Semiannual Report
GNMA Fund
November 30, 2000
T. Rowe Price
Report Highlights
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GNMA Fund
o Mortgage bonds performed well during the past six months, outpacing
corporate and Treasury securities.
o The fund posted strong results for the six months ended November 30, 2000,
surpassing the Lipper GNMA Funds Average and slightly trailing the Salomon
Smith Barney GNMA Index.
o We positioned the fund to protect it against an increase in mortgage
prepayments and to benefit from a return to a normal yield curve, with
long-term rates higher than short-term rates.
o The Fed will most likely begin to ease monetary policy in early 2001. We
believe investors will continue to favor high-quality bonds with higher
yields than Treasuries, which would benefit mortgage securities.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
Fellow Shareholders
The six-month period ended November 30, 2000, was an excellent time to be
invested in high-quality bonds. As poor earnings and a moderating economy
ravaged equities and some other asset classes, investors sought refuge in the
fixed-income markets. Mortgage-backed securities participated to a great degree
as rates declined and prices rose during the period.
MARKET ENVIRONMENT
At the end of May, the yield curve was sharply inverted, meaning that
short-term rates were higher than long-term rates due to the Federal
Reserve's tight monetary policy. However, during the past six months,
Treasury securities with intermediate maturities led rates lower. The
yield on five-year notes declined a full percentage point (100 basis
points) compared with lesser declines for long-term securities, which
began the process of returning the yield curve toward a more normal
configuration. By the end of November, investor sentiment grew
somewhat negative. Worries about an economic slowdown led to a sharp
rise in the premium on corporate bond yields relative to Treasuries.
The big question was whether the economy would achieve a soft or hard
landing-that is, a moderate slowing commensurate with the Fed's
inflation-fighting goals, or a descent into recession.
Mortgage bonds benefit in recent environment
Current Coupon GNMA 10-Year treasury Note
11/30/99 7.64 6.10
12/31/99 7.83 6.41
01/31/00 8.14 6.68
02/29/00 8.01 6.38
03/31/00 7.77 6.13
04/30/00 8.00 6.15
05/31/00 8.00 6.42
06/30/00 7.77 6.08
07/31/00 7.80 6.04
08/31/00 7.56 5.76
09/30/00 7.47 5.82
10/31/00 7.43 5.66
11/30/00 7.19 5.56
This environment was positive for mortgage-backed securities, which
benefited from an overall flight to quality from equities. The yield
of the current coupon GNMA mortgage bond was 163 basis points higher
than the yield of 10-year Treasuries at the end of November-a spread
that was largely unchanged over the six-month period as mortgage rates
closely tracked their Treasury counterparts.
Mortgage rates decline The 30-year mortgage rate fell from 8.62%
at the end of May to 7.62% at the end of the period. However, mortgage
prepayments were relatively stable despite the decline in rates.
Refinancing activity was muted because the great majority of
homeowners had refinanced with low-rate mortgage loans in 1998, before
interest rates spiked up significantly in 1999. The sharp drop in
Treasury yields was not enough to cause a meaningful increase in
prepayments.
PERFORMANCE AND STRATEGY REVIEW
For the 6- and 12-month periods ended November 30, 2000, the fund
provided strong returns of 7.04% and 8.83%, respectively, comfortably
outperforming the Lipper GNMA Funds Average and slightly trailing the
Salomon Smith Barney GNMA Index in both periods. Results during the
six months reflected a $0.32 increase in the fund's share price to
$9.24 while the dividend remained stable at $0.30 per share.
Performance Comparison
Periods Ended 11/30/00 6 Months 12 Months
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GNMA Fund 7.04% 8.83%
Salomon Smith Barney
GNMA Index 7.13 9.37
Lipper GNMA Funds Average 6.67 8.27
We repositioned the fund over the period so it could benefit from
a more positively sloped yield curve, which traditionally accompanies
an accommodative monetary environment. We accomplished this in three
ways. We sold mortgage pass-through securities and purchased
collateralized mortgage obligations (CMOs), which usually do better
when longer-term yields begin to exceed shorter-term rates. We also
sold pass-through bonds with higher coupons selling above par and
buying lower-coupon bonds priced at a discount, which are less
sensitive to a drop in interest rates. Finally, we added Treasuries,
which extended the duration of the portfolio beyond that of our
competition. (Duration is a measure of a fund's sensitivity to changes
in interest rates. For example, a fund with a duration of five years
would fall or rise about 5% in price in response to a
one-percentage-point rise or fall in interest rates.)
