Fellow Shareholders
Fixed-income markets and your Fund posted weak results for the three months
ended February 28, as bond investors responded unfavorably to the
economy's fourth quarter surge and the increase in the federal funds rate
in early February.
Market Environment
The swing in the economy's thrust reverberated through the credit markets.
The combination of perceived weakness in the economy through the autumn of
1993 and the Federal Reserve's aggressively easy monetary policy encouraged
a substantial decline in note and bond yields. For example, between the end
of February 1993 and mid-October, the yield on the Treasury's 30-year bond
dropped more than one full percentage point, reaching a low of 5.78%.
However, as it became increasingly apparent late last year that the economy
was entering a new phase of stronger growth, interest rates began to rise.
In early February, the movement toward higher rates was accelerated by the
Fed's dramatic announcement of a tightening. Short- and intermediate-term
interest rates ended the Fund's fiscal year 30 to 85 basis points higher
than at the start, though long-term Treasury bond yields remained a bit
lower.
The chart shows the general decline in rates over the first eight
months, followed by the subsequent two-stage rise.
While mortgage-backed securities benefited to some extent from the
rate decline, their appreciation potential was limited by high prepayments
in the spring and summer, as mortgage rates reached successive lows. As the
gap widens between the coupon of an existing mortgage-backed bond and new
mortgage rates, the mortgage bond becomes more susceptible to early
prepayment. With rates falling for much of 1993, the prices of mortgage
securities were rising above par almost as soon as they were issued. Since
mortgages are paid off at par, the higher prepayments caused losses to
investors.
Chart 1: Yield Comparison (see appendix)
The picture changed in October of 1993 when interest rates reached
their lows. As rates rose in the fourth quarter and refinancing activity
showed signs of slowing, mortgage-backed securities performed better than
comparable Treasury bonds.
Performance Review
The relentless tide of prepayments during most of 1993 resulted in
lackluster returns for mortgage-backed securities. Nevertheless, your
Fund's drop in share price was more than offset by income to provide
positive but modest gains for the three- and 12-month periods. The dividend
distribution of $.68 for the 12 months was a bit below the previous year's
$.75 due to the generally lower level of rates.
Performance Comparison
Periods Ended 2/28/94
3 Months 12 Months
GNMA Fund 0.45% 3.71%
Lipper GNMA Fund Average 0.77 3.78
Strategy
Our portfolio decisions have centered on three main concerns: minimizing
the effects of prepayments on portfolio holdings; maintaining the level of
income close to current levels; and, more recently, protecting the Fund
from excessive principal erosion in the face of rising rates.
We pursued two strategies for reducing the negative effects of
prepayments on the portfolio. The first was to underweight GNMA holdings in
the coupon ranges experiencing the highest refinancings, 81/2% and 9%. The
second was to adjust the Fund's overall interest rate sensitivity through
changes in our investments in long maturity Treasury bonds.
By holding older, high-coupon mortgages in the portfolio, we have been
able to modify the downward pressure on income that resulted from the
prolonged rate decline. The portfolio weighting of these securities has
gradually been decreased by regularly scheduled principal payments and
modest prepayments, but they still represent a significant holding.
Chart 2: GNMA Holdings by Coupon (see appendix)
The chart shows that the average coupon of the Fund's mortgage
holdings continued to drop as we added new positions in 61/2%, 7%, and
71/2% pools. This shift benefited the portfolio for two reasons: first,
prices of new, lower-coupon mortgages were more responsive to falling
interest rates than seasoned mortgages; and second, these lower-coupon
mortgages were (and are) less vulnerable to prepayments.
Both to capture appreciation generated by declining long-term rates
during much of 1993 and to position the Fund for a potential future
environment where short-term rates rise more than long-term, we had
maintained a sizable Treasury position at 23% of net assets going into the
Fund's fourth quarter. This was reduced to 10% by the end of the fiscal
year as rates climbed across the board. With the drop in prepayments, we
redeployed these assets into more defensive, intermediate-coupon
mortgages.
Outlook
Fed Chairman Alan Greenspan has made clear his intention to raise
short-term interest rates from what he termed "abnormally low" levels to
contain inflation as the economy approaches labor and capital constraints
over the next year or two. As the Fed implements its new policy during
1994, short-term interest rates will climb. The initial reaction of bond
markets to the Fed's tightening was decidedly negative, with yields
climbing rapidly. Inflation currently does not look threatening, and
insofar as the Fed's strategy works, bond investors should be reassured by
the Fed's anti-inflation stance. However, commodity prices are moving up,
labor markets could tighten later this year or early next, and the global
economy is strengthening. Against this background, the bond market's
reaction is understandable.
