-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nm5jetylsTS+AfVOmlwqh7u0WZtEBqROKBoevDE2xe/i8xik+RdP1i9uyqq4sVL2 NKmKLEdw9O7Ss9csEOPkAg== 0000779785-04-000008.txt : 20040727 0000779785-04-000008.hdr.sgml : 20040727 20040723075637 ACCESSION NUMBER: 0000779785-04-000008 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040531 FILED AS OF DATE: 20040723 EFFECTIVENESS DATE: 20040723 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE GNMA FUND CENTRAL INDEX KEY: 0000779785 FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04441 FILM NUMBER: 04927729 BUSINESS ADDRESS: STREET 1: 100 E PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105472000 N-CSR 1 gma.txt T. ROWE PRICE GNMA FUND Item 1. Report to Shareholders T. Rowe Price GNMA Fund - -------------------------------------------------------------------------------- May 31, 2004 Certified Annual Report This report is certified under the Sarbanes-Oxley Act of 2002, which requires that public companies, including mutual funds, affirm that the information provided in their annual and semiannual shareholder reports fully and fairly represents their financial position. T. Rowe Price GNMA Fund - -------------------------------------------------------------------------------- Certified Annual Report 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 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. [Graphic Omitted] GNMA FUND - -------------------------------------------------------------------------------- As of 5/31/04 GNMA Fund $19,188 Lipper GNMA Funds Average $18,464 Lipper GNMA GNMA Funds Average Bond Fund 5/94 $ 10,000 $ 10,000 5/95 11,025 11,211 5/96 11,489 11,628 5/97 12,445 12,612 5/98 13,631 13,869 5/99 14,139 14,408 5/00 14,460 14,715 5/01 16,146 16,527 5/02 17,347 17,840 5/03 18,439 19,101 5/04 18,464 19,188 Average Annual Compound Total Return - -------------------------------------------------------------------------------- Periods Ended 5/31/04 1 Year 5 Years 10 Years GNMA Fund 0.45% 5.90% 6.73% Citigroup GNMA Index 1.58 6.29 7.18 Lipper GNMA Funds Average 0.22 5.47 6.31 Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. Past performance cannot guarantee future results. T. Rowe Price GNMA Fund - -------------------------------------------------------------------------------- Certified Annual Report Dear Shareholder, Your fund had a positive return of 0.45% during the 12 months ended May 31, 2004, a challenging period for bonds. The fund's return lagged that of the unmanaged Citigroup GNMA Index but outpaced the Lipper GNMA Funds Average of similarly managed funds, as shown in the table on the preceding page. The strengthening economy led to rising interest rates throughout the fund's fiscal year, putting pressure on most segments of the fixed-income market. Major Index Returns - -------------------------------------------------------------------------------- Period Ended 5/31/04 12 Months - -------------------------------------------------------------------------------- Lehman Brothers Treasury Index -2.64% Lehman Brothers U.S. Aggregate Index -0.44 Lehman Brothers U.S. Credit Index -0.58 Lehman Brothers Mortgage-Backed Securities Index 1.50 CS First Boston High Yield Index 13.25 Sources: Lehman Brothers and CS First Boston. As you know, the fund seeks to provide high current income consistent with maximum credit protection and moderate price fluctuation by investing at least 80% of net assets in mortgage-backed securities issued by the Government National Mortgage Association (GNMA). GNMA guarantees the timely payment of interest and principal on its securities, a guarantee backed by the U.S. Treasury. The Major Index Returns table shows how various quality bonds performed over the fund's fiscal year. High-yield bonds, which tend to act more like equities than bonds in an improving economy, far outpaced higher-quality bonds such as Treasuries and higher-rated corporate securities over the 12-month period. In fact, all fixed-income classes except for mortgage-backed bonds posted negative returns during the fund's fiscal year. The Interest Rate Levels chart reflects the pattern of bond yields during the same period. Yields rose [Graphic Omitted] Interest Rate Levels - -------------------------------------------------------------------------------- Current Coupon GNMA 10-Year Treasury Note Current 10-Year Coupon Treasury GNMA Note 5/31/2003 4.32 3.37 4.51 3.51 5.64 4.41 8/03 5.61 4.46 4.99 3.94 5.28 4.29 11/03 5.36 4.33 5.24 4.25 5.17 4.13 2/04 4.98 3.97 4.90 3.84 5.56 4.51 5/04 5.71 4.65 in general before declining earlier this year, only to spike sharply higher in April as the economy continued to grow and investors focused their attention on the threat of higher inflation in the months ahead. Portfolio Characteristics - -------------------------------------------------------------------------------- Periods Ended 5/31/03 5/31/04 Price Per Share $ 9.89 $ 9.54 30-Day Standardized 3.41% 3.93% Yield to Maturity Weighted Average Maturity (years) * 2.4 5.8 Weighted Average Quality ** AAA AAA * Based on prepayment-adjusted life of GNMA securities. ** Based on T. Rowe Price research. The Portfolio Characteristics table shows various portfolio details as of May 31, 2004, compared with one year earlier. The weighted average maturity of the portfolio expanded sharply during the year, from 2.4 to 5.8 years, while the quality of the portfolio's holdings remained stable at AAA. The fund's longer duration versus the index hampered the fund's relative performance. On a positive note, we overweighted 15-year GNMAs, which helped performance compared with our Lipper peer group, as those maturities outperformed 30-year mortgages. We thank you for your continued support. Respectfully, James S. Riepe Chairman June 18, 2004 T. Rowe