------------------



 /*/       Inception date.

 /a/      Annualized.





T. ROWE PRICE                                 42

 Table 6  Financial Highlights (continued)

                                                     11/30/00/*/
                                                       through
  International Equity                                10/31/01
   Index                                        -----------------------
 -----------------------------------------------                       -----
                           

  Net asset value,
  beginning of period                                 $ 10.00
  Income From Investment Operations
  Net investment income                                  0.10
                                                -----------------------
  Net gains or losses on
  securities (both realized                             (2.32)
  and unrealized)
                                                -----------------------
  Total from investment
  operations                                            (2.22)
  Less Distributions
  Dividends (from net                                      --
  investment income)
                                                -----------------------
  Distributions (from                                      --
  capital gains)
                                                -----------------------
  Returns of capital                                       --
                                                -----------------------
  Total distributions                                      --
                                                -----------------------
  Net asset value,                                    $  7.78
  end of period
                                                -----------------------
  Total return                                         (22.20)%
  Ratios/Supplemental Data
  Net assets, end of period                           $ 7,502
  (in thousands)
                                                -----------------------
  Ratio of expenses to                                   0.50%/a/
  average net assets
                                                -----------------------
  Ratio of net income to                                 1.51%/a/
  average net assets
                                                -----------------------
  Portfolio turnover rate                                63.1%/a/
 ---------------------------------------------------------------------------



 /*/       Inception date.

 /a/      Annualized.



                                             43

 Table 6  Financial Highlights (continued)

                                                     11/30/00/*/
                                                       through
                                                      10/31/01
  U.S. Bond Index                               -----------------------
 -----------------------------------------------                       -----
                           

  Net asset value,
  beginning of period                                 $ 10.00
  Income From Investment Operations
  Net investment income                                  0.55
                                                -----------------------
  Net gains or losses on
  securities (both realized                              0.63
  and unrealized)
                                                -----------------------
  Total from investment
  operations                                             1.18
  Less Distributions
  Dividends (from net                                   (0.55)
  investment income)
                                                -----------------------
  Distributions (from                                      --
  capital gains)
                                                -----------------------
  Returns of capital                                       --
                                                -----------------------
  Total distributions                                   (0.55)
                                                -----------------------
  Net asset value,                                    $ 10.63
  end of period
                                                -----------------------
  Total return                                          12.11%
  Ratios/Supplemental Data
  Net assets, end of period                           $48,814
  (in thousands)
                                                -----------------------
  Ratio of expenses to                                   0.30%/a/
  average net assets
                                                -----------------------
  Ratio of net income to                                 5.74%/a/
  average net assets
                                                -----------------------
  Portfolio turnover rate                                83.9%/a/
 ---------------------------------------------------------------------------



 /*/       Inception date.

 /a/      Annualized.


 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number
We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.



                                             45
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)

For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail
Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:


via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number



T. ROWE PRICE                                 46
Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------
$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire
Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.



                                             47
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or



T. ROWE PRICE                                 48
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.



                                             49
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------
T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the



T. ROWE PRICE                                 50
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.

                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access
24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-



                                             51
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.

                                                                By Telephone and
                                                                       In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH
With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire
Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting
(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing
Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.



T. ROWE PRICE                                 52
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service
If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./



                                             53
 INVESTMENT INFORMATION
 ----------------------------------------------------------
To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports
Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides
Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.



T. ROWE PRICE                                 54
 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
                                                                  C50-040 5/1/02
                                                      1940 Act File No. 811-5986


PROSPECTUS

                                                                 May 1, 2002
T. ROWE PRICE

Institutional
Large-Cap Growth
Fund

 A stock fund seeking long-term capital appreciation through investments in
 growth companies.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.



T. Rowe Price Institutional Equity Funds, Inc.
  T. Rowe Price Institutional Large-Cap Growth Fund
Prospectus


May 1, 2002




      
              ABOUT THE FUND
1
              Objective, Strategy, Risks, and Expenses    1

              -----------------------------------------------
              Other
              Information                                 4
               About the Fund
              -----------------------------------------------


              T. ROWE PRICE
               ACCOUNT
2             INFORMATION
              Pricing Shares and Receiving                5
              Sale Proceeds
              -----------------------------------------------
              Useful Information on
              Distributions                               6
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                  9
              Special Requirements
              -----------------------------------------------


              MORE ABOUT THE FUND
3
              Organization and Management                 1
                                                          2
              -----------------------------------------------
              Understanding Performance Information       1
                                                          3
              -----------------------------------------------
              Investment Policies and Practices           1
                                                          4
              -----------------------------------------------
              Financial Highlights                        1
                                                          9
              -----------------------------------------------


              INVESTING WITH T. ROWE PRICE
4
              Account Requirements and                   20
              Transaction Information
              -----------------------------------------------
              Opening a New Account                      20

              -----------------------------------------------
              Purchasing Additional Shares                2
                                                          1
              -----------------------------------------------
              Exchanging and Redeeming                    2
              Shares                                      1
              -----------------------------------------------
              Rights Reserved by the Fund                 2
              s                                           2
              -----------------------------------------------
              Information About Your Services             2
                                                          3
              -----------------------------------------------





 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.



 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?


   The fund seeks to provide long-term capital appreciation through investments
   in common stocks of growth companies.


 What is the fund's principal investment strategy?


   In taking a growth approach to investment selection, we will invest at least
   80% of net assets in the common stocks of large companies. A large company is
   defined as one whose market cap is larger than the median market cap of
   companies in the Russell 1000 Growth Index, a widely used benchmark of the
   largest domestic growth stocks (the median market cap as of December 31, 2001
   was 80,984.3 million, and is subject to change). We generally look for
   companies with an above-average rate of earnings and cash flow growth and a
   lucrative niche in the economy that gives them the ability to sustain
   earnings momentum even during times of slow economic growth. As growth
   investors, we believe that when a company increases its earnings faster than
   both inflation and the overall economy, the market will eventually reward it
   with a higher stock price.

   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.




T. ROWE PRICE                                 2
 What are the main risks of investing in the fund?

   Growth stocks can be volatile for several reasons. Since these companies
   usually invest a high portion of earnings in their businesses, they may lack
   the dividends of value stocks that can cushion stock prices in a falling
   market. Also, earnings disappointments often lead to sharply falling prices
   because investors buy growth stocks in anticipation of superior earnings
   growth.


   There is additional risk with this fund because it is nondiversified and thus
   can invest more of its assets in a smaller number of companies. Thus, for
   example, poor performance by a single large holding of the fund would
   adversely affect fund performance more than if the fund held a larger number
   of companies.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?


   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you are willing to accept the risk of investing
   in established growth stocks in an effort to achieve long-term capital
   growth, the fund could be appropriate for you. This fund should not represent
   your complete investment program or be used for short-term trading purposes.


   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.




                                             3
 How has the fund performed in the past?


   Because the fund commenced operations in 2001, there is no historical
   performance information shown here. Performance history will be presented
   after the fund has been in operation for one calendar year.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.





 Table 1  Fees and Expenses of the Fund*

                                  Annual fund operating expenses
                           (expenses that are deducted from fund assets)
 ------------------------------------------------------------------------------
                        
  Management fee                              0.55%

  Other expenses                              4.61%

  Total annual fund
  operating expenses                          5.16%

  Fee
  waiver/reimbursement                        4.51%/a/

  Net expenses                                0.65%/a/
 ------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund.

 /a///To limit the fund's expenses during its initial period of operations, T.
   Rowe Price contractually obligated itself to waive fees and bear any expenses
   through December 31, 2002, that would cause the ratio of expenses to average
   net assets to exceed 0.65%. Fees waived or expenses paid or assumed under
   this agreement are subject to reimbursement to T. Rowe Price by the fund
   whenever the fund's expense ratio is below 0.65%; however, no reimbursement
   will be made after December 31, 2004, or if it would result in the expense
   ratio exceeding 0.65%. Any amounts reimbursed will have the effect of
   increasing fees otherwise paid by the fund.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, the expense limitation currently in place is not renewed,
   you invest $10,000, earn a 5% annual return, and hold the investment for the
   following periods and then redeem:



             1 year                    3 years
    ----------------------------------------------------------
                                                   
              $66                      $1,142
    ----------------------------------------------------------







T. ROWE PRICE                                 4
 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?


   The market frequently rewards growth stocks with price increases when
   earnings expectations are met or exceeded. A successful implementation of our
   strategy could lead to long-term growth of capital. By investing in large
   companies, the fund could be less risky than one focusing on less established
   or smaller companies while still offering significant appreciation potential.



 What is meant by a "growth" investment approach?

   Thomas Rowe Price, Jr. pioneered the growth stock theory of investing over 60
   years ago. It is based on the premise that inflation represents a more
   serious long-term threat to an investor's portfolio than stock market
   fluctuations or recessions. Mr. Price believed that when a company's earnings
   grow faster than both inflation and the economy in general, the market will
   eventually reward its long-term earnings growth with a higher stock price.
   However, investors should be aware that, during periods of adverse economic
   and market conditions, stock prices may fall despite favorable earnings
   trends.


   3 Growth investors look for companies with above-average earnings gains.


 What does the fund look for when selecting growth stocks?

   The fund generally looks for companies with one or more of the following:

  . An above-average growth rate  Superior growth in earnings and cash flow.

  . Operations in "fertile fields"  The ability to sustain earnings momentum
   even
   during economic slowdowns by operating in industries or service sectors where
   earnings and dividends can outpace inflation and the overall economy.

  . A profitable niche  A lucrative niche in the economy that enables the
   company to expand even during times of slow growth. Ideally, profit margins
   should be widening due to economic factors rather than one-time events such
   as lower taxes.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION
 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------
   Here are some procedures you should know when investing in a T. Rowe Price
   fund.


 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for the fund
   is calculated at the close of the New York Stock Exchange, normally 4 p.m.
   ET, each day the New York Stock Exchange is open for business. To calculate
   the NAV, the fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if the fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. The fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.

   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.




T. ROWE PRICE                                 6
   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.

  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


 Dividends and Other Distributions

   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. The advantage of reinvesting distributions arises from compounding;
   that is, you receive income dividends and capital gain distributions on a
   rising number of shares.

   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.




                                             7
   Income dividends
  . The fund declares and pays dividends (if any) annually.

  . Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.

   Capital gains
  . A capital gain or loss is the difference between the purchase and sale price
   of a security.
  . If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month.


 Tax Information


   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . The fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is still a sale for tax purposes.

   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year, based on the average cost, single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation immediately
   following each transaction you make and a year-end statement detailing all
   your transactions in each fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.




T. ROWE PRICE                                 8

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss must be reclassified to a long-term loss to the extent of any
   long-term capital gain distribution received during the period you held the
   shares. Gains and losses from the sale of foreign currencies and the foreign
   currency gain or loss resulting from the sale of a foreign debt security can
   increase or decrease an ordinary income dividend. Net foreign currency losses
   may cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain or dividend distribution
   If you buy shares shortly before or on the "record date" -  the date that
   establishes you as the person to receive the upcoming distribution - you will
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains or income and unrealized appreciation, which may
   result in future taxable distributions. Such distributions can occur even in
   a year when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, which are not subject to current tax.




                                             9
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment
   The fund and its agents have the right to reject or cancel any purchase,
   exchange, or redemption due to nonpayment.


   All purchases must be paid for in U.S. dollars.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by ACH transfer, the
   fund will process your redemption but will generally delay sending you the
   proceeds for up to 10 calendar days to allow the transfer to clear. (The
   10-day hold does not apply to purchases paid for by bank wire.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Large Redemptions
   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.

   We also request that you give us three business days' notice for any
   redemption of $2 million or more.




T. ROWE PRICE                                 10
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of the fund and raise its expenses. To deter such
   activity, the fund has adopted an excessive trading policy. If you violate
   our excessive trading policy, you may be barred indefinitely and without
   further notice from further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price  If you trade directly with T.
   Rowe Price, you can make one purchase and one sale involving the same fund
   within any 120-day period. For example, if you are in fund A, you can move
   assets from fund A to fund B and, within the next 120 days, sell your shares
   in fund B to return to fund A or move to fund C. If you exceed this limit, or
   if your trade involves market timing, you are in violation of our excessive
   trading policy.


  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale involving the same
   fund within any 120-day period. If you exceed this limit or if you hold fund
   shares for less than 60 calendar days, you are in violation of our excessive
   trading policy. Systematic purchases and redemptions are exempt from this
   policy. Transactions accepted by intermediaries in violation of this
   excessive trading policy or from persons believed to be market timers are
   subject to rejection or cancellation by the funds.


 Keeping Your Account Open

   To keep operating expenses lower, we ask you to maintain an account balance
   of at least $1,000,000. If your balance is below $1,000,000 for three months
   or longer, we have the right to close your account after giving you 60 days
   in which to increase your balance.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.
  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.




                                             11
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.


 MORE ABOUT THE FUND

 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The T. Rowe Price Institutional Equity Funds, Inc. (the "corporation") was
   incorporated in Maryland in 1996.


   Currently, the corporation consists of four series: Institutional Mid-Cap
   Equity Growth Fund, established in 1996, Institutional Small-Cap Stock Fund
   and Institutional Large-Cap Value Fund, both established in 2000, and
   Institutional Large-Cap Growth Fund, established in 2001. Each represents a
   separate series of shares with different objectives and policies. Each fund
   is described in a separate prospectus.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




                                             13
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Robert W. Smith, Chairman, Robert W. Sharps, and Larry Puglia. The committee
   chairman has day-to-day responsibility for managing the portfolio and works
   with the committee in developing and executing the fund's investment program.
   Mr. Smith has been chairman of the fund's committee since its inception. He
   joined T. Rowe Price in 1992 and has been managing investments since 1987.


   The Management Fee
   The fund pays the fund manager an annual investment management fee of 0.55%
   of the average daily net asset value of the fund. The fund calculates and
   accrues the fee daily.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.




T. ROWE PRICE                                 14
 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.

   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.




                                             15
 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such




T. ROWE PRICE                                 16
   investments increase a portfolio's diversification and may enhance return,
   but they also involve some special risks, such as exposure to potentially
   adverse local, political, and economic developments; nationalization and
   exchange controls; potentially lower liquidity and higher volatility;
   possible problems arising from accounting, disclosure, settlement, and
   regulatory practices that differ from U.S. standards; and the chance that
   fluctuations in foreign exchange rates will decrease the investment's value
   (favorable changes can increase its value). These risks are heightened for
   investments in developing countries, and there is no limit on the amount of
   fund foreign investments that may be made in such countries.

   Operating policy  Fund investments in foreign securities are limited to 10%
   of total assets.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.


   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no




                                             17
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.




T. ROWE PRICE                                 18
   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rate is
   shown in the Financial Highlights table.




                                             19

 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 2, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the period shown. The table is
   part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




 Table 2  Financial Highlights

                                                          10/31/01*
                                                           through
                                                           12/31/01
                                                      --------------------
 -----------------------------------------------------                    -----
                                    

  Net asset value, beginning of
  period                                                  $10.00
  Income From Investment Operations
  Net investment income                                    0.01/a/
                                       -----------------------------------
  Net gains or losses on securities                         1.39
  (both realized and unrealized)
                                       -----------------------------------
  Total from investment operations                          1.40
  Less Distributions
  Dividends (from net investment                           (0.01)
  income)
                                                      --------------------
  Distributions (from capital gains)                          --
                                       -----------------------------------
  Returns of capital                                          --
                                                      --------------------
  Total distributions                                      (0.01)
                                       -----------------------------------
  Net asset value, end of period                          $11.39
                                       -----------------------------------
  Total return                                             14.00%/a/
  Ratios/Supplemental Data
  Net assets, end of period (in                           $2,281
  thousands)
                                       -----------------------------------
  Ratio of expenses to average net                          0.65%/ab/
  assets
                                       -----------------------------------
  Ratio of net income to average net                        0.36%/ab/
  assets
                                       -----------------------------------
  Portfolio turnover rate                                   98.2%/b/
 ------------------------------------------------------------------------------





 * Inception date.

 /a/
   Excludes expenses in excess of a 0.65% voluntary expense limitation in effect
   through 12/31/02.

 /b/      Annualized.


 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Financial Institution Services promptly.



 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$1,000,000 minimum initial investment

All initial and subsequent investments must be made by bank wire.

                                                                         By Wire

Call Financial Institution Services at 1-800-638-8797 for an account number and
assignment to a dedicated service representative, and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:   043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.




                                             21
Regular Mail
T. Rowe Price Financial Institution Services
P.O. Box 17603
Baltimore, MD 21297-1603

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Financial Institution Services
Four Financial Center
4515 Painters Mill Road
Owings Mills, MD 21117



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100,000 minimum additional purchase

                                                                         By Wire

Call Financial Institution Services or use the wire instructions listed in
Opening a New Account.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.


If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.




T. ROWE PRICE                                 22
Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.


For redemptions by electronic transfer, please see Information About Your
Services.

                                                                        By Phone
Call Financial Institution Services at 1-800-638-8797
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or express mail. For exchange
policies, please see Transaction Procedures and Special Requirements - Excessive
Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

Regular Mail
T. Rowe Price Financial Institution Services
P.O. Box 17603
Baltimore, MD 21297-1603

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Financial Institution Services
Four Financial Center
4515 Painters Mill Road
Owings Mills, MD 21117



 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange




                                             23
order; (4) to cancel or rescind any purchase or exchange order (including, but
not limited to, orders deemed to result in excessive trading, market timing,
fraud, or 5% ownership) upon notice to the shareholder within five business days
of the trade or if the written confirmation has not been received by the
shareholder, whichever is sooner; (5) to freeze any account and suspend account
services when notice has been received of a dispute between the registered or
beneficial account owners or there is reason to believe a fraudulent transaction
may occur; (6) to otherwise modify the conditions of purchase and any services
at any time; (7) to waive any redemption, small account, maintenance or other
fees charged to a group of shareholders; and (8) to act on instructions
reasonably believed to be genuine. These actions will be taken when, in the sole
discretion of management, they are deemed to be in the best interest of the
fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                  Financial Institution Services
                                                                  1-800-638-8797
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the services currently offered. Our Services Guide,
which we mail to all new shareholders, contains detailed descriptions of these
and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. For more
information, call Financial Institution Services.




T. ROWE PRICE                                 24
                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Financial Institution
Services. For information on all other retirement plans, please call our Trust
Company at 1-800-492-7670.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, duplicate
statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                   Subaccounting
                                                                        Services
An institution may arrange for subaccounting services. Such services provide a
master account record which links together individual accounts and provides the
following information: account number, trade date, transaction, previous share
balance, dollar amount of the current transaction, share price, number of shares
purchased, new share balance, and the current market value of your group. The
subaccounting agent reserves the right to charge a fee for such services or
other shareholder services.

                                                              Telephone Services
Buy, sell, or exchange shares by calling one of our service representatives.

                                                            Electronic Transfers
By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.




For information
 Financial Institutions Division
 1-800-638-8797 toll free,
 410-581-7290 in Baltimore
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-8797.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. Fund reports and other fund information are
available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. Copies of this information may be obtained, after paying a
duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the
Public Reference Room, Washington D.C. 20549-0102.
                                                     1940 Act File No. 811-07639

                                                             F139-040 5/1/02


PROSPECTUS

May 1, 2002

T. ROWE PRICE

Institutional
Large-Cap Value
Fund

 A stock fund seeking long-term capital growth through a value approach to stock
 selection.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Institutional Equity Funds, Inc.
  T. Rowe Price Institutional Large-Cap Value Fund
Prospectus


May 1, 2002





                                               
              ABOUT THE FUND
1
              Objective, Strategy, Risks, and Expenses    1

              -----------------------------------------------
              Other
              Information                                 5
               About the Fund
              -----------------------------------------------


              T. ROWE PRICE
               ACCOUNT
2             INFORMATION
              Pricing Shares and Receiving                7
              Sale Proceeds
              -----------------------------------------------
              Useful Information on
              Distributions                               8
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                 11
              Special Requirements
              -----------------------------------------------


              MORE ABOUT THE FUND
3
              Organization and Management                13

              -----------------------------------------------
              Understanding Performance Information      14

              -----------------------------------------------
              Investment Policies and Practices          15

              -----------------------------------------------
              Financial Highlights                       20

              -----------------------------------------------


              INVESTING WITH T. ROWE PRICE
4
              Account Requirements and                   22
              Transaction Information
              -----------------------------------------------
              Opening a New Account                      22

              -----------------------------------------------
              Purchasing Additional Shares               23

              -----------------------------------------------
              Exchanging and Redeeming                   23
              Shares
              -----------------------------------------------
              Rights Reserved by the Fund                24
              s
              -----------------------------------------------
              Information About Your Services            25

              -----------------------------------------------





 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.

 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide long-term capital appreciation by investing in
   common stocks believed to be undervalued. Income is a secondary objective.


 What is the fund's principal investment strategy?


   In taking a value approach to investment selection, at least 80% of net
   assets will be invested in securities of large companies the portfolio
   manager regards as undervalued. A large company is defined as having a market
   cap that is either (i) larger than the current median market cap of companies
   in the Russell 1000 Value Index or (ii) larger than the three year average
   median market cap of companies in the index based on the previous three
   December 31st dates. The Russell 1000 Value Index is a widely used benchmark
   of the largest domestic value stocks. The fund may also purchase stocks of
   smaller companies.


   Our in-house research team seeks to identify companies that appear to be
   undervalued by various measures, and may be temporarily out of favor, but
   have good prospects for capital appreciation. In selecting investments, we
   generally look for one or more of the following:

  . low price/earnings, price/book value, or price/cash flow ratios relative to
   the S&P 500, the company's peers, or its own historic norm;
  . low stock price relative to a company's underlying asset values;

  . companies which may benefit from restructuring activity; and/or

  . a sound balance sheet and other positive financial characteristics.


   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.


   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   . For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?

   The value approach carries the risk that the market will not recognize a
   security's intrinsic value for a long time, or that a stock judged to be
   undervalued may actually be appropriately priced. Small- and mid-size company
   stocks are typi

   cally more volatile than larger ones.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   . The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you seek a somewhat conservative equity
   investment that provides potential for capital growth with some dividend
   income, the fund could be an appropriate part of your overall investment
   strategy. This fund should not represent your complete investment program or
   be used for short-term trading purposes.


   . Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the year depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.





            Calendar Year Total Returns
                        "01"
 -------------------------------------------------
 

4.44
 -------------------------------------------------



                    Quarter ended   Total return
 Best quarter         12/31/00        10.49%
 Worst quarter        9/30/01        -10.22%






 Table 1  Average Annual Total Returns

                                                 Periods ended
                                               December 31, 2001
                                                       Since inception
                                          1 year          (3/31/00)
 ------------------------------------------------------------------------------
                                                                 
  Institutional Large-Cap Value Fund
  Returns before taxes                      4.44%           11.33%
  Returns after taxes on
  distributions                            -0.21             8.01
  Returns after taxes on
  distributions and sale of fund
  shares                                    3.01             7.56
  S&P 500 Stock Index                     -11.89           -13.02
  Lipper Large-Cap Value Fund Index        -8.58            -4.02
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.



 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.



 Table 2  Fees and Expenses of the Fund*

                                  Annual fund operating expenses
                           (expenses that are deducted from fund assets)
 ------------------------------------------------------------------------------
                                                                    
  Management fee                              0.55%

  Other expenses                              4.37%

  Total annual fund
  operating expenses                          4.92%

  Fee
  waiver/reimbursement                        4.27%/a/

  Net expenses                                0.65%/a/
 ------------------------------------------------------------------------------





 *Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund.

 /a/Effective January 1, 2002, T. Rowe Price contractually obligated itself to
   waive any fees and bear any expenses through December 31, 2003, to the extent
   that such fees and expenses would cause the fund's ratio of expenses to
   average net assets to exceed 0.65%. Fees waived or expenses paid or assumed
   under this agreement are subject to reimbursement to T. Rowe Price whenever
   the fund's expense ratio is below 0.65%; however, no reimbursement will be
   made after December 31, 2005, or if it would result in the expense ratio
   exceeding 0.65%. Any amounts reimbursed will have the effect of increasing
   fees otherwise paid by the fund. The fund operated under a previous expense
   limitation for which T. Rowe Price may be reimbursed.




   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, the expense limitation currently in place is not renewed,
   you invest $10,000, earn a 5% annual return, and hold the investment for the
   following periods and then redeem:





      1 year      3 years      5 years       10 years
    ----------------------------------------------------
                                 
       $66         $672        $1,745         $4,435
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?


   Generally, careful selection of stocks having value characteristics can, over
   time, limit the downside risk of a value-oriented portfolio compared with the
   broad market.

   In addition, stock whose prices are below the company's intrinsic value may
   offer the potential for substantial capital appreciation.



 What is meant by a "value" investment approach?

   Value investors seek to invest in companies whose stock prices are low in
   relation to their real worth or future prospects. By identifying companies
   whose stocks are currently out of favor or misunderstood, value investors
   hope to realize significant appreciation as other investors recognize the
   stock's intrinsic value and the price rises accordingly.

   Finding undervalued stocks requires considerable research to identify the
   particular company, analyze its financial condition and prospects, and assess
   the likelihood that the stock's underlying value will be recognized by the
   market and reflected in its price.

   Some of the principal measures used to identify such stocks are:

  . Price/earnings ratio Dividing a stock's price by its earnings per share
   generates a price/earnings or P/E ratio. A stock with a P/E that is
   significantly below that of its peers, the market as a whole, or its own
   historical norm may represent an attractive opportunity.

  . Price/book value ratio Dividing a stock's price by its book value per share
   indicates how a stock is priced relative to the accounting (i.e., book) value
   of the


   company's assets. A ratio below the market, that of its competitors, or its
   own historic norm could indicate an undervalued situation.

  . Dividend yield A stock's dividend yield is found by dividing its annual
   dividend by its share price. A yield significantly above a stock's own
   historic norm or that of its peers may suggest an investment opportunity.


   . A stock selling at $10 with an annual dividend of $0.50 has a 5% yield.

  . Price/cash flow Dividing a stock's price by the company's cash flow per
   share, rather than by its earnings or book value, provides a more useful
   measure of value in some cases. A ratio below that of the market or of its
   peers suggests the market may be incorrectly valuing the company's cash flow
   for reasons that may be temporary.

  . Undervalued assets This analysis compares a company's stock price with its
   underlying asset values, its projected value in the private (as opposed to
   public) market, or its expected value if the company or parts of it were sold
   or liquidated.

  . Restructuring opportunities The market can react favorably to the
   announcement of the successful implementation of a corporate restructuring,
   financial reengineering, or asset redeployment. Such events can result in an
   increase in a company's stock price. A value investor may try to anticipate
   these actions and invest before the market places an appropriate value on any
   actual or expected changes.


 What are some examples of undervalued situations?

   There are numerous situations in which a company's value may not be reflected
   in its stock price. For example, a company may own a substantial amount of
   real estate that is valued on its financial statements well below market
   levels. If those properties were to be sold, or if their hidden value became
   recognized in some other manner, the company's stock price could rise. In
   another example, a company's management could spin off an unprofitable
   division into a separate company, potentially increasing the value of the
   parent. Or, in the reverse, a parent company could spin off a profitable
   division that has not drawn the attention it deserves, potentially resulting
   in higher valuations for both entities.

   Sometimes new management can revitalize companies that have grown or lost
   their focus, eventually leading to improved profitability. Management could
   increase shareholder value by using excess cash flow to pay down debt, buying
   back outstanding shares of common stock, or raising the dividend.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION
 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------
   Here are some procedures you should know when investing in a T. Rowe Price
   fund.


 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for the fund
   is calculated at the close of the New York Stock Exchange, normally 4 p.m.
   ET, each day the New York Stock Exchange is open for business. To calculate
   the NAV, the fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if the fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. The fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.



   . The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.

   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.


   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.


 How you can receive the proceeds from a sale


   . When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.


  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   . If for some reason we cannot accept your request to sell shares, we will
     contact you.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   . All net investment income and realized capital gains are distributed to
     shareholders.


 Dividends and Other Distributions

   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. The advantage of reinvesting distributions arises from compounding;
   that is, you receive income dividends and capital gain distributions on a
   rising number of shares.

   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.


   Income dividends
  . The fund declares and pays dividends (if any) annually.

  . Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Capital gains
  . A capital gain or loss is the difference between the purchase and sale price
   of a security.
  . If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month.


 Tax Information


   . You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . The fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is still a sale for tax purposes.


   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year, based on the average cost, single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation immediately
   following each transaction you make and a year-end statement detailing all
   your transactions in each fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.




   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss must be reclassified to a long-term loss to the extent of any
   long-term capital gain distribution received during the period you held the
   shares. Gains and losses from the sale of foreign currencies and the foreign
   currency gain or loss resulting from the sale of a foreign debt security can
   increase or decrease an ordinary income dividend. Net foreign currency losses
   may cause monthly or quarterly dividends to be reclassified as a return of
   capital.


   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.



   . Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain or dividend distribution
   If you buy shares shortly before or on the "record date" -  the date that
   establishes you as the person to receive the upcoming distribution - you will
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains or income and unrealized appreciation, which may
   result in future taxable distributions. Such distributions can occur even in
   a year when the fund has a negative return.


   . The preceding tax information summary does not apply to retirement
     accounts, which are not subject to current tax.


 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   . Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment
   The fund and its agents have the right to reject or cancel any purchase,
   exchange, or redemption due to nonpayment.


   All purchases must be paid for in U.S. dollars.



 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by ACH transfer, the
   fund will process your redemption but will generally delay sending you the
   proceeds for up to 10 calendar days to allow the transfer to clear. (The
   10-day hold does not apply to purchases paid for by bank wire.)


   Telephone, Tele*Access/(R)/, and personal computer transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Large Redemptions
   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.

   We also request that you give us three business days' notice for any
   redemption of $2 million or more.



 Excessive Trading


   . T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of the fund and raise its expenses. To deter such
   activity, the fund has adopted an excessive trading policy. If you violate
   our excessive


   trading policy, you may be barred indefinitely and without further notice
   from further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price  If you trade directly with T.
   Rowe Price, you can make one purchase and one sale involving the same fund
   within any 120-day period. For example, if you are in fund A, you can move
   assets from fund A to fund B and, within the next 120 days, sell your shares
   in fund B to return to fund A or move to fund C. If you exceed this limit, or
   if your trade involves market timing, you are in violation of our excessive
   trading policy.


  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale involving the same
   fund within any 120-day period. If you exceed this limit or if you hold fund
   shares for less than 60 calendar days, you are in violation of our excessive
   trading policy. Systematic purchases and redemptions are exempt from this
   policy. Transactions accepted by intermediaries in violation of this
   excessive trading policy or from persons believed to be market timers are
   subject to rejection or cancellation by the funds.



 Keeping Your Account Open

   To keep operating expenses lower, we ask you to maintain an account balance
   of at least $1,000,000. If your balance is below $1,000,000 for three months
   or longer, we have the right to close your account after giving you 60 days
   in which to increase your balance.


 Signature Guarantees


   . A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior authorization is not on file.

  . Remitting redemption proceeds to any person, address, or bank account not on
   record.
  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.



 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The T. Rowe Price Institutional Equity Funds, Inc. (the "corporation") was
   incorporated in Maryland in 1996.


   Currently, the corporation consists of four series: Institutional Mid-Cap
   Equity Growth Fund, established in 1996, Institutional Small-Cap Stock Fund
   and Institutional Large-Cap Value Fund, both established in 2000, and
   Institutional Large-Cap Growth Fund, established in 2001. Each is a
   "diversified, open-end investment company," or mutual fund, and represents a
   separate series of shares with different objectives and policies. Each fund
   is described in a separate prospectus.



 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).



   . All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Brian C. Rogers, Chairman, Stephen W. Boesel, and John D. Linehan. The
   committee chairman has day-to-day responsibility for managing the portfolio
   and works with the committee in developing and executing the fund's
   investment program. Mr. Rogers has been chairman of the fund's committee
   since its


   inception. He joined T. Rowe Price in 1982 and has been managing investments
   since 1983.

   The Management Fee
   The fund pays the fund manager an annual investment management fee of 0.55%
   of the average daily net asset value of the fund. The fund calculates and
   accrues the fee daily.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.

   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   . Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities
   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such


   investments increase a portfolio's diversification and may enhance return,
   but they also involve some special risks, such as exposure to potentially
   adverse local, political, and economic developments; nationalization and
   exchange controls; potentially lower liquidity and higher volatility;
   possible problems arising from accounting, disclosure, settlement, and
   regulatory practices that differ from U.S. standards; and the chance that
   fluctuations in foreign exchange rates will decrease the investment's value
   (favorable changes can increase its value). These risks are heightened for
   investments in developing countries, and there is no limit on the amount of
   fund foreign investments that may be made in such countries.

   Operating policy  Fund investments in foreign securities are limited to 25%
   of total assets.

   Fixed-Income Securities
   From time to time, we may invest in debt securities of any type, including
   municipal securities, without regard to quality or rating. Such securities
   would be purchased in companies, municipalities, or entities which meet the
   investment criteria for the fund. The price of a bond fluctuates with changes
   in interest rates, generally rising when interest rates fall and falling when
   interest rates rise.

   High-Yield, High-Risk Bonds
   The total return and yield of lower-quality (high-yield, high-risk) bonds,
   commonly referred to as "junk" bonds, can be expected to fluctuate more than
   the total return and yield of higher-quality, shorter-term bonds, but not as
   much as those of common stocks. Junk bonds (those rated below BBB or in
   default) are regarded as predominantly speculative with respect to the
   issuer's continuing ability to meet principal and interest payments.


   Operating policy  The fund may purchase any type of noninvestment-grade debt
   security (or junk bond) including those in default. The fund will not
   purchase this type of security if it would have more than 10% of its total
   assets invested in such securities. Fund investments in convertible
   securities are not subject to this limit.


   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   . Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.


   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a




   predetermined price in the future. Futures and options contracts may be
   bought or sold for any number of reasons, including: to manage fund exposure
   to changes in securities prices and foreign securities; as an efficient means
   of adjusting fund overall exposure to certain markets; in an effort to
   enhance income; to protect the value of portfolio securities; and as a cash
   management tool. Call or

   put options may be purchased or sold on securities, financial indices, and
   foreign

   currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.


   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.



   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.


   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates


   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 3, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




 Table 3  Financial Highlights

                                3/31/00/*/
                                  through      Year ended December 31
                                 12/31/00
                              -----------------         2001
 -----------------------------                 -----------------------------
                                                              

  Net asset value,
  beginning of period            $10.00               $11.34
  Income From Investment Operations
  Net investment income           0.13/a/              0.16/a/
                              -----------------------------------------
  Net gains or losses on
  securities (both realized        1.42                 0.32
  and unrealized)
                              -----------------------------------------
  Total from investment
  operations                       1.55                 0.48
  Less Distributions
  Dividends (from net             (0.13)               (0.16)
  investment income)
                              -----------------------------------------
  Distributions (from             (0.08)               (1.27)
  capital gains)
                              -----------------------------------------
  Returns of capital                 --                   --
                              -----------------------------------------
  Total distributions             (0.21)               (1.43)
                              -----------------------------------------
  Net asset value,               $11.34               $10.39
  end of period
                              -----------------------------------------
  Total return                    15.57%/a/             4.44%/a/
  Ratios/Supplemental Data
  Net assets, end of period      $2,312               $2,414
  (in thousands)
                              -----------------------------------------
  Ratio of expenses to             0.65%/ab/            0.65%/a/
  average net assets
                              -----------------------------------------
  Ratio of net income to           1.65%/ab/            1.37%/a/
  average net assets
                              -----------------------------------------
  Portfolio turnover rate          58.4%/b/            106.3%
 ---------------------------------------------------------------------------





 * Inception date.

 /a/
   Excludes expenses in excess of a 0.65% voluntary expense limitation in effect
   through December 31, 2003.


 /b/      Annualized.


 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
Tax Identification
Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.


Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Financial Institution Services promptly.



 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$1,000,000 minimum initial investment

All initial and subsequent investments must be made by bank wire.

By Wire

Call Financial Institution Services at 1-800-638-8797 for an account number and
assignment to a dedicated service representative, and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:   043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.



Regular Mail
T. Rowe Price Financial Institution Services
P.O. Box 17603
Baltimore, MD 21297-1603

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Financial Institution Services
Four Financial Center
4515 Painters Mill Road
Owings Mills, MD 21117



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100,000 minimum additional purchase


By Wire

Call Financial Institution Services or use the wire instructions listed in
Opening a New Account.




 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.


If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.



Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.


For redemptions by electronic transfer, please see Information About Your
Services.


By Phone
Call Financial Institution Services at 1-800-638-8797
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or express mail. For exchange
policies, please see Transaction Procedures and Special Requirements - Excessive
Trading.

By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

Regular Mail
T. Rowe Price Financial Institution Services
P.O. Box 17603
Baltimore, MD 21297-1603

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Financial Institution Services
Four Financial Center
4515 Painters Mill Road
Owings Mills, MD 21117



 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange




order; (4) to cancel or rescind any purchase or exchange order (including, but
not limited to, orders deemed to result in excessive trading, market timing,
fraud, or 5% ownership) upon notice to the shareholder within five business days
of the trade or if the written confirmation has not been received by the
shareholder, whichever is sooner; (5) to freeze any account and suspend account
services when notice has been received of a dispute between the registered or
beneficial account owners or there is reason to believe a fraudulent transaction
may occur; (6) to otherwise modify the conditions of purchase and any services
at any time; (7) to waive any redemption, small account, maintenance or other
fees charged to a group of shareholders; and (8) to act on instructions
reasonably believed to be genuine. These actions will be taken when, in the sole
discretion of management, they are deemed to be in the best interest of the
fund.


In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
Financial Institution Services
1-800-638-8797
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the services currently offered. Our Services Guide,
which we mail to all new shareholders, contains detailed descriptions of these
and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. For more
information, call Financial Institution Services.


Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Financial Institution
Services. For information on all other retirement plans, please call our Trust
Company at 1-800-492-7670.

Automated Services
Tele*Access
1-800-638-2587
24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, duplicate
statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).


Subaccounting
Services
An institution may arrange for subaccounting services. Such services provide a
master account record which links together individual accounts and provides the
following information: account number, trade date, transaction, previous share
balance, dollar amount of the current transaction, share price, number of shares
purchased, new share balance, and the current market value of your group. The
subaccounting agent reserves the right to charge a fee for such services or
other shareholder services.

Telephone Services
Buy, sell, or exchange shares by calling one of our service representatives.

Electronic Transfers
By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.



For information
 Financial Institutions Division
 1-800-638-8797 toll free,
 410-581-7290 in Baltimore
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-8797.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. Fund reports and other fund information are
available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. Copies of this information may be obtained, after paying a
duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the
Public Reference Room, Washington D.C. 20549-0102.
1940 Act File No. 811-07639

F130-040 5/1/02



PROSPECTUS

May 1, 2002

T. ROWE PRICE

Institutional
Mid-Cap Equity
Growth Fund

 A stock fund seeking long-term capital appreciation through investments in
 medium-sized growth companies.

(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Institutional Equity Funds, Inc.
  T. Rowe Price Institutional Mid-Cap Equity Growth Fund
Prospectus

May 1, 2002




                                               
              ABOUT THE FUND
1
              Objective, Strategy, Risks, and Expenses    1

              -----------------------------------------------
              Other
              Information                                 5
               About the Fund
              -----------------------------------------------


              T. ROWE PRICE
               ACCOUNT
2             INFORMATION
              Pricing Shares and Receiving                6
              Sale Proceeds
              -----------------------------------------------
              Useful Information on
              Distributions                               7
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                 10
              Special Requirements
              -----------------------------------------------


              MORE ABOUT THE FUND
3
              Organization and Management                12

              -----------------------------------------------
              Understanding Performance Information      13

              -----------------------------------------------
              Investment Policies and Practices          14

              -----------------------------------------------
              Financial Highlights                       19

              -----------------------------------------------


              INVESTING WITH T. ROWE PRICE
4
              Account Requirements and                   20
              Transaction Information
              -----------------------------------------------
              Opening a New Account                      20

              -----------------------------------------------
              Purchasing Additional Shares               21

              -----------------------------------------------
              Exchanging and Redeeming                   21
              Shares
              -----------------------------------------------
              Rights Reserved by the Fund                22
              s
              -----------------------------------------------
              Information About Your Services            23

              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide long-term capital appreciation through investments
   in mid-cap stocks with potential for above-average earnings growth.


 What is the fund's principal investment strategy?


   We will invest at least 80% of net assets in a diversified portfolio of
   common stocks of mid-cap companies whose earnings T. Rowe Price expects to
   grow at a faster rate than the average company. We define mid-cap companies
   as those whose market capitalization (number of shares outstanding multiplied
   by share price) falls within the range of either the S&P MidCap 400 Index or
   the Russell Midcap Growth Index. The market capitalization of the companies
   in the fund's portfolio and the S&P and Russell indices changes over time;
   the fund will not automatically sell or cease to purchase stock of a company
   it already owns just because the company's market capitalization grows or
   falls outside this range.


   As "growth" investors, we believe that when a company's earnings grow faster
   than both inflation and the overall economy, the market will eventually
   reward it with a higher stock price.

   In selecting investments, we generally favor companies that:

  . have proven products or services;
  . have a record of above-average earnings growth;
  . have demonstrated potential to sustain earnings growth;
  . operate in industries experiencing increasing demand; or
  . have stock prices that appear to undervalue their growth prospects.


   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.


   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   . For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?

   The stocks of mid-cap companies entail greater risk and are usually more
   volatile than the shares of large companies. In addition, growth stocks can
   be volatile for several reasons. Since they usually reinvest a high
   proportion of earnings in their own businesses, they may lack the dividends
   usually associated with value stocks that can cushion their decline in a
   falling market. Also, since investors buy these stocks because of their
   expected superior earnings growth, earnings disappointments often result in
   sharp price declines.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   . The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you can accept the greater risk of investing in
   mid-cap growth companies in an effort to achieve superior capital
   appreciation, the fund could be an appropriate part of your overall
   investment strategy. This fund should not represent your complete investment
   program or be used for short-term trading purposes.


   . Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.





           Calendar Year Total Returns
    "97"        "98"        "99"         "00"    "01"
 --------------------------------------------------
                               
   18.39     21.45       25.10       7.86    -1.18
 --------------------------------------------------



                  Quarter ended     Total return

 Best quarter       12/31/98           27.80%
 Worst quarter       9/30/98          -18.99%






 Table 1  Average Annual Total Returns

                                                Periods ended
                                              December 31, 2001
                                                         Since inception
                                      1 year   5 years      (7/31/96)
 ------------------------------------
                                                              
  Institutional Mid-Cap Equity Growth Fund
  Returns before taxes                -1.18%    13.90%       15.91%
  Returns after taxes on
  distributions                       -1.35     13.27        15.30
  Returns after taxes on
  distributions and sale of fund
  shares                              -0.57     11.55        13.35
  S&P MidCap 400 Index                -0.60     16.11        18.17
  Russell Midcap Growth Index        -20.15      9.02        11.18
  Lipper Mid-Cap Growth Fund Index   -21.07      7.63         9.17
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.



 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.



 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.60%
  Other expenses                                             0.05%
  Total annual fund operating expenses                       0.65%
 --------------------------------------------------------------------------------------





 *Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
  paid to the fund.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:





      1 year      3 years      5 years       10 years
    ----------------------------------------------------
                                 
       $66         $208         $362           $810
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   Mid-cap companies may offer greater potential for capital appreciation than
   large companies because of their higher growth rates. Since mid-cap stocks
   are usually less actively followed by securities analysts, they could be
   undervalued by the market, providing opportunities for investors.


 What are the advantages of mid-cap investing?

   Mid-cap companies are often in the early, more dynamic phase of their life
   cycles, but are no longer considered new or emerging. By being more focused
   in their business activities, these companies may be more responsive and
   better able to adapt to the changing needs of their markets than large
   companies. Medium-sized companies also tend to have greater resources, and
   therefore represent less risk, than small companies. They are usually mature
   enough to have established organizational structures and the depth of
   management needed to expand their operations. In addition, they generally
   have sufficient financial resources and access to capital to finance their
   growth.


 What is meant by a "growth" investment approach?

   Thomas Rowe Price, Jr. pioneered the growth stock theory of investing over 60
   years ago. It is based on the premise that inflation represents a more
   serious long-term threat to an investor's portfolio than stock market
   fluctuations or recessions. Mr. Price believed that when a company's earnings
   grow faster than both inflation and the economy in general, the market will
   eventually reward its long-term earnings growth with a higher stock price.
   However, investors should be aware that, during periods of adverse economic
   and market conditions, stock prices may fall despite favorable earnings
   trends.


   . Growth investors look for companies with above-average earnings gains.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION
 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------
   Here are some procedures you should know when investing in a T. Rowe Price
   fund.


 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for the fund
   is calculated at the close of the New York Stock Exchange, normally 4 p.m.
   ET, each day the New York Stock Exchange is open for business. To calculate
   the NAV, the fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if the fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. The fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.



   . The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.

   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.


   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.


 How you can receive the proceeds from a sale


   . When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.


  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   . If for some reason we cannot accept your request to sell shares, we will
     contact you.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   . All net investment income and realized capital gains are distributed to
     shareholders.


 Dividends and Other Distributions

   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. The advantage of reinvesting distributions arises from compounding;
   that is, you receive income dividends and capital gain distributions on a
   rising number of shares.

   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.


   Income dividends
  . The fund declares and pays dividends (if any) annually.

  . Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Capital gains
  . A capital gain or loss is the difference between the purchase and sale price
   of a security.
  . If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month.


 Tax Information


   . You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . The fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is still a sale for tax purposes.


   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year, based on the average cost, single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation immediately
   following each transaction you make and a year-end statement detailing all
   your transactions in each fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.




   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss must be reclassified to a long-term loss to the extent of any
   long-term capital gain distribution received during the period you held the
   shares. Gains and losses from the sale of foreign currencies and the foreign
   currency gain or loss resulting from the sale of a foreign debt security can
   increase or decrease an ordinary income dividend. Net foreign currency losses
   may cause monthly or quarterly dividends to be reclassified as a return of
   capital.


   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.



   . Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain or dividend distribution
   If you buy shares shortly before or on the "record date" -  the date that
   establishes you as the person to receive the upcoming distribution - you will
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains or income and unrealized appreciation, which may
   result in future taxable distributions. Such distributions can occur even in
   a year when the fund has a negative return.


   . The preceding tax information summary does not apply to retirement
     accounts, which are not subject to current tax.


 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   . Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment
   The fund and its agents have the right to reject or cancel any purchase,
   exchange, or redemption due to nonpayment.


   All purchases must be paid for in U.S. dollars.



 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by ACH transfer, the
   fund will process your redemption but will generally delay sending you the
   proceeds for up to 10 calendar days to allow the transfer to clear. (The
   10-day hold does not apply to purchases paid for by bank wire.)


   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Large Redemptions
   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.

   We also request that you give us three business days' notice for any
   redemption of $2 million or more.



 Excessive Trading


   . T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of the fund and raise its expenses. To deter such
   activity, the fund has adopted an excessive trading policy. If you violate
   our excessive


   trading policy, you may be barred indefinitely and without further notice
   from further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price  If you trade directly with T.
   Rowe Price, you can make one purchase and one sale involving the same fund
   within any 120-day period. For example, if you are in fund A, you can move
   assets from fund A to fund B and, within the next 120 days, sell your shares
   in fund B to return to fund A or move to fund C. If you exceed this limit, or
   if your trade involves market timing, you are in violation of our excessive
   trading policy.


  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale involving the same
   fund within any 120-day period. If you exceed this limit or if you hold fund
   shares for less than 60 calendar days, you are in violation of our excessive
   trading policy. Systematic purchases and redemptions are exempt from this
   policy. Transactions accepted by intermediaries in violation of this
   excessive trading policy or from persons believed to be market timers are
   subject to rejection or cancellation by the funds.



 Keeping Your Account Open

   To keep operating expenses lower, we ask you to maintain an account balance
   of at least $1,000,000. If your balance is below $1,000,000 for three months
   or longer, we have the right to close your account after giving you 60 days
   in which to increase your balance.


 Signature Guarantees


   . A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior authorization is not on file.

  . Remitting redemption proceeds to any person, address, or bank account not on
   record.
  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.



 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The T. Rowe Price Institutional Equity Funds, Inc. (the "corporation") was
   incorporated in Maryland in 1996.


   Currently, the corporation consists of four series: Institutional Mid-Cap
   Equity Growth Fund, established in 1996, Institutional Small-Cap Stock Fund
   and Institutional Large-Cap Value Fund, both established in 2000, and
   Institutional Large-Cap Growth Fund, established in 2001. Each is a
   "diversified, open-end investment company," or mutual fund, and represents a
   separate series of shares with different objectives and policies. Each fund
   is described in a separate prospectus.



 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The corporation is governed by a Board of Directors that meets regularly to
   review fund investments, performance, expenses, and other business affairs.
   The Board elects the corporation's officers. The majority of Board members
   are independent of T. Rowe Price Associates, Inc. (T. Rowe Price).



   . All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Brian W.H. Berghuis, Chairman, Anna M. Dopkin, Henry M. Ellenbogen, Eric M.
   Gerster, Kris H. Jenner, Joseph Milano, Philip W. Ruedi, John F. Wakeman, and
   Candler Young. The committee chairman has day-to-day responsibility for
   managing the portfolio and works with the committee in developing and
   executing the fund's investment program. Mr. Berghuis has been chairman of
   the fund's committee since 1996. He joined T. Rowe Price in 1985 and has been
   managing investments since 1988.


   The Management Fee
   The fund pays the fund manager an annual investment management fee of 0.60%
   of the average daily net asset value of the fund. The fund calculates and
   accrues the fee daily.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.

   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   . Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities
   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such


   investments increase a portfolio's diversification and may enhance return,
   but they also involve some special risks, such as exposure to potentially
   adverse local, political, and economic developments; nationalization and
   exchange controls; potentially lower liquidity and higher volatility;
   possible problems arising from accounting, disclosure, settlement, and
   regulatory practices that differ from U.S. standards; and the chance that
   fluctuations in foreign exchange rates will decrease the investment's value
   (favorable changes can increase its value). These risks are heightened for
   investments in developing countries, and there is no limit on the amount of
   fund foreign investments that may be made in such countries.

   Operating policy  Fund investments in foreign securities are limited to 25%
   of total assets.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   . Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no


   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.



   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.


   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.


   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.


 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 3, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.



 Table 3  Financial Highlights

                                         Year ended December 31
                          1997         1998        1999        2000        2001
 -----------------------------------------------------------------------------------------
                                                                   

  Net asset value,
  beginning of period    $ 11.59     $  13.69    $  16.28    $  20.07    $  19.84
  Income From Investment Operations
  Net investment income    (0.01)/a/    (0.04)      (0.02)      (0.04)      (0.04)
                         ------------------------------------------------------------
  Net gains or losses
  on securities (both
  realized and              2.14         2.94        4.08        1.59       (0.20)
  unrealized)
                         ------------------------------------------------------------
  Total from investment
  operations                2.13         2.90        4.06        1.55       (0.24)
  Less Distributions
  Dividends (from net         --           --          --          --          --
  investment income)
                         ------------------------------------------------------------
  Distributions (from      (0.03)       (0.31)      (0.27)      (1.78)      (0.16)
  capital gains)
                         ------------------------------------------------------------
  Returns of capital          --           --          --          --          --
                         ------------------------------------------------------------
  Total distributions      (0.03)       (0.31)      (0.27)      (1.78)      (0.16)
                         ------------------------------------------------------------
  Net asset value,       $ 13.69     $  16.28    $  20.07    $  19.84    $  19.44
  end of period
                         ------------------------------------------------------------
  Total return             18.39%/a/    21.45%      25.10%       7.86%      (1.18)%
  Ratios/Supplemental Data
  Net assets, end of     $57,974     $131,575    $265,724    $308,336    $308,279
  period (in thousands)
                         ------------------------------------------------------------
  Ratio of expenses to      0.85%/a/     0.85%       0.70%       0.65%       0.65%
  average net assets
                         ------------------------------------------------------------
  Ratio of net income      (0.12)%/a/   (0.35)%     (0.13)%     (0.20)%     (0.23)%
  to average net assets
                         ------------------------------------------------------------
  Portfolio turnover        41.0%        52.8%       55.4%       67.5%       48.6%
  rate
 -----------------------------------------------------------------------------------------





 /a/
   Excludes expenses in excess of a 0.85% voluntary expense limitation in effect
   through December 31, 1997.



 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
Tax Identification
Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.


Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Financial Institution Services promptly.



 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$1,000,000 minimum initial investment

All initial and subsequent investments must be made by bank wire.

By Wire

Call Financial Institution Services at 1-800-638-8797 for an account number and
assignment to a dedicated service representative, and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:   043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.



Regular Mail
T. Rowe Price Financial Institution Services
P.O. Box 17603
Baltimore, MD 21297-1603

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Financial Institution Services
Four Financial Center
4515 Painters Mill Road
Owings Mills, MD 21117



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100,000 minimum additional purchase


By Wire

Call Financial Institution Services or use the wire instructions listed in
Opening a New Account.




 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.


If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.



Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.


For redemptions by electronic transfer, please see Information About Your
Services.


By Phone
Call Financial Institution Services at 1-800-638-8797
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or express mail. For exchange
policies, please see Transaction Procedures and Special Requirements - Excessive
Trading.

By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

Regular Mail
T. Rowe Price Financial Institution Services
P.O. Box 17603
Baltimore, MD 21297-1603

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Financial Institution Services
Four Financial Center
4515 Painters Mill Road
Owings Mills, MD 21117



 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange




order; (4) to cancel or rescind any purchase or exchange order (including, but
not limited to, orders deemed to result in excessive trading, market timing,
fraud, or 5% ownership) upon notice to the shareholder within five business days
of the trade or if the written confirmation has not been received by the
shareholder, whichever is sooner; (5) to freeze any account and suspend account
services when notice has been received of a dispute between the registered or
beneficial account owners or there is reason to believe a fraudulent transaction
may occur; (6) to otherwise modify the conditions of purchase and any services
at any time; (7) to waive any redemption, small account, maintenance or other
fees charged to a group of shareholders; and (8) to act on instructions
reasonably believed to be genuine. These actions will be taken when, in the sole
discretion of management, they are deemed to be in the best interest of the
fund.


In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
Financial Institution Services
1-800-638-8797
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the services currently offered. Our Services Guide,
which we mail to all new shareholders, contains detailed descriptions of these
and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. For more
information, call Financial Institution Services.


Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Financial Institution
Services. For information on all other retirement plans, please call our Trust
Company at 1-800-492-7670.

Automated Services
Tele*Access
1-800-638-2587
24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, duplicate
statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).


Subaccounting
Services
An institution may arrange for subaccounting services. Such services provide a
master account record which links together individual accounts and provides the
following information: account number, trade date, transaction, previous share
balance, dollar amount of the current transaction, share price, number of shares
purchased, new share balance, and the current market value of your group. The
subaccounting agent reserves the right to charge a fee for such services or
other shareholder services.

Telephone Services
Buy, sell, or exchange shares by calling one of our service representatives.

Electronic Transfers
By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.



For information
 Financial Institutions Division
 1-800-638-8797 toll free,
 410-581-7290 in Baltimore
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-8797.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. Fund reports and other fund information are
available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. Copies of this information may be obtained, after paying a
duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the
Public Reference Room, Washington D.C. 20549-0102.
1940 Act File No. 811-07639

F34-041 5/1/02



PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE

Institutional
Small-Cap Stock
Fund

 A stock fund seeking long-term capital growth through investments in securities
 of small companies.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.



T. Rowe Price Institutional Equity Funds, Inc.
  T. Rowe Price Institutional Small-Cap Stock Fund
Prospectus

May 1, 2002




      
              ABOUT THE FUND
1
              Objective, Strategy, Risks, and Expenses    1

              -----------------------------------------------
              Other
              Information                                 5
               About the Fund
              -----------------------------------------------


              T. ROWE PRICE
               ACCOUNT
2             INFORMATION
              Pricing Shares and Receiving                8
              Sale Proceeds
              -----------------------------------------------
              Useful Information on
              Distributions                               9
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                 12
              Special Requirements
              -----------------------------------------------


              MORE ABOUT THE FUND
3
              Organization and Management                15

              -----------------------------------------------
              Understanding Performance Information      16

              -----------------------------------------------
              Investment Policies and Practices          17

              -----------------------------------------------
              Financial Highlights                       22

              -----------------------------------------------


              INVESTING WITH T. ROWE PRICE
4
              Account Requirements and                   24
              Transaction Information
              -----------------------------------------------
              Opening a New Account                      24

              -----------------------------------------------
              Purchasing Additional Shares               25

              -----------------------------------------------
              Exchanging and Redeeming                   25
              Shares
              -----------------------------------------------
              Rights Reserved by the Fund                26
              s
              -----------------------------------------------
              Information About Your Services            27

              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide long-term capital growth by investing primarily in
   stocks of small companies.


 What is the fund's principal investment strategy?


   The fund will invest at least 80% of net assets in stocks of small companies.
   A small company is defined as having a market capitalization that falls (i)
   within or below the range of companies in the current Russell 2000 Index or
   (ii) below the three year average maximum market cap of companies in the
   index as of December 31 of the three preceding years. The Russell 2000 Index
   is a widely used benchmark for small-cap stock performance. Stock selection
   may reflect either a growth or value investment approach. When choosing
   stocks, we generally look for the following characteristics:

  . capable management;
  . attractive business niches;
  . pricing flexibility;
  . sound financial and accounting practices;
  . a demonstrated ability to grow revenues, earnings, and cash flow
   consistently; and
  . the potential for a catalyst (such as increased investor attention, asset
   sales, strong business prospects, or a change in management) to cause the
   stock's price to rise.

   We may also select stocks on certain growth or value considerations. For
   example, we may look for a company whose price/earnings ratio is attractive
   relative to the underlying earnings growth rate. A value stock would be one
   where the stock price appears undervalued in relation to earnings, projected
   cash flow, or asset value per share.

   Holdings will be widely diversified by industry and company; under most
   circumstances, the fund will invest less than 1.5% of its total assets in any
   single company. The market capitalization of the companies in the fund's
   portfolio and the Russell 2000 Index changes over time and the fund will not
   sell a stock just because a company has grown to a market capitalization
   outside the range of the Russell 2000. The fund may, on occasion, purchase
   companies with a market capitalization above the range.




T. ROWE PRICE                                 2

   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?


   Investing in small companies involves greater risk than is customarily
   associated with larger companies. Stocks of small companies are subject to
   more abrupt or erratic price movements than larger-company stocks. Small
   companies often have limited product lines, markets, or financial resources,
   and their managements may lack depth and experience. Such companies seldom
   pay significant dividends that could cushion returns in a falling market.

   Stocks with growth characteristics can have sharp price declines as a result
   of earnings disappointments, even small ones. Stocks with value
   characteristics carry the risk that investors will not recognize their
   intrinsic value for a long time or that they are actually appropriately
   priced at a low level. Because this fund holds stocks with both growth and
   value characteristics, its share price may be negatively affected by either
   set of risks.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.




MORE ABOUT THE FUND                           3
   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you seek an aggressive, long-term approach to
   capital growth through small-company stocks, the fund could be an appropriate
   part of your overall investment strategy. This fund should not represent your
   complete investment program or be used for short-term trading purposes.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the year depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 4



            Calendar Year Total Returns
                        "01"
 -------------------------------------------------
  

 7.26
 -------------------------------------------------



                    Quarter ended   Total return
 Best quarter         12/31/01	20.68%
 Worst quarter        9/30/01	-15.80%




 Table 1  Average Annual Total Returns

                                                 Periods ended
                                               December 31, 2001
                                                       Since inception
                                          1 year          (3/31/00)
 ------------------------------------------------------------------------------
                                    
  Institutional Small-Cap Stock Fund
  Returns before taxes                     7.26%             8.19%
  Returns after taxes on
  distributions                            6.56              7.64
  Returns after taxes on
  distributions and sale of fund
  shares                                   4.58              6.39
  Russell 2000 Index                       2.49             -4.16
  Lipper Small-Cap Core Fund Index         7.13              2.18
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.




MORE ABOUT THE FUND                           5




 Table 2  Fees and Expenses of the Fund*

                                  Annual fund operating expenses
                           (expenses that are deducted from fund assets)
 ------------------------------------------------------------------------------
                        
  Management fee                              0.65%

  Other expenses                              0.06%

  Total annual fund
  operating expenses                          0.71%

  Fee
  waiver/reimbursement                        0.03%/a/

  Net expenses                                0.74%/a/
 ------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund.

 /a/Effective January 1, 2002, T. Rowe Price contractually obligated itself to
   waive any fees and bear any expenses through December 31, 2003, to the extent
   that such fees and expenses would cause the fund's ratio of expenses to
   average net assets to exceed 0.75%. Fees waived or expenses paid or assumed
   under this agreement are subject to reimbursement to T. Rowe Price whenever
   the fund's expense ratio is below 0.75%; however, no reimbursement will be
   made after December 31, 2005, or if it would result in the expense ratio
   exceeding 0.75%. Any amounts reimbursed will have the effect of increasing
   fees otherwise paid by the fund.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, the expense limitation currently in place is not renewed,
   you invest $10,000, earn a 5% annual return, and hold the investment for the
   following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $76         $237         $411           $918
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   Small and mid-size companies are often overlooked by the investment community
   and their securities may be undervalued, providing the potential for
   significant capital appreciation. Smaller companies may also have faster
   earnings growth than large, well-established companies, and stock prices
   typically reflect earnings growth over time. The fund is designed for
   long-term investors who are willing to accept greater risks in search of
   substantial long-term rewards.


   3 Stock selection may reflect either a growth or value investment approach.




T. ROWE PRICE                                 6
 What is meant by a "growth" investment approach?

   Thomas Rowe Price, Jr. pioneered the growth stock theory of investing over 60
   years ago. It is based on the premise that inflation represents a more
   serious long-term threat to an investor's portfolio than stock market
   fluctuations or recessions. Mr. Price believed that when a company's earnings
   grow faster than both inflation and the economy in general, the market will
   eventually reward its long-term earnings growth with a higher stock price.
   However, investors should be aware that, during periods of adverse economic
   and market conditions, stock prices may fall despite favorable earnings
   trends.


   3 Growth investors look for companies with above-average earnings gains.


 What is meant by a "value" investment approach?

   Value investors seek to invest in companies whose stock prices are low in
   relation to their real worth or future prospects. By identifying companies
   whose stocks are currently out of favor or misunderstood, value investors
   hope to realize significant appreciation as other investors recognize the
   stock's intrinsic value and the price rises accordingly.


   Finding undervalued stocks requires considerable research to identify the
   particular company, analyze its financial condition and prospects, and assess
   the likelihood that the stock's underlying value will be recognized by the
   market and reflected in its price.

   Some of the principal measures used to identify such stocks are:

  . Price/earnings ratio Dividing a stock's price by its earnings per share
   generates a price/earnings or P/E ratio. A stock with a P/E that is
   significantly below that of its peers, the market as a whole, or its own
   historical norm may represent an attractive opportunity.

  . Price/book value ratio Dividing a stock's price by its book value per share
   indicates how a stock is priced relative to the accounting (i.e., book) value
   of the company's assets. A ratio below the market, that of its competitors,
   or its own historic norm could indicate an undervalued situation.

  . Dividend yield A stock's dividend yield is found by dividing its annual
   dividend by its share price. A yield significantly above a stock's own
   historic norm or that of its peers may suggest an investment opportunity.


   3 A stock selling at $10 with an annual dividend of $0.50 has a 5% yield.

  . Price/cash flow Dividing a stock's price by the company's cash flow per
   share, rather than by its earnings or book value, provides a more useful
   measure of value in some cases. A ratio below that of the market or of its
   peers suggests the




MORE ABOUT THE FUND                           7
   market may be incorrectly valuing the company's cash flow for reasons that
   may be temporary.


  . Undervalued assets This analysis compares a company's stock price with its
   underlying asset values, its projected value in the private (as opposed to
   public) market, or its expected value if the company or parts of it were sold
   or liquidated.

  . Restructuring opportunities The market can react favorably to the
   announcement of the successful implementation of a corporate restructuring,
   financial reengineering, or asset redeployment. Such events can result in an
   increase in a company's stock price. A value investor may try to anticipate
   these actions and invest before the market places an appropriate value on any
   actual or expected changes.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION
 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------
   Here are some procedures you should know when investing in a T. Rowe Price
   fund.


 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for the fund
   is calculated at the close of the New York Stock Exchange, normally 4 p.m.
   ET, each day the New York Stock Exchange is open for business. To calculate
   the NAV, the fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if the fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. The fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.

   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.




MORE ABOUT THE FUND                           9
   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.

  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


 Dividends and Other Distributions

   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. The advantage of reinvesting distributions arises from compounding;
   that is, you receive income dividends and capital gain distributions on a
   rising number of shares.

   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.




T. ROWE PRICE                                 10
   Income dividends
  . The fund declares and pays dividends (if any) annually.

  . Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.

   Capital gains
  . A capital gain or loss is the difference between the purchase and sale price
   of a security.
  . If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month.


 Tax Information


   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . The fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is still a sale for tax purposes.

   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year, based on the average cost, single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation immediately
   following each transaction you make and a year-end statement detailing all
   your transactions in each fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.




MORE ABOUT THE FUND                           11

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss must be reclassified to a long-term loss to the extent of any
   long-term capital gain distribution received during the period you held the
   shares. Gains and losses from the sale of foreign currencies and the foreign
   currency gain or loss resulting from the sale of a foreign debt security can
   increase or decrease an ordinary income dividend. Net foreign currency losses
   may cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain or dividend distribution
   If you buy shares shortly before or on the "record date" -  the date that
   establishes you as the person to receive the upcoming distribution - you will
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains or income and unrealized appreciation, which may
   result in future taxable distributions. Such distributions can occur even in
   a year when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, which are not subject to current tax.




T. ROWE PRICE                                 12
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment
   The fund and its agents have the right to reject or cancel any purchase,
   exchange, or redemption due to nonpayment.


   All purchases must be paid for in U.S. dollars.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by ACH transfer, the
   fund will process your redemption but will generally delay sending you the
   proceeds for up to 10 calendar days to allow the transfer to clear. (The
   10-day hold does not apply to purchases paid for by bank wire.)

   Telephone, Tele*Access/(R)/, and personal computer transactions

   Exchange and redemption services through telephone and Tele*Access are
   established automatically when you sign the New Account Form unless you check
   the boxes that state you do not want them. The T. Rowe Price funds and their
   agents use reasonable procedures to verify the identity of the shareholder.
   If these procedures are followed, the funds and their agents are not liable
   for any losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Large Redemptions
   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.

   We also request that you give us three business days' notice for any
   redemption of $2 million or more.




MORE ABOUT THE FUND                           13
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of the fund and raise its expenses. To deter such
   activity, the fund has adopted an excessive trading policy. If you violate
   our excessive trading policy, you may be barred indefinitely and without
   further notice from further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price  If you trade directly with T.
   Rowe Price, you can make one purchase and one sale involving the same fund
   within any 120-day period. For example, if you are in fund A, you can move
   assets from fund A to fund B and, within the next 120 days, sell your shares
   in fund B to return to fund A or move to fund C. If you exceed this limit, or
   if your trade involves market timing, you are in violation of our excessive
   trading policy.


  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale involving the same
   fund within any 120-day period. If you exceed this limit or if you hold fund
   shares for less than 60 calendar days, you are in violation of our excessive
   trading policy. Systematic purchases and redemptions are exempt from this
   policy. Transactions accepted by intermediaries in violation of this
   excessive trading policy or from persons believed to be market timers are
   subject to rejection or cancellation by the funds.


 Keeping Your Account Open

   To keep operating expenses lower, we ask you to maintain an account balance
   of at least $1,000,000. If your balance is below $1,000,000 for three months
   or longer, we have the right to close your account after giving you 60 days
   in which to increase your balance.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.
  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.




T. ROWE PRICE                                 14
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The T. Rowe Price Institutional Equity Funds, Inc. (the "corporation") was
   incorporated in Maryland in 1996.


   Currently, the corporation consists of four series: Institutional Mid-Cap
   Equity Growth Fund, established in 1996, Institutional Small-Cap Stock Fund
   and Institutional Large-Cap Value Fund, both established in 2000, and
   Institutional Large-Cap Growth Fund, established in 2001. Each is a
   "diversified, open-end investment company," or mutual fund, and represents a
   separate series of shares with different objectives and policies. Each fund
   is described in a separate prospectus.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.




T. ROWE PRICE                                 16
 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).


   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Gregory A. McCrickard, Chairman, Preston G. Athey, Brace C. Brooks, Hugh M.
   Evans III, Kris H. Jenner, Joseph Milano, Curt J. Organt, Charles G. Pepin,
   Michael F. Sola, J. David Wagner, and Wenhua Zhang. The committee chairman
   has day-to-day responsibility for managing the portfolio and works with the
   committee in developing and executing the fund's investment program. Mr.
   McCrickard has been chairman of the fund's committee since 1992. He joined T.
   Rowe Price in 1986 and has been managing investments since 1991.

   The Management Fee
   The fund pays the fund manager an annual investment management fee of 0.65%
   of the average daily net asset value of the fund. The fund calculates and
   accrues the fee daily.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.




MORE ABOUT THE FUND                           17
 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.

   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.




T. ROWE PRICE                                 18
   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.




MORE ABOUT THE FUND                           19
   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 10%
   of total assets.

   Fixed-Income Securities
   From time to time, we may invest in debt securities of any type, including
   municipal securities, without regard to quality or rating. Such securities
   would be purchased in companies, municipalities, or entities which meet the
   investment criteria for the fund. The price of a bond fluctuates with changes
   in interest rates, generally rising when interest rates fall and falling when
   interest rates rise.

   High-Yield, High-Risk Bonds
   The total return and yield of lower-quality (high-yield, high-risk) bonds,
   commonly referred to as "junk" bonds, can be expected to fluctuate more than
   the total return and yield of higher-quality, shorter-term bonds, but not as
   much as those of common stocks. Junk bonds (those rated below BBB or in
   default) are regarded as predominantly speculative with respect to the
   issuer's continuing ability to meet principal and interest payments.


   Operating policy  The fund may purchase any type of noninvestment-grade debt
   security (or junk bond) including those in default. The fund will not
   purchase this type of security if it would have more than 10% of its total
   assets invested in such securities. Fund investments in convertible
   securities are not subject to this limit.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities




T. ROWE PRICE                                 20
   may bear interest or pay dividends at below market or even relatively nominal
   rates. Under some conditions, the redemption value of such an investment
   could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.




MORE ABOUT THE FUND                           21
   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transac-




T. ROWE PRICE                                 22
   tions involve the risk that anticipated currency movements will not occur,
   which could reduce fund total return. There are certain markets, including
   many emerging markets, where it is not possible to engage in effective
   foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portoflio turnover

   rates are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------

   Table 3, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




MORE ABOUT THE FUND                           23




 Table 3  Financial Highlights

                                     3/31/00/*/
                                       through    Year ended December 31
                                      12/31/00
                                     -------------         2001
 ------------------------------------             -----------------------------
                            

  Net asset value, beginning
  of period                          $  10.00           $  10.61
  Income From Investment Operations
  Net investment income                 0.02/a/             0.05
                               -------------------------------------------
  Net gains or losses on
  securities (both realized              0.68               0.71
  and unrealized)
                               -------------------------------------------
  Total from investment
  operations                             0.70               0.76
  Less Distributions
  Dividends (from net                   (0.03)             (0.05)
  investment income)
                                     -------------------------------------
  Distributions (from capital           (0.06)             (0.18)
  gains)
                               -------------------------------------------
  Returns of capital                       --                 --
                                     -------------------------------------
  Total distributions                   (0.09)             (0.23)
                               -------------------------------------------
  Net asset value, end of            $  10.61           $  11.14
  period
                               -------------------------------------------
  Total return                           7.03%/a/           7.26%
  Ratios/Supplemental Data
  Net assets, end of period          $229,475           $288,104
  (in thousands)
                               -------------------------------------------
  Ratio of expenses to                   0.75%/ab/          0.74%
  average net assets
                               -------------------------------------------
  Ratio of net income to                 0.66%/ab/          0.46%
  average net assets
                               -------------------------------------------
  Portfolio turnover rate                15.8%/b/           26.9%
 ------------------------------------------------------------------------------





 * Inception date.

 /a/
   Excludes expenses in excess of a 0.75% voluntary expense limitation in effect
   through 12/31/01.

 /b/      Annualized.


 INVESTING WITH T. ROWE PRICE

 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Financial Institution Services promptly.



 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$1,000,000 minimum initial investment

All initial and subsequent investments must be made by bank wire.

                                                                         By Wire

Call Financial Institution Services at 1-800-638-8797 for an account number and
assignment to a dedicated service representative, and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:   043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.




MORE ABOUT THE FUND                           25
Regular Mail
T. Rowe Price Financial Institution Services
P.O. Box 17603
Baltimore, MD 21297-1603

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Financial Institution Services
Four Financial Center
4515 Painters Mill Road
Owings Mills, MD 21117



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100,000 minimum additional purchase

                                                                         By Wire

Call Financial Institution Services or use the wire instructions listed in
Opening a New Account.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.


If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.




T. ROWE PRICE                                 26
Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.


For redemptions by electronic transfer, please see Information About Your
Services.

                                                                        By Phone
Call Financial Institution Services at 1-800-638-8797
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or express mail. For exchange
policies, please see Transaction Procedures and Special Requirements - Excessive
Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

Regular Mail
T. Rowe Price Financial Institution Services
P.O. Box 17603
Baltimore, MD 21297-1603

Mailgram, Express, Registered, or Certified Mail
T. Rowe Price Financial Institution Services
Four Financial Center
4515 Painters Mill Road
Owings Mills, MD 21117



 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange




MORE ABOUT THE FUND                           27
order; (4) to cancel or rescind any purchase or exchange order (including, but
not limited to, orders deemed to result in excessive trading, market timing,
fraud, or 5% ownership) upon notice to the shareholder within five business days
of the trade or if the written confirmation has not been received by the
shareholder, whichever is sooner; (5) to freeze any account and suspend account
services when notice has been received of a dispute between the registered or
beneficial account owners or there is reason to believe a fraudulent transaction
may occur; (6) to otherwise modify the conditions of purchase and any services
at any time; (7) to waive any redemption, small account, maintenance or other
fees charged to a group of shareholders; and (8) to act on instructions
reasonably believed to be genuine. These actions will be taken when, in the sole
discretion of management, they are deemed to be in the best interest of the
fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                  Financial Institution Services
                                                                  1-800-638-8797
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the services currently offered. Our Services Guide,
which we mail to all new shareholders, contains detailed descriptions of these
and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. For more
information, call Financial Institution Services.




T. ROWE PRICE                                 28
                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Financial Institution
Services. For information on all other retirement plans, please call our Trust
Company at 1-800-492-7670.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, duplicate
statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                   Subaccounting
                                                                        Services
An institution may arrange for subaccounting services. Such services provide a
master account record which links together individual accounts and provides the
following information: account number, trade date, transaction, previous share
balance, dollar amount of the current transaction, share price, number of shares
purchased, new share balance, and the current market value of your group. The
subaccounting agent reserves the right to charge a fee for such services or
other shareholder services.

                                                              Telephone Services
Buy, sell, or exchange shares by calling one of our service representatives.

                                                            Electronic Transfers
By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.




