Annual Report
GNMA
Fund
May 31, 1997
T. Rowe Price
Report Highlights
o The Federal Reserve tightened monetary policy in March as
the economy developed momentum and unemployment fell below
5% for the first time in more than 20 years.
o Most high-quality bonds and the GNMA Fund generated only
modest returns during the six months ended May 31, 1997, as
interest rates rose from last November.
o Your fund's six-month return of 1.16% trailed the Lipper
average, but its 12-month performance of 8.46% surpassed
our peer group average.
o Fund exposure to lower-coupon GNMAs hindered results in the
latest reporting period but helped over the 12-month
period.
o Barring a miscalculation by the Fed, we expect economic
growth to moderate, providing a favorable environment for
bonds and the fund.
Fellow Shareholders
Most high-quality bonds and your fund posted only modest returns
during the six months ended May 31, 1997, as the economy
developed considerable momentum and the Federal Reserve
tightened monetary policy for the first time since 1995.
However, despite the strong economy and tight labor markets,
inflation remained subdued and interest rates rose only to their
levels of a year ago. Your fund's solid return for the past 12
months came primarily from coupon income, with a minor
contribution from capital appreciation.
MARKET ENVIRONMENT
The unemployment rate fell below 5%, its lowest level in more
than two decades. The Fed's objective in raising the key federal
funds rate a quarter-point in March was to avoid a repetition of
the tight labor markets and accelerating inflation of the late
1980s. From a trend rate of approximately 4%, inflation jumped
to 6% even before the rise in oil prices that accompanied Iraq's
invasion of Kuwait in 1990. The longer the Federal Reserve can
contain inflation around 3%, where it has been for most of the
1990s, the longer the current expansion can be expected to last.
Following the initial shock of the Fed tightening, stocks and
bonds gradually regained their equilibrium once investors
realized that inflation was still under control despite robust
economic growth in recent quarters.
Chart 1 - Interest Rate Levels line chart
The interest rate roller coaster of the past year produced a benign
prepayment environment. As the one-year Treasury yield ranged between 5.5%
and 6.0% and the 10-year yield between 6% and 7%, the interest rate
environment was not conducive to high refinancing activity. With existing
home sales low, prepayments related to relocations remained modest; they were
well below the sharply higher levels first seen in 1993 and again in 1995
when interest rates fell to the low end of the current range. The subdued
level of prepayments in recent months indicates that a majority of homeowners
already refinanced their mortgages when it was more advantageous to do so.
Chart 2 - Prepayment Rates line chart
When rates fall, mortgage-backed securities do not appreciate as much as
securities with no call or prepayment exposure; when rates rise, the lower
rate sensitivity of the mortgage sector cushions it against major price
declines. As rates have been trading within a fairly narrow range, the
relatively high coupons of GNMAs produced attractive returns for investors
over the past year.
PERFORMANCE REVIEW
Your fund provided a modest return during the six months ended May 31, 1997,
and a solid return primarily from coupon income over the past 12 months.
Performance Comparison chart
Periods Ended 5/31/97 6 Months 12 Months
__________________________________________________________
GNMA Fund 1.16% 8.46
%
Lipper GNMA Funds Average 1.45 8.24
Returns trailed the Lipper average for similar funds over the shorter period
but exceeded it for the year. Your fund's relatively high exposure to
lower-coupon GNMAs, in the form of securities and forward contracts, hindered
performance during the past six months when rates rose and helped it during
the first half when rates fell. (The liabilities for forward contracts are
reflected as Other Assets Less Liabilities in the Sector Diversification
table following this letter.)
STRATEGY
We reduced our holdings of long-term Treasury bonds in the trading range
environment that prevailed during the past few months. Treasuries increase
the portfolio's potential for price appreciation when interest rates fall,
but their returns are surpassed by GNMAs when rates move in a narrow range
because of the latter's higher yields. Fund exposure to long-term Treasuries
declined from a high of approximately 7% during the fiscal year to 2% on May
31. We replaced them primarily with higher-coupon mortgage securities.
Our investment strategy continued to emphasize protection of principal while
providing a relatively high level of income. The interest rate volatility of
the past two years prompted us to maintain a core portfolio of GNMAs with
various coupons while making periodic adjustments in peripheral holdings.