On balance, we look for a modest upward trend in bond yields from
current levels, but we expect the path to be choppy, even turbulent, in
1994 as inflation expectations wax and wane. In this environment, the
mortgage refinancing rush should continue to abate, enabling
mortgage-backed securities, with their higher income, to achieve
competitive returns.
Respectfully submitted,
(signature)
Peter Van Dyke
President and Chairman of the Investment Advisory Committee
March 21, 1994
Statistical Highlights
T. Rowe Price GNMA Fund / February 28, 1994
Key Statistics
Dividend Yield<F1> Periods Ended 2/28/94
3 Months 6.89%
12 Months 7.15
Dividend Per Share
3 Months $0.16
12 Months 0.68
Change in Per-Share Value
3 Months (From $9.72 to $9.60) -$0.12
12 Months (From $9.92 to $9.60) -0.32
<F1>Dividends earned and reinvested for the periods indicated are
annualized and divided by the average daily net asset values per share for
the same period.
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
Maturity Diversification<F1>
Percent of Net Assets
Range 2/28/93 11/30/93 2/28/94
Short-Term (0 to 1 Year) 1% 11% 0%
Short Intermediate-
Term (1+ to 5 Years) 37 46 52
Long Intermediate-
Term (5+ to 10 Years) 53 28 29
Long-Term (Over
10 Years) 9 15 19
Weighted Average
Maturity (Years) 6.4 6.7 7.4
Weighted Average
Effective Duration (Years) 3.8 3.9 4.5
<F1>Based on prepayment-adjusted life of GNMA securities.
Quality Diversification
Percent of Net Assets
TRPA Quality Rating<F1> 2/28/93 11/30/93 2/28/94
1 100% 100% 100%
2 0 0 0
3 0 0 0
4 0 0 0
Weighted Average 1.0 1.0 1.0
<F1>On a scale of 1 to 10, with Grade 1 representing highest quality.
Sector Diversification
Percent of Net Assets
2/28/93 11/30/93 2/28/94
GNMA Securities 92% 77% 89%
U.S. Treasury Securities 7 23 10
Other Government Agency Securities 1 1 1
Other Assets Less Liabilities 0 -1 0
Duration as a Guide to Interest Rate Risk
Starting with this report, we've added a new measure to the statistical
tables that more accurately defines a fund's interest rate sensitivity.
Unlike maturity, which indicates when the bond issuer must repay principal,
"duration" incorporates the cash flows of all interest and principal
payments over the life of the bond to reflect the recovery of your original
investment. Future payments are discounted to reflect their present value.
These payments are then multiplied by the number of years they will be
received to produce a value that is expressed in years, i.e., the duration.
Effective duration is an even better measure of a bond's sensitivity to
interest rate changes because it takes into account call features and
sinking fund payments which may shorten a bond's life.
You can multiply the duration by the potential change in interest
rates to estimate the change in principal value. For example, the price of
a bond or bond fund with a duration of five years would rise or fall
roughly 5% in price if rates fell or rose by one percentage point.
Chart 3: Fiscal Year Performance Comparison (see appendix)
Calendar_Year Performance
Periods Ended December 31, 1993
Average Annual
Compound Total-Return
1 Year 5 Years Since Inception (11/26/85)
6.15% 10.27% 8.74%
Fiscal_Year Performance
Periods Ended February 28, 1994
Average Annual
Compound Total-Return
1 Year 5 Years Since Inception (11/26/85)
3.71% 10.10% 8.54%
<TABLE>
<CAPTION>
Investment Record
T. Rowe Price GNMA Fund
The table below shows the investment record of one share of the T. Rowe
Price GNMA Fund, purchased at the initial offering price of $10.00. Over
this time, interest rates have been volatile. The results shown should not
be considered a representation of the dividend income or capital gain or
loss which may be realized from an investment made in the Fund today.