For information
 Financial Institutions Division
 1-800-638-8797 toll free,
 410-581-7290 in Baltimore
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-8797.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. Fund reports and other fund information are
available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. Copies of this information may be obtained, after paying a
duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the
Public Reference Room, Washington D.C. 20549-0102.
                                                     1940 Act File No. 811-07639
                                                                 F129-040 5/1/02


PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE

Media &
Telecommunications
Fund

 A stock fund seeking capital growth through media, technology, and
 telecommunications companies.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Media & Telecommunications Fund, Inc.
Prospectus

May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  6
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions           9
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   13
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  16
              -----------------------------------------------
              Understanding Performance Information        18
              -----------------------------------------------
              Investment Policies and Practices            18
              -----------------------------------------------
              Financial Highlights                         24
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         26
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        27
              -----------------------------------------------
              Purchasing Additional Shares                 28
              -----------------------------------------------
              Exchanging and Redeeming Shares              29
              -----------------------------------------------
              Rights Reserved by the Funds                 31
              -----------------------------------------------
              Information About Your Services              31
              -----------------------------------------------
              T. Rowe Price Brokerage                      34
              -----------------------------------------------
              Investment Information                       35
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 36
              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide long-term capital growth through the common stocks
   of media, technology, and telecommunications companies.


 What is the fund's principal investment strategy?


   We invest at least 80% of net assets in the common stocks of companies
   engaged in any facet of media and telecommunications, including publishing,
   movies, cable TV, telephones, cellular services, and technology and
   equipment. Generally, the fund invests in companies in the large- to
   mid-capitalization range.

   Stock selection is based on fundamental, bottom-up analysis that seeks to
   identify companies with good appreciation prospects. The fund manager may use
   both growth and value approaches to stock selection. In the growth area, the
   manager will try to identify companies with capable management, attractive
   business niches, sound financial and accounting practices, and a demonstrated
   ability to increase revenues, earnings, and cash flow consistently.

   In looking for value stocks, the manager will seek companies whose current
   stock prices appear undervalued in terms of earnings, projected cash flow, or
   asset value per share, and with growth potential temporarily unrecognized by
   the market. The fund manager also seeks to invest in companies whose stock
   prices may be temporarily depressed.


   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.




T. ROWE PRICE                                 2
 What are the main risks of investing in the fund?

   Since the fund is focused on the media and telecommunications industries, it
   is less diversified than stock funds investing in a broader range of
   industries and, therefore, could experience significant volatility. Companies
   in these industries are subject to the additional risks of rapid
   obsolescence, lack of investor or consumer acceptance, lack of
   standardization or compatibility with existing technologies, an unfavorable
   regulatory environment, intense competition, and a dependency on patent and
   copyright protection. Likewise, if the portfolio has substantial exposure to
   mid-cap companies, it would be subject to the greater volatility of those
   stocks compared with larger companies.

   Growth stocks can have steep declines if their earnings disappoint investors.
   The value approach carries the risk that the market will not recognize a
   security's intrinsic value for a long time, or that a stock judged to be
   undervalued may actually be appropriately priced.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies, political instability,
   economic decline, illiquid markets, and governmental interference associated
   with various foreign markets, especially developing ones. Investments in
   futures and options, if any, are subject to additional volatility and
   potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you are willing to accept the risks of investing
   in a limited group of industries in pursuit of long-term capital growth, the
   fund could be appropriate for you. This fund should not represent your
   complete investment program or be used for short-term trading purposes.




T. ROWE PRICE ACCOUNT INFORMATION             3
   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




            Calendar Year Total Returns
  "94"   "95"   "96"     "97"    "98"    "99"    "00"      "01"
 ---------------------------------------------------------------
                           
 -0.90  43.29  1.78   28.05  35.14  93.09   -25.11  -6.93
 ---------------------------------------------------------------



                  Quarter ended    Total return

 Best quarter       12/31/99          41.63%
 Worst quarter       9/30/98         -18.64%



 The fund began as the closed-end New Age Media Fund and converted to open-end
 status on July 25, 1997, operating under a different expense structure.




T. ROWE PRICE                                 4


 Table 1  Average Annual Total Returns

                                                Periods ended
                                              December 31, 2001
                                                         Since inception
                                      1 year   5 years     (10/13/93)
 ------------------------------------------------------------------------------
                                  
  Media & Telecommunications Fund
  Returns before taxes                -6.93%    18.42%       15.55%
  Returns after taxes on
  distributions                       -6.93     15.15        12.48
  Returns after taxes on
  distributions and sale of fund
  shares                              -4.22     14.70        12.12
  S&P 500 Stock Index                -11.89     10.70        13.82
  Lipper Telecommunications Funds    -39.22      8.32        7.37*
  Average
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.

 *Since 10/14/93.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.



 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.67%
  Other expenses                                             0.41%
  Total annual fund operating expenses                       1.08%
 --------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:




T. ROWE PRICE ACCOUNT INFORMATION             5



      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $110        $343         $595          $1,317
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   T. Rowe Price believes that trends in the media and telecommunications
   industries offer opportunities for significant long-term capital
   appreciation. For investors who currently have a broad exposure to equities,
   the fund provides a way to invest in the media and telecommunications
   field-an area of the economy undergoing substantial change with the potential
   for rapid growth.


 What types of companies could benefit most from these developments?

   The fund may benefit from companies operating in the following areas:

  . Media  These companies create, own, and distribute various forms of printed,
   visual, and audio content, as well as information databases that they sell or
   lease to others. Examples include newspaper, magazine, and book publishers,
   movie and television studios, advertising agencies, radio and television
   broadcasters, as well as cable television and direct satellite broadcast
   system operators.


  . Telecommunications Services  These companies own and operate both wired and
   wireless networks that transport both voice and data traffic. Examples
   include incumbent providers of domestic and international telephone services,
   regional and long distance operators, new entrants into the telecom industry
   including competitive local exchange carriers, broadband service providers,
   and data services companies, as well as cellular wireless operators.

  . Technology  These companies provide the underlying enabling technologies for
   the dynamic changes taking place in the media and telecommunications
   industries. They manufacture hardware, software, or components or provide
   services used by media and telecommunications products and services. Examples
   include telecommunications equipment vendors, semiconductor manufacturers,
   software developers, hardware suppliers, and information technology services
   companies.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




T. ROWE PRICE ACCOUNT INFORMATION             7
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




T. ROWE PRICE                                 8
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




T. ROWE PRICE ACCOUNT INFORMATION             9
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








T. ROWE PRICE                                 10

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




T. ROWE PRICE ACCOUNT INFORMATION             11
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.



   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




T. ROWE PRICE                                 12
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




T. ROWE PRICE ACCOUNT INFORMATION             13
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




T. ROWE PRICE                                 14
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




T. ROWE PRICE ACCOUNT INFORMATION             15
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 1993 as a diversified, closed-end
   investment company. In 1997, it was converted to a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received
   from shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




T. ROWE PRICE ACCOUNT INFORMATION             17
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Robert N. Gensler, Chairman, Kara Cheseby, Giri Devulapally, Henry M.
   Ellenbogen, Eric M. Gerster, Stephen C. Jansen, Robert W. Smith, Dean
   Tenerelli, and Dale West. The committee chairman has day-to-day
   responsibility for managing the portfolio and works with the committee in
   developing and executing the fund's investment program. Mr. Gensler was
   elected chairman of the fund's committee in 2000. He joined T. Rowe Price as
   an investment analyst in 1993.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion

   at December 31, 2001, the group fee was 0.32%. .  The individual fund fee is
   0.35%.




T. ROWE PRICE                                 18
 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are dis-




T. ROWE PRICE ACCOUNT INFORMATION             19
   cussed with shareholders in fund reports. Fund investment restrictions and
   policies apply at the time of investment. A later change in circumstances
   will not require the sale of an investment if it was proper at the time it
   was made.


   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities.




T. ROWE PRICE                                 20
   While most preferred stocks pay a dividend, preferred stock may be purchased
   where the issuer has omitted, or is in danger of omitting, payment of its
   dividend. Such investments would be made primarily for their capital
   appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include nondollar-
   denominated securities traded outside of the U.S. and dollar-denominated
   securities of foreign issuers traded in the U.S. (such as ADRs and ADSs).
   Such investments increase a portfolio's diversification and may enhance
   return, but they also involve some special risks, such as exposure to
   potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  There is no limit on fund investments in foreign
   securities.

   Fixed-Income Securities
   From time to time, we may invest in debt securities of any type, including
   municipal securities, without regard to quality or rating. Such securities
   would be purchased in companies, municipalities, or entities which meet the
   investment criteria for the fund. The price of a bond fluctuates with changes
   in interest rates, generally rising when interest rates fall and falling when
   interest rates rise.

   Operating policy  The fund may invest up to 20% of its total assets in
   corporate debt securities, including convertible bonds.




T. ROWE PRICE ACCOUNT INFORMATION             21
   High-Yield, High-Risk Bonds
   The total return and yield of lower-quality (high-yield, high-risk) bonds,
   commonly referred to as "junk" bonds, can be expected to fluctuate more than
   the total return and yield of higher-quality, shorter-term bonds, but not as
   much as those of common stocks. Junk bonds (those rated below BBB or in
   default) are regarded as predominantly speculative with respect to the
   issuer's continuing ability to meet principal and interest payments.


   Operating policy  The fund may purchase any type of noninvestment-grade debt
   security (or junk bond) including those in default. The fund will not
   purchase this type of security if it would have more than 5% of its total
   assets invested in such securities. Fund investments in convertible
   securities are not subject to this limit.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no




T. ROWE PRICE                                 22
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.




T. ROWE PRICE ACCOUNT INFORMATION             23
   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates
   are shown in the Financial Highlights table.




T. ROWE PRICE                                 24
 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




T. ROWE PRICE ACCOUNT INFORMATION             25


 Table 4  Financial Highlights

                                           Year ended December 31
                            1997        1998        1999        2000        2001
 -----------------------------------------------------------------------------------------
                      

  Net asset value,
  beginning of period    $  15.22    $  17.40    $  22.54    $  39.99    $  21.65
  Income From Investment Operations
  Net investment income     (0.01)      (0.07)      (0.05)       0.40       (0.09)
                         ------------------------------------------------------------
  Net gains or losses
  on securities (both
  realized and               4.22        6.07       20.72       (9.77)      (1.41)
  unrealized)
                         ------------------------------------------------------------
  Total from investment
  operations                 4.21        6.00       20.67       (9.37)      (1.50)
  Less Distributions
  Dividends (from net          --          --          --       (0.37)         --
  investment income)
                         ------------------------------------------------------------
  Distributions (from       (2.05)      (0.86)      (3.22)      (8.60)         --
  capital gains)
                         ------------------------------------------------------------
  Returns of capital           --          --          --          --          --
                         ------------------------------------------------------------
  Total distributions       (2.05)      (0.86)      (3.22)      (8.97)         --
                         ------------------------------------------------------------
  Share repurchases /a/      0.02          --          --          --          --
                         ------------------------------------------------------------
  Net asset value,       $  17.40    $  22.54    $  39.99    $  21.65    $  20.15
  end of period
                         ------------------------------------------------------------
  Total return /b/          28.05%      35.14%      93.09%     (25.11)%     (6.93)%
  Ratios/Supplemental Data
  Net assets, end of     $133,913    $246,088    $930,147    $797,856    $674,518
  period (in thousands)
                         ------------------------------------------------------------
  Ratio of expenses to       1.21%       1.03%       0.93%       0.94%       1.08%
  average net assets
                         ------------------------------------------------------------
  Ratio of net income       (0.06)%     (0.38)%     (0.24)%      1.07%      (0.39)%
  to average net assets
                         ------------------------------------------------------------
  Portfolio turnover         38.6%       48.9%       57.6%      197.5%      241.1%
  rate
 -----------------------------------------------------------------------------------------




 /a/
   Prior to the conversion, the fund made repurchases of its shares in the open
   market at a discount from the net asset value, which had the effect of
   increasing the net asset value per share of the remaining shares outstanding.

 /b/
   Based on net asset value, for periods prior and subsequent to conversion to
   open-end status on 7/25/97.


 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




T. ROWE PRICE ACCOUNT INFORMATION             27
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




T. ROWE PRICE                                 28

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




T. ROWE PRICE ACCOUNT INFORMATION             29
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




T. ROWE PRICE                                 30
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




T. ROWE PRICE ACCOUNT INFORMATION             31
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




T. ROWE PRICE                                 32
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




T. ROWE PRICE ACCOUNT INFORMATION             33
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




T. ROWE PRICE                                 34
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




T. ROWE PRICE ACCOUNT INFORMATION             35
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




T. ROWE PRICE                                 36

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.





To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
                                                                  F21-040 5/1/02
1940 Act File No. 811-07075


PROSPECTUS

                                                                 May 1, 2002
T. ROWE PRICE

New Era Fund

 A stock fund seeking capital appreciation through companies that own or develop
 natural resources and other basic commodities.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price New Era Fund, Inc.
Prospectus


May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  6
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions           9
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   13
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  16
              -----------------------------------------------
              Understanding Performance Information        17
              -----------------------------------------------
              Investment Policies and Practices            18
              -----------------------------------------------
              Financial Highlights                         25
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         27
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        28
              -----------------------------------------------
              Purchasing Additional Shares                 29
              -----------------------------------------------
              Exchanging and Redeeming Shares              30
              -----------------------------------------------
              Rights Reserved by the Funds                 32
              -----------------------------------------------
              Information About Your Services              32
              -----------------------------------------------
              T. Rowe Price Brokerage                      35
              -----------------------------------------------
              Investment Information                       36
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 37
              -----------------------------------------------





 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide long-term capital growth primarily through the
   common stocks of companies that own or develop natural resources and other
   basic commodities, and also through the stocks of selected nonresource growth
   companies.


 What is the fund's principal investment strategy?

   We normally invest a minimum of two-thirds of fund assets in the common
   stocks of natural resource companies whose earnings and tangible assets could
   benefit from accelerating inflation. We also invest in other growth companies
   with strong potential for earnings growth that do not own or develop natural
   resources. The relative percentages invested in resource and nonresource
   companies can vary depending on economic and monetary conditions and our
   outlook for inflation. The natural resource companies held by the fund
   typically own, develop, refine, service, or transport resources, including
   energy, metals, forest products, real estate, and other basic commodities. In
   selecting natural resource stocks, we look for companies whose products can
   be produced and marketed profitably when both labor costs and prices are
   rising. In the mining area, for example, we might look for a company with the
   ability to expand production and maintain superior exploration programs and
   production facilities.


   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   At least half of fund assets will be invested in U.S. securities, but up to
   50% of total assets may be invested in foreign securities. We may also buy
   other types of securities, including futures and options, in keeping with the
   fund's objective.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.




T. ROWE PRICE                                 2
 What are the main risks of investing in the fund?


   The fund is less diversified than most stock funds and could therefore
   experience sharp price declines when conditions are unfavorable to its
   sector. For instance, since the fund attempts to invest in companies that may
   benefit from accelerating inflation, low inflation could lessen returns. The
   rate of earnings growth of natural resource companies may be irregular since
   these companies are strongly affected by natural forces, global economic
   cycles, and international politics. For example, stock prices of energy
   companies can fall sharply when oil prices fall. Real estate companies are
   influenced by interest rates and other factors.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   The fund's investments in foreign securities, or even in U.S. companies with
   significant overseas investments, are also subject to the risk that some
   holdings may lose value because of declining foreign currencies or adverse
   political or economic events overseas. While currency risk may be somewhat
   reduced because many commodities markets are dollar based, the fund's
   exposure to foreign political and economic risk will be heightened by
   investments in companies with operations in emerging markets.

   Investments in futures and options, if any, are subject to additional
   volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you are willing to accept the risks of investing
   in U.S. and foreign companies whose earnings are especially influenced by
   worldwide eco-




MORE ABOUT THE FUND                           3
   nomic and monetary conditions in pursuit of long-term capital growth, the
   fund could be appropriate for you. This fund should not represent your
   complete investment program or be used for short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




                                Calendar Year Total Returns
          "92"      "93"     "94"    "95"    "96"   "97"   "98"   "99"   "00"   "01"
 --------------------------------------------------------------------------------------
                                        
           2.08   15.33   5.17   20.76  24.25  10.96   -9.88   21.22  20.37  -4.35
 ---------------------------------------------------------------------------------------



                  Quarter ended    Total return

 Best quarter        6/30/99          15.01%
 Worst quarter       9/30/98         -12.41%






T. ROWE PRICE                                 4


 Table 1  Average Annual Total Returns

                                        Periods ended December 31, 2001
                                        1 year     5 years     10 years
 ------------------------------------------------------------------------------
                                    
  New Era Fund
  Returns before taxes                   -4.35%      6.89%      10.00%
  Returns after taxes on
  distributions                          -5.58       4.30        7.47
  Returns after taxes on
  distributions and sale of fund
  shares                                 -2.33       4.76        7.31
  S&P 500 Stock Index                   -11.89      10.70       12.94
  Lipper Natural Resources Fund Index   -12.58       5.88        9.75
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.



 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.57%
  Other expenses                                             0.15%
  Total annual fund operating expenses                       0.72%
 --------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $74         $230         $401           $894
    ----------------------------------------------------








MORE ABOUT THE FUND                           5
 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   The fund is designed to protect investors against inflation and to provide a
   way to participate in the global demand for natural resources. By investing
   in companies that may prosper in periods of high inflation or strong global
   demand by raising prices while controlling costs, the fund hopes to provide
   significant long-term capital appreciation.


 Why invest substantial assets in companies based outside the U.S.?

   Foreign stock markets offer increasing opportunities for natural
   resource-related investments for several reasons. First, the worldwide trend
   toward privatization of government-owned enterprises, many of which involve
   commodities, opens up new areas for private investors. Second, the
   exploration and development of natural resources is expanding faster outside
   the U.S. than within, and some countries that previously refused to accept
   outside capital now welcome it. Finally, the demand for natural resources in
   many emerging markets is expected to grow over time.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




MORE ABOUT THE FUND                           7
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




T. ROWE PRICE                                 8
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




MORE ABOUT THE FUND                           9
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








T. ROWE PRICE                                 10

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




MORE ABOUT THE FUND                           11
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.



   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




T. ROWE PRICE                                 12
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




MORE ABOUT THE FUND                           13
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




T. ROWE PRICE                                 14
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




MORE ABOUT THE FUND                           15
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 1968 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




MORE ABOUT THE FUND                           17
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Charles M. Ober, Chairman, Lewis M. Johnson, David M. Lee, John D. Linehan,
   Timothy E. Parker, J. David Wagner, and David J. Wallack. The committee
   chairman has day-to-day responsibility for managing the portfolio and works
   with the committee in developing and executing the fund's investment program.
   Mr. Ober has been chairman of the fund's committee since 1997. He joined T.
   Rowe Price in 1980 and has been managing investments since 1987.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion


   at December . 31, 2001, the group fee was 0.32%. .  The individual fund fee
   is 0.25%.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in
   our education and informational materials; in T. Rowe Price advertisements;
   and
   in the media.




T. ROWE PRICE                                 18
 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.

   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these




MORE ABOUT THE FUND                           19
   restrictions provide a useful level of detail about fund investments,
   investors should not view them as an accurate gauge of the potential risk of
   such investments. For example, in a given period, a 5% investment in hybrid
   instruments could have significantly more of an impact on a fund's share
   price than its weighting in the portfolio. The net effect of a particular
   investment depends on its volatility and the size of its overall return in
   relation to the performance of all other fund investments.

   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.

   Fund investments are primarily in common stocks and, to a lesser degree,
   other types of securities as described below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.




T. ROWE PRICE                                 20
   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities
   Investments may be made in foreign securities. These include nondollar-
   denominated securities traded outside of the U.S. and dollar-denominated
   securities of foreign issuers traded in the U.S. (such as ADRs and ADSs).
   Such investments increase a portfolio's diversification and may enhance
   return, but they also involve some special risks described below. These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.

   Operating policy  Fund investments in foreign securities are limited to 50%
   of total assets.

   Risks of Foreign Securities
   Stock prices of foreign and U.S. companies are subject to many of the same
   influences, such as general economic conditions, company and industry
   earnings prospects, and investor psychology. However, investing in foreign
   securities also involves additional risks that can increase the potential for
   losses. Normally, these risks are significantly greater for investments in
   emerging markets.

  . Currency fluctuations  Transactions in foreign securities are often
   conducted in local currencies, so dollars must often be exchanged for another
   currency when a stock is bought or sold or a dividend is paid. Likewise,
   share price quotations and total return information reflect conversion into
   dollars. Fluctuations in foreign exchange rates can significantly increase or
   decrease the dollar value of a foreign investment, boosting or offsetting its
   local market return. For example, if a French stock rose 10% in price during
   a year, but the U.S. dollar gained 5% against the French franc during that
   time, the U.S. investor's return would be reduced to 5%. This is because the
   franc would "buy" fewer dollars at the end of the year than at the beginning,
   or, conversely, a dollar would buy more francs. The fund's total return will
   be affected by currency fluctuations. The exact amount of the impact depends
   on the currencies represented in the portfolio and how each one appreciates
   or depreciates in relation to the U.S. dollar.




MORE ABOUT THE FUND                           21
   3 Exchange rate movements can be large, unpredictable, and last for extended
     periods.

  . Political and economic factors  The economies, markets, and political
   structures of a number of the countries in which the fund can invest do not
   compare favorably with the U.S. and other mature economies in terms of wealth
   and stability. Therefore, investments in these countries will be riskier and
   more subject to erratic and abrupt price movements. This is especially true
   for emerging markets. However, even investments in countries with highly
   developed economies are subject to risk. For example, Japanese securities
   markets historically have experienced wide swings in value.

   Some economies are less well developed, overly reliant on particular
   industries, and more vulnerable to the ebb and flow of international trade,
   trade barriers, and other protectionist or retaliatory measures. This makes
   investment in such markets significantly riskier than in other countries.
   Many countries have legacies and the risk of hyperinflation and currency
   devaluations versus the dollar (which adversely affects returns to U.S.
   investors) and may be overly dependent on foreign capital (a risk that is
   exacerbated by big currency movements). Investments in countries that have
   recently begun moving away from central planning and state-owned industries
   toward free markets should be regarded as speculative.


   3 While certain countries have made progress in economic growth,
     liberalization, fiscal discipline, and political and social stability,
     there is no assurance these trends will continue.

   Certain countries have histories of instability and political upheaval that
   could cause their governments to act in a detrimental or hostile manner
   toward private enterprise or foreign investment. Actions such as capital
   controls, nationalizing a company or industry, expropriating assets, or
   imposing punitive taxes could have a severe effect on security prices and
   impair a fund's ability to repatriate capital or income. Significant external
   risks, including war, currently affect some countries. Governments in many
   emerging market countries participate to a significant degree in their
   economies and securities markets.

  . Legal, regulatory, and operational  Certain countries lack uniform
   accounting, auditing, and financial reporting standards, have less
   governmental supervision of financial markets than in the U.S., do not honor
   legal rights enjoyed in the U.S., and have settlement practices, such as
   delays, which could subject a fund to risks of loss not customary in the U.S.
   In addition, securities markets in these countries have substantially lower
   trading volumes than U.S. markets, resulting in less liquidity and more
   volatility.




T. ROWE PRICE                                 22
   Fixed-Income Securities
   From time to time, we may invest in debt securities of any type, including
   municipal securities, without regard to quality or rating. Such securities
   would be purchased in companies, municipalities, or entities which meet the
   investment criteria for the fund. The price of a bond fluctuates with changes
   in interest rates, generally rising when interest rates fall and falling when
   interest rates rise.

   High-Yield, High-Risk Bonds
   The total return and yield of lower-quality (high-yield, high-risk) bonds,
   commonly referred to as "junk" bonds, can be expected to fluctuate more than
   the total return and yield of higher-quality, shorter-term bonds, but not as
   much as those of common stocks. Junk bonds (those rated below BBB or in
   default) are regarded as predominantly speculative with respect to the
   issuer's continuing ability to meet principal and interest payments.


   Operating policy  The fund may purchase any type of noninvestment-grade debt
   security (or junk bond) including those in default. The fund will not
   purchase this type of security if it would have more than 10% of its total
   assets invested in such securities. Fund investments in convertible
   securities are not subject to this limit.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.




MORE ABOUT THE FUND                           23
 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.




T. ROWE PRICE                                 24

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A




MORE ABOUT THE FUND                           25
   high turnover rate may increase transaction costs, result in additional
   capital gain distributions, and reduce fund total return. The fund's
   portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




T. ROWE PRICE                                 26


 Table 4  Financial Highlights

                                      Year ended December 31
                          1997       1998        1999     2000     2001
 --------------------------------------------------------------------------------
                      

  Net asset value,
  beginning of period    $26.06       $ 25.95   $19.78   $21.80   $24.30
  Income From Investment Operations
  Net investment income    0.40          0.37     0.30     0.31     0.27
                         ---------------------------------------------------
  Net gains or losses
  on
  securities (both
  realized                 2.40         (2.97)    3.84     3.99    (1.38)
  and unrealized)
                         ---------------------------------------------------
  Total from investment
  operations               2.80         (2.60)    4.14     4.30    (1.11)
  Less Distributions
  Dividends (from net     (0.37)        (0.40)   (0.30)   (0.29)   (0.27)
  investment income)
                         ---------------------------------------------------
  Distributions (from     (2.54)        (3.17)   (1.82)   (1.51)   (0.68)
  capital gains)
                         ---------------------------------------------------
  Returns of capital          -             -        -        -        -
                         ---------------------------------------------------
  Total distributions     (2.91)        (3.57)   (2.12)   (1.80)   (0.95)
                         ---------------------------------------------------
  Net asset value,       $25.95       $ 19.78   $21.80   $24.30   $22.24
  end of period
                         ---------------------------------------------------
  Total return            10.96%       (9.88)%   21.22%   20.37%   (4.35)%
  Ratios/Supplemental Data
  Net assets, end of
  period                 $1,493       $   999   $1,082   $1,195   $1,070
  (in millions)
                         ---------------------------------------------------
  Ratio of expenses to     0.74%         0.75%    0.74%    0.72%    0.72%
  average net assets
                         ---------------------------------------------------
  Ratio of net income      1.33%         1.27%    1.29%    1.29%    1.11%
  to average net assets
                         ---------------------------------------------------
  Portfolio turnover       27.5%         23.1%    32.5%    28.5%    17.9%
  rate
 --------------------------------------------------------------------------------






 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




T. ROWE PRICE                                 28
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




MORE ABOUT THE FUND                           29

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




T. ROWE PRICE                                 30
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




MORE ABOUT THE FUND                           31
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




T. ROWE PRICE                                 32
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




MORE ABOUT THE FUND                           33
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




T. ROWE PRICE                                 34
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




MORE ABOUT THE FUND                           35
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




T. ROWE PRICE                                 36
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




MORE ABOUT THE FUND                           37

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202

                                                              F41-040 5/1/02

                                                  1940 Act File No. 811-1710


PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE

New Horizons
Fund

 An aggressive stock fund seeking long-term capital growth primarily through
 investments in small, rapidly growing companies.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price New Horizons Fund, Inc.
Prospectus

May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  7
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions          10
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   14
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  17
              -----------------------------------------------
              Understanding Performance Information        19
              -----------------------------------------------
              Investment Policies and Practices            19
              -----------------------------------------------
              Financial Highlights                         24
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         26
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        27
              -----------------------------------------------
              Purchasing Additional Shares                 28
              -----------------------------------------------
              Exchanging and Redeeming Shares              29
              -----------------------------------------------
              Rights Reserved by the Funds                 31
              -----------------------------------------------
              Information About Your Services              31
              -----------------------------------------------
              T. Rowe Price Brokerage                      34
              -----------------------------------------------
              Investment Information                       35
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 36
              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks long-term capital growth by investing primarily in common
   stocks of small, rapidly growing companies.


 What is the fund's principal investment strategy?

   We will invest primarily in a diversified group of small, emerging growth
   companies, preferably early in the corporate life cycle before a company
   becomes widely recognized by the investment community. The fund may also
   invest in companies that offer the possibility of accelerating earnings
   growth because of rejuvenated management, new products, or structural changes
   in the economy. We will not necessarily sell a position in a company that has
   grown beyond the developing stage if the company still fits the fund's other
   investment criteria.

   When choosing stocks, T. Rowe Price analysts look for small growth companies
   that:

  . have effective management;

  . operate in fertile growth areas;

  . demonstrate effective research, product development, and marketing;

  . provide efficient service;

  . possess pricing flexibility; and

  . employ sound financial and accounting policies.


   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.




T. ROWE PRICE                                 2
 What are the main risks of investing in the fund?


   Investing in small companies involves greater risk than is customarily
   associated with larger companies. Stocks of small companies are subject to
   more abrupt or erratic price movements than larger-company stocks. Small
   companies often have limited product lines, markets, or financial resources,
   and their managements may lack depth and experience. Such companies seldom
   pay significant dividends that could cushion returns in a falling market.

   Growth stocks can be volatile for several reasons. Since they usually
   reinvest a high proportion of earnings in their own businesses, they may lack
   dividends that can cushion declines in a falling market. Also, since
   investors buy these stocks because of their expected superior earnings
   growth, earnings disappointments often result in sharp price declines. In
   general, stocks with growth characteristics can have relatively wide price
   swings as a result of the high valuations they may have.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you can accept the greater risk of investing in
   smaller companies in an effort to achieve superior capital appreciation, the
   fund could be an appropriate part of your overall investment strategy. This
   fund should not represent your complete investment program or be used for
   short-term trading purposes.




MORE ABOUT THE FUND                           3
   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




                      Calendar Year Total Returns
 "92"    "93"   "94"    "95"     "96"   "97"   "98"    "99"    "00"   "01"
 ----------------------------------------------------------------------------
                                
 10.58  22.01  0.30   55.44  17.03  9.77   6.25   32.52   -1.86  -2.84
 ----------------------------------------------------------------------------



                  Quarter ended    Total return

 Best quarter       12/31/01          30.18%
 Worst quarter      9/30/01         -25.15%






T. ROWE PRICE                                 4


 Table 1  Average Annual Total Returns

                                        Periods ended December 31, 2001
                                        1 year     5 years     10 years
 ------------------------------------------------------------------------------
                                    
  New Horizons Fund
  Returns before taxes                   -2.84%      8.07%      13.75%
  Returns after taxes on
  distributions                          -3.33       6.37       11.03
  Returns after taxes on
  distributions and sale of fund
  shares                                 -1.30       6.27       10.56
  Russell 2000 Growth Index              -9.23       2.87        7.19
  Russell 2000 Index                      2.49       7.52       11.51
  S&P 500 Stock Index                   -11.89      10.70       12.94
  Lipper Small-Cap Fund Index            -9.32       6.45       10.29
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.



 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.67%
  Other expenses                                             0.24%
  Total annual fund operating expenses                       0.91%
 --------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:




MORE ABOUT THE FUND                           5



      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $93         $290         $504          $1,120
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   Small-company stocks may offer greater opportunities for capital appreciation
   than the shares of larger, more established companies. In addition, emerging
   growth stocks are often overlooked by the investment community and may be
   undervalued, providing the potential for significant capital appreciation.


 What is meant by a "growth" investment approach?

   Thomas Rowe Price, Jr. pioneered the growth stock theory of investing over 60
   years ago. It is based on the premise that inflation represents a more
   serious long-term threat to an investor's portfolio than stock market
   fluctuations or recessions. Mr. Price believed that when a company's earnings
   grow faster than both inflation and the economy in general, the market will
   eventually reward its long-term earnings growth with a higher stock price.
   However, investors should be aware that, during periods of adverse economic
   and market conditions, stock prices may fall despite favorable earnings
   trends.


   3 Growth investors look for companies with above-average earnings gains.


 Investing in the Fund

   The fund was closed to new investors on June 18, 1996, with the following
   exceptions and provisions:

  . Purchases of additional shares are permitted for existing accounts directly
   registered with T. Rowe Price.

  . Persons executing direct rollovers from qualified retirement plans may open
   a new IRA account.

  . Retirement plan administrators having questions on the fund's availability
   should contact T. Rowe Price.

  . When deemed to be in the fund's best interests, the fund reserves the right
   in appropriate cases to extend the offering to other persons, to restrict
   sales
   further, or to withdraw the offering altogether, all without notice.

  . The closing does not restrict shareholders from making redemptions from
   their fund accounts.




T. ROWE PRICE                                 6
 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




T. ROWE PRICE                                 8
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




MORE ABOUT THE FUND                           9
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




T. ROWE PRICE                                 10
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








MORE ABOUT THE FUND                           11

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




T. ROWE PRICE                                 12
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.



   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




MORE ABOUT THE FUND                           13
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




T. ROWE PRICE                                 14
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




MORE ABOUT THE FUND                           15
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




T. ROWE PRICE                                 16
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 1960 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




T. ROWE PRICE                                 18
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   John H. Laporte, Chairman, Frank Alonso, Brian W.H. Berghuis, Eric M.
   Gerster, Kris H. Jenner, Joseph M. Milano, Charles G. Pepin, Michael F. Sola,
    John F. Wakeman, and Candler Young. The committee chairman has day-to-day
   responsibility for managing the portfolio and works with the committee in
   developing and executing the fund's investment program. Mr. Laporte has been
   chairman of the fund's committee since 1988. He joined T. Rowe Price in 1976
   and has been managing investments since 1984.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion

   at December 31, 2001, the group fee was 0.32%. .  The individual fund fee is
   0.35%.




MORE ABOUT THE FUND                           19
 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are dis-




T. ROWE PRICE                                 20
   cussed with shareholders in fund reports. Fund investment restrictions and
   policies apply at the time of investment. A later change in circumstances
   will not require the sale of an investment if it was proper at the time it
   was made.


   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 65% of

   total assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities.




MORE ABOUT THE FUND                           21
   While most preferred stocks pay a dividend, preferred stock may be purchased
   where the issuer has omitted, or is in danger of omitting, payment of its
   dividend. Such investments would be made primarily for their capital
   appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 10%
   of total assets.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.




T. ROWE PRICE                                 22
   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.




MORE ABOUT THE FUND                           23
   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"-  contracts to exchange one currency for
   another on some future date at a specified exchange rate. However, futures,
   swaps, and options on these instruments may also be used. In certain
   circumstances, a "proxy currency" may be substituted for the currency in
   which the investment is denominated, a strategy known as "proxy hedging." If
   the fund were to engage in any of these foreign currency transactions, they
   would be primarily to protect a fund's foreign securities from adverse
   currency movements relative to the dollar. Such transac-




T. ROWE PRICE                                 24
   tions involve the risk that anticipated currency movements will not occur,
   which could reduce fund total return. There are certain markets, including
   many emerging markets, where it is not possible to engage in effective
   foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------

   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




MORE ABOUT THE FUND                           25


 Table 4  Financial Highlights

                                     Year ended December 31
                          1997      1998      1999      2000      2001
 -------------------------------------------------------------------------------
                      

  Net asset value,
  beginning of period    $21.77    $23.30    $23.34    $27.53    $23.89
  Income From Investment Operations
  Net investment income   (0.12)    (0.15)    (0.15)    (0.13)    (0.17)
                         --------------------------------------------------
  Net gains or losses
  on
  securities (both
  realized                 2.23      1.46      7.36     (0.37)    (0.53)
  and unrealized)
                         --------------------------------------------------
  Total from investment
  operations               2.11      1.31      7.21     (0.50)    (0.70)
  Less Distributions
  Dividends (from net        --        --        --        --        --
  investment income)
                         --------------------------------------------------
  Distributions (from     (0.58)    (1.27)    (3.02)    (3.14)    (0.56)
  capital gains)
                         --------------------------------------------------
  Returns of capital         --        --        --        --        --
                         --------------------------------------------------
  Total distributions     (0.58)    (1.27)    (3.02)    (3.14)    (0.56)
                         --------------------------------------------------
  Net asset value,       $23.30    $23.34    $27.53    $23.89    $22.63
  end of period
                         --------------------------------------------------
  Total return             9.77%     6.25%    32.52%    (1.86)%   (2.84)%
  Ratios/Supplemental Data
  Net assets, end of     $5,104    $5,228    $6,022    $6,122    $5,583
  period (in millions)
                         --------------------------------------------------
  Ratio of expenses to     0.88%     0.89%     0.90%     0.88%     0.91%
  average net assets
                         --------------------------------------------------
  Ratio of net income     (0.57)%   (0.65)%   (0.66)%   (0.51)%   (0.77)%
  to average net assets
                         --------------------------------------------------
  Portfolio turnover       45.2%     41.2%     44.7%     47.2%     27.4%
  rate
 -------------------------------------------------------------------------------






 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




MORE ABOUT THE FUND                           27
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




T. ROWE PRICE                                 28

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




MORE ABOUT THE FUND                           29
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




T. ROWE PRICE                                 30
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




MORE ABOUT THE FUND                           31
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




T. ROWE PRICE                                 32
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




MORE ABOUT THE FUND                           33
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




T. ROWE PRICE                                 34
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




MORE ABOUT THE FUND                           35
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




T. ROWE PRICE                                 36

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.





To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
                                                                  F42-040 5/1/02
                                                       1940 Act File No. 811-958


PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE

Real Estate Fund

 A stock fund seeking capital growth and current income through companies
 engaged in the real estate industry.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Real Estate Fund, Inc.
Prospectus

May 1, 2002




      
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  8
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions          11
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   15
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  18
              -----------------------------------------------
              Understanding Performance Information        19
              -----------------------------------------------
              Investment Policies and Practices            20
              -----------------------------------------------
              Financial Highlights                         26
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         28
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        29
              -----------------------------------------------
              Purchasing Additional Shares                 30
              -----------------------------------------------
              Exchanging and Redeeming Shares              31
              -----------------------------------------------
              Rights Reserved by the Funds                 33
              -----------------------------------------------
              Information About Your Services              33
              -----------------------------------------------
              T. Rowe Price Brokerage                      36
              -----------------------------------------------
              Investment Information                       37
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 38
              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide long-term growth through a combination of capital
   appreciation and current income.


 What is the fund's principal investment strategy?

   We normally invest at least 80% of net assets in the equity securities of
   real estate companies. Our definition of real estate companies is broad and
   includes those that derive at least 50% of revenues or profits from, or
   commit at least 50% of assets to, real estate activities. The fund is likely
   to maintain a significant portion of assets in real estate investment trusts
   (REITs). REITs pool money to invest in properties (equity REITs) or mortgages
   (mortgage REITs). The fund generally invests in equity REITs. Other
   investments in the real estate industry may include real estate operating
   companies, brokers, developers, and builders of residential, commercial, and
   industrial properties; property management firms; finance, mortgage, and
   mortgage servicing firms; construction supply and equipment manufacturing
   companies; and firms dependent on real estate holdings for revenues and
   profits, including lodging, leisure, timber, mining, and agriculture
   companies.

   The fund will not own real estate directly and will have no restrictions on
   the size of companies selected for investment. Up to 20% of fund assets may
   be invested in companies deriving a substantial portion of revenues or
   profits from servicing real estate firms, as well as in companies unrelated
   to the real estate business.

   Stock selection is based on fundamental, bottom-up analysis that generally
   seeks to identify high-quality companies with both good appreciation
   prospects and income-producing potential. Factors considered by the portfolio
   manager in selecting real estate companies include: relative valuation; free
   cash flow; undervalued assets; quality and experience of management; type of
   real estate owned; and the nature of a company's real estate activities.


   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.




T. ROWE PRICE                                 2
   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?

   Since the fund is concentrated in the real estate industry, it is less
   diversified than stock funds investing in a broad range of industries and,
   therefore, could experience significant volatility, although the income
   offered by some real estate companies may help moderate this risk. For
   example, changes in the tax laws, overbuilding, environmental issues, the
   quality of property management in the case of REITs, and other factors could
   hurt the fund. Real estate is also affected by general economic conditions.
   When growth is slowing, demand for property decreases and prices may decline.
   Rising interest rates, which drive up mortgage and financing costs, can
   restrain construction and buying and selling activity, and may reduce the
   appeal of real estate investments. Also, if the portfolio has substantial
   exposure to small companies, it would be subject to the greater volatility of
   small-cap stocks.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.




INVESTING WITH T. ROWE PRICE                  3
 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you are willing to accept the risks of investing
   in a single industry in an effort to achieve long-term capital growth and
   income, the fund could be appropriate for you. This fund should not represent
   your complete investment program or be used for short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 4



          Calendar Year Total Returns
     "98"         "99"         "00"       "01"
 ------------------------------------------------
                             
    -14.86       -1.23       31.92    8.87
 ------------------------------------------------



                  Quarter ended    Total return

 Best quarter        6/30/00          12.34%
 Worst quarter       9/30/98         -10.95%




 Table 1  Average Annual Total Returns

                                                 Periods ended
                                               December 31, 2001
                                                       Since inception
                                          1 year          (10/31/97)
 ------------------------------------------------------------------------------
                                    
  Real Estate Fund
  Returns before taxes                     8.87%            6.54%
  Returns after taxes on
  distributions                            6.72             4.67
  Returns after taxes on
  distributions and sale of fund
  shares                                   5.35             4.27
  Wilshire Real Estate Securities
  Index*                                  10.45             4.55
  Lipper Real Estate Fund Index           10.12             3.30
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.

 * Wilshire data calculated as of 1/9/02.


 What fees or expenses will I pay?

   The fund is 100% no load. However, the fund charges a 1.00% redemption fee,
   payable to the fund, on shares held less than six months. There are no other
   fees or charges to buy or sell fund shares, reinvest dividends, or exchange
   into other T. Rowe Price funds. There are no 12b-1 fees.




INVESTING WITH T. ROWE PRICE                  5


 Table 2  Fees and Expenses of the Fund*

   Shareholder fees (fees paid directly from your investment)
  Redemption fee                        1.00%/a/
                 Annual fund operating expenses
          (expenses that are deducted from fund assets)
 -----------------------------------------------------------------
                                     
  Management fee                                   0.62%
  Other expenses                                   0.63%
  Total annual fund operating expenses             1.25%
  Fee waiver/reimbursement                        0.25%/b/
  Net expenses                                    1.00%/b/
 -----------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.

 /a/On shares purchased and held for less than six months (details under
   Contingent Redemption Fee in Pricing Shares and Receiving Sale Proceeds).


 /b /Effective January 1, 2002, T. Rowe Price contractually obligated itself to
   waive any fees and bear any expenses through December 31, 2003, to the extent
   that such fees and expenses would cause the fund's ratio of expenses to
   average net assets to exceed 1.00%. Fees waived or expenses paid or assumed
   under this agreement are subject to reimbursement to T. Rowe Price whenever
   the fund's expense ratio is below 1.00%; however, no reimbursement will be
   made after December 31, 2005, or if it would result in the expense ratio
   exceeding 1.00%. Any amounts reimbursed will have the effect of increasing
   fees otherwise paid by the fund. The fund operated under a previous expense
   limitation for which T. Rowe Price may be reimbursed.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, the expense limitation currently in place is not renewed,
   you invest $10,000, earn a 5% annual return, and hold the investment for the
   following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $102        $346         $637          $1,466
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   The stocks of companies engaged in the real estate area could provide
   significant long-term total return. At different times, the market may favor
   one type of real estate investment over another, and the fund's flexible
   investment charter enables it to seek opportunities wherever they exist in
   the industry. Both capital




T. ROWE PRICE                                 6
   appreciation (or depreciation) and current income should be important
   components of total return, and the contribution made by each at any time
   will depend on the composition of the portfolio and market conditions.

   Other potential benefits include:

  . Diversification  While the long-term returns from real estate stocks have
   been attractive, periods of strong performance have not always coincided with
   those of the broad market. Therefore, real estate stocks may provide
   beneficial diversification when combined with other stocks and asset classes
   in an investment portfolio;

  . Current income  Many real estate stocks, including REITs, pay relatively
   high dividends, which could serve to cushion a portfolio's overall return in
   a general market decline; and

  . Inflation hedge  Historically, real estate has tended to appreciate during
   times of accelerating inflation. Therefore, a fund investing in real estate
   companies may provide a hedge against inflation.


 What is a REIT?

   The fund may invest a substantial portion of its assets in real estate
   investment trusts or REITs, which are pooled investment vehicles that
   typically invest directly in real estate, in mortgages and loans
   collateralized by real estate, or in a combination of the two. "Equity" REITs
   invest primarily in real estate that produces income from rentals. "Mortgage"
   REITs invest primarily in mortgages and derive their income from interest
   payments.

   The types of properties owned, and sometimes managed, by REITs include:


                                                                     
   . office buildings                                                     . health care facilities
   . apartments and condominiums                                          . manufactured housing
   . retail properties                                                    . self-storage facilities
   . industrial and commercial sites                                      . golf courses
   . hotels and resorts                                                   . special use facilities


   REITs usually specialize in a particular type of property and may concentrate
   their investments in particular geographical areas. For this reason and
   others,
   a fund investing in REITs provides investors with an efficient, low-cost
   means of diversifying among various types of property in different regions.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.




INVESTING WITH T. ROWE PRICE                  7
 Important note on tax reporting for the Real Estate Fund

   Distributions from the Real Estate Fund will not be included in your
   consolidated 1099-DIV that we send to you in January of each year. The Real
   Estate Fund's distributions will be reported on a separate 1099-DIV mailed to
   you in February. The reasons for this are:

  . A sizable portion of the dividends paid by REITs may represent a return of
   capital. Consequently, a portion of the fund's distributions may also
   represent a return of capital. Return of capital distributions are not
   taxable to you, but you must deduct them from the cost basis of your
   investment in the fund. Returns of capital are listed as "nontaxable
   distributions" on Form 1099-DIV.

  . REITs typically have not indicated what proportion of their dividends
   represent return of capital in time to allow the fund to meet its January 31
   deadline for 1099-DIV reporting. Therefore, to ensure accurate and complete
   tax information, we will send you a separate 1099-DIV for this fund in
   February (subject to approval by the IRS).


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




INVESTING WITH T. ROWE PRICE                  9
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




T. ROWE PRICE                                 10
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




INVESTING WITH T. ROWE PRICE                  11
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








T. ROWE PRICE                                 12

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




INVESTING WITH T. ROWE PRICE                  13
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions
   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.





   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




T. ROWE PRICE                                 14
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




INVESTING WITH T. ROWE PRICE                  15
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




T. ROWE PRICE                                 16
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




INVESTING WITH T. ROWE PRICE                  17
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 1997 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




INVESTING WITH T. ROWE PRICE                  19
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   David M. Lee, Chairman, Stephen W. Boesel, Anna M. Dopkin, Thomas J. Huber,
   Charles M. Ober, Brian C. Rogers, and William J. Stromberg. The committee
   chairman has day-to-day responsibility for managing the portfolio and works
   with the committee in developing and executing the fund's investment program.
   Mr. Lee has been chairman of the fund's committee since 1997. He joined T.
   Rowe Price in 1993 as a research analyst and has been managing investments
   since 1996.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------




   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion
   at December

   31, 2001, the group fee was 0.32%. The individual fund fee is 0.30%.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in
   our education and informational materials; in T. Rowe Price advertisements;
   and
   in the media.




T. ROWE PRICE                                 20
 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.

   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these




INVESTING WITH T. ROWE PRICE                  21
   restrictions provide a useful level of detail about fund investments,
   investors should not view them as an accurate gauge of the potential risk of
   such investments. For example, in a given period, a 5% investment in hybrid
   instruments could have significantly more of an impact on a fund's share
   price than its weighting in the portfolio. The net effect of a particular
   investment depends on its volatility and the size of its overall return in
   relation to the performance of all other fund investments.

   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Real Estate Industry Concentration
   Fundamental policy The fund will concentrate (invest more than 25% of its
   total assets) in the real estate industry as defined in this prospectus.

   Fund investments are primarily in common stocks and, to a lesser degree,
   other types of securities as described below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased




T. ROWE PRICE                                 22
   where the issuer has omitted, or is in danger of omitting, payment of its
   dividend. Such investments would be made primarily for their capital
   appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 25%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.




INVESTING WITH T. ROWE PRICE                  23
   Fixed-Income Securities
   From time to time, we may invest in debt securities of any type, including
   municipal securities, without regard to quality or rating. Such securities
   would be purchased in companies, municipalities, or entities which meet the
   investment criteria for the fund. The price of a bond fluctuates with changes
   in interest rates, generally rising when interest rates fall and falling when
   interest rates rise.

   High-Yield, High-Risk Bonds
   The total return and yield of lower-quality (high-yield, high-risk) bonds,
   commonly referred to as "junk" bonds, can be expected to fluctuate more than
   the total return and yield of higher-quality, shorter-term bonds, but not as
   much as those of common stocks. Junk bonds (those rated below BBB or in
   default) are regarded as predominantly speculative with respect to the
   issuer's continuing ability to meet principal and interest payments.


   Operating policy  The fund may purchase any type of noninvestment-grade debt
   security (or junk bond) including those in default. The fund will not
   purchase this type of security if it would have more than 10% of its total
   assets invested in such securities. Fund investments in convertible
   securities are not subject to this limit.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount or interest rate of a hybrid could be tied (positively or
   negatively) to the price of some commodity, currency, or securities index or
   another interest rate (each a "benchmark"). Hybrids can be used as an
   efficient means of pursuing a variety of investment goals, including currency
   hedging, duration management and increased total return. Hybrids may or may
   not bear interest or pay dividends. The value of a hybrid or its interest
   rate may be a multiple of a benchmark and, as a result, may be leveraged and
   move (up or down) more steeply and rapidly than the benchmark. These
   benchmarks may be sensitive to economic and political events, such as
   commodity shortages and currency devaluations, which cannot be readily
   foreseen by the purchaser of a hybrid. Under certain conditions, the
   redemption value of a hybrid could be zero. Thus, an investment in a hybrid
   may entail significant market risks that are not associated with a similar
   investment in a traditional, U.S. dollar-denominated bond that has a fixed
   principal amount and pays a fixed rate or floating rate of interest. The
   purchase of hybrids also exposes the fund to the credit risk of the issuer of
   the hybrid. These risks may cause significant fluctuations in the net asset
   values of the fund.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.




T. ROWE PRICE                                 24
   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi
   ces, and foreign currencies.




INVESTING WITH T. ROWE PRICE                  25

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.




T. ROWE PRICE                                 26
   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




INVESTING WITH T. ROWE PRICE                  27


 Table 4  Financial Highlights

                         10/31/97/*/
                           through              Year ended December 31
                          12/31/97
                         -------------  1998        1999        2000       2001
 ------------------------             ----------------------------------------------------
                      

  Net asset value,
  beginning of period     $10.00      $ 10.69      $  8.68     $  8.11    $ 10.19
  Income From Investment Operations
  Net investment income    0.08/a/      0.38/a/      0.37/a/     0.38/a/    0.42/a/
                         ------------------------------------------------------------
  Net gains or losses
  on securities (both
  realized and              0.70        (1.97)       (0.49)       2.16       0.46
  unrealized)
                         ------------------------------------------------------------
  Total from investment
  operations                0.78        (1.59)       (0.12)       2.54       0.88
  Less Distributions
  Dividends (from net      (0.09)       (0.40)       (0.37)      (0.38)     (0.53)
  investment income)
                         ------------------------------------------------------------
  Distributions (from         --           --           --          --         --
  capital gains)
                         ------------------------------------------------------------
  Returns of capital          --        (0.04)       (0.08)      (0.09)        --
                         ------------------------------------------------------------
  Total distributions      (0.09)       (0.44)       (0.45)      (0.47)     (0.53)
                         ------------------------------------------------------------
  Redemption fees added       --         0.02           --        0.01         --
  to paid-in-capital
                         ------------------------------------------------------------
  Net asset value,        $10.69      $  8.68      $  8.11     $ 10.19    $ 10.54
  end of period
                         ------------------------------------------------------------
  Total return              7.82%/a/   (14.86)%/a/   (1.23)%/a/  31.92%/a/   8.87%/a/
  Ratios/Supplemental Data
  Net assets, end of      $7,259      $27,599      $24,725     $53,703    $68,720
  period (in thousands)
                         ------------------------------------------------------------
  Ratio of expenses to      1.00%/ab/    1.00%/a/     1.00%/a/    1.00%/a/   1.00%/a/
  average net assets
                         ------------------------------------------------------------
  Ratio of net income       6.07%/ab/    4.07%/a/     4.22%/a/    4.61%/a/   4.09%/a/
  to average net assets
                         ------------------------------------------------------------
  Portfolio turnover         8.4%/b/     56.8%        26.9%       19.0%      37.2%
  rate
 -----------------------------------------------------------------------------------------




 /*/       Inception date.


 /a/
   Excludes expenses in excess of a 1.00% voluntary expense limitation in effect
   through December 31, 2003.

 /b/      Annualized.


 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




INVESTING WITH T. ROWE PRICE                  29
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




T. ROWE PRICE                                 30

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




INVESTING WITH T. ROWE PRICE                  31
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




T. ROWE PRICE                                 32
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




INVESTING WITH T. ROWE PRICE                  33
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




T. ROWE PRICE                                 34
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




INVESTING WITH T. ROWE PRICE                  35
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




T. ROWE PRICE                                 36
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




INVESTING WITH T. ROWE PRICE                  37
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




T. ROWE PRICE                                 38

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
                                                                  F12-040 5/1/02
1940 Act File No. 811-08371


PROSPECTUS

                                                                 May 1, 2002
T. ROWE PRICE

Science &
Technology Fund

 An aggressive stock fund seeking long-term capital growth through investments
 in companies expected to benefit from scientific and technological progress.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Science & Technology Fund, Inc.
Prospectus


May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  6
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions           9
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   13
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  16
              -----------------------------------------------
              Understanding Performance Information        18
              -----------------------------------------------
              Investment Policies and Practices            18
              -----------------------------------------------
              Financial Highlights                         23
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         25
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        26
              -----------------------------------------------
              Purchasing Additional Shares                 27
              -----------------------------------------------
              Exchanging and Redeeming Shares              28
              -----------------------------------------------
              Rights Reserved by the Funds                 30
              -----------------------------------------------
              Information About Your Services              30
              -----------------------------------------------
              T. Rowe Price Brokerage                      33
              -----------------------------------------------
              Investment Information                       34
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 35
              -----------------------------------------------





 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide long-term capital appreciation.


 What is the fund's principal investment strategy?

   We will invest at least 80% of net assets in the common stocks of companies
   expected to benefit from the development, advancement, and use of science
   and/or technology. Some of the industries likely to be included in the
   portfolio are:

  . electronics, including hardware, software, and components;

  . communications;

  . e-commerce (companies doing business through the Internet);

  . information services;

  . media;

  . life sciences and health care;

  . environmental services;

  . chemicals and synthetic materials; and

  . defense and aerospace.


   Stock selection generally reflects a growth approach based on intensive
   research that assesses a company's fundamental prospects for above-average
   earnings. Holdings can range from small, unseasoned companies developing new
   technologies to blue chip firms with established track records of developing
   and marketing technology. Investments may also include companies that should
   benefit from technological advances even if they are not directly involved in
   research and development. The fund may invest in suitable technology
   companies through initial public offerings (IPOs).

   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.




T. ROWE PRICE                                 2
   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?

   Since this fund is focused on the science and technology industries, it is
   less diversified than stock funds investing in a broader range of industries
   and, therefore, could experience significant volatility. In addition,
   technology stocks historically have experienced unusually wide price swings,
   both up and down. The potential for wide variation in performance reflects
   the special risks common to companies in the rapidly changing field of
   technology. For example, products or services that at first appear promising
   may not prove commercially successful or may become obsolete quickly.
   Earnings disappointments and intense competition for market share can result
   in sharp price declines.

   The level of risk will rise to the extent that the fund has significant
   exposure to smaller, unseasoned (those with less than a three-year operating
   history), and newly public companies. These companies may not have
   established products, experienced management, or an earnings history and
   their stocks may lack liquidity and be very volatile.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.




MORE ABOUT THE FUND                           3
 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you seek an aggressive approach to capital growth
   through investment in science and technology stocks, and you can accept the
   potential for above-average price fluctuations, the fund could be an
   appropriate part of your overall investment strategy. This fund should not
   represent your complete investment program or be used for short-term trading
   purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 4



                       Calendar Year Total Returns
   "92"   "93"   "94"    "95"    "96"   "97"    "98"    "99"     "00"      "01"
 ---------------------------------------------------------------------------------
                                    
18.76  24.25  15.79  55.53  14.23  1.71   42.35  100.99   -34.19  -41.19
 ---------------------------------------------------------------------------------



                  Quarter ended     Total return

 Best quarter       12/31/98           47.89%
 Worst quarter     9/30/01          -40.28%




 Table 1  Average Annual Total Returns

                                        Periods ended December 31, 2001
                                        1 year     5 years     10 years
 ------------------------------------------------------------------------------
                                    
  Science & Technology Fund
  Returns before taxes                  -41.19%      2.41%      13.08%
  Returns after taxes on
  distributions                         -41.19       0.23       10.25
  Returns after taxes on
  distributions and sale of fund
  shares                                -25.08       2.60       10.75
  S&P 500 Stock Index                   -11.89      10.70       12.94
  Lipper Science & Technology Fund      -34.72       9.06       13.84
  Index
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.




MORE ABOUT THE FUND                           5


 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.67%
  Other expenses                                             0.33%
  Total annual fund operating expenses                       1.00%
 --------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $102        $318         $552          $1,225
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   The fund's program reflects the view of T. Rowe Price that rapid advances in
   science and technology offer substantial opportunities for superior long-term
   capital appreciation. As leading-edge products and services gain acceptance,
   the companies behind them often enjoy exceptional growth. This growth is
   often reflected in rising stock prices. Of course, rapidly changing product
   cycles and intense competition can make these stocks volatile, as noted
   earlier in the risk discussion.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




MORE ABOUT THE FUND                           7
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




T. ROWE PRICE                                 8
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




MORE ABOUT THE FUND                           9
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








T. ROWE PRICE                                 10

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




MORE ABOUT THE FUND                           11
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.



   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




T. ROWE PRICE                                 12
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




MORE ABOUT THE FUND                           13
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




T. ROWE PRICE                                 14
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




MORE ABOUT THE FUND                           15
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 1987 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders and invest it to try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).




MORE ABOUT THE FUND                           17
   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Michael F. Sola, Chairman, Giri Devulapally, Donald J. Easley, Robert N.
   Gensler, Eric M. Gerster, Jill L. Hauser, Anh Lu, and Jeff Rottinghaus. The
   committee chairman has day-to-day responsibility for managing the portfolio
   and works with the committee in developing and executing the fund's
   investment program. Mr. Sola was elected chairman of the fund's committee in
   2002; he was elected Executive Vice President of the fund in 2000. He joined
   T. Rowe Price in 1994 as an investment analyst, and has been managing
   investments since 1997. He is also chairman of the Investment Advisory
   Committee for the Developing Technologies Fund.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion

   at December 31, 2001, the group fee was 0.32%. .  The individual fund fee is
   0.35%.




T. ROWE PRICE                                 18
 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are dis-




MORE ABOUT THE FUND                           19
   cussed with shareholders in fund reports. Fund investment restrictions and
   policies apply at the time of investment. A later change in circumstances
   will not require the sale of an investment if it was proper at the time it
   was made.


   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities.




T. ROWE PRICE                                 20
   While most preferred stocks pay a dividend, preferred stock may be purchased
   where the issuer has omitted, or is in danger of omitting, payment of its
   dividend. Such investments would be made primarily for their capital
   appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 30%
   of total assets.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.




MORE ABOUT THE FUND                           21
   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.




T. ROWE PRICE                                 22
   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transac-




MORE ABOUT THE FUND                           23
   tions involve the risk that anticipated currency movements will not occur,
   which could reduce fund total return. There are certain markets, including
   many emerging markets, where it is not possible to engage in effective
   foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------

   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




T. ROWE PRICE                                 24


 Table 4  Financial Highlights

                                       Year ended December 31
                           1997      1998      1999       2000       2001
 ----------------------------------------------------------------------------------
                      

  Net asset value,
  beginning of period    $29.71    $27.26    $ 37.67    $ 63.71    $ 35.57
  Income From Investment Operations
  Net investment income   (0.12)    (0.18)     (0.09)     (0.29)     (0.18)
                         -----------------------------------------------------
  Net gains or losses
  on securities (both
  realized and             0.54     11.58      36.85     (20.57)    (14.47)
  unrealized)
                         -----------------------------------------------------
  Total from investment
  operations               0.42     11.40      36.76     (20.86)    (14.65)
  Less Distributions
  Dividends (from net        --        --         --         --         --
  investment income)
                         -----------------------------------------------------
  Distributions (from     (2.87)    (0.99)    (10.72)     (7.28)        --
  capital gains)
                         -----------------------------------------------------
  Returns of capital         --        --         --         --         --
                         -----------------------------------------------------
  Total distributions     (2.87)    (0.99)    (10.72)     (7.28)        --
                         -----------------------------------------------------
  Net asset value,       $27.26    $37.67    $ 63.71    $ 35.57    $ 20.92
  end of period
                         -----------------------------------------------------
  Total return             1.71%    42.35%    100.99%    (34.19)%   (41.19)%
  Ratios/Supplemental Data
  Net assets, end of     $3,538    $4,696    $12,271    $ 8,892    $ 5,209
  period (in millions)
                         -----------------------------------------------------
  Ratio of expenses to     0.94%     0.94%      0.87%      0.86%      1.00%
  average net assets
                         -----------------------------------------------------
  Ratio of net income     (0.44)%   (0.61)%    (0.26)%    (0.55)%    (0.73)%
  to average net assets
                         -----------------------------------------------------
  Portfolio turnover      133.9%    108.9%     128.0%     134.1%     143.6%
  rate
 ----------------------------------------------------------------------------------






 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




T. ROWE PRICE                                 26
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




MORE ABOUT THE FUND                           27

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




T. ROWE PRICE                                 28
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




MORE ABOUT THE FUND                           29
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




T. ROWE PRICE                                 30
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




MORE ABOUT THE FUND                           31
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




T. ROWE PRICE                                 32
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




MORE ABOUT THE FUND                           33
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services

You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




T. ROWE PRICE                                 34
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




MORE ABOUT THE FUND                           35

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202

                                                              F61-040 5/1/02

                                                  1940 Act File No. 811-5299


PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE


Science &

Technology Fund--

Advisor Class


 An aggressive stock fund seeking long-term capital growth through investments
 in companies expected to benefit from scientific and technological progress.
 This class of shares
 is sold only through financial intermediaries.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Science & Technology Fund, Inc.
  T. Rowe Price Science & Technology Fund--Advisor Class
Prospectus

May 1, 2002




      
              ABOUT THE FUND
1
              Objective, Strategy, Risks, and Expenses    1

              -----------------------------------------------
              Other Information About the Fund            5

              -----------------------------------------------


              T. ROWE PRICE ACCOUNT
2             INFORMATION
              Pricing Shares and Receiving                7
              Sale Proceeds
              -----------------------------------------------
              Useful Information on
              Distributions                               8
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                 10
              Special Requirements
              -----------------------------------------------


              MORE ABOUT THE FUND
3
              Organization and Management                12

              -----------------------------------------------
              Understanding Performance Information      14

              -----------------------------------------------
              Investment Policies and Practices          15

              -----------------------------------------------
              Financial Highlights                       20

              -----------------------------------------------


              INVESTING WITH T. ROWE PRICE
4
              Account Requirements                        2
              and Transaction Information                 1
              -----------------------------------------------
              Purchasing Additional Shares                2
                                                          2
              -----------------------------------------------
              Rights Reserved by the Fund                 2
              s                                           2
              -----------------------------------------------
              T. Rowe Price Privacy Policy                2
                                                          4
              -----------------------------------------------




 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

   A word about the fund's name and structure. Science & Technology Fund -
   Advisor Class is a share class of T. Rowe Price Science & Technology Fund.
   The Advisor Class is not a separate mutual fund. It is sold only through
   brokers, dealers, banks, insurance companies, and other financial
   intermediaries that provide various distribution and administrative services.



 What is the fund's objective?

   The fund seeks to provide long-term capital appreciation.


 What is the fund's principal investment strategy?

   We will invest at least 80% of net assets in the common stocks of companies
   expected to benefit from the development, advancement, and use of science
   and/or technology. Some of the industries likely to be included in the
   portfolio are:

  . electronics, including hardware, software, and components;

  . communications;

  . e-commerce (companies doing business through the Internet);

  . information services;

  . media;

  . life sciences and health care;

  . environmental services;

  . chemicals and synthetic materials; and

  . defense and aerospace.


   Stock selection generally reflects a growth approach based on intensive
   research that assesses a company's fundamental prospects for above-average
   earnings. Holdings can range from small, unseasoned companies developing new
   technologies to blue chip firms with established track records of developing
   and marketing technology. Investments may also include companies that should
   benefit from technological advances even if they are not directly involved in
   research and development. The fund may invest in suitable technology
   companies through initial public offerings (IPOs).

   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could




T. ROWE PRICE                                 2
   increase in value for a variety of reasons, including a change in management,
   an extraordinary corporate event, or a temporary imbalance in the supply of
   or demand for the securities.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?

   Since this fund is focused on the science and technology industries, it is
   less diversified than stock funds investing in a broader range of industries
   and, therefore, could experience significant volatility. In addition,
   technology stocks historically have experienced unusually wide price swings,
   both up and down. The potential for wide variation in performance reflects
   the special risks common to companies in the rapidly changing field of
   technology. For example, products or services that at first appear promising
   may not prove commercially successful or may become obsolete quickly.
   Earnings disappointments and intense competition for market share can result
   in sharp price declines.

   The level of risk will rise to the extent that the fund has significant
   exposure to smaller, unseasoned (those with less than a three-year operating
   history), and newly public companies. These companies may not have
   established products, experienced management, or an earnings history and
   their stocks may lack liquidity and be very volatile.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.




                                             3
   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you are investing through an intermediary and
   seek an aggressive approach to capital growth through investment in science
   and technology stocks, and you can accept the potential for above-average
   price fluctuations, the fund could be an appropriate part of your overall
   investment strategy. This fund should not represent your complete investment
   program or be used for short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the year depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 4



            Calendar Year Total Returns
                        "01"
 -------------------------------------------------
  

 -41.19
 -------------------------------------------------



                    Quarter ended   Total return
 Best quarter         12/31/01	35.36%
 Worst quarter        9/30/01	-40.25%




 Table 1  Average Annual Total Returns

                                                 Periods ended
                                               December 31, 2001
                                                       Since inception
                                          1 year          (3/31/00)
 ------------------------------------------------------------------------------
                                    
  Science & Technology Fund-Advisor Class
  Returns before taxes                    -41.19%          -45.34%
  Returns after taxes on
  distributions                           -41.19           -46.42
  Returns after taxes on
  distributions and sale of fund
  shares                                  -25.09           -33.92
  S&P 500 Stock Index                     -11.89           -13.02
  Lipper Science & Technology Fund        -34.72           -43.02
  Index
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.




                                             5

 What fees or expenses will I pay?




T. ROWE PRICE                                 6






 Table 2  Fees and Expenses of the Advisor Class*

                                                         Annual fund operating expenses
                                                  (expenses that are deducted from fund assets)
 -----------------------------------------------------------------------------------------------
                                              
  Management fee                                                     0.67%
  Distribution and service (12b-1) fees                              0.25%
  Other expenses                                                     0.07%
  Total annual fund operating expenses                               0.99%/a/
 -----------------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund.

 /a/Effective January 1, 2002, T. Rowe Price contractually obligated itself to
   bear any expenses (other than management fees and certain other portfolio
   level expenses) through December 31, 2003, that would cause the class's ratio
   of expenses to average net assets to exceed 1.15%. Expenses paid or assumed
   under this agreement are subject to reimbursement to T. Rowe Price by the
   fund whenever the class's expense ratio is below 1.15%; however, no
   reimbursement will be made after December 31, 2005, or if it would result in
   the expense ratio exceeding 1.15%. Any amounts reimbursed will have the
   effect of increasing fees otherwise paid by the class.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   class with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, the expense limitation currently in place is not renewed,
   you invest $10,000, earn a 5% annual return, and hold the investment for the
   following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $101        $315         $547          $1,213
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   The fund's program reflects the view of T. Rowe Price that rapid advances in
   science and technology offer substantial opportunities for superior long-term
   capital appreciation. As leading-edge products and services gain acceptance,
   the companies behind them often enjoy exceptional growth. This growth is
   often reflected in rising stock prices. Of course, rapidly changing product
   cycles and intense competition can make these stocks volatile, as noted
   earlier in the risk discussion.


 T. ROWE PRICE ACCOUNT INFORMATION
 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.




T. ROWE PRICE                                 8
 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------
   Here are some procedures you should know when investing in shares of the T.
   Rowe Price Advisor Class.


 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for each
   class of shares is calculated at the close of the New York Stock Exchange,
   normally 4 p.m. ET, each day the New York Stock Exchange is open for
   business. To calculate the NAV, the fund's assets are valued and totaled,
   liabilities are subtracted, and each class's proportionate share of the
   balance, called net assets, is divided by the number of shares outstanding of
   that class. Market values are used to price stocks and bonds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


 How your purchase, sale, or exchange price is determined


   Advisor Class shares are intended for purchase and may be held only through
   various third-party intermediaries including brokers, dealers, banks,
   insurance companies, retirement plan recordkeepers and others. Consult your
   intermediary to find out about how to purchase, sell, or exchange your
   shares, cut-off times, and other applicable procedures for these
   transactions. The intermediary may charge a fee for its services.

   The fund may have an agreement with your intermediary that permits the
   intermediary to accept orders on behalf of the fund until 4 p.m. ET. In such
   cases, if your order is received by the intermediary in good form by 4 p.m.
   ET and transmitted to the fund and paid for in accordance with the agreement,
   it will be priced at the next NAV computed after the intermediary received
   your order.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted by the fund or an intermediary may be changed in
   case of an emergency or if the New York Stock Exchange closes at a time other
   than 4 p.m. ET.




                                             9
   How proceeds are received
   Normally, the fund transmits proceeds to intermediaries for redemption orders
   received in good form on either the next or third business day after receipt,
   depending on the arrangement with the intermediary. Under certain
   circumstances and when deemed to be in the fund's best interests, proceeds
   may not be sent for up to seven calendar days after receipt of the redemption
   order. You must contact your intermediary about procedures for receiving your
   redemption proceeds.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


 Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   No interest will accrue on amounts represented by uncashed distribution or
   redemption checks.

   Income dividends

  . The funds declare and pay dividends (if any) quarterly for the Equity Income
   Fund-Advisor Class; declare daily and pay monthly for the High Yield
   Fund-Advisor Class and International Bond Fund-Advisor Class; and declare and
   pay annually for all other Advisor Classes.
  . A portion of fund dividends (other than High Yield Fund-Advisor Class and
   International Stock Fund-Advisor Class) may be eligible for the 70% deduction
   for dividends received by corporations to the extent the funds' income
   consists of dividends paid by U.S. corporations.
  . The dividends of High Yield Fund-Advisor Class and International Stock
   Fund-Advisor Class will not be eligible for the 70% deduction for dividends
   received by corporations, if, as expected, none of the funds' income consists
   of dividends paid by U.S. corporations.

   Capital gains payments
  . A capital gain or loss is the difference between the purchase and sale price
   of a security.
  . If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a




T. ROWE PRICE                                 10
   specified date that month. If a second distribution is necessary, it is paid
   the following year.


 Tax Information

   You should contact your intermediary for the tax information that will be
   sent to you and reported to the IRS.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . The fund makes a distribution to your account.

   Taxes on fund redemptions
   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is still a sale for tax purposes.

   Taxes on fund distributions

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss must be reclassified to a long-term loss to the extent of any
   long-term capital gain distribution received during the period you held the
   shares. Gains and losses from the sale of foreign currencies and the foreign
   currency gain or loss resulting from the sale of a foreign debt security can
   increase or decrease an ordinary income dividend. Net foreign currency losses
   may cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in a fund being required to distribute gains on such transactions even
   though it did not close the con-




                                             11
   tracts during the year or receive cash to pay such distributions. A fund may
   not be able to reduce its distributions for losses on such transactions to
   the extent of unrealized gains in offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain or dividend distribution
   If you buy shares shortly before or on the "record date" -  the date that
   establishes you as the person to receive the upcoming distribution - you will
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains or income and unrealized appreciation, which may
   result in future taxable distributions. Such distributions can occur even in
   a year when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.



 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------
 Purchase Conditions for Intermediaries

   Nonpayment

   If the fund receives a check or ACH transfer that does not clear or the
   payment is not received in a timely manner, your purchase may be canceled.
   Any losses or expenses incurred by the fund or transfer agent will be the
   responsibility of the intermediary. The fund and its agents have the right to
   reject or cancel any purchase, exchange, or redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold
   If an intermediary sells shares that it just purchased and paid for by check
   or ACH transfer, the fund will process the redemption but will generally
   delay sending the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. (The 10-day hold does not apply to purchases paid for by
   bank wire.)


 MORE ABOUT THE FUND
   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.


 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.


   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of the fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

   You can make one purchase and one sale or one sale and one purchase involving
   the same fund within any 120-day period. If you exceed this limit or if you
   hold fund shares for less than 60 calendar days, you are in violation of our
   excessive trading policy. Systematic purchases and redemptions are exempt
   from this policy. Transactions accepted by intermediaries in violation of
   this excessive trading policy or from persons believed to be market timers
   are subject to rejection or cancellation by the funds.


 Signature Guarantees


   An intermediary may need to obtain a signature guarantee in certain
   situations and should consult its T. Rowe Price Financial Institution
   Services representative.

   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.






                                             13
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?

   The fund was incorporated in Maryland in 1987 and is a "diversified, open-end
   investment company," or mutual fund. Mutual funds pool money received from
   shareholders of each class into a single portfolio and try to achieve
   specified objectives. In 2000, the fund issued a separate class of shares
   known as the Advisor Class.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:

  . Receive a proportional interest in income and capital gain distributions of
   the class.


   The income dividends for Science & Technology Fund-Advisor Class shares will
   generally differ from those of the regular Science & Technology Fund shares
   to the extent that the expense ratio of Science & Technology Fund-Advisor
   Class shares differs.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract. Science & Technology Fund-Advisor Class
   shareholders

   have exclusive voting rights on matters affecting only the Science &
   Technology-

   Advisor Class shares.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.




T. ROWE PRICE                                 14
 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).


   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Michael F. Sola, Chairman, Giri Devulapally, Donald J. Easley, Robert N.
   Gensler, Eric M. Gerster, Jill L. Hauser, Anh Lu, and Jeff Rottinghaus. The
   committee chairman has day-to-day responsibility for managing the portfolio
   and works with the committee in developing and executing the fund's
   investment program. Mr. Sola was elected chairman of the fund's committee in
   2002; he was elected Executive Vice President of the fund in 2000. He joined
   T. Rowe Price in 1994 as an investment analyst, and has been managing
   investments since 1997. He is also chairman of the Investment Advisory
   Committee for the Developing Technologies Fund.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion


   at December 31, . 2001, the group fee was 0.32%. .  The individual fund fee
   is 0.35%.




                                             15
 Distribution, Shareholder Servicing, and Recordkeeping Fees


   Science & Technology Fund-Advisor Class has adopted a 12b-1 plan under which
   it pays a fee at the rate of up to 0.25% of its daily net assets per year to
   various intermediaries for distribution and servicing of its shares. These
   payments may be more or less than the costs incurred by the intermediaries.
   Because the fees are paid from the Advisor Class net assets on an ongoing
   basis, they will increase the cost of your investment and, over time, could
   result in your paying more than with other types of sales charges. The
   Advisor Class may also separately compensate intermediaries at a rate of up
   to 0.10% of daily net assets per year for various recordkeeping and transfer
   agent services they perform.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.




T. ROWE PRICE                                 16
 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.

   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.





                                             17
   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.





T. ROWE PRICE                                 18
   Operating policy  Fund investments in foreign securities are limited to 30%
   of total assets.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.




                                             19
   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.




T. ROWE PRICE                                 20
   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 3, which provides information about the class's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the class's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the class (assuming reinvestment


 INVESTING WITH T. ROWE PRICE
   of all dividends and distributions and no payment of account or (if
   applicable) redemption fees). The financial statements in the annual report
   were audited by the fund's independent accountants, PricewaterhouseCoopers
   LLP.


