-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, VoFhHXF1l2MFUyqn9y5qV5MQh7cx6PglluIqzscmgjem/h0GiAXZHz8Ul7w/VQJO hK2TZutp1PwVPVbt+0qb7Q== 0000080249-94-000004.txt : 19940407 0000080249-94-000004.hdr.sgml : 19940407 ACCESSION NUMBER: 0000080249-94-000004 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940228 FILED AS OF DATE: 19940406 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE NEW INCOME FUND INC ET AL CENTRAL INDEX KEY: 0000080249 STANDARD INDUSTRIAL CLASSIFICATION: IRS NUMBER: 520980581 FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: N-30D SEC ACT: 40 SEC FILE NUMBER: 811-02396 FILM NUMBER: 94520464 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 3015472000 N-30D 1 T. ROWE PRICE NEW INCOME FUND AR FELLOW SHAREHOLDERS Over the Fund's fiscal year ended February 28, 1994, the economy strengthened by virtually every measure. While in the first half of calendar 1993 the economy grew at less than a 1.5% rate, it surged at over a 5% rate in the second half. Unemployment dropped steadily in 1993, capacity utilization rose regularly, and personal income gains were impressive. Based on stronger spending by consumers on durable goods and housing and by businesses on fixed equipment, the economy's momentum seems to be carrying over into early 1994, though the arctic cold snap east of the Rockies and the earthquake in Los Angeles tended to depress some measures of business activity early in the new year. Perceived weakness in the economy through the autumn of 1993 and the Federal Reserve's aggressively easy monetary policy encouraged a substantial decline in note and bond yields. Between the end of February 1993 and mid-October, the yield on the Treasury's benchmark 30-year bond dropped more than one full percentage point, reaching a low of 5.78%. As it became increasingly apparent that the economy was entering a phase of stronger growth, interest rates began to rise, a move which was accelerated by the Fed's dramatic announcement of a tightening in early February. As a result, short- and intermediate-term interest rates ended the fiscal year 30 to 75 basis points higher than they began it, though long-term Treasury bond yields were still a bit lower. Corporate securities outperformed Treasuries and mortgage-backed issues by a wide margin over the 12-month period covered in the report. The strengthening economy and declining rate environment provided a favorable backdrop for corporates, which had higher income and apprecation than Treasuries and none of the prepayment risk of mortgage-backed issues. Mortgages, such as Ginnie Maes, turned in the least favorable returns overall, because homeowners were refinancing their mortgages to more attractive rates, and the prepayments created principal losses on these securities. Among investment-grade corporates, lower-quality issues outperformed higher-quality issues as was to be expected in an environment where the economy was strengthening. Interest Rate Levels Chart [A line graph compares the yields of the 30-Year Treasury Bond, the 5-Year Treasury Note, and the 1-Year Treasury Bill from 2/28/93 to 2/29/94.] PERFORMANCE REVIEW The total return of the New Income Fund for the three months ended February 28, 1994, was modest, but positive, and in line with that of the Lehman Brothers Aggregate Bond Index, while the average return of Lipper Corporate Bond Funds was down modestly for the quarter. For the 12-month period, the returns from all three were positive and close to each other. Performance Comparison Periods Ended 2/28/94 3 Months 12 Months --------------------------------- New Income Fund 0.13% 5.36% Lehman Brothers Aggregate Bond Index 0.13 5.40 Lipper Average of Corporate Bond Funds - A Rated -0.27 5.64 - ----------------------------------------------------------------------------- CAPITAL GAIN DISTRIBUTION As you may know, a dividend consisting of a fund's undistributed net gains as of October 31 must be declared by the end of each calendar year, and a second distribution is required if the fund has undistributed net gains as of the close of its fiscal year. Accordingly, your March statement reflects a long-term gain of $0.07 per share, payable March 31 to shareholders of record on March 28. This is taxable to you for 1994 and will be reported on Form 1099-DIV mailed in January 1995. PORTFOLIO