Fiscal Capital With With Dividends
Year Net Asset Income Gain Dividends and Capital Gains Total
Ended Value Dividends Distributions Reinvested Reinvested Return
<S> <C> <C> <C> <C> <C> <C>
1986<F1> $10.12 $0.26 $10.39 $10.39 3.89%
1987 10.27 0.90 11.51 11.51 10.82
1988 9.55 0.92 $0.02 11.78 11.80 2.49
1989 8.93 0.90 12.14 12.16 3.06
1990 9.16 0.85 13.64 13.67 12.41
1991 9.47 0.83 15.42 15.45 13.02
1992 9.79 0.80 17.31 17.35 12.28
1993 9.92 0.75 18.93 18.97 9.36
1994 9.60 0.68 19.63 19.67 3.71
Total $6.89 $0.02
<FN>
<F1>From inception 11/26/85 to 2/28/86.
</FN>
</TABLE>
Statement of Net Assets (Amounts in thousands)
T. Rowe Price GNMA Fund/February 28, 1994
U.S. Government Guaranteed Obligations _ 90.1%
Face Amount Value
Federal Housing Authority, 9.95%, 10/1/32 $4,998 $5,033
Government National Mortgage Assn.,
I, 6.00%,11/15-12/15/23 10,159 9,597
6.50%, 5/15/23 - 1/15/24 39,382 38,398
7.00%, 4/15/17 - 1/15/24 83,641 84,009
7.50%, 10/15/16 - 8/15/23 88,822 91,712
8.00%, 3/15/14 - 12/15/23 73,836 78,027
8.50%, 12/15/04 - 5/15/21 54,915 58,836
9.00%, 4/15/16 - 7/15/23 103,457 111,571
9.50%, 6/15/09 - 11/15/22 54,159 58,792
10.00%, 12/15/13 - 8/15/21 41,019 45,312
10.50%, 1/15/13 - 7/15/20 5,788 6,501
11.00%, 3/15/10 - 6/15/19 1,985 2,263
11.50%, 6/15/10 - 4/15/19 4,414 5,087
12.00%, 12/15/10 - 6/15/16 19,152 22,216
12.50%, 4/15/10 - 12/15/15 4,885 5,715
13.00%, 1/15/11 - 8/15/15 2,478 2,949
13.50%, 5/15/10 - 2/15/15 3,065 3,679
II, 8.00%, 4/20/22 4,368 4,553
8.50%, 4/20/16 - 2/20/23 40,541 42,644
9.50%, 2/20/16 - 7/20/22 13,669 14,558
10.00%, 7/20/18 - 3/20/21 3,610 3,915
11.00%, 1/20/16 - 9/20/20 3,768 4,201
11.50%, 12/20/13 - 7/20/20 3,351 3,779
12.50%, 10/20/13 - 1/20/16 482 552
13.00%, 10/20/13 - 9/20/15 1,922 2,240
Graduated Payment Mortgage,I,8.75%,6/15/17-6/15/22 2,281 2,367
9.00%, 5/15/09 - 3/15/14 1,012 1,049
9.25%, 5/15/16 - 8/15/21 14,966 15,559
9.50%, 6/15/09 - 11/15/09 4,424 4,644
9.75%, 4/15/16 - 9/15/21 20,445 21,461
10.75%, 1/15/16 - 7/15/19 5,680 6,202
12.00%, 10/15/10 - 2/15/13 1,123 1,265
12.25%, 9/15/13 - 5/15/15 1,169 1,323
12.50%, 4/15/10 - 1/15/13 1,622 1,837
12.75%, 10/15/13 - 5/15/15 1,450 1,660
II, 9.75%, 12/20/20 - 7/20/21 939 979
12.25%, 1/20/14 - 12/20/15 962 1,081
12.75%, 10/20/13 - 7/20/15 799 909
Project Loan, I, 9.25%, 10/15/23 9,995 10,683
10.00%, 2/15/30 10,945 11,951
10.75%, 3/15/26 6,192 6,892
Total U.S. Government Guaranteed Obligations
(Cost - $774,651) 796,001
U.S. Government Obligations - 9.7%
U.S. Treasury Bonds, 6.25%, 8/15/23 80,000 75,687
U.S. Treasury Stripped Cert., Zero Coupon,
2/15/09-8/18/10 29,900 10,127
Total U.S. Government Obligations (Cost - $92,783) 85,814
Total Investments in Securities - 99.8% (Cost - $867,434) 881,815
Other Assets Less Liabilities - 0.2% 1,576
Net Assets Consisting of:
Accumulated realized gains/losses-net of distributions (21,880)
Unrealized appreciaton of investments 14,381
Paid-in-capital applicable to 91,980,143 no
par value shares of beneficial interest
outstanding; unlimited number of shares authorized 890,890
Net Assets - 100.0% $883,391
Net Asset Value Per Share $9.60
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price GNMA Fund / Year Ended February 28, 1994
Amounts in Thousands
INVESTMENT INCOME
Interest income $71,508
Expenses
Investment management fees $4,626
Shareholder servicing fees & expenses 1,773
Custodian and accounting fees & expenses 520
Prospectus & shareholder reports 86
Registration fees & expenses 74
Legal & auditing fees 42
Trustees' fees & expenses 19
Miscellaneous 23
Total expenses 7,163
Net investment income 64,345
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 2,925
Change in unrealized appreciation or depreciation (32,931)
Net loss on investments (30,006)
INCREASE IN NET ASSETS FROM OPERATIONS $34,339
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price GNMA Fund
Year Ended Year Ended
Feb. 28, 1994 Feb. 28, 1993
Amounts in Thousands