 Table 3  Financial Highlights

                                       3/31/00*
                                        through    Year ended December 31
                                       12/31/00
                                      -------------         2001
 -------------------------------------             -----------------------------
                           

  Net asset value,
  beginning of period                 $  71.08           $  35.54
  Income From Investment Operations
  Net investment income                  (0.13)             (0.17)
                                      -------------------------------------
  Net gains or losses on
  securities (both realized             (28.13)            (14.47)
  and unrealized)
                                      -------------------------------------
  Total from investment
  operations                            (28.26)            (14.64)
  Less Distributions
  Dividends (from net                       --                 --
  investment income)
                                      -------------------------------------
  Distributions (from                    (7.28)                --
  capital gains)
                                      -------------------------------------
  Returns of capital                        --                 --
                                      -------------------------------------
  Total distributions                    (7.28)                --
                                      -------------------------------------
  Redemption fees added                     --                 --
  to paid in capital
                                      -------------------------------------
  Net asset value,                    $  35.54           $  20.90
  end of period
                                      -------------------------------------
  Total return                          (41.06)%           (41.19)%
  Ratios/Supplemental Data
  Net assets, end of period           $829,024           $554,665
  (in thousands)
                                      -------------------------------------
  Ratio of expenses to                    1.09%/a/           0.99%
  average net assets
                                      -------------------------------------
  Ratio of net income to                  0.80%/a/          (0.71)%
  average net assets
                                      -------------------------------------
  Portfolio turnover rate                134.1%/a/          143.6%
 -------------------------------------------------------------------------------





 * Inception date.

 /a/      Annualized.




T. ROWE PRICE                                 22
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

The intermediary must provide us with its certified Social Security or tax
identification number (TIN). Otherwise, federal law requires the funds to
withhold a percentage (currently 30%) of dividends, capital gain distributions,
and redemptions, and may subject the intermediary or account holder to an IRS
fine. If this information is not received within 60 days after the account is
established, the account may be redeemed at the fund's NAV on the redemption
date.

                                                              The information in
                                                         this section is for use
                                     by intermediaries only. Shareholders of the
   Advisor Class should contact their intermediary for information regarding the
 intermediary's policies on purchasing, exchanging, and redeeming fund shares as
                             well as initial and subsequent investment minimums.
All initial and subsequent investments by intermediaries must be made by bank
wire.

Opening a New Account

$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts

Intermediaries should call Financial Institution Services for an account number
and assignment to a dedicated service representative and give the following wire
information to their bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number


Complete a New Account Form and mail it to one of the appropriate addresses
listed below. Intermediaries must also enter into a separate agreement with the
fund or its agent.

via U.S. Postal Service
T. Rowe Price Financial Institution Services
P.O. Box 17603
Baltimore, MD 21297-1603

via private carriers/overnight services
T. Rowe Price Financial Institution Services
Four Financial Center
4515 Painters Mill Road
Owings Mills, MD 21117-4842




                                             23
 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum purchase; $50 minimum for retirement plans, Automatic Asset
Builder, and gifts or transfers to minors (UGMA/UTMA) accounts

                                                                         By Wire

Intermediaries should call Financial Institution Services or use the wire
instructions listed in Opening a New Account.

                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Intermediaries should call
their Financial Institution Services representative.

                                                                     Redemptions

Unless otherwise indicated, redemption proceeds will be wired to the
intermediary's designated bank. Intermediaries should contact their Financial
Institution Services representative.



 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to refuse
any purchase or exchange order; (2) to cancel or rescind any purchase or
exchange order (including, but not limited to, orders deemed to result in
excessive trading, market timing, fraud, or 5% ownership) upon notice to the
intermediary within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (3)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (4) to otherwise modify
the conditions of purchase and any services at any time; and (5) to act on
instructions reasonably believed to be genuine. These actions will be taken
when, in the sole discretion of management, they are deemed to be in the best
interest of the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or




T. ROWE PRICE                                 24
group of shareholders controlled by the same person or group of persons will
knowingly be permitted to purchase in excess of 5% of the outstanding shares of
a fund, except upon approval of the fund's management.




                                             25

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, call your intermediary.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. Fund reports and other fund information are
available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. Copies of this information may be obtained, after paying a
duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the
Public Reference Room, Washington D.C. 20549-0102.
                                                      1940 Act File No. 811-5299
                                                                 E261-040 5/1/02


PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE

Small-Cap Stock
Fund

 A stock fund seeking long-term capital growth through investments in securities
 of small companies.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Small-Cap Stock Fund, Inc.
Prospectus

May 1, 2002




      
1             ABOUT THE FUND
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Fund              5
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                  8
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions          11
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   15
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUND
              Organization and Management                  18
              -----------------------------------------------
              Understanding Performance Information        20
              -----------------------------------------------
              Investment Policies and Practices            20
              -----------------------------------------------
              Financial Highlights                         26
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         27
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        28
              -----------------------------------------------
              Purchasing Additional Shares                 29
              -----------------------------------------------
              Exchanging and Redeeming Shares              30
              -----------------------------------------------
              Rights Reserved by the Funds                 32
              -----------------------------------------------
              Information About Your Services              32
              -----------------------------------------------
              T. Rowe Price Brokerage                      35
              -----------------------------------------------
              Investment Information                       36
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 37
              -----------------------------------------------




 Prior to May 1, 1997, the fund was called the T. Rowe Price OTC Fund.
 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is the fund's objective?

   The fund seeks to provide long-term capital growth by investing primarily in
   stocks of small companies.


 What is the fund's principal investment strategy?

   The fund will invest at least 80% of net assets in stocks of small companies.
   A small company is defined as having a market capitalization that falls (i)
   within or below the range of companies in the current Russell 2000 Index or
   (ii) below the three year average maximum market cap of companies in the
   index as of December 31 for the three preceding years. The Russell 2000 Index
   is a widely used benchmark for small-cap stock performance. Stock selection
   may reflect either a growth or value investment approach. When choosing
   stocks, we generally look for the following characteristics:

  . capable management;
  . attractive business niches;
  . pricing flexibility;
  . sound financial and accounting practices;
  . a demonstrated ability to grow revenues, earnings, and cash flow
   consistently; and
  . the potential for a catalyst (such as increased investor attention, asset
   sales, strong business prospects, or a change in management) to cause the
   stock's price to rise.

   We may also select stocks on certain growth or value considerations. For
   example, we may look for a company whose price/earnings ratio is attractive
   relative to the underlying earnings growth rate. A value stock would be one
   where the stock price appears undervalued in relation to earnings, projected
   cash flow, or asset value per share.

   Holdings will be widely diversified by industry and company; under most
   circumstances, the fund will invest less than 1.5% of its total assets in any
   single company. The market capitalization of the companies in the fund's
   portfolio and the Russell 2000 Index changes over time and the fund will not
   sell a stock just because a company has grown to a market capitalization
   outside the range of the Russell 2000. The fund may, on occasion, purchase
   companies with a market capitalization above the range.




T. ROWE PRICE                                 2

   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?


   Investing in small companies involves greater risk than is customarily
   associated with larger companies. Stocks of small companies are subject to
   more abrupt or erratic price movements than larger-company stocks. Small
   companies often have limited product lines, markets, or financial resources,
   and their managements may lack depth and experience. Such companies seldom
   pay significant dividends that could cushion returns in a falling market.

   Stocks with growth characteristics can have sharp price declines as a result
   of earnings disappointments, even small ones. Stocks with value
   characteristics carry the risk that investors will not recognize their
   intrinsic value for a long time or that they are actually appropriately
   priced at a low level. Because this fund holds stocks with both growth and
   value characteristics, its share price may be negatively affected by either
   set of risks.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally, the
   fund's investment approach could fall out of favor with the investing public,
   resulting in lagging performance versus other types of stock funds.




T. ROWE PRICE ACCOUNT INFORMATION             3
   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you seek an aggressive, long-term approach to
   capital growth through small-company stocks, the fund could be an appropriate
   part of your overall investment strategy. This fund should not represent your
   complete investment program or be used for short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 4



                              Calendar Year Total Returns
  "92"    "93"     "94"   "95"   "96"    "97"   "98"    "99"    "00"   "01"
 --------------------------------------------------------------------------------
                                
13.91*  18.40  0.08  33.85  21.05  28.81  -3.46  14.66  16.49  6.81
 --------------------------------------------------------------------------------



                  Quarter ended     Total return

 Best quarter        12/31/01          19.31%
 Worst quarter       9/30/98          -19.39%








 Table 1  Average Annual Total Returns

                                        Periods ended December 31, 2001
                                        1 year     5 years     10 years
 ------------------------------------------------------------------------------
                                    
  Small-Cap Stock Fund
  Returns before taxes                   6.81%      12.15%      14.52%
  Returns after taxes on
  distributions                          6.57       10.78       11.54
  Returns after taxes on
  distributions and sale of fund
  shares                                 4.15        9.59       10.79
  Russell 2000 Index                     2.49        7.52       11.51
  Lipper Small-Cap Core Fund Index       7.13       10.15       12.61
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.


 What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees.




T. ROWE PRICE ACCOUNT INFORMATION             5


 Table 2  Fees and Expenses of the Fund*

                                                Annual fund operating expenses
                                         (expenses that are deducted from fund assets)
 --------------------------------------------------------------------------------------
                                     
  Management fee                                             0.77%
  Other expenses                                             0.21%
  Total annual fund operating expenses                       0.98%
 --------------------------------------------------------------------------------------





 *Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
  paid to the fund. Accounts with less

  than a $2,000 balance (with certain exceptions) are subject to a $10 fee. See
  Transaction Procedures and Special

  Requirements - Account Maintenance and Small Account Fees.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $100        $312         $542          $1,201
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   Small and mid-size companies are often overlooked by the investment community
   and their securities may be undervalued, providing the potential for
   significant capital appreciation. Smaller companies may also have faster
   earnings growth than large, well-established companies, and stock prices
   typically reflect earnings growth over time. The fund is designed for
   long-term investors who are willing to accept greater risks in search of
   substantial long-term rewards.


   3 Stock selection may reflect either a growth or value investment approach.


 What is meant by a "growth" investment approach?

   Thomas Rowe Price, Jr. pioneered the growth stock theory of investing over 60
   years ago. It is based on the premise that inflation represents a more
   serious long-term threat to an investor's portfolio than stock market
   fluctuations or recessions. Mr. Price believed that when a company's earnings
   grow faster than both inflation and the economy in general, the market will
   eventually reward its long-term




T. ROWE PRICE                                 6
   earnings growth with a higher stock price. However, investors should be aware
   that, during periods of adverse economic and market conditions, stock prices
   may fall despite favorable earnings trends.


   3 Growth investors look for companies with above-average earnings gains.


 What is meant by a "value" investment approach?

   Value investors seek to invest in companies whose stock prices are low in
   relation to their real worth or future prospects. By identifying companies
   whose stocks are currently out of favor or misunderstood, value investors
   hope to realize significant appreciation as other investors recognize the
   stock's intrinsic value and the price rises accordingly.

   Finding undervalued stocks requires considerable research to identify the
   particular company, analyze its financial condition and prospects, and assess
   the likelihood that the stock's underlying value will be recognized by the
   market and reflected in its price.

   Some of the principal measures used to identify such stocks are:

  . Price/earnings ratio Dividing a stock's price by its earnings per share
   generates a price/earnings or P/E ratio. A stock with a P/E that is
   significantly below that of its peers, the market as a whole, or its own
   historical norm may represent an attractive opportunity.

  . Price/book value ratio Dividing a stock's price by its book value per share
   indicates how a stock is priced relative to the accounting (i.e., book) value
   of the company's assets. A ratio below the market, that of its competitors,
   or its own historic norm could indicate an undervalued situation.

  . Dividend yield A stock's dividend yield is found by dividing its annual
   dividend by its share price. A yield significantly above a stock's own
   historic norm or that of its peers may suggest an investment opportunity.


   3 A stock selling at $10 with an annual dividend of $0.50 has a 5% yield.

  . Price/cash flow Dividing a stock's price by the company's cash flow per
   share, rather than by its earnings or book value, provides a more useful
   measure of value in some cases. A ratio below that of the market or of its
   peers suggests the market may be incorrectly valuing the company's cash flow
   for reasons that may be temporary.

  . Undervalued assets This analysis compares a company's stock price with its
   underlying asset values, its projected value in the private (as opposed to
   public) market, or its expected value if the company or parts of it were sold
   or liquidated.




T. ROWE PRICE ACCOUNT INFORMATION             7
  . Restructuring opportunities The market can react favorably to the
   announcement of the successful implementation of a corporate restructuring,
   financial reengineering, or asset redeployment. Such events can result in an
   increase in a company's stock price. A value investor may try to anticipate
   these actions and invest before the market places an appropriate value on any
   actual or expected changes.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




T. ROWE PRICE ACCOUNT INFORMATION             9
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




T. ROWE PRICE                                 10
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                            
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




T. ROWE PRICE ACCOUNT INFORMATION             11
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


  Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 3  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








T. ROWE PRICE                                 12

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




T. ROWE PRICE ACCOUNT INFORMATION             13
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions

   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.



   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss




T. ROWE PRICE                                 14
   must be reclassified to a long-term loss to the extent of any long-term
   capital gain distribution received during the period you held the shares.
   Gains and losses from the sale of foreign currencies and the foreign currency
   gain or loss resulting from the sale of a foreign debt security can increase
   or decrease an ordinary income dividend. Net foreign currency losses may
   cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




T. ROWE PRICE ACCOUNT INFORMATION             15
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




T. ROWE PRICE                                 16
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




T. ROWE PRICE ACCOUNT INFORMATION             17
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?


   The fund was originally incorporated in Delaware in 1955 and was the first
   mutual fund to invest principally in equity securities traded in the OTC
   market. The fund was reincorporated in Pennsylvania in 1985 and was
   reorganized as a series of a Maryland corporation in 1988. Effective May 1,
   1997, the fund changed its name to the T. Rowe Price Small-Cap Stock Fund,
   Inc. The fund is a "diversified, open-end investment company," or mutual
   fund. Mutual funds pool money received from shareholders of each class into a
   single portfolio and try to achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:

  . Receive a proportional interest in income and capital gain distributions.
  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.




T. ROWE PRICE ACCOUNT INFORMATION             19
 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).


   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Gregory A. McCrickard, Chairman, Preston G. Athey, Brace C. Brooks, Hugh M.
   Evans III, Kris H. Jenner, Joseph Milano, Curt J. Organt, Charles G. Pepin,
   Michael F. Sola, J. David Wagner, and Wenhua Zhang. The committee chairman
   has day-to-day responsibility for managing the portfolio and works with the
   committee in developing and executing the fund's investment program. Mr.
   McCrickard has been chairman of the fund's committee since 1992. He joined T.
   Rowe Price in 1986 and has been managing investments since 1991.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------




   * Represents a blended group fee rate containing various break points.


   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion


   at December . 31, 2001, the group fee was 0.32%. .  The individual fund fee
   is 0.45%.




T. ROWE PRICE                                 20
 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are dis-




T. ROWE PRICE ACCOUNT INFORMATION             21
   cussed with shareholders in fund reports. Fund investment restrictions and
   policies apply at the time of investment. A later change in circumstances
   will not require the sale of an investment if it was proper at the time it
   was made.


   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities.




T. ROWE PRICE                                 22
   While most preferred stocks pay a dividend, preferred stock may be purchased
   where the issuer has omitted, or is in danger of omitting, payment of its
   dividend. Such investments would be made primarily for their capital
   appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy  Fund investments in foreign securities are limited to 10%
   of total assets.

   Fixed-Income Securities
   From time to time, we may invest in debt securities of any type, including
   municipal securities, without regard to quality or rating. Such securities
   would be purchased in companies, municipalities, or entities which meet the
   investment criteria for the fund. The price of a bond fluctuates with changes
   in interest rates, generally rising when interest rates fall and falling when
   interest rates rise.




T. ROWE PRICE ACCOUNT INFORMATION             23
   High-Yield, High-Risk Bonds
   The total return and yield of lower-quality (high-yield, high-risk) bonds,
   commonly referred to as "junk" bonds, can be expected to fluctuate more than
   the total return and yield of higher-quality, shorter-term bonds, but not as
   much as those of common stocks. Junk bonds (those rated below BBB or in
   default) are regarded as predominantly speculative with respect to the
   issuer's continuing ability to meet principal and interest payments.


   Operating policy  The fund may purchase any type of noninvestment-grade debt
   security (or junk bond) including those in default. The fund will not
   purchase this type of security if it would have more than 10% of its total
   assets invested in such securities. Fund investments in convertible
   securities are not subject to this limit.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no




T. ROWE PRICE                                 24
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought or sold for any number of
   reasons, including: to manage fund exposure to changes in securities prices
   and foreign currencies; as an efficient means of adjusting fund overall
   exposure to certain markets; in an effort to enhance income; to protect the
   value of portfolio securities; and as a cash management tool. Call or put
   options may be purchased or sold on securities, financial indi

   ces, and foreign currencies.

   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.




T. ROWE PRICE ACCOUNT INFORMATION             25
   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.

   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates
   are shown in the Financial Highlights table.




T. ROWE PRICE                                 26
 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 4, which provides information about the fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.



 Table 4  Financial Highlights

                                         Year ended December 31
                             1997      1998     1999     2000     2001
 ------------------------------------------------------------------------------
                         

  Net asset value,
  beginning of period       $18.07   $22.20    $20.79   $22.80   $23.87
  Income From Investment Operations
  Net investment income       0.05     0.08      0.09     0.15     0.10
                            ----------------------------------------------
  Net gains or losses on
  securities (both            5.13    (0.89)     2.89     3.52     1.52
  realized and unrealized)
                            ----------------------------------------------
  Total from investment
  operations                  5.18    (0.81)     2.98     3.67     1.62
  Less Distributions
  Dividends (from net        (0.04)   (0.10)    (0.08)
  investment income)                                     (0.14)   (0.10)
                            ----------------------------------------------
  Distributions (from        (1.01)   (0.50)    (0.89)   (2.46)   (0.05)
  capital gains)
                            ----------------------------------------------
  Returns of capital            --       --        --       --       --
                            ----------------------------------------------
  Total distributions        (1.05)   (0.60)    (0.97)   (2.60)   (0.15)
                            ----------------------------------------------
  Net asset value, end of   $22.20   $20.79    $22.80   $23.87   $25.34
  period
                            ----------------------------------------------
  Total return               28.81%   (3.46)%   14.66%   16.49%    6.81%
  Ratios/Supplemental Data
  Net assets, end of        $  816   $1,153    $1,740   $2,255   $3,158
  period (in millions)
                            ----------------------------------------------
  Ratio of expenses to        1.02%    1.01%     0.96%    0.94%    0.98%
  average net assets
                            ----------------------------------------------
  Ratio of net income to      0.33%    0.46%     0.47%    0.63%    0.45%
  average net assets
                            ----------------------------------------------
  Portfolio turnover rate     22.9%    25.9%     42.3%    32.8%    16.5%
 ------------------------------------------------------------------------------







 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




T. ROWE PRICE                                 28
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




T. ROWE PRICE ACCOUNT INFORMATION             29

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




T. ROWE PRICE                                 30
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




T. ROWE PRICE ACCOUNT INFORMATION             31
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




T. ROWE PRICE                                 32
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




T. ROWE PRICE ACCOUNT INFORMATION             33
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




T. ROWE PRICE                                 34
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




T. ROWE PRICE ACCOUNT INFORMATION             35
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




T. ROWE PRICE                                 36
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




T. ROWE PRICE ACCOUNT INFORMATION             37

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
                                                                  F65-040 5/1/02
                                                       1940 Act File No. 811-696


PROSPECTUS
                                                                     May 1, 2002
T. ROWE PRICE

Small-Cap Stock
Fund--Advisor
Class

 A stock fund seeking long-term capital growth through investments in securities
 of small companies. This class of shares is sold only
 through financial intermediaries.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Small-Cap Stock Fund, Inc.

  T. Rowe Price Small-Cap Stock Fund-Advisor Class
Prospectus

May 1, 2002




      
              ABOUT THE FUND
1
              Objective, Strategy, Risks, and Expenses    1

              -----------------------------------------------
              Other Information About the Fund            5

              -----------------------------------------------


              T. ROWE PRICE ACCOUNT
2             INFORMATION
              Pricing Shares and Receiving                8
              Sale Proceeds
              -----------------------------------------------
              Useful Information on
              Distributions                               9
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                 11
              Special Requirements
              -----------------------------------------------


              MORE ABOUT THE FUND
3
              Organization and Management                13

              -----------------------------------------------
              Understanding Performance Information      15

              -----------------------------------------------
              Investment Policies and Practices          16

              -----------------------------------------------
              Financial Highlights                       21

              -----------------------------------------------


              INVESTING WITH T. ROWE PRICE
4
              Account Requirements                       23
              and Transaction Information
              -----------------------------------------------
              Purchasing Additional Shares               24

              -----------------------------------------------
              Rights Reserved by the Fund                24
              s
              -----------------------------------------------
              T. Rowe Price Privacy Policy               26

              -----------------------------------------------




 Prior to May 1, 1997, the fund was called the T. Rowe Price OTC Fund.
 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.



 ABOUT THE FUND
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

   A word about the fund's name and structure. Small-Cap Stock Fund - Advisor
   Class is a share class of T. Rowe Price Small-Cap Stock Fund. The Advisor
   Class is not a separate mutual fund. It is sold only through brokers,
   dealers, banks, insurance companies, and other financial intermediaries that
   provide various distribution and administrative services.


 What is the fund's objective?

   The fund seeks to provide long-term capital growth by investing primarily in
   stocks of small companies.


 What is the fund's principal investment strategy?


   The fund will invest at least 80% of net assets in stocks of small companies.
   A small company is defined as having a market capitalization that falls (i)
   within or below the range of companies in the current Russell 2000 Index or
   (ii) below the three year average maximum market cap of companies in the
   index as of December 31 of the three preceding years. The Russell 2000 Index
   is a widely used benchmark for small-cap stock performance. Stock selection
   may reflect either a growth or value investment approach. When choosing
   stocks, we generally look for the following characteristics:

  . capable management;
  . attractive business niches;
  . pricing flexibility;
  . sound financial and accounting practices;
  . a demonstrated ability to grow revenues, earnings, and cash flow
   consistently; and
  . the potential for a catalyst (such as increased investor attention, asset
   sales, strong business prospects, or a change in management) to cause the
   stock's price to rise.

   We may also select stocks on certain growth or value considerations. For
   example, we may look for a company whose price/earnings ratio is attractive
   relative to the underlying earnings growth rate. A value stock would be one
   where the stock price appears undervalued in relation to earnings, projected
   cash flow, or asset value per share.

   Holdings will be widely diversified by industry and company; under most
   circumstances, the fund will invest less than 1.5% of its total assets in any
   single company. The market capitalization of the companies in the fund's
   portfolio and the Russell 2000 Index changes over time and the fund will not
   sell a stock just




T. ROWE PRICE                                 2
   because a company has grown to a market capitalization outside the range of
   the Russell 2000. The fund may, on occasion, purchase companies with a market
   capitalization above the range.


   In pursuing its investment objective, the fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   While most assets will be invested in U.S. common stocks, other securities
   may also be purchased, including foreign stocks, futures, and options, in
   keeping with fund objectives.

   The fund may sell securities for a variety of reasons, such as to secure
   gains, limit losses, or redeploy assets into more promising opportunities.


   3 For details about the fund's investment program, please see the Investment
     Policies and Practices section.


 What are the main risks of investing in the fund?


   Investing in small companies involves greater risk than is customarily
   associated with larger companies. Stocks of small companies are subject to
   more abrupt or erratic price movements than larger-company stocks. Small
   companies often have limited product lines, markets, or financial resources,
   and their managements may lack depth and experience. Such companies seldom
   pay significant dividends that could cushion returns in a falling market.

   Stocks with growth characteristics can have sharp price declines as a result
   of earnings disappointments, even small ones. Stocks with value
   characteristics carry the risk that investors will not recognize their
   intrinsic value for a long time or that they are actually appropriately
   priced at a low level. Because this fund holds stocks with both growth and
   value characteristics, its share price may be negatively affected by either
   set of risks.

   As with all equity funds, this fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the fund may




                                             3
   prove incorrect, resulting in losses or poor performance even in a rising
   market. Finally, the fund's investment approach could fall out of favor with
   the investing public, resulting in lagging performance versus other types of
   stock funds.

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the fund will achieve its
   objective.


   3 The fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell if the fund is appropriate for me?


   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you are investing through an intermediary and
   seek an aggressive, long-term approach to capital growth through
   small-company stocks, the fund could be an appropriate part of your overall
   investment strategy. This fund should not represent your complete investment
   program or be used for short-term trading purposes.

   The fund can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has the fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The fund can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the year depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 4



            Calendar Year Total Returns
                        "01"
 -------------------------------------------------
  

 6.60
 -------------------------------------------------



                    Quarter ended   Total return
 Best quarter         12/31/01	19.28%
 Worst quarter        9/30/01	-14.74%




 Table 1  Average Annual Total Returns

                                                 Periods ended
                                               December 31, 2001
                                                       Since inception
                                          1 year          (3/31/00)
 ------------------------------------------------------------------------------
                                    
  Small-Cap Stock Fund-Advisor Class
  Returns before taxes                     6.60%             7.67%
  Returns after taxes on
  distributions                            6.37              5.99
  Returns after taxes on
  distributions and sale of fund
  shares                                   4.02              5.73
  Russell 2000 Index                       2.49             -4.16
  Lipper Small-Cap Core Fund Index         7.13              2.18
 ------------------------------------------------------------------------------





 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.




                                             5

 What fees or expenses will I pay?



 Table 2  Fees and Expenses of the Advisor Class*

                                                         Annual fund operating expenses
                                                  (expenses that are deducted from fund assets)
 -----------------------------------------------------------------------------------------------
                                              
  Management fee                                                     0.77%
  Distribution and service (12b-1) fees                              0.25%
  Other expenses                                                     0.14%
  Total annual fund operating expenses                               1.16%/a/
 -----------------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund.

 /a/Effective January 1, 2002, T. Rowe Price contractually obligated itself to
   bear any expenses (other than management fees and certain other portfolio
   level expenses) through December 31, 2003, that would cause the class's ratio
   of expenses to average net assets to exceed 1.20%. Expenses paid or assumed
   under this agreement are subject to reimbursement to T. Rowe Price by the
   fund whenever the class's expense ratio is below 1.20%; however, no
   reimbursement will be made after December 31, 2005, or if it would result in
   the expense ratio exceeding 1.20%. Any amounts reimbursed will have the
   effect of increasing fees otherwise paid by the class.


   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in this
   class with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, the expense limitation currently in place is not renewed,
   you invest $10,000, earn a 5% annual return, and hold the investment for the
   following periods and then redeem:




      1 year      3 years      5 years       10 years
    ----------------------------------------------------
             
       $118        $368         $638          $1,409
    ----------------------------------------------------






 OTHER INFORMATION ABOUT THE FUND
 ----------------------------------------------------------

 What are some of the fund's potential rewards?

   Small and mid-size companies are often overlooked by the investment community
   and their securities may be undervalued, providing the potential for
   significant capital appreciation. Smaller companies may also have faster
   earnings growth than large, well-established companies, and stock prices
   typically reflect earnings growth over time. The fund is designed for
   long-term investors who are willing to accept greater risks in search of
   substantial long-term rewards.


   3 Stock selection may reflect either a growth or value investment approach.




T. ROWE PRICE                                 6
 What is meant by a "growth" investment approach?

   Thomas Rowe Price, Jr. pioneered the growth stock theory of investing over 60
   years ago. It is based on the premise that inflation represents a more
   serious long-term threat to an investor's portfolio than stock market
   fluctuations or recessions. Mr. Price believed that when a company's earnings
   grow faster than both inflation and the economy in general, the market will
   eventually reward its long-term earnings growth with a higher stock price.
   However, investors should be aware that, during periods of adverse economic
   and market conditions, stock prices may fall despite favorable earnings
   trends.


   3 Growth investors look for companies with above-average earnings gains.


 What is meant by a "value" investment approach?

   Value investors seek to invest in companies whose stock prices are low in
   relation to their real worth or future prospects. By identifying companies
   whose stocks are currently out of favor or misunderstood, value investors
   hope to realize significant appreciation as other investors recognize the
   stock's intrinsic value and the price rises accordingly.

   Finding undervalued stocks requires considerable research to identify the
   particular company, analyze its financial condition and prospects, and assess
   the likelihood that the stock's underlying value will be recognized by the
   market and reflected in its price.

   Some of the principal measures used to identify such stocks are:

  . Price/earnings ratio Dividing a stock's price by its earnings per share
   generates a price/earnings or P/E ratio. A stock with a P/E that is
   significantly below that of its peers, the market as a whole, or its own
   historical norm may represent an attractive opportunity.

  . Price/book value ratio Dividing a stock's price by its book value per share
   indicates how a stock is priced relative to the accounting (i.e., book) value
   of the company's assets. A ratio below the market, that of its competitors,
   or its own historic norm could indicate an undervalued situation.

  . Dividend yield A stock's dividend yield is found by dividing its annual
   dividend by its share price. A yield significantly above a stock's own
   historic norm or that of its peers may suggest an investment opportunity.


   3 A stock selling at $10 with an annual dividend of $0.50 has a 5% yield.

  . Price/cash flow Dividing a stock's price by the company's cash flow per
   share, rather than by its earnings or book value, provides a more useful
   measure of value in some cases. A ratio below that of the market or of its
   peers suggests the




                                             7
   market may be incorrectly valuing the company's cash flow for reasons that
   may be temporary.

  . Undervalued assets This analysis compares a company's stock price with its
   underlying asset values, its projected value in the private (as opposed to
   public) market, or its expected value if the company or parts of it were sold
   or liquidated.

  . Restructuring opportunities The market can react favorably to the
   announcement of the successful implementation of a corporate restructuring,
   financial reengineering, or asset redeployment. Such events can result in an
   increase in a company's stock price. A value investor may try to anticipate
   these actions and invest before the market places an appropriate value on any
   actual or expected changes.


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the fund may purchase as well as types of management
   practices the fund may use.


 T. ROWE PRICE ACCOUNT INFORMATION
 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------
   Here are some procedures you should know when investing in shares of the T.
   Rowe Price Advisor Class.


 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for each
   class of shares is calculated at the close of the New York Stock Exchange,
   normally 4 p.m. ET, each day the New York Stock Exchange is open for
   business. To calculate the NAV, the fund's assets are valued and totaled,
   liabilities are subtracted, and each class's proportionate share of the
   balance, called net assets, is divided by the number of shares outstanding of
   that class. Market values are used to price stocks and bonds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


 How your purchase, sale, or exchange price is determined


   Advisor Class shares are intended for purchase and may be held only through
   various third-party intermediaries including brokers, dealers, banks,
   insurance companies, retirement plan recordkeepers and others. Consult your
   intermediary to find out about how to purchase, sell, or exchange your
   shares, cut-off times, and other applicable procedures for these
   transactions. The intermediary may charge a fee for its services.

   The fund may have an agreement with your intermediary that permits the
   intermediary to accept orders on behalf of the fund until 4 p.m. ET. In such
   cases, if your order is received by the intermediary in good form by 4 p.m.
   ET and transmitted to the fund and paid for in accordance with the agreement,
   it will be priced at the next NAV computed after the intermediary received
   your order.




                                             9
   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted by the fund or an intermediary may be changed in
   case of an emergency or if the New York Stock Exchange closes at a time other
   than 4 p.m. ET.

   How proceeds are received
   Normally, the fund transmits proceeds to intermediaries for redemption orders
   received in good form on either the next or third business day after receipt,
   depending on the arrangement with the intermediary. Under certain
   circumstances and when deemed to be in the fund's best interests, proceeds
   may not be sent for up to seven calendar days after receipt of the redemption
   order. You must contact your intermediary about procedures for receiving your
   redemption proceeds.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


 Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   No interest will accrue on amounts represented by uncashed distribution or
   redemption checks.

   Income dividends

  . The funds declare and pay dividends (if any) quarterly for the Equity Income
   Fund-Advisor Class; declare daily and pay monthly for the High Yield
   Fund-Advisor Class and International Bond Fund-Advisor Class; and declare and
   pay annually for all other Advisor Classes.
  . A portion of fund dividends (other than High Yield Fund-Advisor Class and
   International Stock Fund-Advisor Class) may be eligible for the 70% deduction
   for dividends received by corporations to the extent the funds' income
   consists of dividends paid by U.S. corporations.
  . The dividends of High Yield Fund-Advisor Class and International Stock
   Fund-Advisor Class will not be eligible for the 70% deduction for dividends
   received by corporations, if, as expected, none of the funds' income consists
   of dividends paid by U.S. corporations.




T. ROWE PRICE                                 10
   Capital gains payments
  . A capital gain or loss is the difference between the purchase and sale price
   of a security.
  . If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.


 Tax Information

   You should contact your intermediary for the tax information that will be
   sent to you and reported to the IRS.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . The fund makes a distribution to your account.

   Taxes on fund redemptions
   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is still a sale for tax purposes.

   Taxes on fund distributions

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss must be reclassified to a long-term loss to the extent of any
   long-term capital gain distribution received during the period you held the
   shares. Gains and losses from the sale of foreign currencies and the foreign
   currency gain or loss resulting from the sale of a foreign debt security can
   increase or decrease an ordinary income dividend. Net foreign currency losses
   may cause monthly or quarterly dividends to be reclassified as a return of
   capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly




                                             11
   dividends to be reclassified as a return of capital. Entering into certain
   options, futures, swaps, and forward foreign exchange contracts and
   transactions may result in the application of the mark-to-market and straddle
   provisions of the Internal Revenue Code. These provisions could result in a
   fund being required to distribute gains on such transactions even though it
   did not close the contracts during the year or receive cash to pay such
   distributions. A fund may not be able to reduce its distributions for losses
   on such transactions to the extent of unrealized gains in offsetting
   positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain or dividend distribution
   If you buy shares shortly before or on the "record date" -  the date that
   establishes you as the person to receive the upcoming distribution - you will
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains or income and unrealized appreciation, which may
   result in future taxable distributions. Such distributions can occur even in
   a year when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.



 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------
 Purchase Conditions for Intermediaries

   Nonpayment

   If the fund receives a check or ACH transfer that does not clear or the
   payment is not received in a timely manner, your purchase may be canceled.
   Any losses or expenses incurred by the fund or transfer agent will be the
   responsibility of the intermediary. The fund and its agents have the right to
   reject or cancel any purchase, exchange, or redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.




T. ROWE PRICE                                 12
 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold
   If an intermediary sells shares that it just purchased and paid for by check
   or ACH transfer, the fund will process the redemption but will generally
   delay sending the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. (The 10-day hold does not apply to purchases paid for by
   bank wire.)

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.


 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.


   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of the fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

   You can make one purchase and one sale or one sale and one purchase involving
   the same fund within any 120-day period. If you exceed this limit or if you
   hold fund shares for less than 60 calendar days, you are in violation of our
   excessive trading policy. Systematic purchases and redemptions are exempt
   from this policy. Transactions accepted by intermediaries in violation of
   this excessive trading policy or from persons believed to be market timers
   are subject to rejection or cancellation by the funds.


 Signature Guarantees


   An intermediary may need to obtain a signature guarantee in certain
   situations and should consult its T. Rowe Price Financial Institution
   Services representative.

   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUND
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How is the fund organized?


   The fund was originally incorporated in Delaware in 1955 and was the first
   mutual fund to invest principally in equity securities traded in the OTC
   market. The fund was reincorporated in Pennsylvania in 1985 and was
   reorganized as a series of a Maryland corporation in 1988. Effective May 1,
   1997, the fund changed its name to the T. Rowe Price Small-Cap Stock Fund,
   Inc. The fund is a "diversified, open-end investment company," or mutual
   fund. Mutual funds pool money received from shareholders of each class into a
   single portfolio and try to achieve specified objectives. In 2000, the fund
   issued a separate class of shares

   known as the Advisor class.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:

  . Receive a proportional interest in income and capital gain distributions of
   the class.


   The income dividends for Small-Cap Stock Fund-Advisor Class shares will
   generally differ from those of the regular Small-Cap Stock Fund shares to the
   extent that the expense ratio of Small-Cap Stock Fund-Advisor Class shares
   differs.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract. Small-Cap Stock Fund-Advisor Class
   shareholders have

   exclusive voting rights on matters affecting only the Small-Cap Stock Fund-

   Advisor Class shares.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.




T. ROWE PRICE                                 14
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.


 Who runs the fund?

   General Oversight

   The fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).


   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by the fund's portfolio managers.

   Portfolio Management

   The fund has an Investment Advisory Committee with the following members:
   Gregory A. McCrickard, Chairman, Preston G. Athey, Brace C. Brooks, Hugh M.
   Evans III, Kris H. Jenner, Joseph Milano, Curt J. Organt, Charles G. Pepin,
   Michael F. Sola, J. David Wagner, and Wenhua Zhang. The committee chairman
   has day-to-day responsibility for managing the portfolio and works with the
   committee in developing and executing the fund's investment program. Mr.
   McCrickard has been chairman of the fund's committee since 1992. He joined T.
   Rowe Price in 1986 and has been managing investments since 1991.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.




                                             15

   The fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion


   at December . 31, 2001, the group fee was 0.32%. .  The individual fund fee
   is 0.45%.


 Distribution, Shareholder Servicing, and Recordkeeping Fees


   Small-Cap Stock Fund-Advisor Class has adopted a 12b-1 plan under which it
   pays a fee at the rate of up to 0.25% of its daily net assets per year to
   various intermediaries for distribution and servicing of its shares. These
   payments may be more or less than the costs incurred by the intermediaries.
   Because the fees are paid from the Advisor Class net assets on an ongoing
   basis, they will increase the cost of your investment and, over time, could
   result in your paying more than with other types of sales charges. The
   Advisor Class may also separately compensate intermediaries at a rate of up
   to 0.10% of daily net assets per year for various recordkeeping and transfer
   agent services they perform.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.




T. ROWE PRICE                                 16
 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.



 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.

   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.




                                             17
 Types of Portfolio Securities

   In seeking to meet its investment objective, the fund may invest in any type
   of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with its investment program. The following pages describe various
   types of fund securities and investment management practices.


   Fundamental policy  The fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.


   Fund investments are primarily in common stocks (normally, at least 80% of
   net

   assets) and, to a lesser degree, other types of securities as described
   below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.

   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such




T. ROWE PRICE                                 18
   investments increase a portfolio's diversification and may enhance return,
   but they also involve some special risks, such as exposure to potentially
   adverse local, political, and economic developments; nationalization and
   exchange controls; potentially lower liquidity and higher volatility;
   possible problems arising from accounting, disclosure, settlement, and
   regulatory practices that differ from U.S. standards; and the chance that
   fluctuations in foreign exchange rates will decrease the investment's value
   (favorable changes can increase its value). These risks are heightened for
   investments in developing countries, and there is no limit on the amount of
   fund foreign investments that may be made in such countries.

   Operating policy  Fund investments in foreign securities are limited to 10%
   of total assets.

   Fixed-Income Securities
   From time to time, we may invest in debt securities of any type, including
   municipal securities, without regard to quality or rating. Such securities
   would be purchased in companies, municipalities, or entities which meet the
   investment criteria for the fund. The price of a bond fluctuates with changes
   in interest rates, generally rising when interest rates fall and falling when
   interest rates rise.

   High-Yield, High-Risk Bonds
   The total return and yield of lower-quality (high-yield, high-risk) bonds,
   commonly referred to as "junk" bonds, can be expected to fluctuate more than
   the total return and yield of higher-quality, shorter-term bonds, but not as
   much as those of common stocks. Junk bonds (those rated below BBB or in
   default) are regarded as predominantly speculative with respect to the
   issuer's continuing ability to meet principal and interest payments.


   Operating policy  The fund may purchase any type of noninvestment-grade debt
   security (or junk bond) including those in default. The fund will not
   purchase this type of security if it would have more than 10% of its total
   assets invested in such securities. Fund investments in convertible
   securities are not subject to this limit.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.




                                             19
   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the fund may not achieve its investment objective. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a




T. ROWE PRICE                                 20
   predetermined price in the future. Futures and options contracts may be
   bought or sold for any number of reasons, including: to manage fund exposure
   to changes in securities prices and foreign currencies; as an efficient means
   of adjusting fund overall exposure to certain markets; in an effort to
   enhance income; to protect the value of portfolio securities; and as a cash
   management tool. Call or put options may be purchased or sold on securities,
   financial indi

   ces, and foreign currencies.


   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.




                                             21
   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The fund will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   fund's portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 3, which provides information about the class's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the class's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in the class (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the fund's
   independent accountants, PricewaterhouseCoopers LLP.




T. ROWE PRICE                                 22


 Table 3  Financial Highlights

                                       3/31/00*
                                        through   Year ended December 31
                                       12/31/00
                                       -----------         2001
 --------------------------------------           -----------------------------
                              

  Net asset value, beginning of
  period                               $24.93            $ 23.89
  Income From Investment Operations
  Net investment income                  0.07               0.04
                                 -----------------------------------------
  Net gains or losses on
  securities (both realized and          1.53               1.53
  unrealized)
                                 -----------------------------------------
  Total from investment
  operations                             1.60               1.57
  Less Distributions
  Dividends (from net                   (0.18)             (0.09)
  investment income)
                                       -----------------------------------
  Distributions (from capital           (2.46)             (0.05)
  gains)
                                 -----------------------------------------
  Returns of capital                       --                 --
                                       -----------------------------------
  Total distributions                   (2.64)             (0.14)
                                 -----------------------------------------
  Net asset value,                     $23.89            $ 25.32
  end of period
                                 -----------------------------------------
  Total return                           6.79%              6.60%
  Ratios/Supplemental Data
  Net assets, end of period (in        $7,479            $38,632
  thousands)
                                 -----------------------------------------
  Ratio of expenses to average           0.82%/a/           1.16%
  net assets
                                 -----------------------------------------
  Ratio of net income to                 0.85%/a/           0.26%
  average net assets
                                 -----------------------------------------
  Portfolio turnover rate                32.8%/a/           16.5%
 ------------------------------------------------------------------------------





 * Inception date.

 /a/      Annualized.


 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

The intermediary must provide us with its certified Social Security or tax
identification number (TIN). Otherwise, federal law requires the funds to
withhold a percentage (currently 30%) of dividends, capital gain distributions,
and redemptions, and may subject the intermediary or account holder to an IRS
fine. If this information is not received within 60 days after the account is
established, the account may be redeemed at the fund's NAV on the redemption
date.

                                                              The information in
                                                         this section is for use
                                     by intermediaries only. Shareholders of the
   Advisor Class should contact their intermediary for information regarding the
 intermediary's policies on purchasing, exchanging, and redeeming fund shares as
                             well as initial and subsequent investment minimums.
All initial and subsequent investments by intermediaries must be made by bank
wire.

Opening a New Account

$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts

Intermediaries should call Financial Institution Services for an account number
and assignment to a dedicated service representative and give the following wire
information to their bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number


Complete a New Account Form and mail it to one of the appropriate addresses
listed below. Intermediaries must also enter into a separate agreement with the
fund or its agent.

via U.S. Postal Service
T. Rowe Price Financial Institution Services
P.O. Box 17603
Baltimore, MD 21297-1603




T. ROWE PRICE                                 24
via private carriers/overnight services
T. Rowe Price Financial Institution Services
Four Financial Center
4515 Painters Mill Road
Owings Mills, MD 21117-4842



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum purchase; $50 minimum for retirement plans, Automatic Asset
Builder, and gifts or transfers to minors (UGMA/UTMA) accounts

                                                                         By Wire

Intermediaries should call Financial Institution Services or use the wire
instructions listed in Opening a New Account.

                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Intermediaries should call
their Financial Institution Services representative.

                                                                     Redemptions

Unless otherwise indicated, redemption proceeds will be wired to the
intermediary's designated bank. Intermediaries should contact their Financial
Institution Services representative.



 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to refuse
any purchase or exchange order; (2) to cancel or rescind any purchase or
exchange order (including, but not limited to, orders deemed to result in
excessive trading, market timing, fraud, or 5% ownership) upon notice to the
intermediary within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (3)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (4) to otherwise modify
the conditions of purchase and any services at any time; and (5) to act on




                                             25
instructions reasonably believed to be genuine. These actions will be taken
when, in the sole discretion of management, they are deemed to be in the best
interest of the fund.


In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.




T. ROWE PRICE                                 26

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, call your intermediary.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. Fund reports and other fund information are
available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. Copies of this information may be obtained, after paying a
duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the
Public Reference Room, Washington D.C. 20549-0102.
                                                       1940 Act File No. 811-696
                                                                 E265-040 5/1/02


PROSPECTUS

                                                                 May 1, 2002
T. ROWE PRICE

 Industry-Focused
 Equity Funds

 A family of stock funds seeking long-term capital growth by maintaining
 industry-focused portfolios.
(R)
 The Securities and Exchange Commission has not approved or disapproved these
 securities or passed upon the adequacy of this prospectus. Any representation
 to the contrary is a criminal offense.


T. Rowe Price Industry-Focused Equity Funds
  Developing Technologies Fund, Inc.
  Financial Services Fund, Inc.
  Global Technology Fund, Inc.
  Health Sciences Fund, Inc.
  Media & Telecommunications Fund, Inc.
  New Era Fund, Inc.
  Real Estate Fund, Inc.
  Science & Technology Fund, Inc.
Prospectus


May 1, 2002





      
1             ABOUT THE FUNDS
              Objective, Strategy, Risks, and Expenses      1
              -----------------------------------------------
              Other Information About the Funds            19
              -----------------------------------------------

              T. ROWE PRICE ACCOUNT INFORMATION
2
              Pricing Shares and Receiving                 24
              Sale Proceeds
              -----------------------------------------------
              Useful Information on Distributions          27
              and Taxes
              -----------------------------------------------
              Transaction Procedures and                   31
              Special Requirements
              -----------------------------------------------

3             MORE ABOUT THE FUNDS
              Organization and Management                  34
              -----------------------------------------------
              Understanding Performance Information        37
              -----------------------------------------------
              Investment Policies and Practices            38
              -----------------------------------------------
              Financial Highlights                         46
              -----------------------------------------------

4             INVESTING WITH T. ROWE PRICE
              Account Requirements                         55
              and Transaction Information
              -----------------------------------------------
              Opening a New Account                        56
              -----------------------------------------------
              Purchasing Additional Shares                 57
              -----------------------------------------------
              Exchanging and Redeeming Shares              58
              -----------------------------------------------
              Rights Reserved by the Funds                 60
              -----------------------------------------------
              Information About Your Services              60
              -----------------------------------------------
              T. Rowe Price Brokerage                      63
              -----------------------------------------------
              Investment Information                       64
              -----------------------------------------------
              T. Rowe Price Privacy Policy                 65
              -----------------------------------------------





 Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $156.3 billion for more than eight million
individual and institutional investor accounts as of December 31, 2001.
 Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.


 ABOUT THE FUNDS
 OBJECTIVE, STRATEGY, RISKS, AND EXPENSES
 ----------------------------------------------------------

 What is each fund's objective?

 Table 1  Industry-Focused Equity Funds Comparison Guide



                                                     
                                                                                                                 Expected risk relat
  Fund                                                  Objective                                                to one another
  Developing Technologies                               Long-term capital growth                                         Highest
                                                        .
                                                        ----------------------------------------------------------------------------
  Financial Services                                    Long-term growth of capital and a modest level of                 Higher
                                                        income.
                                                        ----------------------------------------------------------------------------
  Global Technology                                     Long-term capital growth.                                        Highest

                                                        ----------------------------------------------------------------------------
  Health Sciences                                       Long-term capital appreciation.                                  Highest

                                                        ----------------------------------------------------------------------------
  Media & Telecommunications                            Long-term capital growth (through the common stocks
                                                        of media, technology, and telecommunications                     Highest
                                                        companies).
                                                        ----------------------------------------------------------------------------
  New Era                                               Long-term capital growth (primarily through the stocks
                                                        of natural resource or basic commodity companies and             Moderate
                                                        also selected nonresource growth companies).
                                                        ----------------------------------------------------------------------------
  Real Estate                                           Long-term growth through a combination of capital                Moderate
                                                        appreciation and current income.
                                                        ----------------------------------------------------------------------------
  Science & Technology                                  Long-term capital appreciation.                                  Highest

 -----------------------------------------------------------------------------------------------------------------------------------





 What is each fund's principal investment strategy?

   The essential characteristics of each fund's investment strategy are
   summarized below. While each fund takes a unique approach, the funds share
   many strategies. None of the funds have a restriction on market
   capitalization-shares outstanding multiplied by share price-although (as
   described below) some concentrate assets on a particular market cap range.


 Developing Technologies Fund

 Investment Program

  . Invests at least 80% of net assets in common stocks of companies we expect
   to generate a majority of their revenues from the advancement and use of
   developing technologies. Our primary emphasis will be on emerging companies
   that are developing new technologies and services with attractive long-term
   growth prospects, in our view. The portfolio may also contain stocks of
   companies with more proven records of developing and marketing breakthroughs
   in technology.

  . We will invest across a broad range of small, medium, and large companies,
   although our initial emphasis will primarily be on emerging technology stocks





T. ROWE PRICE                                 2
   with higher growth potential than may be possible with established technology
   companies.


  . Stock selection emphasizes a growth approach based on comprehensive research
   that evaluates a company's prospects for above-average, sustainable earnings
   growth.

  . The fund will look for opportunities to invest in suitable developing
   technology companies through initial public offerings (IPOs). The portfolio
   may include companies that are not directly involved in technology research
   and development, but that should benefit from advances in the field.

  . Up to 30% of assets may be invested in foreign stocks of established and
   developing countries.

 Developing technology companies. Some of the industries likely to be included
 --------------------------------
 in the portfolio are:

  . communications - voice, data, and wireless;

  . Internet infrastructure - hardware, software, and networking equipment;

  . semiconductors - components and equipment;

  . computers - hardware and software; and

  . e-commerce (companies doing business through the Internet) and data
   processing services.


 Financial Services Fund

 Investment Program


  . Invests at least 80% of net assets in the common stocks of companies in the
   financial services industry. May also invest in companies deriving
   substantial revenues (at least 50%) from conducting business with the
   industry, such as providers of financial software.

  . Stock selection is based on fundamental, bottom-up analysis that seeks to
   identify companies with good appreciation prospects.


  . May use both growth and value approaches to stock selection. In the growth
   area, the manager seeks companies with capable management, attractive
   business niches, sound financial and accounting practices, and a demonstrated
   ability to increase revenues, earnings, and cash flow consistently. In the
   value area, the manager will seek companies whose current stock prices appear
   undervalued in terms of earnings, projected cash flow, or asset value per
   share, that have growth potential temporarily unrecognized by the market, or
   that may be temporarily out of favor.

  . Many fund holdings are expected to pay a dividend.




                                             3

 Financial services companies. For purposes of selecting investments, we define
 -----------------------------
 financial services broadly. It includes (but is not limited to) the following:


  . regional and money center banks;

  . insurance companies;

  . home, auto, and other specialty finance companies;

  . securities brokerage firms and electronic trading networks;

  . investment management firms;

  . publicly traded, government-sponsored financial enterprises;

  . thrift and savings banks;

  . financial conglomerates;

  . foreign financial services companies; and

  . electronic transaction processors for financial services companies.


 Global Technology Fund

 Investment Program


  . Invests at least 80% of net assets in the common stocks of companies we
   expect to generate a majority of their revenues from the development,
   advancement, and use of technology. Our primary emphasis will be on the
   common stocks of leading technology companies around the world. We normally
   expect to invest a minimum of 30% of the portfolio in established and
   emerging foreign markets and the balance in the U.S.

  . The growth of the Internet and the widespread availability of communications
   services are breaking down regional boundaries. Therefore, we will invest
   across a broad range of global enterprises.

  . Stock selection generally reflects a growth approach based on intensive
   research that assesses a company's fundamental prospects for above-average
   earnings.

  . Holdings can range from small, unseasoned companies developing new
   technologies to blue chip firms with established track records of developing
   and marketing technology. Investments may also include companies that should
   benefit from technological advances even if they are not directly involved in
   research and development.

  . The fund may invest in suitable technology companies through initial public
   offerings (IPOs).

 Global technology companies. Some of the industries and companies likely to be
 ----------------------------
 included in the portfolio are:

  . communications-voice, data, and wireless;

  . Internet infrastructure-hardware, software, and networking equipment;

  . semiconductors-components and equipment;

  . computer-hardware and software;




T. ROWE PRICE                                 4
  . e-commerce (companies doing business through the Internet) and data
   processing services; and

  . media and entertainment.


 Health Sciences Fund

 Investment Program


  . Invests at least 80% of net assets in the common stocks of companies engaged
   in the research, development, production, or distribution of products or
   services related to health care, medicine, or the life sciences (collectively
   termed "health sciences").

  . While the fund can invest in companies of any size, the majority of fund
   assets are expected to be invested in large- and mid-capitalization
   companies.


  . The fund will use fundamental, bottom-up analysis that seeks to identify
   high-
   quality companies and the most compelling investment opportunities.

  . In general, the fund will follow a growth investment strategy, seeking
   companies whose earnings are expected to grow faster than inflation and the
   economy in general. When stock valuations seem unusually high, however, a
   "value" approach that gives preference to seemingly undervalued companies may
   be emphasized.

 Health sciences companies. We divide the health sciences industry into four
 --------------------------
 main areas:

  . pharmaceuticals;
  . health care services companies;
  . products and devices providers; and
  . biotechnology firms.

   Our allocation among these four areas will vary depending on the relative
   potential we see within each area and the outlook for the overall health
   sciences sector.


 Media & Telecommunications Fund

   Investment Program


  . Invests at least 80% of net assets in the common stocks of media and
   telecommunications companies.

  . Generally, the fund invests in companies in the large- to mid-capitalization
   range.

  . Stock selection is based on fundamental, bottom-up analysis that seeks to
   identify companies with good appreciation prospects.




                                             5
  . May use both growth and value approaches to stock selection. In the growth
   area, the manager seeks companies with capable management, attractive
   business niches, sound financial and accounting practices, and a demonstrated
   ability to increase revenues, earnings, and cash flow consistently. In the
   value area, the manager seeks companies whose current stock prices appear
   undervalued in terms of earnings, projected cash flow, or asset value per
   share, that have growth potential temporarily unrecognized by the market, or
   whose stock prices may be temporarily depressed.

   Media and telecommunications companies. These include companies engaged in
   ---------------------------------------
   any facet of media and telecommunications, including:

  . publishing;
  . movies;
  . cable TV;
  . telephones;
  . cellular services; and
  . technology and equipment.


 New Era Fund

 Investment Program

  . Normally invests a minimum of two-thirds of fund assets in the common stocks
   of natural resource companies whose earning and tangible assets could benefit
   from accelerating inflation.

  . Will also invest in other growth companies with strong potential for
   earnings growth that do not own or develop natural resources.

  . The relative percentages invested in resource and nonresource companies can
   vary depending on economic and monetary conditions and our outlook for
   inflation.

  . When selecting natural resource stocks, we look for companies whose products
   can be produced and marketed profitably when both labor costs and prices are
   rising. In the mining area, for example, we might look for a company with the
   ability to expand production and maintain superior exploration programs and
   production facilities.

  . At least half of fund assets will be invested in U.S. securities, but up to
   50% of total assets may be invested in foreign securities.

 Natural resource companies. The fund's natural resource holdings typically own,
 ---------------------------
 develop, refine, service, or transport resources, including:

  . energy;
  . metals;
  . forest products;




T. ROWE PRICE                                 6
  . real estate; and
  . other basic commodities.

 Real Estate Fund

 Investment Program

  . Normally invests at least 80% of net assets in the equity securities of real
   estate companies.

  . Our definition of real estate companies is broad and includes those that
   derive at least 50% of revenues or profits from, or commit at least 50% of
   assets to, real estate activities.

  . Up to 20% of fund assets may be invested in companies deriving a substantial
   portion of revenues or profits from servicing real estate firms, as well as
   in companies unrelated to the real estate business.

  . The fund will not own real estate directly.

  . Stock selection is based on fundamental, bottom-up analysis that generally
   seeks to identify high-quality companies with both good appreciation
   prospects and income-producing potential.

  . Factors considered by the portfolio manager in selecting stocks include
   relative valuation, free cash flow, undervalued assets, quality and
   experience of management, type of real estate owned, and the nature of a
   company's real estate activities.

 Real estate companies. The fund is likely to maintain a significant portion of
 ----------------------
 assets in real estate investment trusts (REITs). REITs pool money to invest in
 properties (equity REITs) or mortgages (mortgage REITs). The fund generally
 invests in equity REITs. Other investments in real estate may include:

  . real estate operating companies, brokers, developers, and builders of
   residential, commercial, and industrial properties;
  . property management firms;
  . finance, mortgage, and mortgage servicing firms;
  . construction supply and equipment manufacturing companies; and
  . firms dependent on real estate holdings for revenues and profits, including
   lodging, leisure, timber, mining, and agriculture companies.

 Science & Technology Fund

 Investment Program


  . Invests at least 80% of net assets in the common stocks of companies
   expected to benefit from the development, advancement, and use of science
   and/or technology.




                                             7
  . Holdings can range from small, unseasoned companies developing new
   technologies to blue chip firms with established track records of developing
   and marketing technology.

  . May also invest in companies that should benefit from technological advances
   even if they are not directly involved in research and development.


  . Stock selection generally reflects a growth approach based on intensive
   research that assesses a company's fundamental prospects for above-average
   earnings.

 Science and technology companies. Some of the industries likely to be included
 ---------------------------------
 in the portfolio are:

  . electronics, including hardware, software, and components;

  . communications;

  . e-commerce (companies doing business through the Internet);

  . information services;

  . media;

  . life sciences and health care;

  . environmental services;


  . chemicals and synthetic materials; and

  . defense and aerospace.

  . The fund may invest in suitable technology companies through initial public
   offerings (IPOs).


 All funds

   In pursuing its investment objective, each fund's management has the
   discretion to purchase some securities that do not meet its normal investment
   criteria, as described above, when it perceives an unusual opportunity for
   gain. These special situations might arise when the fund's management
   believes a security could increase in value for a variety of reasons,
   including a change in management, an extraordinary corporate event, or a
   temporary imbalance in the supply of or demand for the securities.

   While most assets will be invested in U.S. common stocks (except as noted
   above

   for Global Technology Fund), other securities may also be purchased,
   including foreign stocks, futures, and options, in keeping with fund
   objectives.

   Securities may be sold for a variety of reasons, such as to secure gains,
   limit losses, or redeploy assets into more promising opportunities.


   3 For details about each fund's investment program, please see the Investment
     Policies and Practices section.




T. ROWE PRICE                                 8
 What are the main risks of investing in the funds?


   As with all equity funds, each fund's share price can fall because of
   weakness in the broad market, a particular industry, or specific holdings.
   The market as a whole can decline for many reasons, including adverse
   political or economic developments here or abroad, changes in investor
   psychology, or heavy institutional selling. The prospects for an industry or
   company may deteriorate because of a variety of factors, including
   disappointing earnings or changes in the competitive environment. In
   addition, our assessment of companies held in the funds may prove incorrect,
   resulting in losses or poor performance even in a rising market. Finally,
   each fund's investment approach could fall out of favor with the investing
   public, resulting in lagging performance versus other types of stock funds.


   The funds are exposed to additional risks, such as those associated with the
   qualities of the industries they invest in, that could adversely affect their
   share prices. These risks are summarized as follows.


 Developing Technologies Fund

  . An investment in the fund entails substantial risk. Technology stocks are
   particularly volatile and subject to greater price swings, up and down, than
   the broad market. Therefore, the prospects for superior gains are balanced by
   the possibility of above-average losses.

  . It is possible that companies whose products and services first appear
   promising may not succeed over the long term; they may succumb to intense
   competition or could quickly become obsolete in a rapidly developing
   marketplace.

  . Earnings projections for developing companies that are not met can result in
   sharp price declines. This is true even in a generally rising stock market
   environment.

  . A portfolio focused primarily on these types of stocks is likely to be much
   more volatile than one with broader diversification that includes investments
   in diverse economic sectors. These risks are increased by significant
   exposure to smaller, unseasoned companies (those with less than a three-year
   operating history), and newly public companies. These companies may not have
   established products, experienced management, or an earnings history and
   their stocks may lack liquidity.

  . Foreign stock holdings are subject to the risk that some holdings may lose
   value because of the declining foreign currencies, political instability,
   economic decline, illiquid markets, and governmental interference associated
   with various foreign markets, especially developing ones.




                                             9
 Financial Services Fund


  . Since the fund will be concentrated in the financial services industry, it
   will be less diversified than stock funds investing in a broader range of
   industries and, therefore, could experience significant volatility.
   Generally, the fund represents greater potential risk than a more diversified
   fund, although the dividends paid by financial services companies moderate
   this risk to some extent.

  . Financial services companies may be hurt when interest rates rise sharply,
   although not all companies are affected equally. The stocks may also be
   vulnerable to rapidly rising inflation.

  . Many companies in this field can possess growth characteristics, but the
   industry is not generally perceived to be dynamic or aggressive, which could
   dampen fund performance compared with more aggressive funds.

  . The fund's investments in growth stocks could result in greater volatility
   because of the generally higher valuations of these stocks. The fund's use of
   the value approach carries the risks that the market will not recognize a
   security's intrinsic value for a long time, or that a stock judged to be
   undervalued may actually be appropriately priced.


 Global Technology Fund

  . Since this fund is focused on technology industries, it is less diversified
   than stock funds investing in a broader range of industries and, therefore,
   could experience significant volatility.

  . Technology stocks historically have experienced unusually wide price swings,
   both up and down. The potential for wide variation in performance reflects
   the special risks common to companies in the rapidly changing field of
   technology. For example, products or services that at first appear promising
   may not prove commercially successful or may become obsolete quickly.
   Earnings disappointments and intense competition for market share can result
   in sharp price declines.


  . The level of risk will rise to the extent that the fund has significant
   exposure to smaller, unseasoned (those with less than a three-year operating
   history), and newly public companies. These companies may not have
   established products, experienced management, or an earnings history, and
   their stocks may lack liquidity and be very volatile.

  . Since the fund will invest a sizable portion of its assets in foreign
   securities, it will be subject to the risk that some holdings will lose value
   because of the declining foreign currencies, political instability, economic
   decline, illiquid markets, and governmental interference associated with
   various foreign markets, especially developing ones.




T. ROWE PRICE                                 10
 Health Sciences Fund


  . Since this fund is concentrated in the health sciences industry, it is less
   diversified than stock funds investing in a broader range of industries and,
   therefore, could experience significant volatility. It may invest a
   considerable portion of assets in companies in the same business, such as
   pharmaceuticals, or in related businesses, such as hospital management and
   managed care.

  . Developments that could adversely affect the fund's share price include:
   increased competition within the health care industry, changing legislation
   and government regulation, reductions in government funding, product
   liability or other litigation, or the obsolescence of popular products.

  . Growth stocks can have steep declines if their earnings disappoint
   investors. The value approach carries the risk that the market will not
   recognize a security's intrinsic value for a long time, or that a stock
   judged to be undervalued may actually be appropriately priced.

  . The level of risk will be increased to the extent that the fund has
   significant exposure to smaller or unseasoned companies (those with less than
   a three-year operating history) which may not have established products or
   more experienced management.


 Media & Telecommunications Fund


  . Since the fund is focused on the media and telecommunications industries, it
   is less diversified than stock funds investing in a broader range of
   industries and, therefore, could experience significant volatility.

  . Companies in these industries are subject to the risks of rapid
   obsolescence, lack of investor or consumer acceptance, lack of
   standardization or compatibility with existing technologies, an unfavorable
   regulatory environment, intense competition, and a dependency on patent and
   copyright protection. Likewise, if the portfolio has substantial exposure to
   mid-cap companies, it would be subject to the greater volatility of those
   stocks compared with larger companies.

  . Growth stocks can have steep declines if their earnings disappoint
   investors. The value approach carries the risk that the market will not
   recognize a security's intrinsic value for a long time, or that a stock
   judged to be undervalued may actually be appropriately priced.


  . Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies, political instability,
   economic decline, illiquid markets, and governmental interference associated
   with various foreign markets, especially developing ones.




                                             11
 New Era Fund

  . The fund is less diversified than most stock funds and could therefore
   experience sharp price declines when conditions are unfavorable to its
   sector. For instance, since the fund attempts to invest in companies that may
   benefit from accelerating inflation, low inflation could lessen returns.

  . The rate of earnings growth of natural resource companies may be irregular
   since these companies are strongly affected by natural forces, global
   economic cycles, and international politics. For example, stock prices of
   energy companies can fall sharply when oil prices fall and real estate
   companies are influenced by interest rates and other factors.

  . The fund's investments in foreign securities, or even in U.S. companies with
   significant overseas investments, are also subject to the risks of foreign
   investing. Currency risks may be somewhat reduced because many commodities
   markets are dollar based, but exposure to foreign political and economic risk
   is heightened by investments in companies with operations in emerging
   markets.


 Real Estate Fund

  . The fund is concentrated in the real estate industry and, as a result, is
   less diversified than stock funds investing in a broader range of industries.
   Therefore, its price could fall in value when trends are perceived as
   unfavorable for the real estate industry, although the income offered by some
   real estate companies may help moderate this risk. For example, changes in
   the tax laws, overbuilding, environmental issues, the quality of property
   management (in the case of REITs), and other factors could hurt the fund.

  . Real estate is affected by general economic conditions. When growth is
   slowing, demand for property decreases and prices may decline. Rising
   interest rates, which drive up mortgage and financing costs, can restrain
   construction and buying and selling activity and may reduce the appeal of
   real estate investments.


  . If the portfolio has substantial exposure to small companies, it would be
   subject to the greater volatility of small-cap stocks.


 Science & Technology Fund


  . Companies in the rapidly changing fields of science and technology often
   face unusually high price volatility, both in terms of gains and losses.
   Products or services that at first appear promising may not prove
   commercially successful or may become obsolete quickly. Earnings
   disappointments and intense competition for market share can result in sharp
   price declines. A portfolio focused primarily on these stocks is therefore
   likely to be much more volatile than one with broader diversification that
   includes investments in more economic sectors.

  . The level of risk will rise to the extent that the fund has significant
   exposure to smaller, unseasoned companies (those with less than a three-year
   operating his-




T. ROWE PRICE                                 12
   tory), and newly public companies. These companies may not have established
   products, experienced management, or an earnings history, and their stocks
   may lack liquidity and be very volatile.


 All funds

   Foreign stock holdings are subject to the risk that some holdings may lose
   value because of declining foreign currencies or adverse political or
   economic events overseas. Investments in futures and options, if any, are
   subject to additional volatility and potential losses.

   As with any mutual fund, there can be no guarantee the funds will achieve
   their objectives.


   3 Each fund's share price may decline, so when you sell your shares, you may
     lose money.


 How can I tell which fund is most appropriate for me?

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. If you can accept the risks of investing in a single
   industry, one or more of the following may be an appropriate way to
   incorporate additional exposure to a particular industry into a diversified
   portfolio.


   Developing Technologies Fund could be an appropriate part of your overall
   investment strategy if you seek a very aggressive approach to capital growth
   through investments in companies involved with newer, developing
   technologies, and can accept the potential for extreme volatility.

   Financial Services Fund could be an appropriate part of your overall
   investment strategy if you seek the potential for significant capital growth,
   and wish to participate in the growth prospects of the financial services
   sector.

   Global Technology Fund could be an appropriate part of your overall
   investment strategy if you seek an aggressive approach to capital growth
   through investment in worldwide technology stocks, and can accept the
   potential for above-average price fluctuations.


   Health Sciences Fund could be an appropriate part of your overall investment
   strategy if you seek an aggressive approach to capital growth through
   investment in health sciences stocks, and can accept the potential for
   above-average price fluctuations.

   Media & Telecommunications Fund could be an appropriate part of your overall
   investment strategy if you are willing to accept the risks of investing in a
   limited group of industries in pursuit of long-term capital growth.




                                             13
   New Era Fund could be an appropriate part of your overall investment strategy
   if you are willing to accept the risks of investing in U.S. and foreign
   companies whose earnings are especially influenced by worldwide economic and
   monetary conditions in pursuit of long-term capital growth.

   Real Estate Fund could be an appropriate part of your overall investment
   strategy if you are willing to accept the risks of investing in this industry
   in an effort to achieve long-term capital growth and income.

   Science & Technology Fund could be an appropriate part of your overall
   investment strategy if you seek an aggressive approach to capital growth
   through investment in science and technology stocks, and can accept the
   potential for above-average price fluctuations.

   The fund or funds you select should not represent your complete investment
   program or be used for short-term trading purposes.

   They can be used in both regular and tax-deferred accounts, such as IRAs.


   3 Equity investors should have a long-term investment horizon and be willing
     to wait out bear markets.


 How has each fund performed in the past?


   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and how fund performance compares with that of a
   comparable market index. Fund past returns (before and after taxes) are not
   necessarily an indication of future performance.

   The funds can also experience short-term performance swings, as shown by the
   best and worst calendar quarter returns during the years depicted.

   In addition, the average annual total return table shows hypothetical
   after-tax returns to suggest how taxes paid by the shareholder may influence
   returns. Actual after-tax returns depend on each investor's situation and may
   differ from those shown. After-tax returns are not relevant if the shares are
   held in a tax-deferred account, such as a 401(k) or IRA. During periods of
   fund losses, the post-liquidation after-tax return may exceed the fund's
   other returns because the loss generates a tax benefit that is factored into
   the result.




T. ROWE PRICE                                 14






                                             1



                                              Calendar Year Total Returns
         Fund            "92"   "93"   "94"   "95"   "96"   "97"   "98"    "99"     "00"   "01"
 ------------------------------------------------------------------------------------------------
                                                           
  Financial Services      --     --     --     --     --  41.44   11.55    1.70    36.76  -3.13
  Global Technology     --    --     --     --     --    --         --         --       --        -36.07
  Health Sciences          --     --     --     --  26.75  19.41   22.37    7.97    52.19  -5.97
  Media &
  Telecommunications    --     --  -0.90  43.29   1.78  28.05   35.14   93.09   -25.11  -6.93
  New Era                2.08  15.33   5.17  20.76  24.25  10.96   -9.88   21.22    20.37  -4.35
  Real Estate             --     --     --     --     --     --  -14.86   -1.23    31.92  8.87
  Science & Technology  18.76  24.25  15.79  55.53  14.23   1.71   42.35  100.99   -34.19  -41.19
 ------------------------------------------------------------------------------------------------


 Financial Services Fund          Quarter ended   Total return
  Best quarter                                    9/30/00              22.76%
  Worst quarter                                9/30/98             -20.07%

 Global Technology Fund       Quarter ended   Total return
  Best quarter                                12/31/01             39.71%
  Worst quarter                             9/30/01                -39.39%

 Health Sciences Fund             Quarter ended   Total return
  Best quarter                                  6/30/01              22.24%
  Worst quarter                               3/31/01              -25.39%

 Media & Telecommunications Fund  Quarter ended   Total return
  Best quarter                            12/31/99        41.63%
  Worst quarter                           9/30/98       -18.64%

 New Era Fund                     Quarter ended   Total return
  Best quarter                               6/30/99        15.01%
  Worst quarter                           9/30/98       -12.41%

 Real Estate Fund                 Quarter ended   Total return
  Best quarter                                6/30/00        12.34%
  Worst quarter                             9/30/98       -10.95%

 Science & Technology Fund        Quarter ended   Total return
  Best quarter                                           12/31/98        47.89%
  Worst quarter                                        9/30/01       -40.28%


T. ROWE PRICE                                 16




 Table 2  Average Annual Total Returns

                                             Periods ended
                                           December 31, 2001
                                           Shorter of 10 years
                         1 year   5 years  or since inception    Inception date
 ------------------------
                      
  Developing Technologies Fund
  Returns before taxes   -30.58%       -         -40.49%            8/31/00
  Returns after taxes
  on distributions       -30.58        -         -40.68
  Returns after taxes
  on distributions and
  sale of fund shares    -18.62        -         -31.84
  S&P 500 Stock Index    -11.89        -         -17.86
  Lipper Science &
  Technology Fund Index  -34.72        -         -51.31
  Financial Services Fund
  Returns before taxes    -3.13    16.28          18.24             9/30/96
  Returns after taxes
  on distributions        -5.08    14.76          16.75
  Returns after taxes
  on distributions and
  sale of fund shares     -0.49    13.12          14.88
  S&P 500 Stock Index    -11.89    10.70          11.85
  Lipper Financial
  Services Fund Index     -6.79    12.07          13.91
  Global Technology Fund
  Returns before taxes   -36.07        -         -44.77             9/29/00
  Returns after taxes
  on distributions       -36.07        -         -44.77
  Returns after taxes
  on distributions and
  sale of fund shares    -21.97        -         -35.23
  S&P 500 Stock Index    -11.89        -         -15.28
  Lipper Science &
  Technology Fund Index  -34.72        -         -49.39/a/
  Health Sciences Fund
  Returns before taxes    -5.97    17.69          19.14             12/29/95
  Returns after taxes
  on distributions        -6.49    15.56          17.09
  Returns after taxes
  on distributions and
  sale of fund shares     -3.59    13.95          15.36
  S&P 500 Stock Index    -11.89    10.70          12.64
  Lipper
  Health/Biotechnology   -10.46    16.61         15.99/b/
  Fund Index
 -------------------------------------------------------------------------------
  Media & Telecommunications Fund
  Returns before taxes    -6.93    18.42          15.55             10/13/93
  Returns after taxes
  on distributions        -6.93    15.15          12.48
  Returns after taxes
  on distributions and
  sale of fund shares     -4.22    14.70          12.12
  S&P 500 Stock Index    -11.89    10.70          13.82
  Lipper
  Telecommunications
  Funds Average          -39.22     8.32          7.37/c/
  New Era Fund
  Returns before taxes    -4.35     6.89          10.00             1/20/69
  Returns after taxes
  on distributions        -5.58     4.30           7.47
  Returns after taxes
  on distributions and
  sale of fund shares     -2.33     4.76           7.31
  S&P 500 Stock Index    -11.89    10.70          12.94
  Lipper Natural
  Resources Fund Index   -12.58     5.88           9.75
  Real Estate Fund
  Returns before taxes     8.87        -           6.54             10/31/97
  Returns after taxes
  on distributions         6.72        -           4.67
  Returns after taxes
  on distributions and
  sale of fund shares      5.35        -           4.27
  Wilshire Real Estate
  Securities Index/d/     10.45        -           4.55
  Lipper Real Estate
  Fund Index              10.12        -           3.30
  Science & Technology Fund
  Returns before taxes   -41.19     2.41          13.08             9/30/87
  Returns after taxes
  on distributions       -41.19     0.23          10.25
  Returns after taxes
  on distributions and
  sale of fund shares    -25.08     2.60          10.75
  S&P 500 Stock Index    -11.89    10.70          12.94
  Lipper Science &       -34.72     9.06          13.84
  Technology Fund Index
 -------------------------------------------------------------------------------








                                             17

 Returns are based on changes in principal value, reinvested dividends, and
 capital gain distributions, if any. Returns before taxes do not reflect effects
 of any income or capital gains taxes. All after-tax returns are calculated
 using the historical highest individual federal marginal income tax and capital
 gains rates. They do not reflect the impact of state and local taxes. Returns
 after taxes on distributions reflect the taxed return on the payment of
 dividends and capital gains. Returns after taxes on distributions and sale of
 fund shares assume the shares were sold at period end, and, therefore, are also
 adjusted for any capital gains or losses incurred by the shareholder. Market
 indexes do not include expenses, which are deducted from fund returns, or
 taxes.

 /a /Since 9/30/00.

 /b/       Since 12/31/95.


 /c/       Since 10/14/93.