This strategy enabled us to produce steady income with what we consider to
be an appropriate level of portfolio sensitivity to changes in interest
rates.
The prospect is good for a continuation of subdued inflation and a return to
moderate economic growth.
All along, we have held on to many of our older, higher-coupon mortgages to
stabilize the dividend return while focusing new investments in lower-coupon
mortgage securities whenever interest rates declined. Many of our new
mortgage bond purchases were made in the forward market in anticipation of
interest and principal payments the fund will receive in future months. If
the level of income is not sufficient to take delivery in any particular
month, the forward contracts can then be rolled out to future months without
a negative impact on income.
OUTLOOK
Some additional tightening of monetary policy remains a possibility, as the
Fed attempts to dampen the blistering pace of the economy. The credit markets
could be roiled again by a higher federal funds rate, with interest rates
rising over the short term in anticipation of further rate hikes down the
road.
However, barring a serious miscalculation by the Federal Reserve, the
prospect is good for a continuation of subdued inflation and a return to
moderate economic growth. This should provide a favorable environment for the
fixed income markets over the long term. Fiscal policy in Washington will
also affect interest rate volatility. A possible balanced budget agreement,
however watered down, should help reduce downward pressure on bond prices.
We do not expect a surge in mortgage prepayments, which would occur only if
interest rates were to fall significantly from current levels. Therefore,
given the type of economic and fiscal environment we foresee, GNMA securities
should continue to provide attractive returns in the months ahead.
Thank you for investing with T. Rowe Price.
Respectfully submitted,
Peter Van Dyke
President and Chairman of the Investment Advisory Committee
June 20, 1997
T. Rowe Price GNMA Fund
Portfolio Highlights
Key statistics
11/30/96 5/31/97
___________________________________________________________
Price Per Share $ 9.52 $ 9.30
Dividends Per Share
For 6 months 0.32 0.33
For 12 months 0.66 0.65
Dividend Yield *
For 6 months 7.05% 7.11%
For 12 months 7.17 7.20
Weighted Average Maturity
(years)** 9.3 8.3
Weighted Average Effective
Duration (years) 5.0 4.9
Weighted Average Quality *** AAA AAA
* 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.
** Based on prepayment-adjusted life of GNMA securities.
*** Based on T. Rowe Price research.
SECTOR Diversification
Percent of Percent of
Net Assets Net Assets
11/30/96 5/31/97
___________________________________________________________
GNMA Securities 104% 106%
U.S. Treasury Obligations 5 2
Repurchase Agreements - 1
Other Government Agency Securities 1 1
Other Assets Less Liabilities -10 -10
___________________________________________________________
Total 100% 100%
T. Rowe Price GNMA Fund
Performance Comparison
This chart shows the value of a hypothetical $10,000 investment in the fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or index.
The index return does not reflect expenses, which have been deducted from the
fund's return.
Chart 3 - SEC line chart
Average Annual Compound Total Return
This table shows how the fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
Periods Ended 5/31/97 1 Year 3 Years 5 Years 10 Years
__________________________________________________________
GNMA Fund 8.46% 8.04% 6.34% 8.09%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
Financial Highlights
For a share outstanding throughout each period
Year 3 Months# Year
Ended Ended Ended
5/31/97 5/31/96 5/31/95 5/31/94 2/28/94 2/28/93
NET ASSET VALUE
Begin-
ning
of
period $ 9.19 $ 9.51 $ 9.14 $ 9.60 $ 9.92 $ 9.79
Invest-
ment
activi-
ties
Net
invest-
ment
income 0.65 0.67 0.68 0.17 0.68 0.75
Net
real-
ized and
unrealized
gain
(loss) 0.11 (0.32) 0.37 (0.46) (0.32) 0.13
Total
from
investment
activi-
ties 0.76 0.35 1.05 (0.29) 0.36 0.88
Distri-
butions
Net
invest-
ment
income (0.63) (0.67) (0.66) (0.17) (0.68) (0.75)
Tax
return
of
capital (0.02) - (0.02) - - -
Total
distri-
butions (0.65) (0.67) (0.68) (0.17) (0.68) (0.75)
NET ASSET VALUE
End of
period $ 9.30 $ 9.19 $ 9.51 $ 9.14 $ 9.60 $ 9.92
Ratios/Supplemental Data
Total
return 8.46% 3.72% 12.11% (3.03)% 3.71% 9.36%
Ratio of
expenses
to
average
net
assets 0.74% 0.74% 0.76% 0.76%! 0.77% 0.79%
Ratio of
net
invest-
ment
income
to
average
net
assets 6.98% 7.04% 7.50% 7.24%! 6.93% 7.65%
Port-
folio
turnover
rate 115.9% 113.6% 121.3% 151.8%! 92.5% 94.2%
Net
assets,
end of
period
(in thou-
sands)$944,046 $ 903,796 $810,467 $802,304$883,391 $913,722
! Annualized.