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 64,345 $ 62,367
Net realized gain (loss) on investments 2,925 (1,844)
Change in unrealized appreciation or depreciation
of investments (32,931) 13,295
Increase in net assets from operations 34,339 73,818
Distributions to shareholders
Net investment income (64,288) (62,455)
Capital share transactions
Sold 27,861 and 38,366 shares 274,783 377,519
Distributions reinvested of 5,689 and
4,645 shares 55,910 45,634
Redeemed 33,688 and 23,985 shares (331,125) (235,993)
Increase (decrease) in net assets from
capital share transactions (432) 187,160
Total increase (decrease) (30,381) 198,523
NET ASSETS
Beginning of year 913,772 715,249
End of year $883,391 $913,772
Notes to Financial Statements
T. Rowe Price GNMA Fund / February 28, 1994
Note 1 - Significant Accounting Policies
T. Rowe Price GNMA Fund (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment
company.
A) Security valuation - Debt securities are generally traded in the
over-the-counter market. Investments in securities with remaining
maturities of one year or more are stated at fair value as 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 remaining maturities less than
one year are stated at fair value which is determined by using a matrix
system that establishes a value for each security based on money market
yields.
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 Trustees.
B) Premiums and Discounts - Premiums and discounts on debt securities are
amortized for both financial and tax reporting purposes.
C) Other - Income and expenses are recorded on the accrual basis.
Investment transactions are accounted for on the trade date. Realized gains
and losses are reported on an identified cost basis. Distributions to
shareholders are recorded by the Fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting
principles.
D) Accounting Change - Effective as of the beginning of the year, the Fund
adopted a recently issued accounting standard related to shareholder
distributions. This change resulted in a reclassification to
paid-in-capital of permanent differences between tax and financial
reporting of net investment income and net realized gains/losses. The
cumulative effect of this change as of February 28, 1993, decreased
Accumulated net investment income-net of distributions by $5,434,000
increased Accumulated net realized gains/losses-net of distributions by
$6,076,000 and decreased Paid-in-capital by $642,000. The results of
operations, shareholder distributions and net assets were not affected by
this change.
Note 2 - Financial Instruments
As a part of its investment program, the Fund loans its portfolio
securities to brokers. The nature and risk of these loans and the reasons
for using them are set forth more fully in the Fund's Prospectus and
Statement of Additional Information. Although risk is mitigated by
obtaining collateral, the Fund could experience a delay in recovering its
securities and possibly incur a capital loss if the borrower fails to
return them. At February 28, 1994, the market value of securities on loan
to brokers was $74,515,000 for which the Fund has collateral of
$78,761,000, consisting of cash and U.S. Treasury securities.
Purchases and sales of U.S. Government securities, other than
short-term, aggregated $859,269,000 and $856,530,000, respectively, for the
year ended February 28, 1994.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the Fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income. The Fund has unused realized capital loss carryforwards
for federal income tax purposes of $20,209,000 at February 28, 1994, which
expire in 1996 through 2000.
At February 28, 1994, the aggregate cost of investments for federal
income tax and financial reporting purposes was $867,434,000 and net
unrealized appreciation aggregated $14,381,000, of which $25,939,000
related to appreciated investments and $11,558,000 to depreciated
investments.