Price GNMA Fund - -------------------------------------------------------------------------------- Certified Annual Report Financial Highlights For a share outstanding throughout each period - -------------------------------------------------------------------------------- Year Ended 5/31/04 5/31/03 5/31/02 5/31/01 5/31/00 NET ASSET VALUE Beginning of period $ 9.89 $ 9.61 $ 9.40 $ 8.92 $ 9.33 Investment activities Net investment income (loss) 0.30 0.37 0.52 0.59 0.60 Net realized and unrealized gain (loss) (0.26) 0.30 0.21 0.48 (0.41) Total from investment activities 0.04 0.67 0.73 1.07 0.19 Distributions Net investment income (0.39) (0.39) (0.52) (0.59) (0.60) NET ASSET VALUE End of period $ 9.54 $ 9.89 $ 9.61 $ 9.40 $ 8.92 ---------------------------------------------------- Ratios/Supplemental Data Total return^ 0.45% 7.07% 7.95% 12.31% 2.13% Ratio of total expenses to average net assets 0.69% 0.70% 0.69% 0.70% 0.71% Ratio of net investment income (loss) to average net assets 3.23% 3.68% 5.33% 6.39% 6.61% Portfolio turnover rate 302.1% 385.8% 145.2% 71.2% 63.8% Net assets, end of period (in millions) $ 1,307 $ 1,466 $ 1,223 $ 1,043 $ 1,052 ^ 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. The accompanying notes are an integral part of these financial statements. T. Rowe Price GNMA Fund - ------------------------------------------------------------------------------- Certified Annual Report May 31, 2004 Portfolio of Investments (1) $ Par/Shares Value - ------------------------------------------------------------------------------- (Amounts in 000s) U.S. GOVERNMENT & AGENCY MORTGAGE-BACKED SECURITIES 99.1% U.S. Government Obligations 99.1% Government National Mortgage Assn. 5.00%, 3/15/18 - 10/20/33 210,001 204,556 5.50%, 7/15/14 - 4/20/34 ++ 290,167 290,746 6.00%, 11/15/08 - 4/15/34 290,641 298,567 6.50%, 12/15/14 - 3/20/34 102,274 106,624 6.73%, 9/15/30 19,420 21,315 6.75%, 2/15/41 9,838 10,010 7.00%, 3/15/13 - 1/20/34 71,945 76,284 7.50%, 3/15/07 - 9/15/32 35,845 38,452 8.00%, 3/15/14 - 3/15/30 23,101 24,941 8.50%, 12/15/04 - 2/20/23 4,296 4,733 9.00%, 5/15/09 - 9/15/24 2,059 2,304 9.25%, 2/20/16 - 12/15/19 396 444 9.50%, 6/15/09 - 12/15/24 1,271 1,413 9.75%, 8/15/16 - 2/15/21 430 484 10.00%, 2/15/16 - 3/15/26 4,717 5,302 10.25%, 9/20/16 22 24 10.50%, 2/15/13 - 10/15/21 418 472 10.75%, 9/15/17 - 1/15/18 132 150 11.00%, 2/15/10 - 7/20/20 365 414 11.50%, 4/15/10 - 7/15/20 769 882 12.00%, 10/15/10 - 7/15/15 850 977 12.25%, 3/15/14 - 7/20/15 57 66 12.50%, 4/15/10 - 1/20/16 381 439 12.75%, 10/20/13 - 12/20/14 71 81 13.00%, 1/15/11 - 9/20/15 278 320 13.50%, 5/15/10 - 1/15/15 189 217 CMO 2.212%, 10/16/17 3,827 3,844 2.946%, 3/16/19 7,800 7,512 5.00%, 8/16/28 8,431 8,531 5.064%, 9/16/26 13,200 13,201 5.50%, 2/20 - 10/20/30 32,075 31,899 6.00%, 3/16 - 5/20/29 ++ 18,040 18,458 6.50%, 10/20/27 - 3/20/32 14,228 14,760 CMO, IO 6.50%, 1/20 - 8/20/30 2,282 56 CMO, Principal Only, 3/16/28 1,289 1,087 TBA 5.50%, 1/1/34 35,779 35,511 6.00%, 1/1/34 40,379 41,045 6.50%, 1/1/34 25,000 25,980 U.S. Department of Veteran Affairs CMO 7.25%, 10/15/08 2,255 2,259 VR, 9.61%, 3/15/25 913 987 Total U.S. Government & Agency Mortgage-Backed Securities (Cost $1,300,947) 1,295,347 U.S. GOVERNMENT & AGENCY OBLIGATIONS (EXCLUDING MORTGAGE-BACKED) 0.5% U.S. Treasury Obligations 0.5% U.S. Treasury Inflation-Indexed Notes, 1.875%, 7/15/13 6,886 6,850 Total U.S. Government & Agency Obligations (excluding Mortgage-Backed) (Cost $6,867) 6,850 MONEY MARKET FUNDS 7.7% T. Rowe Price Government Reserve Investment Fund, 0.98% # + 100,524 100,524 Total Money Market Funds (Cost $100,524) 100,524 Total Investments in Securities 107.3% of Net Assets (Cost $1,408,338) $ 1,402,721 ----------- Futures Contracts ($ 000s) Contract Unrealized Expiration Value Gain (Loss) ------------ --------- ----------- Short, 400 U.S. Treasury 5 Year contracts, $700 par of Government National Mortgage Assn. pledged as initial margin 9/04 $ (43,269) $ (175) Net payments (receipts) of variation margin to date 319 Variation margin receivable (payable) on open futures contracts $ 144 -------- (1) Denominated in U.S. dollar unless otherwise noted # Seven-day yield ++ All or a portion of this security is pledged to cover margin requirements on futures contracts at May 31, 2004. + Affiliated company - See Note 2. CMO Collateralized Mortgage Obligation IO Interest Only security for which the fund receives interest on notional principal (par) TBA To Be Announced security was purchased on a forward commitment basis VR Variable Rate The accompanying notes are an integral part of these financial statements. T. Rowe Price GNMA Fund - -------------------------------------------------------------------------------- Certified Annual Report May 31, 2004 Statement of Assets and Liabilities - -------------------------------------------------------------------------------- (Amounts in $000s except shares and per share amounts) Assets Investments in securities, at value Affiliated companies (cost $100,524) $ 100,524 Other companies (cost $1,307,814) 1,302,197 Total investments in securities 1,402,721 Other assets 20,933 Total assets 1,423,654 Liabilities Payable for investment securities purchased 114,780 Other liabilities 2,089 Total liabilities 116,869 NET ASSETS $ 1,306,785 ------------ Net Assets Consist of: Undistributed net investment income (loss) $ (4,688) Undistributed net realized gain (loss) 6,440 Net unrealized gain (loss) (5,792) Paid-in-capital applicable to 136,946,560 no par value shares of beneficial interest outstanding; unlimited number of shares authorized 1,310,825 NET ASSETS $ 1,306,785 ------------ NET ASSET VALUE PER SHARE $ 9.54 ------------ The accompanying notes are an integral part of these financial statements. T. Rowe Price GNMA Fund - -------------------------------------------------------------------------------- Certified Annual Report Statement of Operations - -------------------------------------------------------------------------------- ($ 000s) Year Ended 5/31/04 Investment Income (Loss) Income Interest $ 51,114 Dividend 2,326 Total income 53,440 Expenses Investment management 6,366 Shareholder servicing 2,410 Custody and accounting 410 Registration 85 Prospectus and shareholder reports 79 Legal and audit 19 Trustees 8 Miscellaneous 11 Total expenses 9,388 Net investment income (loss) 44,052 Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities 882 Futures (375) Net realized gain (loss) 507 Change in net unrealized gain (loss) Securities (38,458) Futures (175) Change in net unrealized gain (loss) (38,633) Net realized and unrealized gain (loss) (38,126) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 5,926 ---------- The accompanying notes are an integral part of these financial statements. T. Rowe Price GNMA Fund - -------------------------------------------------------------------------------- Certified Annual Report Statement of Changes in Net Assets - -------------------------------------------------------------------------------- ($ 000s) Year Ended 5/31/04 5/31/03 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 44,052 $ 50,899 Net realized gain (loss) 507 39,455 Change in net unrealized gain (loss) (38,633) 924 Increase (decrease) in net assets from operations 5,926 91,278 Distributions to shareholders Net investment income (55,362) (55,051) Capital share transactions * Shares sold 220,259 492,751 Distributions reinvested 49,117 48,335 Shares redeemed (379,489) (333,836) Increase (decrease) in net assets from capital share transactions (110,113) 207,250 Net Assets Increase (decrease) during period (159,549) 243,477 Beginning of period 1,466,334 1,222,857 End of period $ 1,306,785 $ 1,466,334 ----------- ----------- (Including undistributed net investment income of ($4,688) at 5/31/04 and ($4,444) at 5/31/03) *Share information Shares sold 22,594 50,166 Distributions reinvested 5,061 4,909 Shares redeemed (39,032) (33,935) Increase (decrease) in shares outstanding (11,377) 21,140 The accompanying notes are an integral part of these financial statements. T. Rowe Price GNMA Fund - -------------------------------------------------------------------------------- Certified Annual Report May 31, 2004 Notes to Financial Statements NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price GNMA Fund (the fund) is registered under the Investment Company Act of 1940 (the 1940 Act) 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 accounting principles generally accepted in the United States of America, which require the use of estimates made by fund management. Valuation The fund values its investments and computes its net asset value per share at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for business. Debt securities are generally traded in the over-the-counter market. Securities with original maturities of one year or more are valued at prices 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 bid-side money market yields. Investments in mutual funds are valued at the mutual fund's closing net asset value per share on the day of valuation. Financial futures contracts are valued at closing settlement prices. Other investments and those 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 the T. Rowe Price Valuation Committee, established by the fund's Board of Trustees. Credits The fund earns credits on temporarily uninvested cash balances at the custodian that reduce the fund's custody charges. Custody expense in the accompanying financial statements is presented before reduction for credits. Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Premiums and discounts on debt securities are amortized for financial reporting purposes. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Payments ("variation margin") made or received 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 other assets and other liabilities, respectively, and in the change in net unrealized gain or loss in the accompanying financial statements. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared on a daily basis and paid monthly. Capital gain distributions, if any, are declared and paid by the fund, typically on an annual basis. Other In the normal course of business, the fund enters into contracts that provide general indemnifications. The fund's maximum exposure under these arrangements is dependent on claims that may be made against the fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote. 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 year ended May 31, 2004, 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 and/or interest rates. Repurchase Agreements All repurchase agreements are fully collateralized by U.S. government securities. Collateral is in the possession of the fund's custodian or, for tri-party agreements, the custodian designated by the agreement. Collateral 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 counter-party fails to perform in accordance with the terms of the agreement. Affiliated Companies The fund may invest in certain securities that are considered affiliated companies. As defined by the 1940 Act, an affiliated company is one in which the fund owns 5% or more of the outstanding voting securities. At May 31, 2004, the fund's investment in the T. Rowe Price Government Reserve Investment Fund was its only affiliated holding and represented 7.2% of the value of the fund's investments in securities. Other Purchases and sales of U.S. government securities aggregated $4,154,270,000 and $4,303,117,000, respectively, for the year ended May 31, 2004. 