STRATEGY Over the course of the fiscal year, we slightly increased the portfolio's position in corporate securities, which proved to be beneficial to the Fund's performance. After starting the year with a small mortgage-backed position of 10%, we cut back to less than 5% as rates declined into October. The position was decreased to avoid the acceleration in prepayments which would have resulted in principal losses for the Fund. As rates started to increase in November, prepayment concerns abated, and we began to rebuild mortgage-backed holdings, ending the year very close to this sector's weighting in the Aggregate Index. The position in U.S. Treasury securities, which underperformed corporates, was reduced over the year, as shown opposite. The weighted average maturity and weighted average effective duration of the portfolio as of February 1994 were slightly higher than at the beginning of the fiscal year. The New Income Fund continues to represent a high-quality portfolio, with a T. Rowe Price rating equivalent to AA as measured by Standard & Poor's. While lower-rated, or noninvestment-grade, securities produced the best returns over the past year, the Fund's policy is to purchase securities rated investment grade by at least one public rating agency or, if unrated, of equivalent quality as determined by T. Rowe Price's credit analysts. Portfolio Diversification Graph [This is two pie charts. The first one has pieces representing Corporate Bonds - - 53%, Mortgages - 10%, U.S. Government Bonds - 34%, and Other - 3%, for the year ended 2/28/93. The second one has pieces representing Corporate Bonds - 68%, Mortgages - 24%, U.S. Government Bonds - 12%, and Other - 6%, for the year ended 2/28/94.] OUTLOOK Fed Chairman Alan Greenspan has made clear his intention to raise short-term interest rates from what he termed "abnormally low" levels in order to contain inflation as the economy approaches labor and capital constraints over the next year or two. As the Fed implements its new policy, short-term interest rates will climb. While the reaction in the intermediate- and long-term sectors to the Fed's tightening in February was decidedly negative, the most recent hike was greeted more constructively by long-term investors. In sharp contrast to the rise in yields in February, bond yields fell on March 22, the day the Fed announced that the federal funds rate would be increased another one-quarter of one percent. Inflation currently does not look threatening, and, if the Fed's strategy works, bond investors should be reassured by the attempt to contain inflation. However, commodity prices are moving up, labor markets could start visibly tightening later this year or early next, and the global economy is strengthening, so the bond market's nervousness is understandable. On balance, we look for a modest upward trend in bond yields from current levels but expect the path to be choppy, perhaps even turbulent, as inflation expectations wax and wane. Respectfully submitted, SIGNATURE Charles P. Smith President March 28, 1994 Duration as a Guide to Interest Rate Risk Starting with this report, we've added a new measure to the statistical tables that more accurately defines a fund's interest rate sensitivity. Unlike maturity, which merely indicates when the bond repays principal, "duration" incorporates the cash flows of all interest and principal payments over the life of the bond to reflect the recovery of your original investment. Future payments are discounted to reflect their present value. These payments are then multiplied by the number of years over which they will be received to produce a value that is expressed in years, i.e., the duration. Effective duration is an even better measure of a bond's sensitivity to interest rate changes because it takes into account call features and sinking fund payments which may shorten a bond's life. You can multiply the duration by the potential change in interest rates to estimate the change in principal value. For example, a bond or bond fund with a duration of five years would change roughly 5% in price if rates fell or rose by one percentage point. .............................................................................. STATISTICAL HIGHLIGHTS T. ROWE PRICE NEW INCOME FUND / FEBRUARY 28, 1994 Key Statistics Periods Dividend