Fellow Shareholders
Before we review the financial markets and your Fund's performance, we want
to mention that you have received two consecutive annual reports because
your Fund's fiscal year-end was recently changed from February 28 to May
31.
Market Environment
Bond funds remained under pressure during the quarter ended May 31, as the
Federal Reserve continued to tighten and interest rates rose across the
board. Prices of mortgage-backed securities fell less than corporate and
Treasury bonds, however, due to a marked slowdown in mortgage prepayments.
An acceleration in economic growth has been evident since mid-1993
when the economy began to shake off previous handicaps: the sharp decline
in defense spending, the burden of debt accumulated during the 1980s by
households, and weak growth overseas. These problems have not gone away,
but the economy is achieving reasonably good growth on the strength of
solid consumer spending and robust business spending on fixed equipment.
Since the highly accommodative monetary policy of 1992 and 1993 has
clearly borne fruit, the Fed began dismantling it in early February. The
federal funds rate (the rate banks charge each other for overnight loans)
was raised in a series of steps from 3% to 4.25% to achieve what the Fed
calls a "neutral" monetary policy, neither restrictive nor stimulative.
Money market yields rose with the federal funds rate, climbing 100 to 150
basis points over the last six months. Intermediate-and long-term yields
rose as well, with increases ranging from 125 to as much as 180 basis
points for the two-year Treasury note. The magnified response of
intermediate yields reflected the expectation that the Fed
would tighten considerably further over the next year or two.
The interest rate increases since last fall, shown vividly in the
chart, have reversed the high prepayment rates for virtually all mortgage
coupons. With mortgage rates up 1 1/2 percentage points from their lows of
last September, we have entered a period of subdued refinancing activity,
the opposite environment of the spring and summer of last year. The huge
flow of mortgages created to finance purchases of new homes, as well as
those resulting from refinancing, have altered the structure of the
mortgage market. The percentage of the market represented by mortgages with
coupons of 8% or less has risen from about 5% to 30% over the course of a
year. Conversely, as older, higher-coupon mortgages have been paid down or
refinanced, their share of the overall market has diminished.
Chart 1: Yield Comparison (see appendix)
We now have a more typical mortgage market, with a significant number
of discount coupons of 8% and lower, where a below-market rate implies a
price below par for the mortgage-backed security. These securities
actually benefit from scheduled and unscheduled principal payments, as an
investment at a discount price is repaid at par, creating a capital gain.
In the premium-coupon sector of the market, represented by coupons of 9%
and higher, prepayments remain a negative influence on performance because
principal prepayments at par result in a capital loss for investors who had
paid a price over par. The current coupon issues, bonds trading around par,
are those with 8% and 8 1/2% coupons.
Performance Review
Decreases in the Fund's share price both for the three- and 12- month
periods were only partially offset by current income, resulting in negative
overall returns. Price declines were most severe over the past three months
and eliminated the positive results recorded during the previous three
quarters. Nevertheless, with a higher level of interest rates, particularly
mortgage rates, the Fund's dividend has begun to rise, which, in turn, will
boost returns when the share price stabilizes.
Performance Comparison
Periods Ended 5/31/94
3 Months 12 Months
GNMA Fund -3.03% -0.74%
Lipper GNMA Fund Average -3.06 -0.62
Strategy
Our portfolio decisions continued to emphasize protection of principal and
the level of income, while minimizing exposure to prepayments and interest
rate risk. The latter has become more important because of the new
composition of the GNMA market just reviewed. Because of the large amounts
of lower-coupon, discount mortgages now in the market, the interest rate
sensitivity of the average mortgage investment is substantially higher. The
older, higher-coupon mortgages have lower interest rate sensitivity (and
shorter duration) because more of the original investment is "recaptured"
in the form of income and higher prepayments in the investment's early
years. Discount-coupon mortgages have both smaller income streams and lower
principal payments (and longer duration); the longer time for receiving
these payments increases their price response to interest rate changes.
The sharp reduction in prepayments across all coupons has allowed us
to keep many of our older, higher-coupon holdings in order to maintain
dividend income for shareholders. We have also invested in new,
lower-coupon securities priced at a slight discount, which provide an
attractive yield with little or no exposure to principal prepayments.
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.
Chart 2: GNMA Holdings by Coupon (see appendix)
As our interest rate sensitivity has increased with the addition of
lower-coupon investments, we decreased our holdings of long-term Treasury
bonds which had ranged between 8% and 14% of net assets last fall. We held
these bonds to capture price appreciation as rates fell. As the changing
interest rate environment thwarted this purpose, we pared this position to
about 5% of assets at quarter-end.