# The fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price GNMA Fund
May 31, 1997
Statement of Net Assets
Par Value
In thousands
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 107.4%
U.S. Government Guaranteed
Obligations 107.4%
Federal Housing Authority,
PLC, 9.95%, 10/1/32 $ 4,960 $ 5,200
Government National Mortgage Assn.
I
6.00%, 12/15/23 - 6/15/26 55,612 51,396
6.50%, 6/15/23 - 4/15/27 51,079 48,612
7.00%, 4/15/17 - 3/15/27 107,819 105,528
7.50%, 3/15/07 - 1/15/27 103,262 103,768
8.00%, 3/15/14 - 1/15/27 179,807 184,696
8.50%, 12/15/04 - 6/15/26 49,938 52,426
9.00%, 4/15/16 - 9/15/24 61,367 65,589
9.50%, 6/15/09 - 5/15/25 18,589 20,044
10.00%, 10/15/15 - 7/15/24 8,509 9,359
10.50%, 1/15/13 - 11/15/21 4,412 4,886
11.00%, 2/15/10 - 6/15/19 939 1,055
11.50%, 4/15/10 - 7/15/20 4,166 4,746
12.00%, 5/15/11 - 10/15/15 5,673 6,553
12.50%, 4/15/10 - 7/15/15 2,050 2,387
13.00%, 1/15/11 - 8/15/15 949 1,108
13.50%, 5/15/10 - 1/15/15 1,387 1,626
II
6.50%, 3/20/26 8,738 8,236
8.00%, 10/20/24 - 9/20/26 27,064 27,462
8.50%, 4/20/16 - 2/20/23 21,447 22,344
10.00%, 9/20/16 - 5/20/25 1,928 2,100
11.00%, 2/20/14 - 9/20/20 2,020 2,245
11.50%, 12/20/13 - 7/20/20 1,429 1,608
12.50%, 10/20/13 - 1/20/16 209 241
13.00%, 10/20/13 - 9/20/15 779 904
GPM, I
8.75%, 6/15/17 - 6/15/22 893 935
9.00%, 5/15/09 - 3/15/14 333 354
9.25%, 5/15/16 - 8/15/21 5,873 6,257
9.50%, 6/15 - 11/15/09 2,518 2,714
9.75%, 4/15/16 - 8/15/21 5,900 6,378
Government National Mortgage Assn.