Note 4 - Related Party Transactions
The investment management agreement between the Fund and T. Rowe Price
Associates, Inc. (the Manager) provides for an annual investment management
fee, computed daily and paid monthly, consisting of an Individual Fund Fee
equal to 0.15% of average daily net assets and a Group Fee. The Group Fee
is based on the combined assets of certain mutual funds sponsored by the
Manager or Rowe Price-Fleming International, Inc. (the Group). The Group
Fee rate ranges from 0.48% for the first $1 billion of assets to 0.31% for
assets in excess of $34 billion. The effective annual Group Fee rate at
February 28, 1994, was 0.34%, and for the year then ended was 0.35%. The
Fund pays a pro rata portion of the Group Fee based on the ratio of the
Fund's net assets to those of the Group.
T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services, Inc.
(RPS) are wholly owned subsidiaries of the Manager. TRPS provides transfer
and dividend disbursing agent functions and shareholder services for all
accounts. RPS provides subaccounting and recordkeeping services for certain
retirement accounts invested in the Fund. The Manager, under a separate
agreement, calculates the daily share price and maintains the financial
records of the Fund. The Fund is one of several T. Rowe Price mutual funds
(the Underlying Funds) in which the T. Rowe Price Spectrum Income Fund
(Spectrum) invests. In accordance with an Agreement between Spectrum, the
Underlying Funds, the Manager and TRPS, expenses from the operation of
Spectrum are borne by the Underlying Funds based on each Underlying Fund's
proportionate share of assets owned by Spectrum. For the year ended
February 28, 1994, the Fund incurred fees totalling approximately
$1,589,000 for these services provided by related parties. At February 28,
1994, investment management and service fees payable were $540,000.
<TABLE>
<CAPTION>
Financial Highlights
T. Rowe Price GNMA Fund
For a share outstanding throughout each year ended
Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $9.92 $9.79 $9.47 $9.16 $8.93
Investment Activities
Net investment income 0.68 0.75 0.80 0.83 0.85
Net realized and unrealized gain (loss) (0.32) 0.13 0.32 0.31 0.23
Total from Investment Activities 0.36 0.88 1.12 1.14 1.08
Distributions
Net investment income (0.68) (0.75) (0.80) (0.83) (0.85)
NET ASSET VALUE, END OF YEAR $9.60 $9.92 $9.79 $9.47 $9.16
RATIOS/SUPPLEMENTAL DATA
Total Return 3.71% 9.36% 12.28% 13.02% 12.41%
Ratio of Expenses to Average Net Assets 0.77% 0.79% 0.86% 0.85% 0.90%
Ratio of Net Investment Income
to Average Net Assets 6.93% 7.65% 8.25% 8.94% 9.19%
Portfolio Turnover Rate 92.5% 94.2% 66.0% 91.8% 170.8%
Net Assets, End of Year (in thousands) $883,391 $913,722 $715,249 $468,969 $386,193
Number of Shareholder Accounts, End of Year 41,000 43,000 37,000 30,000 29,000
</TABLE>
Report of Independent Accountants
To the Shareholders and Board of Trustees of
T. Rowe Price GNMA Fund
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the selected per
share data and information (which appears under the heading "Financial
Highlights") present fairly, in all material respects, the financial
position of T. Rowe Price GNMA Fund at February 28, 1994, the results of
its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the selected per share
data and information for each of the five years in the period then ended,
in conformity with generally accepted accounting principles. These
financial statements and selected per share data and information (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at February 28,
1994 by correspondence with custodians and brokers and, where appropriate,
the application of alternative auditing procedures for unsettled security
transactions, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Baltimore, Maryland
March 17, 1994
T. Rowe Price No-Load Mutual Funds
STABILITY
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
CONSERVATIVE INCOME
Adjustable Rate U.S. Government
Short-Term Bond
Short-Term Global Income
Summit Limited-Term Bond
U.S. Treasury Intermediate
Florida Insured Intermediate Tax-Free
Maryland Short-Term Tax-Free Bond
Summit Municipal Intermediate
Tax-Free Insured Intermediate Bond
Tax-Free Short-Intermediate
INCOME
Global Government Bond
GNMA
New Income
Spectrum Income
Summit GNMA
U.S. Treasury Long-Term
California Tax-Free Bond Georgia Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Tax-Free Income
Virginia Tax-Free Bond
AGGRESSIVE INCOME
High Yield
International Bond
Tax-Free High Yield
CONSERVATIVE GROWTH
Balanced Capital Appreciation Dividend Growth
Equity Income
Growth & Income
Spectrum Growth
Growth
Blue Chip Growth
European Stock
Growth Stock
International Stock
Japan Mid-Cap Growth
New Era
Small-Cap Value
AGGRESSIVE GROWTH
International Discovery
Latin America
New America Growth
New Asia
New Horizons OTC
Science & Technology
Call if you want to know about any T. Rowe Price fund. We'll send you a
prospectus with more complete information, including management fees and
other expenses. Read it carefully before you invest or send money.