The decrease in the Treasury position is also consistent with our
outlook for better performance by mortgage securities as prepayments become
less of a current or potential drag.
Outlook
The rise in interest rates along with higher taxes should dampen the pace
of economic growth during the balance of the year. However, consumer
sentiment has been buoyed by the falling unemployment rate and gains in
personal income, and interest rates are still relatively low compared with
the 1980s. Thus, any slowdown should be gradual. If economic growth is
around a 3% rate in the second half, the Federal Reserve will likely
tighten monetary policy a bit further before the year is out. The magnified
response of note and bond yields to the initial phase of Fed tightening is
probably over, judging from the reaction of bond yields to the tightening
in May. A flattening of the yield curve with short-term rates rising more
than long term is typical of this phase of the interest rate cycle.
Nevertheless, bond investors are highly sensitive to signs of inflation,
and bond markets will remain volatile.
The relative stability we foresee for intermediate-term yields should
be favorable for GNMA security returns in the coming months. Prepayments
are low, coupon levels fairly high, and the combination of rising income
and lower price volatility should boost returns.
Respectfully submitted,
(signature)
Peter Van Dyke
President and Chairman of the
Investment Advisory Committee
June 20, 1994
Statistical Highlights
T. Rowe Price GNMA Fund / May 31, 1994
Key Statistics
Dividend Yield<F1> Periods Ended 5/31/94
3 Months 7.28%
12 Months 7.16
Dividend Per Share
3 Months $0.17
12 Months 0.67
Change in Per-Share Value
3 Months (From $9.60 to $9.14) -$0.46
12 Months (From $9.87 to $9.14) -0.73
<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.
Maturity Diversification<F1>
Percent of Net Assets
Range 5/31/93 2/28/94 5/31/94
Short-Term (0 to 1 Year) 4% 0% -5%
Short Intermediate-
Term (1+ to 5 Years) 53 52 53
Long Intermediate-
Term (5+ to 10 Years) 40 29 35
Long-Term (Over
10 Years) 3 19 17
Weighted Average
Maturity (Years) 5.3 7.4 6.3
Weighted Average
Effective Duration (Years) 2.9 4.5 4.4
<F1>Based on prepayment-adjusted life of GNMA securities.
Quality Diversification
Percent of Net Assets
TRPA Quality Rating<F1> 5/31/93 2/28/94 5/31/94
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
5/31/93 2/28/94 5/31/94
GNMA Securities 92% 89% 99%
U.S. Treasury Securities 7 10 9
Other Government Agency Securities 1 1 1
Other Assets Less Liabilities 0 0 -9
Chart 3: Performance Comparison (see appendix)
Fiscal_Year Performance
Periods Ended 5/31/94
Since
Inception
1 Year 5 Years<F1> (11/26/85)<F1>
-0.74% 8.41% 7.88%
<F1>Average annual compound total return
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
<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 Distri- Dividends and Capital Gains Total
Ended Value Dividends butions<F2> Reinvested Reinvested<F2> Return
<S> <C> <C> <C> <C> <C> <C>
2/28/86<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
5/31/94<F3> 9.14 0.17 19.04 19.08 -3.03
Total $7.06 $0.02
<FN>
<F1> From inception 11/26/85 to 2/28/86.
<F2> Includes long-term capital gain of $0.02 on 3/31/87.
<F3> Fiscal year-end changed from February 28 to May 31; figures are for three months from
3/1/94-5/31/94.