GPM, I
10.25%, 1/15 - 3/15/18 $ 132 $ 144
10.75%, 2/15/16 - 4/15/19 1,202 1,321
11.00%, 8/15 - 9/15/10 301 333
11.25%, 11/15/15 23 25
11.50%, 2/15 - 6/15/13 53 59
12.00%, 10/15/10 - 2/15/13 435 491
12.25%, 9/15/13 - 3/15/15 167 190
12.50%, 4/15/10 - 10/15/12 559 637
12.75%, 10/15/13 - 5/15/15 328 375
GPM, II
9.25%, 2/20/16 124 131
9.75%, 12/20/20 - 7/20/21 366 393
10.25%, 3/20 - 9/20/16 39 43
11.00%, 9/20/13 - 1/20/14 77 86
12.25%, 1/20/14 - 10/20/15 248 285
12.75%, 10/20/13 - 7/20/15 236 273
Project Loan, I
7.625%, 6/15/32 2,591 2,609
7.75%, 3/15/20 4,031 4,132
7.875%, 5/15/27 - 6/15/32 4,147 4,162
8.00%, 11/15/12 - 11/15/17 6,505 6,734
8.50%, 1/15/27 394 408
9.25%, 10/15/23 - 1/15/36 13,894 14,645
10.75%, 3/15/26 6,110 6,706
REMIC
6.50%, 10/16/24 33,000 29,432
7.00%, 5/16/24 8,400 7,857
7.493%, 7/16/24 13,450 13,193
7.50%, 5/16/23 25,444 24,903
8.00%, 6/20/25 43,810 44,494
Interest Only, 8.00%,
6/16/23** 9,929 1,787
TBA, I
6.00%, 9/15/23 10,000 9,199
6.50%, 1/15/24 15,000 14,203
7.00%, 7/15/20 5,000 4,866
Government National Mortgage Assn.
TBA, I
8.00%, 7/15/20 $ 29,000 $ 29,538
8.50%, 7/15/20 10,000 10,369
TBA, Project Loan, I
7.60%, 5/15/27 6,423 6,393
7.65%, 6/15/32 18,000 18,151
U.S. Department of Veteran
Affairs, REMIC, 9.54%, 3/15/25 4,010 4,325
Total U.S. Government
Mortgage-Backed Securities
(Cost $1,002,302) 1,013,649
U.S. GOVERNMENT OBLIGATIONS 1.5%
U.S. Treasury Obligations 1.5%
U.S. Treasury Bonds
6.50%, 11/15/26 5,000 4,714
6.625%, 2/15/27 10,000 9,634
Total U.S. Government
Obligations (Cost $14,958) 14,348
REPURCHASE AGREEMENTS* 1.4%
Investments in Repurchase
Agreements through a Joint Account
5.35%, 6/2/97 13,032 13,032
Total Repurchase Agreements
(Cost $13,032) 13,032
Total Investments in Securities
110.3% of Net Assets
(Cost $1,030,292) $ 1,041,029
Other Assets Less Liabilities (96,983)
NET ASSETS $ 944,046
____________
Net Assets Consist of:
Accumulated net investment
income - net of distributions $ (5,457)
Accumulated net realized gain/
loss - net of distributions (25,606)
Net unrealized gain (loss) 10,737
Paid-in-capital applicable to
101,519,767 no par value shares of
beneficial interest outstanding;
unlimited number of shares authorized 964,372
NET ASSETS $ 944,046
____________
NET ASSET VALUE PER SHARE $ 9.30
____________
** For Interest Only securities, par represents notional principal, on
which the fund receives interest
* Fully collateralized by U.S. government securities
GPM Graduated Payment Mortgage
PLC Permanent Loan Certificate
REMIC Real Estate Mortgage Investment Conduit
TBA To be announced security purchased on a forward commitment basis;
the aggregate liability for securities purchased under such
agreements totaled $103,092,000 at 5/31/97.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price GNMA Fund
Statement of Operations
In thousands
Year
Ended
5/31/97
Investment Income
Interest income $ 70,933
Expenses
Investment management 4,398
Shareholder servicing 1,765
Custody and accounting 430
Prospectus and shareholder reports 87
Registration 52
Legal and audit 25
Trustees 13
Miscellaneous 14
Total expenses 6,784
Net investment income 64,149
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (2,280)
Change in net unrealized gain or loss
on securities 12,761
Net realized and unrealized gain (loss) 10,481
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 74,630
___________
The accompanying notes are an integral part of these financial statements.
