PRICE T ROWE GNMA FUND
497K3B, 2000-10-13
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                                                                 October 1, 2000
 FUND PROFILE
T. ROWE PRICE
GNMA Fund

 A bond fund seeking both high income and the highest credit quality.
This profile summarizes key information about the fund that is included in the
fund's prospectus. The fund's prospectus includes additional information about
the fund, including a more detailed description of the risks associated with
investing in the fund that you may want to consider before you invest. You may
obtain the prospectus and other information about the fund at no cost by calling
1-800-638-5660, or by visiting our Web site at www.troweprice.com.
TROWEPRICELOGO
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FUND PROFILE
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 What is the fund's objective?

   The fund seeks high current income consistent with maximum credit protection
   and moderate price fluctuation by investing exclusively in securities backed
   by the full faith and credit of the U.S. government and instruments linked to
   these securities.


 What is the fund's principal investment strategy?

   We will invest primarily in mortgage-backed securities issued by the
   Government National Mortgage Association (GNMA), an agency of the Department
   of Housing and Urban Development. These securities represent "pools" of
   mortgage loans that are either guaranteed by the Federal Housing
   Administration or the Veterans Administration. Mortgage lenders pool
   individual home mortgages to back a certificate or bond, which is then sold
   to investors. Interest and principal payments from the underlying mortgages
   are passed through to investors.

   GNMA guarantees the timely payment of interest and principal on its
   securities, a guarantee backed by the U.S. Treasury. The GNMA guarantee does
   not apply to the price of GNMA securities or the fund's share price, both of
   which will fluctuate with market conditions.

   We can also buy bills, notes, and bonds issued by the U.S. Treasury, and
   other instruments, including: related futures contracts; other agency
   securities backed by the full faith and credit of the U.S. government; shares
   of a T. Rowe Price Treasury money fund; and GNMA-related securities such as
   collateralized mortgage obligations (CMOs) and "strips," which receive only
   the interest or principal portion of the underlying mortgage payments. We may
   also purchase new mortgage bonds in the forward market. The fund has no
   limitation on its overall maturity.

   In selecting securities, fund managers may weigh the characteristics of
   various types of mortgage securities and examine yield relationships in the
   context of their outlook for interest rates and the economy. For example, if
   rates seem likely to fall, mortgage securities expected to have below-average
   prepayment rates may be purchased and assets may also be allocated to
   Treasury notes or bonds, which could appreciate in that environment.

   The fund may sell securities for a variety of reasons, such as to adjust the
   portfolio's average maturity or quality, or to shift assets into
   higher-yielding securities.

   Further information about the fund's investments, including a review of
   market conditions and fund strategies and their impact on performance, is
   available in the annual and semiannual shareholder reports. To obtain free
   copies of either of these documents, call 1-800-638-5660.
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FUND PROFILE
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 What are the main risks of investing in the fund?

  . Interest rate risk  Investors should be concerned primarily with this risk.
   An increase in interest rates could cause the fund's share price to fall,
   resulting in a loss of principal. That's because the bonds and notes in the
   fund's portfolio become less attractive to other investors when securities
   with higher yields become available. Even GNMAs and other securities whose
   principal and interest payments are guaranteed can decline in price if rates
   rise. The longer a bond's maturity, the greater its potential for price
   declines if rates rise and for price gains if rates fall.

   Historically, GNMAs and other mortgage-backed securities have declined less
   in price than comparable Treasuries when rates were rising, and have gained
   less in price when rates were falling. This is because mortgage securities
   carry their own special risks related to changing interest rates: prepayment
   risk and extension risk.

  . Prepayment risk and extension risk Because the fund can invest extensively
   in mortgage-backed securities, it has special risks related to changing
   interest rates. A mortgage-backed bond, unlike most other bonds, can be hurt
   when interest rates fall, because homeowners tend to refinance and prepay
   principal. The loss of high-yielding, underlying mortgages and the
   reinvestment of proceeds at lower interest rates can reduce the bond's
   potential price gain in response to falling interest rates, reduce the bond's
   yield, or even cause the bond's price to fall below what an investor paid for
   it, resulting in a capital loss. Any of these developments could cause a
   decrease in the fund's income, share price, or total return.

   Extension risk refers to a rise in interest rates that causes a fund's
   average maturity to lengthen unexpectedly due to a drop in mortgage
   prepayments. This would increase the fund's sensitivity to rising rates and
   its potential for price declines.

  . Derivatives risk  Shareholders are also exposed to the possibility that our
   investments in these complex and volatile instruments could affect the fund's
   share price. In addition to CMOs and better-known instruments such as
   futures, other derivatives used in limited fashion by the fund include
   interest-only (IO) and principal-only (PO) securities known as "strips." The
   value of these instruments is derived from an underlying pool of
   mortgage-backed securities or a CMO. All these instruments can be highly
   volatile, and their value can fall dramatically in response to rapid or
   unexpected changes in the mortgage or interest rate environment.

   To the extent the fund invests in the forward market, it may increase its
   price sensitivity in relation to interest rate movements.
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FUND PROFILE
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   Since GNMAs and the fund's other investments are backed by the full faith and
   credit of the U.S. government, credit risk, or the potential for losses in
   principal and income as a result of credit downgrades or defaults, should be
   negligible.

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

  . The fund's share price may decline, so when you sell your shares, you may
   lose money. An investment in the fund is not a deposit of a bank and is not
   insured or guaranteed by the Federal Deposit Insurance Corporation or any
   other government agency.