Yield* Ended 2/28/94 - ------------------------------------------------------------------------------ 3 Months 5.89% 12 Months 5.93 Dividend Per Share - --------------------------------------------------- 3 Months $0.13 12 Months 0.54 Change in Per-Share Value - --------------------------------------------------- 3 Months (From $9.31 to $9.12) -$0.19[dagger] 12 Months (From $9.24 to $9.12) -0.12[dagger] - ------------------------------------------------------------------------------ * Dividends earned and reinvested for the periods indicated are annualized and divided by the average daily net asset values per share for the same period. [dagger] Includes the reduction in the share price resulting from a $0.07 capital gain distribution. Quality Diversification Percent of Net Assets TRPA Quality Rating* 2/28/93 11/30/93 2/28/94 - ----------------------------------------------------------------------------- 1 47% 41% 40% 2 14 17 17 3 30 30 31 4 & Below 9 12 12 - ----------------------------------------------------------------------------- WEIGHTED AVERAGE 2.0 2.2 2.2 - ----------------------------------------------------------------------------- *On a scale of 1 to 10, with Grade 1 representing highest quality. Maturity Diversification Percent of Net Assets Range 2/28/93 11/30/93 2/28/94 - ----------------------------------------------------------------------------- Short-Term (0 to 1 Year) 5% 6% 10% Short Intermediate-Term (1+ to 5 Years) 48 52 45 Long Intermediate-Term (5+ to 10 Years) 26 18 21 Long-Term (over 10 Years) 21 24 24 - ----------------------------------------------------------------------------- WEIGHTED AVERAGE MATURITY (YRS.) 8.7 8.7 8.8 WEIGHTED AVERAGE EFFECTIVE DURATION (YRS.) 4.2 4.2 4.4 - ----------------------------------------------------------------------------- Sector Diversification* Percent of Net Assets 2/28/93 11/30/93 2/28/94 - ----------------------------------------------------------------------------- U.S. Governments, Agencies, & Agency-Backed 44% 38% 37% Banking 10 11 12 Industrial 9 9 9 Finance & Credit 6 6 5 Electric Utilities 2 5 5 Investment Dealers 7 5 5 Auto-Backed 1 4 4 Miscellaneous 5 4 3 Petroleum 2 3 3 Telephone 3 2 3 Canadian 3 3 3 - ----------------------------------------------------------------------------- *Sectors representing at least 2% of net assets of 2/28/94. Fiscal-Year Performance Comparison Graph [A line graph compares the 2/28/94 value of a hypothetical $10,000 investment made ten years earlier in both the New Income Fund and the Lehman Brothers Aggregate Index. At 2/28/94, the Fund investment would have been worth $26215, the Lehman Index investment would have been worth $30067.] Calendar-Year Performance Periods Ended December 31, 1993 1 Year 5 Years* 10 Years* ----------- ----------- ----------- 9.58% 10.15% 10.31% - ------------------------------------ * Average Annual Compound Total Return Income return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. Fiscal-Year Performance Periods Ended February 28, 1994 1 Year 5 Years* 10 Years* ----------- ----------- ----------- 5.36% 10.05% 10.12% - ------------------------------------ * Average Annual Compound Total Return Income return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. INVESTMENT RECORD T. ROWE PRICE NEW INCOME FUND The table below shows the investment record of one share of the T. Rowe Price New Income Fund, purchased at the original offering price of $10.00. Over this time, interest rates have been volatile. The results shown should not be considered a representation of the dividend income or capital gain or loss which may be realized from an investment made in the Fund today. - ------------------------------------------------------------------------------ With Dividends and Fiscal Net Capital With Capital Year Asset Income Gain Dividends Gain Total Ended Value Dividends Distributions/2/ Reinvested Reinvested Return - ----------- -------- --------- ---------------- ---------- ---------- -------- 12/31/73/1/ $ 9.97 - $ 9.97 $ 9.97 -0.30% 1974 9.39 $ 0.66 10.07 10.07 1.00 1975 9.66 0.79 11.27 11.27 11.92 1976 10.23 0.78 12.93 12.93 14.76 1977 10.01 0.77 13.66 13.66 5.65 1978 9.66 0.76 $0.01 14.26 14.29 4.56 1979 9.22 1.18/4/ 15.42 15.44 8.09 1980 8.35 1.13 15.86 15.88 2.86 1981 7.79 1.07 16.95 16.97 6.86 1982 8.46 1.07 21.03 21.07 24.12 2/28/83/3/ 