T. Rowe Price GNMA Fund
Statement of Changes in Net Assets
In thousands
Year
Ended
5/31/97 5/31/96
Increase (Decrease) in
Net Assets
Operations
Net investment income $ 64,149 $ 61,167
Net realized gain (loss) (2,280) (5,065)
Change in net unrealized
gain or loss 12,761 (27,261)
Increase (decrease) in net
assets from operations 74,630 28,841
Distributions to shareholders
Net investment income (62,285) (61,156)
Tax return of capital (1,864) -
Decrease in net assets
from distributions (64,149) (61,156)
Capital share transactions*
Shares sold 158,183 245,262
Distributions reinvested 34,846 43,549
Shares redeemed (163,260) (163,167)
Increase (decrease) in net
assets from capital
share transactions 29,769 125,644
Net Assets
Increase (decrease) during
period 40,250 93,329
Beginning of period 903,796 810,467
End of period $ 944,046 $ 903,796
_________________________
*Share information
Shares sold 17,000 25,637
Distributions reinvested 3,746 4,578
Shares redeemed (17,550) (17,153)
Increase (decrease) in
shares outstanding 3,196 13,062
The accompanying notes are an integral part of these financial statements.
T. Rowe Price GNMA Fund
May 31, 1997
Notes to Financial Statements
T. Rowe Price GNMA Fund
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 and
commenced operations on November 26, 1985.
Valuation Debt securities are generally traded in the over-the-counter
market. Investments in securities originally issued with 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 original maturities of 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.
Premiums and Discounts Premiums and discounts on mortgage-backed securities
are recognized upon principal repayment as gain or loss for financial
reporting purposes and as ordinary income for tax purposes. Premiums and
discounts on debt securities, other than mortgage-backed securities, are
amortized for both financial reporting and tax purposes.
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 the 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 and may differ from those determined in accordance with generally
accepted accounting principles.
Note 2 - Investment Transactions
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Repurchase Agreements The fund, and other affiliated funds, may transfer
uninvested cash into a joint account, the daily aggregate balance of which
is invested in one or more overnight repurchase agreements. All repurchase
agreements purchased by the joint account satisfy the fund's criteria as to
quality, yield, and liquidity and are fully collaterallized by U.S.
government securities. Collateral is in the possession of the fund's
custodian and is evaluated daily to ensure that its market value exceeds the
delivery value of the repurchase agreements at maturity. Although risk is
mitigated by the collateral, the fund could experience a delay in recovering
its value and a possible loss of income or value if the counterparty fails
to perform in accordance with the terms of the agreement.
Securities Lending The fund lends its securities to approved brokers to earn
additional income and takes cash and U.S. Treasury securities as collateral
to secure the loans. Collateral is maintained at not less than 100% of the
value
of loaned securities. At May 31, 1997, the value of securities on loan was
$9,634,000. Although the risk is mitigated by the collateral, the fund could
experience a delay in recovering its securities and a possible loss of income
or value if the borrower fails to return them.
Other Purchases and sales of U.S. government securities aggregated
$1,196,022,000 and $1,136,410,000, respectively, for the year ended
May 31, 1997.
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 $25,606,000, of which $1,304,000 expires
in 1998, $248,000 in 1999, and $24,054,000 thereafter through 2005. The fund
intends to retain gains realized in future periods that may be offset by
available capital loss carryforwards.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended May 31, 1997. The results
of operations and net assets were not affected by the reclassifications.
Undistributed net investment income $ (1,981,000)
Undistributed net realized gain 3,413,000
Paid-in-capital (1,432,000)
At May 31, 1997, the aggregate cost of investments for federal income tax and
financial reporting purposes was $1,030,292,000, and net unrealized gain
aggregated $10,737,000, of which $20,021,000 related to appreciated
investments and $9,284,000 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, of which $378,000 was payable at May 31, 1997. The fee is computed daily
and paid monthly, and consists 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 0.30% for assets in excess of $80
billion. At May 31, 1997, and for the year then ended, the effective annual
group fee rate was 0.33%. The fund pays a pro-rata share of the group fee
based on the ratio of its net assets to those of the group.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund receives
certain other services. The manager computes the daily share price and
maintains the financial records of the fund. T. Rowe Price Services, Inc.
(TRPS) is the fund's transfer and dividend disbursing agent and provides
shareholder and administrative services to the fund. T. Rowe Price Retirement
Plan Services, Inc., provides subaccounting and recordkeeping services for
certain retirement accounts invested in the fund. Additionally, 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 among 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. The fund incurred expenses pursuant to these related party
agreements totaling approximately $1,650,000 for the year ended May 31, 1997,
of which $114,000 was payable at period-end.