 /d/       Wilshire data calculated as of 1/9/02.




T. ROWE PRICE                                 18
 What fees or expenses willI pay?


   The funds are 100% no load. The Developing Technologies Fund charges a 1.00%
   redemption fee, payable to the fund, on shares held less than one year. The
   Real Estate Fund charges a 1.00% redemption fee, payable to the fund, on
   shares held less than six months. There are no other fees or charges to buy
   or sell fund shares, reinvest dividends, or exchange into other T. Rowe Price
   funds. There are no 12b-1 fees.


 Table 3  Fees and Expenses of the Funds*

                        Shareholder fees (fees
                      paid directly from your                 Annual fund operating expenses
                            investment)                (expenses that are deducted from fund assets)
                                                                      Total annual    Fee waiver/
                            Redemption         Management   Other    fund operating     expense       Net
        Fund                    fee               fee      expenses     expenses     reimbursement  expenses
                   

  Developing                   1.00%/a/          0.92%      1.19%        2.11%           0.61%/b/    1.50%/b/
  Technologies
                      ----------------------------------------------------------------------------------------
  Financial Services             --              0.67       0.30         0.97              --          --
                      ----------------------------------------------------------------------------------------
  Global Technology              --              0.77       0.92//       1.69//         0.19/c/     1.50/c/
                      ----------------------------------------------------------------------------------------
  Health Sciences                --              0.67       0.35         1.02              --          --
                      ----------------------------------------------------------------------------------------
  Media &                        --              0.67       0.41         1.08              --          --
  Telecommunications
                      ----------------------------------------------------------------------------------------
  New Era                        --              0.57       0.15         0.72              --          --
                      ----------------------------------------------------------------------------------------
  Real Estate                 1.00/d/            0.62       0.63         1.25//         0.25/e/     1.00/e/
                      ----------------------------------------------------------------------------------------
  Science &                      --              0.67       0.33         1.00              --          --
  Technology
 ------------------------------------------------------------------------------------------------------------------





 * Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee
   paid to the fund. Accounts with

   less than a $2,000 balance (with certain exceptions) are subject to a $10
   fee. See Transaction Procedures and

   Special Requirements - Account Maintenance and Small Account Fees.

 /a/
   On shares purchased and held for less than one year (details under Contingent
   Redemption Fee in Pricing Shares and Receiving Sale Proceeds).

 /b/
   To limit the fund's expenses during its initial period of operations, T. Rowe
   Price has contractually obligated itself to waive fees and bear any expenses
   through December 31, 2002, that would cause the ratio of expenses to average
   net assets to exceed 1.50%. Fees waived or expenses paid or assumed under
   this agreement are subject to reimbursement to T. Rowe Price by the fund
   whenever the fund's expense ratio is below 1.50%; however, no reimbursement
   will be made after December 31, 2004, or if it would result in the expense
   ratio exceeding 1.50%.

 /c/
   To limit the fund's expenses during its initial period of operations, T. Rowe
   Price has contractually obligated itself to waive fees and bear any expenses
   through December 31, 2002, that would cause the ratio of expenses to average
   net assets to exceed 1.50%. Fees waived or expenses paid or assumed under
   this agreement are subject to reimbursement to T. Rowe Price by the fund
   whenever the fund's expense ratio is below 1.50%; however, no reimbursement
   will be made after December 31, 2004, or if it would result in the expense
   ratio exceeding 1.50%.

 /d /On shares purchased and held for less than six months (details under
   Contingent Redemption Fee in Pricing Shares and Receiving Sale Proceeds).

 /e/Effective January 1, 2002, T. Rowe Price contractually obligated itself to
   waive any fees and bear any expenses through December 31, 2003, to the extent
   that such fees and expenses would cause the fund's ratio of expenses to
   average net assets to exceed 1.00%. Fees waived or expenses paid or assumed
   under this agreement are subject to reimbursement to T. Rowe Price whenever
   the fund's expense ratio is below 1.00%; however, no reimbursement will be
   made after December 31, 2005, or if it would result in the expense ratio
   exceeding 1.00%. Any amounts reimbursed will have the effect of increasing
   fees otherwise paid by the fund. The fund operated under a previous expense
   limitation for which T. Rowe Price may be reimbursed.




                                             19

   Example.  The following table gives you an idea of how expense ratios may
   translate into dollars and helps you to compare the cost of investing in
   these funds with that of other mutual funds. Although your actual costs may
   be higher or lower, the table shows how much you would pay if operating
   expenses remain the same, the expense limitation currently in place is not
   renewed (if applica

   ble), you invest $10,000, earn a 5% annual return, and hold the investment
   for the following periods and then redeem:




     Fund                        1 year  3 years  5 years  10 years
    ----------------------------------------------------------------------
                              
     Developing Technologies      $153    $602    $1,078    $2,393
                                 ------------------------------------
     Financial Services             99     309       536     1,190
                                 ------------------------------------
     Global Technology             153     514       900     1,982
                                 ------------------------------------
     Health Sciences               104     325       563     1,248
                                 ------------------------------------
     Media & Telecommunications    110     343       595     1,317
                                 ------------------------------------
     New Era                        74     230       401       894
                                 ------------------------------------
     Real Estate                   102     346       637     1,466
                                 ------------------------------------
     Science & Technology          102     318       552     1,225
    ----------------------------------------------------------------------






 OTHER INFORMATION ABOUT THE FUNDS
 ----------------------------------------------------------

 What are some of the funds' potential rewards?


 Developing Technologies Fund

   The fund's program reflects the view of T. Rowe Price that companies
   benefiting from developing technologies offer significant opportunities for
   outstanding long-term growth. As the information revolution continues to
   overshadow the industrial revolution, new companies are emerging that will
   become the blue chip leaders of the future. Companies offering innovative new
   products and services in a dynamic marketplace driven by entrepreneurial
   energy can enjoy exceptional growth, which is often reflected in rapidly
   rising stock prices. Of course, the intense competition for market share
   often results in sharp stock price volatility.


 Financial Services Fund

   The fund's investment program reflects the view of T. Rowe Price that several
   trends in financial services offer opportunities for significant long-term
   capital appreciation. For investors who currently have a broad exposure to
   equities, the fund provides a way to focus on an area of the economy
   undergoing substantial change as well as rapid growth in a number of fields,
   such as asset management.




T. ROWE PRICE                                 20
   The potential rewards of investing in such a focused fund include higher
   returns than the overall market. However, the fund also has the potential for
   greater losses than the overall market if these sectors do not perform well.


 Global Technology Fund

   The fund's program reflects the view of T. Rowe Price that companies
   benefiting from rapid advances in technology throughout the world offer
   significant opportunities for superior long-term growth. Leading global
   companies providing
   cutting-edge products and services enjoy the potential for exceptional
   growth, which is often reflected in rapidly rising stock prices.


 Health Sciences Fund

   The fund's program reflects the view of T. Rowe Price that rapid advances in
   the health care, medicine, and life sciences fields offer substantial
   opportunities for superior long-term capital appreciation. The health care
   field is experiencing unprecedented change, and there have been significant
   efforts by consumers, corporations, insurers, and governments to slow
   escalating costs. At the same time, the aging of the American population
   could result in a higher portion of gross domestic product being spent on
   health care and medicine in the future. Industry consolidation, the shift
   from medical treatment to prevention, quicker approval of new drugs, the
   possible restructuring of Medicare/Medicaid, and the prolonging of life
   through new technology are major forces transforming health sciences
   companies. These factors could present very favorable prospects over the long
   term for companies that can provide quality products and services at a
   competitive price.


 Media & Telecommunications Fund

   T. Rowe Price believes that trends in the media and telecommunications
   industries offer opportunities for significant long-term capital
   appreciation. For investors who currently have a broad exposure to equities,
   the fund provides a way to invest in the media and telecommunications
   field-an area of the economy undergoing substantial change with the potential
   for rapid growth.

   The fund may benefit from companies operating in the following areas:

  . Media  These companies create, own, and distribute various forms of printed,
   visual, and audio content, as well as information databases that they sell or
   lease to others. Examples include newspaper, magazine, and book publishers,
   movie and television studios, advertising agencies, radio and television
   broadcasters, as well as cable television and direct satellite broadcast
   system operators.


  . Telecommunications Services  These companies own and operate both wired and
   wireless networks that transport both voice and data traffic. Examples
   include incumbent providers of domestic and international telephone services,
   regional and long distance operators, new entrants into the telecom industry
   including




                                             21
   competitive local exchange carriers, broadband service providers, and data
   services companies, as well as cellular wireless operators.


  . Technology  These companies provide the underlying enabling technologies for
   the dynamic changes taking place in the media and telecommunications
   industries. They manufacture hardware, software, or components or provide
   services used by media and telecommunications products and services. Examples
   include telecommunications equipment vendors, semiconductor manufacturers,
   software developers, hardware suppliers, and information technology services
   companies.


 New Era Fund

   The fund is designed to protect investors against inflation and to provide a
   way to participate in the global demand for natural resources. By investing
   in companies that may prosper in periods of high inflation or strong global
   demand by raising prices while controlling costs, the fund hopes to provide
   significant long-term capital appreciation.

   Foreign stock markets offer increasing opportunities for natural
   resource-related investments for several reasons. First, the worldwide trend
   toward privatization of government-owned enterprises, many of which involve
   commodities, opens up new areas for private investors. Second, the
   exploration and development of natural resources is expanding faster outside
   the U.S. than within, and some countries that previously refused to accept
   outside capital now welcome it. Finally, the demand for natural resources in
   many emerging markets is expected to grow over time.


 Real Estate Fund

   The stocks of companies engaged in the real estate area could provide
   significant long-term total return. At different times, the market may favor
   one type of real estate investment over another, and the fund's flexible
   investment charter enables it to seek opportunities wherever they exist in
   the industry. Both capital appreciation (or depreciation) and current income
   should be important components of total return, and the contribution made by
   each at any time will depend on the composition of the portfolio and market
   conditions.

   Other potential benefits include:

  . Diversification  While the long-term returns from real estate stocks have
   been attractive, periods of strong performance have not always coincided with
   those of the broad market. Therefore, real estate stocks may provide
   beneficial diversification when combined with other stocks and asset classes
   in an investment portfolio;




T. ROWE PRICE                                 22
  . Current income  Many real estate stocks, including REITs, pay relatively
   high dividends, which could serve to cushion a portfolio's overall return in
   a general market decline; and

  . Inflation hedge  Historically, real estate has tended to appreciate during
   times of accelerating inflation. Therefore, a fund investing in real estate
   companies may provide a hedge against inflation.


 Science & Technology Fund

   The fund's program reflects the view of T. Rowe Price that rapid advances in
   science and technology offer substantial opportunities for superior long-term
   capital appreciation. As leading-edge products and services gain acceptance,
   the companies behind them often enjoy exceptional growth. This growth is
   often reflected in rising stock prices. Of course, rapidly changing product
   cycles and intense competition can make these stocks volatile, as noted
   earlier in the risk discussion.


 Additional Information regarding the Real Estate Fund


 What is a REIT?

   The fund may invest a substantial portion of its assets in real estate
   investment trusts or REITs, which are pooled investment vehicles that
   typically invest directly in real estate, in mortgages and loans
   collateralized by real estate, or in a combination of the two. "Equity" REITs
   invest primarily in real estate that produces income from rentals. "Mortgage"
   REITs invest primarily in mortgages and derive their income from interest
   payments.

   The types of properties owned, and sometimes managed, by REITs include:



                                                                     
   . office buildings                                                     . health care facilities
   . apartments and condominiums                                          . manufactured housing
   . retail properties                                                    . self-storage facilities
   . industrial and commercial sites                                      . golf courses
   . hotels and resorts                                                   . special use facilities



   REITs usually specialize in a particular type of property and may concentrate
   their investments in particular geographical areas. For this reason and
   others,
   a fund investing in REITs provides investors with an efficient, low-cost
   means of diversifying among various types of property in different regions.




                                             23
 Important note on tax reporting for the Real Estate Fund

   Distributions from the Real Estate Fund will not be included in your
   consolidated 1099-DIV that we send to you in January of each year. The Real
   Estate Fund's distributions will be reported on a separate 1099-DIV mailed to
   you in February. The reasons for this are:

  . A sizable portion of the dividends paid by REITs may represent a return of
   capital. Consequently, a portion of the fund's distributions may also
   represent a return of capital. Return of capital distributions are not
   taxable to you, but you must deduct them from the cost basis of your
   investment in the fund. Returns of capital are listed as "nontaxable
   distributions" on Form 1099-DIV.

  . REITs typically have not indicated what proportion of their dividends
   represent return of capital in time to allow the fund to meet its January 31
   deadline for 1099-DIV reporting. Therefore, to ensure accurate and complete
   tax information, we will send you a separate 1099-DIV for this fund in
   February (subject to approval by the IRS).


 Is there other information I can review before making a decision?

   Investment Policies and Practices in Section 3 discusses various types of
   portfolio securities the funds may purchase as well as types of management
   practices the funds may use.


 T. ROWE PRICE ACCOUNT INFORMATION

   Here are some procedures you should know when investing in the T. Rowe Price
   family of taxable stock, bond, and money market funds.



 PRICING SHARES AND RECEIVING SALE PROCEEDS
 ----------------------------------------------------------

 How and when shares are priced


   The share price (also called "net asset value" or NAV per share) for all
   funds except the Japan Fund is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, each day that the exchange is open for
   business. (See the following section for information on the Japan Fund.) To
   calculate the NAV, a fund's assets are valued and totaled, liabilities are
   subtracted, and the balance, called net assets, is divided by the number of
   shares outstanding. Market values are used to price stocks and bonds.
   Amortized cost is used to price securities held by money market funds.

   The securities of funds investing in foreign markets are usually valued on
   the basis of the most recent closing market prices at 4 p.m. ET. Most foreign
   markets close before that time. For securities primarily traded in the Far
   East, for example, the most recent closing prices may be as much as 15 hours
   old at 4 p.m. Normally, developments that could affect the values of
   portfolio securities that occur between the close of the foreign market and 4
   p.m. ET will not be reflected in a fund NAV. However, if a fund determines
   that such developments are so significant that they will, in its judgment,
   clearly and materially affect the value of the fund's securities, the fund
   may adjust the previous closing prices to reflect what it believes to be the
   fair value of the securities as of 4 p.m. ET. A fund may fair value
   securities in other situations, for example, when a particular foreign market
   is closed but the fund is open.


   3 The various ways you can buy, sell, and exchange shares are explained at
     the end of this prospectus and on the New Account Form. These procedures
     may differ for institutional and employer-sponsored retirement accounts.


 How your purchase, sale, or exchange price is determined

   If we receive your request in correct form by 4 p.m. ET, your transaction
   will be priced at that day's NAV. If we receive it after 4 p.m., it will be
   priced at the next business day's NAV.

   We cannot accept orders that request a particular day or price for your
   transaction or any other special conditions.




                                             25
   Fund shares may be purchased through various third-party intermediaries
   including banks, brokers, and investment advisers. Where authorized by a
   fund, orders will be priced at the NAV next computed after receipt by the
   intermediary. Consult your intermediary to determine when your orders will be
   priced. The intermediary may charge a fee for its services.

   Note: The time at which transactions and shares are priced and the time until
   which orders are accepted may be changed in case of an emergency or if the
   New York Stock Exchange closes at a time other than 4 p.m. ET.

   Japan Fund: Pricing and Transactions

   The Japan Fund's share price is calculated at the close of the New York Stock
   Exchange, normally 4 p.m. ET, when both it and the Tokyo Stock Exchange are
   open. The fund will not price shares or process orders on any day when either
   the New York or Tokyo Stock Exchange is closed. Orders received on such days
   will be processed the next day the fund computes an NAV. As such, you may
   experience a delay in purchasing or redeeming fund shares. Exchanges: If you
   wish to exchange into the Japan Fund on a day the New York Stock Exchange is
   open but the Tokyo Stock Exchange is closed, the exchange out of the other T.
   Rowe Price fund will be processed on that day, but Japan Fund shares will not
   be purchased until the day the Japan Fund reopens. If you wish to exchange
   out of the Japan Fund on a day when the New York Stock Exchange is open but
   the Tokyo Stock Exchange is closed, the exchange will be delayed until the
   Japan Fund reopens.

   The Tokyo Stock Exchange is scheduled to be closed on the following weekdays:
   In 2002 -January 1, 2, 3, and 14; February 11; March 21; April 29; May 3 and
   6; September 16 and 23; October 14; November 4; and December 23 and 31. In
   2003-January 1, 2, 3, and 13; February 11; March 21; April 29; May 3 and 5;
   July 21; September 15 and 23; October 13; November 4 and 24; December 23 and
   31. If the Tokyo Stock Exchange closes on dates not listed, the fund will not
   be priced on those dates.


 How you can receive the proceeds from a sale


   3 When filling out the New Account Form, you may wish to give yourself the
     widest range of options for receiving proceeds from a sale.


   If your request is received by 4 p.m. ET in correct form, proceeds are
   usually sent on the next business day. Proceeds can be sent to you by mail or
   to your bank account by Automated Clearing House (ACH) transfer or bank wire.
   ACH is an automated method of initiating payments from, and receiving
   payments in, your financial institution account. Proceeds sent by ACH
   transfer are usually credited the second business day after the sale.
   Proceeds sent by bank wire should be credited to your account the first
   business day after the sale.




T. ROWE PRICE                                 26
  . Exception:  Under certain circumstances and when deemed to be in a fund's
   best interest, your proceeds may not be sent for up to seven calendar days
   after we receive your redemption request.


   3 If for some reason we cannot accept your request to sell shares, we will
     contact you.

   Contingent Redemption Fee

   Short-term "market timers" who engage in frequent purchases and redemptions
   can disrupt a fund's investment program and create additional transaction
   costs. For these reasons, certain T. Rowe Price funds, listed below, assess a
   fee on redemptions (including exchanges) of fund shares held for less than
   the time period shown:



  Fund                             Holding period  Redemption fee
                                             
  Diversified Small-Cap Growth        6 months     1.00%
                                   --------------------------------
  Developing Technologies              1 year      1.00%
                                   --------------------------------
  Emerging Europe & Mediterranean      1 year      2.00%
                                   --------------------------------
  Emerging Markets Stock               1 year      2.00%
                                   --------------------------------
  Equity Index 500                    6 months     0.50%
                                   --------------------------------
  Extended Equity Market Index        6 months     0.50%
                                   --------------------------------
  High Yield                           1 year      1.00%
                                   --------------------------------
  International Discovery              1 year      2.00%
                                   --------------------------------
  International Equity Index           6 months    1.00%
                                   --------------------------------
  Latin America                        1 year      2.00%
                                   --------------------------------
  Real Estate                         6 months     1.00%
                                   --------------------------------
  Small-Cap Value                      1 year      1.00%
                                   --------------------------------
  Tax-Efficient Balanced               1 year      1.00%
                                   --------------------------------
  Tax-Efficient Growth                2 years      1.00%
                                   --------------------------------
  Tax-Efficient Multi-Cap Growth      2 years      1.00%
                                   --------------------------------
  Total Equity Market Index           6 months     0.50%
                                   --------------------------------
  U.S. Bond Index                     6 months     0.50%
 -----------------------------------------------------------------------




   Redemption fees are paid to a fund to help offset transaction costs and to
   protect its long-term shareholders. The "first-in, first-out" (FIFO) method
   is used to determine the holding period. Under this method, the date of the
   redemption or exchange will be compared with the earliest purchase date of
   shares held in the account. If this holding period is less than the
   designated holding period, the fee will be charged.




                                             27
   In determining a holding period, the fund will use the anniversary date of a
   transaction. Thus, for a one-year period, shares purchased on January 1 will
   be subject to the fee if they are redeemed on or prior to the following
   December 31. If they are redeemed on or after January 1 of the following
   year, they will not be subject to the fee.


   The fee does not apply to any shares purchased through reinvested
   distributions (dividends and capital gains), shares held in retirement plans,
   such as 401(k), 403(b), 457, Keogh, profit sharing, SIMPLE IRA, SEP-IRA, and
   money purchase pension accounts, or to shares redeemed through designated
   systematic withdrawal plans. The fee does apply to all other types of
   accounts including IRAs. The fee may also apply to shares in retirement plans
   held in broker omnibus accounts.



 USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
 ----------------------------------------------------------

   3 All net investment income and realized capital gains are distributed to
     shareholders.


 Dividends and Other Distributions


   Dividend and capital gain distributions are reinvested in additional fund
   shares in your account unless you select another option on your New Account
   Form. Reinvesting distributions results in compounding, that is, receiving
   income dividends and capital gain distributions on a rising number of shares.


   Distributions not reinvested are paid by check or transmitted to your bank
   account via ACH. If the Post Office cannot deliver your check, or if your
   check remains uncashed for six months, the fund reserves the right to
   reinvest your distribution check in your account at the NAV on the day of the
   reinvestment and to reinvest all subsequent distributions in shares of the
   fund. No interest will accrue on amounts represented by uncashed distribution
   or redemption checks.

   The following chart provides details on dividend payments.



 Table 4  Dividend Payment Schedule

  Fund                                               Dividends
                                                                            
  Money market funds                 .Declared daily to shareholders of record
                                      as of 12 noon ET on that day. Purchases
                                      made after 12 noon ET receive the dividend
                                      on the next business day after payment has
                                      been received.

                                     .Paid on the first business day of each
                                      month.
 ---------------------------------------------------------------------------------
  Bond funds                         .Declared daily to shareholders of record
                                      as of 4 p.m. ET the previous business day.
                                      Purchases made after 4 p.m. ET receive the
                                      dividend on the next business day after
                                      payment has been received.

                                     .Paid on the first business day of each
                                      month.
 --------------------------------------------------------------------------------------
  These stock funds only:*           .Declared quarterly, if any, in March,
   .Balanced                          June, September, and December.

   . Dividend Growth                 .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
   . Equity Income

   . Equity Index 500

   . Growth & Income

   . Personal Strategy Balanced

   . Personal Strategy Income

   . Real Estate
 ---------------------------------------------------------------------------------
  All other stock funds*             .Declared annually, if any, generally in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 ---------------------------------------------------------------------------------
  Tax-Efficient Balanced*           Municipal Portion
                                     .Declared daily, paid on the last business
                                      day of March, June, September, and
                                      December.

                                    Equity Portion
                                     .Declared annually, if any, usually in
                                      December.

                                     .Must be a shareholder of record as of 4
                                      p.m. ET on the record date.
 --------------------------------------------------------------------------------------








T. ROWE PRICE                                 28

 * Mutual fund dividends are eligible for the 70% deduction for dividends
   received by corporations to the extent the fund's income consists of
   dividends paid by U.S. corporations.


   Bond or money fund shares will earn dividends through the date of redemption;
   also, shares redeemed on a Friday or prior to a holiday (other than wire
   redemptions for money funds received before 12 noon ET) will continue to earn
   dividends until the next business day. Generally, if you redeem all of your
   bond or money fund shares at any time during the month, you will also receive
   all dividends earned through the date of redemption in the same check. When
   you redeem only a portion of your bond or money fund shares, all dividends
   accrued on those shares will be reinvested, or paid in cash, on the next
   dividend payment date.


 Capital gain payments

   If a fund has net capital gains for the year (after subtracting any capital
   losses), they are usually declared and paid in December to shareholders of
   record on a specified date that month. If a second distribution is necessary,
   it is paid the following year.




                                             29
   Capital gain payments are not expected in money market funds, which are
   managed to maintain a constant share price.


   3 A capital gain or loss is the difference between the purchase and sale
     price of a security.

   Tax Information

   3 You will be sent timely information for your tax filing needs.

   You need to be aware of the possible tax consequences when:

  . You sell fund shares, including an exchange from one fund to another.
  . A fund makes a distribution to your account.

   Taxes on fund redemptions
   When you sell shares in any fund, you may realize a gain or loss. An exchange
   from one fund to another is also a sale for tax purposes.

   In January, you will be sent Form 1099-B indicating the date and amount of
   each sale you made in the fund during the prior year. This information will
   also be reported to the IRS. For most new accounts or those opened by
   exchange in 1984 or later, we will provide the gain or loss on the shares you
   sold during the year based on the "average cost" single category method. This
   information is not reported to the IRS, and you do not have to use it. You
   may calculate the cost basis using other methods acceptable to the IRS, such
   as "specific identification."

   To help you maintain accurate records, we send you a confirmation promptly
   following each transaction you make (except for systematic purchases and
   redemptions) and a year-end statement detailing all your transactions in each
   fund account during the year.

   Taxes on fund distributions

   In January, you will be sent Form 1099-DIV indicating the tax status of any
   dividend and capital gain distributions made to you. This information will
   also be reported to the IRS. Distributions are generally taxable to you in
   the year in which they are paid. You will be sent any additional information
   you need to determine your taxes on fund distributions, such as the portion
   of your dividends, if any, that may be exempt from state income taxes.

   The tax treatment of a capital gain distribution is determined by how long
   the fund held the portfolio securities, not how long you held shares in the
   fund. Short-term (one year or less) capital gain distributions are taxable at
   the same rate as ordinary income and long-term gains on securities held more
   than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
   the sale or exchange of fund shares that you held six months or less, your
   short-term loss must be reclassified to a long-term loss to the extent of any
   long-term capital gain




T. ROWE PRICE                                 30
   distribution received during the period you held the shares. Gains and losses
   from the sale of foreign currencies and the foreign currency gain or loss
   resulting from the sale of a foreign debt security can increase or decrease
   an ordinary income dividend. Net foreign currency losses may cause monthly or
   quarterly dividends to be reclassified as a return of capital.

   If the fund qualifies and elects to pass through nonrefundable foreign taxes
   paid to foreign governments during the year, your portion of such taxes will
   be reported to you as taxable income. However, you may be able to claim an
   offsetting credit or deduction on your tax return for those amounts. There
   can be no assurance that a fund will be able to meet the requirements to pass
   through foreign income taxes paid.

   Tax consequences of hedging

   For funds investing in foreign securities, distributions resulting from the
   sale of certain foreign currencies, currency contracts, and debt securities
   are taxed as ordinary income. Net foreign currency losses may cause monthly
   or quarterly dividends to be reclassified as a return of capital. Entering
   into certain options, futures, swaps, and forward foreign exchange contracts
   and transactions may result in the application of the mark-to-market and
   straddle provisions of the Internal Revenue Code. These provisions could
   result in the fund being required to distribute gains on such transactions
   even though it did not close the contracts during the year or receive cash to
   pay such distributions. The fund may not be able to reduce its distributions
   for losses on such transactions to the extent of unrealized gains in
   offsetting positions.


   3 Distributions are taxable whether reinvested in additional shares or
     received in cash.

   Tax effect of buying shares before a capital gain distribution
   If you buy shares shortly before or on the "record date" - the date that
   establishes you as the person to receive the upcoming distribution - you
   receive a portion of the money you just invested in the form of a taxable
   distribution. Therefore, you may wish to find out a fund's record date before
   investing. Of course, a fund's share price may, at any time, reflect
   undistributed capital gains and unrealized appreciation, which may result in
   future taxable distributions. Such distributions can occur even in a year
   when the fund has a negative return.


   3 The preceding tax information summary does not apply to retirement
     accounts, such as IRAs, which are not subject to current tax.




                                             31
 TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
 ----------------------------------------------------------

   3 Following these procedures helps assure timely and accurate transactions.


 Purchase Conditions

   Nonpayment

   If you pay with a check or ACH transfer that does not clear or if your
   payment is not received in a timely manner, your purchase may be canceled.
   You will be responsible for any losses or expenses incurred by the fund or
   transfer agent, and the fund can redeem shares you own in this or another
   identically registered T. Rowe Price account as reimbursement. The fund and
   its agents have the right to reject or cancel any purchase, exchange, or
   redemption due to nonpayment.

   U.S. dollars
   All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
   banks.


 Sale (Redemption) Conditions

   Holds on immediate redemptions: 10-day hold

   If you sell shares that you just purchased and paid for by check or ACH
   transfer, the fund will process your redemption but will generally delay
   sending you the proceeds for up to 10 calendar days to allow the check or
   transfer to clear. If, during the clearing period, we receive a check drawn
   against your newly purchased shares, it will be returned marked
   "uncollected." (The 10-day hold does not apply to purchases paid for by bank
   wire or automatic purchases through your paycheck.)

   Telephone, Tele*Access/(R)/, and online account transactions

   You may access your account or conduct transactions using the telephone or
   Tele*Access, or online. The T. Rowe Price funds and their agents use
   reasonable procedures to verify the identity of the shareholder. If these
   procedures are followed, the funds and their agents are not liable for any
   losses that may occur from acting on unauthorized instructions. A
   confirmation is sent promptly after a transaction. Please review it carefully
   and contact T. Rowe Price immediately about any transaction you believe to be
   unauthorized. Telephone conversations are recorded.

   Redemptions over $250,000

   Large redemptions can adversely affect a portfolio manager's ability to
   implement a fund's investment strategy by causing the premature sale of
   securities that would otherwise be held. If, in any 90-day period, you redeem
   (sell) more than $250,000, or your sale amounts to more than 1% of fund net
   assets, the fund has the right to pay the difference between the redemption
   amount and the lesser of the two previously mentioned figures with securities
   from the fund.




T. ROWE PRICE                                 32
 Excessive Trading


   3 T. Rowe Price may bar excessive traders from purchasing shares.

   Frequent trades or market timing in your account or accounts controlled by
   you can disrupt management of a fund and raise its expenses. To deter such
   activity, each fund has adopted an excessive trading policy. If you violate
   this policy, you may be barred indefinitely and without further notice from
   further purchases of the T. Rowe Price funds.

  . Trades placed directly with T. Rowe Price If you trade directly with T. Rowe
   Price, you can make one purchase and one sale or one sale and one purchase
   involving the same fund within any 120-day period. If you exceed this limit,
   or if your trading activity involves market timing, you are in violation of
   our excessive trading policy.

   Two types of transactions are exempt from this policy: 1) Trades solely in
   money market funds (exchanges between a money fund and a nonmoney fund are
   not exempt); and 2) systematic purchases and redemptions (see Information
   About Your Services).

  . Trades placed through intermediaries  If you purchase fund shares through an
   intermediary including a broker, bank, investment adviser, recordkeeper, or
   other third party, you can make one purchase and one sale or one sale and one
   purchase involving the same fund within any 120-day period. If you exceed
   this limit or if you hold fund shares for less than 60 calendar days, you are
   in violation of our excessive trading policy. Systematic purchases and
   redemptions are exempt from this policy. Transactions accepted by
   intermediaries in violation of this excessive trading policy or from persons
   believed to be market timers are subject to rejection or cancellation by the
   funds.


 Keeping Your Account Open

   Due to the relatively high cost to a fund of maintaining small accounts, we
   ask you to maintain an account balance of at least $1,000 ($10,000 for Summit
   Funds). If your balance is below this amount for three months or longer, we
   have the right to close your account after giving you 60 days to increase
   your balance.


 Account Maintenance and Small Account Fees


  . Small Account Fee (all funds except Index Funds)  Because of the
   disproportionately high costs of servicing accounts with low balances, a $10
   fee, paid to T. Rowe Price Services, the funds' transfer agent, will
   automatically be deducted from nonretirement accounts with balances falling
   below a minimum amount. The valuation of accounts and the deduction are
   expected to take place during the last five business days of September. The
   fee will be deducted from accounts with balances below $2,000, except for
   UGMA/UTMA accounts, for which the




                                             33
   minimum is $500. The fee will be waived for any investor whose T. Rowe Price
   mutual fund accounts total $25,000 or more. Accounts employing automatic
   investing (e.g., payroll deduction, automatic purchase from a bank account,
   etc.) are also exempt from the charge. The fee does not apply to IRAs and
   other retirement plan accounts that utilize a prototype plan sponsored by T.
   Rowe Price, but a separate custodial or administrative fee may apply to such
   accounts.


  . Account Maintenance Fee (Index Funds only)  The account maintenance fee is
   charged on a quarterly basis usually during the last week of a calendar
   quarter. On the day of the assessment, accounts with balances below $10,000
   will be charged the fee. Please note that the fee will be charged to accounts
   that fall below $10,000 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 will be charged and deducted
   from the proceeds. The fee will apply to IRA accounts. The fee does not apply
   to retirement plans directly registered with T. Rowe Price Services, or
   accounts maintained by intermediaries through NSCC/(R)/Networking.


 Signature Guarantees


   3 A signature guarantee is designed to protect you and the T. Rowe Price
     funds from fraud by verifying your signature.

   You may need to have your signature guaranteed in certain situations, such
   as:


  . Written requests 1) to redeem over $100,000 or 2) to wire redemption
   proceeds when prior bank account authorization is not on file.
  . Remitting redemption proceeds to any person, address, or bank account not on
   record.

  . Transferring redemption proceeds to a T. Rowe Price fund account with a
   different registration (name or ownership) from yours.
  . Establishing certain services after the account is opened.


   You can obtain a signature guarantee from most banks, savings institutions,
   broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
   accept guarantees from notaries public or organizations that do not provide
   reimbursement in the case of fraud.




 MORE ABOUT THE FUNDS
 ORGANIZATION AND MANAGEMENT
 ----------------------------------------------------------

 How are the funds organized?


   Each of the funds is incorporated in Maryland as a "diversified, open-end
   investment company," or mutual fund. The Developing Technologies Fund was
   incorporated in 2000; Financial Services Fund in 1996; the Global Technology
   Fund in 2000; the Health Sciences Fund in 1995; the New Era Fund in 1968; the
   Real Estate Fund in 1997; the Science & Technology Fund in 1987; and the
   Media & Telecommunications Fund in 1993. In 1997, the Media &
   Telecommunications Fund was converted from a closed-end investment company.
   Mutual funds pool money received from shareholders and invest it to try to
   achieve specified objectives.


   3 Shareholders benefit from T. Rowe Price's 65 years of investment management
     experience.


 What is meant by "shares"?

   As with all mutual funds, investors purchase shares when they put money in a
   fund. These shares are part of a fund's authorized capital stock, but share
   certificates are not issued.

   Each share and fractional share entitles the shareholder to:


  . Receive a proportional interest in income and capital gain distributions.

  . Cast one vote per share on certain fund matters, including the election of
   fund directors, changes in fundamental policies, or approval of changes in
   the fund's management contract.


 Do T. Rowe Price funds have annual shareholder meetings?

   The funds are not required to hold annual meetings and, to avoid unnecessary
   costs to fund shareholders, do not do so except when certain matters, such as
   a change in fundamental policies, must be decided. In addition, shareholders
   representing at least 10% of all eligible votes may call a special meeting,
   if they wish, for the purpose of voting on the removal of any fund director
   or trustee.
   If a meeting is held and you cannot attend, you can vote by proxy. Before the
   meeting, the fund will send you proxy materials that explain the issues to be
   decided and include instructions on voting by mail or telephone, or on the
   Internet.




                                             35
 Who runs the funds?

   General Oversight

   Each fund is governed by a Board of Directors that meets regularly to review
   the fund's investments, performance, expenses, and other business affairs.
   The Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price Associates, Inc. (T. Rowe Price).


   3 All decisions regarding the purchase and sale of fund investments are made
     by T. Rowe Price -  specifically by each fund's portfolio managers.

   Portfolio Management

   Each fund has an Investment Advisory Committee. The committee chairman has
   day-to-day responsibility for managing the portfolio and works with the
   committee in developing and executing the fund's investment program. The
   members of each advisory committee are listed below.

   Developing Technologies Fund Michael F. Sola, Chairman, Giri Devulapally,
   Robert N. Gensler, Eric M. Gerster, Jill L. Hauser, Jeff Rottinghaus, and
   Wenhua Zhang. Mr. Sola was elected chairman of the fund's committee in 2000.
   He joined T. Rowe Price in 1994 as an investment analyst, and has been
   managing investments since 1997.

   Financial Services Fund Anna M. Dopkin, Chairman, Jeff Arricale, Abigail J.
   Fulton, Michael W. Holton, Joseph M. Milano, Larry J. Puglia, Robert W.
   Sharps, William J. Stromberg, and J. David Wagner. Ms. Dopkin was elected
   chairman of the fund's committee in 2000. She joined T. Rowe Price in 1996 as
   an investment analyst and has specialized in the financial services area.
   Prior to joining T. Rowe Price she worked at Goldman Sachs for six and a half
   years in the Mortgage Securities Department in New York and London.

   Global Technology Fund Robert N. Gensler, Chairman, Giri Devulapally, Donald
   J. Easley, Eric M. Gerster, Jill L. Hauser, Stephen C. Jansen, Anh Lu,
   Joseph M. Milano, Jeff Rottinghaus, Michael F. Sola, and Wenhua Zhang. Mr.
   Gensler has been a member of the committee since its inception and was
   elected chairman in 2002. He is also chairman of the Investment Advisory
   Committee for the Media & Telecommunications Fund. He joined T. Rowe Price
   as an investment analyst in 1993.

   Health Sciences Fund Kris H. Jenner, M.D., D. Phil., Chairman, Laurie M.
   Bertner, John H. Laporte, Christopher R. Leonard, Jay S. Markowitz, Charles
   G. Pepin, and John C.A. Sherman. Dr. Jenner was elected chairman of the
   fund's committee in 2000. He joined T. Rowe Price as an analyst in 1997 and
   has been managing investments since 1998. From 1995 through 1997, while on
   leave




T. ROWE PRICE                                 36
   from the general surgery residency program at the Johns Hopkins Hospital, he
   was a post doctoral fellow at the Brigham and Women's Hospital, Harvard
   Medical School.


   Media & Telecommunications Fund Robert N. Gensler, Chairman, Kara Cheseby,
   Giri Devulapally, Henry M. Ellenbogen, Eric M. Gerster, Stephen C. Jansen,
   Robert W. Smith, Dean Tenerelli, and Dale West. Mr. Gensler was elected
   chairman of the fund's committee in 2000. He joined T. Rowe Price as an
   investment analyst in 1993.

   New Era Fund Charles M. Ober, Chairman, Lewis M. Johnson, David M. Lee, John
   D. Linehan, Timothy E. Parker, J. David Wagner, and David J. Wallack. Mr.
   Ober has been chairman of the fund's committee since 1997. He joined T. Rowe
   Price in 1980 and has been managing investments since 1987.

   Real Estate Fund David M. Lee, Chairman, Stephen W. Boesel, Anna M. Dopkin,
   Thomas J. Huber, Charles M. Ober, Brian C. Rogers, and William J. Stromberg.
   Mr. Lee has been chairman of the fund's committee since 1997. He joined T.
   Rowe Price in 1993 as a research analyst and has been managing investments
   since 1996.

   Science & Technology Fund Michael F. Sola, Chairman, Giri Devulapally, Donald
   J. Easley, Robert N. Gensler, Eric M. Gerster, Jill L. Hauser, Anh Lu, and
   Jeff Rottinghaus. Mr. Sola was elected chairman of the fund's committee in
   2002; he was elected Executive Vice President of the fund in 2000. He joined
   T. Rowe Price in 1994 as an investment analyst, and has been managing
   investments since 1997. He is also chairman of the Investment Advisory
   Committee for the Developing Technologies Fund.

   The Management Fee
   This fee has two parts - an "individual fund fee," which reflects a fund's
   particular characteristics, and a "group fee." The group fee, which is
   designed to reflect the benefits of the shared resources of the T. Rowe Price
   investment management complex, is calculated daily based on the combined net
   assets of all T. Rowe Price funds (except the Spectrum Funds, and any
   institutional, index, or private label mutual funds). The group fee schedule
   (shown below) is graduated, declining as the asset total rises, so
   shareholders benefit from the overall growth in mutual fund assets.



   Group Fee Schedule

                   
    0.334%*           First $50 billion

    0.305%            Next $30 billion

    0.300%            Next $40 billion

    0.295%            Thereafter
    -------------------------------------





   * Represents a blended group fee rate containing various break points.




                                             37

   Each fund's portion of the group fee is determined by the ratio of its daily
   net assets to the daily net assets of all the T. Rowe Price funds described
   previously. Based on combined T. Rowe Price fund assets of over $94 billion


   at December . 31, 2001, the group fee was 0.32%. . The individual fund fees
   are as follows: Developing Technologies Fund, 0.60%; Financial Services Fund,
   Health Sciences Fund, Media & Telecommunications Fund, and Science &
   Technology Fund, 0.35%; Global Technology Fund, 0.45%; New Era Fund, 0.25%;
   and Real Estate Fund, 0.30%.



 UNDERSTANDING PERFORMANCE INFORMATION
 ----------------------------------------------------------
   This section should help you understand the terms used to describe fund
   performance. You will come across them in shareholder reports you receive
   from us; in

   our education and informational materials; in T. Rowe Price advertisements;
   and

   in the media.


 Total Return

   This tells you how much an investment has changed in value over a given time
   period. It reflects any net increase or decrease in the share price and
   assumes that all dividends and capital gains (if any) paid during the period
   were reinvested in additional shares. Therefore, total return numbers include
   the effect of compounding.

   Advertisements may include cumulative or average annual total return figures,
   which may be compared with various indices, other performance measures, or
   other mutual funds.


 Cumulative Total Return

   This is the actual return of an investment for a specified period. A
   cumulative return does not indicate how much the value of the investment may
   have fluctuated during the period. For example, an investment could have a
   10-year positive cumulative return despite experiencing some negative years
   during that time.


 Average Annual Total Return

   This is always hypothetical and should not be confused with actual
   year-by-year results. It smooths out all the variations in annual performance
   to tell you what constant year-by-year return would have produced the
   investment's actual cumulative return. This gives you an idea of an
   investment's annual contribution to your portfolio, provided you held it for
   the entire period.




T. ROWE PRICE                                 38
 INVESTMENT POLICIES AND PRACTICES
 ----------------------------------------------------------
   This section takes a detailed look at some of the types of fund securities
   and the various kinds of investment practices that may be used in day-to-day
   portfolio management. Fund investments are subject to further restrictions
   and risks described in the Statement of Additional Information.


   Shareholder approval is required to substantively change fund objectives and
   certain investment restrictions noted in the following section as
   "fundamental policies." The managers also follow certain "operating policies"
   which can be changed without shareholder approval. However, significant
   changes are discussed with shareholders in fund reports. Fund investment
   restrictions and policies apply at the time of investment. A later change in
   circumstances will not require the sale of an investment if it was proper at
   the time it was made.

   Fund holdings of certain kinds of investments cannot exceed maximum
   percentages of total assets, which are set forth in this prospectus. For
   instance, fund investments in hybrid instruments are limited to 10% of total
   assets. While these restrictions provide a useful level of detail about fund
   investments, investors should not view them as an accurate gauge of the
   potential risk of such investments. For example, in a given period, a 5%
   investment in hybrid instruments could have significantly more of an impact
   on a fund's share price than its weighting in the portfolio. The net effect
   of a particular investment depends on its volatility and the size of its
   overall return in relation to the performance of all other fund investments.


   Changes in fund holdings, fund performance, and the contribution of various
   investments are discussed in the shareholder reports sent to you.


   3 Fund managers have considerable leeway in choosing investment strategies
     and selecting securities they believe will help achieve fund objectives.


 Types of Portfolio Securities

   In seeking to meet their investment objectives, the funds may invest in any
   type of security or instrument (including certain potentially high-risk
   derivatives described in this section) whose investment characteristics are
   consistent with their investment programs. The following pages describe
   various types of fund securities and investment management practices.

   Fundamental policy  Each fund will not purchase a security if, as a result,
   with respect to 75% of its total assets, more than 5% of its total assets
   would be invested in securities of a single issuer, or if more than 10% of
   the outstanding voting securities of the issuer would be held by the fund.




                                             39
 Industry Concentration


   The Financial Services Fund has a fundamental policy requiring it to
   concentrate (invest more than 25% of its total assets) in the financial
   services industry as defined in this prospectus.

   Operating policy  In accordance with SEC rules, the Financial Services Fund
   will not purchase the security of any company which in its most recent fiscal
   year derived more than 15% of its gross revenues from securities-related
   activities (defined by the SEC as activities as a broker, dealer,
   underwriter, or investment adviser) if, immediately after such purchase, the
   fund:

  . would own more than 5% of any class of equity securities of the company;
  . would own more than 10% of the outstanding principal amount of the company's
   debt securities; or
  . would have invested more than 5% of its total assets in securities of such
   company.

   The Health Sciences Fund has a fundamental policy requiring it to concentrate
   (invest more than 25% of its total assets) in the health sciences industry as
   defined in this prospectus.

   The Real Estate Fund has a fundamental policy requiring it to concentrate
   (invest more than 25% of its total assets) in the real estate industry as
   defined in this prospectus.


 All funds

   Fund investments are primarily in common stocks and, to a lesser degree,
   other types of securities as described below.

   Common and Preferred Stocks
   Stocks represent shares of ownership in a company. Generally, preferred stock
   has a specified dividend and ranks after bonds and before common stocks in
   its claim on income for dividend payments and on assets should the company be
   liquidated. After other claims are satisfied, common stockholders participate
   in company profits on a pro-rata basis; profits may be paid out in dividends
   or reinvested in the company to help it grow. Increases and decreases in
   earnings are usually reflected in a company's stock price, so common stocks
   generally have the greatest appreciation and depreciation potential of all
   corporate securities. While most preferred stocks pay a dividend, preferred
   stock may be purchased where the issuer has omitted, or is in danger of
   omitting, payment of its dividend. Such investments would be made primarily
   for their capital appreciation potential.




T. ROWE PRICE                                 40
   Convertible Securities and Warrants
   Investments may be made in debt or preferred equity securities convertible
   into, or exchangeable for, equity securities. Traditionally, convertible
   securities have paid dividends or interest at rates higher than common stocks
   but lower than nonconvertible securities. They generally participate in the
   appreciation or depreciation of the underlying stock into which they are
   convertible, but to a lesser degree. In recent years, convertibles have been
   developed which combine higher or lower current income with options and other
   features. Warrants are options to buy a stated number of shares of common
   stock at a specified price anytime during the life of the warrants
   (generally, two or more years). Warrants can be highly volatile, have no
   voting rights, and pay no dividends.

   Foreign Securities

   Investments may be made in foreign securities. These include
   nondollar-denominated securities traded outside of the U.S. and
   dollar-denominated securities of foreign issuers traded in the U.S. (such as
   ADRs and ADSs). Such investments increase a portfolio's diversification and
   may enhance return, but they also involve some special risks, such as
   exposure to potentially adverse local, political, and economic developments;
   nationalization and exchange controls; potentially lower liquidity and higher
   volatility; possible problems arising from accounting, disclosure,
   settlement, and regulatory practices that differ from U.S. standards; and the
   chance that fluctuations in foreign exchange rates will decrease the
   investment's value (favorable changes can increase its value). These risks
   are heightened for investments in developing countries, and there is no limit
   on the amount of fund foreign investments that may be made in such countries.


   Operating policy for the Developing Technologies and Science & Technology
   Funds  Fund investments in foreign securities are limited to 30% of total
   assets.


   Operating policy for the Global Technology and Media & Telecommunications
   Funds There is no limit on fund investments in foreign securities.

   Operating policy for the Health Sciences Fund Fund investments in foreign
   securities are limited to 35% of total assets.


   Operating policy for the New Era Fund  Fund investments in foreign securities
   are limited to 50% of total assets.

   Operating policy for the Real Estate Fund Fund investments in foreign
   securities are limited to 25% of total assets.




                                             41
   Risks of Foreign Securities
   Stock prices of foreign and U.S. companies are subject to many of the same
   influences, such as general economic conditions, company and industry
   earnings prospects, and investor psychology. However, investing in foreign
   securities also involves additional risks that can increase the potential for
   losses. Normally, these risks are significantly greater for investments in
   emerging markets.

  . Currency fluctuations  Transactions in foreign securities are often
   conducted in local currencies, so dollars must often be exchanged for another
   currency when a stock is bought or sold or a dividend is paid. Likewise,
   share price quotations and total return information reflect conversion into
   dollars. Fluctuations in foreign exchange rates can significantly increase or
   decrease the dollar value of a foreign investment, boosting or offsetting its
   local market return. For example, if a French stock rose 10% in price during
   a year, but the U.S. dollar gained 5% against the French franc during that
   time, the U.S. investor's return would be reduced to 5%. This is because the
   franc would "buy" fewer dollars at the end of the year than at the beginning,
   or, conversely, a dollar would buy more francs. Each fund's total return will
   be affected by currency fluctuations. The exact amount of the impact depends
   on the currencies represented in the portfolio and how each one appreciates
   or depreciates in relation to the U.S. dollar.


   3 Exchange rate movements can be large, unpredictable, and last for extended
     periods.


  . Political and economic factors  The economies, markets, and political
   structures of a number of the countries in which the funds can invest do not
   compare favorably with the U.S. and other mature economies in terms of wealth
   and stability. Therefore, investments in these countries will be riskier and
   more subject to erratic and abrupt price movements. This is especially true
   for emerging markets. However, even investments in countries with highly
   developed economies are subject to risk. For example, Japanese securities
   markets historically have experienced wide swings in value.

   Some economies are less well developed, overly reliant on particular
   industries, and more vulnerable to the ebb and flow of international trade,
   trade barriers, and other protectionist or retaliatory measures. This makes
   investment in such markets significantly riskier than in other countries.
   Many countries have legacies and the risk of hyperinflation and currency
   devaluations versus the dollar (which adversely affects returns to U.S.
   investors) and may be overly dependent on foreign capital (a risk that is
   exacerbated by big currency movements). Investments in countries that have
   recently begun moving away from central planning and state-owned industries
   toward free markets should be regarded as speculative.




T. ROWE PRICE                                 42
   3 While certain countries have made progress in economic growth,
     liberalization, fiscal discipline, and political and social stability,
     there is no assurance these trends will continue.

   Certain countries have histories of instability and political upheaval that
   could cause their governments to act in a detrimental or hostile manner
   toward private enterprise or foreign investment. Actions such as capital
   controls, nationalizing a company or industry, expropriating assets, or
   imposing punitive taxes could have a severe effect on security prices and
   impair a fund's ability to repatriate capital or income. Significant external
   risks, including war, currently affect some countries. Governments in many
   emerging market countries participate to a significant degree in their
   economies and securities markets.


  . Legal, regulatory, and operational  Certain countries lack uniform
   accounting, auditing, and financial reporting standards, have less
   governmental supervision of financial markets than in the U.S., do not honor
   legal rights enjoyed in the U.S., and have settlement practices, such as
   delays, which could subject a fund to risks of loss not customary in the U.S.
   In addition, securities markets in these countries have substantially lower
   trading volumes than U.S. markets, resulting in less liquidity and more
   volatility.

   Hybrid Instruments
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount, redemption, or conversion terms of a security could be
   related to the market price of some commodity, currency, or securities index.
   Such securities may bear interest or pay dividends at below market or even
   relatively nominal rates. Under some conditions, the redemption value of such
   an investment could be zero.


   Hybrid Instruments (Real Estate Fund)
   These instruments (a type of potentially high-risk derivative) can combine
   the characteristics of securities, futures, and options. For example, the
   principal amount or interest rate of a hybrid could be tied (positively or
   negatively) to the price of some commodity, currency, or securities index or
   another interest rate (each a "benchmark"). Hybrids can be used as an
   efficient means of pursuing a variety of investment goals, including currency
   hedging, duration management and increased total return. Hybrids may or may
   not bear interest or pay dividends. The value of a hybrid or its interest
   rate may be a multiple of a benchmark and, as a result, may be leveraged and
   move (up or down) more steeply and rapidly than the benchmark. These
   benchmarks may be sensitive to
   economic and political events, such as commodity shortages and currency deval

   uations, which cannot be readily foreseen by the purchaser of a hybrid. Under
   certain conditions, the redemption value of a hybrid could be zero. Thus, an
   investment in a hybrid may entail significant market risks that are not
   associ-




                                             43
   ated with a similar investment in a traditional, U.S. dollar-denominated bond
   that has a fixed principal amount and pays a fixed rate or floating rate of
   interest. The purchase of hybrids also exposes the fund to the credit risk of
   the issuer of the hybrid. These risks may cause significant fluctuations in
   the net asset val

   ues of the fund.


   3 Hybrids can have volatile prices and limited liquidity, and their use may
     not be successful.

   Operating policy  Fund investments in hybrid instruments are limited to 10%
   of total assets.

   Private Placements
   These securities are sold directly to a small number of investors, usually
   institutions. Unlike public offerings, such securities are not registered
   with the SEC. Although certain of these securities may be readily sold, for
   example, under Rule 144A, others may be illiquid, and their sale may involve
   substantial delays and additional costs.

   Operating policy  Fund investments in illiquid securities are limited to 15%
   of net assets.


 Fixed-Income Securities (Global Technology, Media & Telecommunications, New
 Era, and Real Estate Funds)

   From time to time, the funds may invest in debt securities of any type,
   including municipal securities, without regard to quality or rating. Such
   securities would be purchased in companies, municipalities, or entities that
   meet the investment criteria for the funds. The price of a bond fluctuates
   with changes in interest rates, generally rising when interest rates fall and
   falling when interest rates rise. Below investment grade, or "junk bonds,"
   can be more volatile and have a greater risk of default than investment grade
   bonds.


   Operating policy for the Global Technology Fund  Fund investments in
   fixed-income securities are limited to 5% of total assets.

   Operating policy for the Media & Telecommunications Fund  This fund may
   invest up to 20% of its total assets in corporate debt securities, including
   convertible bonds.

   High-Yield, High-Risk Bonds (Media & Telecommunications, New Era, and Real
   Estate Funds)
   The total return and yield of lower-quality (high-yield, high-risk) bonds,
   commonly referred to as "junk" bonds, can be expected to fluctuate more than
   the total return and yield of higher-quality, shorter-term bonds, but not as
   much as




T. ROWE PRICE                                 44
   those of common stocks. Junk bonds (those rated below BBB or in default) are
   regarded as predominantly speculative with respect to the issuer's continuing
   ability to meet principal and interest payments.


   Operating policies  The funds may purchase any type of noninvestment-grade
   debt security (or junk bond) including those in default. The funds will not
   purchase this type of security if they would have exceeded a limit regarding
   the percentage of total assets invested in such securities. For the Media &
   Telecommunications Fund, the limit is 5%; for the New Era and Real Estate
   Funds, the limit is 10%. The funds' investments in convertible securities are
   not subject to this limit.


 Types of Investment Management Practices

   Reserve Position
   A certain portion of fund assets will be held in money market reserves. Fund
   reserve positions are expected to consist primarily of shares of one or more
   T. Rowe Price internal money market funds. Short-term, high-quality U.S. and
   foreign dollar-denominated money market securities, including repurchase
   agreements, may also be held. For temporary, defensive purposes, there is no
   limit on fund investments in money market reserves. The effect of taking such
   a position is that the funds may not achieve their investment objectives. The
   reserve position provides flexibility in meeting redemptions, paying
   expenses, and in the timing of new investments and can serve as a short-term
   defense during periods of unusual market volatility.

   Borrowing Money and Transferring Assets
   Fund borrowings may be made from banks and other T. Rowe Price funds for
   temporary emergency purposes to facilitate redemption requests, or for other
   purposes consistent with fund policies as set forth in this prospectus. Such
   borrowings may be collateralized with fund assets, subject to restrictions.

   Fundamental policy  Borrowings may not exceed 33/1//\\/3/\\% of total fund
   assets.

   Operating policy  Fund transfers of portfolio securities as collateral will
   not be made except as necessary in connection with permissible borrowings or
   investments, and then such transfers may not exceed 33/1//\\/3/\\% of fund
   total assets. Fund purchases of additional securities will not be made when
   borrowings exceed 5% of total assets.

   Futures and Options

   Futures, a type of potentially high-risk derivative, are often used to manage
   or hedge risk because they enable the investor to buy or sell an asset in the
   future at an agreed-upon price. Options, another type of potentially
   high-risk derivative, give the investor the right (where the investor
   purchases the option), or the obligation (where the investor "writes" or
   sells the option), to buy or sell an asset at a predetermined price in the
   future. Futures and options contracts may be bought




                                             45
   or sold for any number of reasons, including: to manage fund exposure to
   changes in securities prices and foreign currencies; as an efficient means of
   adjusting fund overall exposure to certain markets; in an effort to enhance
   income; to protect the value of portfolio securities; and as a cash
   management

   tool. Call or put options may be purchased or sold on securities, financial
   indi

   ces, and foreign currencies.


   Futures contracts and options may not always be successful hedges; their
   prices can be highly volatile; using them could lower fund total return; and
   the potential loss from the use of futures can exceed a fund's initial
   investment in such contracts.

   Operating policies  Futures: Initial margin deposits and premiums on options
   used for nonhedging purposes will not exceed 5% of fund net asset value.
   Options on securities: The total market value of securities covering call or
   put options may not exceed 25% of fund total assets. No more than 5% of fund
   total assets will be committed to premiums when purchasing call or put
   options.

   Exchange Traded Funds (ETFs)
   These are a type of index fund bought and sold on a securities exchange. An
   ETF trades like common stock and represents a fixed portfolio of securities
   designed to track a particular market index. The fund could purchase an ETF
   to temporarily gain exposure to a portion of the U.S. or a foreign market
   while awaiting purchase of underlying securities. The risks of owning an ETF
   generally reflect the risks of owning the underlying securities they are
   designed to track, although lack of liquidity in an ETF could result in it
   being more volatile and ETFs have management fees which increase their costs.

   Managing Foreign Currency Risk

   Investors in foreign securities may attempt to "hedge" their exposure to
   potentially unfavorable currency changes. The primary means of doing this is
   through the use of "forwards"- contracts to exchange one currency for another
   on some future date at a specified exchange rate. However, futures, swaps,
   and options on these instruments may also be used. In certain circumstances,
   a "proxy currency" may be substituted for the currency in which the
   investment is denominated, a strategy known as "proxy hedging." If the fund
   were to engage in any of these foreign currency transactions, they would be
   primarily to protect a fund's foreign securities from adverse currency
   movements relative to the dollar. Such transactions involve the risk that
   anticipated currency movements will not occur, which could reduce fund total
   return. There are certain markets, including many emerging markets, where it
   is not possible to engage in effective foreign currency hedging.




T. ROWE PRICE                                 46
   Lending of Portfolio Securities

   Fund securities may be lent to broker-dealers, other institutions, or other
   persons to earn additional income. Risks include the potential insolvency of
   the broker-dealer or other borrower that could result in delays in recovering
   securities and capital losses. Additionally, losses could result from the
   reinvestment of collateral received on loaned securities.

   Fundamental policy  The value of loaned securities may not exceed
   33/1//\\/3/\\% of total fund assets.

   Portfolio Turnover

   Turnover is an indication of frequency of trading. The funds will not
   generally trade in securities for short-term profits, but, when circumstances
   warrant, securities may be purchased and sold without regard to the length of
   time held. A high turnover rate may increase transaction costs, result in
   additional capital gain distributions, and reduce fund total return. The
   funds' portfolio turnover rates

   are shown in the Financial Highlights table.



 FINANCIAL HIGHLIGHTS
 ----------------------------------------------------------
   Table 5, which provides information about each fund's financial history, is
   based on a single share outstanding throughout the periods shown. The table
   is part of the fund's financial statements, which are included in its annual
   report and are incorporated by reference into the Statement of Additional
   Information (available upon request). The total returns in the table
   represent the rate that an investor would have earned or lost on an
   investment in each fund (assuming reinvestment of all dividends and
   distributions and no payment of account or (if applicable) redemption fees).
   The financial statements in the annual report were audited by the funds'
   independent accountants, PricewaterhouseCoopers LLP.




                                             47


 Table 5  Financial Highlights

                                       8/31/00*    Year ended December 31
                                        through
  Developing Technologies              12/31/00
  Fund                                -------------         2001
 -------------------------------------             -----------------------------
                           

  Net asset value,
  beginning of period                 $ 10.00            $  7.13
  Income From Investment Operations
  Net investment income                 (0.02)/a/          (0.05)/a/
                              ---------------------------------------------
  Net gains or losses on
  securities (both realized             (2.76)             (2.13)
  and unrealized)
                              ---------------------------------------------
  Total from investment
  operations                            (2.78)             (2.18)
  Less Distributions
  Dividends (from net                      --                 --
  investment income)
                                      -------------------------------------
  Distributions (from                   (0.09)                --
  capital gains)
                              ---------------------------------------------
  Returns of capital                       --                 --
                                      -------------------------------------
  Total distributions                   (0.09)                --
                              ---------------------------------------------
  Net asset value,                    $  7.13            $  4.95
  end of period
                              ---------------------------------------------
  Total return                         (27.89)%/a/        (30.58)%/a/
  Ratios/Supplemental Data
  Net assets, end of period           $18,167            $26,647
  (in thousands)
                              ---------------------------------------------
  Ratio of expenses to                   1.50%/ab/          1.50%/a/
  average net assets
                              ---------------------------------------------
  Ratio of net income to                (0.86)%/ab/        (1.27)%/a/
  average net assets
                              ---------------------------------------------
  Portfolio turnover rate               232.6%/b/          107.5%
 -------------------------------------------------------------------------------





 * Inception date.

 /a/
   Excludes expenses in excess of a 1.50% voluntary expense limitation in effect
   through 12/31/02.

 /b/      Annualized.




T. ROWE PRICE                                 48


 Table 5  Financial Highlights (continued)

                                             Year ended December 31
  Financial Services Fund       1997        1998       1999       2000       2001
 -----------------------------            --------------------------------------------------
                           

  Net asset value,
  beginning of period         $  11.31    $  15.56   $  16.82   $  16.12   $  21.38
  Income From Investment Operations
  Net investment income          0.10/a/      0.16       0.10       0.10       0.15
                              ---------------------------------------------------------
  Net gains or losses on
  securities (both realized       4.58        1.60       0.15       5.80      (0.86)
  and unrealized)
                              ---------------------------------------------------------
  Total from investment
  operations                      4.68        1.76       0.25       5.90      (0.71)
  Less Distributions
  Dividends (from net            (0.10)      (0.16)     (0.10)     (0.09)     (0.15)
  investment income)
                              ---------------------------------------------------------
  Distributions (from            (0.33)      (0.34)     (0.85)     (0.55)     (1.68)
  capital gains)
                              ---------------------------------------------------------
  Returns of capital                --          --         --         --         --
                              ---------------------------------------------------------
  Total distributions            (0.43)      (0.50)     (0.95)     (0.64)     (1.83)
                              ---------------------------------------------------------
  Net asset value,            $  15.56    $  16.82   $  16.12   $  21.38   $  18.84
  end of period
                              ---------------------------------------------------------
  Total return                   41.44%/a/   11.55%      1.70%     36.76%     (3.13)%
  Ratios/Supplemental Data
  Net assets, end of period   $177,335    $224,277   $159,031   $337,041   $308,635
  (in thousands)
                              ---------------------------------------------------------
  Ratio of expenses to            1.25%/a/    1.19%      1.14%      1.00%      0.97%
  average net assets
                              ---------------------------------------------------------
  Ratio of net income to          1.15%/a/    0.94%      0.50%      0.69%      0.69%
  average net assets
                              ---------------------------------------------------------
  Portfolio turnover rate         46.0%       46.8%      37.1%      32.5%      54.8%
 -------------------------------------------------------------------------------------------





 /a/
   Excludes expenses in excess of a 1.25% voluntary expense limitation in effect
   through December 31, 1998.




                                             49


 Table 5  Financial Highlights (continued)

                                 9/29/00*
                                  through      Year ended December 31
                                 12/31/00
  Global Technology Fund      -----------------         2001
 -----------------------------                 -----------------------------
                           

  Net asset value,
  beginning of period           $  10.00             $  7.43
  Income From Investment Operations
  Net investment income            (0.01)              (0.06)/b/
                              -----------------------------------------
  Net gains or losses on
  securities (both realized        (2.56)              (2.62)
  and unrealized)
                              -----------------------------------------
  Total from investment
  operations                       (2.57)              (2.68)
  Less Distributions
  Dividends (from net                 --                  --
  investment income)
                              -----------------------------------------
  Distributions (from                 --                  --
  capital gains)
                              -----------------------------------------
  Returns of capital                  --                  --
                              -----------------------------------------
  Total distributions                 --                  --
                              -----------------------------------------
  Net asset value,              $   7.43             $  4.75
  end of period
                              -----------------------------------------
  Total return                    (25.70)%            (36.07)%/b/
  Ratios/Supplemental Data
  Net assets, end of period     $131,168             $84,120
  (in thousands)
                              -----------------------------------------
  Ratio of expenses to              1.37%/a/            1.50%/b/
  average net assets
                              -----------------------------------------
  Ratio of net income to           (0.25)%/a/          (1.08)%/b/
  average net assets
                              -----------------------------------------
  Portfolio turnover rate          123.6%/a/           189.2%
 ---------------------------------------------------------------------------




 /*/       Inception date.

 /a/      Annualized.


 /b/
  Excludes expenses in excess of a 1.50% voluntary expense limitation in effect
  through December 31, 2002.




T. ROWE PRICE                                 50


 Table 5  Financial Highlights (continued)

                                                Year ended December 31
  Health Sciences Fund           1997        1998        1999        2000        2001
 -----------------------------            -----------------------------------------------------
                           

  Net asset value,
  beginning of period         $  12.27    $  13.66    $  16.01    $  15.93    $  21.70
  Income From Investment Operations
  Net investment income          (0.03)      (0.04)      (0.04)      (0.03)      (0.11)
                              ------------------------------------------------------------
  Net gains or losses on
  securities (both realized       2.39        3.05        1.22        8.28       (1.20)
  and unrealized)
                              ------------------------------------------------------------
  Total from investment
  operations                      2.36        3.01        1.18        8.25       (1.31)
  Less Distributions
  Dividends (from net               --          --          --          --          --
  investment income)
                              ------------------------------------------------------------
  Distributions (from            (0.97)      (0.66)      (1.26)      (2.48)      (0.31)
  capital gains)
                              ------------------------------------------------------------
  Returns of capital                --          --          --          --          --
                              ------------------------------------------------------------
  Total distributions            (0.97)      (0.66)      (1.26)      (2.48)      (0.31)
                              ------------------------------------------------------------
  Net asset value,            $  13.66    $  16.01    $  15.93    $  21.70    $  20.08
  end of period
                              ------------------------------------------------------------
  Total return                   19.41%      22.37%       7.97%      52.19%      (5.97)%
  Ratios/Supplemental Data
  Net assets, end of period   $271,351    $316,573    $302,510    $971,867    $960,787
  (in thousands)
                              ------------------------------------------------------------
  Ratio of expenses to            1.18%       1.16%       1.11%       0.98%       1.02%
  average net assets
                              ------------------------------------------------------------
  Ratio of net income to         (0.21)%     (0.25)%     (0.25)%     (0.22)%     (0.60)%
  average net assets
                              ------------------------------------------------------------
  Portfolio turnover rate        104.4%       85.7%       81.9%      110.6%       74.6%
 ----------------------------------------------------------------------------------------------











                                             51


 Table 5  Financial Highlights (continued)

                                                Year ended December 31
  Media &
  Telecommunications Fund        1997        1998        1999        2000        2001
 ----------------------------------------------------------------------------------------------
                           

  Net asset value,
  beginning of period         $  15.22    $  17.40    $  22.54    $  39.99    $  21.65
  Income From Investment Operations
  Net investment income          (0.01)      (0.07)      (0.05)       0.40       (0.09)
                              ------------------------------------------------------------
  Net gains or losses on
  securities (both realized       4.22        6.07       20.72       (9.77)      (1.41)
  and unrealized)
                              ------------------------------------------------------------
  Total from investment
  operations                      4.21        6.00       20.67       (9.37)      (1.50)
  Less Distributions
  Dividends (from net               --          --          --       (0.37)         --
  investment income)
                              ------------------------------------------------------------
  Distributions (from            (2.05)      (0.86)      (3.22)      (8.60)         --
  capital gains)
                              ------------------------------------------------------------
  Returns of capital                --          --          --          --          --
                              ------------------------------------------------------------
  Total distributions            (2.05)      (0.86)      (3.22)      (8.97)         --
                              ------------------------------------------------------------
  Share repurchases /a/           0.02          --          --          --          --
                              ------------------------------------------------------------
  Net asset value,            $  17.40    $  22.54    $  39.99    $  21.65    $  20.15
  end of period
                              ------------------------------------------------------------
  Total return /b/               28.05%      35.14%      93.09%     (25.11)%     (6.93)%
  Ratios/Supplemental Data
  Net assets, end of period   $133,913    $246,088    $930,147    $797,856    $674,518
  (in thousands)
                              ------------------------------------------------------------
  Ratio of expenses to            1.21%       1.03%       0.93%       0.94%       1.08%
  average net assets
                              ------------------------------------------------------------
  Ratio of net income to         (0.06)%     (0.38)%     (0.24)%      1.07%      (0.39)%
  average net assets
                              ------------------------------------------------------------
  Portfolio turnover rate         38.6%       48.9%       57.6%      197.5%      241.1%
 ----------------------------------------------------------------------------------------------




 /a/
   Prior to the conversion, the fund made repurchases of its shares in the open
   market at a discount from the net asset value, which had the effect of
   increasing the net asset value per share of the remaining shares outstanding.

 /b/
   Based on net asset value, for periods prior and subsequent to conversion to
   open-end status on 7/25/97.




T. ROWE PRICE                                 52


 Table 5  Financial Highlights (continued)

                                      Year ended December 31
  New Era Fund              1997     1998      1999     2000     2001
 ------------------------------------------------------------------------------
                        

  Net asset value,
  beginning of period      $26.06   $ 25.95   $19.78   $21.80   $24.30
  Income From Investment Operations
  Net investment income      0.40      0.37     0.30     0.31     0.27
                           -----------------------------------------------
  Net gains or losses on
  securities (both
  realized                   2.40     (2.97)    3.84     3.99    (1.38)
  and unrealized)
                           -----------------------------------------------
  Total from investment
  operations                 2.80     (2.60)    4.14     4.30    (1.11)
  Less Distributions
  Dividends (from net       (0.37)    (0.40)   (0.30)   (0.29)   (0.27)
  investment income)
                           -----------------------------------------------
  Distributions (from       (2.54)    (3.17)   (1.82)   (1.51)   (0.68)
  capital gains)
                           -----------------------------------------------
  Returns of capital            -         -        -        -        -
                           -----------------------------------------------
  Total distributions       (2.91)    (3.57)   (2.12)   (1.80)   (0.95)
                           -----------------------------------------------
  Net asset value,         $25.95   $ 19.78   $21.80   $24.30   $22.24
  end of period
                           -----------------------------------------------
  Total return              10.96%   (9.88)%   21.22%   20.37%   (4.35)%
  Ratios/Supplemental Data
  Net assets, end of
  period                   $1,493   $   999   $1,082   $1,195   $1,070
  (in millions)
                           -----------------------------------------------
  Ratio of expenses to       0.74%     0.75%    0.74%    0.72%    0.72%
  average net assets
                           -----------------------------------------------
  Ratio of net income to     1.33%     1.27%    1.29%    1.29%    1.11%
  average net assets
                           -----------------------------------------------
  Portfolio turnover rate    27.5%     23.1%    32.5%    28.5%    17.9%
 ------------------------------------------------------------------------------








                                             53


 Table 5  Financial Highlights (continued)

                              10/31/97*
                               through             Year ended December 31
                              12/31/97
  Real Estate Fund            -----------  1998        1999        2000       2001
 -----------------------------           ----------------------------------------------------
                           

  Net asset value,
  beginning of period         $10.00     $ 10.69      $  8.68     $  8.11    $ 10.19
  Income From Investment Operations
  Net investment income        0.08/a/     0.38/a/      0.37/a/     0.38/a/    0.42/a/
                              ----------------------------------------------------------
  Net gains or losses on
  securities (both realized     0.70       (1.97)       (0.49)       2.16       0.46
  and unrealized)
                              ----------------------------------------------------------
  Total from investment
  operations                    0.78       (1.59)       (0.12)       2.54       0.88
  Less Distributions
  Dividends (from net          (0.09)      (0.40)       (0.37)      (0.38)     (0.53)
  investment income)
                              ----------------------------------------------------------
  Distributions (from             --          --           --          --         --
  capital gains)
                              ----------------------------------------------------------
  Returns of capital              --       (0.04)       (0.08)      (0.09)        --
                              ----------------------------------------------------------
  Total distributions          (0.09)      (0.44)       (0.45)      (0.47)     (0.53)
                              ----------------------------------------------------------
  Redemption fees added           --        0.02           --        0.01         --
  to paid-in-capital
                              ----------------------------------------------------------
  Net asset value,            $10.69     $  8.68      $  8.11     $ 10.19    $ 10.54
  end of period
                              ----------------------------------------------------------
  Total return                  7.82%/a/  (14.86)%/a/   (1.23)%/a/  31.92%/a/   8.87%/a/
  Ratios/Supplemental Data
  Net assets, end of period   $7,259     $27,599      $24,725     $53,703    $68,720
  (in thousands)
                              ----------------------------------------------------------
  Ratio of expenses to          1.00%/ab/   1.00%/a/     1.00%/a/    1.00%/a/   1.00%/a/
  average net assets
                              ----------------------------------------------------------
  Ratio of net income to        6.07%/ab/   4.07%/a/     4.22%/a/    4.61%/a/   4.09%/a/
  average net assets
                              ----------------------------------------------------------
  Portfolio turnover rate        8.4%/b/    56.8%        26.9%       19.0%      37.2%
 --------------------------------------------------------------------------------------------




 /*/       Inception date.


 /a/
   Excludes expenses in excess of a 1.00% voluntary expense limitation in effect
   through December 31, 2003.

 /b/      Annualized.




T. ROWE PRICE                                 54


 Table 5  Financial Highlights (continued)

                                            Year ended December 31
  Science & Technology
  Fund                          1997      1998      1999       2000       2001
 ---------------------------------------------------------------------------------------
                           

  Net asset value,
  beginning of period         $29.71    $27.26    $ 37.67    $ 63.71    $ 35.57
  Income From Investment Operations
  Net investment income        (0.12)    (0.18)     (0.09)     (0.29)     (0.18)
                              -----------------------------------------------------
  Net gains or losses on
  securities (both realized     0.54     11.58      36.85     (20.57)    (14.47)
  and unrealized)
                              -----------------------------------------------------
  Total from investment
  operations                    0.42     11.40      36.76     (20.86)    (14.65)
  Less Distributions
  Dividends (from net             --        --         --         --         --
  investment income)
                              -----------------------------------------------------
  Distributions (from          (2.87)    (0.99)    (10.72)     (7.28)        --
  capital gains)
                              -----------------------------------------------------
  Returns of capital              --        --         --         --         --
                              -----------------------------------------------------
  Total distributions          (2.87)    (0.99)    (10.72)     (7.28)        --
                              -----------------------------------------------------
  Net asset value,            $27.26    $37.67    $ 63.71    $ 35.57    $ 20.92
  end of period
                              -----------------------------------------------------
  Total return                  1.71%    42.35%    100.99%    (34.19)%   (41.19)%
  Ratios/Supplemental Data
  Net assets, end of period   $3,538    $4,696    $12,271    $ 8,892    $ 5,209
  (in millions)
                              -----------------------------------------------------
  Ratio of expenses to          0.94%     0.94%      0.87%      0.86%      1.00%
  average net assets
                              -----------------------------------------------------
  Ratio of net income to       (0.44)%   (0.61)%    (0.26)%    (0.55)%    (0.73)%
  average net assets
                              -----------------------------------------------------
  Portfolio turnover rate      133.9%    108.9%     128.0%     134.1%     143.6%
 ---------------------------------------------------------------------------------------






 INVESTING WITH T. ROWE PRICE
 ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
 ----------------------------------------------------------
                                                              Tax Identification
                                                                          Number

We must have your correct Social Security or tax identification number on a
signed New Account Form or W-9 Form. Otherwise, federal law requires the funds
to withhold a percentage (currently 30%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed at the fund's NAV on the redemption date.