OUTLOOK
We expect the Fed to ease its monetary posture and begin to
lower key short-term interest rates beginning in early 2001. The
extent of the easing will be dictated by how much the economy actually
slows and how financial markets hold together during this process.
The sharp drop in interest rates at the end of the period has
reintroduced the risk of rising prepayments, which can hurt investors
who bought mortgage securities at prices above par. While we have
endeavored to protect the fund from a significant increase in
prepayments, we recognize that a sustained decline in rates poses a
higher level of risk. However, despite this potential drawback, we
believe investors will continue to favor high-quality bonds with
higher yields than Treasuries, which should benefit GNMA investors.
Thank you for investing with T. Rowe Price.
Respectfully submitted,
Connice A. Bavely
Chairman of the Investment Advisory Committee
December 18, 2000
Change in Management
As shown in the fund's prospectus dated October 1, 2000, Connice A. Bavely has
been named chairman of the fund's Investment Advisory Committee, which means she
has assumed day-to-day responsibility for managing the fund. Former chairman
Deborah L. Boyer left the firm to pursue other opportunities. Ms. Bavely, who
joined the firm in February 1998, has 23 years of investment experience,
including 14 as a portfolio manager. Before joining T. Rowe Price, she was a
founding partner and senior vice president of Atlantic Asset Management
Partners, LLC.
T. Rowe Price GNMA Fund
Portfolio Highlights
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KEY STATISTICS
5/31/00 11/30/00
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Price Per Share $ 8.92 $ 9.24
Dividends Per Share
For 6 months 0.30 0.30
For 12 months 0.60 0.60
30-Day Dividend Yield * 6.69% 6.43%
30-Day Standardized Yield to Maturity 6.72 6.48
Weighted Average Maturity (years)** 8.9 8.0
Weighted Average Effective Duration (years) 4.9 4.1
Weighted Average Quality *** AAA AAA
* Dividends earned for the last 30 days of each period indicated are
annualized and divided by the fund's net asset value per share at the end
of the 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
5/31/00 11/30/00
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GNMA Securities 99% 101%
Other Government Agency Securities 1 1
Short-Term Obligations 1 2
U.S. Treasury Obligations -- 1
Other Assets Less Liabilities -1 -5
Total 100% 100%
T. Rowe Price GNMA Fund
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Performance Comparison
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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
benchmarks, which may include a broad-based market index and a peer
group average or index. Market indexes do not include expenses, which
are deducted from fund returns as well as mutual fund averages and
indexes.
x GNMA Fund Salomon Smith Lipper GNMA
x x Barney GNMA Ind Funds Average
11/30/90 10.000 10.000
11/30/91 11.495 11.352
11/30/92 12.533 12.260 12.275
11/30/93 13.425 13.132 13.127
11/30/94 13.209 12.770 12.830
11/30/95 15.410 14.831 15.072
11/30/96 16.556 15.761 15.942
11/30/97 17.851 16.905 17.109
11/30/98 19.162 18.117 18.344
11/30/99 19.688 18.381 18.506
11/30/00 21.534 19.936 20.140
Average Annual Compound Total Return
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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 11/30/00 1 Year 3 Year 5 Years 10 Years
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GNMA Fund 8.83% 5.59% 5.97% 7.25%
Investment return and principal value represent past performance and
will vary. Shares may be worth more or less at redemption than at original
purchase.