T. Rowe Price GNMA Fund
Report of Independent Accountants
To the Board of Trustees and Shareholders 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 financial
highlights present fairly, in all material respects, the financial position
of T. Rowe Price GNMA Fund (the "Fund") at May 31, 1997, and the results of
its operations, the changes in its net assets and the financial highlights
for each of the fiscal periods presented, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with 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, 1997 by
correspondence with the custodian 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 LLP
Baltimore, Maryland
June 18, 1997
T. Rowe Price Shareholder Services
Investment Services And Information
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is provided. The summary page gives you 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.
Shareholder Reports Portfolio managers review the performance of the funds
in plain language and discuss T. Rowe Price's economic outlook.
T. Rowe Price Report This is a quarterly newsletter with relevant articles
on market trends, personal financial planning, and T. Rowe Price's economic
perspective.
Performance Update This quarterly report reviews recent market developments
and provides comprehensive performance information for every T. Rowe Price
fund.
Insights This library of information includes reports on mutual fund tax
issues, investment strategies, and financial markets.
Detailed Investment Guides Our widely acclaimed Asset Mix Worksheet, College
Planning Kit, Diversifying Overseas: A Guide to International Investing,
Retirees Financial Guide, and Retirement Planning Kit (also available on disk
for PC use) can help you determine and reach your investment goals.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
T. Rowe Price Mutual Funds
Stock Funds
Domestic
Balanced
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Dividend Growth
Equity Income
Equity Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Science & Technology
Small-Cap Stock**
Small-Cap Value*
Spectrum Growth
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
Bond Funds
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Insured
Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Global Government Bond
Emerging Markets Bond
International Bond
Money Market Funds
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
Blended Asset Funds
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
T. Rowe Price No-Load
Variable Annuity
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Closed to new investors.
** Formerly the OTC Fund.
Please call for a prospectus. Read it carefully before you invest or send
money.
The T. Rowe Price No-Load Variable Annuity [V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY.z
T. Rowe Price refers to the underlying portfolios' investment managers and
the distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price
Insurance Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The
Security Benefit Group of Companies and the T. Rowe Price companies are not
affiliated. The variable annuity may not be available in all states. The
contract has limitations. Call a representative for costs and complete
details of the coverage.
T. Rowe Price Discount Brokerage
Discount Brokerage
A Division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC
This low-cost service gives you the opportunity to easily consolidate all
your investments with one company. Through T. Rowe Price Discount Brokerage,
you can buy and sell individual securities-stocks, bonds, options, and
others-at considerable commission savings over full-service brokers.* We also
provide a wide range of services, including:
Automated Telephone and Computer Services You can enter trades, access
quotes, and review account information 24 hours a day, seven days a week. Any
trades executed through these programs save you an additional 10% on
commissions.**
Investor Information A variety of informative reports, such as our Brokerage
Insights series, S&P Market Month newsletter, and select stock reports, can
help you better evaluate economic trends and investment opportunities.
Dividend Reinvestment Service Virtually all stocks held in customer accounts
are eligible for this service, free of charge.
* Based on a February 1997 telephone survey that compared our
commission rates on stock transactions of various sizes with those of
other full-service and discount brokerages. Commission rates will
vary based on size and nature of trades. Services vary by firm. For
additional information concerning our commission rates and services,
call 1-800-638-5660.
** Discount applies to our current commission schedule; subject to our
$35 minimum commission.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price GNMA Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment
Services, Inc., Distributor.
F70-050 5/31/97
Chart 1 - Interest Rate Levels line chart showing current coupon GNMA and
10-year Treasury note yields from 5/31/96 through 5/31/97
Chart 2 - Prepayment Rates line chart showing levels of new mortgages,
moderately seasoned mortgages, and seasoned mortgages from 10/93 through
10/97 (anticipated).
Chart 3 - SEC line chart showing the cumulative growth of $10,000 invested
in the GNMA Fund over the past 10 years (or from inception for funds lacking
10-year histories) compared with $10,000 invested in a broad-based index or
average over the same period.