                                                       Transaction Confirmations
We send immediate confirmations for most of your fund transactions, but some,
such as systematic purchases and dividend reinvestments, are reported on your
account statement. Please review confirmations and statements as soon as you
receive them and promptly report any discrepancies to Shareholder Services.

                  Employer-Sponsored Retirement Plans and Institutional Accounts
                                                                   T. Rowe Price
                                                                   Trust Company
                                                                  1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

We do not accept third-party checks, except for IRA Rollover checks that are
properly endorsed. In addition, T. Rowe Price does not accept purchases made by
credit card check.




T. ROWE PRICE                                 56
 OPENING A NEW ACCOUNT
 ----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts ($25,000 minimum initial investment for
Summit Funds only)

                                                            Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)


For joint accounts or other types of accounts owned or controlled by more than
one party, either owner/party has complete authority to act on behalf of all and
give instructions concerning the account without notice to the other party. T.
Rowe Price may, in its sole discretion, require written authorization from all
owners/parties to act on the account for certain transactions (for example, to
transfer ownership).

                                                                         By Mail

Please make your check payable to T. Rowe Price Funds (otherwise it will be
returned) and send your check, together with the New Account Form, to the
appropriate address below:

via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17300
4515 Painters Mill Road
Owings Mills, MD 21117-4903

                                                                         By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank:  PNC Bank, N.A. (Pittsburgh)
Receiving Bank ABA#:  043000096
Beneficiary:  T. Rowe Price [fund name]
Beneficiary Account:  1004397951
Originator to Beneficiary Information (OBI):
name of owner(s) and account number




                                             57

Complete a New Account Form and mail it to one of the appropriate T. Rowe Price
addresses listed under "By Mail."

Note: Investment will be made, but no services will be established and IRS
penalty withholding may occur until we receive a signed New Account Form.

                                                                     By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if they
are preauthorized on the existing account. For limitations on exchanging, see
the explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

                                                                       In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.



 PURCHASING ADDITIONAL SHARES
 ----------------------------------------------------------

$100 minimum additional purchase ($1,000 for Summit Funds). For retirement
plans, Automatic Asset Builder, and gifts or transfers to minors (UGMA/UTMA)
accounts $50, except $100 for Summit Funds.

                                                                 By ACH Transfer
Use Tele*Access or your personal computer or call Shareholder Services if you
have established electronic transfers using the ACH system.

                                                                         By Wire

Call Shareholder Services or use the wire instructions listed in Opening a New
Account.

                                                                         By Mail
 1. Make your check payable to T. Rowe Price Funds (otherwise it may be
   returned).

 2. Mail the check to us at the following address with either a fund
   reinvestment slip or a note indicating the fund you want to buy and your fund
   account number.

 3. Remember to provide your account number and the fund name on the memo line
   of your check.




T. ROWE PRICE                                 58
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17300
Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

                                                                    By Automatic
                                                                   Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.



 EXCHANGING AND REDEEMING SHARES
 ----------------------------------------------------------
                                                                Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)

                                                                     Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers-By Wire under Information About
Your Services. Please note that large redemption requests initiated through
automated services may be routed to a service representative.

If you request to redeem a specific dollar amount, and the market value of your
account is less than the amount of your request, we will redeem all shares from
your account.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months, one year, or two years, as specified in
the prospectus. The fee is paid to the fund.

For redemptions by check or electronic transfer, please see Information About
Your Services.

                                                                        By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer or Tele*Access (if you have
previously authorized these services), mailgram, or




                                             59
express mail. For exchange policies, please see Transaction Procedures and
Special Requirements - Excessive Trading.

                                                                         By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to specify any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

For nonretirement and IRA accounts:
via U.S. Postal Service
T. Rowe Price Account Services
P.O. Box 17302
Baltimore, MD 21297-1302

via private carriers/overnight services
T. Rowe Price Account Services
Mailcode 17302
4515 Painters Mill Road
Owings Mills, MD 21117-4903

For employer-sponsored retirement accounts:
via U.S. Postal Service
T. Rowe Price Trust Company
P.O. Box 17479
Baltimore, MD 21297-1479

via private carriers/overnight services
T. Rowe Price Trust Company
Mailcode 17479
4515 Painters Mill Road
Owings Mills, MD 21117-4903

Requests for redemptions from employer-sponsored retirement accounts must be in
writing; please call T. Rowe Price Trust Company or your plan administrator for
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.




T. ROWE PRICE                                 60
 RIGHTS RESERVED BY THE FUNDS
 ----------------------------------------------------------

T. Rowe Price funds and their agents reserve the following rights: (1) to waive
or lower investment minimums; (2) to accept initial purchases by telephone or
mailgram; (3) to refuse any purchase or exchange order; (4) to cancel or rescind
any purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; (7) to waive any
redemption, small account, maintenance or other fees charged to a group of
shareholders; (8) to act on instructions reasonably believed to be genuine; and
(9) to involuntarily redeem your account in cases of threatening conduct or
suspected fraudulent or illegal activity. These actions will be taken when, in
the sole discretion of management, they are deemed to be in the best interest of
the fund.

In an effort to protect T. Rowe Price funds from the possible adverse effects of
a substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of a fund, except upon approval of the fund's management.



 INFORMATION ABOUT YOUR SERVICES
 ----------------------------------------------------------
                                                            Shareholder Services
                                                                  1-800-225-5132
                                                               Investor Services
                                                                  1-800-638-5660
Many services are available to you as a shareholder; some you receive
automatically, and others you must authorize or request on the New Account Form.
By signing up for services on the New Account Form rather than later on, you
avoid having to complete a separate form and obtain a signature guarantee. This
section discusses some of the




                                             61
services currently offered. Our Services Guide, which we mail to all new
shareholders, contains detailed descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. Certain other
fiduciary accounts (such as trusts or power of attorney arrangements) require
documentation, which may include an original or certified copy of the trust or
power of attorney to establish services and to redeem by mail. For more
information, call Investor Services.

                                                                Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k)s, and 403(b)(7)s. For
information on IRAs or our no-load variable annuity, call Investor Services. For
information on all other retirement plans, please call our Trust Company at
1-800-492-7670.


                                                  Investing for College Expenses
We can help you save for future college expenses on a tax-advantaged basis.

Education Savings Accounts (ESAs) (formerly known as Education IRAs)
Invest up to $2,000 a year depending on your annual income; account earnings are
tax-free when used for qualified expenses.

529 Plans
The T. Rowe Price College Savings Plan (for any U.S. resident), the Maryland
College Investment Plan (for any U.S. resident), and the University of Alaska
College Savings Plan (for Alaska residents) allow you to contribute on a
tax-deferred basis toward a student's higher education. For more information on
tax-related features and the plans' investment approaches, risks, and expenses,
call toll-free 1-866-521-1894.

                                                              Automated Services
                                                                     Tele*Access
                                                                  1-800-638-2587
                                                                24 hours, 7 days
Tele*Access

24-hour service via a toll-free number enables you to (1) access information on
fund performance, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, dupli-




T. ROWE PRICE                                 62
cate statements, and tax forms; and (3) buy, sell, and exchange shares in your
accounts (see Electronic Transfers in this section).

                                                                     Web Address
                                                              www.troweprice.com
Online Account Access
You can sign up online to conduct account transactions through our Web site on
the Internet. If you subscribe to America Online/(R)/, you can access our Web
site via keyword "T. Rowe Price" and conduct transactions in your account.

                                                               Plan Account Line
                                                                  1-800-401-3279
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.


                                                                By Telephone and
                                                                   In Person
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

                                                            Electronic Transfers
By ACH

With no charges to pay, you can move as little as $100 or as much as $100,000
between your bank account and fund account using the ACH system. Enter
instructions via Tele*Access or your personal computer, or call Shareholder
Services.

By Wire

Electronic transfers can be conducted via bank wire. There is a $5 fee for wire
redemptions under $5,000, and your bank may charge for incoming or outgoing wire
transfers regardless of size.

                                                                    Checkwriting

(Not available for equity funds or the High Yield, Emerging Markets Bond, or
U.S. Bond Index Funds) You may write an unlimited number of free checks on any
money market fund and most bond funds, with a minimum of $500 per check. Keep in
mind, however, that a check results in a redemption; a check written on a bond
fund will create a taxable event which you and we must report to the IRS.

                                                             Automatic Investing

Automatic Asset Builder
You can instruct us to move $50 ($100 for Summit Funds) or more from your bank
account, or you can instruct your employer to send all or a portion of your
paycheck to the fund or funds you designate.




                                             63
Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.



 T. ROWE PRICE BROKERAGE
 ----------------------------------------------------------
                                                              To Open an Account
                                                                  1-800-638-5660
                                                                    For Existing
                                                             Brokerage Customers
                                                                  1-800-225-7720

Investments available through our brokerage service include  stocks, options,
bonds, and others  at commission savings over full-service brokers.* We also
provide a wide range of services, including:

Automated Telephone and Computer Services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Account Access-Brokerage. Any trades entered through Tele-Trader save you an
additional 10% on commissions. For stock trades entered through Account
Access-Brokerage, you will pay a commission of $19.95 for up to 1,000 shares
plus $.02 for each share over 1,000. Option trades entered through Account
Access-Brokerage save you 10% over our standard commission schedule. All trades
are subject to a $35 minimum commission except stock trades placed through
Account Access-Brokerage.

Investor Information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to online research tools can help you
better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service

If you elect to participate in this service, the cash dividends from the
eligible securities held in your account will automatically be reinvested in
additional shares of the same securities free of charge. Most securities listed
on national securities exchanges or Nasdaq are eligible for this service.

/*Services //v//ary //b//y //f//irm./

/T. Rowe Price //Brokerage is a division of //T. Rowe Price// Investment /
/Services, Inc., Member NASD/SIPC./




T. ROWE PRICE                                 64
 INVESTMENT INFORMATION
 ----------------------------------------------------------

To help you monitor your investments and make decisions that accurately reflect
your financial goals, T. Rowe Price offers a wide variety of information in
addition to account statements. Most of this information is also available on
our Web site at www.troweprice.com.

A note on mailing procedures: If two or more members of a household own the same
fund, we economize on fund expenses by sending only one fund report and
prospectus. If you need additional copies or do not want your mailings to be
"householded," please call Shareholder Services at 1-800-225-5132 or write to us
at P.O. Box 17630, Baltimore, Maryland 21297-1630.

Shareholder Reports

Fund managers' annual and semiannual reviews of their strategies and
performance.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies
and including the Performance Update, a review of all T. Rowe Price fund
results.

Insights
Educational reports on investment strategies and financial markets.

Investment Guides

Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirement Readiness Guide, Retirement Planning Kit,
and Tax Considerations for Investors.




                                             65

 T. ROWE PRICE PRIVACY POLICY
 ----------------------------------------------------------
 In the course of doing business with T. Rowe Price, you share personal and
 financial information with us. We treat this information as confidential and
 recognize the importance of protecting access to it.

 You may provide information when communicating or transacting with us in
 writing, electronically, or by phone. For instance, information may come from
 applications, requests for forms or literature, and your transactions and
 account positions with us. On occasion, such information may come from consumer
 reporting agencies and those providing services to us.

 We do not sell information about current or former customers to any third
 parties, and we do not disclose it to third parties unless necessary to process
 a transaction, service an account, or as otherwise permitted by law. We may
 share information within the T. Rowe Price family of companies in the course of
 providing or offering products and services to best meet your investing needs.
 We may also share that information with companies that perform administrative
 or marketing services for T. Rowe Price, with a research firm we have hired, or
 with a business partner, such as a bank or insurance company with whom we are
 developing or offering investment products. When we enter into such a
 relationship, our contracts restrict the companies' use of our customer
 information, prohibiting them from sharing or using it for any purposes other
 than those for which they were hired.

 We maintain physical, electronic, and procedural safeguards to protect your
 personal information. Within T. Rowe Price, access to such information is
 limited to those who need it to perform their jobs, such as servicing your
 accounts, resolving problems, or informing you of new products or services.
 Finally, our Code of Ethics, which applies to all employees, restricts the use
 of customer information and requires that it be held in strict confidence.

 This Privacy Policy applies to the following T. Rowe Price family of companies:
 T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe
 Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price
 Trust Company; and the T. Rowe Price Funds.




To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
A fund Statement of Additional Information has been filed with the Securities
and Exchange Commission and is incorporated by reference into this prospectus.
Further information about fund investments, including a review of market
conditions and the manager's recent strategies and their impact on performance,
is available in the annual and semiannual shareholder reports. To obtain free
copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund information and Statements of Additional Information are also available
from the Public Reference Room of the Securities and Exchange Commission. Infor-
mation on the operation of the Public Reference Room may be obtained by calling
the SEC at 1-202-942-8090. Fund reports and other fund information are available
on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies
of this information may be obtained, after paying a duplicating fee, by
electronic request at publicinfo@sec.gov, or by writing the Public Reference
Room, Washington D.C. 20549-0102.
 For mutual fund or T. Rowe Price Brokerage information
 Investor Services
 1-800-638-5660

For existing accounts
 Shareholder Services
 1-800-225-5132

For the hearing impaired
 1-800-367-0763

For performance, prices,
account information, or
to conduct transactions
 Tele*Access/(R)/
 24 hours, 7 days
 1-800-638-2587

Internet address
 www.troweprice.com

Plan Account Line
 For retirement plan
 investors: The
 appropriate 800
 number appears on your retirement account statement.
Investor Centers
 For directions, call
 1-800-225-5132 or
 visit our Web site

Baltimore Area
Downtown
 105 East Lombard Street

Owings Mills
 Three Financial Center
 4515 Painters Mill Road

Boston Area
 386 Washington Street
 Wellesley

Chicago Area
 1900 Spring Road
 Suite 104
 Oak Brook

Colorado Springs
 2260 Briargate Parkway

Los Angeles Area
 Warner Center
 21800 Oxnard Street
 Suite 270
 Woodland Hills

New Jersey/New York Area
 51 JFK Parkway, 1st Floor
 Short Hills, New Jersey

San Francisco Area
 1990 N. California Blvd.
 Suite 100
 Walnut Creek

Tampa
 4200 West Cypress Street
 10th Floor

Washington, D.C. Area
Downtown
 900 17th Street, N.W.
 Farragut Square

Tysons Corner
 1600 Tysons Boulevard
 Suite 150
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202

1940 Act File No. 811-10003; 811-07749; 811-09995; 811- 07381; 811-07075; 811-
1710; 811-08371; 811-5299

                                                              C06-040 5/1/02


  STATEMENT OF ADDITIONAL INFORMATION
   The date of this Statement of Additional Information is May 1, 2002.

         T. ROWE PRICE BALANCED FUND, INC.
         T. ROWE PRICE BLUE CHIP GROWTH FUND, INC.
              T. Rowe Price Blue Chip Growth Fund-Advisor Class
         T. ROWE PRICE CAPITAL APPRECIATION FUND
         T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC.
         T. ROWE PRICE DEVELOPING TECHNOLOGIES FUND, INC.
         T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC.
         T. ROWE PRICE DIVIDEND GROWTH FUND, INC.
         T. ROWE PRICE EQUITY INCOME FUND
              T. Rowe Price Equity Income Fund-Advisor Class
         T. ROWE PRICE FINANCIAL SERVICES FUND, INC.
         T. ROWE PRICE GLOBAL TECHNOLOGY FUND, INC.
         T. ROWE PRICE GROWTH & INCOME FUND, INC.
         T. ROWE PRICE GROWTH STOCK FUND, INC.
              T. Rowe Price Growth Stock Fund-Advisor Class
         T. ROWE PRICE HEALTH SCIENCES FUND, INC.
         T. ROWE PRICE INDEX TRUST, INC.
              T. Rowe Price Equity Index 500 Fund
              T. Rowe Price Extended Equity Market Index Fund
              T. Rowe Price Total Equity Market Index Fund
         T. ROWE PRICE INSTITUTIONAL EQUITY FUNDS, INC.
              T. Rowe Price Institutional Large-Cap Growth Fund
              T. Rowe Price Institutional Large-Cap Value Fund
              T. Rowe Price Institutional Mid-Cap Equity Growth Fund
              T. Rowe Price Institutional Small-Cap Stock Fund
         T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC.
         T. ROWE PRICE MID-CAP GROWTH FUND, INC.
              T. Rowe Price Mid-Cap Growth Fund-Advisor Class
         T. ROWE PRICE MID-CAP VALUE FUND, INC.
         T. ROWE PRICE NEW AMERICA GROWTH FUND
         T. ROWE PRICE NEW ERA FUND, INC.
         T. ROWE PRICE NEW HORIZONS FUND, INC.
         T. ROWE PRICE REAL ESTATE FUND, INC.
         T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
              T. Rowe Price Science & Technology Fund-Advisor Class
         T. ROWE PRICE SMALL-CAP STOCK FUND, INC.
              T. Rowe Price Small-Cap Stock Fund-Advisor Class
         T. ROWE PRICE SMALL-CAP VALUE FUND, INC.
              T. Rowe Price Small-Cap Value Fund-Advisor Class
                                       and
         T. ROWE PRICE VALUE FUND, INC.
              T. Rowe Price Value Fund-Advisor Class
 -------------------------------------------------------------------------------

   Mailing Address:
   T. Rowe Price Investment Services, Inc.
   100 East Pratt Street
   Baltimore, Maryland 21202
   1-800-638-5660


                                                                  C20-043 5/1/02



   Throughout this Statement of Additional Information, "the fund" is intended
   to refer to each fund listed on the cover page, unless otherwise indicated.

   For convenience, the term "director" is used to refer to both directors of
   funds that are corporations and to trustees of funds that are Massachusetts
   business trusts.

   This Statement of Additional Information is not a prospectus but should be
   read in conjunction with the appropriate fund prospectus dated May 1, 2002,
   which may be obtained from T. Rowe Price Investment Services, Inc.
   ("Investment Services").

   Each fund's financial statements for the fiscal period ended December 31,
   2001, and the report of independent accountants are included in each fund's
   Annual Report and incorporated by reference into this Statement of Additional
   Information.

   If you would like a prospectus or an annual or semiannual shareholder report
   for a fund of which you are not a shareholder, please call 1-800-638-5660 and
   they will be sent to you at no charge. Please read them carefully.



                              TABLE OF CONTENTS
                              -----------------
                              Page                                       Page
                              ----                                       ----
                           
Capital Stock                   82       Legal Counsel                       84
- ------------------------------------     --------------------------------------
Code of Ethics                  69       Management of the Funds             30
- ------------------------------------     --------------------------------------
Custodian                       68       Net Asset Value per Share           77
- ------------------------------------     --------------------------------------
Distributor for the Funds       67       Organization of the Funds           83
- ------------------------------------     --------------------------------------
Dividends and Distributions     77       Portfolio Management Practices      15
- ------------------------------------     --------------------------------------
Federal Registration of         84       Portfolio Transactions              69
Shares
- ------------------------------------     --------------------------------------
Independent Accountants         84       Pricing of Securities               76
- ------------------------------------     --------------------------------------
Investment Management           58       Principal Holders of                57
Services                                 Securities
- ------------------------------------     --------------------------------------
Investment Objectives and        2       Ratings of Corporate Debt           90
Policies                                 Securities
- ------------------------------------     --------------------------------------
Investment Performance          78       Risk Factors                         3
- ------------------------------------     --------------------------------------
Investment Program               6       Services by Outside Parties         66
- ------------------------------------     --------------------------------------
Investment Restrictions         28       Tax Status                          77
- ------------------------------------     --------------------------------------






 INVESTMENT OBJECTIVES AND POLICIES
 -------------------------------------------------------------------------------
   The following information supplements the discussion of each fund's
   investment objectives and policies discussed in each fund's prospectus.

   Shareholder approval is required to substantively change fund objectives.
   Unless otherwise specified, the investment programs and restrictions of the
   funds are not fundamental policies. Each fund's operating policies are
   subject to change by each Board of Directors without shareholder approval.
   However, shareholders will be notified of a material change in an operating
   policy. Each fund's fundamental policies may not be changed without the
   approval of at least a majority of the outstanding shares of the fund or, if
   it is less, 67% of the shares represented at a meeting of shareholders at
   which the holders of 50% or more of the shares are represented. References to
   the following are as indicated:

                  Investment Company Act of 1940 ("1940 Act")
                  Securities and Exchange Commission ("SEC")


                                       2



                  T. Rowe Price Associates, Inc. ("T. Rowe Price")
                  Moody's Investors Service, Inc. ("Moody's")
                  Standard & Poor's Corporation ("S&P")
                  Internal Revenue Code of 1986 ("Code")
                  T. Rowe Price International, Inc. ("T. Rowe Price
   International")



 RISK FACTORS
 -------------------------------------------------------------------------------
   Reference is also made to the sections entitled "Investment Program" and
   "Portfolio Management Practices" for discussions of the risks associated with
   the investments and practices described therein as they apply to the fund.

   Because of its investment policy, the fund may or may not be suitable or
   appropriate for any particular investor. The fund is not a money market fund
   and is not an appropriate investment for those whose primary objective is

   principal stability. The fund will normally have substantially all  (for the

   Balanced Fund 50-70% and for the Capital Appreciation Fund at least 50%)  of
   its assets in equity securities (e.g., common stocks). This portion of the
   fund's assets will be subject to all of the risks of investing in the stock
   market. There is risk in every investment. The value of the portfolio
   securities of the fund will fluctuate based upon market conditions. Although
   the fund seeks to reduce risk by investing in a diversified portfolio, such
   diversification does not eliminate all risk. There can, of course, be no
   assurance that the fund will achieve its investment objective.

   Foreign securities (All funds other than Equity Index 500, Extended Equity
   Market, and Total Equity Market
   Index Funds)
   The fund may invest in U.S. dollar-denominated and non-U.S.
   dollar-denominated securities of foreign issuers.

  . Risk Factors of Foreign Investing There are special risks in foreign
   investing. Certain of these risks are inherent in any mutual fund while
   others relate more to the countries in which the fund will invest. Many of
   the risks are more pronounced for investments in developing or emerging
   market countries, such as many of the countries of Asia, Latin America,
   Eastern Europe, Russia, Africa, and the Middle East. Although there is no
   universally accepted definition, a developing country is generally considered
   to be a country which is in the initial stages of its industrialization cycle
   with a per capita gross national product of less than $8,000.

  . Political and Economic Factors Individual foreign economies of some
   countries differ favorably or unfavorably from the United States' economy in
   such respects as growth of gross national product, rate of inflation, capital
   reinvestment, resource self-sufficiency, and balance of payments position.
   The internal politics of some foreign countries are not as stable as in the
   United States. For example, in 1991, the existing government in Thailand was
   overthrown in a military coup. In 1994-1995, the Mexican peso plunged in
   value, setting off a severe crisis in the Mexican economy. Asia is still
   coming to terms with its own crisis and recessionary conditions sparked by
   widespread currency weakness in late 1997. In 1998, there was substantial
   turmoil in markets throughout the world. In 1999, the democratically elected
   government of Pakistan was overthrown by a military coup. The Russian
   government also defaulted on all its domestic debt. In addition, significant
   external political risks currently affect some foreign countries. Both Taiwan
   and China still claim sovereignty of one another and there is a demilitarized
   border and hostile relations between North and South Korea. In 2001,
   Argentina defaulted on its foreign-owned debt and had the peso devalued,
   resulting in the resignation of its president and deadly riots in December in
   response to government-mandated austerity measures.

   Governments in certain foreign countries continue to participate to a
   significant degree, through ownership interest or regulation, in their
   respective economies. Action by these governments could have a significant
   effect on market prices of securities and payment of dividends. The economies
   of many foreign countries are heavily dependent upon international trade and
   are accordingly affected by protective trade barriers and


                                       3



   economic conditions of their trading partners. The enactment by these trading
   partners of protectionist trade legislation could have a significant adverse
   effect upon the securities markets of such countries.

  . Currency Fluctuations The fund invests in securities denominated in various
   currencies. Accordingly, a change in the value of any such currency against
   the U.S. dollar will result in a corresponding change in the U.S. dollar
   value of the fund's assets denominated in that currency. Such changes will
   also affect the fund's income. Generally, when a given currency appreciates
   against the dollar (the dollar weakens), the value of the fund's securities
   denominated in that currency will rise. When a given currency depreciates
   against the dollar (the dollar strengthens), the value of the fund's
   securities denominated in that currency would be expected to decline.

  . Investment and Repatriation Restrictions Foreign investment in the
   securities markets of certain foreign countries is restricted or controlled
   to varying degrees. These restrictions limit and at times preclude investment
   in certain of such countries and increase the cost and expenses of the fund.
   Investments by foreign investors are subject to a variety of restrictions in
   many developing countries. These restrictions may take the form of prior
   governmental approval, limits on the amount or type of securities held by
   foreigners, and limits on the types of companies in which foreigners may
   invest. Additional or different restrictions may be imposed at any time by
   these or other countries in which the fund invests. In addition, the
   repatriation of both investment income and capital from several foreign
   countries is restricted and controlled under certain regulations, including
   in some cases the need for certain government consents. For example, capital
   invested in Chile normally cannot be repatriated for one year. In 1998, the
   government of Malaysia imposed currency controls which effectively made it
   impossible for foreign investors to convert Malaysian ringgits to foreign
   currencies.

  . Market Characteristics It is contemplated that most foreign securities will
   be purchased in over-the-counter markets or on securities exchanges located
   in the countries in which the respective principal offices of the issuers of
   the various securities are located, if that is the best available market.
   Investments in certain markets may be made through American Depository
   Receipts ("ADRs") and Global Depository Receipts ("GDRs") traded in the
   United States or on foreign exchanges. Foreign securities markets are
   generally not as developed or efficient as, and more volatile than, those in
   the United States. While growing in volume, they usually have substantially
   less volume than U.S. markets and the fund's portfolio securities may be less
   liquid and subject to more rapid and erratic price movements than securities
   of comparable U.S. companies. Securities may trade at price/earnings
   multiples higher than comparable United States securities and such levels may
   not be sustainable. Commissions on foreign securities trades are generally
   higher than commissions on United States exchanges, and while there are an
   increasing number of overseas securities markets that have adopted a system
   of negotiated rates, a number are still subject to an established schedule of
   minimum commission rates. There is generally less government supervision and
   regulation of foreign securities exchanges, brokers, and listed companies
   than in the United States. Moreover, settlement practices for transactions in
   foreign markets may differ from those in United States markets. Such
   differences include delays beyond periods customary in the United States and
   practices, such as delivery of securities prior to receipt of payment, which
   increase the likelihood of a "failed settlement." Failed settlements can
   result in losses to the fund.

  . Investment Funds The fund may invest in investment funds which have been
   authorized by the governments of certain countries specifically to permit
   foreign investment in securities of companies listed and traded on the stock
   exchanges in these respective countries. The fund's investment in these funds
   is subject to the provisions of the 1940 Act. If the fund invests in such
   investment funds, the fund's shareholders will bear not only their
   proportionate share of the expenses of the fund (including operating expenses
   and the fees of the investment manager), but also will indirectly bear
   similar expenses of the underlying investment funds. In addition, the
   securities of these investment funds may trade at a premium over their net
   asset value.

  . Information and Supervision There is generally less publicly available
   information about foreign companies comparable to reports and ratings that
   are published about companies in the United States. Foreign companies are
   also generally not subject to uniform accounting, auditing and financial
   reporting standards, practices, and requirements comparable to those
   applicable to United States companies. It also is often more difficult to
   keep currently informed of corporate actions which affect the prices of
   portfolio securities.


                                       4



  . Taxes The dividends and interest payable on certain of the fund's foreign
   portfolio securities may be subject to foreign withholding taxes, thus
   reducing the net amount of income available for distribution to the fund's
   shareholders.

  . Other With respect to certain foreign countries, especially developing and
   emerging ones, there is the possibility of adverse changes in investment or
   exchange control regulations, expropriation or confiscatory taxation,
   limitations on the removal of funds or other assets of the fund, political or
   social instability, or diplomatic developments which could affect investments
   by U.S. persons in those countries.

  . Eastern Europe and Russia Changes occurring in Eastern Europe and Russia
   today could have long-term potential consequences. As restrictions fall, this
   could result in rising standards of living, lower manufacturing costs,
   growing consumer spending, and substantial economic growth. However,
   investment in most countries of Eastern Europe and Russia is highly
   speculative at this time. Political and economic reforms are too recent to
   establish a definite trend away from centrally planned economies and
   state-owned industries. In many of the countries of Eastern Europe and
   Russia, there is no stock exchange or formal market for securities. Such
   countries may also have government exchange controls, currencies with no
   recognizable market value relative to the established currencies of western
   market economies, little or no experience in trading in securities, no
   financial reporting standards, a lack of a banking and securities
   infrastructure to handle such trading, and a legal tradition which does not
   recognize rights in private property. In addition, these countries may have
   national policies which restrict investments in companies deemed sensitive to
   the country's national interest. Further, the governments in such countries
   may require governmental or quasi-governmental authorities to act as
   custodian of the fund's assets invested in such countries, and these
   authorities may not qualify as a foreign custodian under the 1940 Act and
   exemptive relief from such Act may be required. All of these considerations
   are among the factors which result in significant risks and uncertainties
   when investing in Eastern Europe and Russia.

  . Latin America

   Inflation Most Latin American countries have experienced, at one time or
   another, severe and persistent levels of inflation, including, in some cases,
   hyperinflation. This has, in turn, led to high interest rates, extreme
   measures by governments to keep inflation in check, and a generally
   debilitating effect on economic growth. Although inflation in many countries
   has lessened, there is no guarantee it will remain at lower levels.

   Political Instability The political history of certain Latin American
   countries has been characterized by political uncertainty, intervention by
   the military in civilian and economic spheres, and political corruption. Such
   developments, if they were to reoccur, could reverse favorable trends toward
   market and economic reform, privatization, and removal of trade barriers, and
   result in significant disruption in securities markets.

   Foreign Currency Certain Latin American countries may experience sudden and
   large adjustments in their currency which, in turn, can have a disruptive and
   negative effect on foreign investors. For example, in late 1994 the Mexican
   peso lost more than one-third of its value relative to the dollar. In 1999,
   the Brazilian real lost 30% of its value against the U.S. dollar. Certain
   Latin American countries may impose restrictions on the free conversion of
   their currency into foreign currencies, including the U.S. dollar. There is
   no significant foreign exchange market for many currencies and it would, as a
   result, be difficult for the fund to engage in foreign currency transactions
   designed to protect the value of the fund's interests in securities
   denominated in such currencies.

   Sovereign Debt A number of Latin American countries are among the largest
   debtors of developing countries. There have been moratoria on, and
   reschedulings of, repayment with respect to these debts. Such events can
   restrict the flexibility of these debtor nations in the international markets
   and result in the imposition of onerous conditions on their economies.

  . Japan

   Japan has experienced earthquakes and tidal waves of varying degrees of
   severity, and the risks of such phenomena, and damage resulting therefrom,
   continue to exist. Japan also has one of the world's highest


                                       5



   population densities. A significant percentage of the total population of
   Japan is concentrated in the metropolitan areas of Tokyo, Osaka, and Nagoya.

   Economy The Japanese economy languished for much of the last decade. Lack of
   effective governmental action in the areas of tax reform to reduce high tax
   rates, banking regulation to address enormous amounts of bad debt, and
   economic reforms to attempt to stimulate spending are among the factors cited
   as possible causes of Japan's economic problems. The yen has had a history of
   unpredictable and volatile movements against the dollar; a weakening yen
   hurts U.S. investors holding yen-denominated securities. Finally, the
   Japanese stock market has experienced wild swings in value and has often been
   considered significantly overvalued.

   Energy Japan has historically depended on oil for most of its energy
   requirements. Almost all of its oil is imported, the majority from the Middle
   East. In the past, oil prices have had a major impact on the domestic
   economy, but more recently Japan has worked to reduce its dependence on oil
   by encouraging energy conservation and use of alternative fuels. In addition,
   a restructuring of industry, with emphasis shifting from basic industries to
   processing and assembly type industries, has contributed to the reduction of
   oil consumption. However, there is no guarantee this favorable trend will
   continue.

   Foreign Trade Overseas trade is important to Japan's economy. Japan has few
   natural resources and must export to pay for its imports of these basic
   requirements. Because of the concentration of Japanese exports in highly
   visible products such as automobiles, machine tools, and semiconductors and
   the large trade surpluses ensuing therefrom, Japan has had difficult
   relations with its trading partners, particularly the U.S. It is possible
   that trade sanctions or other protectionist measures could impact Japan
   adversely in both the short term and long term.



 INVESTMENT PROGRAM
 -------------------------------------------------------------------------------

                               Types of Securities

   Set forth below is additional information about certain of the investments
   described in each fund's prospectus.


                               Hybrid Instruments

   Hybrid instruments (a type of potentially high-risk derivative) have been
   developed and combine the elements of futures contracts or options with those
   of debt, preferred equity, or a depository instrument (hereinafter "hybrid
   instruments"). Generally, a hybrid instrument will be a debt security,
   preferred stock, depository share, trust certificate, certificate of deposit,
   or other evidence of indebtedness on which a portion of or all interest
   payments, and/or the principal or stated amount payable at maturity,
   redemption, or retirement is determined by reference to prices, changes in
   prices, or differences between prices of securities, currencies, intangibles,
   goods, articles, or commodities (collectively "underlying assets") or by
   another objective index, economic factor, or other measure, such as interest
   rates, currency exchange rates, commodity indices, and securities indices
   (collectively "benchmarks"). Thus, hybrid instruments may take a variety of
   forms, including, but not limited to, debt instruments with interest or
   principal payments or redemption terms determined by reference to the value
   of a currency or commodity or securities index at a future point in time,
   preferred stock with dividend rates determined by reference to the value of a
   currency, or convertible securities with the conversion terms related to a
   particular commodity.

   Hybrid instruments can be an efficient means of creating exposure to a
   particular market, or segment of a market, with the objective of enhancing
   total return. For example, a fund may wish to take advantage of expected
   declines in interest rates in several European countries, but avoid the
   transaction costs associated with buying and currency-hedging the foreign
   bond positions. One solution would be to purchase a U.S. dollar-denominated
   hybrid instrument whose redemption price is linked to the average three-year
   interest rate in a designated group of countries. The redemption price
   formula would provide for payoffs of greater than par if the average interest
   rate was lower than a specified level, and payoffs of less than par if rates
   were above the specified level. Furthermore, the fund could limit the
   downside risk of the security by establishing a


                                       6



   minimum redemption price so that the principal paid at maturity could not be
   below a predetermined minimum level if interest rates were to rise
   significantly. The purpose of this arrangement, known as a structured
   security with an embedded put option, would be to give the fund the desired
   European bond exposure while avoiding currency risk, limiting downside market
   risk, and lowering transaction costs. Of course, there is no guarantee that
   the strategy will be successful, and the fund could lose money if, for
   example, interest rates do not move as anticipated or credit problems develop
   with the issuer of the hybrid instruments.

   The risks of investing in hybrid instruments reflect a combination of the
   risks of investing in securities, options, futures, and currencies. Thus, an
   investment in a hybrid instrument may entail significant risks that are not
   associated with a similar investment in a traditional debt instrument that
   has a fixed principal amount, is denominated in U.S. dollars, or bears
   interest either at a fixed rate or a floating rate determined by reference to
   a common, nationally published benchmark. The risks of a particular hybrid
   instrument will, of course, depend upon the terms of the instrument, but may
   include, without limitation, the possibility of significant changes in the
   benchmarks or the prices of underlying assets to which the instrument is
   linked. Such risks generally depend upon factors which are unrelated to the
   operations or credit quality of the issuer of the hybrid instrument and which
   may not be readily foreseen by the purchaser, such as economic and political
   events, the supply of and demand for the underlying assets, and interest rate
   movements. In recent years, various benchmarks and prices for underlying
   assets have been highly volatile, and such volatility may be expected in the
   future. Reference is also made to the discussion of futures, options, and
   forward contracts herein for a discussion of the risks associated with such
   investments.

   Hybrid instruments are potentially more volatile and carry greater market
   risks than traditional debt instruments. Depending on the structure of the
   particular hybrid instrument, changes in a benchmark may be magnified by the
   terms of the hybrid instrument and have an even more dramatic and substantial
   effect upon the value of the hybrid instrument. Also, the prices of the
   hybrid instrument and the benchmark or underlying asset may not move in the
   same direction or at the same time.

   Hybrid instruments may bear interest or pay preferred dividends at below
   market (or even relatively nominal) rates. Alternatively, hybrid instruments
   may bear interest at above market rates but bear an increased risk of
   principal loss (or gain). The latter scenario may result if "leverage" is
   used to structure the hybrid instrument. Leverage risk occurs when the hybrid
   instrument is structured so that a given change in a benchmark or underlying
   asset is multiplied to produce a greater value change in the hybrid
   instrument, thereby magnifying the risk of loss as well as the potential for
   gain.

   Hybrid instruments may also carry liquidity risk since the instruments are
   often "customized" to meet the portfolio needs of a particular investor, and
   therefore, the number of investors that are willing and able to buy such
   instruments in the secondary market may be smaller than that for more
   traditional debt securities. In addition, because the purchase and sale of
   hybrid instruments could take place in an over-the-counter market without the
   guarantee of a central clearing organization or in a transaction between the
   fund and the issuer of the hybrid instrument, the creditworthiness of the
   counterparty or issuer of the hybrid instrument would be an additional risk
   factor which the fund would have to consider and monitor. Hybrid instruments
   also may not be subject to regulation by the Commodities Futures Trading
   Commission ("CFTC"), which generally regulates the trading of commodity
   futures by U.S. persons, the SEC, which regulates the offer and sale of
   securities by and to U.S. persons, or any other governmental regulatory
   authority.

   The various risks discussed above, particularly the market risk of such
   instruments, may in turn cause significant fluctuations in the net asset
   value of the fund. Accordingly, the fund will limit its investments in hybrid
   instruments to 10% of total assets. However, because of their volatility, it
   is possible that the fund's investment in hybrid instruments will account for
   more than 10% of the fund's return (positive or negative).


                        Illiquid or Restricted Securities

   Restricted securities may be sold only in privately negotiated transactions
   or in a public offering with respect to which a registration statement is in
   effect under the Securities Act of 1933 (the "1933 Act"). Where registration
   is required, the fund may be obligated to pay all or part of the registration
   expenses, and a


                                       7



   considerable period may elapse between the time of the decision to sell and
   the time the fund may be permitted to sell a security under an effective
   registration statement. If, during such a period, adverse market conditions
   were to develop, the fund might obtain a less favorable price than prevailed
   when it decided to sell. Restricted securities will be priced at fair value
   as determined in accordance with procedures prescribed by the fund's Board of
   Directors. If, through the appreciation of illiquid securities or the
   depreciation of liquid securities, the fund should be in a position where
   more than 15% of the value of its net assets is invested in illiquid assets,
   including restricted securities, the fund will take appropriate steps to
   protect liquidity.

   Notwithstanding the above, the fund may purchase securities which, while
   privately placed, are eligible for purchase and sale under Rule 144A under
   the 1933 Act. This rule permits certain qualified institutional buyers, such
   as the fund, to trade in privately placed securities even though such
   securities are not registered under the 1933 Act. T. Rowe Price, under the
   supervision of the fund's Board of Directors, will consider whether
   securities purchased under Rule 144A are illiquid and thus subject to the
   fund's restriction of investing no more than 15% of its net assets in
   illiquid securities. A determination of whether a Rule 144A security is
   liquid or not is a question of fact. In making this determination, T. Rowe
   Price will consider the trading markets for the specific security, taking
   into account the unregistered nature of a Rule 144A security. In addition, T.
   Rowe Price could consider the following: (1) frequency of trades and quotes;
   (2) number of dealers and potential purchasers; (3) dealer undertakings to
   make a market; and (4) the nature of the security and of marketplace trades
   (e.g., the time needed to dispose of the security, the method of soliciting
   offers, and the mechanics of transfer). The liquidity of Rule 144A securities
   would be monitored and, if as a result of changed conditions it is determined
   that a Rule 144A security is no longer liquid, the fund's holdings of
   illiquid securities would be reviewed to determine what, if any, steps are
   required to assure that the fund does not invest more than 15% of its net
   assets in illiquid securities. Investing in Rule 144A securities could have
   the effect of increasing the amount of the fund's assets invested in illiquid
   securities if qualified institutional buyers are unwilling to purchase such
   securities.


                                    Warrants

   The fund may acquire warrants. Warrants can be highly volatile and have no
   voting rights, pay no dividends, and have no rights with respect to the
   assets of the corporation issuing them. Warrants basically are options to
   purchase securities at a specific price valid for a specific period of time.
   They do not represent ownership of the securities, but only the right to buy
   them. Warrants differ from call options in that warrants are issued by the
   issuer of the security which may be purchased on their exercise, whereas call
   options may be written or issued by anyone. The prices of warrants do not
   necessarily move parallel to the prices of the underlying securities.


                                 Debt Securities

   Balanced, Blue Chip Growth, Capital Appreciation, Capital Opportunity,
   Dividend Growth, Equity Income, Financial Services, Global Technology, Growth
   & Income, Health Sciences, Institutional Large-Cap Value, Institutional
   Small-Cap Stock, Media & Telecommunications, Mid-Cap Value, New Era, Real
   Estate, Small-Cap Stock, Small-Cap Value, and Value Funds

   Debt Obligations Although a majority of the fund's assets are invested in
   common stocks, the fund may invest in convertible securities, corporate and
   government debt securities, and preferred stocks which hold the prospect of
   contributing to the achievement of the fund's objectives. Yields on short-,
   intermediate-, and long-term securities are dependent on a variety of
   factors, including the general conditions of the money and bond markets, the
   size of a particular offering, the maturity of the obligation, and the credit
   quality and rating of the issuer. Debt securities with longer maturities tend
   to have higher yields and are generally subject to potentially greater
   capital appreciation and depreciation than obligations with shorter
   maturities and lower yields. The market prices of debt securities usually
   vary, depending upon available yields. An increase in interest rates will
   generally reduce the value of portfolio investments, and a decline in
   interest rates will generally increase the value of portfolio investments.
   The ability of the fund to achieve its investment objective is also dependent
   on the continuing ability of the issuers of the debt securities in which the
   fund invests to meet their obligations for the payment of interest and
   principal when due. The fund's investment program permits it to purchase
   below investment-grade securities. Since investors generally perceive that
   there are greater risks associated


                                       8



   with investment in lower-quality securities, the yields from such securities
   normally exceed those obtainable from higher-quality securities. However, the
   principal value of lower-rated securities generally will fluctuate more
   widely than higher-quality securities. Lower-quality investments entail a
   higher risk of default-the nonpayment of interest or principal by the
   issuer-than higher-quality investments. Such securities are also subject to
   special risks, discussed below. Although the fund seeks to reduce risk by
   portfolio diversification, credit analysis, and attention to trends in the
   economy, industries, and financial markets, such efforts will not eliminate
   all risk. There can, of course, be no assurance that the fund will achieve
   its investment objective.

   After purchase by the fund, a debt security may cease to be rated or its
   rating may be reduced below the minimum required for purchase by the fund.
   Neither event will require a sale of such security by the fund. However, T.
   Rowe Price will consider such events in its determination of whether the fund
   should continue to hold the security. To the extent that the ratings given by
   Moody's or S&P may change as a result of changes in such organizations or
   their rating systems, the fund will attempt to use comparable ratings as
   standards for investments in accordance with the investment policies
   contained in the prospectus.

   Special Risks of High-Yield Investing The fund may invest in low-quality
   bonds commonly referred to as "junk bonds." Junk bonds are regarded as
   predominantly speculative with respect to the issuer's continuing ability to
   meet principal and interest payments. Because investment in low- and
   lower-medium-quality bonds involves greater investment risk, to the extent
   the fund invests in such bonds, achievement of its investment objective will
   be more dependent on T. Rowe Price's credit analysis than would be the case
   if the fund was investing in higher-quality bonds. High-yield bonds may be
   more susceptible to real or perceived adverse economic conditions than
   investment-grade bonds. A projection of an economic downturn, or higher
   interest rates, for example, could cause a decline in high-yield bond prices
   because the advent of such events could lessen the ability of highly
   leveraged issuers to make principal and interest payments on their debt
   securities. In addition, the secondary trading market for high-yield bonds
   may be less liquid than the market for higher-grade bonds, which can
   adversely affect the ability of a fund to dispose of its portfolio
   securities. Bonds for which there is only a "thin" market can be more
   difficult to value inasmuch as objective pricing data may be less available
   and judgment may play a greater role in the valuation process.

   Fixed-income securities in which the fund may invest include, but are not
   limited to, those described below.

  . U.S. Government Obligations  Bills, notes, bonds, and other debt securities
   issued by the U.S. Treasury. These are direct obligations of the U.S.
   government and differ mainly in the length of their maturities.

  . U.S. Government Agency Securities  Issued or guaranteed by U.S.
   government-sponsored enterprises and federal agencies. These include
   securities issued by the Federal National Mortgage Association ("Fannie Mae"
   or "FNMA"), Government National Mortgage Association ("Ginnie Mae" or
   "GNMA"), Federal Home Loan Bank, Federal Land Banks, Farmers Home
   Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
   Federal Financing Bank, Farm Credit Banks, the Small Business Association,
   and the Tennessee Valley Authority. Some of these securities are supported by
   the full faith and credit of the U.S. Treasury; the remainder are supported
   only by the credit of the instrumentality, which may or may not include the
   right of the issuer to borrow from the Treasury.

  . Bank Obligations  Certificates of deposit, banker's acceptances, and other
   short-term debt obligations. Certificates of deposit are short-term
   obligations of commercial banks. A banker's acceptance is a time draft drawn
   on a commercial bank by a borrower, usually in connection with international
   commercial transactions. Certificates of deposit may have fixed or variable
   rates. The fund may invest in U.S. banks, foreign branches of U.S. banks,
   U.S. branches of foreign banks, and foreign branches of foreign banks.

  . Short-Term Corporate Debt Securities Outstanding nonconvertible corporate
   debt securities (e.g., bonds and debentures) which have one year or less
   remaining to maturity. Corporate notes may have fixed, variable, or floating
   rates.

  . Commercial Paper and Commercial Notes  Short-term promissory notes issued by
   corporations primarily to finance short-term credit needs. Certain notes may
   have floating or variable rates and may contain options, exercisable by
   either the buyer or the seller, that extend or shorten the maturity of the
   note.


                                       9



  . Foreign Government Securities  Issued or guaranteed by a foreign government,
   province, instrumentality, political subdivision, or similar unit thereof.

  . Savings and Loan Obligations  Negotiable certificates of deposit and other
   short-term debt obligations of savings and loan associations.

  . Supranational Agencies  Securities of certain supranational entities, such
   as the International Development Bank.


             When-Issued Securities and Forward Commitment Contracts

   The price of such securities, which may be expressed in yield terms, is fixed
   at the time the commitment to purchase is made, but delivery and payment take
   place at a later date. Normally, the settlement date occurs within 90 days of
   the purchase for when-issueds, but may be substantially longer for forwards.
   During the period between purchase and settlement, no payment is made by the
   fund to the issuer and no interest accrues to the fund. The purchase of these
   securities will result in a loss if their values decline prior to the
   settlement date. This could occur, for example, if interest rates increase
   prior to settlement. The longer the period between purchase and settlement,
   the greater the risks. At the time the fund makes the commitment to purchase
   these securities, it will record the transaction and reflect the value of the
   security in determining its net asset value. The fund will cover these
   securities by maintaining cash, liquid, high-grade debt securities, or other
   suitable cover as permitted by the SEC with its custodian bank equal in value
   to commitments for them during the time between the purchase and the
   settlement. Therefore, the longer this period, the longer the period during
   which alternative investment options are not available to the fund (to the
   extent of the securities used for cover). Such securities either will mature
   or, if necessary, be sold on or before the settlement date.

   To the extent the fund remains fully or almost fully invested (in securities
   with a remaining maturity of more than one year) at the same time it
   purchases these securities, there will be greater fluctuations in the fund's
   net asset value than if the fund did not purchase them.


                           Mortgage-Related Securities

   Balanced Fund

   Mortgage-related securities in which the fund may invest include, but are not
   limited to, those described below.

  . Mortgage-Backed Securities Mortgage-backed securities are securities
   representing an interest in a pool of mortgages. The mortgages may be of a
   variety of types, including adjustable rate, conventional 30-year fixed rate,
   graduated payment, and 15-year. Principal and interest payments made on the
   mortgages in the underlying mortgage pool are passed through to the fund.
   This is in contrast to traditional bonds where principal is normally paid
   back at maturity in a lump sum. Unscheduled prepayments of principal shorten
   the securities' weighted average life and may lower their total return. (When
   a mortgage in the underlying mortgage pool is prepaid, an unscheduled
   principal prepayment is passed through to the fund. This principal is
   returned to the fund at par. As a result, if a mortgage security were trading
   at a premium, its total return would be lowered by prepayments, and if a
   mortgage security were trading at a discount, its total return would be
   increased by prepayments.) The value of these securities also may change
   because of changes in the market's perception of the creditworthiness of the
   federal agency that issued them. In addition, the mortgage securities market
   in general may be adversely affected by changes in governmental regulation or
   tax policies.

  . U.S. Government Agency Mortgage-Backed Securities These are obligations
   issued or guaranteed by the United States government or one of its agencies
   or instrumentalities, such as GNMA, FNMA, the Federal Home Loan Mortgage
   Corporation ("Freddie Mac" or "FHLMC"), and the Federal Agricultural Mortgage
   Corporation ("Farmer Mac" or "FAMC"). FNMA, FHLMC, and FAMC obligations are
   not backed by the full faith and credit of the U.S. government as GNMA
   certificates are, but they are supported by the instrumentality's right to
   borrow from the United States Treasury. U.S. Government Agency
   Mortgage-Backed Certificates provide for the pass-through to investors of
   their pro-rata share of monthly payments (including any prepayments) made by
   the individual borrowers on the pooled mortgage loans, net of any fees paid
   to the guarantor of such securities and the servicer of the underlying
   mortgage loans. Each of GNMA, FNMA,


                                       10



   FHLMC, and FAMC guarantees timely distributions of interest to certificate
   holders. GNMA and FNMA guarantee timely distributions of scheduled principal.
   FHLMC has in the past guaranteed only the ultimate collection of principal of
   the underlying mortgage loan; however, FHLMC now issues mortgage-backed
   securities (FHLMC Gold PCS) which also guarantee timely payment of monthly
   principal reductions.

  . Ginnie Mae Certificates Ginnie Mae is a wholly owned corporate
   instrumentality of the United States within the Department of Housing and
   Urban Development. The National Housing Act of 1934, as amended (the "Housing
   Act"), authorizes Ginnie Mae to guarantee the timely payment of the principal
   of and interest on certificates that are based on and backed by a pool of
   mortgage loans insured by the Federal Housing Administration under the
   Housing Act, or Title V of the Housing Act of 1949 ("FHA Loans"), or
   guaranteed by the Department of Veterans Affairs under the Servicemen's
   Readjustment Act of 1944, as amended ("VA Loans"), or by pools of other
   eligible mortgage loans. The Housing Act provides that the full faith and
   credit of the United States government is pledged to the payment of all
   amounts that may be required to be paid under any guaranty. In order to meet
   its obligations under such guaranty, Ginnie Mae is authorized to borrow from
   the United States Treasury with no limitations as to amount.

  . Fannie Mae Certificates Fannie Mae is a federally chartered and privately
   owned corporation organized and existing under the Federal National Mortgage
   Association Charter Act of 1938. FNMA Certificates represent a pro-rata
   interest in a group of mortgage loans purchased by Fannie Mae. FNMA
   guarantees the timely payment of principal and interest on the securities it
   issues. The obligations of FNMA are not backed by the full faith and credit
   of the U.S. government.

  . Freddie Mac Certificates Freddie Mac is a corporate instrumentality of the
   United States created pursuant to the Emergency Home Finance Act of 1970, as
   amended ("FHLMC Act"). Freddie Mac Certificates represent a pro-rata interest
   in a group of mortgage loans purchased by Freddie Mac. Freddie Mac guarantees
   timely payment of interest and principal on certain securities it issues and
   timely payment of interest and eventual payment of principal on other
   securities it issues. The obligations of Freddie Mac are obligations solely
   of Freddie Mac and are not backed by the full faith and credit of the U.S.
   government.

  . Farmer Mac Certificates Farmer Mac is a federally chartered instrumentality
   of the United States established by Title VIII of the Farm Credit Act of
   1971, as amended ("Charter Act"). Farmer Mac was chartered primarily to
   attract new capital for financing of agricultural real estate by making a
   secondary market in certain qualified agricultural real estate loans. Farmer
   Mac provides guarantees of timely payment of principal and interest on
   securities representing interests in, or obligations backed by, pools of
   mortgages secured by first liens on agricultural real estate. Similar to
   Fannie Mae and Freddie Mac, Farmer Mac Certificates are not supported by the
   full faith and credit of the U.S. government; rather, Farmer Mac may borrow
   from the U.S. Treasury to meet its guaranty obligations.

   As discussed above, prepayments on the underlying mortgages and their effect
   upon the rate of return of a mortgage-backed security is the principal
   investment risk for a purchaser of such securities, like the fund. Over time,
   any pool of mortgages will experience prepayments due to a variety of
   factors, including (1) sales of the underlying homes (including
   foreclosures), (2) refinancings of the underlying mortgages, and (3)
   increased amortization by the mortgagee. These factors, in turn, depend upon
   general economic factors, such as level of interest rates and economic
   growth. Thus, investors normally expect prepayment rates to increase during
   periods of strong economic growth or declining interest rates, and to
   decrease in recessions and rising interest rate environments. Accordingly,
   the life of the mortgage-backed security is likely to be substantially
   shorter than the stated maturity of the mortgages in the underlying pool.
   Because of such variation in prepayment rates, it is not possible to predict
   the life of a particular mortgage-backed security, but FHA statistics
   indicate that 25- to 30-year single family dwelling mortgages have an average
   life of approximately 12 years. The majority of Ginnie Mae Certificates are
   backed by mortgages of this type, and, accordingly, the generally accepted
   practice treats Ginnie Mae Certificates as 30-year securities which prepay in
   full in the 12th year. FNMA and Freddie Mac Certificates may have differing
   prepayment characteristics.

   Fixed-rate mortgage-backed securities bear a stated "coupon rate" which
   represents the effective mortgage rate at the time of issuance, less certain
   fees to GNMA, FNMA, and FHLMC for providing the guarantee, and the issuer for
   assembling the pool and for passing through monthly payments of interest and
   principal.


                                       11



   Payments to holders of mortgage-backed securities consist of the monthly
   distributions of interest and principal less the applicable fees. The actual
   yield to be earned by a holder of mortgage-backed securities is calculated by
   dividing interest payments by the purchase price paid for the mortgage-backed
   securities (which may be at a premium or a discount from the face value of
   the certificate).

   Monthly distributions of interest, as contrasted to semiannual distributions
   which are common for other fixed interest investments, have the effect of
   compounding and thereby raising the effective annual yield earned on
   mortgage-backed securities. Because of the variation in the life of the pools
   of mortgages which back various mortgage-backed securities, and because it is
   impossible to anticipate the rate of interest at which future principal
   payments may be reinvested, the actual yield earned from a portfolio of
   mortgage-backed securities will differ significantly from the yield estimated
   by using an assumption of a certain life for each mortgage-backed security
   included in such a portfolio as described above.

  . Collateralized Mortgage Obligations ("CMOs") CMOs are bonds that are
   collateralized by whole loan mortgages or mortgage pass-through securities.
   The bonds issued in a CMO deal are divided into groups, and each group of
   bonds is referred to as a "tranche." Under the traditional CMO structure, the
   cash flows generated by the mortgages or mortgage pass-through securities in
   the collateral pool are used to first pay interest and then pay principal to
   the CMO bondholders. The bonds issued under such a CMO structure are retired
   sequentially as opposed to the pro-rata return of principal found in
   traditional pass-through obligations. Subject to the various provisions of
   individual CMO issues, the cash flow generated by the underlying collateral
   (to the extent it exceeds the amount required to pay the stated interest) is
   used to retire the bonds. Under the CMO structure, the repayment of principal
   among the different tranches is prioritized in accordance with the terms of
   the particular CMO issuance. The "fastest-pay" tranche of bonds, as specified
   in the prospectus for the issuance, would initially receive all principal
   payments. When that tranche of bonds is retired, the next tranche, or
   tranches, in the sequence, as specified in the prospectus, receive all of the
   principal payments until they are retired. The sequential retirement of bond
   groups continues until the last tranche, or group of bonds, is retired.
   Accordingly, the CMO structure allows the issuer to use cash flows of long
   maturity, monthly-pay collateral to formulate securities with short,
   intermediate, and long final maturities and expected average lives.

   In recent years, new types of CMO tranches have evolved. These include
   floating-rate CMOs, planned amortization classes, accrual bonds, and CMO
   residuals. These newer structures affect the amount and timing of principal
   and interest received by each tranche from the underlying collateral. Under
   certain of these new structures, given classes of CMOs have priority over
   others with respect to the receipt of prepayments on the mortgages.
   Therefore, depending on the type of CMOs in which the fund invests, the
   investment may be subject to a greater or lesser risk of prepayment than
   other types of mortgage-related securities.

   The primary risk of any mortgage security is the uncertainty of the timing of
   cash flows. For CMOs, the primary risk results from the rate of prepayments
   on the underlying mortgages serving as collateral and from the structure of
   the deal (priority of the individual tranches). An increase or decrease in
   prepayment rates (resulting from a decrease or increase in mortgage interest
   rates) will affect the yield, average life, and price of CMOs. The prices of
   certain CMOs, depending on their structure and the rate of prepayments, can
   be volatile. Some CMOs may also not be as liquid as other securities.

  . U.S. Government Agency Multi-Class Pass-Through Securities Unlike CMOs, U.S.
   Government Agency Multi-Class Pass-Through Securities, which include FNMA
   Guaranteed REMIC Pass-Through Certificates and FHLMC Multi-Class Mortgage
   Participation Certificates, are ownership interests in a pool of Mortgage
   Assets. Unless the context indicates otherwise, all references herein to CMOs
   include multi-class pass-through securities.

  . Multi-Class Residential Mortgage Securities Such securities represent
   interests in pools of mortgage loans to residential home buyers made by
   commercial banks, savings and loan associations, or other financial
   institutions. Unlike GNMA, FNMA, and FHLMC securities, the payment of
   principal and interest on Multi-Class Residential Mortgage Securities is not
   guaranteed by the U.S. government or any of its agencies. Accordingly, yields
   on Multi-Class Residential Mortgage Securities have been historically higher
   than the yields on U.S. government mortgage securities. However, the risk of
   loss due to default on such instruments is


                                       12



   higher since they are not guaranteed by the U.S. government or its agencies.
   Additionally, pools of such securities may be divided into senior or
   subordinated segments. Although subordinated mortgage securities may have a
   higher yield than senior mortgage securities, the risk of loss of principal
   is greater because losses on the underlying mortgage loans must be borne by
   persons holding subordinated securities before those holding senior mortgage
   securities.

  . Privately Issued Mortgage-Backed Certificates These are pass-through
   certificates issued by nongovernmental issuers. Pools of conventional
   residential or commercial mortgage loans created by such issuers generally
   offer a higher rate of interest than government and government-related pools
   because there are no direct or indirect government guarantees of payment.
   Timely payment of interest and principal of these pools is, however,
   generally supported by various forms of insurance or guarantees, including
   individual loan, title, pool, and hazard insurance. The insurance and
   guarantees are issued by government entities, private insurance, or the
   mortgage poolers. Such insurance and guarantees and the creditworthiness of
   the issuers thereof will be considered in determining whether a
   mortgage-related security meets the fund's quality standards. The fund may
   buy mortgage-related securities without insurance or guarantees if through an
   examination of the loan experience and practices of the poolers, the
   investment manager determines that the securities meet the fund's quality
   standards.

  . Stripped Mortgage-Backed Securities These instruments are a type of
   potentially high-risk derivative. They represent interests in a pool of
   mortgages, the cash flow of which has been separated into its interest and
   principal components. Interest only securities ("IOs") receive the interest
   portion of the cash flow while principal only securities ("POs") receive the
   principal portion. IOs and POs are usually structured as tranches of a CMO.
   Stripped Mortgage-Backed Securities may be issued by U.S. government agencies
   or by private issuers similar to those described above with respect to CMOs
   and privately issued mortgage-backed certificates. As interest rates rise and
   fall, the value of IOs tends to move in the same direction as interest rates.
   The value of the other mortgage-backed securities described herein, like
   other debt instruments, will tend to move in the opposite direction compared
   to interest rates. Under the Code, POs may generate taxable income from the
   current accrual of original issue discount, without a corresponding
   distribution of cash to the fund.

   The cash flows and yields on IO and PO classes are extremely sensitive to the
   rate of principal payments (including prepayments) on the related underlying
   mortgage assets. In the case of IOs, prepayments affect the amount, but not
   the timing, of cash flows provided to the investor. In contrast, prepayments
   on the mortgage pool affect the timing, but not the amount, of cash flows
   received by investors in POs. For example, a rapid or slow rate of principal
   payments may have a material adverse effect on the prices of IOs or POs,
   respectively. If the underlying mortgage assets experience greater than
   anticipated prepayments of principal, an investor may fail to fully recoup
   his/her initial investment in an IO class of a stripped mortgage-backed
   security, even if the IO class is rated AAA or Aaa or is derived from a full
   faith and credit obligation. Conversely, if the underlying mortgage assets
   experience slower than anticipated prepayments of principal, the price on a
   PO class will be affected more severely than would be the case with a
   traditional mortgage-backed security.

   The staff of the SEC has advised the fund that it believes the fund should
   treat IOs and POs, other than government-issued IOs or POs backed by
   fixed-rate mortgages, as illiquid securities and, accordingly, limit its
   investments in such securities, together with all other illiquid securities,
   to 15% of the fund's net assets. Under the staff's position, the
   determination of whether a particular government-issued IO or PO backed by
   fixed-rate mortgages is liquid may be made on a case by case basis under
   guidelines and standards established by the fund's Board of
   Directors/Trustees. The fund's Board of Directors/Trustees has delegated to
   T. Rowe Price the authority to determine the liquidity of these investments
   based on the following guidelines: the type of issuer; type of collateral,
   including age and prepayment characteristics; rate of interest on coupon
   relative to current market rates and the effect of the rate on the potential
   for prepayments; complexity of the issue's structure, including the number of
   tranches; and size of the issue and the number of dealers who make a market
   in the IO or PO.


                             Asset-Backed Securities

   The credit quality of most asset-backed securities depends primarily on the
   credit quality of the assets underlying such securities, how well the entity
   issuing the security is insulated from the credit risk of the


                                       13



   originator or any other affiliated entities, and the amount and quality of
   any credit support provided to the securities. The rate of principal payment
   on asset-backed securities generally depends on the rate of principal
   payments received on the underlying assets, which in turn may be affected by
   a variety of economic and other factors. As a result, the yield on any
   asset-backed security is difficult to predict with precision and actual yield
   to maturity may be more or less than the anticipated yield to maturity.
   Asset-backed securities may be classified as pass-through certificates or
   collateralized obligations.

   Pass-through certificates are asset-backed securities which represent an
   undivided fractional ownership interest in an underlying pool of assets.
   Pass-through certificates usually provide for payments of principal and
   interest received to be passed through to their holders, usually after
   deduction for certain costs and expenses incurred in administering the pool.

   Because pass-through certificates represent an ownership interest in the
   underlying assets, the holders thereof directly bear the risk of any defaults
   by the obligors on the underlying assets not covered by any credit support.

   Asset-backed securities issued in the form of debt instruments, also known as
   collateralized obligations, are generally issued as the debt of a special
   purpose entity organized solely for the purpose of owning such assets and
   issuing such debt. Such assets are most often trade, credit card, or
   automobile receivables. The assets collateralizing such asset-backed
   securities are pledged to a trustee or custodian for the benefit of the
   holders thereof. Such issuers generally hold no assets other than those
   underlying the asset-backed securities and any credit support provided. As a
   result, although payments on such asset-backed securities are obligations of
   the issuers, in the event of defaults on the underlying assets not covered by
   any credit support, the issuing entities are unlikely to have sufficient
   assets to satisfy their obligations on the related asset-backed securities.


                            Real Estate and REIT Risk

   Primarily Real Estate Fund (but also any other fund investing in REITs)
   Investors in the fund may experience many of the same risks involved with
   investing in real estate directly. These risks include: declines in real
   estate values, risks related to local or general economic conditions,
   particularly lack of demand, overbuilding and increased competition,
   increases in property taxes and operating expenses, changes in zoning laws,
   heavy cash flow dependency, possible lack of availability of mortgage funds,
   obsolescence, losses due to natural disasters, condemnation of properties,
   regulatory limitations on rents and fluctuations in rental income, variations
   in market rental rates, and possible environmental liabilities. Real Estate
   Investment Trusts ("REITs") may own real estate properties (Equity REITs) and
   be subject to these risks directly, or may make or purchase mortgages
   (Mortgage REITs) and be subject to these risks indirectly through underlying
   construction, development, and long-term mortgage loans that may default or
   have payment problems.

   Equity REITs can be affected by rising interest rates that may cause
   investors to demand a high annual yield from future distributions which, in
   turn, could decrease the market prices for the REITs. In addition, rising
   interest rates also increase the costs of obtaining financing for real estate
   projects. Since many real estate projects are dependent upon receiving
   financing, this could cause the value of the Equity REITs in which the fund
   invests to decline.

   Mortgage REITs may hold mortgages that the mortgagors elect to prepay during
   periods of declining interest rates, which may diminish the yield on such
   REITs. In addition, borrowers may not be able to repay mortgages when due,
   which could have a negative effect on the fund.

   Some REITs have relatively small market capitalizations which could increase
   their volatility. REITs tend to be dependent upon specialized management
   skills and have limited diversification so they are subject to risks inherent
   in operating and financing a limited number of properties. In addition, when
   the fund invests in REITs, a shareholder will bear his proportionate share of
   fund expenses and indirectly bear similar expenses of the REITs. REITs depend
   generally on their ability to generate cash flow to make distributions to
   shareholders. In addition, both Equity and Mortgage REITs are subject to the
   risks of failing to qualify for tax-free status of income under the Code or
   failing to maintain exemption from the 1940 Act.


                                       14



 PORTFOLIO MANAGEMENT PRACTICES
 -------------------------------------------------------------------------------

                         Lending of Portfolio Securities

   Securities loans are made to broker-dealers, institutional investors, or
   other persons, pursuant to agreements requiring that the loans be
   continuously secured by collateral at least equal at all times to the value
   of the securities lent, marked to market on a daily basis. The collateral
   received will consist of cash, U.S. government securities, letters of credit,
   or such other collateral as may be permitted under its investment program.
   The collateral, in turn, is invested in short-term securities. While the
   securities are being lent, the fund will continue to receive the equivalent
   of the interest or dividends paid by the issuer on the securities, as well as
   a portion of the interest on the investment of the collateral. Normally, the
   fund employs an agent to implement its securities lending program and the
   agent receives a fee from the fund for its services. The fund has a right to
   call each loan and obtain the securities, within such period of time which
   coincides with the normal settlement period for purchases and sales of such
   securities in the respective markets. The fund will not have the right to
   vote on securities while they are being lent, but it will call a loan in
   anticipation of any important vote. The risks in lending portfolio
   securities, as with other extensions of secured credit, consist of a possible
   default by the borrower, delay in receiving additional collateral or in the
   recovery of the securities or possible loss of rights in the collateral
   should the borrower fail financially. Loans will only be made to firms deemed
   by T. Rowe Price to be of good standing and will not be made unless, in the
   judgment of T. Rowe Price, the consideration to be earned from such loans
   would justify the risk. Additionally, the fund bears the risk that the
   reinvestment of collateral will result in a principal loss. Finally, there is
   also the risk that the price of the securities will increase while they are
   on loan and the collateral will not adequately cover their value.


                         Interfund Borrowing and Lending

   The fund is a party to an exemptive order received from the SEC on December
   8, 1998, amended on November 23, 1999, that permits it to borrow money from
   and/or lend money to other funds in the T. Rowe Price complex ("Price
   Funds"). All loans are set at an interest rate between the rates charged on
   overnight repurchase agreements and short-term bank loans. All loans are
   subject to numerous conditions designed to ensure fair and equitable
   treatment of all participating funds. The program is subject to the oversight
   and periodic review of the Boards of Directors of the Price Funds.


                              Repurchase Agreements

   The fund may enter into a repurchase agreement through which an investor
   (such as the fund) purchases a security (known as the "underlying security")
   from a well-established securities dealer or a bank that is a member of the
   Federal Reserve System. Any such dealer or bank will be on T. Rowe Price's
   approved list. At that time, the bank or securities dealer agrees to
   repurchase the underlying security at the same price, plus specified
   interest. Repurchase agreements are generally for a short period of time,
   often less than a week. Repurchase agreements which do not provide for
   payment within seven days will be treated as illiquid securities. The fund
   will only enter into repurchase agreements where (1) the underlying
   securities are of the type (excluding maturity limitations) which the fund's
   investment guidelines would allow it to purchase directly, (2) the market
   value of the underlying security, including interest accrued, will be at all
   times equal to or exceed the value of the repurchase agreement, and (3)
   payment for the underlying security is made only upon physical delivery or
   evidence of book-entry transfer to the account of the custodian or a bank
   acting as agent. In the event of a bankruptcy or other default of a seller of
   a repurchase agreement, the fund could experience both delays in liquidating
   the underlying security and losses, including: (a) possible decline in the
   value of the underlying security during the period while the fund seeks to
   enforce its rights thereto; (b) possible subnormal levels of income and lack
   of access to income during this period; and (c) expenses of enforcing its
   rights.


                          Reverse Repurchase Agreements

   Although the fund has no current intention of engaging in reverse repurchase
   agreements, the fund reserves the right to do so. Reverse repurchase
   agreements are ordinary repurchase agreements in which a fund is the seller
   of, rather than the investor in, securities, and agrees to repurchase them at
   an agreed upon time and


                                       15



   price. Use of a reverse repurchase agreement may be preferable to a regular
   sale and later repurchase of the securities because it avoids certain market
   risks and transaction costs. A reverse repurchase agreement may be viewed as
   a type of borrowing by the fund, subject to Investment Restriction (1). (See
   "Investment Restrictions.")


                              Money Market Reserves

   It is expected that the fund will invest its cash reserves primarily in one
   or more money market funds established for the exclusive use of the T. Rowe

   Price family of mutual funds and other clients of T. Rowe . Price. Currently,
   two such money market funds are in operation: T. Rowe Price Reserve
   Investment Fund ("RIF") and T. Rowe Price Government Reserve Investment Fund

   ("GRF"), each a series of the T. Rowe Price Reserve Investment Funds, Inc.
   . Additional series may be created in the future. These funds were created
   and operate under an Exemptive Order issued by the SEC (Investment Company
   Act Release No. IC-22770, July 29, 1997).

   Both funds must comply with the requirements of Rule 2a-7 under the 1940 Act
   governing money market funds. The RIF invests at least 95% of its total
   assets in prime money market instruments receiving the highest credit rating.
   The GRF invests primarily in a portfolio of U.S. government-backed
   securities, primarily U.S. Treasuries, and repurchase agreements thereon.

   The RIF and GRF provide a very efficient means of managing the cash reserves
   of the fund. While neither RIF nor GRF pays an advisory fee to the Investment
   Manager, they will incur other expenses. However, the RIF and GRF are
   expected by T. Rowe Price to operate at very low expense ratios. The fund
   will only invest in RIF or GRF to the extent it is consistent with its
   objective and program.

   Neither fund is insured or guaranteed by the FDIC or any other government
   agency. Although the funds seek to maintain a stable net asset value of $1.00
   per share, it is possible to lose money by investing in them.

   All funds except Equity Index 500, Extended Equity Market Index, and Total
   Equity Market Index Funds


                                     Options

   Options are a type of potentially high-risk derivative.


                          Writing Covered Call Options

   The fund may write (sell) American or European style "covered" call options
   and purchase options to close out options previously written by the fund. In
   writing covered call options, the fund expects to generate additional premium
   income which should serve to enhance the fund's total return and reduce the
   effect of any price decline of the security or currency involved in the
   option. Covered call options will generally be written on securities or
   currencies which, in T. Rowe Price's opinion, are not expected to have any
   major price increases or moves in the near future but which, over the long
   term, are deemed to be attractive investments for the fund.

   A call option gives the holder (buyer) the right to purchase, and the writer
   (seller) has the obligation to sell, a security or currency at a specified
   price (the exercise price) at expiration of the option (European style) or at
   any time until a certain date (the expiration date) (American style). So long
   as the obligation of the writer of a call option continues, he may be
   assigned an exercise notice by the broker-dealer through whom such option was
   sold, requiring him to deliver the underlying security or currency against
   payment of the exercise price. This obligation terminates upon the expiration
   of the call option, or such earlier time at which the writer effects a
   closing purchase transaction by repurchasing an option identical to that
   previously sold. To secure his obligation to deliver the underlying security
   or currency in the case of a call option, a writer is required to deposit in
   escrow the underlying security or currency or other assets in accordance with
   the rules of a clearing corporation.

   The fund generally will write only covered call options. This means that the
   fund will either own the security or currency subject to the option or an
   option to purchase the same underlying security or currency having an
   exercise price equal to or less than the exercise price of the "covered"
   option. From time to time, the fund will


                                       16



   write a call option that is not covered as indicated above but where the fund
   will establish and maintain with its custodian for the term of the option, an
   account consisting of cash, U.S. government securities, other liquid
   high-grade debt obligations, or other suitable cover as permitted by the SEC
   having a value equal to the fluctuating market value of the optioned
   securities or currencies. While such an option would be "covered" with
   sufficient collateral to satisfy SEC prohibitions on issuing senior
   securities, this type of strategy would expose the fund to the risks of
   writing uncovered options.

   Portfolio securities or currencies on which call options may be written will
   be purchased solely on the basis of investment considerations consistent with
   the fund's investment objective. The writing of covered call options is a
   conservative investment technique believed to involve relatively little risk
   (in contrast to the writing of naked or uncovered options, which the fund
   generally will not do), but capable of enhancing the fund's total return.
   When writing a covered call option, a fund, in return for the premium, gives
   up the opportunity for profit from a price increase in the underlying
   security or currency above the exercise price, but conversely retains the
   risk of loss should the price of the security or currency decline. Unlike one
   who owns securities or currencies not subject to an option, the fund has no
   control over when it may be required to sell the underlying securities or
   currencies, since it may be assigned an exercise notice at any time prior to
   the expiration of its obligation as a writer. If a call option which the fund
   has written expires, the fund will realize a gain in the amount of the
   premium; however, such gain may be offset by a decline in the market value of
   the underlying security or currency during the option period. If the call
   option is exercised, the fund will realize a gain or loss from the sale of
   the underlying security or currency. The fund does not consider a security or
   currency covered by a call to be "pledged" as that term is used in the fund's
   policy which limits the pledging or mortgaging of its assets. If the fund
   writes an uncovered option as described above, it will bear the risk of
   having to purchase the security subject to the option at a price higher than
   the exercise price of the option. As the price of a security could appreciate
   substantially, the fund's loss could be significant.

   The premium received is the market value of an option. The premium the fund
   will receive from writing a call option will reflect, among other things, the
   current market price of the underlying security or currency, the relationship
   of the exercise price to such market price, the historical price volatility
   of the underlying security or currency, and the length of the option period.
   Once the decision to write a call option has been made, T. Rowe Price, in
   determining whether a particular call option should be written on a
   particular security or currency, will consider the reasonableness of the
   anticipated premium and the likelihood that a liquid secondary market will
   exist for those options. The premium received by the fund for writing covered
   call options will be recorded as a liability of the fund. This liability will
   be adjusted daily to the option's current market value, which will be the
   latest sale price on its primary exchange at the time at which the net asset
   value per share of the fund is computed (close of the New York Stock
   Exchange), or, in the absence of such sale, the mean of closing bid and ask
   prices. The option will be terminated upon expiration of the option, the
   purchase of an identical option in a closing transaction, or delivery of the
   underlying security or currency upon the exercise of the option.