8.56 0.17 21.71 21.75 3.23 1984 8.24 0.95/5/ 23.40 23.44 7.79 1985 8.18 0.94 26.06 26.10 11.34 1986 8.95 0.88 31.64 31.69 21.40 1987 9.17 0.75 35.17 35.23 11.17 1988 8.76 0.76 36.67 36.73 4.27 1989 8.26 0.81 38.02 38.08 3.67 1990 8.37 0.75 42.10 42.16 10.73 1991 8.60 0.70 0.01 47.00 47.12 11.77 1992 8.94 0.67 0.02 52.74 52.97 12.40 1993 9.24 0.57 58.08 58.33 10.12 1994 9.12 0.54 0.07 60.73 61.45 5.36 - ------------------------------------------------------------------------------ TOTAL $16.70 $0.11 - ------------------------------------------------------------------------------ /1/From inception 8/31/73 to 12/31/73. /2/Includes long-term capital gain of $0.01 on 1/4/78; short-term capital gain of $0.01 on 12/31/90; short-term capital gain of $0.02 on 12/31/91; and long-term capital gain of $0.07 on 12/31/93. /3/Fiscal year-end changed from December 31 to February 28; figures are for two months from 12/31/82-2/28/83. /4/Declaration of dividends changed from quarterly to monthly. /5/Declaration of dividends changed from monthly to daily. STATEMENT OF NET ASSETS (AMOUNTS IN THOUSANDS) T. ROWE PRICE NEW INCOME FUND / FEBRUARY 28, 1994 Corporate Bonds - 51.7%
Face Amount Value ------------- ----------- BANKING - 12.5% Banesto Delaware, Gtd. Notes, 8.25%, 7/28/02......................... $ 5,700 $ 5,815 BankAmerica, Sub. Notes, 10.00%, 2/1/03.............................. 9,625 11,530 Banponce Financial, MTN, 5.25%, 1/30/95.............................. 15,000 15,068 Barclays North America Capital, Gtd. Cap. Notes, 10.50%, 12/15/17.... 13,000 15,417 Central Fidelity Banks, 4.38%, 8/7/95................................ 15,000 14,880 Chase Manhattan, Sub. Notes, 7.75%, 11/1/99.......................... 6,500 6,881 Chemical Banking, Notes, 8.70%, 5/15/94.............................. 5,000 5,038 Citicorp, MTN, 5.70%, 2/12/96........................................ 15,000 15,168 Colonial National Bank USA Delaware, Sub. Notes, 7.00%, 8/1/03....... 5,000 4,907 First Chicago, MTN, 5.50%, 4/15/96................................... 5,000 5,031 8.20%, 11/14/96.................................................... 5,000 5,338 First Maryland Bancorp, Sub. Notes, 8.375%, 5/15/02.................. 9,000 9,845 First Security, Sub. Deb., 7.50%, 9/1/02............................. 2,800 2,841 First USA Bank Wilmington, Delaware, 4.55%, 8/23/95.................. 10,000 9,887 4.80%, 9/15/95..................................................... 5,000 4,967 Mercantile Bankshares, Sr. Notes, 6.13%, 7/15/98 (Private Placement). 5,000 5,066 Meridian Bank, Sub. Notes, 6.625%, 3/15/03........................... 6,000 5,913 Napa Valley Bancorp, Sr. Notes, 10.87%, 6/30/95...................... 5,000 5,410 PNC Funding, Sub. Notes, 6.00%, 12/15/94............................. 5,000 5,064 Scotland International, (144a), 8.80%, 1/27/04....................... 5,000 5,646 Society, MTN, 4.755%, 3/11/96........................................ 7,000 6,942 Wells Fargo & Company, MTN, 5.57%, 8/21/95........................... 10,000 10,126 5.61%, 8/18/95..................................................... 5,300 5,370 182,150 BEVERAGES - 1.0% Coca-Cola Enterprises, Notes, 8.35%, 6/20/95......................... 11,000 11,502 Seagram (Joseph E.) & Sons, Notes, 7.00%, 4/15/08.................... 3,000 2,960 14,462 ELECTRIC UTILITIES - 4.9% Alabama Power, 1st Mtg. Bonds, 7.75%, 2/1/23......................... 3,650 3,575 Commonwealth Edison, 1st Mtg. Bonds, 6.50%, 4/15/00.................. 5,000 4,936 7.00%, 7/1/05...................................................... 8,200 8,002 7.50%, 7/1/13...................................................... 7,400 7,438 9.375%, 2/15/00.................................................... 5,000 5,608 Connecticut Light & Power, 1st Mtg. Bonds, 7.50%, 7/1/23............. 5,400 5,394 Consumers Power Company, 1st Mtg. Bonds, 6.375%, 9/15/03............. 5,000 4,714 Cooperative Utility Trust, Equip. Trust Cert., 10.70%, 9/15/17....... 2,500 3,002 Florida Power & Light, MTN, 4.85%, 6/24/96........................... 4,600 4,564 Georgia Power, 1st Mtg. Bonds, 7.625%, 3/1/23........................ 5,750 5,807 7.95%, 2/1/23...................................................... 4,800 5,014 Pacificorp, MTN, 7.12%, 8/15/02...................................... 