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

   Consider your investment goals, your time horizon for achieving them, and
   your tolerance for risk. The fund may be appropriate if you are looking for
   high current income consistent with the highest credit quality and can accept
   fluctuations in share price. Steadily reinvesting the fund's income is a
   conservative strategy for building capital over time. If you are investing
   primarily for safety and liquidity, you should consider a money market fund.

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

  . The fund should not represent your complete investment program or be used
   for short-term trading purposes.


 How has the fund performed in the past?

   The bar chart showing calendar year returns and the average annual total
   return table indicate risk by illustrating how much returns can differ from
   one year to the next and over time. Fund past performance is no guarantee of
   future returns.

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

<TABLE>
<CAPTION>

                            Calendar Year Total Returns
       "90"    "91"    "92"   "93"   "94"    "95"    "96"   "97"   "98"   "99"
 ------------------------------------------------------------------------------------
 <S>  <C>     <C>     <C>    <C>    <C>     <C>     <C>    <C>    <C>    <S>    <C>
                                                                         0 . 2
                                                                         1
      10.01   15.04   6.46   6.15   -1.63   17.81   3.14   9.48   6.56

 ------------------------------------------------------------------------------------
</TABLE>


          Quarter ended              Total return

 Best quarter                            3/31/95 5.54%

 Worst quarter                           3/31/94 -2.40%



<TABLE>
 Table 1  Average Annual Total Returns
<CAPTION>
                                       Periods ended 09/30/2000
                                    1 year     5 years      10 years
 ---------------------------------------------------------------------
 <S>                               <C>        <C>         <C>
  GNMA Fund                          6.86%      6.00%        7.41%

  Salomon Smith Barney GNMA Index    7.73       6.90         8.12
  Lipper GNMA Funds Average          6.53       5.90         7.26
 ---------------------------------------------------------------------
</TABLE>


 These figures include changes in principal value, reinvested dividends, and
 capital gain distributions, if any.


  What fees or expenses will I pay?

   The fund is 100% no load. There are no fees or charges to buy or sell fund
   shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
   are no 12b-1 fees. Redemption proceeds of less than $5,000 sent by wire are
   subject to a $5 fee paid to the fund.
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FUND PROFILE
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<TABLE>
 Table 2 Fees and Expenses of the Fund
<CAPTION>
                                              Annual fund operating expenses
                                       (expenses that are deducted from fund assets)
 ------------------------------------------------------------------------------------
 <S>                                  <C>
  Management fee                                          0.47%/ // /
  Other expenses                                          0.24%
  Total annual fund operating                             0.71%/ // /
  expenses
 ------------------------------------------------------------------------------------
</TABLE>



   Example.  The following table gives you a rough idea of how expense ratios
   may translate into dollars and helps you to compare the cost of investing in
   this fund with that of other mutual funds. Although your actual costs may be
   higher or lower, the table shows how much you would pay if operating expenses
   remain the same, you invest $10,000, earn a 5% annual return, and hold the
   investment for the following periods and then redeem:
<TABLE>
<CAPTION>
   1 year      3 years      5 years       10 years
 ----------------------------------------------------
 <S>         <C>          <C>          <C>
    $73         $227         $395           $853
 ----------------------------------------------------
</TABLE>



 Who manages the fund?

   The fund is managed by T. Rowe Price Associates, Inc. Founded in 1937, T.
   Rowe Price and its affiliates manage investments for individual and
   institutional accounts. The company offers a comprehensive array of stock,
   bond, and money market funds directly to the investing public.

   Connice A. Bavely manages the fund day-to-day and has been chairman of its
   Investment Advisory Committee since 2000.  Ms. Bavely joined T. Rowe Price in
   1998 as a senior portfolio manager. Prior to joining T. Rowe Price, Ms.
   Bavely was a partner and senior portfolio manager at Atlantic Asset
   Management Partners, LLC for six years.


 Note: The following questions and answers about buying and selling shares and
 services do not apply to employer-sponsored retirement plans. If you are a
 participant in one of these plans, please call your plan's toll-free number for
 additional information.


 How can I purchase shares?

   Fill out the New Account Form and return it with your check in the postpaid
   envelope. The minimum initial purchase is $2,500 ($1,000 for IRAs and gifts
   or transfers to minors). The minimum subsequent investment is $100 ($50 for
   IRAs, gifts or transfers to minors, or Automatic Asset Builder). You can also
   open an account by bank wire, by exchanging from another T. Rowe Price fund,
   or by transferring assets from another financial institution.
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FUND PROFILE
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 How can I sell shares?

   You may redeem or sell any portion of your account on any business day.
   Simply write to us or call. You can also access your account at any time via
   Tele*Access /(R)/ or our Web site. We offer convenient exchange among our
   entire family of domestic and international funds. Restrictions may apply in
   special circumstances, and some redemption requests need a signature
   guarantee.


 When will I receive income and capital gain distributions?

   The fund distributes income monthly and net capital gains, if any, at
   year-end. For regular accounts, income and short-term gains are taxable at
   ordinary income rates, and long-term gains are taxable at the capital gains
   rate. Distributions are reinvested automatically in additional shares unless
   you choose another option, such as receiving a check. Distributions paid to
   IRAs and employer-sponsored retirement plans are automatically reinvested.


 What services are available?

   A wide range, including but not limited to:

  . retirement plans for individuals and large and small businesses;

  . automated information and transaction services by telephone or computer;

  . electronic transfers between fund and bank accounts;

  . automatic investing and automatic exchange;

  . brokerage services; and

  . asset manager accounts.


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FUND PROFILE
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T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
www.troweprice.com
LOGO
 RPS F70-035
 T. Rowe Price Investment Services, Inc., Distributor
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