   Closing transactions will be effected in order to realize a profit on an
   outstanding call option, to prevent an underlying security or currency from
   being called, or to permit the sale of the underlying security or currency.
   Furthermore, effecting a closing transaction will permit the fund to write
   another call option on the underlying security or currency with either a
   different exercise price or expiration date or both. If the fund desires to
   sell a particular security or currency from its portfolio on which it has
   written a call option, or purchased a put option, it will seek to effect a
   closing transaction prior to, or concurrently with, the sale of the security
   or currency. There is, of course, no assurance that the fund will be able to
   effect such closing transactions at favorable prices. If the fund cannot
   enter into such a transaction, it may be required to hold a security or
   currency that it might otherwise have sold. When the fund writes a covered
   call option, it runs the risk of not being able to participate in the
   appreciation of the underlying securities or currencies above the exercise
   price, as well as the risk of being required to hold on to securities or
   currencies that are depreciating in value. This could result in higher
   transaction costs. The fund will pay transaction costs in connection with the
   writing of options to close out previously written options. Such transaction
   costs are normally higher than those applicable to purchases and sales of
   portfolio securities.


                                       17



   Call options written by the fund will normally have expiration dates of less
   than nine months from the date written. The exercise price of the options may
   be below, equal to, or above the current market values of the underlying
   securities or currencies at the time the options are written. From time to
   time, the fund may purchase an underlying security or currency for delivery
   in accordance with an exercise notice of a call option assigned to it, rather
   than delivering such security or currency from its portfolio. In such cases,
   additional costs may be incurred.

   The fund will realize a profit or loss from a closing purchase transaction if
   the cost of the transaction is less or more than the premium received from
   the writing of the option. Because increases in the market price of a call
   option will generally reflect increases in the market price of the underlying
   security or currency, any loss resulting from the repurchase of a call option
   is likely to be offset in whole or in part by appreciation of the underlying
   security or currency owned by the fund.

   The fund will not write a covered call option if, as a result, the aggregate
   market value of all portfolio securities or currencies covering written call
   or put options exceeds 25% of the market value of the fund's total assets. In
   calculating the 25% limit, the fund will offset the value of securities
   underlying purchased calls and puts on identical securities or currencies
   with identical maturity dates.


                           Writing Covered Put Options

   The fund may write American or European style covered put options and
   purchase options to close out options previously written by the fund. A put
   option gives the purchaser of the option the right to sell, and the writer
   (seller) has the obligation to buy, the underlying security or currency at
   the exercise price during the option period (American style) or at the
   expiration of the option (European style). So long as the obligation of the
   writer continues, he may be assigned an exercise notice by the broker-dealer
   through whom such option was sold, requiring him to make payment to the
   exercise price against delivery of the underlying security or currency. The
   operation of put options in other respects, including their related risks and
   rewards, is substantially identical to that of call options.

   The fund would write put options only on a covered basis. This means that the
   fund would maintain in a segregated account cash, U.S. government securities,
   other liquid high-grade debt obligations, or other suitable cover as
   determined by the SEC, in an amount not less than the exercise price.
   Alternatively, the fund will own an option to sell the underlying security or
   currency subject to the option having an exercise price equal to or greater
   than the exercise price of the "covered" option at all times while the put
   option is outstanding. (The rules of a clearing corporation currently require
   that such assets be deposited in escrow to secure payment of the exercise
   price.)

   The fund would generally write covered put options in circumstances where T.
   Rowe Price wishes to purchase the underlying security or currency for the
   fund's portfolio at a price lower than the current market price of the
   security or currency. In such event the fund would write a put option at an
   exercise price which, reduced by the premium received on the option, reflects
   the lower price it is willing to pay. Since the fund would also receive
   interest on debt securities or currencies maintained to cover the exercise
   price of the option, this technique could be used to enhance current return
   during periods of market uncertainty. The risk in such a transaction would be
   that the market price of the underlying security or currency would decline
   below the exercise price less the premiums received. Such a decline could be
   substantial and result in a significant loss to the fund. In addition, the
   fund, because it does not own the specific securities or currencies which it
   may be required to purchase in exercise of the put, cannot benefit from
   appreciation, if any, with respect to such specific securities or currencies.

   The fund will not write a covered put option if, as a result, the aggregate
   market value of all portfolio securities or currencies covering put or call
   options exceeds 25% of the market value of the fund's total assets. In
   calculating the 25% limit, the fund will offset the value of securities
   underlying purchased puts and calls on identical securities or currencies
   with identical maturity dates.


                                       18



   The premium received by the fund for writing covered put options will be
   recorded as a liability of the fund. This liability will be adjusted daily to
   the option's current market value, which will be the latest sale price on its
   primary exchange at the time at which the net asset value per share of the
   fund is computed (close of the New York Stock Exchange), or, in the absence
   of such sale, the mean of the closing bid and ask prices.


                             Purchasing Put Options

   The fund may purchase American or European style put options. As the holder
   of a put option, the fund has the right to sell the underlying security or
   currency at the exercise price at any time during the option period (American
   style) or at the expiration of the option (European style). The fund may
   enter into closing sale transactions with respect to such options, exercise
   them, or permit them to expire. The fund may purchase put options for
   defensive purposes in order to protect against an anticipated decline in the
   value of its securities or currencies. An example of such use of put options
   is provided next.

   The fund may purchase a put option on an underlying security or currency (a
   "protective put") owned by the fund as a defensive technique in order to
   protect against an anticipated decline in the value of the security or
   currency. Such hedge protection is provided only during the life of the put
   option when the fund, as the holder of the put option, is able to sell the
   underlying security or currency at the put exercise price regardless of any
   decline in the underlying security's market price or currency's exchange
   value. For example, a put option may be purchased in order to protect
   unrealized appreciation of a security or currency where T. Rowe Price deems
   it desirable to continue to hold the security or currency because of tax
   considerations. The premium paid for the put option and any transaction costs
   would reduce any capital gain otherwise available for distribution when the
   security or currency is eventually sold.

   The fund may also purchase put options at a time when the fund does not own
   the underlying security or currency. By purchasing put options on a security
   or currency it does not own, the fund seeks to benefit from a decline in the
   market price of the underlying security or currency. If the put option is not
   sold when it has remaining value, and if the market price of the underlying
   security or currency remains equal to or greater than the exercise price
   during the life of the put option, the fund will lose its entire investment
   in the put option. In order for the purchase of a put option to be
   profitable, the market price of the underlying security or currency must
   decline sufficiently below the exercise price to cover the premium and
   transaction costs, unless the put option is sold in a closing sale
   transaction.

   The fund will not commit more than 5% of its assets to premiums when
   purchasing put and call options. The premium paid by the fund when purchasing
   a put option will be recorded as an asset of the fund in the portfolio of
   investments. This asset will be adjusted daily to the option's current market
   value, which will be the latest sale price on its primary exchange at the
   time at which the net asset value per share of the fund is computed (close of
   New York Stock Exchange), or, in the absence of such sale, the mean of
   closing bid and ask prices. This asset will be terminated upon expiration of
   the option, the selling (writing) of an identical option in a closing
   transaction, or the delivery of the underlying security or currency upon the
   exercise of the option.


                             Purchasing Call Options

   The fund may purchase American or European style call options. As the holder
   of a call option, the fund has the right to purchase the underlying security
   or currency at the exercise price at any time during the option period
   (American style) or at the expiration of the option (European style). The
   fund may enter into closing sale transactions with respect to such options,
   exercise them, or permit them to expire. The fund may purchase call options
   for the purpose of increasing its current return or avoiding tax consequences
   which could reduce its current return. The fund may also purchase call
   options in order to acquire the underlying securities or currencies. Examples
   of such uses of call options are provided next.

   Call options may be purchased by the fund for the purpose of acquiring the
   underlying securities or currencies for its portfolio. Utilized in this
   fashion, the purchase of call options enables the fund to acquire the
   securities or currencies at the exercise price of the call option plus the
   premium paid. At times the net cost of acquiring securities or currencies in
   this manner may be less than the cost of acquiring the securities or
   currencies directly. This technique may also be useful to the fund in
   purchasing a large block of securities or currencies that would be more
   difficult to acquire by direct market purchases. So long as it holds such a
   call option


                                       19



   rather than the underlying security or currency itself, the fund is partially
   protected from any unexpected decline in the market price of the underlying
   security or currency and in such event could allow the call option to expire,
   incurring a loss only to the extent of the premium paid for the option.

   The fund may also purchase call options on underlying securities or
   currencies it owns in order to protect unrealized gains on call options
   previously written by it. A call option would be purchased for this purpose
   where tax considerations make it inadvisable to realize such gains through a
   closing purchase transaction. Call options may also be purchased at times to
   avoid realizing losses.

   The fund will not commit more than 5% of its assets to premiums when
   purchasing call and put options. The premium paid by the fund when purchasing
   a call option will be recorded as an asset of the fund in the portfolio of
   investments. This asset will be adjusted daily to the option's current market
   value, which will be the latest sale price on its primary exchange at the
   time at which the net asset value per share of the fund is computed (close of
   New York Stock Exchange), or, in the absence of such sale, the mean of
   closing bid and ask prices.


                        Dealer (Over-the-Counter) Options

   The fund may engage in transactions involving dealer options. Certain risks
   are specific to dealer options. While the fund would look to a clearing
   corporation to exercise exchange-traded options, if the fund were to purchase
   a dealer option, it would rely on the dealer from whom it purchased the
   option to perform if the option were exercised. Failure by the dealer to do
   so would result in the loss of the premium paid by the fund as well as loss
   of the expected benefit of the transaction.

   Exchange-traded options generally have a continuous liquid market while
   dealer options have none. Consequently, the fund will generally be able to
   realize the value of a dealer option it has purchased only by exercising it
   or reselling it to the dealer who issued it. Similarly, when the fund writes
   a dealer option, it generally will be able to close out the option prior to
   its expiration only by entering into a closing purchase transaction with the
   dealer to which the fund originally wrote the option. While the fund will
   seek to enter into dealer options only with dealers who will agree to and
   which are expected to be capable of entering into closing transactions with
   the fund, there can be no assurance that the fund will be able to liquidate a
   dealer option at a favorable price at any time prior to expiration. Until the
   fund, as a covered dealer call option writer, is able to effect a closing
   purchase transaction, it will not be able to liquidate securities (or other
   assets) or currencies used as cover until the option expires or is exercised.
   In the event of insolvency of the counter party, the fund may be unable to
   liquidate a dealer option. With respect to options written by the fund, the
   inability to enter into a closing transaction may result in material losses
   to the fund. For example, since the fund must maintain a secured position
   with respect to any call option on a security it writes, the fund may not
   sell the assets which it has segregated to secure the position while it is
   obligated under the option. This requirement may impair a fund's ability to
   sell portfolio securities or currencies at a time when such sale might be
   advantageous.

   The staff of the SEC has taken the position that purchased dealer options and
   the assets used to secure the written dealer options are illiquid securities.
   The fund may treat the cover used for written Over-the-Counter ("OTC")
   options as liquid if the dealer agrees that the fund may repurchase the OTC
   option it has written for a maximum price to be calculated by a predetermined
   formula. In such cases, the OTC option would be considered illiquid only to
   the extent the maximum repurchase price under the formula exceeds the
   intrinsic value of the option.

   Equity Index 500, Extended Equity Market Index, and Total Equity Market Index
   Funds


                                     Options

   Options are a type of potentially high-risk derivative.


                                       20



   The only option activity the funds currently may engage in is the purchase of
   S&P 500 call options for the Equity Index 500 Fund, or the purchases of call
   options on any indices that may be consistent with the investment programs
   for the Extended Equity Market Index and Total Equity Market Index Funds.
   Such activity is subject to the same risks described above under "Purchasing
   Call Options." However, the funds reserve the right to engage in other
   options activity.

   All funds


                                Futures Contracts

   Futures contracts are a type of potentially high-risk derivative.

   Transactions in Futures

   The fund may enter into futures contracts including stock index, interest
   rate, and currency futures ("futures" or "futures contracts").

   The New Era Fund may also enter into futures contracts on commodities related
   to the types of companies in which it invests, such as oil and gold futures.
   The Equity Index 500, Extended Equity Market Index, and Total Equity Market
   Index Funds may only enter into stock index futures which are appropriate for
   their investment programs to provide an efficient means of maintaining
   liquidity while being invested in the market, to facilitate trading, or to
   reduce transaction costs. They will not use futures for hedging purposes.
   Otherwise the nature of such futures and the regulatory limitations and risks
   to which they are subject are the same as those described below.

   Stock index futures contracts may be used to provide a hedge for a portion of
   the fund's portfolio, as a cash management tool, or as an efficient way for
   T. Rowe Price to implement either an increase or decrease in portfolio market
   exposure in response to changing market conditions. The fund may purchase or
   sell futures contracts with respect to any stock index. Nevertheless, to
   hedge the fund's portfolio successfully, the fund must sell futures contracts
   with respect to indices or subindices whose movements will have a significant
   correlation with movements in the prices of the fund's portfolio securities.

   Interest rate or currency futures contracts may be used as a hedge against
   changes in prevailing levels of interest rates or currency exchange rates in
   order to establish more definitely the effective return on securities or
   currencies held or intended to be acquired by the fund. In this regard, the
   fund could sell interest rate or currency futures as an offset against the
   effect of expected increases in interest rates or currency exchange rates and
   purchase such futures as an offset against the effect of expected declines in
   interest rates or currency exchange rates.

   The fund will enter into futures contracts which are traded on national or
   foreign futures exchanges and are standardized as to maturity date and
   underlying financial instrument. Futures exchanges and trading in the United
   States are regulated under the Commodity Exchange Act by the CFTC. Although
   techniques other than the sale and purchase of futures contracts could be
   used for the above-referenced purposes, futures contracts offer an effective
   and relatively low cost means of implementing the fund's objectives in these
   areas.

   Regulatory Limitations
   If the fund purchases or sells futures contracts or related options which do
   not qualify as bona fide hedging under applicable CFTC rules, the aggregate
   initial margin deposits and premium required to establish those positions
   cannot exceed 5% of the liquidation value of the fund after taking into
   account unrealized profits and unrealized losses on any such contracts it has
   entered into, provided, however, that in the case of an option that is
   in-the-money at the time of purchase, the in-the-money amount may be excluded
   in calculating the 5% limitation. For purposes of this policy, options on
   futures contracts and foreign currency options traded on a commodities
   exchange will be considered "related options." This policy may be modified by
   the Board of Directors without a shareholder vote and does not limit the
   percentage of the fund's assets at risk to 5%.

   In instances involving the purchase of futures contracts or the writing of
   call or put options thereon by the fund, an amount of cash, liquid assets, or
   other suitable cover as permitted by the SEC, equal to the market


                                       21



   value of the futures contracts and options thereon (less any related margin
   deposits), will be identified by the fund to cover the position, or
   alternative cover (such as owning an offsetting position) will be employed.
   Assets used as cover or held in an identified account cannot be sold while
   the position in the corresponding option or future is open, unless they are
   replaced with similar assets. As a result, the commitment of a large portion
   of a fund's assets to cover or identified accounts could impede portfolio
   management or the fund's ability to meet redemption requests or other current
   obligations.

   If the CFTC or other regulatory authorities adopt different (including less
   stringent) or additional restrictions, the fund would comply with such new
   restrictions.

   Trading in Futures Contracts
   A futures contract provides for the future sale by one party and purchase by
   another party of a specified amount of a specific financial instrument (e.g.,
   units of a stock index) for a specified price, date, time, and place
   designated at the time the contract is made. Brokerage fees are incurred when
   a futures contract is bought or sold and margin deposits must be maintained.
   Entering into a contract to buy is commonly referred to as buying or
   purchasing a contract or holding a long position. Entering into a contract to
   sell is commonly referred to as selling a contract or holding a short
   position.

   Unlike when the fund purchases or sells a security, no price would be paid or
   received by the fund upon the purchase or sale of a futures contract. Upon
   entering into a futures contract, and to maintain the fund's open positions
   in futures contracts, the fund would be required to deposit with its
   custodian in a segregated account in the name of the futures broker an amount
   of cash or liquid assets known as "initial margin." The margin required for a
   particular futures contract is set by the exchange on which the contract is
   traded, and may be significantly modified from time to time by the exchange
   during the term of the contract. Futures contracts are customarily purchased
   and sold on margins that may range upward from less than 5% of the value of
   the contract being traded.

   Financial futures are valued daily at closing settlement prices. If the price
   of an open futures contract changes (by increase in the case of a sale or by
   decrease in the case of a purchase) so that the loss on the futures contract
   reaches a point at which the margin on deposit does not satisfy margin
   requirements, the broker will require a payment by the fund ("variation
   margin") to restore the margin account to the amount of the initial margin.

   Subsequent payments ("mark-to-market payments") to and from the futures
   broker, are made on a daily basis as the price of the underlying assets
   fluctuate, making the long and short positions in the futures contract more
   or less valuable. If the value of the open futures position increases in the
   case of a sale or decreases in the case of a purchase, the fund will pay the
   amount of the daily change in value to the broker. However, if the value of
   the open futures position decreases in the case of a sale or increases in the
   case of a purchase, the broker will pay the amount of the daily change in
   value to the fund.

   Although certain futures contracts, by their terms, require actual future
   delivery of and payment for the underlying instruments, in practice most
   futures contracts are usually closed out before the delivery date. Closing
   out an open futures contract purchase or sale is effected by entering into an
   offsetting futures contract sale or purchase, respectively, for the same
   aggregate amount of the identical securities and the same delivery date. If
   the offsetting purchase price is less than the original sale price, the fund
   realizes a gain; if it is more, the fund realizes a loss. Conversely, if the
   offsetting sale price is more than the original purchase price, the fund
   realizes a gain; if it is less, the fund realizes a loss. The transaction
   costs must also be included in these calculations. There can be no assurance,
   however, that the fund will be able to enter into an offsetting transaction
   with respect to a particular futures contract at a particular time. If the
   fund is not able to enter into an offsetting transaction, the fund will
   continue to be required to maintain the margin deposits on the futures
   contract.

   For example, the S&P 500 Stock Index is made up of 500 selected common
   stocks, most of which are listed on the New York Stock Exchange. The S&P 500
   Index assigns relative weightings to the common stocks included in the Index,
   and the Index fluctuates with changes in the market values of those common
   stocks. In the case of futures contracts on the S&P 500 Index, the contracts
   are to buy or sell 250 units. Thus, if the


                                       22



   value of the S&P 500 Index were $150, one contract would be worth $37,500
   (250 units x $150). The stock index futures contract specifies that no
   delivery of the actual stocks making up the index will take place. Instead,
   settlement in cash occurs. Over the life of the contract, the gain or loss
   realized by the fund will equal the difference between the purchase (or sale)
   price of the contract and the price at which the contract is terminated. For
   example, if the fund enters into a futures contract to buy 250 units of the
   S&P 500 Index at a specified future date at a contract price of $150 and the
   S&P 500 Index is at $154 on that future date, the fund will gain $1,000 (250
   units x gain of $4). If the fund enters into a futures contract to sell 250
   units of the stock index at a specified future date at a contract price of
   $150 and the S&P 500 Index is at $152 on that future date, the fund will lose
   $500 (250 units x loss of $2).


               Special Risks of Transactions in Futures Contracts

  . Volatility and Leverage The prices of futures contracts are volatile and are
   influenced, among other things, by actual and anticipated changes in the
   market and interest rates, which in turn are affected by fiscal and monetary
   policies and national and international political and economic events.

   Most United States futures exchanges limit the amount of fluctuation
   permitted in futures contract prices during a single trading day. The daily
   limit establishes the maximum amount that the price of a futures contract may
   vary either up or down from the previous day's settlement price at the end of
   a trading session. Once the daily limit has been reached in a particular type
   of futures contract, no trades may be made on that day at a price beyond that
   limit. The daily limit governs only price movement during a particular
   trading day and therefore does not limit potential losses, because the limit
   may prevent the liquidation of unfavorable positions. Futures contract prices
   have occasionally moved to the daily limit for several consecutive trading
   days with little or no trading, thereby preventing prompt liquidation of
   futures positions and subjecting some futures traders to substantial losses.

   Margin deposits required on futures trading are low. As a result, a
   relatively small price movement in a futures contract may result in immediate
   and substantial loss, as well as gain, to the investor. For example, if at
   the time of purchase, 10% of the value of the futures contract is deposited
   as margin, a subsequent 10% decrease in the value of the futures contract
   would result in a total loss of the margin deposit, before any deduction for
   the transaction costs, if the account were then closed out. A 15% decrease
   would result in a loss equal to 150% of the original margin deposit, if the
   contract were closed out. Thus, a purchase or sale of a futures contract may
   result in losses in excess of the amount invested in the futures contract.

  . Liquidity The fund may elect to close some or all of its futures positions
   at any time prior to their expiration. The fund would do so to reduce
   exposure represented by long futures positions or short futures positions.
   The fund may close its positions by taking opposite positions which would
   operate to terminate the fund's position in the futures contracts. Final
   determinations of mark-to-market payments would then be made, additional cash
   would be required to be paid by or released to the fund, and the fund would
   realize a loss or a gain.

   Futures contracts may be closed out only on the exchange or board of trade
   where the contracts were initially traded. Although the fund intends to
   purchase or sell futures contracts only on exchanges or boards of trade where
   there appears to be an active market, there is no assurance that a liquid
   market on an exchange or board of trade will exist for any particular
   contract at any particular time. In such event, it might not be possible to
   close a futures contract, and in the event of adverse price movements, the
   fund would continue to be required to make daily mark-to-market and variation
   margin payments. However, in the event futures contracts have been used to
   hedge the underlying instruments, the fund would continue to hold the
   underlying instruments subject to the hedge until the futures contracts could
   be terminated. In such circumstances, an increase in the price of underlying
   instruments, if any, might partially or completely offset losses on the
   futures contract. However, as described next, there is no guarantee that the
   price of the underlying instruments will, in fact, correlate with the price
   movements in the futures contract and thus provide an offset to losses on a
   futures contract.

  . Hedging Risk A decision of whether, when, and how to hedge involves skill
   and judgment, and even a well-conceived hedge may be unsuccessful to some
   degree because of unexpected market or economic events. There are several
   risks in connection with the use by the fund of futures contracts as a
   hedging device. One


                                       23



   risk arises because of the imperfect correlation between movements in the
   prices of the futures contracts and movements in the prices of the underlying
   instruments which are the subject of the hedge. T. Rowe Price will, however,
   attempt to reduce this risk by entering into futures contracts whose
   movements, in its judgment, will have a significant correlation with
   movements in the prices of the fund's underlying instruments sought to be
   hedged.

   Successful use of futures contracts by the fund for hedging purposes is also
   subject to T. Rowe Price's ability to correctly predict movements in the
   direction of the market. It is possible that, when the fund has sold futures
   to hedge its portfolio against a decline in the market, the index, indices,
   or instruments underlying futures might advance and the value of the
   underlying instruments held in the fund's portfolio might decline. If this
   were to occur, the fund would lose money on the futures and also would
   experience a decline in value in its underlying instruments. However, while
   this might occur to a certain degree, T. Rowe Price believes that over time
   the value of the fund's portfolio will tend to move in the same direction as
   the market indices used to hedge the portfolio. It is also possible that, if
   the fund were to hedge against the possibility of a decline in the market
   (adversely affecting the underlying instruments held in its portfolio) and
   prices instead increased, the fund would lose part or all of the benefit of
   increased value of those underlying instruments that it had hedged, because
   it would have offsetting losses in its futures positions. In addition, in
   such situations, if the fund had insufficient cash, it might have to sell
   underlying instruments to meet daily mark-to-market and variation margin
   requirements. Such sales of underlying instruments might be, but would not
   necessarily be, at increased prices (which would reflect the rising market).
   The fund might have to sell underlying instruments at a time when it would be
   disadvantageous to do so.

   In addition to the possibility that there might be an imperfect correlation,
   or no correlation at all, between price movements in the futures contracts
   and the portion of the portfolio being hedged, the price movements of futures
   contracts might not correlate perfectly with price movements in the
   underlying instruments due to certain market distortions. First, all
   participants in the futures market are subject to margin deposit and
   maintenance requirements. Rather than meeting additional margin deposit
   requirements, investors might close futures contracts through offsetting
   transactions, which could distort the normal relationship between the
   underlying instruments and futures markets. Second, the margin requirements
   in the futures market are less onerous than margin requirements in the
   securities markets and, as a result, the futures market might attract more
   speculators than the securities markets. Increased participation by
   speculators in the futures market might also cause temporary price
   distortions. Due to the possibility of price distortion in the futures market
   and also because of imperfect correlation between price movements in the
   underlying instruments and movements in the prices of futures contracts, even
   a correct forecast of general market trends by T. Rowe Price might not result
   in a successful hedging transaction over a very short time period.


                          Options on Futures Contracts

   The fund may purchase and sell options on the same types of futures in which
   it may invest.

   Options (another type of potentially high-risk derivative) on futures are
   similar to options on underlying instruments except that options on futures
   give the purchaser the right, in return for the premium paid, to assume a
   position in a futures contract (a long position if the option is a call and a
   short position if the option is a put), rather than to purchase or sell the
   futures contract, at a specified exercise price at any time during the period
   of the option. Upon exercise of the option, the delivery of the futures
   position by the writer of the option to the holder of the option will be
   accompanied by the delivery of the accumulated balance in the writer's
   futures margin account which represents the amount by which the market price
   of the futures contract, at exercise, exceeds (in the case of a call) or is
   less than (in the case of a put) the exercise price of the option on the
   futures contract. Purchasers of options who fail to exercise their options
   prior to the exercise date suffer a loss of the premium paid. Options on
   futures contracts are valued daily at the last sale price on its primary
   exchange at the time of which the net asset value per share of the fund is
   computed (close of New York Stock Exchange), or in the absence of such sale,
   the mean of closing bid and ask prices.

   As an alternative to writing or purchasing call and put options on stock
   index futures, the fund may write or purchase call and put options on
   financial indices. Such options would be used in a manner similar to the use
   of options on futures contracts. From time to time, a single order to
   purchase or sell futures contracts (or


                                       24



   options thereon) may be made on behalf of the fund and other T. Rowe Price
   funds. Such aggregated orders would be allocated among the funds and the
   other T. Rowe Price funds in a fair and nondiscriminatory manner.


          Special Risks of Transactions in Options on Futures Contracts

   The risks described under "Special Risks of Transactions in Futures
   Contracts" are substantially the same as the risks of using options on
   futures. If the fund were to write an option on a futures contract, it would
   be required to deposit and maintain initial and variation margin in the same
   manner as a regular futures contract. In addition, where the fund seeks to
   close out an option position by writing or buying an offsetting option
   covering the same index, underlying instrument, or contract and having the
   same exercise price and expiration date, its ability to establish and close
   out positions on such options will be subject to the maintenance of a liquid
   secondary market. Reasons for the absence of a liquid secondary market on an
   exchange include the following: (1) there may be insufficient trading
   interest in certain options; (2) restrictions may be imposed by an exchange
   on opening transactions or closing transactions or both; (3) trading halts,
   suspensions, or other restrictions may be imposed with respect to particular
   classes or series of options, or underlying instruments; (4) unusual or
   unforeseen circumstances may interrupt normal operations on an exchange; (5)
   the facilities of an exchange or a clearing corporation may not at all times
   be adequate to handle current trading volume; or (6) one or more exchanges
   could, for economic or other reasons, decide or be compelled at some future
   date to discontinue the trading of options (or a particular class or series
   of options), in which event the secondary market on that exchange (or in the
   class or series of options) would cease to exist, although outstanding
   options on the exchange that had been issued by a clearing corporation as a
   result of trades on that exchange would continue to be exercisable in
   accordance with their terms. There is no assurance that higher than
   anticipated trading activity or other unforeseen events might not, at times,
   render certain of the facilities of any of the clearing corporations
   inadequate, and thereby result in the institution by an exchange of special
   procedures which may interfere with the timely execution of customers'
   orders.


                    Additional Futures and Options Contracts

   Although the fund has no current intention of engaging in futures or options
   transactions other than those described above, it reserves the right to do
   so. Such futures and options trading might involve risks which differ from
   those involved in the futures and options described above.


                           Foreign Futures and Options

   Participation in foreign futures and foreign options transactions involves
   the execution and clearing of trades on or subject to the rules of a foreign
   board of trade. Neither the National Futures Association nor any domestic
   exchange regulates activities of any foreign boards of trade, including the
   execution, delivery, and clearing of transactions, or has the power to compel
   enforcement of the rules of a foreign board of trade or any applicable
   foreign law. This is true even if the exchange is formally linked to a
   domestic market so that a position taken on the market may be liquidated by a
   transaction on another market. Moreover, such laws or regulations will vary
   depending on the foreign country in which the foreign futures or foreign
   options transaction occurs. For these reasons, when the fund trades foreign
   futures or foreign options contracts, it may not be afforded certain of the
   protective measures provided by the Commodity Exchange Act, the CFTC's
   regulations, and the rules of the National Futures Association and any
   domestic exchange, including the right to use reparations proceedings before
   the CFTC and arbitration proceedings provided by the National Futures
   Association or any domestic futures exchange. In particular, funds received
   from the fund for foreign futures or foreign options transactions may not be
   provided the same protections as funds received for transactions on United
   States futures exchanges. In addition, the price of any foreign futures or
   foreign options contract and, therefore, the potential profit and loss
   thereon may be affected by any variance in the foreign exchange rate between
   the time the fund's order is placed and the time it is liquidated, offset, or
   exercised.


                                       25



   All funds except Equity Index 500, Extended Equity Market Index, and Total
   Equity Market Index Funds


                          Foreign Currency Transactions

   A forward foreign currency exchange contract involves an obligation to
   purchase or sell a specific currency at a future date, which may be any fixed
   number of days from the date of the contract agreed upon by the parties, at a
   price set at the time of the contract. These contracts are principally traded
   in the interbank market conducted directly between currency traders (usually
   large, commercial banks) and their customers. A forward contract generally
   has no deposit requirement, and no commissions are charged at any stage for
   trades.

   The fund may enter into forward contracts for a variety of purposes in
   connection with the management of the foreign securities portion of its
   portfolio. The fund's use of such contracts would include, but not be limited
   to, the following:

   First, when the fund enters into a contract for the purchase or sale of a
   security denominated in a foreign currency, it may desire to "lock in" the
   U.S. dollar price of the security. By entering into a forward contract for
   the purchase or sale, for a fixed amount of dollars, of the amount of foreign
   currency involved in the underlying security transactions, the fund will be
   able to protect itself against a possible loss resulting from an adverse
   change in the relationship between the U.S. dollar and the subject foreign
   currency during the period between the date the security is purchased or sold

   and the date on which payment is made or received.


   Second, when T. Rowe Price believes that one currency may experience a
   substantial movement against another currency, including the U.S. dollar, it
   may enter into a forward contract to sell or buy the amount of the former
   foreign currency, approximating the value of some or all of the fund's
   portfolio securities denominated in such foreign currency. Alternatively,
   where appropriate, the fund may hedge all or part of its foreign currency
   exposure through the use of a basket of currencies or a proxy currency where
   such currency or currencies act as an effective proxy for other currencies.
   In such a case, the fund may enter into a forward contract where the amount
   of the foreign currency to be sold exceeds the value of the securities
   denominated in such currency. The use of this basket hedging technique may be
   more efficient and economical than entering into separate forward contracts
   for each currency held in the fund. The precise matching of the forward
   contract amounts and the value of the securities involved will not generally
   be possible since the future value of such securities in foreign currencies
   will change as a consequence of market movements in the value of those
   securities between the date the forward contract is entered into and the date
   it matures. The projection of short-term currency market movement is
   extremely difficult, and the successful execution of a short-term hedging
   strategy is highly uncertain. Under normal circumstances, consideration of
   the prospect for relative currency values will be incorporated into the
   longer-term investment decisions made with regard to overall diversification
   strategies. However, T. Rowe Price believes that it is important to have the
   flexibility to enter into such forward contracts when it determines that the
   best interest of the fund will be served.

   The fund may enter into forward contacts for any other purpose consistent
   with the fund's investment objective and program. However, the fund will not
   enter into a forward contract, or maintain exposure to any such contract(s),
   if the amount of foreign currency required to be delivered thereunder would
   exceed the fund's holdings of liquid, high-grade debt securities, currency
   available for cover of the forward contract(s), or other suitable cover as
   permitted by the SEC. In determining the amount to be delivered under a
   contract, the fund may net offsetting positions.

   At the maturity of a forward contract, the fund may sell the portfolio
   security and make delivery of the foreign currency, or it may retain the
   security and either extend the maturity of the forward contract (by "rolling"
   that contract forward) or may initiate a new forward contract.

   If the fund retains the portfolio security and engages in an offsetting
   transaction, the fund will incur a gain or a loss (as described below) to the
   extent that there has been movement in forward contract prices. If the fund
   engages in an offsetting transaction, it may subsequently enter into a new
   forward contract to sell the foreign currency. Should forward prices decline
   during the period between the fund's entering into a forward contract for the
   sale of a foreign currency and the date it enters into an offsetting contract
   for the purchase of the foreign currency, the fund will realize a gain to the
   extent the price of the currency it has agreed to sell exceeds


                                       26



   the price of the currency it has agreed to purchase. Should forward prices
   increase, the fund will suffer a loss to the extent the price of the currency
   it has agreed to purchase exceeds the price of the currency it has agreed to
   sell.

   The fund's dealing in forward foreign currency exchange contracts will
   generally be limited to the transactions described above. However, the fund
   reserves the right to enter into forward foreign currency contracts for
   different purposes and under different circumstances. Of course, the fund is
   not required to enter into forward contracts with regard to its foreign
   currency-denominated securities and will not do so unless deemed appropriate
   by T. Rowe Price. It also should be realized that this method of hedging
   against a decline in the value of a currency does not eliminate fluctuations
   in the underlying prices of the securities. It simply establishes a rate of
   exchange at a future date. Additionally, although such contracts tend to
   minimize the risk of loss due to a decline in the value of the hedged
   currency, at the same time, they tend to limit any potential gain which might
   result from an increase in the value of that currency.

   Although the fund values its assets daily in terms of U.S. dollars, it does
   not intend to convert its holdings of foreign currencies into U.S. dollars on
   a daily basis. It will do so from time to time, and there are costs
   associated with currency conversion. Although foreign exchange dealers do not
   charge a fee for conversion, they do realize a profit based on the difference
   (the "spread") between the prices at which they are buying and selling
   various currencies. Thus, a dealer may offer to sell a foreign currency to
   the fund at one rate, while offering a lesser rate of exchange should the
   fund desire to resell that currency to the dealer.


    Federal Tax Treatment of Options, Futures Contracts, and Forward Foreign
                               Exchange Contracts

   The fund may enter into certain options, futures, forward foreign exchange
   contracts, and swaps, including options and futures on currencies, which will
   be treated as Section 1256 contracts or straddles.

   Transactions considered Section 1256 contracts will be considered to have
   been closed at the end of the fund's fiscal year and any gains or losses will
   be recognized for tax purposes at that time. Such gains or losses from the
   normal closing or settlement of such transactions will be characterized as
   60% long-term capital gain (taxable at a maximum rate of 20%) or loss and 40%
   short-term capital gain or loss regardless of the holding period of the
   instrument (ordinary income or loss for foreign exchange contracts). The fund
   will be required to distribute net gains on such transactions to shareholders
   even though it may not have closed the transaction and received cash to pay
   such distributions.

   Options, futures, forward foreign exchange contracts, and swaps, including
   options and futures on currencies, which offset a foreign dollar-denominated
   bond or currency position, may be considered straddles for tax purposes, in
   which case a loss on any position in a straddle will be subject to deferral
   to the extent of unrealized gain in an offsetting position. The holding
   period of the securities or currencies comprising the straddle will be deemed
   not to begin until the straddle is terminated. The holding period of the
   security offsetting an "in-the-money qualified covered call" option on an
   equity security will not include the period of time the option is
   outstanding.

   Losses on written covered calls and purchased puts on securities, excluding
   certain "qualified covered call" options on equity securities, may be
   long-term capital losses, if the security covering the option was held for
   more than 12 months prior to the writing of the option.

   In order for the fund to continue to qualify for federal income tax treatment
   as a regulated investment company, at least 90% of its gross income for a
   taxable year must be derived from qualifying income, i.e., dividends,
   interest, income derived from loans of securities, and gains from the sale of
   securities or currencies. Tax regulations could be issued limiting the extent
   that net gain realized from options, futures, or foreign forward exchange
   contracts on currencies is qualifying income for purposes of the 90%
   requirement.

   Entering into certain options, futures contracts, swaps, or foreign forward
   contracts may result in the "constructive sale" of offsetting stocks or debt
   securities of the fund.

   The Internal Revenue Service has issued a notice proposing alternative
   methods for the inclusion or deduction of certain payments made under swap
   contracts. Although not anticipated, it is possible that final rules could
   result in changes to the amounts recorded by the fund, potentially impacting
   the tax results of the fund.


                                       27



 INVESTMENT RESTRICTIONS
 -------------------------------------------------------------------------------
   Fundamental policies may not be changed without the approval of the lesser of
   (1) 67% of the fund's shares present at a meeting of shareholders if the
   holders of more than 50% of the outstanding shares are present in person or
   by proxy or (2) more than 50% of a fund's outstanding shares. Other
   restrictions in the form of operating policies are subject to change by the
   fund's Board of Directors without shareholder approval. Any investment
   restriction which involves a maximum percentage of securities or assets shall
   not be considered to be violated unless an excess over the percentage occurs
   immediately after, and is caused by, an acquisition of securities or assets
   of, or borrowings by, the fund. Calculation of the fund's total assets for
   compliance with any of the following fundamental or operating policies or any
   other investment restrictions set forth in the fund's prospectus or Statement
   of Additional Information will not include cash collateral held in connection
   with securities lending activities.


                              Fundamental Policies

   As a matter of fundamental policy, the fund may not:

   (1) Borrowing Borrow money except that the fund may (i) borrow for
       non-leveraging, temporary, or emergency purposes; and (ii) engage in
       reverse repurchase agreements and make other investments or engage in
       other transactions, which may involve a borrowing, in a manner consistent
       with the fund's investment objective and program, provided that the
       combination of (i) and (ii) shall not exceed 33/1//\\/3/\\% of the value
       of the fund's total assets (including the amount borrowed) less
       liabilities (other than borrowings) or such other percentage permitted by
       law. Any borrowings which come to exceed this amount will be reduced in
       accordance with applicable law. The fund may borrow from banks, other
       Price Funds, or other persons to the extent permitted by applicable law;

   (2) Commodities Purchase or sell physical commodities, except that it may
       enter into futures contracts and options thereon;

   (3) (a)
       Industry Concentration (All funds except Health Sciences, Financial
       Services, and Real Estate Funds) Purchase the securities of any issuer
       if, as a result, more than 25% of the value of the fund's total assets
       would be invested in the securities of issuers having their principal
       business activities in the same industry;

       (b)
       Industry Concentration (Health Sciences, Financial Services, and Real
       Estate Funds) Purchase the securities of any issuer if, as a result, more
       than 25% of the value of the fund's total assets would be invested in the
       securities of issuers having their principal business activities in the
       same industry, provided, however, that (i) the Health Sciences Fund will
       invest more than 25% of its total assets in the health sciences industry
       as defined in the fund's prospectus; (ii) the Financial Services Fund
       will invest more than 25% of its total assets in the financial services
       industry as defined in the fund's prospectus; (iii) the Real Estate Fund
       will invest more than 25% of its total assets in the real estate industry
       as defined in the fund's prospectus.

   (4) Loans Make loans, although the fund may (i) lend portfolio securities and
       participate in an interfund lending program with other Price Funds
       provided that no such loan may be made if, as a result, the aggregate of
       such loans would exceed 33/1//\\/3/\\% of the value of the fund's total
       assets; (ii) purchase money market securities and enter into repurchase
       agreements; and (iii) acquire publicly distributed or privately placed
       debt securities and purchase debt;

   All funds except Institutional Large-Cap Growth Fund

   (5) Percent Limit on Assets Invested in Any One Issuer Purchase a security
       if, as a result, with respect to 75% of the value of its total assets,
       more than 5% of the value of the fund's total assets would be invested in
       the securities of a single issuer, except securities issued or guaranteed
       by the U.S. government, its agencies, or instrumentalities;

   (6) Percent Limit on Share Ownership of Any One Issuer Purchase a security
       if, as a result, with respect to 75% of the value of its total assets,
       more than 10% of the outstanding voting securities of any issuer


                                       28



       would be held by the fund (other than obligations issued or guaranteed by
       the U.S. government, its agencies, or instrumentalities);

   All funds

   (7) Real Estate Purchase or sell real estate, including limited partnership
       interests therein, unless acquired as a result of ownership of securities
       or other instruments (but this shall not prevent the fund from investing
       in securities or other instruments backed by real estate or securities of
       companies engaged in the real estate business);

   (8) Senior Securities Issue senior securities except in compliance with the
       1940 Act; or

   (9) Underwriting Underwrite securities issued by other persons, except to the
       extent that the fund may be deemed to be an underwriter within the
       meaning of the 1933 Act in connection with the purchase and sale of its
       portfolio securities in the ordinary course of pursuing its investment
       program.


                                      NOTES

       The following Notes should be read in connection with the above-described
       fundamental policies. The Notes are not fundamental policies.

       With respect to investment restriction (2), the fund does not consider
       currency contracts or hybrid investments to be commodities.

       For purposes of investment restriction (3):

         . U.S., state, or local governments, or related agencies or
           instrumentalities, are not considered an industry.

         . Industries are determined by reference to the classifications of
           industries set forth in the fund's semiannual and annual reports.

         . It is the position of the staff of the SEC that foreign governments
           are industries for purposes of this restriction.

       For purposes of investment restriction (4), the fund will consider the
       acquisition of a debt security to include the execution of a note or
       other evidence of an extension of credit with a term of more than nine
       months.


                                  Operating Policies

   As a matter of operating policy, the fund may not:

   (1) Borrowing Purchase additional securities when money borrowed exceeds 5%
       of its total assets;

   (2) Control of Portfolio Companies Invest in companies for the purpose of
       exercising management or control;

   (3) Futures Contracts Purchase a futures contract or an option thereon, if,
       with respect to positions in futures or options on futures which do not
       represent bona fide hedging, the aggregate initial margin and premiums on
       such options would exceed 5% of the fund's net asset value;

   (4) Illiquid Securities Purchase illiquid securities if, as a result, more
       than 15% of its net assets would be invested in such securities;

   (5) Investment Companies  Purchase securities of open-end or closed-end
       investment companies except (i) in compliance with the 1940 Act; or (ii)
       securities of the T. Rowe Price Reserve Investment or Government Reserve
       Investment Funds;

   (6) Margin Purchase securities on margin, except (i) for use of short-term
       credit necessary for clearance of purchases of portfolio securities and
       (ii) it may make margin deposits in connection with futures contracts or
       other permissible investments;


                                       29



   (7) Mortgaging Mortgage, pledge, hypothecate, or, in any manner, transfer any
       security owned by the fund as security for indebtedness except as may be
       necessary in connection with permissible borrowings or investments and
       then such mortgaging, pledging, or hypothecating may not exceed
       33/1//\\/3/\\% of the fund's total assets at the time of borrowing or
       investment;

   (8) Oil and Gas Programs Purchase participations or other direct interests in
       or enter into leases with respect to oil, gas, or other mineral
       exploration or development programs if, as a result thereof, more than 5%
       of the value of the total assets of the fund would be invested in such
       programs;

   (9) Options, etc. Invest in puts, calls, straddles, spreads, or any
       combination thereof, except to the extent permitted by the prospectus and
       Statement of Additional Information;

   (10) Short Sales Effect short sales of securities; or

   (11) Warrants Invest in warrants if, as a result thereof, more than 10% of
       the value of the net assets of the fund would be invested in warrants.

   For Blue Chip Growth, Capital Opportunity, Developing Technologies,
   Diversified Small-Cap Growth, Financial Services, Global Technology, Health
   Sciences, Media & Telecommunications, Mid-Cap Value, Real Estate, and Value
   Funds:

   Notwithstanding anything in the above fundamental and operating restrictions
   to the contrary, the fund may invest all of its assets in a single investment
   company or a series thereof in connection with a "master-feeder" arrangement.
   Such an investment would be made where the fund (a "Feeder"), and one or more
   other funds with the same investment objective and program as the fund,
   sought to accomplish its investment objective and program by investing all of
   its assets in the shares of another investment company (the "Master"). The
   Master would, in turn, have the same investment objective and program as the
   fund. The fund would invest in this manner in an effort to achieve the
   economies of scale associated with having a Master fund make investments in
   portfolio companies on behalf of a number of Feeder funds.



 MANAGEMENT OF THE FUNDS
 -------------------------------------------------------------------------------
   The officers and directors of the fund are listed below. Unless otherwise
   noted, the address of each is 100 East Pratt Street, Baltimore, Maryland
   21202. Except as indicated, each has been an employee of T. Rowe Price for
   more than five years.

   The fund is governed by a Board of Directors that meets regularly to review
   fund investments, performance, expenses, and other business affairs. The
   Board elects the fund's officers. The majority of Board members are
   independent of T. Rowe Price and T. Rowe Price International. The directors
   who are also employees or officers of T. Rowe Price are referred to as inside
   or interested directors. Each Board currently has three committees, described
   in the following paragraphs.

   The Committee of Independent Directors, which consists of all of the
   independent directors of the funds, is responsible for selecting candidates
   for election as independent directors to fill vacancies on each fund's Board.
   F. Pierce Linaweaver is chairman of the committee. The committee will
   consider written recommendations from shareholders for possible nominees.
   Shareholders should submit their recommendations to the secretary of the
   funds. The committee held no formal meetings during the last fiscal year.

   The Joint Audit Committee is comprised of David K. Fagin, F. Pierce
   Linaweaver, John G. Schreiber, and Paul M. Wythes, all independent directors.
   The Audit Committee holds two regular meetings during each fiscal year, at
   which time it meets with the independent accountants of the T. Rowe Price
   funds to review: (1) the services provided; (2) the findings of the most
   recent audit; (3) management's response to the findings of the most recent
   audit; (4) the scope of the audit to be performed; (5) the accountants' fees;
   and (6) any accounting or other questions relating to particular areas of the
   T. Rowe Price funds' operations or the operations of parties dealing with the
   T. Rowe Price funds, as circumstances indicate. The Audit Committee for the
   funds met three times in 2001. All members of the committee participated in
   the meetings.


                                       30



   The fund's Executive Committee, consisting of the fund's interested
   directors, has been authorized by its respective Board of Directors to
   exercise all powers of the Board to manage the fund in the intervals between
   meetings of the Board, except the powers prohibited by statute from being
   delegated.

   All funds


                             Independent Directors*



                                                                                     Number of
                                      Term of Office(a)                              Portfolios
                                      and Length of Time                              in Fund
                        Position(s)         Served        Principal Occupation(s)     Complex      Other Directorships of
  Name, Address, and     Held with                         During Past 5 Years(b)   Overseen by       Public Companies
    Date of Birth           Fund                                                      Director
- ---------------------------------------------------------------------------------------------------------------------------
                     
 Calvin W. Burnett,     Director      Director since      President, Coppin              97       Provident Bank of
 Ph.D.                                later of            State College                           Maryland
 100 East Pratt Street                2001
 Baltimore, MD 21202                   or
 3/16/32                              inception of
                                      fund(c)
- ---------------------------------------------------------------------------------------------------------------------------
 Anthony W. Deering     Director      Director since      Director, Chairman             97       The Rouse Company
 100 East Pratt Street                later of            of the Board,
 Baltimore, MD 21202                  2001                President, and Chief
 1/28/45                               or                 Executive Officer,
                                      inception of        The Rouse
                                      fund(c)             Company, real estate
                                                          developers
- ---------------------------------------------------------------------------------------------------------------------------
 Donald W. Dick, Jr.    Director      Director since      Principal,                     97       None
 100 East Pratt Street                later of            EuroCapital
 Baltimore, MD 21202                  1982                Advisors, LLC, an
 1/27/43                               or                 acquisition and
                                      inception of        management
                                      fund(c)             advisory firm
- ---------------------------------------------------------------------------------------------------------------------------
 David K. Fagin         Director      Director since      Director, Dayton               97       Dayton Mining
 100 East Pratt Street                later of            Mining Corporation                      Corporation, Golden
 Baltimore, MD 21202                  1988                (6/98 to present),                      Star Resources Ltd.,
 4/9/38                                or                 Golden Star                             and Canyon
                                      inception of        Resources Ltd., and                     Resources, Corp.
                                      fund(c)             Canyon Resources,
                                                          Corp. (5/00 to
                                                          present); Chairman
                                                          and President, Nye
                                                          Corporation
- ---------------------------------------------------------------------------------------------------------------------------
 F. Pierce Linaweaver   Director      Director since      President, F. Pierce           97       None
 100 East Pratt Street                later of            Linaweaver &
 Baltimore, MD 21202                  2001                Associates, Inc.,
 8/22/34                               or                 consulting
                                      inception of        environmental &
                                      fund(c)             civil engineers
- ---------------------------------------------------------------------------------------------------------------------------
 Hanne M. Merriman      Director      Director since      Retail Business                97       Ann Taylor Stores
 100 East Pratt Street                later of            Consultant                              Corporation,
 Baltimore, MD 21202                  1994                                                        Ameren Corp.,
 11/16/41                              or                                                         Finlay Enterprises,
                                      inception of                                                Inc., The Rouse
                                      fund(c)                                                     Company, and US
                                                                                                  Airways Group, Inc.
- ---------------------------------------------------------------------------------------------------------------------------
 John G. Schreiber      Director      Director since      Owner/President,               97       AMLI Residential
 100 East Pratt Street                later of            Centaur Capital                         Properties Trust,
 Baltimore, MD 21202                  2001                Partners, Inc., a real                  Host Marriott
 10/21/46                              or                 estate investment                       Corporation, and
                                      inception of        company; Senior                         The Rouse Company,
                                      fund(c)             Advisor and Partner,                    real estate developers
                                                          Blackstone Real
                                                          Estate Advisors, L.P.
- ---------------------------------------------------------------------------------------------------------------------------
 Hubert D. Vos          Director      Director since      Owner/President,               97       None
 100 East Pratt Street                later of            Stonington Capital
 Baltimore, MD 21202                  1986                Corporation, a
 8/2/33                                or                 private investment
                                      inception of        company
                                      fund(c)
- ---------------------------------------------------------------------------------------------------------------------------
 Paul M. Wythes         Director      Director since      Founding Partner of            97        Teltone Corporation
 100 East Pratt Street                later of            Sutter Hill Ventures,
 Baltimore, MD 21202                  1982                a venture capital
 6/23/33                               or                 limited partnership,
                                      inception of        providing equity
                                      fund(c)             capital to young
                                                          high technology
                                                          companies
                                                          throughout the
                                                          United States
- ---------------------------------------------------------------------------------------------------------------------------






                                       31



 * All information about the directors was current as of December 31, 2001.

 (a) Each director serves until election of a successor.


                                       32



 (b) Unless otherwise indicated, the Independent Directors have been
   engaged in their respective principal occupations for at least five
   years.

 (c) See fund inception dates in the chart below.



                 Fund Inception Dates
Fund                                      Inception Date
- ----                                      --------------
                                      
Balanced                                     12/31/39
Blue Chip Growth                             06/30/93
Blue Chip Growth Fund-Advisor Class          03/31/00
Capital Appreciation                         06/30/86
Capital Opportunity                          11/30/94
Developing Technologies                      08/31/00
Diversified Small-Cap Growth                 06/30/97
Dividend Growth                              12/30/92
Equity Income                                10/31/85
Equity Income Fund-Advisor Class             03/31/00
Equity Index 500                             03/30/90
Extended Equity Market Index                 01/30/98
Financial Services                           09/30/96
Global Technology                            09/29/00
Growth & Income                              12/21/82
Growth Stock                                 04/11/50
Growth Stock Fund-Advisor Class              12/31/01
Health Sciences                              12/29/95
Institutional Large-Cap Growth               10/31/01
Institutional Large-Cap Value                03/31/00
Institutional Mid-Cap Equity Growth          07/31/96
Institutional Small-Cap Stock                03/31/00
Media & Telecommunications                   10/13/93
Mid-Cap Growth                               06/30/92
Mid-Cap Growth Fund-Advisor Class            03/31/00
Mid-Cap Value                                06/28/96
New America Growth                           09/30/85
New Era                                      01/20/69
New Horizons                                 06/03/60
Real Estate                                  10/31/97
Science & Technology                         09/30/87
Science & Technology Fund-Advisor Class      03/31/00
Small-Cap Stock                              06/01/56
Small-Cap Stock Fund-Advisor Class           03/31/00
Small-Cap Value                              06/30/88
Small-Cap Value Fund-Advisor Class           03/31/00
Total Equity Market Index                    01/30/98
Value                                        09/30/94
Value Fund-Advisor Class                     03/31/00
- ---------------------------------------------------------






                                       33



                                Inside Directors*



                  
                                   Term of                                Number of    O
                                   Office(                                Portfolios   ther
                                   a                                      in Fund      Director
                     Position(s)   )            Principal Occupation(s)   Complex      ships of
Name, Address, and   Held with     and Length   During Past 5 Years       Overseen     Public
Date of Birth        Fund          of Time      (b)                       by Director  Companies
                                   Served
- --------------------------------------------------------------------------------------------------






                     
 James A. C. Kennedy     Director   Director since    Managing Director and     32     None
 100 East Pratt Street              later of 1992     Director, T. Rowe
 Baltimore, MD 21202                or inception of   Price Associates,
 8/15/53                            fund(c)           Inc. and T. Rowe
                                                      Price Group, Inc.

                                                      Vice President,
                                                      Balanced
                                                      Fund, Institutional
                                                      Equity
                                                      Funds, Mid-Cap Value
                                                      Fund,
                                                      New Era Fund, and
                                                      Small-Cap
                                                      Stock Fund
- -----------------------------------------------------------------------------------------------





                     
 John H. Laporte        Director   Director since    Managing Director, T. Rowe          15     None
 100 East Pratt Street             later of          Price Associates, Inc.;
 Baltimore, MD 21202               1985              Managing Director and
 7/26/45                                             Director, T. Rowe Price Group,
                                   or inception
                                   of fund(          Inc.
                                   c                 President, New Horizons
                                   )                 Fund; Vice President,
                                                     Diversified Small-Cap Growth
                                                     Fund, Health Sciences Fund,
                                                     and New America Growth
                                                     Fund
- ---------------------------------------------------------------------------------------------------------





                                       34





                     
 James S. Riepe         Director   Director since    Vice Chairman of the Board,          97     None
 100 East Pratt Street             later of          Director and Managing
 Baltimore, MD 21202               1982              Director, T. Rowe Price
 6/25/43                                             Associates, Inc.
                                   or inception      and T. Rowe
                                   of fund(          Price Group, Inc.; Chairman
                                   c                 of the Board and Director,
                                   )                 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.,
                                                     T. Rowe Price Global Asset
                                                     Management Limited, and
                                                     T. Rowe Price Global

                                                     Investment Services Limited
                                                     Chairman of the Board,
                                                     Institutional Equity Funds;
                                                     Vice President, all funds
- ----------------------------------------------------------------------------------------------------------





                     
 M. David Testa         Director   Director since    Vice Chairman of the Board,          97     None
 100 East Pratt Street             later of          Chief Investment Officer,
 Baltimore, MD 21202               1991              Director, and Managing
 4/22/44                                             Director, T. Rowe Price Group,
                                   or inception      Inc.; Chief Investment Officer,
                                   of fund(          Director, and Managing
                                   c                 Director, T. Rowe Price
                                   )                 Associates, Inc.
                                                     ; Chairman,
                                                     T. Rowe Price Global Asset
                                                     Management Limited; Vice
                                                     President and Director,
                                                     T. Rowe Price Trust Company;
                                                     Director, T. Rowe Price Global
                                                     Investment Services Limited
                                                     and T. Rowe Price

                                                     International, Inc.
                                                     President, Institutional Equity
                                                     Funds; Vice President,
                                                     Balanced Fund and Capital
                                                     Appreciation Fund
- ----------------------------------------------------------------------------------------------------------



 * All information about the directors was current as of December 31, 2001.

 (a) Each director serves until election of a successor.

 (b) Unless otherwise indicated, the Independent Directors have been
   engaged in their respective principal occupations for at least five
   years.

 (c) See fund inception dates in the chart above.


                                       35



                                  Officers/(a)/



Name, Date of Birth, Address, and
Principal Occupations                       Position(s) Held With Fund
- -------------------------------------------------------------------------------
                                        
Marcy L. Arnold, 8/5/59                     Vice President, Institutional
Vice President, T. Rowe Price Associates,   Equity Funds, Mid-Cap Value Fund,
Inc. and T. Rowe Price Group, Inc.          New Era Fund, and Small-Cap Stock
                                            Fund
- -------------------------------------------------------------------------------
Preston G. Athey, 7/17/49                   President, Small-Cap Value Fund;
Managing Director, T. Rowe Price            Vice President, Institutional
Associates, Inc. and T. Rowe Price Group,   Equity Funds, Mid-Cap Value Fund,
Inc.; Vice President, T. Rowe Price Trust   and Small-Cap Stock Fund
Company
- -------------------------------------------------------------------------------
Eugene F. Bair, 12/11/69                    Vice President, Index Trust

- -------------------------------------------------------------------------------
Carol G. Bartha, 1/4/42                     Assistant Vice President, Growth
                                            Stock Fund
- -------------------------------------------------------------------------------
Marc L. Baylin, 11/17/67                    President, New America Growth Fund;
Vice President, T. Rowe Price Associates,   Vice President, Institutional
Inc. and T. Rowe Price Group, Inc.          Equity Funds, Mid-Cap Growth Fund,
                                            and New Horizons Fund
- -------------------------------------------------------------------------------
Brian W.H. Berghuis, 10/12/58               President, Mid-Cap Growth Fund;
Managing Director, T. Rowe Price            Executive Vice President,
Associates, Inc. and T. Rowe Price Group,   Institutional Equity Funds; Vice
Inc.                                        President, Blue Chip Growth Fund,
                                            Growth Stock Fund, New America
                                            Growth Fund, and New Horizons Fund
- -------------------------------------------------------------------------------
Stephen W. Boesel, 12/28/44                 President, Capital Appreciation
Managing Director, T. Rowe Price            Fund; Vice President, Balanced
Associates, Inc. and T. Rowe Price Group,   Fund, Equity Income Fund, Financial
Inc.; Vice President, T. Rowe Price Trust   Services Fund, Growth & Income
Company                                     Fund, Institutional Equity Funds,
                                            Real Estate Fund, and Value Fund
- -------------------------------------------------------------------------------
Andrew M. Brooks, 2/16/56                   Vice President, Equity Income Fund
Vice President, T. Rowe Price Associates,   and Value Fund
Inc. and T. Rowe Price Group, Inc.
- -------------------------------------------------------------------------------
Brace C. Brooks, 1/10/67                    Vice President, Mid-Cap Value Fund

- -------------------------------------------------------------------------------
Joseph A. Carrier, 12/30/60                 Treasurer, all funds
Vice President, T. Rowe Price Associates,
Inc., T. Rowe Price Group, Inc., and T.
Rowe Price Investment Services, Inc.
- -------------------------------------------------------------------------------
Arthur B. Cecil III, 9/15/42                Vice President, Capital
Vice President, T. Rowe Price Associates,   Appreciation Fund, Dividend Growth
Inc. and T. Rowe Price Group, Inc.          Fund, Equity Income Fund, and
                                            Growth & Income Fund
- -------------------------------------------------------------------------------
Kara Cheseby, 10/9/63                       Vice President, Institutional
Vice President, T. Rowe Price Associates,   Equity Funds, Mid-Cap Value Fund,
Inc. and T. Rowe Price Group, Inc.          and Value Fund
- -------------------------------------------------------------------------------
Stephanie C. Clancy, 12/19/64               Vice President, Capital
Vice President, T. Rowe Price Associates,   Appreciation Fund, Dividend Growth
Inc. and T. Rowe Price Group, Inc.          Fund, Global Technology Fund, and
                                            Institutional Equity Funds
- -------------------------------------------------------------------------------
                                            Vice President, Developing
Giri Devulapally, 11/18/67                  Technologies Fund, Dividend Growth
Vice President, T. Rowe Price Associates,   Fund, Equity Income Fund, Global
Inc. and T. Rowe Price Group, Inc.          Technology Fund, Growth & Income
                                            Fund, Media & Telecommunications
                                            Fund, New America Growth Fund, and
                                            Science & Technology Fund
- -------------------------------------------------------------------------------
Wendy R. Diffenbaugh, 10/2/53               Vice President, Balanced Fund and
Assistant Vice President, T. Rowe Price     Index Trust
Associates, Inc.
- -------------------------------------------------------------------------------
Anna M. Dopkin, 9/5/67                      President, Financial Services Fund;
Vice President, T. Rowe Price Associates,   Vice President, Growth Stock Fund,
Inc. and T. Rowe Price Group, Inc.          Institutional Equity Funds, Mid-Cap
                                            Growth Fund, New Horizons Fund, and
                                            Real Estate Fund
- -------------------------------------------------------------------------------
Donald J. Easley, 11/28/71                  Vice President, Blue Chip Growth
                                            Fund, Dividend Growth Fund, and
                                            Science & Technology Fund
- -------------------------------------------------------------------------------
Hugh M. Evans III, 5/17/66                  Vice President, Institutional
Vice President, T. Rowe Price Associates,   Equity Funds, New Era Fund,
Inc. and T. Rowe Price Group, Inc.          Small-Cap Stock Fund, and Small-Cap
                                            Value Fund
- -------------------------------------------------------------------------------
John R. Ford, 11/25/57                      Vice President, Growth Stock Fund
Managing Director, T. Rowe Price
Associates, Inc. and T. Rowe Price Group,
Inc.; Chief Investment Officer, Director,
and Vice President, T. Rowe Price
International, Inc.
- -------------------------------------------------------------------------------
Abigail J. Fulton, 12/19/69                 Vice President, Financial Services
Vice President, T. Rowe Price Group, Inc.   Fund
- -------------------------------------------------------------------------------
                                            President, Global Technology Fund
Robert N. Gensler, 10/18/57                 and Media & Telecommunications
Vice President, T. Rowe Price Associates,   Fund; Vice President, Blue Chip
Inc. and T. Rowe Price Group, Inc.          Growth Fund, Developing
                                            Technologies Fund, Growth Stock
                                            Fund, Institutional Equity Funds,
                                            Mid-Cap Growth Fund, New Horizons
                                            Fund, and Science & Technology Fund
- -------------------------------------------------------------------------------
                                            Vice President, Blue Chip Growth
Eric M. Gerster, 3/23/71                    Fund, Developing Technologies Fund,
Vice President, T. Rowe Price Associates,   Global Technology Fund, Growth
Inc. and T. Rowe Price Group, Inc.          Stock Fund, Media &
                                            Telecommunications Fund, Mid-Cap
                                            Growth Fund, New America Growth
                                            Fund, New Horizons Fund, and
                                            Science & Technology Fund
- -------------------------------------------------------------------------------
David R. Giroux, 6/8/75                     Vice President, Mid-Cap Value Fund
Assistant Vice President, T. Rowe Price     and Value Fund
Associates, Inc.
- -------------------------------------------------------------------------------
Jill L. Hauser, 6/23/58                     Vice President, Blue Chip Growth
Vice President, T. Rowe Price Associates,   Fund, Developing Technologies Fund,
Inc. and T. Rowe Price Group, Inc.          Global Technology Fund, Growth
                                            Stock Fund, New Horizons Fund, and
                                            Science & Technology Fund
- -------------------------------------------------------------------------------
Francies W. Hawks, 2/2/44                   Assistant Vice President, New
Assistant Vice President, T. Rowe Price     Horizons Fund and Small-Cap Value
Associates, Inc.                            Fund
- -------------------------------------------------------------------------------
Ann M. Holcomb, 1/16/72                     Vice President, Index Trust
Assistant Vice President, T. Rowe Price
Associates, Inc.
- -------------------------------------------------------------------------------
Michael W. Holton, 9/25/68                  Vice President, Capital Opportunity
Vice President, T. Rowe Price Associates,   Fund, Dividend Growth Fund,
Inc. and T. Rowe Price Group, Inc.          Financial Services Fund, Growth &
                                            Income Fund, Institutional Equity
                                            Funds, and Value Fund
- -------------------------------------------------------------------------------
Henry H. Hopkins, 12/23/42                  Vice President, all funds
Managing Director, T. Rowe Price
Associates, Inc.; Director and Managing
Director, T. Rowe Price Group, Inc.; Vice
President, T. Rowe Price International,
Inc. and T. Rowe Price Retirement Plan
Services, Inc.; Vice President and
Director, T. Rowe Price Investment
Services, Inc., T. Rowe Price Services,
Inc., and T. Rowe Price Trust Company
- -------------------------------------------------------------------------------
Thomas J. Huber, 9/23/66                    President, Dividend Growth Fund;
Vice President, T. Rowe Price Associates,   Vice President, Institutional
Inc. and T. Rowe Price Group, Inc.          Equity Funds
- -------------------------------------------------------------------------------
Stephen C. Jansen, 12/12/68                 Vice President, Blue Chip Growth
Vice President, T. Rowe Price Associates,   Fund, Dividend Growth Fund, Global
Inc. and T. Rowe Price Group, Inc.          Technology Fund, Growth & Income
                                            Fund, Growth Stock Fund, and Media
                                            & Telecommunications Fund
- -------------------------------------------------------------------------------
                                            President, Health Sciences Fund;
Kris H. Jenner, 2/5/62                      Vice President, Blue Chip Growth
Vice President, T. Rowe Price Associates,   Fund, Growth Stock Fund,
Inc. and T. Rowe Price Group, Inc.          Institutional Equity Funds, Mid-Cap
                                            Growth Fund, New Horizons Fund, and
                                            Small-Cap Stock Fund
- -------------------------------------------------------------------------------
Lewis Johnson, 9/20/69                      Vice President, New Era Fund

- -------------------------------------------------------------------------------
Terral M. Jordan, 8/13/45                   Vice President, Developing
Vice President, T. Rowe Price Associates,   Technologies Fund and Science &
Inc. and T. Rowe Price Group, Inc.          Technology Fund
- -------------------------------------------------------------------------------
Susan J. Klein, 4/18/50                     Vice President, Financial Services
Assistant Vice President, T. Rowe Price     Fund and Small-Cap Value Fund
Associates, Inc.
- -------------------------------------------------------------------------------
J. Jeffrey Lang, 1/10/62                    Vice President, all funds
Vice President, T. Rowe Price Associates,
Inc. and T. Rowe Price Trust Company
- -------------------------------------------------------------------------------
David M. Lee, 11/13/62                      President, Real Estate Fund; Vice
Vice President, T. Rowe Price Associates,   President, Dividend Growth Fund and
Inc. and T. Rowe Price Group, Inc.          New Era Fund
- -------------------------------------------------------------------------------
Christopher R. Leonard, 1/11/73             Vice President, Blue Chip Growth
                                            Fund and Health Sciences Fund
- -------------------------------------------------------------------------------
Nathaniel S. Levy, 7/13/62                  Vice President, Balanced Fund
Vice President, T. Rowe Price Associates,
Inc. and T. Rowe Price Group, Inc.
- -------------------------------------------------------------------------------
John D. Linehan, 1/21/65                    Vice President, Equity Income Fund,
Vice President, T. Rowe Price Associates,   Institutional Equity Funds, New Era
Inc., T. Rowe Price Group, Inc., and T.     Fund, and Value Fund
Rowe Price International, Inc.
- -------------------------------------------------------------------------------
Patricia B. Lippert, 1/12/53                Secretary, all funds
Assistant Vice President, T. Rowe Price
Associates, Inc. and T. Rowe Price
Investment Services, Inc.
- -------------------------------------------------------------------------------
Robert J. Marcotte, 3/6/62                  Vice President, Institutional
Vice President, T. Rowe Price Associates,   Equity Funds, Mid-Cap Growth Fund,
Inc. and T. Rowe Price Group, Inc.          and New America Growth Fund
- -------------------------------------------------------------------------------
Gregory A. McCrickard, 10/19/58             President, Mid-Cap Value Fund and
Managing Director, T. Rowe Price            Small-Cap Stock Fund; Executive
Associates, Inc. and T. Rowe Price Group,   Vice President, Institutional
Inc.; Vice President, T. Rowe Price Trust   Equity Funds; Vice President,
Company                                     Small-Cap Value Fund
- -------------------------------------------------------------------------------
David S. Middleton, 1/18/56                 Controller, all funds
Vice President, T. Rowe Price Associates,
Inc., T. Rowe Price Group, Inc., and T.
Rowe Price Trust Company
- -------------------------------------------------------------------------------
                                            Vice President, Institutional
Joseph M. Milano, 9/14/72                   Equity Funds, Mid-Cap Growth Fund,
Vice President, T. Rowe Price Associates,   Mid-Cap Value Fund, New America
Inc. and T. Rowe Price Group, Inc.          Growth Fund, New Horizons Fund,
                                            Small-Cap Stock Fund, and Small-Cap
                                            Value Fund
- -------------------------------------------------------------------------------
Raymond A. Mills, 12/3/60                   Vice President, Balanced Fund and
Vice President, T. Rowe Price Associates,   Index Trust
Inc. and T. Rowe Price Group, Inc.
- -------------------------------------------------------------------------------
Mary C. Munoz, 12/2/62                      Vice President, Index Trust
Assistant Vice President, T. Rowe Price
Associates, Inc.
- -------------------------------------------------------------------------------
Edmund M. Notzon III, 10/1/45               Vice President, Balanced Fund
Managing Director, T. Rowe Price
Associates, Inc. and T. Rowe Price Group,
Inc.; Vice President, T. Rowe Price
Investment Services, Inc. and T. Rowe
Price Trust Company
- -------------------------------------------------------------------------------
Charles M. Ober, 4/20/50                    President, New Era Fund; Vice
Vice President, T. Rowe Price Associates,   President, Capital Appreciation
Inc. and T. Rowe Price Group, Inc.          Fund and Real Estate Fund
- -------------------------------------------------------------------------------
Curt J. Organt, 1/5/68                      Vice President, Small-Cap Stock
                                            Fund
- -------------------------------------------------------------------------------
Charles G. Pepin, 4/23/66                   Vice President, Health Sciences
 Vice President, T. Rowe Price              Fund, Institutional Equity Funds,
Associates, Inc. and T. Rowe Price Group,   Mid-Cap Value Fund, New Horizons
Inc.                                        Fund, Small-Cap Stock Fund, and
                                            Small-Cap Value Fund
- -------------------------------------------------------------------------------
Donald J. Peters, 7/3/59                    Vice President, Diversified
Vice President, T. Rowe Price Associates,   Small-Cap Growth Fund and Dividend
Inc. and T. Rowe Price Group, Inc.          Growth Fund
- -------------------------------------------------------------------------------
D. James Prey III, 11/26/59                 Vice President, Global Technology
Vice President, T. Rowe Price Associates,   Fund, Media & Telecommunications
Inc. and T. Rowe Price Group, Inc.          Fund, and Science & Technology Fund
- -------------------------------------------------------------------------------
Larry J. Puglia, 8/25/60                    President, Blue Chip Growth Fund;
Managing Director, T. Rowe Price            Vice President, Dividend Growth
Associates, Inc. and T. Rowe Price Group,   Fund, Financial Services Fund, and
Inc.                                        Growth Stock Fund
- -------------------------------------------------------------------------------
Karen M. Regan, 4/16/67                     Vice President, Growth & Income
                                            Fund and Real Estate Fund
- -------------------------------------------------------------------------------
Brian C. Rogers, 6/27/55                    President, Equity Income Fund and
Managing Director, T. Rowe Price;           Value Fund; Executive Vice
Director and Managing Director, T. Rowe     President, Institutional Equity
Price Group, Inc.; Vice President, T.       Funds; Vice President, Capital
Rowe Price Trust Company                    Appreciation Fund and Real Estate
                                            Fund
- -------------------------------------------------------------------------------
Philip W. Ruedi, 7/2/71                     Vice President, New Horizons Fund
Vice President, T. Rowe Price Associates,
Inc. and T. Rowe Price Group, Inc.
- -------------------------------------------------------------------------------
Robert W. Sharps, 6/10/71                   President, Growth & Income Fund,
Vice President, T. Rowe Price Associates,   Growth & Income Fund; Vice
Inc. and T. Rowe Price Group, Inc.          President, Blue Chip Growth Fund,
                                            Financial Services Fund, and
                                            Institutional Equity Funds
- -------------------------------------------------------------------------------
Robert W. Smith, 4/11/61                    President, Growth Stock Fund;
Managing Director, T. Rowe Price and T.     Executive Vice President,
Rowe Price Group, Inc.; Vice President,     Institutional Equity Funds; Vice
T. Rowe Price International, Inc.           President, Blue Chip Growth Fund,
                                            Growth & Income Fund, Media &
                                            Telecommunications Fund, and New
                                            America Growth Fund
- -------------------------------------------------------------------------------
Michael F. Sola, 7/21/69                    President, Developing Technologies
Vice President, T. Rowe Price and T. Rowe   Fund and Science & Technology Fund;
Price Group, Inc.                           Vice President, Institutional
                                            Equity Funds, Mid-Cap Growth Fund,
                                            New Horizons Fund, and Small-Cap
                                            Stock Fund
- -------------------------------------------------------------------------------
William J. Stromberg, 3/10/60               President, Capital Opportunity
Managing Director, T. Rowe Price and T.     Fund; Vice President, Blue Chip
Rowe Price Group, Inc.                      Growth Fund, Dividend Growth Fund,
                                            Equity Income Fund, Financial
                                            Services Fund, and Real Estate Fund
- -------------------------------------------------------------------------------
Dean Tenerelli, 12/7/64                     Vice President, Media &
Vice President, T. Rowe Price Group, Inc.   Telecommunications Fund
and T. Rowe Price International, Inc.
- -------------------------------------------------------------------------------
Justin Thomson, 1/14/68                     Vice President, Developing
Vice President, T. Rowe Price Group, Inc.   Technologies Fund
- -------------------------------------------------------------------------------
Mark J. Vaselkiv, 7/22/58                   Vice President, Balanced Fund
Managing Director, T. Rowe Price
Associates, Inc. and T. Rowe Price Group,
Inc.
- -------------------------------------------------------------------------------
J. David Wagner, 2/25/74                    Vice President, Financial Services
                                            Fund, Mid-Cap Value Fund, and New
                                            Horizons Fund
- -------------------------------------------------------------------------------
John F. Wakeman, 11/25/62                   Executive Vice President, Mid-Cap
Vice President, T. Rowe Price and T. Rowe   Growth Fund; Vice President,
Price Group, Inc.                           Institutional Equity Funds and New
                                            Horizons Fund
- -------------------------------------------------------------------------------
                                            Executive Vice President, Mid-Cap
                                            Value Fund and New Era Fund; Vice
David J. Wallack, 7/2/60                    President, Capital Appreciation
Vice President, T. Rowe Price Associates,   Fund, Dividend Growth Fund,
Inc. and T. Rowe Price Group, Inc.          Institutional Equity Funds,
                                            Small-Cap Value Fund, and Value
                                            Fund
- -------------------------------------------------------------------------------
Dale E. West, 1/21/69                       Vice President, Media &
Vice President, T. Rowe Price Group, Inc.   Telecommunications Fund
and T. Rowe Price International, Inc.
- -------------------------------------------------------------------------------
Richard T. Whitney, 5/7/58                  President, Balanced Fund,
Managing Director, T. Rowe Price and T.     Diversified Small-Cap Growth Fund,
Rowe Price Group, Inc.; Vice President,     and Index Trust; Vice President,
T. Rowe Price Trust Company and             Capital Opportunity Fund,
T. Rowe Price International, Inc.           Institutional Equity Funds, and
                                            Small-Cap Stock Fund
- -------------------------------------------------------------------------------
Paul W. Wojcik, 11/28/70                    Executive Vice President,
Vice President, T. Rowe Price Associates,   Diversified Small-Cap Growth Fund
Inc. and T. Rowe Price Group, Inc.
- -------------------------------------------------------------------------------
R. Candler Young, 9/28/71                   Vice President, Growth & Income
Assistant Vice President, T. Rowe Price     Fund, Mid-Cap Growth Fund, and New
Associates, Inc.                            America Growth Fund
- -------------------------------------------------------------------------------






                                       36





                                       37





                                       38





                                       39





                                       40





(a)
  Unless otherwise indicated, the officers have been employees of T. Rowe Price
  or T. Rowe Price International for at least five years.