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 under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable income and gains. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions determined in accordance with tax regulations may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. Distributions during the year ended May 31, 2004 totaled $55,362,000 and were characterized as ordinary income for tax purposes. At May 31, 2004, the tax-basis components of net assets were as follows: - -------------------------------------------------------------------------------- Unrealized appreciation $ 18,805,000 Unrealized depreciation (28,746,000) Net unrealized appreciation (depreciation) (9,941,000) Undistributed ordinary income 14,120,000 Capital loss carryforwards (8,219,000) Paid-in capital 1,310,825,000 Net assets $ 1,306,785,000 ---------------- Pursuant to federal income tax regulations applicable to investment companies, the fund has elected to treat net capital losses realized between November 1 and May 31 of each year as occurring on the first day of the following tax year. Consequently, $3,595,000 of realized losses reflected in the accompanying financial statements will not be recognized for tax purposes until 2005. The fund intends to retain realized gains to the extent of available capital loss carryforwards for federal income tax purposes. As of May 31, 2004, the fund had $8,219,000 of capital loss carryforwards that expire in fiscal 2012. For the year ended May 31, 2004, the fund recorded the following permanent reclassifications to reflect tax character. Reclassifications between income and gain relate primarily to the character of paydown gains and losses on asset-backed securities. Results of operations and net assets were not affected by these reclassifications. - -------------------------------------------------------------------------------- Undistributed net investment income $ 11,066,000 Undistributed net realized gain (11,066,000) At May 31, 2004, the cost of investments for federal income tax purposes was $1,412,487,000. NOTE 4 - RELATED PARTY TRANSACTIONS The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The investment management agreement between the fund and the manager provides for an annual investment management fee, which is computed daily and paid monthly. The fee consists of an individual fund fee, equal to 0.15% of the fund's average daily net assets, and the fund's pro-rata share of a group fee. The group fee is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.295% for assets in excess of $120 billion. The fund's portion of the group fee is determined by the ratio of its average daily net assets to those of the group. At May 31, 2004, the effective annual group fee rate was 0.32%, and investment management fee payable totaled $515,000. In addition, the fund has entered into service agreements with Price Associates and two wholly owned subsidiaries of Price Associates (collectively, Price). Price Associates computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the fund's transfer and dividend disbursing agent. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. Expenses incurred pursuant to these service agreements totaled $1,080,000 for the year ended May 31, 2004, of which $91,000 was payable at period-end. The fund is also one of several mutual funds sponsored by Price Associates (underlying Price funds) in which the T. Rowe Price Spectrum Funds (Spectrum Funds) may invest. The Spectrum Funds do not invest in the underlying Price funds for the purpose of exercising management or control. Pursuant to a special servicing agreement, expenses associated with the operation of the Spectrum Funds are borne by each underlying Price fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by the Spectrum Funds. Expenses allocated under this agreement are reflected as shareholder servicing expense in the accompanying financial statements. For the year ended May 31, 2004, the fund was allocated $973,000 of Spectrum Funds' expenses, of which $771,000 related to services provided by Price and $77,000 was payable at period-end. At May 31, 2004, approximately 37% of the outstanding shares of the fund were held by the Spectrum Funds. The fund may invest in the T. Rowe Price Reserve Investment Fund and the T. Rowe Price Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by Price Associates. The Reserve Funds are offered as cash management options to mutual funds, trusts, and other accounts managed by Price Associates and/or its affiliates, and are not available for direct purchase by members of the public. The Reserve Funds pay no investment management fees. During the year ended May 31, 2004, dividend income from the Reserve Funds totaled $2,326,000. T. Rowe Price GNMA Fund - -------------------------------------------------------------------------------- Certified Annual Report Report of Independent Registered Public Accounting Firm - -------------------------------------------------------------------------------- To the Board of Trustees and Shareholders of T. Rowe Price GNMA Fund In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, 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, 2004, 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 accounting principles generally accepted in the United States of America. 