</FN>
</TABLE>
Statement of Net Assets (Amounts in thousands)
T. Rowe Price GNMA Fund/May 31, 1994
U.S. Government Guaranteed Obligations _ 100.2%
Face Amount Value
Federal Housing Auth., 9.95%, 10/1/32 $ 4,995 $ 5,115
Government National Mortgage Assn., I, 6.50%,
7/15/23 - 4/15/24 38,862 35,049
7.00%, 4/15/17 - 11/15/23 102,791 96,211
7.50%, 10/15/16 - 8/15/23 105,989 102,516
8.00%, 3/15/14 - 5/15/24 109,920 109,518
8.50%, 12/15/04 - 7/15/21 49,266 50,299
9.00%, 4/15/16 - 7/15/23 94,784 98,533
9.50%, 6/15/09 - 11/15/22 75,329 79,613
10.00%, 11/15/09 - 8/15/21 35,740 38,287
10.50%, 1/15/13 - 11/15/21 9,349 10,237
11.00%, 3/15/10 - 6/15/19 1,775 2,007
11.50%, 6/15/10 - 4/15/19 3,875 4,442
12.00%, 12/15/10 - 10/15/15 17,352 20,069
12.50%, 4/15/10 - 7/15/15 4,377 5,099
13.00%, 1/15/11 - 8/15/15 2,216 2,593
13.50%, 5/15/10 - 2/15/15 2,757 3,239
II, 8.00%, 4/20/22 3,933 3,883
8.50%, 4/20/16 - 2/20/23 35,499 35,768
9.50%, 2/20/16 - 7/20/22 11,346 11,804
10.00%, 9/20/16 - 8/20/21 2,962 3,119
11.00%, 11/20/15 - 9/20/20 4,322 4,779
11.50%, 12/20/13 - 7/20/20 2,832 3,176
12.50%, 10/20/13 - 1/20/16 408 465
13.00%, 10/20/13 - 9/20/15 1,612 1,846
Graduated Payment Mortgage, I, 8.75%, 6/15/17-6/15/2 1,952 1,972
9.00%, 5/15/09 - 3/15/14 365 370
9.25%, 5/15/16 - 8/15/21 12,253 12,414
9.50%, 6/15 - 11/15/09 3,931 4,038
9.75%, 4/15/16 - 9/15/21 16,326 16,769
10.75%, 1/15/16 - 7/15/19 4,162 4,459
12.00%, 10/15/10 - 2/15/13 756 849
12.25%, 9/15/13 - 5/15/15 1,007 1,135
12.50%, 4/15/10 - 1/15/13 1,407 1,588
12.75%, 10/15/13 - 5/15/15 976 1,112
II, 9.75%, 12/20/20 - 7/20/21 751 766
12.25%, 1/20/14 - 12/20/15 855 957
12.75%, 10/20/13 - 7/20/15 762 863
Project Loan, I, 9.25%, 10/15/23 9,980 10,353
10.00%, 2/15/30 10,938 11,599
10.75%, 3/15/26 6,186 6,712
Total U.S. Government Guaranteed Obligations
(Cost - $813,096) 803,623
U.S. Government Obligations - 9.0%
Face Amount Value
U.S. Treasury Bonds, 6.25%, 8/15/23 $10,000 $8,594
7.125%, 2/15/23 21,000 20,019
U.S. Treasury Notes, 5.875%, 5/15/95 30,600 30,734
U.S. Treasury Stripped Cert., Zero Coupon, 8/15/10 45,800 13,211
Total U.S. Government Obligations (Cost - $75,102) 72,558
Total Investments in Securities-109.2% (Cost - $888,198) 876,181
Payable for Investments Purchased - (13.3)% (106,882)
Other Assets Less Liabilities - 4.1% 33,005
Net Assets Consisting of:
Accumulated net investment income-
net of distributions 9
Accumulated realized gains/losses-
net of distributions (37,345)
Unrealized depreciaton of investments (12,017)
Paid-in-capital applicable to 87,770,354 no par
value shares of beneficial interest outstanding;
unlimited number of shares authorized 851,657
Net Assets - 100.0% $802,304
Net Asset Value Per Share $9.14
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price GNMA Fund
Three
Months Ended Year Ended
May 31, 1994<F1> Feb. 28, 1994
Amounts in Thousands
INVESTMENT INCOME
Interest income $16,707 $71,508
Expenses
Investment management fees 1,034 4,626
Shareholder servicing fees & expenses 376 1,773
Custodian and accounting fees & expenses 121 520
Prospectus & shareholder reports 17 86
Legal & auditing fees 16 42
Registration fees & expenses 13 74
Trustees' fees & expenses 4 19
Miscellaneous 6 23
Total expenses 1,587 7,163
Net investment income 15,120 64,345
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) (15,465) 2,925
Change in unrealized appreciation or depreciation (26,398) (32,931)
Net loss on investments (41,863) (30,006)
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $(26,743) $34,339
<F1> The Fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price GNMA Fund
Three
Months Ended Year Ended
May 31, Feb. 28, Feb. 28,
1994<F1> 1994 1993
Amounts in Thousands
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $15,120 $64,345 $62,367
Net realized gain (loss) on investments (15,465) 2,925 (1,844)
Change in unrealized appreciation
or depreciation of investments (26,398) (32,931) 13,295
Increase (decrease) in net assets
from operations (26,743) 34,339 73,818
Distributions to shareholders
Net investment income (15,111) (64,288) (62,455)
Capital share transactions1
Sold 40,427 274,783 377,519
Distributions reinvested 11,990 55,910 45,634
Redeemed (91,650) (331,125) (235,993)
Increase (decrease) in net assets
from capital share transactions (39,233) (432) 187,160
Total increase (decrease) (81,087) (30,381) 198,523
NET ASSETS
Beginning of period 883,391 913,772 715,249
End of period $802,304 $883,391 $913,772
1 Share transactions
Sold 4,344 shs. 27,861 shs.38,366 shs.