                           Director Compensation Table

   The fund does not pay pension or retirement benefits to its officers or
   directors. Also, any director of the fund who is an officer or employee of T.
   Rowe Price or T. Rowe Price International does not receive any remuneration
   from the fund.


                                       41






Name of Person,                   Aggregate Compensation From                   Total Compensation From Fund and
Position                          Fund(a)                                       Fund Complex Paid to Directors(b)
- --------------------------------  --------------------------------------------  ---------------------------------
- -------------------------------------------------------------------------------------------------------------------
                               
Balanced Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                262                           $110,000
Anthony W. Deering/c/                                                      262                            110,000
Donald W. Dick, Jr.                                                 1,803                              110,000
David K. Fagin                                                      2,553                              112,000
F. Pierce Linaweaver/c/                                                    311                            113,000
Hannes M. Merriman                                                       2,521                            110,000
John G. Schreiber/c/                                                       311                            113,000
Hubert D. Vos                                                       2,594                              111,000
Paul M. Wythes                                                      1,742                              113,000
- -------------------------------------------------------------------------------------------------------------------
Blue Chip Growth Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                715                           $110,000
Anthony W. Deering/c/                                                      715                            110,000
Donald W. Dick, Jr.                                                 3,973                              110,000
David K. Fagin                                                      7,057                              112,000
F. Pierce Linaweaver/c/                                                    911                            113,000
Hannes M. Merriman                                                       6,925                            110,000
John G. Schreiber/c/                                                       911                            113,000
Hubert D. Vos                                                       7,186                              111,000
Paul M. Wythes                                                      4,324                              113,000
- -------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                223                           $110,000
Anthony W. Deering/c/                                                      223                            110,000
Donald W. Dick, Jr.                                                 1,499                              110,000
David K. Fagin                                                      1,974                              112,000
F. Pierce Linaweaver/c/                                                    263                            113,000
Hannes M. Merriman                                                       1,947                            110,000
John G. Schreiber/c/                                                       263                            113,000
Hubert D. Vos                                                       1,986                              111,000
Paul M. Wythes                                                      1,558                              113,000
- -------------------------------------------------------------------------------------------------------------------
Capital Opportunity Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                100                           $110,000
Anthony W. Deering/c/                                                      100                            110,000
Donald W. Dick, Jr.                                                   863                              110,000
David K. Fagin                                                        998                              112,000
F. Pierce Linaweaver/c/                                                    102                            113,000
Hannes M. Merriman                                                         997                            110,000
John G. Schreiber/c/                                                       102                            113,000
Hubert D. Vos                                                       1,000                              111,000
Paul M. Wythes                                                        867                              113,000
- -------------------------------------------------------------------------------------------------------------------
Developing Technologies Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                 95                           $110,000
Anthony W. Deering/c/                                                       95                            110,000
Donald W. Dick, Jr.                                                   932                              110,000
David K. Fagin                                                        940                              112,000
F. Pierce Linaweaver/c/                                                     96                            113,000
Hannes M. Merriman                                                         940                            110,000
John G. Schreiber/c/                                                        96                            113,000
Hubert D. Vos                                                         940                              111,000
Paul M. Wythes                                                        933                              113,000
- -------------------------------------------------------------------------------------------------------------------
Diversified Small-Cap Growth Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                 99                           $110,000
Anthony W. Deering/c/                                                       99                            110,000
Donald W. Dick, Jr.                                                   958                              110,000
David K. Fagin                                                        987                              112,000
F. Pierce Linaweaver/c/                                                    101                            113,000
Hannes M. Merriman                                                         986                            110,000
John G. Schreiber/c/                                                       101                            113,000
Hubert D. Vos                                                         987                              111,000
Paul M. Wythes                                                        961                              113,000
- -------------------------------------------------------------------------------------------------------------------
Dividend Growth Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                158                           $110,000
Anthony W. Deering/c/                                                      158                            110,000
Donald W. Dick, Jr.                                                 1,263                              110,000
David K. Fagin                                                      1,553                              112,000
F. Pierce Linaweaver/c/                                                    178                            113,000
Hannes M. Merriman                                                       1,541                            110,000
John G. Schreiber/c/                                                       178                            113,000
Hubert D. Vos                                                       1,566                              111,000
Paul M. Wythes                                                      1,299                              113,000
- -------------------------------------------------------------------------------------------------------------------
Equity Income Fund
Calvin W. Burnett, Ph.D./c/                                                833                           $110,000
Anthony W. Deering/c/                                                      833                            110,000
Donald W. Dick, Jr.                                                 5,351                              110,000
David K. Fagin                                                      8,666                              112,000
F. Pierce Linaweaver/c/                                                    931                            113,000
Hannes M. Merriman                                                       8,601                            110,000
John G. Schreiber/c/                                                       931                            113,000
Hubert D. Vos                                                       8,921                              111,000
Paul M. Wythes                                                      5,682                              113,000
- -------------------------------------------------------------------------------------------------------------------
Equity Index 500 Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                416                           $110,000
Anthony W. Deering/c/                                                      416                            110,000
Donald W. Dick, Jr.                                                 2,656                              110,000
David K. Fagin                                                      4,128                              112,000
F. Pierce Linaweaver/c/                                                    485                            113,000
Hannes M. Merriman                                                       4,082                            110,000
John G. Schreiber/c/                                                       485                            113,000
Hubert D. Vos                                                       4,215                              111,000
Paul M. Wythes                                                      2,813                              113,000
- -------------------------------------------------------------------------------------------------------------------
Extended Equity Market Index Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                 99                           $110,000
Anthony W. Deering/c/                                                       99                            110,000
Donald W. Dick, Jr.                                                   959                              110,000
David K. Fagin                                                        991                              112,000
F. Pierce Linaweaver/c/                                                    101                            113,000
Hannes M. Merriman                                                         989                            110,000
John G. Schreiber/c/                                                       101                            113,000
Hubert D. Vos                                                         992                              111,000
Paul M. Wythes                                                        963                              113,000
- -------------------------------------------------------------------------------------------------------------------
Financial Services Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                121                           $110,000
Anthony W. Deering/c/                                                      121                            110,000
Donald W. Dick, Jr.                                                 1,074                              110,000
David K. Fagin                                                      1,202                              112,000
F. Pierce Linaweaver/c/                                                    127                            113,000
Hannes M. Merriman                                                       1,198                            110,000
John G. Schreiber/c/                                                       127                            113,000
Hubert D. Vos                                                       1,210                              111,000
Paul M. Wythes                                                      1,087                              113,000
- -------------------------------------------------------------------------------------------------------------------
Global Technology Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                100                           $110,000
Anthony W. Deering/c/                                                      100                            110,000
Donald W. Dick, Jr.                                                 1,530                              110,000
David K. Fagin                                                      1,043                              112,000
F. Pierce Linaweaver/c/                                                    148                            113,000
Hannes M. Merriman                                                       1,011                            110,000
John G. Schreiber/c/                                                       148                            113,000
Hubert D. Vos                                                       1,030                              111,000
Paul M. Wythes                                                      1,581                              113,000
- -------------------------------------------------------------------------------------------------------------------
Growth & Income Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                317                           $110,000
Anthony W. Deering/c/                                                      317                            110,000
Donald W. Dick, Jr.                                                 2,179                              110,000
David K. Fagin                                                      3,259                              112,000
F. Pierce Linaweaver/c/                                                    367                            113,000
Hannes M. Merriman                                                       3,225                            110,000
John G. Schreiber/c/                                                       367                            113,000
Hubert D. Vos                                                       3,329                              111,000
Paul M. Wythes                                                      2,299                              113,000
- -------------------------------------------------------------------------------------------------------------------
Growth Stock Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                528                           $110,000
Anthony W. Deering/c/                                                      528                            110,000
Donald W. Dick, Jr.                                                 3,245                              110,000
David K. Fagin                                                      5,230                              112,000
F. Pierce Linaweaver/c/                                                    643                            113,000
Hannes M. Merriman                                                       5,153                            110,000
John G. Schreiber/c/                                                       643                            113,000
Hubert D. Vos                                                       5,336                              111,000
Paul M. Wythes                                                      3,476                              113,000
- -------------------------------------------------------------------------------------------------------------------
Health Sciences Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                180                           $110,000
Anthony W. Deering/c/                                                      180                            110,000
Donald W. Dick, Jr.                                                 1,333                              110,000
David K. Fagin                                                      1,671                              112,000
F. Pierce Linaweaver/c/                                                    199                            113,000
Hannes M. Merriman                                                       1,659                            110,000
John G. Schreiber/c/                                                       199                            113,000
Hubert D. Vos                                                       1,689                              111,000
Paul M. Wythes                                                      1,371                              113,000
- -------------------------------------------------------------------------------------------------------------------
Institutional Large-Cap Growth Fund(d)
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                 93                           $110,000
Anthony W. Deering/c/                                                       93                            110,000
Donald W. Dick, Jr.                                                    93                              110,000
David K. Fagin                                                         96                              112,000
F. Pierce Linaweaver/c/                                                     98                            113,000
Hannes M. Merriman                                                          92                            110,000
John G. Schreiber/c/                                                        98                            113,000
Hubert D. Vos                                                          95                              111,000
Paul M. Wythes                                                         98                              113,000
- -------------------------------------------------------------------------------------------------------------------
Institutional Large-Cap Value Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                 93                           $110,000
Anthony W. Deering/c/                                                       93                            110,000
Donald W. Dick, Jr.                                                   923                              110,000
David K. Fagin                                                        925                              112,000
F. Pierce Linaweaver/c/                                                     93                            113,000
Hannes M. Merriman                                                         925                            110,000
John G. Schreiber/c/                                                        93                            113,000
Hubert D. Vos                                                         925                              111,000
Paul M. Wythes                                                        924                              113,000
- -------------------------------------------------------------------------------------------------------------------
Institutional Mid-Cap Equity Growth Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                120                           $110,000
Anthony W. Deering/c/                                                      120                            110,000
Donald W. Dick, Jr.                                                 1,059                              110,000
David K. Fagin                                                      1,174                              112,000
F. Pierce Linaweaver/c/                                                    126                            113,000
Hannes M. Merriman                                                       1,170                            110,000
John G. Schreiber/c/                                                       126                            113,000
Hubert D. Vos                                                       1,180                              111,000
Paul M. Wythes                                                      1,072                              113,000
- -------------------------------------------------------------------------------------------------------------------
Institutional Small-Cap Stock Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                117                           $110,000
Anthony W. Deering/c/                                                      117                            110,000
Donald W. Dick, Jr.                                                 1,038                              110,000
David K. Fagin                                                      1,132                              112,000
F. Pierce Linaweaver/c/                                                    122                            113,000
Hannes M. Merriman                                                       1,129                            110,000
John G. Schreiber/c/                                                       122                            113,000
Hubert D. Vos                                                       1,137                              111,000
Paul M. Wythes                                                      1,047                              113,000
- -------------------------------------------------------------------------------------------------------------------
Media & Telecommunications Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                154                           $110,000
Anthony W. Deering/c/                                                      154                            110,000
Donald W. Dick, Jr.                                                 1,271                              110,000
David K. Fagin                                                      1,571                              112,000
F. Pierce Linaweaver/c/                                                    170                            113,000
Hannes M. Merriman                                                       1,560                            110,000
John G. Schreiber/c/                                                       170                            113,000
Hubert D. Vos                                                       1,588                              111,000
Paul M. Wythes                                                      1,304                              113,000
- -------------------------------------------------------------------------------------------------------------------
Mid-Cap Growth Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                698                           $110,000
Anthony W. Deering/c/                                                      698                            110,000
Donald W. Dick, Jr.                                                 3,808                              110,000
David K. Fagin                                                      6,670                              112,000
F. Pierce Linaweaver/c/                                                    824                            113,000
Hannes M. Merriman                                                       6,586                            110,000
John G. Schreiber/c/                                                       824                            113,000
Hubert D. Vos                                                       6,790                              111,000
Paul M. Wythes                                                      4,067                              113,000
- -------------------------------------------------------------------------------------------------------------------
Mid-Cap Value Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                135                           $110,000
Anthony W. Deering/c/                                                      135                            110,000
Donald W. Dick, Jr.                                                 1,096                              110,000
David K. Fagin                                                      1,277                              112,000
F. Pierce Linaweaver/c/                                                    206                            113,000
Hannes M. Merriman                                                       1,228                            110,000
John G. Schreiber/c/                                                       206                            113,000
Hubert D. Vos                                                       1,259                              111,000
Paul M. Wythes                                                      1,173                              113,000
- -------------------------------------------------------------------------------------------------------------------
New America Growth Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                201                           $110,000
Anthony W. Deering/c/                                                      201                            110,000
Donald W. Dick, Jr.                                                 1,544                              110,000
David K. Fagin                                                      2,082                              112,000
F. Pierce Linaweaver/c/                                                    230                            113,000
Hannes M. Merriman                                                       2,063                            110,000
John G. Schreiber/c/                                                       230                            113,000
Hubert D. Vos                                                       2,113                              111,000
Paul M. Wythes                                                      1,606                              113,000
- -------------------------------------------------------------------------------------------------------------------
New Era Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                194                           $110,000
Anthony W. Deering/c/                                                      194                            110,000
Donald W. Dick, Jr.                                                 1,465                              110,000
David K. Fagin                                                      1,924                              112,000
F. Pierce Linaweaver/c/                                                    215                            113,000
Hannes M. Merriman                                                       1,910                            110,000
John G. Schreiber/c/                                                       215                            113,000
Hubert D. Vos                                                       1,948                              111,000
Paul M. Wythes                                                      1,511                              113,000
- -------------------------------------------------------------------------------------------------------------------
New Horizons Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                585                           $110,000
Anthony W. Deering/c/                                                      585                            110,000
Donald W. Dick, Jr.                                                 3,530                              110,000
David K. Fagin                                                      5,742                              112,000
F. Pierce Linaweaver/c/                                                    696                            113,000
Hannes M. Merriman                                                       5,668                            110,000
John G. Schreiber/c/                                                       696                            113,000
Hubert D. Vos                                                       5,868                              111,000
Paul M. Wythes                                                      3,771                              113,000
- -------------------------------------------------------------------------------------------------------------------
Real Estate Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                 99                           $110,000
Anthony W. Deering/c/                                                       99                            110,000
Donald W. Dick, Jr.                                                   949                              110,000
David K. Fagin                                                        972                              112,000
F. Pierce Linaweaver/c/                                                    101                            113,000
Hannes M. Merriman                                                         970                            110,000
John G. Schreiber/c/                                                       101                            113,000
Hubert D. Vos                                                         972                              111,000
Paul M. Wythes                                                        953                              113,000
- -------------------------------------------------------------------------------------------------------------------
Science & Technology Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                623                           $110,000
Anthony W. Deering/c/                                                      623                            110,000
Donald W. Dick, Jr.                                                 4,163                              110,000
David K. Fagin                                                      7,457                              112,000
F. Pierce Linaweaver/c/                                                    793                            113,000
Hannes M. Merriman                                                       7,343                            110,000
John G. Schreiber/c/                                                       793                            113,000
Hubert D. Vos                                                       7,650                              111,000
Paul M. Wythes                                                      4,532                              113,000
- -------------------------------------------------------------------------------------------------------------------
Small-Cap Stock Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                368                           $110,000
Anthony W. Deering/c/                                                      368                            110,000
Donald W. Dick, Jr.                                                 2,177                              110,000
David K. Fagin                                                      3,203                              112,000
F. Pierce Linaweaver/c/                                                    427                            113,000
Hannes M. Merriman                                                       3,164                            110,000
John G. Schreiber/c/                                                       427                            113,000
Hubert D. Vos                                                       3,243                              111,000
Paul M. Wythes                                                      2,283                              113,000
- -------------------------------------------------------------------------------------------------------------------
Small-Cap Value Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                274                           $110,000
Anthony W. Deering/c/                                                      274                            110,000
Donald W. Dick, Jr.                                                 1,726                              110,000
David K. Fagin                                                      2,397                              112,000
F. Pierce Linaweaver/c/                                                    339                            113,000
Hannes M. Merriman                                                       2,353                            110,000
John G. Schreiber/c/                                                       339                            113,000
Hubert D. Vos                                                       2,411                              111,000
Paul M. Wythes                                                      1,820                              113,000
- -------------------------------------------------------------------------------------------------------------------
Total Equity Market Index Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                111                           $110,000
Anthony W. Deering/c/                                                      111                            110,000
Donald W. Dick, Jr.                                                 1,015                              110,000
David K. Fagin                                                      1,094                              112,000
F. Pierce Linaweaver/c/                                                    116                            113,000
Hannes M. Merriman                                                       1,090                            110,000
John G. Schreiber/c/                                                       116                            113,000
Hubert D. Vos                                                       1,097                              111,000
Paul M. Wythes                                                      1,025                              113,000
- -------------------------------------------------------------------------------------------------------------------
Value Fund
                                                                             $
Calvin W. Burnett, Ph.D./c/                                                213                           $110,000
Anthony W. Deering/c/                                                      213                            110,000
Donald W. Dick, Jr.                                                 1,502                              110,000
David K. Fagin                                                      1,991                              112,000
F. Pierce Linaweaver/c/                                                    251                            113,000
Hannes M. Merriman                                                       1,965                            110,000
John G. Schreiber/c/                                                       251                            113,000
Hubert D. Vos                                                       2,004                              111,000
Paul M. Wythes                                                      1,560                              113,000
- -------------------------------------------------------------------------------------------------------------------






                                       42





                                       43





                                       44





                                       45





                                       46





                                       47





                                       48



 (a) Amounts in this column are based on accrued compensation for fiscal year
   2001.

 (b) Amounts in this column are based on compensation received for fiscal
   year 2001. The T. Rowe Price complex included 97 funds as of December 31,
   2001.

 (c) Newly elected to fund Board as of October 24, 2001.
 (d) Expenses estimated for the period October 31, 2001 through December 31,
   2001.


                 Directors' Holdings in the T. Rowe Price Funds

   The following table sets forth the T. Rowe Price fund holdings of the
   independent and inside directors, as of December 31, 2001.



                              Burnett  Deering     Dick     Fagin    Linaweaver  Merriman  Schreiber    Vos       Wythes
- -----------------------------------------------------------                                                     ----------
                           
    Aggregate Holdings,
    -------------------         $1-     over      over      over       over       over       over      over      over
         All Funds            $10,000  $100,000  $100,000  $100,000   $100,000   $100,000  $100,000   $100,000  $100,000
         ---------
- --------------------------------------------------------------------------------------------------------------------------
 Balanced Fund                 None      None      None      None $50,001-$100,000 None      None       None       None

- --------------------------------------------------------------------------------------------------------------------------
 Blue Chip Growth Fund         None      None   $1-$10,0$10,001-$50,000   None         over      None       None       None
                                                                                     $100,000
- ------------------------------------------------------------------------------------------------------------------------------
 Blue Chip Growth              None      None      None        None            None         None      None       None       None
 Fund-Advisor Class
- -----------------------------------------------------------------------------------------------------------------------------------
 Blue Chip Growth Portfolio    None      None      None        None            None         None      None       None       None
- -----------------------------------------------------------------------------------------------------------------------------------
 California Tax-Free Bond      None      None      None        None            None         None      None       None       None
 Fund
- -----------------------------------------------------------------------------------------------------------------------------------
 California Tax-Free Money     None      None      None        None            None         None      None       None       None
 Fund
- -----------------------------------------------------------------------------------------------------------------------------------
 Capital Appreciation Fund     None      None      over        None            None      $10,001-$50,000   None       None     None
                                                 $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Capital Opportunity Fund      None      None      None        None            None           None         None       None     None
- ------------------------------------------------------------------------------------------------------------------------------------
 Corporate Income Fund         None      None      None        None            None           None         None       None     None
- ------------------------------------------------------------------------------------------------------------------------------------
 Developing Technologies       None      None      None        None            None           None         None       None     None
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Diversified Small-Cap         None      None      None        None            None           None         None       None     None
 Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Dividend Growth Fund          None      None      None   $10,001-$50,000      None      $10,001-$50,000   None       None     None

- ------------------------------------------------------------------------------------------------------------------------------------
 Emerging Europe &             None      None      None        None            None           None         None       None     None
 Mediterranean Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Emerging Markets Bond Fund    None      None      None        None            None           None         None       None     None
- ------------------------------------------------------------------------------------------------------------------------------------
 Emerging Markets Stock Fund   None      None      None        None            None           None         None       None     None
- ------------------------------------------------------------------------------------------------------------------------------------
 Equity Income Fund            None      None$50,001-$100,$50,001-$100,000     None      $50,001-$100,000  None  $10,001-$50,00None

- ------------------------------------------------------------------------------------------------------------------------------------
 Equity Income Fund-Advisor    None      None         None            None            None            None         None       None
 Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Equity Income Portfolio       None      None         None            None            None            None         None       None
- ------------------------------------------------------------------------------------------------------------------------------------
 Equity Index 500 Fund         None      None         None            None            None       over $100,000     None       None

- ------------------------------------------------------------------------------------------------------------------------------------
 Equity Index 500 Portfolio    None      None         None            None            None            None         None       None
- ------------------------------------------------------------------------------------------------------------------------------------
 European Stock Fund           None      over    $10,001-$50,000 $10,001-$50,000      None            None         None       None
                                       $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Extended Equity Market        None      None         None            None            None            None         None       None
 Index Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Financial Services Fund       None      None    $10,001-$50,000      None            None            None         None       None

- ------------------------------------------------------------------------------------------------------------------------------------
 Florida Intermediate          None      None         None            None            None            None         None       None
 Tax-Free Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Georgia Tax-Free Bond Fund    None      None         None            None            None            None         None       None
- ------------------------------------------------------------------------------------------------------------------------------------
 Global Stock Fund             None      None         None            None            None            None         None       None
- ------------------------------------------------------------------------------------------------------------------------------------
 Global Technology Fund        None      None         None            None            None            None         None       None
- ------------------------------------------------------------------------------------------------------------------------------------
 GNMA Fund                     None      None         None            None            None            None         over       None
                                                                                                                 $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Government Reserve            None      None         None            None            None            None         None       None
 Investment Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Growth & Income Fund          None      None      $1-$10,000         None            None            None         over       No$10,
                                                                                                                 $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Growth Stock Fund             None      None    $10,001-$50,000      None       $10,001-$50,000      None         None       None

- ------------------------------------------------------------------------------------------------------------------------------------
 Growth Stock Fund-Advisor     None      None         None            None            None            None         None       None
 Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Health Sciences Fund          None      None    $10,001-$50,000      None            None            None         None $50,001-$100

- ------------------------------------------------------------------------------------------------------------------------------------
 Health Sciences Portfolio     None      None         None            None            None            None         None       None
- ------------------------------------------------------------------------------------------------------------------------------------
 High Yield Fund             $1-$10,000  None    $10,001-$50,000      None            None            None         over       None
                                                                                                                 $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 High Yield Fund-Advisor        None      None         None            None            None            None         None      None
 Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Institutional Foreign          None      None         None            None            None            None         None      None
 Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Institutional Large-Cap        None      None         None            None            None            None         None      None
 Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Institutional Large-Cap        None      None         None            None            None            None         None      None
 Value Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Institutional Mid-Cap          None      None         None            None            None            None         None      None
 Equity Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Institutional Small-Cap        None      None         None            None            None            None         None      None
 Stock Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 International Bond Fund        None      None   $50,001-$100,000      None            None            None         None      None

- ------------------------------------------------------------------------------------------------------------------------------------
 International Bond             None      None         None            None            None            None         None      None
 Fund-Advisor Class
- ------------------------------------------------------------------------------------------------------------------------------------
 International Discovery        None$50,001-$100,0$10,001-$50,000      None       over $100,000        None         None      None
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 International Equity Index     None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 International Growth &         None         None            None            None            None            None         None    No
 Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 International Stock Fund    $1-$10,000 over $100,000        None       over $100,000        None            None         None    No

- ------------------------------------------------------------------------------------------------------------------------------------
 International Stock            None         None            None            None            None            None         None    No
 Fund-Advisor Class
- ------------------------------------------------------------------------------------------------------------------------------------
 International Stock            None         None            None            None            None            None         None    No
 Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
 Japan Fund                     None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 Latin America Fund             None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 Limited-Term Bond Portfolio    None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 Maryland Short-Term            None         None            None            None            None            None         None    No
 Tax-Free Bond Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Maryland Tax-Free Bond Fund    None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 Maryland Tax-Free Money        None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Media & Telecommunications     None    $10,001-$50,000      None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Mid-Cap Growth Fund            None         None         $1-$10,000    $10,001-$50,000      None            None         No$10,001-

- ------------------------------------------------------------------------------------------------------------------------------------
 Mid-Cap Growth Fund-Advisor    None         None            None            None            None            None         None    No
 Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Mid-Cap Growth Portfolio       None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 Mid-Cap Value Fund             None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 New America Growth Fund        None         None            None            None       over $100,000   $10,001-$50,000   None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 New America Growth             None         None            None            None            None            None         None    No
 Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
 New Asia Fund                  None         None            None       $10,001-$50,000      None            None         None    No

- ------------------------------------------------------------------------------------------------------------------------------------
 New Era Fund                   None         None            None            None            None            None         No$10,001-

- ------------------------------------------------------------------------------------------------------------------------------------
 New Horizons Fund           $1-$10,000      None       $10,001-$50,000   $1-$10,000    over $100,000   $10,001-$50,000   No$10,001-

- ------------------------------------------------------------------------------------------------------------------------------------
 New Income Fund                None         None      $50,001-$100,000      None            None            None         over    No
                                                                                                                        $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 New Jersey Tax-Free Bond       None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 New York Tax-Free Bond Fund    None         None            None            None            None            None         None    No
- ------------------------------------------------------------------------------------------------------------------------------------
 New York Tax-Free Money        None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Personal Strategy Balanced     None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Personal Strategy Balanced     None         None            None            None            None            None         None    No
 Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
 Personal Strategy Growth       None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Personal Strategy Income       None         None            None            None            None            None         None    No
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Prime Reserve Fund          $1-$10,000      None       over $100,000        None         $1-$10,000   $50,001-$100,0$10,001-$50,0No

- ------------------------------------------------------------------------------------------------------------------------------------
 Prime Reserve Fund-PLUS        None         None            None            None            None            None           None
 Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Prime Reserve Portfolio        None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Real Estate Fund               None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Reserve Investment Fund        None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Science & Technology Fund      None    over $100,000        None            None            None       $10,001-$50,000     No$10,00
- ------------------------------------------------------------------------------------------------------------------------------------
 Science & Technology           None         None            None            None            None            None           None
 Fund-Advisor Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Short-Term Bond Fund           None         None            None      $50,001-$100,000      None            None           over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Small-Cap Stock Fund           None         None         $1-$10,000    $10,001-$50,000      None            None           No$10,00

- ------------------------------------------------------------------------------------------------------------------------------------
 Small-Cap Stock                None         None            None            None            None            None           None
 Fund-Advisor Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Small-Cap Value Fund           None         None            None            None            None            None           No$10,00

- ------------------------------------------------------------------------------------------------------------------------------------
 Small-Cap Value                None         None            None            None            None            None           None
 Fund-Advisor Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Spectrum Growth Fund           None         None            None            None            None       over $100,000       None

- ------------------------------------------------------------------------------------------------------------------------------------
 Spectrum Income Fund           None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Spectrum International Fund    None         None            None            None            None       $10,001-$50,000     None
- ------------------------------------------------------------------------------------------------------------------------------------
 Summit Cash Reserves Fund      None         None            None       over $100,000        None            None           over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Summit GNMA Fund               None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Summit Municipal Income        None         None            None            None            None            None           over
 Fund                                                                                                                     $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Summit Municipal               None         None            None            None            None            None           over
 Intermediate Fund                                                                                                        $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Summit Municipal Money         None         None            None            None            None      $50,001-$100,000     None
 Market Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Efficient Balanced Fund    None         None            None      $50,001-$100,000      None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Efficient Growth Fund      None         None            None       $10,001-$50,000      None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Efficient Multi-Cap        None         None            None            None            None            None           None
 Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Exempt Money Fund          None         None            None            None            None            None           over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Exempt Money Fund-PLUS     None         None            None            None            None            None           None
 Class
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Free High Yield Fund       None         None            None            None            None            None           over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Free Income Fund           None         None            None            None            None            None           over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Free Intermediate Bond     None         None            None            None            None            None           None
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Tax-Free Short-Intermediate    None         None            None            None            None            None           None
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 Total Equity Market Index      None         None            None            None            None            None           None
 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
 U.S. Bond Index Fund           None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 U.S. Treasury Intermediate     None         None       over $100,000        None            None            None           over
 Fund                                                                                                                     $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 U.S. Treasury Long-Term        None         None            None            None            None            None           over
 Fund                                                                                                                     $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 U.S. Treasury Money Fund       None         None            None            None            None            None           over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Value Fund                     None         None       $10,001-$50,000      None            None      $50,001-$100,000     over
                                                                                                                          $100,000
- ------------------------------------------------------------------------------------------------------------------------------------
 Value Fund-Advisor Class       None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------
 Virginia Tax-Free Bond Fund    None         None            None            None            None            None           None
- ------------------------------------------------------------------------------------------------------------------------------------






                                       49





                                       50





                                       51





                                       52





                                       53





                            Kennedy           Laporte           Riepe            Testa
- --------------------------------------------------------------------------------------------
                     
 Aggregate Holdings,
 -------------------
      All Funds          over $100,000     over $100,000    over $100,000   over $100,000
      ---------
- --------------------------------------------------------------------------------------------
 Balanced Fund                None              None        over $100,000        None
- --------------------------------------------------------------------------------------------
 Blue Chip Growth Fund        None              None            None             None
- --------------------------------------------------------------------------------------------
 Blue Chip Growth             None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Blue Chip Growth             None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 California Tax-Free          None              None            None             None
 Bond Fund
- --------------------------------------------------------------------------------------------
 California Tax-Free          None              None            None             None
 Money Fund
- --------------------------------------------------------------------------------------------
 Capital Appreciation    over $100,000     over $100,000    over $100,000        None
 Fund
- --------------------------------------------------------------------------------------------
 Capital Opportunity    $10,001-$50,000   $50,001-$100,000      None             None
 Fund
- --------------------------------------------------------------------------------------------
 Corporate Income Fund        None              None            None             None
- --------------------------------------------------------------------------------------------
 Developing                   None         over $100,000        None             None
 Technologies Fund
- --------------------------------------------------------------------------------------------
 Diversified Small-Cap        None              None            None             None
 Growth Fund
- --------------------------------------------------------------------------------------------
 Dividend Growth Fund    over $100,000          None            None             None
- --------------------------------------------------------------------------------------------
 Emerging Europe &            None              None            None             None
 Mediterranean Fund
- --------------------------------------------------------------------------------------------
 Emerging Markets Bond        None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Emerging Markets             None              None            None         over $100,000
 Stock Fund
- --------------------------------------------------------------------------------------------
 Equity Income Fund     $10,001-$50,000         None        over $100,000        None
- --------------------------------------------------------------------------------------------
 Equity Income                None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Equity Income                None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 Equity Index 500 Fund        None              None            None             None
- --------------------------------------------------------------------------------------------
 Equity Index 500             None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 European Stock Fund          None        $10,001-$50,000       None             None
- --------------------------------------------------------------------------------------------
 Extended Equity              None              None            None             None
 Market Index Fund
- --------------------------------------------------------------------------------------------
 Financial Services      over $100,000          None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Florida Intermediate         None              None            None             None
 Tax-Free Fund
- --------------------------------------------------------------------------------------------
 Georgia Tax-Free Bond        None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Global Stock Fund            None              None            None             None
- --------------------------------------------------------------------------------------------
 Global Technology            None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 GNMA Fund                    None              None            None             None
- --------------------------------------------------------------------------------------------
 Government Reserve           None              None            None             None
 Investment Fund
- --------------------------------------------------------------------------------------------
 Growth & Income Fund         None              None        over $100,000        None
- --------------------------------------------------------------------------------------------
 Growth Stock Fund            None              None            None             None
- --------------------------------------------------------------------------------------------
 Growth Stock                 None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Health Sciences Fund    over $100,000          None            None         over $100,000
- --------------------------------------------------------------------------------------------
 Health Sciences              None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 High Yield Fund              None              None        over $100,000        None
- --------------------------------------------------------------------------------------------
 High Yield                   None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Institutional Foreign        None              None            None             None
 Equity Fund
- --------------------------------------------------------------------------------------------
 Institutional                None              None            None             None
 Large-Cap Growth Fund
- --------------------------------------------------------------------------------------------
 Institutional                None              None            None             None
 Large-Cap Value Fund
- --------------------------------------------------------------------------------------------
 Institutional Mid-Cap        None              None            None             None
 Equity Growth Fund
- --------------------------------------------------------------------------------------------
 Institutional                None              None            None             None
 Small-Cap Stock Fund
- --------------------------------------------------------------------------------------------
 International Bond           None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 International Bond           None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 International          $50,001-$100,000   over $100,000     $1-$10,000      over $100,000
 Discovery Fund
- --------------------------------------------------------------------------------------------
 International Equity         None              None            None             None
 Index Fund
- --------------------------------------------------------------------------------------------
 International Growth         None              None            None             None
 & Income Fund
- --------------------------------------------------------------------------------------------
 International Stock     over $100,000     over $100,000    over $100,000    over $100,000
 Fund
- --------------------------------------------------------------------------------------------
 International Stock          None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 International Stock          None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 Japan Fund                   None              None        over $100,000        None
- --------------------------------------------------------------------------------------------
 Latin America Fund      over $100,000          None            None             None
- --------------------------------------------------------------------------------------------
 Limited-Term Bond            None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 Maryland Short-Term          None              None            None             None
 Tax-Free Bond Fund
- --------------------------------------------------------------------------------------------
 Maryland Tax-Free            None         over $100,000        None             None
 Bond Fund
- --------------------------------------------------------------------------------------------
 Maryland Tax-Free            None              None            None             None
 Money Fund
- --------------------------------------------------------------------------------------------
 Media &
 Telecommunications      over $100,000          None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Mid-Cap Growth Fund     over $100,000     over $100,000        None         over $100,000
- --------------------------------------------------------------------------------------------
 Mid-Cap Growth               None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Mid-Cap Growth               None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 Mid-Cap Value Fund      over $100,000          None            None             None
- --------------------------------------------------------------------------------------------
 New America Growth           None         over $100,000        None             None
 Fund
- --------------------------------------------------------------------------------------------
 New America Growth           None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 New Asia Fund           over $100,000     over $100,000     $1-$10,000          None
- --------------------------------------------------------------------------------------------
 New Era Fund            over $100,000          None            None             None
- --------------------------------------------------------------------------------------------
 New Horizons Fund            None         over $100,000        None         over $100,000
- --------------------------------------------------------------------------------------------
 New Income Fund              None        $10,001-$50,000       None             None
- --------------------------------------------------------------------------------------------
 New Jersey Tax-Free          None              None            None             None
 Bond Fund
- --------------------------------------------------------------------------------------------
 New York Tax-Free            None              None            None             None
 Bond Fund
- --------------------------------------------------------------------------------------------
 New York Tax-Free            None              None            None             None
 Money Fund
- --------------------------------------------------------------------------------------------
 Personal Strategy            None              None            None             None
 Balanced Fund
- --------------------------------------------------------------------------------------------
 Personal Strategy            None              None            None             None
 Balanced Portfolio
- --------------------------------------------------------------------------------------------
 Personal Strategy            None              None            None             None
 Growth Fund
- --------------------------------------------------------------------------------------------
 Personal Strategy            None              None            None             None
 Income Fund
- --------------------------------------------------------------------------------------------
 Prime Reserve Fund      over $100,000    $10,001-$50,000   over $100,000   $10,001-$50,000
- --------------------------------------------------------------------------------------------
 Prime Reserve                None              None            None             None
 Fund-PLUS Class
- --------------------------------------------------------------------------------------------
 Prime Reserve                None              None            None             None
 Portfolio
- --------------------------------------------------------------------------------------------
 Real Estate Fund             None              None            None             None
- --------------------------------------------------------------------------------------------
 Reserve Investment           None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Science & Technology         None         over $100,000    over $100,000        None
 Fund
- --------------------------------------------------------------------------------------------
 Science & Technology         None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Short-Term Bond Fund         None              None        over $100,000        None
- --------------------------------------------------------------------------------------------
 Small-Cap Stock Fund    over $100,000          None            None             None
- --------------------------------------------------------------------------------------------
 Small-Cap Stock              None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Small-Cap Value Fund         None              None        over $100,000    over $100,000
- --------------------------------------------------------------------------------------------
 Small-Cap Value              None              None            None             None
 Fund-Advisor Class
- --------------------------------------------------------------------------------------------
 Spectrum Growth Fund         None              None            None             None
- --------------------------------------------------------------------------------------------
 Spectrum Income Fund         None              None            None             None
- --------------------------------------------------------------------------------------------
 Spectrum                     None              None            None             None
 International Fund
- --------------------------------------------------------------------------------------------
 Summit Cash Reserves    over $100,000     over $100,000    over $100,000    over $100,000
 Fund
- --------------------------------------------------------------------------------------------
 Summit GNMA Fund             None              None            None             None
- --------------------------------------------------------------------------------------------
 Summit Municipal             None              None            None             None
 Income Fund
- --------------------------------------------------------------------------------------------
 Summit Municipal             None              None            None         over $100,000
 Intermediate Fund
- --------------------------------------------------------------------------------------------
 Summit Municipal        over $100,000          None        over $100,000        None
 Money Market Fund
- --------------------------------------------------------------------------------------------
 Tax-Efficient                None              None            None             None
 Balanced Fund
- --------------------------------------------------------------------------------------------
 Tax-Efficient Growth         None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Tax-Efficient                None              None            None             None
 Multi-Cap Growth Fund
- --------------------------------------------------------------------------------------------
 Tax-Exempt Money Fund   over $100,000          None            None             None
- --------------------------------------------------------------------------------------------
 Tax-Exempt Money             None              None            None             None
 Fund-PLUS Class
- --------------------------------------------------------------------------------------------
 Tax-Free High Yield          None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Tax-Free Income Fund         None              None            None        $10,001-$50,000
- --------------------------------------------------------------------------------------------
 Tax-Free Intermediate        None              None            None             None
 Bond Fund
- --------------------------------------------------------------------------------------------
 Tax-Free
 Short-Intermediate           None              None        over $100,000        None
 Fund
- --------------------------------------------------------------------------------------------
 Total Equity Market          None              None        over $100,000        None
 Index Fund
- --------------------------------------------------------------------------------------------
 U.S. Bond Index Fund         None              None            None             None
- --------------------------------------------------------------------------------------------
 U.S. Treasury                None              None            None             None
 Intermediate Fund
- --------------------------------------------------------------------------------------------
 U.S. Treasury                None              None            None             None
 Long-Term Fund
- --------------------------------------------------------------------------------------------
 U.S. Treasury Money          None              None            None             None
 Fund
- --------------------------------------------------------------------------------------------
 Value Fund              over $100,000     over $100,000    over $100,000    over $100,000
- --------------------------------------------------------------------------------------------
 Value Fund-Advisor           None              None            None             None
 Class
- --------------------------------------------------------------------------------------------
 Virginia Tax-Free            None              None            None             None
 Bond Fund
- --------------------------------------------------------------------------------------------






                                       54





                                       55





                                       56



 PRINCIPAL HOLDERS OF SECURITIES
 -------------------------------------------------------------------------------
   As of March 28, 2002, the officers and directors of the fund, as a group,
   owned less than 1% of the outstanding shares of the fund.

   As of March 28, 2002, the following shareholders of record owned more than 5%
   of the outstanding shares of any share class of the fund:

   Balanced (54.16%), Capital Appreciation (20.27%), Equity Income (25.08%),
   Extended Equity Market Index (17.50%), Growth & Income (26.22%), Growth Stock
   (23.60%), New America Growth (32.62%), New Era (5.54%), New Horizons
   (30.76%), Science & Technology (20.86%), and Small-Cap Value Funds (20.59%):
   T. Rowe Price Trust Company, Inc./a/, Attn.: TRPS Institutional Control
   Department, P.O. Box 17215, Baltimore, Maryland 21297-1215;

   /a/ T. Rowe Price Trust Company is a wholly owned subsidiary of T. Rowe Price
       Associates, Inc., which is a wholly owned subsidiary of T. Rowe Price
       Group, Inc., each a Maryland corporation. T. Rowe Price Trust Company is
       not the beneficial owner of these shares. Such shares are held of record
       by T. Rowe Price Trust Company and are voted by various retirement plans
       and retirement participants.

   Blue Chip Growth Fund (40.59%): T. Rowe Price Retirement Plan Services/b/ TR
   Blue Chip Growth Fund, Attn.: Asset Reconciliations, P.O. Box 17215,
   Baltimore, Maryland 21297-1215;

   /b/ T. Rowe Price Retirement Plan Services is a wholly owned subsidiary of T.
       Rowe Price Associates, Inc., which is a wholly owned subsidiary of T.
       Rowe Price Group, Inc., each a Maryland corporation. T. Rowe Price
       Retirement Plan Services is not the beneficial owner of these shares.
       Such shares are held of record by T. Rowe Price Retirement Plan Services
       and are voted by various retirement plans and retirement participants.

   Capital Appreciation (6.98%), Financial Services (6.81%), Mid-Cap Growth
   (8.22%), New Era (6.86%), and Small-Cap Value Funds (5.52%): Charles Schwab &
   Co. Inc., Reinvest Account, Attn.: Mutual Fund Department, 101 Montgomery
   Street, San Francisco, California 94104-4122;

   Capital Opportunity (5.75%) and Value Funds (22.41%): T. Rowe Price Trust
   Company, Inc., Attn.: Installation Team for TRPS Institutional Control
   Department, P.O. Box 17125, Baltimore, Maryland 21297-1125;

   Developing Technologies Fund (10.55%): Trustees of T. Rowe Price, 401k Plus
   Plan, Attn.: Financial Reporting Department, P.O. Box 89000, Baltimore,
   Maryland 21289-0001;

   Dividend Growth Fund (17.47%): T. Rowe Price Trust Company, Inc., Dividend
   Growth Fund (DGF), Attn.: Asset Reconciliation, P.O. Box 17215, Baltimore,
   Maryland 21297-1215;

   Equity Index 500 Fund (40.63%): T. Rowe Price Trust Company, Inc., Attn.: RPS
   Control Department, 10090 Red Run Boulevard, Owings Mills, Maryland
   21117-4842;

   Growth & Income (13.37%), New Era (5.10%), New Horizons (10.25%), and Mid-Cap
   Value Funds (24.33%): Pirateline & Company, T. Rowe Price Associates, Attn.:
   Fund Accounting Department, 100 East Pratt Street, Baltimore, Maryland
   21202-1009;

   Institutional Large-Cap Growth Fund (100.00%): T. Rowe Price Associates/c/,
   Attn.: Financial Reporting Department, 100 East Pratt Street, Baltimore,
   Maryland 21202-1009;

   /c/ T. Rowe Price Associates is a wholly owned subsidiary of T. Rowe Price
       Group, Inc., each a Maryland corporation. Securities owned by T. Rowe
       Price Associates are the result of its contribution to the fund at the
       fund's inception in order to provide the fund with sufficient capital to
       invest in accordance with its investment program. At the level of
       ownership indicated, T. Rowe Price Associates would be able to determine
       the outcome of most issues that were submitted to shareholders for vote.

   Institutional Large-Cap Value Fund (100.00%): T. Rowe Price Finance Inc./d/,
   802 West Street, Suite 301, Wilmington, Delaware 19801-1526;


                                       57



   /d/ T. Rowe Price Finance is a wholly owned subsidiary of T. Rowe Price
       Associates, Inc., which is a wholly owned subsidiary of T. Rowe Price
       Group, Inc., each a Maryland corporation. Securities owned by T. Rowe
       Price Finance are the result of its contribution to the fund at the
       fund's inception in order to provide the fund with sufficient capital to
       invest in accordance with its investment program. At the level of
       ownership indicated, T. Rowe Price Finance would be able to determine the
       outcome of most issues that were submitted to shareholders for vote.

   Institutional Mid-Cap Equity Growth Fund: Atlantic Trust Company NA (8.74%),
   Attn.: Kathy Trull, 100 Federal Street, 37th Floor, Boston, Massachusetts
   02110-1802; Atlantic Trust Company NA (11.49%), Attn.: Kathy Trull, 100
   Federal Street, 37th Floor, Boston, Massachusetts 02110-1802; Stichting
   Pensioenfonds (8.05%), Van de Koninklijke Nedlloyd, P.O. Box 1982, 3000 B Z
   Rotterdam, The Netherlands; CIBC World Markets Agt. for CIBC (5.17%), Mellon
   Trust Co. TR Nexfor Master Investment Trust Funds, 161 Bay Street, P.O. Box
   500, Toronto, Ontario Canada M5J2S8; Band & Company (5.19%), c/o Firstar
   Bank, P.O. Box 1787, Milwaukee, Wisconsin 53201-1787;

   Institutional Small-Cap Stock Fund: Burlington Resources Inc. (5.19%), 5051
   Westheimer Road, Suite 1400, Houston, Texas 77056-5686; Brookline
   Contributory Retirement Systems (5.88%), 333 Washington Street, Brookline,
   Massachusetts 02445-6853; Northern Trust Co. TR Illinois Tool Works Pension
   Trust U/A DTD 1/ 8/90 (14.52%), Attn.: Robert T. Callahan, 3600 West Lake
   Avenue, Glenview, Illinois 60025-1215; Deutsche Trust Bank Limited FBO Tokkin
   Fund No. 5064 (12.94%), Sanno Park Tower 2-11-1, Nagatacho Chiyoda KU, Tokyo,
   Japan 100-6172; Sigler & Co. Cust, Smithsonian Institution (20.60%), Chase
   Manhattan Bank, Mark R. Pensec, AVP, 4 New York Plaza 2nd Floor, New York,
   New York 10004-2413;

   Media & Telecommunications Fund (6.57%): T. Rowe Price Trust Company, Inc.,
   Media & Telecommunications Fund, DST #121, P.O. Box 17215, Baltimore,
   Maryland 21297-1215;

   Mid-Cap Growth Fund (18.02%): T. Rowe Price Trust Company, Inc., Attn.: Asset
   Reconciliations, P.O. Box 17215, Baltimore, Maryland 21297-1215;

   Mid-Cap Value Fund: National Financial Services for the Exclusive Benefit of
   Our Customers (6.58%), 200 Liberty, One Financial Center 5th Floor, New York,
   New York 10281-1003;

   New America Growth Fund (8.80%): Wilmington Trust Co. TR, FBO Continental
   Airlines Inc., DCP Plan A/C #49277-0, c/o Mutual Funds, P.O. Box 8971,
   Wilmington, Delaware 19899-8971;

   Real Estate Fund (11.05%): T. Rowe Price Retirement Plan Services, Inc.,
   Kimley-Horn Retirement Savings PL, Plan #105315, NB-Custom Blended Fund #122
   REF, P.O. Box 17215, Baltimore, Maryland 21297-1215;

   Small-Cap Stock Fund: T. Rowe Price Trust Company, Inc. (18.16%), T. Rowe
   Price OTC Fund, Attn.: RPS Control Department, P.O. Box 17215, Baltimore,
   Maryland 21297-1215; Norwest Bank Company NA TR FBO State of Minnesota
   Deferred Compensation Plan, Minnesota State Deferred Compensation Plan Trust
   (7.57%), c/o Great West Life Recordkeeper, 8515 East Orchard Road, Attn.:
   2T2, Englewood, Colorado 80111-5037.



 INVESTMENT MANAGEMENT SERVICES
 -------------------------------------------------------------------------------
   Services
   Under the Management Agreement, T. Rowe Price provides the fund with
   discretionary investment services. Specifically, T. Rowe Price is responsible
   for supervising and directing the investments of the fund in accordance with
   the fund's investment objectives, program, and restrictions as provided in
   its prospectus and this Statement of Additional Information. T. Rowe Price is
   also responsible for effecting all security transactions on behalf of the
   fund, including the negotiation of commissions and the allocation of

   principal business and portfolio brokerage. . In addition to these services,
   T. Rowe Price provides the fund with certain corporate administrative
   services, including: maintaining the fund's corporate existence and corporate
   records; registering and qualifying fund shares under federal laws;
   monitoring the financial, accounting, and administrative functions of the
   fund; maintaining liaison with the agents employed by the fund such as the


                                       58



   fund's custodian and transfer agent; assisting the fund in the coordination
   of such agents' activities; and permitting T. Rowe Price's employees to serve
   as officers, directors, and committee members of the fund without cost to the
   fund.

   The Management Agreement also provides that T. Rowe Price, its directors,
   officers, employees, and certain other persons performing specific functions
   for the fund will only be liable to the fund for losses resulting from
   willful misfeasance, bad faith, gross negligence, or reckless disregard of
   duty.

   Approval of Management Agreements
   The Management Agreements of the funds are reviewed each year by the funds'
   Boards of Directors to determine whether the agreements should be renewed for
   a one-year period or not. Renewal of the agreements requires the majority
   vote of the Board of Directors, including a majority of the independent
   directors. Each fund board consists of a majority of independent directors.

   In approving the continuation of the investment management agreements for
   each fund for the current year, the Board reviewed reports prepared by T.
   Rowe Price, materials provided by fund counsel and counsel to the independent
   directors, as well as other information. The Board considered the nature and
   quality of the investment management services provided to the fund by T. Rowe
   Price under the investment management agreements and the personnel who
   provide these services, including the historical performance of the fund
   compared to its benchmark index and its peer group of similar investment
   companies. In addition, the Board considered other services provided to the
   fund by T. Rowe Price and its affiliates, such as administrative services,
   shareholder services, fund accounting, assistance in meeting legal and
   regulatory requirements, and other services necessary for the fund's
   operation.

   The Board considered the fees paid to T. Rowe Price for investment management
   services, as well as compensation paid to T. Rowe Price or its affiliates for
   other non-advisory services provided to the fund. In connection with its
   review of the fees paid to T. Rowe Price and its affiliates, the Board
   reviewed information provided by Lipper Inc. comparing the fund's advisory
   fee rate and overall expense ratio with those of comparable funds. Where
   applicable, the Board considered that the fund's advisory fee structure
   reflects breakpoints, which permit fee reductions resulting from economies of
   scale. Additionally and where applicable, the Board considered the
   contractual fee waivers and expense reimbursements agreed to by T. Rowe
   Price.

   The Board also considered the costs incurred and the benefits received by T.
   Rowe Price and its affiliates, including the profitability of T. Rowe Price
   from providing advisory services to the fund. In reviewing data concerning
   the profitability of T. Rowe Price, the Board examined, among other
   components, the cost allocation methodology utilized in the presentation. In
   addition, the Board considered other potential benefits to T. Rowe Price,
   such as the research services T. Rowe Price receives from brokers in return
   for allocating fund brokerage in a "soft dollar" arrangement.

   Based on the information reviewed and the discussions, the Board concluded
   that it was satisfied with the nature and quality of the services provided by
   T. Rowe Price to the fund and that the management fee rate was reasonable in
   relation to such services. The independent directors of the fund were
   assisted by independent legal counsel in their deliberations.

   All funds except Equity Index 500, Extended Equity Market Index, Total Equity
   Market Index, Institutional Large-Cap Growth, Institutional Large-Cap Value,
   Institutional Mid-Cap Equity Growth, and Institutional Small-Cap Stock Funds

   Management Fee
   The fund pays a fee ("Fee") which consists of two components: a Group
   Management Fee ("Group Fee") and an Individual Fund Fee ("Fund Fee"). The Fee
   is paid monthly to T. Rowe Price on the first business day of the next
   succeeding calendar month and is calculated as described next.

   The monthly Group Fee ("Monthly Group Fee") is the sum of the daily Group Fee
   accruals ("Daily Group Fee Accruals") for each month. The Daily Group Fee
   Accrual for any particular day is computed by multiplying the Price Funds'
   group fee accrual as determined below ("Daily Price Funds' Group Fee


                                       59



   Accrual") by the ratio of the Price Fund's net assets for that day to the sum
   of the aggregate net assets of the Price Funds for that day. The Daily Price
   Funds' Group Fee Accrual for any particular day is calculated by multiplying
   the fraction of one (1) over the number of calendar days in the year by the
   annualized Daily Price Funds' Group Fee Accrual for that day as determined in
   accordance with the following schedule:


                                    
                                       0.480%  First $1 billion  0.360%  Next $2 billion   0.310%  Next $16 billion
                                       ------------------------------------------------------------------------------
                                       0.450%  Next $1 billion   0.350%  Next $2 billion   0.305%  Next $30 billion
                                       ------------------------------------------------------------------------------
                                       0.420%  Next $1 billion   0.340%  Next $5 billion   0.300%  Next $40 billion
                                       ------------------------------------------------------------------------------
                                       0.390%  Next $1 billion   0.330%  Next $10 billion  0.295%  Thereafter
                                       ------------------------------------------------------------------------------
                                       0.370%  Next $1 billion   0.320%  Next $10 billion





   For the purpose of calculating the Group Fee, the Price Funds include all the
   mutual funds distributed by Investment Services (excluding the T. Rowe Price
   Spectrum Funds, and any institutional, index, or private label mutual funds).
   For the purpose of calculating the Daily Price Funds' Group Fee Accrual for
   any particular day, the net assets of each Price Fund are determined in
   accordance with the fund's prospectus as of the close of business on the
   previous business day on which the fund was open for business.

   The monthly Fund Fee ("Monthly Fund Fee") is the sum of the daily Fund Fee
   accruals ("Daily Fund Fee Accruals") for each month. The Daily Fund Fee
   Accrual for any particular day is computed by multiplying the fraction of one
   (1) over the number of calendar days in the year by the individual Fund Fee
   Rate and multiplying this product by the net assets of the fund for that day,
   as determined in accordance with the fund's prospectus as of the close of
   business on the previous business day on which the fund was open for

   business. The individual fund fees  are listed in the following chart:



                                
Balanced Fund                         0.15%
Blue Chip Growth Fund                 0.30%
Capital Appreciation Fund             0.30%
Capital Opportunity Fund              0.35%
Developing Technologies Fund          0.60%
Diversified Small-Cap Growth Fund     0.35%
Dividend Growth Fund                  0.20%
Equity Income Fund                    0.25%
Financial Services Fund               0.35%
Global Technology Fund                0.45%
Growth & Income Fund                  0.25%
Growth Stock Fund                     0.25%
Health Sciences Fund                  0.35%
Media & Telecommunications Fund       0.35%
Mid-Cap Growth Fund                   0.35%
Mid-Cap Value Fund                    0.35%
New America Growth Fund               0.35%
New Era Fund                          0.25%
New Horizons Fund                     0.35%
Real Estate Fund                      0.30%
Science & Technology Fund             0.35%
Small-Cap Stock Fund                  0.45%
Small-Cap Value Fund                  0.35%
Value Fund                            0.35%






                                       60



   Equity Index 500 Fund
   The fund pays T. Rowe Price an annual investment management fee in monthly
   installments of 0.15% of the average daily net asset value of the fund.

   Extended Equity Market Index and Total Equity Market Index Funds
   The Management Agreement between each fund and T. Rowe Price provides that
   each fund pays T. Rowe

   Price an annual fee of 0.40%. The agreement also provides that T. Rowe Price
   will pay all expenses of each fund's operations, except interest, taxes,
   brokerage commissions, and other charges incident to the purchase, sale, or
   lending of the fund's portfolio securities, directors' fees, and expenses
   (including counsel fees and expenses) and such non-recurring or extraordinary
   expenses that may arise, including the costs of actions, suits, or
   proceedings to which the fund is a party and the expenses the fund may incur
   as a result of its obligation to provide indemnification to its officers,
   directors, and agents. However, the Board of Directors for the funds reserves
   the right to impose additional fees against shareholder accounts to defray
   expenses which would otherwise be paid by T. Rowe Price under the management
   agreement. The Board does not anticipate levying such charges; such a fee, if
   charged, may be retained by the fund or paid to T. Rowe Price.

   Institutional Large-Cap Growth Fund
   The fund pays T. Rowe Price an annual investment management fee in monthly
   installments of 0.55% of the average daily net asset value of the fund.

   Institutional Large-Cap Value Fund
   The fund pays T. Rowe Price an annual investment management fee in monthly
   installments of 0.55% of the average daily net asset value of the fund.

   Institutional Mid-Cap Equity Growth Fund
   The fund pays T. Rowe Price an annual investment management fee in monthly
   installments of 0.60% of the average daily net asset value of the fund.

   Institutional Small-Cap Stock Fund
   The fund pays T. Rowe Price an annual investment management fee in monthly
   installments of 0.65% of the average daily net asset value of the fund.


                     Expense Limitations and Reimbursements

   The following chart sets forth expense ratio limitations and the periods for
   which they are effective. For each, T. Rowe Price has agreed to bear any fund
   expenses (other than interest, taxes, brokerage, and other expenditures that
   are capitalized in accordance with generally accepted accounting principles
   and extraordinary expenses) which would cause the fund's ratio of expenses to

   average net assets to exceed the indicated percentage limitation. . (The
   expense limitation for the Advisor Class relates to operating expenses other
   than management fees and certain other portfolio level expenses such as fees
   for custody, outside directors, and auditors.) The expenses borne by T. Rowe
   Price are subject to reimbursement by the fund through the indicated
   reimbursement date, provided no reimbursement will be made if it would result

  in the fund's expense ratio exceeding its applicable limitation. .


                                                                                            Expense       Reimbursement
                              Fund                                   Limitation Period      -------       -------------
                              ----                                   -----------------       Ratio            Date
- -------------------------------------------------------------------------------------------  -----            ----
                                                                                           Limitation
                                                                                           ----------
                                                                                           -------------------------------
                                                                
                                                                   January 1, 2002 -
Blue Chip Growth Fund-Advisor Class                                December 31, 2003                   December 31, 2005
                                                                   August 31, 2000 -
Developing Technologies                                            December 31, 2002         1.50%     December 31, 2004
                                                                   May 1, 2002 - April
Diversified Small-Cap Growth(a)                                    30, 2004                            April 30, 2006
                                                                   January 1, 2002 -
Equity Income Fund-Advisor Class(b)                                December 31, 2003                   December 31, 2005
                                                                   January 1, 2001 -
Equity Index 500(c)                                                December 31, 2003                   December 31, 2005
                                                                   September 29, 2000 -
Global Technology                                                  December 31, 2002         1.50%     December 31, 2004
                                                                   January 1, 2002 -
Growth Stock Fund-Advisor Class                                    December 31, 2003                   December 31, 2005
Institutional Large-Cap Growth                                     October 31, 2001 -                  December 31, 2004
                                                                   December 31, 2002
- --------------------------------------------------------------------------------------------------------------------------
                                                                   January 1, 2002 -
Institutional Large-Cap Value(d)                                   December 31, 2003                   December 31, 2005
                                                                   January 1, 2002 -
Institutional Small-Cap Stock(e)                                   December 31, 2003                   December 31, 2005
                                                                   January 1, 2002 -
Mid-Cap Growth Fund-Advisor Class(f)                               December 31, 2003                   December 31, 2005
                                                                   January 1, 2002 -
Real Estate(g)                                                     December 31, 2003                   December 31, 2005
                                                                   January 1, 2002 -
Science & Technology Fund-Advisor Class(h)                         December 31, 2003                   December 31, 2005
                                                                   January 1, 2002 -
Small-Cap Stock Fund-Advisor Class(i)                              December 31, 2003                   December 31, 2005
                                                                   January 1, 2002 -
Small-Cap Value Fund-Advisor Class(j)                              December 31, 2003                   December 31, 2005
Value Fund-Advisor Class(k)                                        January 1, 2002 -                   December 31, 2005
                                                                   December 31, 2003
- --------------------------------------------------------------------------------------------------------------------------






                                       61



 (a) The Diversified Small-Cap Growth Fund previously operated under a
   1.25% limitation that expired December 31, 2000. The reimbursement
   period for this limitation extends through December 31, 2002.

 (b) The Equity Income Fund-Advisor Class previously operated under a 1.00%
   limitation that expired December 31, 2001. The reimbursement period for
   this limitation extends through December 31, 2003.

 (c) The Equity Index 500 Fund previously operated under a 0.35% limitation
   that expired December 31, 2000. The reimbursement period for this
   limitation extends through December 31, 2002.

 (d) The Institutional Large-Cap Value Fund previously operated under a
   0.65% limitation that expired December 31, 2001. The reimbursement
   period for this limitation extends through December 31, 2003.

 (e) The Institutional Small-Cap Stock Fund previously operated under a
   0.75% limitation that expired December 31, 2001. The reimbursement
   period for this limitation extends through December 31, 2003.

 (f) The Mid-Cap Growth Fund-Advisor Class previously operated under a
   1.10% limitation that expired December 31, 2001. The reimbursement
   period for this limitation extends through December 31, 2003.

 (g) The Real Estate Fund previously operated under a 1.00% limitation that
   expired December 31, 2001. The reimbursement period for this limitation
   extends through December 31, 2003.

 (h) The Science & Technology Fund-Advisor Class previously operated under
   a 1.15% limitation that expired December 31, 2001. The reimbursement
   period for this limitation extends through December 31, 2003.

 (i) The Small-Cap Stock Fund-Advisor Class previously operated under a
   1.20% limitation that expired December 31, 2001. The reimbursement
   period for this limitation extends through December 31, 2003.

 (j) The Small-Cap Value Fund-Advisor Class previously operated under a
   1.15% limitation that expired December 31, 2001. The reimbursement
   period for this limitation extends through December 31, 2003.

 (k) The Value Fund-Advisor Class previously operated under a 1.10%
   limitation that expired December 31, 2001. The reimbursement period for
   this limitation extends through December 31, 2003.


   Each of the above-referenced fund's Management Agreement also provides that
   one or more additional expense limitation periods (of the same or different
   time periods) may be implemented after the expiration of the current expense
   limitation, and that with respect to any such additional limitation period,
   the fund may reimburse T. Rowe Price, provided the reimbursement does not
   result in the fund's aggregate expenses exceeding the additional expense
   limitation.

   Pursuant to the Developing Technologies Fund's current expense limitation,
   $122,000 of management fees were not accrued by the fund for the period ended
   December 31, 2001. At December 31, 2001, unaccrued fees and other expenses in
   the amount of $199,000 remain subject to reimbursement by the fund through
   December 31, 2004.

   Pursuant to the Diversified Small-Cap Growth Fund's previous expense
   limitation, $114,000 of unaccrued fees remain subject to reimbursement by the
   fund through December 31, 2002.


                                       62



   Pursuant to the Equity Index 500 Fund's previous expense limitation,
   $1,822,000 of management fees were not accrued by the fund for the year ended
   December 31, 2001. At December 31, 2001, unaccrued fees in the amount of
   $1,822,000 remain subject to reimbursement by the fund through December 31,
   2003.

   Pursuant to the Global Technology Fund's current expense limitation, $185,000
   of management fees were not accrued by the fund for the year ended December
   31, 2001.

   Pursuant to the Institutional Large-Cap Growth Fund's current expense
   limitation, $2,000 of management fees were not accrued by the fund for the
   period ended December 31, 2001, and $15,000 of other fund expenses were borne
   by the manager. At December 31, 2001, unaccrued fees and other expenses in
   the amount of $17,000 remain subject to reimbursement by the fund through
   December 31, 2004.

   Pursuant to the Institutional Large-Cap Value Fund's current expense
   limitation, $13,000 of management fees were not accrued by the fund for the
   period ended December 31, 2001, and $89,000 of other fund expenses were borne
   by the manager. At December 31, 2001, unaccrued fees and other expenses in
   the amount of $179,000 remain subject to reimbursement by the fund through
   December 31, 2003.

   Pursuant to the Institutional Small-Cap Stock Fund's current expense
   limitation, $76,000 of previously unaccrued management fees were accrued as
   expenses of the fund for the period ended December 31, 2001.

   Pursuant to the Real Estate Fund's current expense limitation, $140,000 of
   management fees were not accrued by the fund for the year ended December 31,
   2001. At December 31, 2001, unaccrued fees and other expenses in the amount
   of $284,000 remain subject to reimbursement by the fund through December 31,
   2003.


                           Management Fee Compensation

   The following chart sets forth the total management fees, if any, paid to T.
   Rowe Price by each fund, during the last three fiscal years:


                           Fund                                  2001            2000             1999
                           ----                                  ----            ----             ----
                                                         
Balanced                                                     $ 8,542,000     $ 9,675,000      $ 9,154,000
Blue Chip Growth*                                             41,035,000      45,037,000       34,536,000
Capital Appreciation                                           7,570,000       4,963,000        5,793,000
Capital Opportunity                                              559,000         686,000          763,000
Developing Technologies                                           62,000             (b)              (a)
Diversified Small-Cap Growth                                     480,000         679,000          292,000
Dividend Growth                                                3,676,000       4,010,000        6,522,000
Equity Income*                                                57,395,000      58,470,000       75,676,000
Equity Index 500                                               3,554,000       6,234,000        8,301,000
Extended Equity Market Index**                                   300,000         354,000          131,000
Financial Services                                             2,122,000       1,388,000        1,266,000
Global Technology                                                569,000         274,000              (a)
Growth & Income                                               14,691,000      18,013,000       20,605,000
Growth Stock*                                                 27,400,000      33,072,000       29,222,000
Health Sciences                                                5,675,000       4,403,000        2,038,000
Institutional Large-Cap Growth                                       (b)             (a)              (a)
Institutional Large-Cap Value                                        (b)             (b)              (a)
Institutional Mid-Cap Equity Growth                            1,704,000       1,896,000        1,238,000
Institutional Small-Cap Stock                                  1,624,000         432,000              (a)
Media & Telecommunications                                     4,885,000       7,174,000        3,144,000
Mid-Cap Growth*                                               42,179,000      39,493,000       27,412,000
Mid-Cap Value                                                  2,445,000       1,495,000        1,427,000
- ------------------------------------------------------------------------------------------------------------
New America Growth                                             8,612,000      11,988,000       13,511,000
New Era                                                        6,414,000       6,223,000        6,131,000
New Horizons                                                  36,074,000      45,642,000       33,020,000
Real Estate                                                      207,000         589,000              (b)
Science & Technology*                                         46,472,000      89,979,000       47,361,000
Small-Cap Stock*                                              20,306,000      15,623,000       10,276,000
Small-Cap Value*                                              11,370,000       8,294,000        9,213,000
Total Equity Market Index**                                      766,000         863,000          512,000
Value*                                                         8,231,000       5,644,000        5,699,000
- ------------------------------------------------------------------------------------------------------------





                                       63



  (a) Prior to commencement of operations.

  (b) Due to the fund's expense limitation in effect at that time, no
     management fees were paid by the fund to T. Rowe Price.

  *  The fund has two classes of shares. The management fee is allocated to
     each class based on relative net assets.

  ** All-inclusive fee including Investment Management Fees and
     Administrative Expenses.

   Blue Chip Growth, Equity Income, Growth & Income, Growth Stock, Mid-Cap
   Value, New Era, and New Horizons Funds

   T. Rowe Price Spectrum Fund, Inc.
   The funds listed above are a party to a Special Servicing Agreement
   ("Agreement") between and among T. Rowe Price Spectrum Fund, Inc. ("Spectrum
   Fund"), T. Rowe Price, and various other T. Rowe Price funds which, along
   with such fund, are funds in which Spectrum Fund invests (collectively all
   such funds "Underlying Price Funds").

   Each Agreement provides that, if the Board of Directors of any underlying
   Price fund determines that such underlying fund's share of the aggregate
   expenses of Spectrum Fund is less than the estimated savings to the
   underlying Price fund from the operation of Spectrum Fund, the underlying
   Price fund will bear those expenses in proportion to the average daily value
   of its shares owned by Spectrum Fund, provided further that no underlying
   Price fund will bear such expenses in excess of the estimated savings to it.
   Such savings are expected to result primarily from the elimination of
   numerous separate shareholder accounts which are or would have been invested
   directly in the underlying Price funds and the resulting reduction in
   shareholder servicing costs. Although such cost savings are not certain, the
   estimated savings to the underlying Price funds generated by the operation of
   Spectrum Fund are expected to be sufficient to offset most, if not all, of
   the expenses incurred by Spectrum Fund.

   All funds except Extended Equity Market Index and Total Equity Market Index
   Funds

   Management Related Services
   As noted above, the Management Agreement spells out the expenses to be paid
   by the fund. In addition to the Management Fee, the fund pays for the
   following: shareholder service expenses; custodial, accounting, legal, and
   audit fees; costs of preparing and printing prospectuses and reports sent to
   shareholders; registration fees and expenses; proxy and annual meeting
   expenses (if any); and director fees and expenses.

   T. Rowe Price Services, Inc., a wholly owned subsidiary of T. Rowe Price,
   acts as the fund's transfer and dividend disbursing agent and provides
   shareholder and administrative services. Services for certain types of
   retirement plans are provided by T. Rowe Price Retirement Plan Services,
   Inc., also a wholly owned subsidiary. The address for each is 100 East Pratt
   Street, Baltimore, MD 21202. Additionally, T. Rowe Price, under a separate
   agreement with the fund, provides accounting services to the fund.

   The funds paid the expenses shown in the following table for the fiscal year
   ended December 31, 2001, to T. Rowe Price and its affiliates.


                                       64





                               Transfer Agent and    Retirement     Accounting
            Fund              Shareholder Services  Subaccounting    Services
            ----              --------------------    Services       --------
                                                      --------
                           
Balanced                           $  812,000        $ 4,385,000     $ 86,000
Blue Chip Growth                    6,167,000         10,809,000       76,000
Blue Chip Growth
Fund-Advisor Class                      1,000                  0        3,000
Capital Appreciation                  900,000          1,310,000       64,000
Capital Opportunity                   218,000             32,000       64,000
Developing Technologies                70,000         (*)              64,000
Diversified Small-Cap Growth          250,000              1,000       64,000
Dividend Growth                       988,000            532,000       64,000
Equity Income                       7,516,000         11,264,000       99,000
Equity Income Fund-Advisor
Class                                   3,000                  0          (*)
Equity Index 500                    3,570,000          3,500,000       65,000
Extended Equity Market Index          174,000             58,000       65,000
Financial Services                    528,000             59,000       64,000
Global Technology                     497,000         (*)              84,000
Growth & Income                     2,360,000          2,648,000       84,000
Growth Stock                        3,087,000          4,560,000      104,000
Health Sciences                     1,817,000            220,000       64,000
Institutional Large-Cap
Growth                                    (*)                  0       11,000
Institutional Large-Cap
Value                                   1,000                  0       64,000
Institutional Mid-Cap Equity
Growth                                  1,000                  0       64,000
Institutional Small-Cap
Stock                                   2,000                  0       64,000
Media & Telecommunications          1,795,000            196,000       64,000
Mid-Cap Growth                      3,627,000          5,621,000       80,000
Mid-Cap Growth Fund-Advisor
Class                                   3,000                  0          (*)
Mid-Cap Value                         740,000             58,000       64,000
New America Growth                  1,185,000          1,950,000       64,000
New Era                               930,000            254,000       64,000
New Horizons                        3,634,000          6,604,000       84,000
Real Estate                           139,000              9,000       64,000
Science & Technology                9,908,000          5,137,000       72,000
Science & Technology
Fund-Advisor Class                      1,000                  0        7,000
Small-Cap Stock                     1,379,000          2,239,000       98,000
Small-Cap Stock Fund-Advisor
Class                                   4,000                  0        1,000
Small-Cap Value                     1,071,000          1,741,000       79,000
Small-Cap Value Fund-Advisor
Class                                   1,000                  0          (*)
Total Equity Market Index             399,000             12,000       64,000
Value                               1,066,000          1,365,000       79,000
Value Fund-Advisor Class                1,000                  0          (*)
- -------------------------------------------------------------------------------




  (*) Less than $1,000.


                                       65



 SERVICES BY OUTSIDE PARTIES
 -------------------------------------------------------------------------------
   The shares of some fund shareholders are held in omnibus accounts maintained
   by various third parties, including retirement plan sponsors, insurance
   companies, banks, and broker-dealers. The fund has adopted an administrative
   fee payment ("AFP") program that authorizes the fund to make payments to
   these third parties. The payments are made for transfer agent, recordkeeping,
   and other administrative services provided by, or on behalf of, the third
   parties with respect to such shareholders and the omnibus accounts. Under the

   AFP program, the funds paid the amounts set forth below to various third
   parties in calendar year 2001.



                              
Balanced Fund                     $  146,413
Blue Chip Growth Fund                750,963
Capital Appreciation Fund             52,598
Capital Opportunity Fund               1,207
Dividend Growth Fund                   4,474
Equity Income Fund                   711,597
Equity Index 500 Fund                108,344
Financial Services Fund                9,513
Growth & Income Fund                  71,544
Growth Stock Fund                     97,325
Health Sciences Fund                  30,863
Media & Telecommunications Fund          504
Mid-Cap Growth Fund                1,602,030
Mid-Cap Value Fund                     8,268
New America Growth Fund              115,482
New Era Fund                          38,459
New Horizons Fund                    914,498
Science & Technology Fund            525,912
Small-Cap Stock Fund                 668,769
Small-Cap Value Fund                 197,468
Value Fund                            50,018




   Each Advisor Class has adopted an Advisor Class administrative fee payment
   program ("Advisor Class AFP") under which various intermediaries, including
   intermediaries receiving 12b-1 payments, may receive payments from the
   Advisor Class in addition to 12b-1 fees for providing various recordkeeping
   and transfer agent type services to the Advisor classes and/or shareholders
   thereof. These services include, but are not limited to: transmission of net
   purchase and redemption orders; maintenance of separate records for
   shareholders reflecting purchases, redemptions, and share balances; mailing
   of shareholder confirmations and periodic statements; and telephone services
   in connection with the above. Under the Advisor Class AFP program, the funds
   paid the amounts set forth below to various third parties in calendar year
   2001.



                                      
Blue Chip Growth Fund-Advisor Class       $1,026,704
Equity Income Fund-Advisor Class             112,600
Mid-Cap Growth Fund-Advisor Class             15,391
Science & Technology Fund-Advisor Class    2,153,287
Small-Cap Stock Fund-Advisor Class            60,806
Small-Cap Value Fund-Advisor Class            31,931
Value Fund-Advisor Class                      17,257






                                       66



   Control of Investment Advisor
   T. Rowe Price Group, Inc., ("Group") owns 100% of the stock of T. Rowe Price
   Associates, Inc. Group was formed in 2000 as a holding company for the T.
   Rowe Price-affiliated companies.



 DISTRIBUTOR FOR THE FUNDS
 -------------------------------------------------------------------------------
   Investment Services, a Maryland corporation formed in 1980 as a wholly owned
   subsidiary of T. Rowe Price, serves as the fund's distributor for all T. Rowe
   Price mutual funds on a continuous basis. Investment Services is registered
   as a broker-dealer under the Securities Exchange Act of 1934 and is a member
   of the National Association of Securities Dealers, Inc.