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 the standards of the Public Company Accounting Oversight Board (United States), 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, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Baltimore, Maryland June 22, 2004 T. Rowe Price GNMA Fund - -------------------------------------------------------------------------------- Certified Annual Report Information on Proxy Voting - -------------------------------------------------------------------------------- A description of the policies and procedures that the T. Rowe Price GNMA Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request by calling 1-800-225-5132. It also appears in the fund's Statement of Additional Information (Form 485B), which can be found on the SEC's Web site, www.sec.gov. T. Rowe Price GNMA Fund - -------------------------------------------------------------------------------- Certified Annual Report About the Fund's Trustees and Officers Your fund is governed by a Board of Trustees that meets regularly to review investments, performance, expenses, and other business matters, and is responsible for protecting the interests of shareholders. The majority of the fund's trustees are independent of T. Rowe Price Associates, Inc. (T. Rowe Price); "inside" trustees are officers of T. Rowe Price. The Board of Trustees elects the fund's officers, who are listed in the final table. The business address of each trustee and officer is 100 East Pratt Street, Baltimore, MD 21202. The Statement of Additional Information includes additional information about the fund trustees and is available without charge by calling a T. Rowe Price representative at 1-800-225-5132. Independent Trustees Name Principal Occupation(s) During Past 5 Years and (Year of Birth) Directorships of Other Public Companies Year Elected* Anthony W. Deering Director, Chairman of the Board, and Chief (1945) Executive Officer, The Rouse Company, real 1985 estate developers; Director, Mercantile Bank (4/03 to present) Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an (1943) acquisition and management advisory firm 2001 David K. Fagin Director, Golden Star Resources Ltd., Canyon (1938) Resources Corp. (5/00 to present), and Pacific 2001 Rim Mining Corp. (2/02 to present); Chairman and President, Nye Corp. Karen N. Horn Managing Director and President, Global Private (1943) Client Services, Marsh Inc. (1999-2003); Managing 2003 Director and Head of International Private Banking, Bankers Trust (1996-1999); Director, Eli Lilly and Company and Georgia Pacific F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates, (1934) Inc., consulting environmental and civil engineers 1985 John G. Schreiber Owner/President, Centaur Capital Partners, Inc., (1946) a real estate investment company; Partner, 1992 Blackstone Real Estate Advisors, L.P.; Director, AMLI Residential Properties Trust and The Rouse Company, real estate developers * Each independent trustee oversees 111 T. Rowe Price portfolios and serves until retirement, resignation, or election of a successor. Inside Trustees Name (Year of Birth) Year Elected * [Number of T. Rowe Price Principal Occupation(s) During Past 5 Years Portfolios Overseen] and Directorships of Other Public Companies Mary J. Miller, CFA Vice President, T. Rowe Price and (1955) T. Rowe Price Group, Inc. 2004 [37] James S. Riepe Director and Vice President, T. Rowe Price; (1943) Vice Chairman of the Board, Director, and 1985 Vice President, T. Rowe Price Group, Inc.; [111] Chairman of the Board and Director, T. Rowe Price Global Asset Management Limited, T. Rowe Price Global Investment Services Limited, T. Rowe Price Investment Services, Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Services, Inc.; Chairman of the Board, Director, President, and Trust Officer, T. Rowe Price Trust Company; Director, T. Rowe Price International, Inc.; Director, The Nasdaq Stock Market, Inc.; Chairman of the Board, GNMA Fund * Each inside trustee serves until retirement, resignation, or election of a successor. Officers Name (Year of Birth) Title and Fund(s) Served Principal Occupation(s) Connice A. Bavely, CFA (1951) Vice President, T. Rowe Price and President, GNMA Fund T. Rowe Price Group, Inc. Stephen V. Booth, CPA (1961) Vice President, T. Rowe Price, T. Rowe Vice President, GNMA Fund Price Group, Inc., and T. Rowe Price Trust Company Joseph A. Carrier (1960) Vice President, T. Rowe Price, T. Rowe Treasurer, GNMA Fund Price Group, Inc., T. Rowe Price Investment Services, Inc., and T. Rowe Price Trust Company Roger L. Fiery III, CPA (1959) Vice President, T. Rowe Price, T. Rowe Vice President, GNMA Fund Price Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Trust Company Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years. Officers (continued) Name (Year of Birth) Title and Fund(s) Served Principal Occupation(s) Gregory S. Golczewski (1966) Vice President, T. Rowe Price and Vice President, GNMA Fund T. Rowe Price Trust Company Henry H. Hopkins (1942) Director and Vice President, T. Rowe Vice President, GNMA Fund Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Trust Company; Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price International, Inc., and T. Rowe Price Retirement Plan Services, Inc. Keir R. Joyce (1972) Assistant Vice President, T. Rowe Price Assistant Vice President, GNMA Fund Alan D. Levenson, PhD (1958) Vice President, T. Rowe Price and Vice President, GNMA Fund T. Rowe Price Group, Inc. Patricia B. Lippert (1953) Assistant Vice President, T. Rowe Price Secretary, GNMA Fund and T. Rowe Price Investment Services, Inc. Edmund M. Notzon III, PhD, CFA (1945) Vice President, T. Rowe Price, T. Rowe Vice President, GNMA Fund Price Group, Inc., T. Rowe Price Investment Services, Inc., and T. Rowe Price Trust Company John D. Wells (1960) Vice President, T. Rowe Price Vice President, GNMA Fund and T. Rowe Price Group, Inc. Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years. Item 2. Code of Ethics. As of the end of the period covered by this report, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report. Item 3. Audit Committee Financial Expert. The registrant's Board of Directors/Trustees has determined that Mr. David K. Fagin qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Fagin is considered independent for purposes of Item 3 of Form N-CSR. Item 4. Principal Accountant Fees and Services. (a) - (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrant's principal accountant were as follows: 2004 2003 Audit Fees $10,069 $10,012 Audit-Related Fees 916 -- Tax Fees 2,783 2,696 All Other Fees 124 -- Audit fees include amounts related to the audit of the registrant's annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrant's financial statements, specifically the issuance of a report on internal controls. Tax fees include amounts related to tax compliance, tax planning, and tax advice. Other fees include the registrant's pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrant's Board of Directors/Trustees. (e)(1) The registrant's audit committee has adopted a policy whereby audit and non-audit services performed by the registrant's principal accountant for the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularly scheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimis amount is not permitted. (2) No services included in (b) - (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Less than 50 percent of the hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. (g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrant's principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $819,000 and $671,000 respectively, and were less than the aggregate fees billed for those same periods by the registrant's principal accountant for audit services rendered to the T. Rowe Price Funds. (h) All non-audit services rendered in (g) above were pre-approved by the registrant's audit committee. Accordingly, these services were considered by the registrant's audit committee in maintaining the principal accountant's independence. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. Schedule of Investments. Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 9. Submission of Matters to a Vote of Security Holders. Not applicable. Item 10. Controls and Procedures. (a) The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of this filing and have concluded that the registrant's disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) The registrant's principal executive officer and principal financial officer are aware of no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11. Exhibits. (a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is attached. (2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached. (3) Written solicitation to repurchase securities issued by closed-end companies: not applicable. (b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. T. Rowe Price GNMA Fund By /s/ James S. Riepe James S. Riepe Principal Executive Officer Date July 16, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ James S. Riepe James S. Riepe Principal Executive Officer Date July 16, 2004 By /s/ Joseph A. Carrier Joseph A. Carrier Principal Financial Officer Date July 16, 2004 EX-99.CERT 2 ex-99cert.txt 302 CERTIFICATIONS Item 11(a)(2). CERTIFICATIONS I, James S. Riepe, certify that: 1. I have reviewed this report on Form N-CSR of T. Rowe Price GNMA Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 16, 2004 /s/ James S. Riepe James S. Riepe Principal Executive Officer CERTIFICATIONS I, Joseph A. Carrier, certify that: 1. I have reviewed this report on Form N-CSR of T. Rowe Price GNMA Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 16, 2004 /s/ Joseph A. Carrier Joseph A. Carrier Principal Financial Officer EX-99.CODE ETH 3 ex-99_codeeth.txt CODE OF ETHICS Code of Ethics for Principal Executive and Senior Financial Officers of The Price Funds under the Sarbanes-Oxley Act of 2002 I. General Statement. This Code of Ethics (the "Price Funds S-O Code") has been designed to bring the Price Funds into compliance with the applicable requirements of the Sarbanes-Oxley Act of 2002 (the "Act") rules promulgated by The Securities and Exchange Commission thereunder ("Regulations"). The Price Funds S-O Code applies solely to the Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or Controller of, or persons performing similar functions for, a Price Fund (whether such persons are employed by a Price Fund or third party) ("Covered Officers"). The "Price Funds" shall include each mutual fund that is managed, sponsored and distributed by affiliates of T. Rowe Price Group, Inc. ("Group"). The investment managers to the Price Funds will be referred to as the "Price Fund Advisers." A list of Covered Officers is attached as Exhibit A. The Price Fund Advisers have, along with their parent, T. Rowe Price Group, Inc. ("Group") also maintained a comprehensive Code of Ethics and Conduct (the "Group Code") since 1972, which applies to all officers, directors and employees of the Price Funds, Group and its affiliates. As mandated by the Act, Group has adopted a Code (the "Group S-O Code"), similar to the Price Funds S-O Code, which applies solely to its principal executive and senior financial officers. The Group S-O Code and the Price Funds S-O Code will be referred to collectively as the "S-O Codes". The Price Funds S-O Code has been adopted by the Price Funds in accordance with the Act and Regulations thereunder and will be administered in conformity with the disclosure requirements of Item 2 of Form N-CSR. The S-O Codes are attachments to the Group Code. In many respects the S-O Codes are supplementary to the Group Code, but the Group Code is administered separately from the S-O Codes, as the S-O Codes are from each other. II. Purpose of the Price Funds S-O Code. The purpose of the Price Funds S-O Code, as mandated by the Act and the Regulations, is to establish standards that are reasonably designed to deter wrongdoing and to promote: Ethical Conduct. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. Disclosure. Full, fair, accurate, timely and understandable disclosure in reports and documents that the Price Funds file with, or submit to, the SEC and in other public communications made by the Price Funds. Compliance. Compliance with applicable governmental laws, rules and regulations. Reporting of Violations. The prompt internal reporting of violations of the Price Funds S-O Code to an appropriate person or persons identified in the Price Funds S-O Code. Accountability. Accountability for adherence to the Price Funds S-O Code. III. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest. Overview. Each Covered Officer owes a duty to the Price Funds to adhere to a high standard of honesty and business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the Price Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with a Price Fund. Certain conflicts of interest covered by the Price Funds S-O Code arise out of the relationships between Covered Officers and the Price Funds and may already be subject to provisions regulating conflicts of interest in the Investment Company Act of 1940 ("Investment Company Act"), the Investment Advisers Act of 1940 ("Investment Advisers Act") and the Group Code. For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with a Price Fund because of their status as "affiliated persons" of a Price Fund. The compliance programs and procedures of the Price Funds and Price Fund Advisers are designed to prevent, or identify and correct, violations of these provisions. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between a Price Fund and its Price Fund Adviser (and its affiliates) of which the Covered Officers may also be officers or employees. As a result, the Price Funds S-O Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Price Funds or for the Price Fund Advisers, or for both), be involved in establishing policies and implementing decisions which will have different effects on these entities. The participation of the Covered Officers in such activities is inherent in the contractual relationship between each Price Fund and its respective Price Fund Adviser. Such participation is also consistent with the performance by the Covered Officers of their duties as officers of the Price Funds and, if consistent with the provisions of the Investment Company Act and the Investment Advisers Act, it will be deemed to have been handled ethically. Other conflicts of interest are covered by the Price Funds S-O Code, even if these conflicts of interest are not addressed by or subject to provisions in the Investment Company Act and the Investment Advisers Act. Whenever a Covered Officer is confronted with a conflict of interest situation where he or she is uncertain as to the appropriate action to be taken, he or she should discuss the matter with the Chairperson of Group's Ethics Committee or another member of the Committee. Handling of Specific Types of Conflicts. Each Covered Officer (and close family members) must not: Entertainment. Accept entertainment from any company with which any Price Fund or any Price Fund Adviser has current or prospective business dealings, including portfolio companies, unless such entertainment is in full compliance with the policy on entertainment as set forth in the Group Code. Gifts. Accept any gifts, except as permitted by the Group Code. Improper Personal Influence. Use his or her personal influence or personal relationships improperly to influence investment decisions, brokerage allocations or financial reporting by the Price Funds to the detriment of any one or more of the Price Funds. Taking Action at the Expense of a Price Fund. Cause a Price Fund to take action, or fail to take action, for the personal benefit of the Covered Officer rather than for the benefit of one or more of the Price Funds. Misuse of Price Funds' Transaction Information. Use knowledge of portfolio transactions made or contemplated for a Price Fund or any other clients of the Price Fund Advisers to trade personally or cause others to trade in order to take advantage of or avoid the market impact of such portfolio transactions. Outside Business Activities. Engage in any outside business activity that detracts from a Covered Officer's ability to devote appropriate time and attention to his or her responsibilities to a Price Fund. Service Providers. Excluding Group and its affiliates, have any ownership interest in, or any consulting or employment relationship with, any of the Price Funds' service providers, except that an ownership interest in public companies is permitted Receipt of Payments. Have a direct or indirect financial interest in commissions, transaction charges, spreads or other payments paid by a Price Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest (such as compensation or equity ownership) arising from the Covered Officer's employment by Group or any of its affiliates. Service as a Director or Trustee. Serve as a director, trustee or officer of any public or private company or a non-profit organization that issues securities eligible for purchase by any of the Price Funds, unless approval is obtained as required by the Group Code. IV. Covered Officers' Specific Obligations and Accountabilities. A. Disclosure Requirements and Controls. Each Covered Officer must familiarize himself or herself with the disclosure requirements (Form N-1A registration statement, proxy (Schedule 14A), shareholder reports, Forms N-SAR, N-CSR, etc.) applicable to the Price Funds and the disclosure controls and procedures of the Price Fund and the Price Fund Advisers. B. Compliance with Applicable Law. It is the responsibility of each Covered Officer to promote compliance with all laws, rules and regulations applicable to the Price Funds and the Price Fund Advisers. Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Price Funds and the Price Fund Advisers and take other appropriate steps with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Price Funds file with, or submit to, the SEC, and in other public communications made by the Price Funds. C. Fair Disclosure. Each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about a Price Fund to others, whether within or outside the Price organization, including to the Price Fund's directors and auditors, and to governmental regulators and self-regulatory organizations. D. Initial and Annual Affirmations. Each Covered Officer must: 1. Upon adoption of the Price Funds S-O Code (or thereafter, as applicable, upon becoming a Covered Officer), affirm in writing that he or she has received, read, and understands the Price Funds S-O Code. 2. Annually affirm that he or she has complied with the requirements of the Price Funds S-O Code. E. Reporting of Material Violations of the Price Funds S-O Code. If a Covered Officer becomes aware of any material violation of the Price Funds S-O Code or laws and governmental rules and regulations applicable to the operations of the Price Funds, he or she must promptly report the violation ("Report") to the Chief Legal Counsel of the Price Funds ("CLC"). Failure to report a material violation will be considered itself a violation of the Price Funds S-O Code. The CLC is identified in the attached Exhibit B. It is the Price Funds policy that no retaliation or other adverse action will be taken against any Covered Officer or other employee of a Price Fund, a Price Fund Adviser or their affiliates based upon any lawful actions of the Covered Officer or employee with respect to a Report made in good faith. F. Annual Disclosures. Each Covered Officer must report, at least annually, all affiliations or other relationships as called for in the "Annual Questionnaire for Executive Officers and/or Employee Directors/Trustees of Group and the Price Funds." V. Administration of the Price Funds S-O Code. The Ethics Committee is responsible for administering the Price Funds S-O Code and applying its provisions to specific situations in which questions are presented. A. Waivers and Interpretations. The Chairperson of the Ethics Committee has the authority to interpret the Price Funds S-O Code in any particular situation and to grant waivers where justified, subject to the approval of the Joint Audit Committee of the Price Funds. All material interpretations concerning Covered Officers will be reported to the Joint Audit Committee of the Price Funds at its next meeting. Waivers, including implicit waivers, to Covered Officers will be publicly disclosed as required in the Instructions to N-CSR. Pursuant to the definition in the Regulations, an implicit waiver means a Price Fund's failure to take action within a reasonable period of time regarding a material departure from a provision of the Price Funds S-O Code that has been made known to an "executive officer" (as defined in Rule 3b-7 under the Securities Exchange Act of 1934) of a Price Fund. An executive officer of a Price Fund includes its president and any vice-president in charge of a principal business unit, division or function. B. Violations/Investigations. The following procedures will be followed in investigating and enforcing the Price Funds S-O Code: 1. The CLC will take or cause to be taken appropriate action to investigate any potential or actual violation reported to him or her. 2. The CLC, after consultation if deemed appropriate with Outside Counsel to the Price Funds, will make a recommendation to the appropriate Price Funds Board regarding the action to be taken with regard to each material violation. Such action could include any of the following: a letter of censure or suspension, a fine, a suspension of trading privileges or termination of officership or employment. In addition, the violator may be required to surrender any profit realized (or loss avoided) from any activity that is in violation of the Price Funds S-O Code. VI. Amendments to the Price Funds S-O Code. Except as to the contents of Exhibit A and Exhibit B, the Price Funds S-O Code may not be materially amended except in written form, which is specifically approved or ratified by a majority vote of each Price Fund Board, including a majority of the independent directors on each Board. VII. Confidentiality. All reports and records prepared or maintained pursuant to the Price Funds S-O Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law, the Price Funds S-O Code or as necessary in connection with regulations under the Price Funds S-O Code, such matters shall not be disclosed to anyone other than the directors of the appropriate Price Fund Board, Outside Counsel to the Price Funds, members of the Ethics Committee and the CLC and authorized persons on his or her staff. Approved: October 2003 Exhibit A Persons Covered by the Price Funds S-O Code of Ethics James S. Riepe, Chairman and Chief Executive Officer Joseph A. Carrier, Treasurer and Chief Financial Officer Exhibit B Chief Legal Counsel to the Price Funds Henry H. Hopkins EX-99.906 4 ex-99_906cert.txt 906 CERTIFICATIONS Item 11(b). CERTIFICATION UNDER SECTION 906 OF SARBANES-OXLEY ACT OF 2002 Name of Issuer: T. Rowe Price GNMA Fund In connection with the Report on Form N-CSR for the above named issuer, the undersigned hereby certifies, to the best of his knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: July 16, 2004 /s/ James S. Riepe James S. Riepe Principal Executive Officer Date: July 16, 2004 /s/ Joseph A. Carrier Joseph A. Carrier Principal Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----