Distributions reinvested 1,299 5,689 4,645
Redeemed (9,853) (33,688) (23,985)
Increase (decrease) in shares
outstanding (4,210) shs. (138) shs.19,026 shs.
<F1> The Fund's fiscal year-end was changed to May 31.
Notes to Financial Statements
T. Rowe Price GNMA Fund / May 31, 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. Effective March 1, 1994, the fiscal year-end of the Fund changed
from February 28 to May 31.
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.
Note 2 - Financial Instruments
As a part of its investment program, the Fund engages in the following
activities, the nature and risk of which are set forth more fully in the
Fund's Prospectus and Statement of Additional Information.
A) Securities Lending - To earn additional income, the Fund lends its
securities to approved brokers. At May 31, 1994, the market value of
securities on loan was $27,597,000 for which the Fund was fully
collateralized by cash. Although the risk is mitigated by the collateral,
the Fund could experience a delay in recovering its securities and possibly
experience a capital loss if the borrower fails to return them.
B) Other - Purchases and sales of U.S. Government securities, other than
short-term, aggregated $327,901,000 and $322,661,000, respectively, for the
three months ended May 31, 1994. Purchases and sales of U. S. Government
securities, other than short-term, for the year ended February 28, 1994,
aggregated $859,269,000 and $856,530,000, respectively.
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 $34,020,000 at May 31,
1994, which expire in 1995 through 2002.
At May 31, 1994, the aggregate cost of investments for federal income
tax and financial reporting purposes was $888,198,000 and net unrealized
depreciation aggregated $12,017,000, of which $11,466,000 related to
appreciated investments and $23,483,000 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 May
31, 1994, and for the three months then ended was 0.34%. The 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
three months ended May 31, 1994, and the year ended February 28, 1994, the
Fund incurred fees totalling approximately $345,000 and $1,589,000,
respectively, for these services provided by related parties. At May 31,
1994, investment management and service fees payable were $518,000.
<TABLE>
<CAPTION>
Financial Highlights
T. Rowe Price GNMA Fund
For a share outstanding throughout each period
Three Months
Ended
May 31, Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994<F1> 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.60 $9.92 $9.79 $9.47 $9.16 $8.93
Investment Activities
Net investment income 0.17 0.68 0.75 0.80 0.83 0.85
Net realized and unrealized gain (loss) (0.46) (0.32) 0.13 0.32 0.31 0.23
Total from Investment Activities (0.29) 0.36 0.88 1.12 1.14 1.08
Distributions
Net investment income (0.17) (0.68) (0.75) (0.80) (0.83) (0.85)
NET ASSET VALUE, END OF PERIOD $9.14 $9.60 $9.92 $9.79 $9.47 $9.16
RATIOS/SUPPLEMENTAL DATA
Total Return (3.03)% 3.71% 9.36% 12.28% 13.02% 12.41%
Ratio of Expenses to Average Net Assets 0.76%<F2> 0.77% 0.79% 0.86% 0.85% 0.90%
Ratio of Net Investment Income
to Average Net Assets 7.24%<F2> 6.93% 7.65% 8.25% 8.94% 9.19%
Portfolio Turnover Rate 151.8%<F2> 92.5% 94.2% 66.0% 91.8% 170.8%
Net Assets, End of Period (in thousands) $802,304 $883,391 $913,722 $715,249 $468,969 $386,193
<FN>
<F1> The Fund's fiscal year-end was changed to May 31.
<F2> Annualized.
</FN>
</TABLE>
Report of Independent Accountants
To the Shareholders and 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 May 31, 1994, the results of its
operations, the changes in its net assets and the selected per share data
and information for each of the fiscal periods presented 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 May 31, 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
June 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
Equity Index
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.
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;
lets you buy, sell, and exchange shares among identically registered
accounts and move assets between your bank and fund accounts.
Shareholder Service Representatives are available from 8:00 a.m. to 10:00
p.m., Monday- Friday, and Saturday and Sunday 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 the Current Coupon GNMA and the 10-Year
Treasury Note from 5/31/93 to 5/31/94..
Chart 2
GNMA Holdings by Coupon
A bar graph illustrates the percentages of GNMA holdings (as of 5/31/93 and
5/31/94) in each of seven coupon ranges (from 6% through 12%)
Chart 3
Performance Comparison
A line graph compares the 5/31/94 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 5/31/94, the Fund investment would have been worth $19396, and
Salomon GNMA Index investment would have been worth $21860.