   Investment Services is located at the same address as the fund and T. Rowe
   Price-100 East Pratt Street, Baltimore, Maryland 21202.

   Investment Services serves as distributor to the Price funds, pursuant to an
   Underwriting Agreement ("Underwriting Agreement"), which provides that the
   funds (other than Extended Equity Market Index Fund and Total Equity Market
   Index Fund) will pay all fees and expenses in connection with: necessary
   state filings; preparing, setting in type, printing, and mailing of
   prospectuses and reports to shareholders; and issuing shares, including
   expenses of confirming purchase orders. For Extended Equity Market Index Fund
   and Total Equity Market Index Fund, these expenses are the responsibility of
   Investment Services.

   The Underwriting Agreement also provides that Investment Services will pay
   all fees and expenses in connection with: printing and distributing
   prospectuses and reports for use in offering and selling fund shares;
   preparing, setting in type, printing, and mailing all sales literature and
   advertising; Investment Services' federal and state registrations as a
   broker-dealer; and offering and selling shares for each fund, except for
   those fees and expenses specifically assumed by the fund. Investment
   Services' expenses are paid by T. Rowe Price.


   Investment Services acts as the agent of the fund, in connection with the
   sale of fund shares in the various states in which Investment Services is
   qualified as a broker-dealer. Under the Underwriting Agreement, Investment
   Services accepts orders for fund shares at net asset value. No sales charges
   are paid by investors or the fund. No compensation is paid to Investment
   Services.

   Blue Chip Growth, Equity Income, Growth Stock, Mid-Cap Growth, Science &
   Technology, Small-Cap Stock, Small-Cap Value, Value Advisor Classes


                   Distribution and Shareholder Services Plan

   The fund Directors adopted a Plan pursuant to Rule 12b-1 on February 9, 2000,
   with respect to each Advisor Class. Each Plan provides that the Advisor Class
   may compensate Investment Services or such other persons as the fund or
   Investment Services designates, to finance any or all of the distribution,
   shareholder servicing, maintenance of shareholder accounts, and/or other
   administrative services with respect to Advisor Class shares. It is expected
   that most, if not all, payments under the Plan will be made (either directly,
   or indirectly through Investment Services) to brokers, dealers, banks,
   insurance companies, and intermediaries other than Investment Services. Under
   the Plan, each Advisor Class pays a fee at the annual rate of up to 0.25% of
   that class's average daily net assets. Normally, the full amount of the fee
   is paid to the intermediary on shares sold through that intermediary.
   However, a lesser amount may be paid based on the level of services provided.
   Intermediaries may use the payments for, among other purposes, compensating
   employees engaged in sales and/or shareholder servicing of the Advisor Class,
   as well as for a wide variety of other purposes associated with supporting,
   distributing, and servicing the Advisor Class shares. The amount of fees paid
   by an Advisor Class during any year may be more or less than the cost of
   distribution and other services provided to the Advisor Class and its
   investors. NASD rules limit the amount of annual distribution and service
   fees that may be paid by a mutual fund and impose a ceiling on the cumulative
   distribution fees paid. The Plan complies with these rules.


                                       67



   The Plan requires that Investment Services provide, or cause to be provided,
   a quarterly written report identifying the amounts expended by each Advisor
   Class and the purposes for which such expenditures were made, to the fund
   Directors for their review.

   Prior to approving the Plan, the fund considered various factors relating to
   the implementation of the Plan and determined that there is a reasonable
   likelihood that the Plan will benefit each fund, its Advisor Class, and the
   Advisor Class's shareholders. The fund Directors noted that to the extent the
   Plan allows a fund to sell Advisor Class shares in markets to which it would
   not otherwise have access, the Plan may result in additional sales of fund
   shares. This may enable a fund to achieve economies of scale that could
   reduce expenses. In addition, certain ongoing shareholder services may be
   provided more effectively by intermediaries with which shareholders have an
   existing relationship.

   The Plan is renewable from year to year with respect to each fund, so long as
   its continuance is approved at least annually (1) by the vote of a majority
   of the fund Directors and (2) by a vote of the majority of the Rule 12b-1
   Directors, cast in person at a meeting called for the purpose of voting on
   such approval. The Plan may not be amended to increase materially the amount
   of fees paid by any Advisor Class thereunder unless such amendment is
   approved by a majority vote of the outstanding shares of such Advisor Class
   and by the fund Directors in the manner prescribed by Rule 12b-1 under the
   1940 Act. The Plan is terminable with respect to an Advisor Class at any time
   by a vote of a majority of the Rule 12b-1 Directors or by a majority vote of
   the outstanding shares in the Advisor Class.

   The following payments for the period ended December 31, 2001 were made to
   third-party intermediaries, including broker-dealers and insurance companies,
   for the distribution, shareholder servicing, maintenance of shareholder
   accounts, and/or other administration services under the 12b-1 Plan.



                                      
Blue Chip Growth Fund-Advisor Class          $  729,000
Equity Income Fund-Advisor Class                 81,000
Mid-Cap Growth Fund-Advisor Class                14,000
Science & Technology Fund-Advisor Class       1,319,000
Small-Cap Stock Fund-Advisor Class               51,000
Small-Cap Value Fund-Advisor Class               25,000
Value Fund-Advisor Class                         12,000





   All funds

 CUSTODIAN
 -------------------------------------------------------------------------------
   State Street Bank and Trust Company is the custodian for the fund's U.S.
   securities and cash, but it does not participate in the fund's investment
   decisions. Portfolio securities purchased in the U.S. are maintained in the
   custody of the Bank and may be entered into the Federal Reserve Book Entry
   System, or the security depository system of the Depository Trust
   Corporation. State Street Bank's main office is at 225 Franklin Street,
   Boston, Massachusetts 02110.

   The fund (other than Equity Index 500, Extended Equity Market Index, and
   Total Equity Market Index
   Funds) has entered into a Custodian Agreement with The Chase Manhattan Bank,
   London, pursuant to which portfolio securities which are purchased outside
   the United States are maintained in the custody of various foreign branches
   of The Chase Manhattan Bank and such other custodians, including foreign
   banks and foreign securities depositories as are approved in accordance with
   regulations under the 1940 Act. The address for The Chase Manhattan Bank,
   London is Woolgate House, Coleman Street, London, EC2P 2HD, England.


                                       68



 CODE OF ETHICS
 -------------------------------------------------------------------------------
   The fund, its investment adviser (T. Rowe Price), and its principal
   underwriter (T. Rowe Price Investment Services), have a written Code of
   Ethics which requires persons with access to investment information ("Access
   Persons") to obtain prior clearance before engaging in personal securities
   transactions. In addition, all Access Persons must report their personal
   securities transactions within 10 days of their execution. Access Persons
   will not be permitted to effect transactions in a security: if there are
   pending client orders in the security; the security has been purchased or
   sold by a client within seven calendar days; the security is being considered

   for purchase for a client; ; a change has occurred in T. Rowe Price's rating
   of the security within seven calendar days prior to the date of the proposed

   transaction; ; or the security is subject to internal trading restrictions.
   In addition, Access Persons are prohibited from profiting from short-term
   trading (e.g., purchases and sales involving the same security within 60
   days). Any person becoming an Access Person must file a statement of personal
   securities holdings within 10 days of this date. All Access Persons are
   required to file an annual statement with respect to their personal
   securities holdings. Any material violation of the Code of Ethics is reported
   to the Board of the fund. The Board also reviews the administration of the
   Code of Ethics on an annual basis.



 PORTFOLIO TRANSACTIONS
 -------------------------------------------------------------------------------
   Investment or Brokerage Discretion
   Decisions with respect to the purchase and sale of portfolio securities on
   behalf of the fund are made by T. Rowe Price. T. Rowe Price is also
   responsible for implementing these decisions, including the negotiation of
   commissions and the allocation of portfolio brokerage and principal business
   and the use of affiliates to assist in routing orders for execution.


                      How Brokers and Dealers Are Selected

   Equity Securities
   In purchasing and selling equity securities, it is T. Rowe Price's policy to
   obtain quality execution at the most favorable prices through responsible
   brokers and dealers, and in the case of agency transactions, at competitive
   commission rates where such rates are negotiable. However, under certain
   conditions, the fund may pay higher brokerage commissions in return for
   brokerage and research services. As a general practice, over-the-counter
   orders are executed with market-makers. In selecting among market-makers, T.
   Rowe Price generally seeks to select those it believes to be actively and
   effectively trading the security being purchased or sold. In selecting
   broker-dealers to execute the fund's portfolio transactions, consideration is
   given to such factors as the price of the security, the rate of the
   commission, the size and difficulty of the order, the reliability, integrity,
   financial condition, general execution and operational capabilities of
   competing brokers and dealers, their expertise in particular markets, and
   brokerage and research services provided by them. It is not the policy of T.
   Rowe Price to seek the lowest available commission rate where it is believed
   that a broker or dealer charging a higher commission rate would offer greater
   reliability or provide better price or execution.

   Fixed-Income Securities
   Fixed-income securities are generally purchased from the issuer or a primary
   market-maker acting as principal for the securities on a net basis, with no
   brokerage commission being paid by the client although the price usually
   includes an undisclosed compensation. Transactions placed through dealers
   serving as primary market-makers reflect the spread between the bid and asked
   prices. Securities may also be purchased from underwriters at prices which
   include underwriting fees.

   Equity and Fixed-Income Securities
   With respect to equity and fixed-income securities, T. Rowe Price may effect
   principal transactions on behalf of the fund with a broker or dealer who
   furnishes brokerage and/or research services, designate any such broker or
   dealer to receive selling concessions, discounts, or other allowances, or
   otherwise deal with any such


                                       69



   broker or dealer in connection with the acquisition of securities in
   underwritings. T. Rowe Price may receive research services in connection with
   brokerage transactions, including designations in fixed price offerings.


 How Evaluations Are Made of the Overall Reasonableness of Brokerage Commissions
                                      Paid

   On a continuing basis, T. Rowe Price seeks to determine what levels of
   commission rates are reasonable in the marketplace for transactions executed
   on behalf of the fund. In evaluating the reasonableness of commission rates,
   T. Rowe Price considers: (a) historical commission rates; (b) rates which
   other institutional investors are paying, based on available public
   information; (c) rates quoted by brokers and dealers; (d) the size of a
   particular transaction, in terms of the number of shares, dollar amount, and
   number of clients involved; (e) the complexity of a particular transaction in
   terms of both execution and settlement; (f) the level and type of business
   done with a particular firm over a period of time; and (g) the extent to
   which the broker or dealer has capital at risk in the transaction.


       Descriptions of Research Services Received From Brokers and Dealers

   T. Rowe Price receives a wide range of research services from brokers and
   dealers. These services include information on the economy, industries,
   groups of securities, individual companies, statistical information,
   accounting and tax law interpretations, political developments, legal
   developments affecting portfolio securities, technical market action, pricing
   and appraisal services, credit analysis, risk measurement analysis,
   performance analysis, and analysis of corporate responsibility issues. These
   services provide both domestic and international perspective. Research
   services are received primarily in the form of written reports,
   computer-generated services, telephone contacts, and personal meetings with
   security analysts. In addition, such services may be provided in the form of
   meetings arranged with corporate and industry spokespersons, economists,
   academicians, and government representatives. In some cases, research
   services are generated by third parties but are provided to T. Rowe Price by
   or through broker-dealers. In addition, such services may include computers
   and related hardware.

   Research services received from brokers and dealers are supplemental to T.
   Rowe Price's own research effort and, when utilized, are subject to internal
   analysis before being incorporated by T. Rowe Price into its investment
   process. As a practical matter, it would not be possible for T. Rowe Price's
   Equity Research Division to generate all of the information presently
   provided by brokers and dealers. T. Rowe Price pays cash for certain research
   services received from external sources. T. Rowe Price also allocates
   brokerage for research services which are available for cash. While receipt
   of research services from brokerage firms has not reduced T. Rowe Price's
   normal research activities, the expenses of T. Rowe Price could be materially
   increased if it attempted to generate such additional information through its
   own staff. To the extent that research services of value are provided by
   brokers or dealers, T. Rowe Price may be relieved of expenses which it might
   otherwise bear.

   Subject to its policy on directed brokerage (see below), T. Rowe Price has a
   policy of not allocating brokerage business in return for products or
   services other than brokerage or research services. In accordance with the
   provisions of Section 28(e) of the Securities Exchange Act of 1934, T. Rowe
   Price may from time to time receive services and products which serve both
   research and non-research functions. In such event, T. Rowe

   Price makes a good faith determination of the anticipated research and
   non-research use of the product or service and allocates brokerage only with
   respect to the research component.


                               Directed Brokerage

   In 2002, the T. Rowe Price Funds that invest in domestic equity securities
   adopted a commission recapture program. Under the program, a percentage of
   commissions generated by the portfolio transactions of those funds is rebated
   to the funds by the brokers and used to pay for certain fund operating
   expenses.


              Commissions to Brokers Who Furnish Research Services

   Certain brokers and dealers who provide quality brokerage and execution
   services also furnish research services to T. Rowe Price. With regard to the
   payment of brokerage commissions, T. Rowe Price has adopted a brokerage
   allocation policy embodying the concepts of Section 28(e) of the Securities
   Exchange Act of 1934, which permits an investment adviser to cause an account
   to pay commission rates in excess of those another


                                       70



   broker or dealer would have charged for effecting the same transaction if the
   adviser determines in good faith that the commission paid is reasonable in
   relation to the value of the brokerage and research services provided. The
   determination may be viewed in terms of either the particular transaction
   involved or the overall responsibilities of the adviser with respect to the
   accounts over which it exercises investment discretion. Therefore, research
   may not necessarily benefit all accounts paying commissions to such brokers.
   Accordingly, while T. Rowe Price cannot readily determine the extent to which
   commission rates charged by broker-dealers reflect the value of their
   research services, T. Rowe Price would expect to assess the reasonableness of
   commissions in light of the total brokerage and research services provided by
   each particular broker. T. Rowe Price may receive research, as defined in
   Section 28(e), in connection with selling concessions and designations in
   fixed price offerings in which the fund participates. Research is used
   overall to benefit such accounts which purchase in the offering.


                         Internal Allocation Procedures

   T. Rowe Price has a policy of not precommitting a specific amount of business
   to any broker or dealer over any specific time period. Historically, the
   majority of brokerage placement has been determined by the needs of a
   specific transaction such as market-making, availability of a buyer or seller
   of a particular security, or specialized execution skills. However, T. Rowe
   Price does have an internal brokerage allocation procedure for that portion
   of its discretionary client brokerage business where special needs do not
   exist, or where the business may be allocated among several brokers or
   dealers which are able to meet the needs of the transaction.

   Each year, T. Rowe Price assesses the contribution of the brokerage and
   research services provided by brokers or dealers, and attempts to allocate a
   portion of its brokerage business in response to these assessments. Research
   analysts, counselors, various investment committees, and the Trading
   Department each seek to evaluate the brokerage and research services they
   receive from brokers or dealers and make judgments as to the level of
   business which would recognize such services. In addition, brokers or dealers
   sometimes suggest a level of business they would like to receive in return
   for the various brokerage and research services they provide. Actual business
   received by any firm may be less than the suggested allocations but can, and
   often does, exceed the suggestions, because the total business is allocated
   on the basis of all the considerations described above. In no case is a
   broker or dealer excluded from receiving business from T. Rowe Price because
   it has not been identified as providing research services.


                                  Miscellaneous

   T. Rowe Price's brokerage allocation policy is consistently applied to all
   its fully discretionary accounts, which represent a substantial majority of
   all assets under management. Research services furnished by brokers or
   dealers through which T. Rowe Price effects securities transactions may be
   used in servicing all accounts (including non-fund accounts) managed by T.
   Rowe Price. Conversely, research services received from brokers or dealers
   which execute transactions for the fund are not necessarily used by T. Rowe
   Price exclusively in connection with the management of the fund.

   From time to time, orders for clients may be placed through a computerized
   transaction network.

   The fund does not allocate business to any broker-dealer on the basis of its
   sales of the fund's shares. However, this does not mean that broker-dealers
   who purchase fund shares for their clients will not receive business from the
   fund.

   Some of T. Rowe Price's other clients have investment objectives and programs
   similar to those of the fund. T. Rowe Price may make recommendations to other
   clients which result in their purchasing or selling securities simultaneously
   with the fund. As a result, the demand for securities being purchased or the
   supply of securities being sold may increase, and this could have an adverse
   effect on the price of those securities. It is T. Rowe Price's policy not to
   favor one client over another in making recommendations or in placing orders.
   T. Rowe Price frequently follows the practice of grouping orders of various
   clients for execution, which generally results in lower commission rates
   being attained. In certain cases, where the aggregate order is executed in a
   series of transactions at various prices on a given day, each participating
   client's proportionate share of such order reflects the average price paid or
   received with respect to the total order. T. Rowe Price has


                                       71



   established a general investment policy that it will ordinarily not make
   additional purchases of a common stock of a company for its clients
   (including the T. Rowe Price funds) if, as a result of such purchases, 10% or
   more of the outstanding common stock of such company would be held by its
   clients in the aggregate.

   At the present time, T. Rowe Price does not recapture commissions or
   underwriting discounts or selling group concessions in connection with
   taxable securities acquired in underwritten offerings. T. Rowe Price does,
   however, attempt to negotiate elimination of all or a portion of the selling
   group concession or underwriting discount when purchasing tax-exempt
   municipal securities on behalf of its clients in underwritten offerings.


                            Trade Allocation Policies

   T. Rowe Price has developed written trade allocation guidelines for its
   Equity, Municipal, and Taxable Fixed Income Trading Desks. Generally, when
   the amount of securities available in a public offering or the secondary
   market is insufficient to satisfy the volume or price requirements for the
   participating client portfolios, the guidelines require a pro-rata allocation
   based upon the relative sizes of the participating client portfolios or the
   relative sizes of the participating client orders depending upon the market
   involved. In allocating trades made on combined basis, the Trading Desks seek
   to achieve the same net unit price of the securities for each participating
   client. Because a pro-rata allocation may not always adequately accommodate
   all facts and circumstances, the guidelines provide for exceptions to
   allocate trades on an adjusted, pro-rata basis. Examples of where adjustments
   may be made include: (i) reallocations to recognize the efforts of a
   portfolio manager in negotiating a transaction or a private placement; (ii)
   reallocations to eliminate deminimis positions; (iii) priority for accounts
   with specialized investment policies and objectives; and (iv) reallocations
   in light of a participating portfolio's characteristics (e.g., available
   cash, industry or issuer concentration, duration, and credit exposure).


                                      Other

   For the last three fiscal years, the total brokerage commissions paid by each
   fund, including the discounts received by securities dealers in connection
   with underwritings, and the percentage of these commissions paid to firms
   which provided research, statistical, or other services to T. Rowe Price in
   connection with the management of each fund, or, in some cases, to each fund,
   was as shown below.



                               2001                2000                1999
         Fund           Commissions    %    Commissions    %    Commissions     %
         ----           -----------    -    -----------    -    -----------     -
                     
Balanced                $ 1,203,000  10.9%  $   399,000  11.5%  $   720,000   10.6%
Blue Chip Growth          7,972,000  39.8     7,485,000  58.5     7,088,000   45.8
Capital Appreciation      2,345,000  14.1     1,305,000  32.5     1,142,000   38.4
Capital Opportunity         101,000  31.5       121,000  24.5       298,000   28.9
Developing
Technologies                 72,000  10.9        42,000   3.1             *      *
Diversified Small-Cap
Growth                       55,000   2.4       105,000   1.3        75,000    1.5
Dividend Growth             640,000  66.5     1,070,000  72.0     1,420,000   57.5
Equity Income             7,344,000  26.2     8,687,000  47.3     9,653,000   45.3
Equity Index 500            193,000   0.8       331,000   0.8       378,000    0.0
Extended Equity Market
Index                        42,000   0.1        51,000   0.0        27,000    0.4
Financial Services          539,000  51.4       348,000  56.3       507,000   20.1
Global Technology           510,000  45.4       362,000  15.9             *      *
Growth & Income           4,538,000  49.5     6,522,000  57.4     2,428,000   35.8
Growth Stock              8,332,000  52.7    10,878,000  41.3     8,923,000   42.5
Health Sciences           2,732,000  60.4     2,560,000  30.3       593,000   33.1
Institutional
Large-Cap Growth              2,000   6.7             *     *             *      *
Institutional                 5,000  18.1         3,000  58.9             *      *
Large-Cap Value
- ------------------------------------------------------------------------------------
Institutional Mid-Cap
Equity Growth               565,000             547,000  25.1       654,000   34.7
Institutional
Small-Cap Stock             265,000  33.9       128,000  41.4             *      *
Media &
Telecommunications        3,993,000           3,517,000  36.5     2,041,000   12.9
Mid-Cap Growth           11,886,000  18.3     8,893,000  22.9    12,136,000   35.1
Mid-Cap Value             1,050,000  75.5       272,000  61.8       303,000   37.1
New America Growth        1,823,000  36.4     3,730,000  29.1     4,556,000   17.1
New Era                   1,411,000  40.4     2,352,000  32.5     2,122,000   52.3
New Horizons              7,929,000   7.1    13,876,000   3.8    12,816,000    4.2
Real Estate                 114,000  36.8        51,000  27.8        59,000   37.4
Science & Technology     15,035,000          13,388,000  39.5     9,172,000   33.9
Small-Cap Stock           2,865,000  38.0     2,214,000  38.4     2,851,000   26.6
Small-Cap Value           1,656,000  50.0       891,000  49.5       998,000   46.1
Total Equity Market
Index                        40,000   0.0        30,000   0.0        45,000    0.0
Value                     2,221,000  55.1     1,330,000  74.6     1,847,000   52.0
- ------------------------------------------------------------------------------------






                                       72



 (*) Prior to commencement of operations.

   On December 31, 2001, the Balanced Fund held stock of American Express, Bank
   of America, Goldman Sachs Group, Morgan Stanley Dean Witter, J.P. Morgan
   Chase, Credit Suisse Group, and Deutsche Bank AG, with values of $5,632,000,
   $12,064,000, $2,319,000, $7,809,000, $7,456,000, $1,152,000, and $1,531,000,
   respectively. The fund also held bonds of American Express, Goldman Sachs
   Group, Morgan Stanley Dean Witter, and J.P. Morgan Chase, with values of
   $1,227,000, $4,133,000, $4,238,000, and $5,473,000, respectively. On December
   31, 2000, the fund held stock of Goldman Sachs Group, UBS, Chase Manhattan,
   and Morgan Stanley Dean Witter, with values of $2,674,000, $5,251,000,
   $9,320,000, and $11,063,000, respectively. The fund also held bonds of
   Goldman Sachs Group, Lehman Brothers, Morgan Stanley, and UBS, with values of
   $4,181,000, $1,535,000, $3,986,000, and $1,021,000, respectively. On December
   31, 1999, the fund held stock of Goldman Sachs and Morgan Stanley, with
   values of $2,355,000 and $9,964,000, respectively. The fund also held bonds
   of Morgan Stanley, Lehman Brothers, and Paine Webber, with values of
   $3,853,000, $5,278,000, and $3,650,000, respectively.

   On December 31, 2001, the Blue Chip Growth Fund held stock of Goldman Sachs
   Group, Merrill Lynch, and Morgan Stanley Dean Witter, with values of
   $30,144,000, $22,412,000, and $61,534,000, respectively. On December 31,
   2000, the fund held stock of Charles Schwab, Goldman Sachs Group, and Morgan
   Stanley Dean Witter, with values of $14,188,000, $22,457,000, and
   $64,985,000, respectively. On December 31, 1999, the fund held stock of
   Goldman Sachs, Bank America, and Morgan Stanley, with values of $11,425,000,
   $23,588,000, and $57,957,000, respectively.

   On December 31, 2001, the Blue Chip Growth Portfolio held stock of Goldman
   Sachs Group, Merrill Lynch, and Morgan Stanley Dean Witter, with values of
   $28,000, $21,000, and $52,000, respectively.

   On December 31, 2001, the Capital Opportunity Fund held stock of J.P. Morgan
   Chase and Merrill Lynch, with values of $334,000 and $438,000, respectively.
   On December 31, 2000, the fund held stock of FleetBoston Financial, Goldman
   Sachs Group, and Morgan Stanley Dean Witter, with values of $447,000,
   $332,000, and $699,000, respectively. On December 31, 1999, the fund held
   stock of Bank of America and Morgan Stanley, with values of $703,000 and
   $879,000, respectively.

   On December 31, 2001, the Diversified Small-Cap Growth Fund held stock of
   Investment Technology Group with a value of $369,000. On December 31, 1999,
   the fund held stock of Investment Technology Group with a value of $144,000.


                                       73



   On December 31, 2001, the Dividend Growth Fund held stock of Morgan Stanley
   Dean Witter with a value of $4,755,000. On December 31, 2000, the fund held
   stock of Chase Manhattan and Morgan Stanley Dean Witter, with values of
   $3,181,000 and $3,566,000, respectively.

   On December 31, 2001, the Equity Income Fund held stock of J.P. Morgan Chase
   with a value of $106,578,000. On December 31, 2000, the fund held stock of
   J.P. Morgan with a value of $142,330,000. On December 31, 1999, the fund held
   stock of J.P. Morgan with a value of $126,625,000.

   On December 31, 2001, the Equity Income Portfolio held stock of J.P. Morgan
   Chase with a value of $8,018,000. On December 31, 1999, the portfolio held
   stock of Goldman Sachs and Morgan Stanley, with values of $565,000 and
   $47,000, respectively.

   On December 31, 2001, the Equity Index 500 Fund held stock of J.P. Morgan
   Chase, Lehman Brothers, Merrill Lynch, and Morgan Stanley Dean Witter, with
   values of $23,468,000, $5,386,000, $14,208,000 and $20,230,000, respectively.
   On December 31, 2000, the fund held stock of Bank America, Chase Manhattan,
   Morgan Stanley Dean Witter, and J.P. Morgan, with values of $25,682,000,
   $20,472,000, $30,539,000, and $9,253,000, respectively. On December 31, 1999,
   the fund held stock of Lehman Brothers with a value of $4,130,000.

   On December 31, 2001, the Equity Index 500 Portfolio held stock of Bear
   Stearns, J.P. Morgan Chase, Lehman Brothers, Merrill Lynch, and Morgan
   Stanley Dean Witter, with values of $3,000, $33,000, $7,000, $20,000, and
   $29,000, respectively.

   On December 31, 2001, the Extended Equity Market Index Fund held stock of
   Goldman Sachs Group, Investment Technology Group, Jeffries Group, and Knight
   Trading Group, with values of $487,000, $53,000, $34,000, and $35,000,
   respectively. On December 31, 2000, the fund held stock of Goldman Sachs
   Group, Investment Technology Group, and Knight Trading Group, with values of
   $364,000, $38,000, and $46,000, respectively. On December 31, 1999, the fund
   held stock of Donaldson, Lufkin & Jenrette with a value of $68,000.

   On December 31, 2001, the Financial Services Fund held stock of Goldman Sachs
   Group, Legg Mason, Merrill Lynch, and Morgan Stanley Dean Witter, with values
   of $10,175,000, $2,849,000, $4,691,000, and $1,399,000, respectively. On
   December 31, 2000, the fund held stock of Goldman Sachs Group, Merrill Lynch,
   and Morgan Stanley Dean Witter, with values of $12,373,000, $1,023,000, and
   $10,699,000, respectively. On December 31, 1999, the fund held stock of
   Goldman Sachs with a value of $2,261,000.

   On December 31, 2001, the Growth & Income Fund held stock of FleetBoston
   Financial, Goldman Sachs Group, J.P. Morgan Chase, and Morgan Stanley Dean
   Witter, with values of $30,543,000, $13,449,000, $29,989,000, and
   $31,886,000, respectively. On December 31, 2000, the fund held stock of Bear
   Stearns, Bank of America, and Morgan Stanley Dean Witter, with values of
   $7,096,000, $12,845,000, and $33,285,000, respectively. On December 31, 1999,
   the fund held stock of Bear Stearns and Morgan Stanley Dean Witter, with
   values of $22,156,000 and $28,550,000, respectively.

   On December 31, 2001, the Growth Stock Fund held stock of Morgan Stanley Dean
   Witter and Merrill Lynch, with values of $31,606,000 and $38,048,000,
   respectively. On December 31, 2000, the fund held stock of Morgan Stanley
   Dean Witter with a value of $42,002,000. On December 31, 1999, the fund held
   stock of Mellon Bank with a value of $19,703,000.

   On December 31, 2001, the Total Equity Market Index Fund held stock of
   Goldman Sachs Group, Investment Technology Group, Jeffries Group, J.P. Morgan
   Chase, Knight Trading Group, Lehman Brothers, Merrill Lynch, and Morgan
   Stanley Dean Witter, with values of $269,000, $23,000, $13,000, $1,087,000,
   $23,000, $261,000, $667,000, and $923,000, respectively. On December 31,
   2000, the fund held stock of Morgan Stanley Dean Witter, Goldman Sachs Group,
   Bank of America, J.P. Morgan, Chase Manhattan, Knight Trading Group, and
   Investment Technology Group, with values of $1,252,000, $214,000, $1,043,000,
   $381,000, $822,000, $22,000, and $17,000, respectively. On December 31, 1999,
   the fund held stock of Goldman Sachs, Lehman Brothers, and Donaldson, Lufkin
   & Jenrette, with values of $151,000, $119,000, and $73,000, respectively.


                                       74



   On December 31, 2001, the Institutional Large-Cap Value Fund held stock of
   Bank of America and Merrill Lynch, with values of $63,000 and $52,000,
   respectively.

   On December 31, 2001, the New America Growth Fund held stock of Goldman Sachs
   Group and Morgan Stanley Dean Witter, with values of $12,521,000 and
   $12,027,000, respectively. On December 31, 2000, the fund held stock of
   Goldman Sachs Group and Morgan Stanley Dean Witter, with values of
   $10,694,000 and $33,681,000, respectively.

   On December 31, 2001, the New America Growth Portfolio held stock of Goldman
   Sachs Group and Morgan Stanley Dean Witter, with values of $951,000 and
   $923,000, respectively. On December 31, 2000, the portfolio held stock of
   Goldman Sachs Group and Morgan Stanley Dean Witter, with values of $770,000
   and $2,417,000, respectively.

   On December 31, 2001, the Personal Strategy Balanced Portfolio held stock of
   Credit Suisse Group, Goldman Sachs Group, Morgan Stanley Dean Witter,
   Deutsche Bank AG, and Merrill Lynch, with values of $123,000, $272,000,
   $363,000, $116,000, and $47,000, respectively. On December 31, 2000, the
   Personal Strategy Balanced Portfolio held stock of Goldman Sachs Group and
   Morgan Stanley Dean Witter, with values of $64,000 and $174,000,
   respectively. The fund held bonds in Goldman Sachs Group, Lehman Brothers,
   and Morgan Stanley Dean Witter, with values of $418,000, $258,000, and
   $211,000, respectively. On December 31, 1999, the fund held stock of Goldman
   Sachs and Morgan Stanley Dean Witter with values of $19,000 and $114,000,
   respectively. The fund also held bonds of Paine Webber, with a value of
   $730,000.

   On December 31, 2001, the Value Fund held stock of Merrill Lynch with a value
   of $13,030,000. On December 31, 2000, the fund held stock of Bank of America
   with a value of $8,028,000. On December 31, 1999, the fund held stock of Bank
   of America with a value of $7,528,000.

   The portfolio turnover rate for each fund for the last three fiscal years was
   as follows:


               Fund                     2001          2000           1999
               ----                     ----          ----           ----
                                  
Balanced                                 36.0%         16.5%          20.7%
Blue Chip Growth                         48.3          50.9           41.3
Capital Appreciation                     25.1          32.4           28.3
Capital Opportunity                      53.6          64.7          133.1
Developing Technologies(b)              107.5         232.6*           (a)
Diversified Small-Cap Growth             30.3          66.0           49.4
Dividend Growth                          34.9          35.7           37.8
Equity Income                            17.3          21.9           21.8
Equity Index 500                          4.0           9.1            5.2
Extended Equity Market Index             31.3          30.5           23.4
Financial Services                       54.8          32.5           37.1
Global Technology                       189.2         123.6*           (a)
Growth & Income(c)                       65.9          80.3           20.3
Growth Stock                             64.1          74.3           55.8
Health Sciences                          74.6         110.6           81.9
Institutional Large-Cap Growth           98.2*          (a)            (a)
Institutional Large-Cap Value           106.3          58.4*           (a)
Institutional Mid-Cap Equity Growth      48.6          67.5           55.4
Institutional Small-Cap Stock            26.9          15.8*           (a)
Media & Telecommunications(b)           241.1         197.5           57.6
Mid-Cap Growth                           43.0          53.6           53.3
Mid-Cap Value                            57.5          31.9           26.8
New America Growth(d)                    52.1          81.4           39.7
- -------------------------------------------------------------------------------
New Era                                  17.9          28.5           32.5
New Horizons                             27.4          47.2           44.7
Real Estate                              37.2          19.0           26.9
Science & Technology                    143.6         134.1          128.0
Small-Cap Stock                          16.5          32.8           42.3
Small-Cap Value                          16.8          14.4            7.3
Total Equity Market Index                 8.6           7.6            3.2
Value                                    42.2          55.9           67.8
- -------------------------------------------------------------------------------





                                       75



    *  Annualized.

    (a) Prior to commencement of operations.

    (b) The funds' high portfolio turnover was due to extreme volatility in
       the companies in which the funds invest.

    (c) The increase in the fund's portfolio turnover rate from 1999 to
       2000 was the result of the fund's new portfolio manager emphasizing
       a greater balance between growth and value stocks and significant
       market volatility.

    (d) The increase in the fund's portfolio turnover rate from 1999 to
       2000 was primarily the result of the fund's decision effective May
       1, 2000, to adopt a broader investment focus and invest in companies
       believed to be in the fastest growing sectors of the economy. This
       involved selling some existing holdings and replacing them with
       other ones.


   All funds


 PRICING OF SECURITIES
 -------------------------------------------------------------------------------
   Equity securities listed or regularly traded on a securities exchange are
   valued at the last quoted sale price, or official closing price for certain
   markets, at the time the valuations are made. 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 and securities regularly traded in the
   over-the-counter market are valued at the mean of the latest bid and ask
   prices. Other equity securities are valued at a price within the limits of
   the latest bid and ask prices deemed by the Board of Directors, or by persons
   delegated by the Board, best to reflect fair value.

   Debt securities are generally traded in the over-the-counter market.
   Securities with original maturities of one year or more are valued using
   prices furnished by dealers who make markets in such securities or by an
   independent pricing service, which considers yield or price of bonds of
   comparable quality, coupon, maturity, and type, as well as prices quoted by
   dealers who make markets in such securities. Securities with original
   maturities 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 closing net asset value per
   share of the mutual fund on the day of valuation.

   Assets and liabilities denominated in foreign currencies are translated into
   U.S. dollar values each day at the prevailing exchange rate, using the mean
   of the bid and ask prices of such currencies against U.S. dollars quoted by a
   major bank.

   Assets and liabilities 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 or under the supervision of the officers
   of the fund, as authorized by the Board of Directors.


                                       76



 NET ASSET VALUE PER SHARE
 -------------------------------------------------------------------------------
   The purchase and redemption price of the fund's shares is equal to the fund's
   net asset value per share or share price. The fund determines its net asset
   value per share by subtracting its liabilities (including accrued expenses
   and dividends payable) from its total assets (the market value of the
   securities the fund holds plus cash and other assets, including income
   accrued but not yet received) and dividing the result by the total number of
   shares outstanding. The net asset value per share of the fund is normally
   calculated as of the close of trading on the New York Stock Exchange ("NYSE")
   every day the NYSE is open for trading. The NYSE is closed on the following
   days: New Year's Day, Dr. Martin Luther King, Jr. Holiday, Presidents' Day,
   Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
   Christmas Day.

   Determination of net asset value (and the offering, sale, redemption, and
   repurchase of shares) for the fund may be suspended at times (a) during which

   the NYSE is closed, other than customary weekend and holiday closings, , (b)
   during which trading on the NYSE is restricted, (c) during which an emergency
   exists as a result of which disposal by the fund of securities owned by it is
   not reasonably practicable or it is not reasonably practicable for the fund
   fairly to determine the value of its net assets, or (d) during which a
   governmental body having jurisdiction over the fund may by order permit such
   a suspension for the protection of the fund's shareholders, provided that
   applicable rules and regulations of the SEC (or any succeeding governmental
   authority) shall govern as to whether the conditions prescribed in (b), (c),
   or (d) exist.



 DIVIDENDS AND DISTRIBUTIONS
 -------------------------------------------------------------------------------
   Unless you elect otherwise, the fund's capital gain distributions, final
   quarterly dividend (Balanced, Dividend Growth, Equity Income, Equity Index
   500, Growth & Income, and Real Estate Funds), and annual dividend (other
   funds), if any, will be reinvested on the reinvestment date using the NAV per
   share of that date. The reinvestment date normally precedes the payment date
   by one day, although the exact timing is subject to change and can be as
   great as 10 days.



 TAX STATUS
 -------------------------------------------------------------------------------
   The fund intends to qualify as a "regulated investment company" under
   Subchapter M of the Code.

   A portion of the dividends paid by the fund may be eligible for the

   dividends-received deduction applicable to corporate shareholders.
   . Long-term capital gain distributions paid from the fund are never eligible
   for the dividend received deduction. For tax purposes, it does not make any
   difference whether dividends and capital gain distributions are paid in cash
   or in additional shares. Each fund must declare dividends by December 31 of
   each year equal to at least 98% of ordinary income (as of December 31) and
   capital gains (as of October 31) in order to avoid a federal excise tax and
   distribute within 12 months 100% of ordinary income and capital gains (as of
   its tax year-end) to avoid a federal income tax.

   At the time of your purchase, the fund's net asset value may reflect

   undistributed income , capital gains, or net unrealized appreciation of
   securities held by the fund. A subsequent distribution to you of such
   amounts, although constituting a return of your investment, would be taxable
   either as dividend or capital gain distributions. For federal income tax
   purposes, the fund is permitted to carry forward its net realized capital
   losses, if any, for eight years and realize net capital gains up to the
   amount of such losses without being required to pay taxes on, or distribute,
   such gains.

   If, in any taxable year, the fund should not qualify as a regulated
   investment company under the Code: (1) the fund would be taxed at normal
   corporate rates on the entire amount of its taxable income, if any, without a
   deduction for dividends or other distributions to shareholders; and (2) the
   fund's distributions to the extent made out of the fund's current or
   accumulated earnings and profits would be taxable to shareholders as


                                       77



   ordinary dividends (regardless of whether they would otherwise have been
   considered capital gain dividends) and the fund may qualify for the 70%

                deduction for dividends received by corporations.



                        Taxation of Foreign Shareholders

   The code provides that dividends from net income will be subject to U.S. tax.
   For shareholders who are not engaged in a business in the U.S., this tax
   would be imposed at the rate of 30% upon the gross amount of the dividends in
   the absence of a Tax Treaty providing for a reduced rate or exemption from
   U.S. taxation. Distributions of net long-term capital gains realized by the
   fund are not subject to tax unless the foreign shareholder is engaged in a
   business in the U.S. and the gains are connected with that business, or the
   shareholder is a nonresident alien individual who was physically present in
   the U.S. during the tax year for more than 182 days.

   All funds except Equity Index 500, Extended Equity Market Index, and Total
   Equity Market Index Funds

   To the extent the fund invests in foreign securities, the following would
   apply:


                      Passive Foreign Investment Companies

   The fund may purchase the securities of certain foreign investment funds or
   trusts called passive foreign investment companies for U.S. tax purposes.
   Such foreign investment funds or trusts have been the only or primary way to
   invest in certain countries. In addition to bearing their proportionate share
   of the fund's expenses (management fees and operating expenses), shareholders
   will also indirectly bear similar expenses of such foreign investment funds
   or trusts. Capital gains on the sale of such holdings are considered ordinary
   income regardless of how long the fund held its investment. In addition, the
   fund may be subject to corporate income tax and an interest charge on certain
   dividends and capital gains earned from these investments, regardless of
   whether such income and gains are distributed to shareholders.

   To avoid such tax and interest, the fund intends to treat these securities as
   sold on the last day of its fiscal year and recognize any gains for tax
   purposes at that time; deductions for losses are allowable only to the extent
   of any gains resulting from these deemed sales for prior taxable years. Such
   gains and losses will be treated as ordinary income. The fund will be
   required to distribute any resulting income even though it has not sold the
   security and received cash to pay such distributions.


                        Foreign Currency Gains and Losses

   Foreign currency gains and losses, including the portion of gain or loss on
   the sale of debt securities attributable to foreign exchange rate
   fluctuations, are taxable as ordinary income. If the net effect of these
   transactions is a gain, the ordinary income dividend paid by the fund will be
   increased. If the result is a loss, the income dividend paid by the fund will
   be decreased, or to the extent such dividend has already been paid, it may be
   classified as a return of capital. Adjustments to reflect these gains and
   losses will be made at the end of the fund's taxable year.


   All funds


 INVESTMENT PERFORMANCE
 -------------------------------------------------------------------------------

                            Total Return Performance

   The fund's calculation of total return performance includes the reinvestment
   of all capital gain distributions and income dividends for the period or
   periods indicated, without regard to tax consequences to a shareholder in the
   fund. Total return is calculated as the percentage change between the
   beginning value of a static account in the fund and the ending value of that
   account measured by the then current net asset value, including all shares
   acquired through reinvestment of income and capital gain dividends. The
   results shown are historical and should not be considered indicative of the
   future performance of the fund. Each average annual compound rate of return
   is derived from the cumulative performance of the fund over the time period
   specified. The annual compound rate of return for the fund over any period of
   time will vary from the average.


                                       78





                  Cumulative Performance Percentage Change
                           Periods ended 12/31/01
           Fund              1 Yr.    5 Yrs.   10 Yrs.   % Since     Inception
           ----              -----    ------   -------   -------     ---------
                                                        Inception      Date
                                                        ---------      ----
                          
Balanced                      -3.98%   49.12%  155.13%  42,677.36%   12/31/39
Blue Chip Growth             -14.42    64.52    --         234.00    06/30/93
Blue Chip Growth
Fund-Advisor Class           -14.42    --       --         -21.39    03/31/00
Capital Appreciation          10.26    77.27   233.25      575.59    06/30/86
Capital Opportunity          -10.10    24.79    --         122.64    11/30/94
Developing Technologies      -30.58    --       --         -49.94    08/31/00
Diversified Small-Cap
Growth                        -9.81    --       --          17.18    06/30/97
Dividend Growth               -3.64    55.04    --         212.36    12/30/92
Equity Income                  1.64    67.96   269.46      804.16    10/31/85
Equity Income Fund-Advisor
Class                          1.51    --       --          18.38    03/31/00
Equity Index 500             -12.17    63.84   226.56      323.27    03/30/90
Extended Equity Market
Index                         -9.55    --       --          14.67    01/30/98
Financial Services            -3.13   112.57    --         141.05    09/30/96
Global Technology            -36.07    --       --         -52.50    09/29/00
Growth & Income               -2.17    50.28   221.57      868.53    12/21/82
Growth Stock                  -9.79    78.17   250.92   30,189.56    04/11/50
Health Sciences               -5.97   125.80    --         186.21    12/29/95
Institutional Large-Cap
Growth                        --       --       --          14.00    10/31/01
Institutional Large-Cap
Value                          4.44    --       --          20.71    03/31/00
Institutional Mid-Cap
Equity Growth                 -1.18    91.71    --         122.58    07/31/96
Institutional Small-Cap
Stock                          7.26    --       --          14.80    03/31/00
Media &
Telecommunications(a)         -6.93   132.90    --         227.89    10/13/93
Mid-Cap Growth                -0.98    90.08    --         427.37    06/30/92
Mid-Cap Growth Fund-Advisor
Class                         -1.10    --       --          -3.30    03/31/00
Mid-Cap Value                 14.36    87.28    --         117.81    06/28/96
New America Growth           -11.89    26.90   162.56      651.36    09/30/85
New Era                       -4.35    39.56   159.28    2,411.80    01/20/69
New Horizons                  -2.84    47.38             9,816.24    06/03/60
Real Estate                    8.87    --       --          30.22    10/31/97
Science & Technology         -41.19    12.64   241.88      593.91    09/30/87
Science & Technology
Fund-Advisor Class           -41.19    --       --         -65.34    03/31/00
Small-Cap Stock                6.81    77.43   288.04                06/01/56
Small-Cap Stock
Fund-Advisor Class             6.60    --       --          13.84    03/31/00
Small-Cap Value               21.94    65.47   291.78      429.74    06/30/88
Small-Cap Value
Fund-Advisor Class            21.84    --       --          41.04    03/31/00
Total Equity Market Index    -11.20    --       --          20.90    01/30/98
Value                          1.60    77.29    --         228.50    09/30/94
Value Fund-Advisor Class       1.45    --       --          16.78    03/31/00
- -------------------------------------------------------------------------------




 (a) The five-year and inception figures are based partly on the fund's
   performance as a closed-end investment company traded on the New York
   Stock Exchange until July 28, 1997, when it was converted to an open-end
   mutual fund.


                                       79





                   Average Annual Compound Rates of Return
                           Periods ended 12/31/01
            Fund              1 Yr.    5 Yrs.   10 Yrs.   % Since    Inception
            ----              -----    ------   -------   -------    ---------
                                                         Inception     Date
                                                         ---------     ----
                           
Balanced                       -3.98%   8.32%    9.82%     10.27%    12/31/39
Blue Chip Growth              -14.42   10.47    --         15.24     06/30/93
Blue Chip Growth
Fund-Advisor Class            -14.42   --       --        -12.82     03/31/00
Capital Appreciation           10.26   12.13    12.79      13.11     06/30/86
Capital Opportunity           -10.10    4.53    --         11.96     11/30/94
Developing Technologies       -30.58   --       --        -40.49     08/31/00
Diversified Small-Cap Growth   -9.81   --       --          3.58     06/30/97
Dividend Growth                -3.64    9.17    --         13.49     12/30/92
Equity Income                   1.64   10.93    13.96      14.59     10/31/85
Equity Income Fund-Advisor
Class                           1.51   --       --         10.10     03/31/00
Equity Index 500              -12.17   10.38    12.56      13.06     03/30/90
Extended Equity Market Index   -9.55   --       --          3.55     01/30/98
Financial Services             -3.13   16.28    --         18.24     09/30/96
Global Technology             -36.07   --       --        -44.77     09/29/00
Growth & Income                -2.17    8.49    12.39      12.67     12/21/82
Growth Stock                   -9.79   12.25    13.38      11.68     04/11/50
Health Sciences                -5.97   17.69    --         19.14     12/29/95
Institutional Large-Cap
Growth                         --      --       --        (a)        10/31/01
Institutional Large-Cap
Value                           4.44   --       --         11.33     03/31/00
Institutional Mid-Cap Equity
Growth                         -1.18   13.90    --         15.91     07/31/96
Institutional Small-Cap
Stock                           7.26   --       --          8.19     03/31/00
Media &
Telecommunications(b)          -6.93   18.42    --         15.55     10/13/93
Mid-Cap Growth                 -0.98   13.71    --         19.12     06/30/92
Mid-Cap Growth Fund-Advisor
Class                          -1.10   --       --         -1.89     03/31/00
Mid-Cap Value                  14.36   13.37    --         15.18     06/28/96
New America Growth            -11.89    4.88    10.13      13.21     09/30/85
New Era                        -4.35    6.89    10.00      10.28     01/20/69
New Horizons                   -2.84    8.07    13.75      11.69     06/03/60
Real Estate                     8.87   --       --          6.54     10/31/97
Science & Technology          -41.19    2.41    13.08      14.56     09/30/87
Science & Technology
Fund-Advisor Class            -41.19   --       --        -45.34     03/31/00
Small-Cap Stock                 6.81   12.15    14.52      14.14     06/01/56
Small-Cap Stock Fund-Advisor
Class                           6.60   --       --          7.67     03/31/00
Small-Cap Value                21.94   10.60    14.63      13.14     06/30/88
Small-Cap Value Fund-Advisor
Class                          21.84   --       --         21.66     03/31/00
Total Equity Market Index     -11.20   --       --          4.96     01/30/98
Value                           1.60   12.13    --         17.82     09/30/94
Value Fund-Advisor Class        1.45   --       --          9.25     03/31/00
- -------------------------------------------------------------------------------




 (a) No figure is provided because the fund's performance is for a period
   of less than one year.


                                       80



 (b) The five-year and inception figures are based partly on the fund's
   performance as a closed-end investment company traded on the New York
   Stock Exchange until July 28, 1997, when it was converted to an open-end
   mutual fund.


                         Outside Sources of Information

   From time to time, in reports and promotional literature: (1) the fund's
   total return performance, ranking, or any other measure of the fund's
   performance may be compared to any one or combination of the following: (a) a
   broad-based index, (b) other groups of mutual funds, including T. Rowe Price
   funds, tracked by independent research firms, ranking entities, or financial
   publications; (c) indices of securities comparable to those in which the fund
   invests; (2) the consumer price index (or any other measure for inflation),
   or government statistics, such as GNP, may be used to illustrate investment
   attributes of the fund or the general economic, business, investment, or
   financial environment in which the fund operates; (3) various financial,
   economic, and market statistics developed by brokers, dealers, and other
   persons may be used to illustrate aspects of the fund's performance; (4) the
   effect of tax-deferred compounding on the fund's investment returns, or on
   returns in general in both qualified and nonqualified retirement plans or any
   other tax advantaged product, may be illustrated by graphs, charts, etc.; (5)
   the sectors or industries in which the fund invests may be compared to
   relevant indices or surveys in order to evaluate the fund's historical
   performance or current or potential value with respect to the particular
   industry or sector; (6) the fund may disclose the performance of other funds
   or accounts managed by T. Rowe Price in a manner similar to the fund; and (7)
   the blended total returns or performance rankings of the funds may be
   disclosed.


                               Other Publications

   From time to time, in newsletters and other publications issued by Investment
   Services, T. Rowe Price mutual fund portfolio managers may discuss economic,
   financial, and political developments in the U.S. and abroad and how these
   conditions have affected or may affect securities prices or the fund;
   individual securities within the fund's portfolio; and their philosophy
   regarding the selection of individual stocks, including why specific stocks
   have been added, removed, or excluded from the fund's portfolio.


                           Other Features and Benefits

   The fund is a member of the T. Rowe Price family of funds and may help
   investors achieve various long-term investment goals, which include, but are
   not limited to, investing money for retirement, saving for a down payment on
   a home, or paying college costs. To explain how the fund could be used to
   assist investors in planning for these goals and to illustrate basic
   principles of investing, various worksheets and guides prepared by T. Rowe
   Price and/or Investment Services may be made available.


                       No-Load Versus Load and 12b-1 Funds

   Many mutual funds charge sales fees to investors or use fund assets to
   finance distribution activities. These fees are in addition to the normal
   advisory fees and expenses charged by all mutual funds. There are several
   types of fees charged which vary in magnitude and which may often be used in
   combination. A sales charge (or "load") can be charged at the time the fund
   is purchased (front-end load) or at the time of redemption (back-end load).
   Front-end loads are charged on the total amount invested. Back-end loads are
   charged either on the amount originally invested or on the amount redeemed.
   12b-1 plans allow for the payment of marketing and sales expenses from fund
   assets. These expenses are usually computed daily as a fixed percentage of
   assets.

   The T. Rowe Price funds, including the Advisor Classes, are considered to be
   "no-load" funds. They impose no front-end or back-end sales loads. However,
   the Advisor Classes do charge 12b-1 fees. Under applicable National
   Association of Securities Dealers Regulation, Inc. ("NASDR") regulations,
   mutual funds that have no front-end or deferred sales charges and whose total
   asset-based charges for sales-related expenses and/or service fees (as
   defined by NASDR) do not exceed 0.25% of average net assets per year may be
   referred to as no-load funds.


                               Redemptions in Kind

   The fund has filed a notice of election under Rule 18f-1 of the 1940 Act.
   This permits the fund to effect redemptions in kind and in cash as set forth
   in its prospectus.


                                       81



   In the unlikely event a shareholder were to receive an in-kind redemption of
   portfolio securities of the fund, it would be the responsibility of the
   shareholder to dispose of the securities. The shareholder would be at risk
   that the value of the securities would decline prior to their sale, that it
   would be difficult to sell the securities, and that brokerage fees could be
   incurred.


                     Issuance of Fund Shares for Securities

   Transactions involving issuance of fund shares for securities or assets other
   than cash will be limited to (1) bona fide reorganizations; (2) statutory
   mergers; or (3) other acquisitions of portfolio securities that: (a) meet the
   investment objective and policies of the fund; (b) are acquired for
   investment and not for resale except in accordance with applicable law; (c)
   have a value that is readily ascertainable via listing on or trading in a
   recognized United States or international exchange or market; and (d) are not
   illiquid.

   Balanced Fund

   On August 31, 1992, the T. Rowe Price Balanced Fund acquired substantially
   all of the assets of the Axe-Houghton Fund B, a series of Axe-Houghton Funds,
   Inc. As a result of this acquisition, the SEC requires that the historical
   performance information of the Balanced Fund be based on the performance of
   Fund B. Therefore, all performance information of the Balanced Fund prior to
   September 1, 1992, reflects the performance of Fund B and investment managers
   other than T. Rowe Price. Performance information after August 31, 1992,
   reflects the combined assets of the Balanced Fund and Fund B.

   Media & Telecommunications Fund

   On July 28, 1997, the fund converted its status from a closed-end fund to an
   open-end mutual fund. Prior to the conversion the fund was known as New Age
   Media Fund, Inc.

   Small-Cap Stock Fund

   Effective May 1, 1997, the fund's name was changed from the T. Rowe Price OTC
   Fund to the T. Rowe Price Small-Cap Stock Fund.

   Equity Index 500 Fund

   Effective January 30, 1998, the fund's name was changed from T. Rowe Price
   Equity Index Fund to the T. Rowe Price Equity Index 500 Fund.


   All funds except Capital Appreciation, Equity Income, and New America Growth
   Funds


 CAPITAL STOCK
 -------------------------------------------------------------------------------
   The fund's Charter authorizes the Board of Directors/Trustees to classify and
   reclassify any and all shares which are then unissued, including unissued
   shares of capital stock into any number of classes or series; each class or
   series consisting of such number of shares and having such designations, such
   powers, preferences, rights, qualifications, limitations, and restrictions as
   shall be determined by the Board subject to the 1940 Act and other applicable
   law. The shares of any such additional classes or series might therefore
   differ from the shares of the present class and series of capital stock and
   from each other as to preferences, conversions, or other rights, voting
   powers, restrictions, limitations as to dividends, qualifications, or terms
   or conditions of redemption, subject to applicable law, and might thus be
   superior or inferior to the capital stock or to other classes or series in
   various characteristics. The Board of Directors/Trustees may increase or
   decrease the aggregate number of shares of stock or the number of shares of
   stock of any class or series that the fund has authorized to issue without
   shareholder approval.

   Except to the extent that the fund's Board of Directors/Trustees might
   provide by resolution that holders of shares of a particular class are
   entitled to vote as a class on specified matters presented for a vote of the
   holders of all shares entitled to vote on such matters, there would be no
   right of class vote unless and to the extent that such a right might be
   construed to exist under Maryland law. The Charter contains no provision
   entitling the holders of the present class of capital stock to a vote as a
   class on any matter. Accordingly, the preferences, rights, and other
   characteristics attaching to any class of shares, including the present class
   of capital stock,


                                       82



   might be altered or eliminated, or the class might be combined with another
   class or classes, by action approved by the vote of the holders of a majority
   of all the shares of all classes entitled to be voted on the proposal,
   without any additional right to vote as a class by the holders of the capital
   stock or of another affected class or classes.

   Shareholders are entitled to one vote for each full share held (and
   fractional votes for fractional shares held) and will vote in the election of
   or removal of directors/trustees (to the extent hereinafter provided) and on
   other matters submitted to the vote of shareholders. There will normally be
   no meetings of shareholders for the purpose of electing directors/trustees
   unless and until such time as less than a majority of the directors/

   trustees holding office have been elected by shareholders, at which time the
   directors/trustees then in office will call a shareholders' meeting for the
   election of directors/trustees. Except as set forth above, the directors/

   trustees shall continue to hold office and may appoint successor
   directors/trustees. Voting rights are not cumulative, so that the holders of
   more than 50% of the shares voting in the election of directors/trustees can,
   if they choose to do so, elect all the directors/trustees of the fund, in
   which event the holders of the remaining shares will be unable to elect any
   person as a director/trustee. As set forth in the By-Laws of the fund, a
   special meeting of shareholders of the fund shall be called by the Secretary
   of the fund on the written request of shareholders entitled to cast at least
   10% of all the votes of the fund entitled to be cast at such meeting.
   Shareholders requesting such a meeting must pay to the fund the reasonably
   estimated costs of preparing and mailing the notice of the meeting. The fund,
   however, will otherwise assist the shareholders seeking to hold the special
   meeting in communicating to the other shareholders of the fund to the extent
   required by Section 16(c) of the 1940 Act.


   Capital Appreciation, Equity Income, and New America Growth Funds


 ORGANIZATION OF THE FUNDS
 -------------------------------------------------------------------------------
   For tax and business reasons, the funds were organized as Massachusetts
   Business Trusts, and are registered with the SEC under the 1940 Act as
   diversified, open-end investment companies, commonly known as "mutual funds."

   The Declaration of Trust permits the Board of Trustees to issue an unlimited
   number of full and fractional shares of a single class. The Declaration of
   Trust also provides that the Board of Trustees may issue additional series or
   classes of shares. Each share represents an equal proportionate beneficial
   interest in the fund. In the event of the liquidation of the fund, each share
   is entitled to a pro-rata share of the net assets of the fund.

   Shareholders are entitled to one vote for each full share held (and
   fractional votes for fractional shares held) and will vote in the election of
   or removal of trustees (to the extent hereinafter provided) and on other
   matters submitted to the vote of shareholders. There will normally be no
   meetings of shareholders for the purpose of electing trustees unless and
   until such time as less than a majority of the trustees holding office have
   been elected by shareholders, at which time the trustees then in office will
   call a shareholders' meeting for the election of trustees. Pursuant to
   Section 16(c) of the 1940 Act, holders of record of not less than two-thirds
   of the outstanding shares of the fund may remove a trustee by a vote cast in
   person or by proxy at a meeting called for that purpose. Except as set forth
   above, the trustees shall continue to hold office and may appoint successor
   trustees. Voting rights are not cumulative, so that the holders of more than
   50% of the shares voting in the election of trustees can, if they choose to
   do so, elect all the trustees of the Trust, in which event the holders of the
   remaining shares will be unable to elect any person as a trustee. No
   amendments may be made to the Declaration of Trust without the affirmative
   vote of a majority of the outstanding shares of the Trust.

   Shares have no preemptive or conversion rights; the right of redemption and
   the privilege of exchange are described in the prospectus. Shares are fully
   paid and nonassessable, except as set forth below. The Trust may be
   terminated (i) upon the sale of its assets to another diversified, open-end
   management investment company, if approved by the vote of the holders of
   two-thirds of the outstanding shares of the Trust, or (ii) upon liquidation
   and distribution of the assets of the Trust, if approved by the vote of the
   holders of a majority of the outstanding shares of the Trust. If not so
   terminated, the Trust will continue indefinitely.


                                       83



   Under Massachusetts law, shareholders could, under certain circumstances, be
   held personally liable for the obligations of the fund. However, the
   Declaration of Trust disclaims shareholder liability for acts or obligations
   of the fund and requires that notice of such disclaimer be given in each
   agreement, obligation, or instrument entered into or executed by the fund or
   a Trustee. The Declaration of Trust provides for indemnification from fund
   property for all losses and expenses of any shareholder held personally
   liable for the obligations of the fund. Thus, the risk of a shareholder
   incurring financial loss on account of shareholder liability is limited to
   circumstances in which the fund itself would be unable to meet its
   obligations, a possibility which T. Rowe

   Price believes is remote. Upon payment of any liability incurred by the fund,
   the shareholders of the fund paying such liability will be entitled to
   reimbursement from the general assets of the fund. The Trustees intend to
   conduct the operations of the fund in such a way so as to avoid, as far as
   possible, ultimate liability of the shareholders for liabilities of such
   fund.


   All funds


 FEDERAL REGISTRATION OF SHARES
 -------------------------------------------------------------------------------
   The fund's shares are registered for sale under the 1933 Act. Registration of
   the fund's shares is not required under any state law, but the fund is
   required to make certain filings with and pay fees to the states in order to
   sell its shares in the states.



 LEGAL COUNSEL
 -------------------------------------------------------------------------------
   Shearman & Sterling, whose address is 599 Lexington Avenue, New York, New
   York 10022, is legal counsel to the fund.



 INDEPENDENT ACCOUNTANTS
 -------------------------------------------------------------------------------
   PricewaterhouseCoopers LLP, 250 West Pratt Street, 21st Floor, Baltimore,
   Maryland 21201, are the independent accountants to the funds.

   The financial statements of the funds listed below for the periods ended
   December 31, 2001, and the report of independent accountants are included in
   each fund's Annual Report for the periods ended December 31,
   2001. A copy of each Annual Report accompanies this Statement of Additional
   Information. The following financial statements and the report of independent
   accountants appearing in each Annual Report for the periods ended December
   31, 2001, are incorporated into this Statement of Additional Information by
   reference (references are to page numbers in the Reports):


                                       84





                          ANNUAL REPORT REFERENCES:
                                 EQUITY       FINANCIAL  NEW AMERICA  NEW ERA
                                 INCOME       SERVICES   GROWTH       -------
                                 ------       --------   ------
                              
Financial Highlights, December                    1           1
31, 2001                              8           0           0         10
Statement of Net Assets,
December 31, 2001                   10-17       11-13       11-16       11-15
Statement of Operations, year
ended
December 31, 2001                    18          14          17          16
Statement of Changes in Net
Assets, years ended December
31, 2001, and December 31, 2000     19-20        15          18          17
Notes to Financial Statements,
December 31, 2001                   21-25       16-19       19-22       18-22
Report of Independent
Accountants                          26          20          23          23






                                    DIVIDEND  GROWTH   BLUE CHIP  CAPITAL
                                    GROWTH    STOCK    GROWTH     OPPORTUNITY
                                    ------    -----    ------     -----------
                                 
Financial Highlights, December 31,
2001                                   9         9        11           8
Statement of Net Assets, December
31, 2001                             10-16     10-16     13-19        9-20
Statement of Operations, year
ended
December 31, 2001                      17       17        20           21
Statement of Changes in Net
Assets, years ended
December 31, 2001, and December
31, 2000                               18       18       21-22         22
Notes to Financial Statements,
December 31, 2001                    19-22     19-24     23-27        23-26
Report of Independent Accountants      23       25        28           27






                                              MID-CAP  REAL    INSTITUTIONAL
                                     VALUE    VALUE    ESTATE  MID-CAP EQUITY
                                     -----    -----    ------  GROWTH
                                                               ------
                                  
Financial Highlights, December 31,
2001                                    8        9       9           7
Statement of Net Assets, December
31, 2001                              10-16    10-16   10-12         8-10
Statement of Operations, year ended
December 31, 2001                      17       17       13           11
Statement of Changes in Net Assets,
years ended
December 31, 2001, and December 31,
2000                                  18-19     18       14           12
Notes to Financial Statements,
December 31, 2001                     20-24    19-22   15-18        13-14
Report of Independent Accountants      25       23       19           15






                                       85





                                       EXTENDED      TOTAL EQUITY
                                       EQUITY        MARKET INDEX
                                       MARKET INDEX  ------------
                                       ------------
                                    
Financial Highlights, December 31,
2001                                        2             2
Portfolio of Investments,
December 31, 2001                          3-86           3-68
Statement of Assets and Liabilities,
December 31, 2001                           87            69
Statement of Operations, year ended
December 31, 2001                           88             70
Statement of Changes in Net Assets,
years ended December 31, 2001, and
December 31, 2000                           89             71
Notes to Financial Statements,
December 31, 2001                         90-93          72-75
Report of Independent Accountants           94             76






                                           DIVERSIFIED   GROWTH      HEALTH
                                           SMALL-CAP     & INCOME    SCIENCES
                                           GROWTH        --------    --------
                                           ------
                                        
Financial Highlights, December 31, 2001         9            9          9
Statement of Net Assets, December 31,
2001                                          10-23        10-15       10-15
Statement of Operations, year ended
December 31, 2001                               24           16          16
Statement of Changes in Net Assets, years
ended
December 31, 2001, and December 31, 2000        25           17          17
Notes to Financial Statements, December
31, 2001                                      26-29        18-22       18-22
Report of Independent Accountants               30           23          23






                                                    GLOBAL       DEVELOPING
                                                    TECHNOLOGY   TECHNOLOGIES
                                                    ----------   ------------
                                                 
Financial Highlights, December 31, 2001                  8            8
Statement of Net Assets, December 31, 2001             9-13           9-13
Statement of Operations, December 31, 2001              14             14
Statement of Changes in Net Assets, periods ended
December 31, 2001, and December 31, 2000                15             15
Notes to Financial Statements, December 31, 2001       16-20         16-19
                                                         2
Report of Independent Accountants                        1            20






                                       86





                                                  SCIENCE &     EQUITY
                                                  TECHNOLOGY    INDEX 500
                                                  ----------    ---------
                                               
Financial Highlights, December 31, 2001                8             1
Statement of Net Assets, December 31, 2001           10-14          2-20
                                                                     2
Statement of Operations, December 31, 2001             15            1
Statement of Changes in Net Assets, years ended                      2
December 31, 2001, and December 31, 2000             16-17           2
                                                                     2
Notes to Financial Statements, December 31, 2001     18-22          3-28
Report of Independent Accountants                      23            29






                                                 NEW       CAPITAL     MID-CAP
                                       BALANCED  HORIZONS  APPRECIATIONGROWTH
                                       --------  --------          ----------
                                    
Financial Highlights, December 31,                                        1
2001                                      10        11         8          2
Portfolio of Investments, December
31, 2001                                11-39     12-22       9-15       14-19
Statement of Assets and Liabilities,
December 31, 2001                         40        23         16          20
Statement of Operations, year ended
December 31, 2001                         41        24         17          21
Statement of Changes in Net Assets,
years ended
December 31, 2001, and December 31,
2000                                      42        25         18        22-23
Notes to Financial Statements,
December 31, 2001                       43-47     26-29      19-22       24-28
Report of Independent Accountants         48        30         23          29






                                                  SMALL-CAP  MEDIA &
                                                  STOCK      TELECOMMU-
                                                  -----      NICATIONS
                                                             ---------
                                               
Financial Highlights, December 31, 2001              10          7
Portfolio of Investments, December 31, 2001         12-22        8-10
Statement of Assets and Liabilities,
December 31, 2001                                    23           11
Statement of Operations, year ended
December 31, 2001                                    24           12
Statement of Changes in Net Assets, years ended
December 31, 2001, and December 31, 2000            25-26         13
Notes to Financial Statements, December 31, 2001    27-31       14-17
Report of Independent Accountants                    32           18






                                       87





                                                  INSTITUTIONAL  SMALL-CAP
                                                  LARGE-CAP      VALUE
                                                  VALUE          -----
                                                  -----
                                               
Financial Highlights, December 31, 2001                 5             8
Portfolio of Investments, December 31, 2001            6-8           10-21
Statement of Assets and Liabilities, December
31,
2001                                                    9              22
Statement of Operations, year ended December 31,
2001                                                   10              23
Statement of Changes in Net Assets, years ended
December 31, 2001, and December 31, 2000               11            24-25
Notes to Financial Statements, December 31, 2001      12-13          26-30
Report of Independent Accountants                      14              31






                                          INSTITUTIONAL
                                          SMALL-CAP STOCK
                                          ---------------
                                       
Financial Highlights, December 31, 2001          6
Statement of Net Assets, December 31,
2001                                            7-11
Statement of Operations, December 31,
2001                                             12
Statement of Changes in Net Assets,
December 31, 2001                                13
Notes to Financial Statements, December
31, 2001                                        14-15
                                                 1
Report of Independent Accountants                6






                                          INSTITUTIONAL
                                          LARGE-CAP GROWTH
                                                    ------
                                       
Financial Highlights, December 31, 2001         4
Statement of Net Assets, December 31,
2001                                            5-6
Statement of Operations, for the period
ended December 31, 2001                          7
Statement of Changes in Net Assets, for
the period ended December 31, 2001               8
Notes to Financial Statements, December
31, 2001                                        9-10
                                                1
Report of Independent Accountants               1






                                       88





                                 BLUE CHIP      EQUITY INCOME
                                 GROWTH         FUND-ADVISOR    VALUE FUND-
                                 FUND-ADVISOR   CLASS           ADVISOR CLASS
                                 CLASS          -----           -------------
                                 -----
                              
Financial Highlights, December
31, 2001                              12              9               9
                                                      10
Statement of Net Assets,                              -1
December 31, 2001                    13-19            7              10-16
Statement of Operations, year                         1
ended December 31, 2001               20              8               17
Statement of Changes in Net
Assets, for the periods ended
December 31, 2001, and December                       1
31, 2000                             21-22           9-20            18-19
                                                      2
Notes to Financial Statements,                        1
December                                              -
31, 2001                             23-27            25             20-24
Report of Independent                  2                              2
Accountants                            8              26              5







                                                 MID-CAP        SMALL-CAP STOCK
                                                 GROWTH FUND-   FUND-
                                                 ADVISOR CLASS  ADVISOR CLASS
                                                 -------------  -------------
                                              
                                                       1
Financial Highlights, December 31, 2001                3             11
                                                       1
                                                       4
                                                      -1
Portfolio of Investments, December 31, 2001            9             12-22
Statement of Assets and Liabilities, December
31, 2001                                              20              23
Statement of Operations, year ended December           2
31, 2001                                               1              24
Statement of Changes in Net Assets, for the
periods ended December 31, 2001, and December         22
31, 2000                                              -23            25-26
                                                       2
                                                       4
Notes to Financial Statements, December 31,           -2
2001                                                   8             27-31
                                                       2
Report of Independent Accountants                      9              32






                                                            SMALL-CAP VALUE
                                                            FUND-ADVISOR CLASS
                                                                         -----
                                                         
Financial Highlights, December 31, 2001                            9
Portfolio of Investments, December 31, 2001                       10-21
Statement of Assets and Liabilities, December 31, 2001              22
Statement of Operations, year ended December 31, 2001               23
Statement of Changes in Net Assets, for the periods ended
December 31, 2001, and December 31, 2000                          24-25
Notes to Financial Statements, December 31, 2001                  26-30
Report of Independent Accountants                                   31





                                       89





                                                            SCIENCE &
                                                            TECHNOLOGY
                                                            FUND-ADVISOR
                                                            CLASS
                                                            -----
                                                         
Financial Highlights, December 31, 2001                           9
Statement of Net Assets, December 31, 2001                       10-14
Statement of Operations, year ended December 31, 2001             15
Statement of Changes in Net Assets, for the periods ended
December 31, 2001, and December 31, 2000                         16-17
Notes to Financial Statements, December 31, 2001                 18-22
Report of Independent Accountants                                 23






 RATINGS OF CORPORATE DEBT SECURITIES
 -------------------------------------------------------------------------------

                         Moody's Investors Service, Inc.

   Aaa-Bonds rated Aaa are judged to be of the best quality. They carry the
   smallest degree of investment risk and are generally referred to as "gilt
   edge."

   Aa-Bonds rated Aa are judged to be of high quality by all standards. Together
   with the Aaa group they comprise what are generally known as high-grade
   bonds.

   A-Bonds rated A possess many favorable investment attributes and are to be
   considered as upper medium-grade obligations.

   Baa-Bonds rated Baa are considered as medium-grade obligations, i.e., they
   are neither highly protected nor poorly secured. Interest payments and
   principal security appear adequate for the present but certain protective
   elements may be lacking or may be characteristically unreliable over any
   great length of time. Such bonds lack outstanding investment characteristics
   and in fact have speculative characteristics as well.

   Ba-Bonds rated Ba are judged to have speculative elements: their futures
   cannot be considered as well assured. Often the protection of interest and
   principal payments may be very moderate and thereby not well safeguarded
   during both good and bad times over the future. Uncertainty of position
   characterizes bonds in this class.

   B-Bonds rated B generally lack the characteristics of a desirable investment.
   Assurance of interest and principal payments or of maintenance of other terms
   of the contract over any long period of time may be small.

   Caa-Bonds rated Caa are of poor standing. Such issues may be in default or
   there may be present elements of danger with respect to repayment of
   principal or payment of interest.

   Ca-Bonds rated Ca represent obligations which are speculative in a high
   degree. Such issues are often in default or have other marked shortcomings.

   C-Bonds rated C represent the lowest rated and have extremely poor prospects
   of attaining investment standing.


                          Standard & Poor's Corporation

   AAA-This is the highest rating assigned by Standard & Poor's to a debt
   obligation and indicates an extremely strong capacity to pay principal and
   interest.

   AA-Bonds rated AA also qualify as high-quality debt obligations. Capacity to
   pay principal and interest is very strong.


                                       90



   A-Bonds rated A have a strong capacity to pay principal and interest,
   although they are somewhat more susceptible to the adverse effects of changes
   in circumstances and economic conditions.

   BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
   principal and interest. Whereas they normally exhibit adequate protection
   parameters, adverse economic conditions or changing circumstances are more
   likely to lead to a weakened capacity to pay principal and interest for bonds
   in this category than for bonds in the A category.

   BB, B, CCC, CC, C-Bonds rated BB, B, CCC, CC, and C are regarded on balance
   as predominantly speculative with respect to the issuer's capacity to pay
   interest and repay principal. BB indicates the lowest degree of speculation
   and C the highest degree of speculation. While such bonds will likely have
   some quality and protective characteristics, these are outweighed by large
   uncertainties or major risk exposures to adverse conditions.

   D-In default.


                                Fitch IBCA, Inc.

   AAA-High grade, broadly marketable, suitable for investment by trustees and
   fiduciary institutions, and liable to slight market fluctuation other than
   through changes in the money rate. The prime feature of a "AAA" bond is the
   showing of earnings several times or many times interest requirements for
   such stability of applicable interest that safety is beyond reasonable
   question whenever changes occur in conditions. Other features may enter, such
   as wide margin of protection through collateral, security, or direct lien on
   specific property. Sinking funds or voluntary reduction of debt by call or
   purchase are often factors, while guarantee or assumption by parties other
   than the original debtor may influence their rating.

   AA-Of safety virtually beyond question and readily salable. Their merits are
   not greatly unlike those of "AAA" class but a bond so rated may be junior
   though of strong lien, or the margin of safety is less strikingly broad. The
   issue may be the obligation of a small company, strongly secured, but
   influenced as to rating by the lesser financial power of the enterprise and
   more local type of market.

   A-Bonds rated A are considered to be investment grade and of high credit
   quality. The obligor's ability to pay interest and repay principal is
   considered to be strong, but may be more vulnerable to adverse changes in
   economic conditions and circumstances than bonds with higher ratings.

   BBB-Bonds rated BBB are considered to be investment grade and of satisfactory
   credit quality. The obligor's ability to pay interest and repay principal is
   considered to be adequate. Adverse changes in economic conditions and
   circumstances, however, are more likely to have adverse impact on these
   bonds, and therefore impair timely payment. The likelihood that the ratings
   of these bonds will fall below investment grade is higher than for bonds with
   higher ratings.

   BB, B, CCC, CC, and C-Bonds rated BB, B, CCC, CC, and C are regarded on
   balance as predominantly speculative with respect to the issuer's capacity to
   pay interest and repay principal in accordance with the terms of the
   obligation for bond issues not in default. BB indicates the lowest degree of
   speculation and C the highest degree of speculation. The rating takes into
   consideration special features of the issue, its relationship to other
   obligations of the issuer, and the current and prospective financial
   condition and operating performance of the issuer.


                                       91