Officers and Trustees
George J. Collins, Chairman
Peter Van Dyke, President
Robert P. Black, Trustee
Calvin W. Burnett, Trustee
Anthony W. Deering, Trustee
F. Pierce Linaweaver, Trustee
James S. Riepe, Vice President/Trustee
John Sagan, Trustee
John G. Schreiber, Trustee
Robert P. Campbell, Vice President
Henry H. Hopkins, Vice President
Veena A. Kutler, Vice President
Heather R. Landon, Vice President
James M. McDonald, Vice President
Edmund M. Notzon, Vice President
Charles P. Smith, Vice President
Lenora V. Hornung, Secretary
Carmen F. Deyesu, Treasurer
David S. Middleton, Controller
Shareholder Services
To help shareholders monitor their current investments and make decisions
that accurately reflect their financial goals, T. Rowe Price offers a wide
variety of information and services_at no extra cost.
Telephone Services
Access Your Account 24 Hours a Day by Calling 1-800-638-2587.
Tele*Access(R)_Gives you your account balance, date and amount of
your last transaction, latest dividend payment, and fund prices and yields.
Also, lets you purchase, exchange, or redeem shares.
Shareholder Service Representatives are available from 8:00 a.m. to 10:00
p.m., Monday- Friday, and Saturday from 9:00 a.m. to 5:00 p.m., E.T. Call
1-800-225-5132.
Shareholder Service Center_Call to exchange shares or move money
between
your bank and fund accounts.
Account Services
Checking_Write checks for $500 or more on any money market and most
bond fund accounts.
Automatic Investing_Build your account over time by investing
directly from your bank account or paycheck. A low, $50 minimum makes it
easy to get started.
Automatic Withdrawal_If you need money from your fund account on a
regular basis, you can establish scheduled, automatic redemptions.
Dividend and Capital Gains Payment
Options_Reinvest all or some of your distribu-tions or take them in cash.
We give you maximum flexibility and convenience.
Investment Information
Combined Statement_A comprehensive overview of your T. Rowe Price
accounts. The summary page gives your earnings by tax category, provides
total portfolio value, and lists your investments by type_stock, bond, and
money market. Detail pages itemize account transactions by fund.
Quarterly Shareholder Reports_Portfolio managers review the
performance of the funds in plain language and discuss T. Rowe Price's
economic outlook.
The T. Rowe Price Report_A quarterly newsletter with relevant
articles on market trends, personal financial planning, and T. Rowe Price's
economic perspective.
Insights_A library of information that includes reports on mutual
fund tax issues, investment strategies, and financial markets.
Detailed Investment Guides_Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Retirees Financial Guide, Retirement Planning Kit
(also available on disk for PC use) and Guide to Risk-Adjusted Performance
can help you determine and reach your investment goals.
Discount Brokerage
Trade stocks, bonds, options, and precious metals at substantial savings
over full-cost brokers.
Tele*Trade_Call this automated phone service after business hours to
place your orders.
Fax*Trade_Buy and sell by simply faxing your order.
Tele*Quote_Provides 24-hour access to stock and option quotes.
Money Fund Sweep Feature_Buy and sell securities and have your
"sweep" account automatically debited or credited. Dividend and interest
payments are credited daily.
If you have questions or would like to add a service to your account,
please call our Shareholder Service Center.
Appendix
Chart 1: Yield Comparison
A line graph compares the yields on theCurrent Coupon GNMA and the 10-Year
Treasury Note from 2/28/93 to 2/28/94.
Chart 2: GNMA Holdings by Coupon
A bar graph illusrates the percentages of GNMA holdings (as of 2/28/93 and
2/28/94) in each of seven coupon ranges (from 6% through 12%+).
Chart 3: Fiscal Year Performance Comparison
GNMA Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000
investment made in the GNMA Fund at its inception (11/26/85) and a similar
investment made concurrently in the Lipper GNMA Index and the Salomon GNMA
Index. At 2/28/94, the Fund investment would have worth $19672, the Lipper
Index investment would have been worth $20059, and Salomon GNMA Index
investment would have been worth $22478.