T. Rowe Price GNMA Fund
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Unaudited
Financial Highlights For a share outstanding throughout each period
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6 Months Year
Ended Ended
11/30/00 5/31/00 5/31/99 5/31/98 5/31/97 5/31/96
NET ASSET VALUE
Beginning $ 8.92 $ 9.33 $ 9.57 $ 9.30 $ 9.19 $ 9.51
of period
Investment activities
Net investment
income(loss) 0.30 0.60 0.61 0.63 0.65 0.67
Net realized
and unrealized
gain (loss) 0.32 (0.41) (0.24) 0.27 0.11 (0.32)
Total from
investment
activities 0.62 0.19 0.37 0.90 0.76 0.35
Distributions
Net investment
income (0.30) (0.60) (0.61) (0.63) (0.63) (0.67)
Tax return
of capital - - - - (0.02) -
Total
distributions (0.30) (0.60) (0.61) (0.63) (0.65) (0.67)
NET ASSET VALUE
End of period $ 9.24 $ 8.92 $ 9.33 $ 9.57 $ 9.30 $ 9.19
Ratios/Supplemental Data
Total return 7.04% 2.13% 3.88% 9.97% 8.46% 3.72%
(diamond)
Ratio of total
expenses to average
net assets 0.69%! 0.71% 0.71% 0.70% 0.74% 0.74%
Ratio of net
investment income
(loss) to average
net assets 6.57%! 6.61% 6.36% 6.67% 6.98% 7.04%
Portfolio turnover
rate 69.3%! 63.8% 86.7% 120.6% 115.9% 113.6%
Net assets,
end of period
(in millions) $ 1,081 $ 1,052 $ 1,111 $ 1,123 $ 944 $ 904
(diamond) Total return reflects the rate that an investor would have
earned on an investment in the fund during each period, assuming
reinvestment of all distributions.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price GNMA Fund
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Unaudited November 30, 2000
Statement of Net Assets Par/Shares Value
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In thousands
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 102.4%
U.S. Government Guaranteed Obligations 102.4%
Government National Mortgage Association
I
6.00%, 1/15/26 - 8/15/29 $ 67,508 $ 64,524
6.50%, 12/15/23 - 8/15/29 140,027 136,792
7.00%, 4/15/17 - 9/15/29 199,946 199,210
7.50%, 3/15/07 - 11/15/30 251,108 254,412
8.00%, 11/15/12 - 4/15/30 87,013 89,303
8.50%, 12/15/04 - 12/15/21 14,315 14,844
9.00%, 1/15/18 - 9/15/24 9,026 9,448
9.50%, 6/15/09 - 12/15/24 3,767 3,930
10.00%, 2/15/16 - 3/15/26 15,780 16,573
10.50%, 1/15/13 - 10/15/21 1,443 1,541
11.00%, 2/15/10 - 6/15/19 327 352
11.50%, 4/15/10 - 7/15/20 1,510 1,637
12.00%, 5/15/11 - 8/15/15 1,997 2,182
12.50%, 4/15/10 - 7/15/15 731 800
13.00%, 1/15/11 - 8/15/15 309 339
13.50%, 5/15/10 - 1/15/15 583 639
Principal Only, 3/16/28 7,429 5,376
II
6.50%, 3/20/26 - 11/20/30 60,744 58,545
7.00%, 8/20/29 - 10/20/30 28,667 28,438
8.00%, 10/20/24 - 6/20/29 14,645 14,933
8.50%, 4/20/16 - 6/20/29 7,054 7,266
10.00%, 9/20/16 - 5/20/25 574 600
11.00%, 2/20/14 - 9/20/20 574 616
11.50%, 12/20/13 - 7/20/20 566 612
12.50%, 10/20/13 - 1/20/16 85 93
13.00%, 10/20/13 - 9/20/15 278 309
Construction Loan, I
6.75%, 1/1/39 8,951 8,463
Outstanding commitment expires, 11/15/01* 1,049 991
6.625%, 1/1/38 9,412 8,994
Outstanding commitment expires, 5/15/01* 610 583
Government National Mortgage Association
GPM, I
8.75%, 6/15/17 - 11/15/21 $ 221 $ 230
9.00%, 5/15/09 114 118
9.25%, 5/15/16 - 5/15/21 2,056 2,162
9.50%, 6/15 - 11/15/09 1,101 1,142
9.75%, 4/15/16 - 2/15/21 917 963
10.75%, 2/15/16 - 4/15/19 396 426
11.00%, 8/15 - 9/15/10 50 53
11.50%, 2/15 - 6/15/13 32 35
12.00%, 10/15/10 - 2/15/13 106 116
12.25%, 1/15/14 - 2/15/15 61 68
12.50%, 4/15/10 - 10/15/11 233 252
12.75%, 11/15/13 - 6/15/14 139 154
GPM, II
9.25%, 2/20/16 57 59
9.75%, 3/20/21 31 32
10.25%, 3/20 - 9/20/16 25 27
11.00%, 9/20/13 - 1/20/14 31 33
12.25%, 1/20/14 - 10/20/15 60 65
12.75%, 10/20/13 - 2/20/15 87 95
Project Loan, I
6.73%, 5/15/40 19,793 19,372
7.37%, 8/15/33 9,547 9,601
8.00%, 11/15/12 - 11/15/17 5,986 6,135
REMIC, CMO
5.00%, 8/16/28 12,550 11,538
6.50%, 10/20/27 - 9/20/28 19,849 18,831
7.00%, 5/16/24 8,400 8,521
7.50%, 7/16/12 - 1/16/27 17,415 17,985
Interest Only, 8.00%, 6/16/23 ** 2,927 498
TBA, I
7.00%, 1/1/29 62,800 62,532
U.S. Department of Veteran Affairs
REMIC, CMO
7.25%, 10/15/08 10,545 10,886
VR, 9.56%, 3/15/25 2,188 2,317
Total U.S. Government Mortgage-Backed
Securities (Cost $1,104,151) 1,106,591
U.S. Government Obligations 1.0%
U.S. Treasury Obligations 1.0%
U.S. Treasury Bills, 6.01%, 1/11/01 $ 100 $ 99
U.S. Treasury Notes, 5.625%, 5/15/08 10,000 10,082
Total U.S. Government Obligations (Cost $9,985) 10,181
Money Market Funds 2.1%
Government Reserve Investment Fund, 6.53% # 22,975 22,975
Total Money Market Funds (Cost $22,975) 22,975
Total Investments in Securities
105.5% of Net Assets (Cost $1,137,111) $1,139,747
Futures Contracts
In thousands
Contract Unrealized
Expiration Value Gain (Loss)
---------- ------------- -----------
Long, 435 U.S. Treasury
Note 5-year contracts,
$398,000 of U.S.
