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COVER: Now you don't have to choose between a comfortable income and a comfortable investment  REVEAL  INSIDE SPREAD

Client: T. Rowe Price mutual funds Company
Media: Statement Stuffer

COPY:


Headline:  Now you don't have to choose between a comfortable income and a comfortable investment

Reveal head:  Introducing T. Rowe Price Adjustable Rate U.S. Government Income Fund
Top quality government securities give you higher income than most short-term investments ... and limit your risk

Body Copy: 

Low-volatity, and interest rates that adjust to keep pace with the economy

With CD and bank rates at their lowest levels in over four years, many individuals are weighing their options: continue with safety and low income, or take on some investment risk to get higher yields.

The T. Rowe Price Adjustable Rate U.S. Government Fund offers a new way to limit risk while seeking higher income.

It invests mainly in adjustable rate mortgage (ARM) securities issued by the U.S. Government and its agencies -- GNMAs ("Ginnie Maes"), FNMAs ("Fannie Maes"), and FHLMCs ("Freddie Macs"). These securities offer high-quality credit protection and some protection from interest rate risk.

Until recently, you had to pay sales charges to invest in ARM securities. Now T. Rowe Price introduces this Fund with no sales charges of any kind.

Higher income and high credit quality

Yields in this Fund should appeal to income investors, because ARM rates are set above short-term rates--usually 1.5-2% higher than a specific short-term index. This extra margin means the Fund can offer higher income than most short-term investments.

The ARM securities in which the Fund invests are among those with the highest credit ratings. Securities issued by GNMA are backed by the full faith and credit of the U.S. Government for the timely payment of principal and interest.* Fannie Maes and Freddie Macs do not have the same full guarantee, but their close relationship with the U.S. Government means they carry only minimal credit risks.

Benefits and risks you should understand

This new approach offers both attractive benefits, and special risks. Like all bond funds, the Fund is subject to some interest rate risk. When interest rates rise, the share price may fall. However, unlike fixed rate mortgages, ARMs adjust to changing rates every six months to a year. This keeps the principal value of the mortgage securities relatively stable, and helps lessen the Fundís share price changes.

Of course, this Fund is not a money fund, it is not guaranteed like bank products, and its yield and share price will vary. Our information kit fully explains its risks, and the effects of the "caps" and "floors" built into the reset feature. We encourage you to read everything carefully before you invest.

To help reduce risks as much as possible, our Fund managers actively manage the Fund portfolio and diversify by investing across different geographic regions, reset dates, and types of ARMS. As a result, the Fundís yields should be higher than money markets and short-term Treasury investments, while fluctuation should be less than with bond funds and long-term Treasuries.

Free planning information

Since this is a new type of fund for many investors, weíve written an informative guide, Investing In Mortgage Securities, to give you a better understanding of the risks and rewards of investing in ARM securities. It can help you decide what place this new Fund could have in your portfolio. Call for your free copy, or return this entire brochure.

As with all our funds, this Fund is 100% no load--no fees to purchase, exchange, or redeem shares, and no 12b-1 charges. That benefits you by increasing the Fundís investment return. $2,500 minimum investment ($1,000 for IRAs).

Call 24 hours
for a free guide Investing In Mortgage Securities 1-800-000-0000

Send me a free guide, Investing In Mortgage Securities, and a prospectus with more complete information, including management fees and other charges and expenses. I will read the prospectus carefully before I invest or send money.

How investing in adjustable rate mortgage securities can benefit you
How ARM securities work
Direct benefits to you
Interest rate marginARM rates are set above a specific short term index, usually 1.5-2% higher. Higher income You should enjoy higher rates than short-term Treasuries or money markets pay.
Adjustable rate Unlike fixed rate mortgages, ARM rates are reset automatically, every 6 to 12 months, to reflect current interest rates. Low volatility The reset feature reduces your interest rate risk, so ARM securities generally provide greater stability of principal than fixed-rate mortgagesecurities.
U.S. Government or agency backing Each security is backed by the U.S. Government or one of its agencies for the timely payment of principal and interest on the individual securities owned by the Fund. The Fund itself is not guaranteed. High credit safety The credit quality of the Fundís holdings is among the highest available.



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