Treasury Notes pledged
as initial margin 3/01 $ 44,418 $ 286
Net payments (receipts) of variation
margin to date (102)
Variation margin receivable
(payable) on open futures contracts 184
Other Assets Less Liabilities (59,275)
NET ASSETS $ 1,080,656
------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ (5,445)
Accumulated net realized gain/loss - net of distributions (26,632)
Net unrealized gain (loss) 2,922
Paid-in-capital applicable to 116,960,935 no
par value shares of beneficial interest
outstanding; unlimited number of shares
authorized $ 1,109,811
NET ASSETS $ 1,080,656
------------
NET ASSET VALUE PER SHARE $ 9.24
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* A liability to fund the outstanding commitment has been recognized.
** For interest only securities, par amount represents notional principal
on which the fund receives interest.
# Seven-day yield
CMO Collateralized Mortgage Obligation
GPM Graduated Payment Mortgage
REMIC Real Estate Mortgage Investment Conduit
VR Variable Rate
The accompanying notes are an integral part of these financial statements.
T. Rowe Price GNMA Fund
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Unaudited
Statement of Operations
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In thousands
6 Months
Ended
11/30/00
Investment Income (Loss)
Interest income $ 38,600
Expenses
Investment management 2,476
Shareholder servicing 979
Custody and accounting 146
Prospectus and shareholder reports 33
Registration 17
Legal and audit 8
Trustees 5
Miscellaneous 3
Total expenses 3,667
Net investment income (loss) 34,933
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (638)
Futures (19)
Net realized gain (loss) (657)
Change in net unrealized gain or loss
Securities 37,178
Futures 286
Change in net unrealized gain or loss 37,464
Net realized and unrealized gain (loss) 36,807
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 71,740
----------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price GNMA Fund
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Unaudited
Statement of Changes in Net Assets
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In thousands
6 Months Year
Ended Ended
11/30/00 5/31/00
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 34,933 $ 71,702
Net realized gain (loss) (657) (14,162)
Change in net unrealized gain or loss 37,464 (35,173)
Increase (decrease) in net assets from operations 71,740 22,367
Distributions to shareholders
Net investment income (34,933) (71,702)
Capital share transactions *
Shares sold 75,474 209,346
Distributions reinvested 30,344 62,267
Shares redeemed (114,127) (280,884)
Increase (decrease) in net assets from capital
share transactions (8,309) (9,271)
Net Assets
Increase (decrease) during period 28,498 (58,606)
Beginning of period 1,052,158 1,110,764
End of period $ 1,080,656 $ 1,052,158
*Share information
Shares sold 8,307 23,137
Distributions reinvested 3,330 6,894
Shares redeemed (12,575) (31,162)
Increase (decrease) in shares outstanding (938) (1,131)
The accompanying notes are an integral part of these financial statements.
T. Rowe Price GNMA Fund
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Unaudited November 30, 2000
Notes to Financial Statements
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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. 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.
The accompanying financial statements were prepared in accordance with
generally accepted accounting principles, which require the use of
estimates made by fund management.
Valuation Debt securities are generally traded in the over-the-counter
market. Investments in securities with original 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 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.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation. Financial futures
contracts are valued at closing settlement prices.
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 all MBS are recognized
upon disposition or principal repayment as gain or loss for financial
reporting purposes. Premiums and discounts on debt securities, other than
mortgage-backed securities (MBS), are amortized for both financial
reporting and tax purposes. For tax purposes, premiums and discounts on MBS
acquired on or before June 8, 1997, are recognized upon disposition or
principal repayment as ordinary income. For MBS acquired after June 8,
1997, premiums are recognized as gain or loss; discounts are recognized as
gain or loss, except to the extent of accrued market discount.
In November, 2000, the American Institute of Certified Public Accountants
issued a revised Audit and Accounting Guide - Audits of Investment
Companies (the guide), which will be adopted by the fund as of June 1,
2001. The guide requires all premiums and discounts on debt securities to
be amortized, and gain/loss on paydowns of MBS to be accounted for as
interest income. Upon adoption, the fund will adjust the cost of its debt
securities, and corresponding unrealized gain/loss thereon, in the amount
of the cumulative amortization that would have been recognized had
amortization been in effect from the purchase date of each holding. This
adjustment will have no effect on the fund's net assets or results of
operations.
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 net investment income and realized gains
determined in accordance with generally accepted accounting principles.
Credits earned on daily uninvested cash balances at the custodian are used
to reduce the fund's custody charges. Payments ("variation margin") made or
received by the fund to settle the daily fluctuations in the value of
futures contracts are recorded as unrealized gains or losses until the
contracts are closed. Unrealized gains and losses on futures contracts are
included in Change in net unrealized gain or loss in the accompanying
financial statements.
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.
Futures Contracts During the six months ended November 30, 2000, the fund
was a party to futures contracts, which provide for the future sale by one
party and purchase by another of a specified amount of a specific financial
instrument at an agreed upon price, date, time, and place. Risks arise from
possible illiquidity of the futures market and from movements in security
values.
Other Purchases and sales of U.S. government securities, aggregated
$395,021,000 and $372,718,000, respectively, for the six months ended
November 30, 2000.
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. At May 31, 2000, the fund had capital loss
carryforwards for federal income tax purposes of $13,774,000, of which
$1,569,000 expires in 2002, $1,748,000 in 2003 and $10,457,000 thereafter
through 2008. The fund intends to retain gains realized in future periods
that maybe offset by available capital loss carryforwards.
At November 30, 2000, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$1,137,111,000. Net unrealized gain aggregated $2,636,000 at period-end, of
which $14,823,000 related to appreciated investments and $12,187,000 to
depreciated investments.
NOTE 4- RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price
Associates). The investment management agreement between the fund and the
manager provides for an annual investment management fee, of which $410,000
was payable at November 30, 2000. 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 T. Rowe Price
International, Inc. (the group). The group fee rate ranges from 0.48% for
the first $1 billion of assets to 0.295% for assets in excess of $120
billion. At November 30, 2000, and for the six months then ended, the
effective annual group fee rate was 0.32%. 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 Price Associates and
two wholly owned subsidiaries of Price Associates, pursuant to which the
fund receives certain other services. Price Associates computes the daily
share price and maintains the financial records of the fund. T. Rowe Price
Services, Inc. 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. The fund
incurred expenses pursuant to these related party agreements totaling
approximately $489,000 for the six months ended November 30, 2000, of which
$92,000 was payable at period-end.
Additionally, the fund is one of several T. Rowe Price-sponsored mutual
funds (underlying funds) in which the T. Rowe Price Spectrum Funds
(Spectrum) may invest. Spectrum does not invest in the underlying funds for
the purpose of exercising management or control. Expenses associated with
the operation of Spectrum are borne by each underlying fund to the extent
of estimated savings to it and in proportion to the average daily value of
its shares owned by Spectrum, pursuant to special servicing agreements
between and among Spectrum, the underlying funds, Price Associates, and, in
the case of T. Rowe Price Spectrum International, T. Rowe Price
International. Spectrum Income Fund held approximately 39.6% of the
outstanding shares of the GMNA Fund at November 30, 2000. For the six
months then ended, the fund was allocated $469,000 of Spectrum expenses,
$115,000 of which was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by Price Associates. The Reserve Funds are
offered as cash management options only to mutual funds and other accounts
managed by Price Associates or T. Rowe Price International, and are not
available to the public. The Reserve Funds pay no investment management
fees. Distributions from the Reserve Funds to the fund for the six months
ended November 30, 2000, totaled $406,000 and are reflected as interest
income in the accompanying Statement of Operations.
T. Rowe Price Shareholder Services
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Investment Services and Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10
p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed-income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com.
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates.**
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a July 2000 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary depending on size
of order.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
For the hearing impaired, call:
1-800-367-0763
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
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
appropriate to the fund or funds covered
in this report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site at
www.troweprice.com/investorcenters
Baltimore Area
Downtown - new address
105 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
2260 Briargate Parkway
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
San Francisco Area
1990 North California Boulevard
Suite 100
Walnut Creek
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
T. Rowe Price Investment With Confidence (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F70-051 11/30/00