3,900 4,026 Southern California Edison, 1st Mtg. Bonds, 9.25%, 6/15/21........... 5,000 5,449 Texas Utilities Electric, 1st Mtg. Bonds, 7.875%, 3/1/23............. 3,450 3,502 71,031 FINANCE & CREDIT - 5.1% Advanta, Notes, 5.125%, 11/15/96..................................... 10,000 9,881 American General Finance, Notes, 8.50%, 8/15/98...................... 5,000 5,460 Associates Corporation of North America, 4.50%, 2/15/96.............. 2,400 2,377 Sr. Notes, 8.625%, 11/15/94........................................ 12,000 12,353 AVCO Financial Services, MTN, 4.33%, 3/3/95.......................... 5,000 4,996 GPA Leasing USA Sub I, Equip. Trust Cert., (144a), 9.125%, 12/2/96... 9,677 9,096 Greyhound Financial, MTN, 5.75%, 7/28/95............................. 9,550 9,661 6.95%, 5/19/95..................................................... 10,000 10,255 Transamerica Finance Group, Sr. Sub. Notes, 8.30%, 5/1/95............ 10,000 10,398 74,477 GAS & GAS TRANSMISSION - 0.9% Southern California Gas, MTN, 4.69%, 6/16/95......................... 13,000 12,999 INDUSTRIALS - 9.4% Alcan Aluminum Ltd., Sinking Fund Deb., 9.625%, 7/15/19.............. 8,000 9,200 Chrysler Financial, MTN, 4.62%, 10/13/95............................. 10,000 9,863 Clark Equipment, MTN, 5.57%, 6/11/96................................. 5,000 5,003 Clorox, Notes, 8.80%, 7/15/01........................................ 5,000 5,623 Deere & Company, MTN, 8.47%, 3/18/96................................. 9,000 9,569 Ford Holdings, Gtd. Notes, 9.25%, 3/1/00............................. 5,000 5,693 Ford Motor Credit, MTN, 9.70%, 6/2/95................................ 5,000 5,306 General Motors Acceptance Corporation, MTN, 6.00%, 1/30/95........... 15,000 15,180 IBM Credit, MTN, 4.70%, 8/1/95....................................... 31,000 30,988 Kimberly-Clark, Notes, 8.625%, 5/1/01................................ 9,800 11,002 MCA Funding, MTN, 4.88%, 5/20/96..................................... 5,000 4,944 Qantas Airways, Sr. Notes, (144a), 6.625%, 6/30/98................... 7,000 7,027 United Technologies, Deb., 8.875%, 11/15/19.......................... 4,340 4,963 Weyerhaeuser, Notes, 9.05%, 2/1/03................................... 10,600 12,041 136,402 INVESTMENT DEALERS - 5.0% Dean Witter Discover, Notes, 6.00%, 3/1/98........................... 5,000 5,018 Goldman Sachs Group, L.P., Notes, (144a), 7.80%, 7/15/02............. 10,000 10,444 Merrill Lynch & Company, Notes, 8.375%, 5/1/94....................... 10,000 10,066 PaineWebber Group, MTN, 7.07%, 8/11/97............................... 8,000 8,270 Notes, 7.625%, 2/15/14............................................. 5,000 4,853 Sr. Notes, 9.25%, 12/15/01......................................... 5,000 5,581 Salomon, MTN, 5.50%, 1/19/95......................................... 14,500 14,603 7.50%, 6/15/99..................................................... 6,000 6,201 Shearson Lehman Brothers, Sr. Sub. Notes, 6.00%, 12/30/94............ 7,800 7,876 72,912 MISCELLANEOUS - 4.2% Capital Cities/ABC, Notes, 8.75%, 8/15/21............................ 11,500 13,284 8.875%, 12/15/00................................................... 10,000 11,334 Dow Jones & Company, Notes, 8.40%, 12/1/94........................... 10,000 10,294 ITT, Notes, 8.375%, 3/15/96.......................................... 5,000 5,302 Kaiser Foundation Health Plan, Notes, 9.00%, 11/1/01................. 10,325 11,785 McDonalds, MTN, 8.875%, 2/18/97...................................... 4,000 4,368 Waste Management, Deb., 7.875%, 8/15/96.............................. 5,000 5,289 61,656 PETROLEUM - 3.1% Atlantic Richfield, Deb., 8.50%, 4/1/12.............................. 6,650 7,459 BP America, Gtd. Notes, 8.50%, 4/15/01............................... 5,000 5,516 Mobil, Deb., 7.625%, 2/23/33......................................... 9,250 9,431 Texaco Capital, Deb., 7.875%, 5/1/95................................. 10,000 10,360 8.65%, 1/30/98..................................................... 11,000 12,071 44,837 RAILROADS - 0.4% Consolidated Rail, Deb., 9.75%, 6/15/20.............................. 5,000 6,338 RETAIL - 1.5% Dayton Hudson, Notes, 7.875%, 6/15/23................................ 5,000 4,905 9.40%, 2/15/01..................................................... 5,620 6,447 Sears, Roebuck & Company, MTN, 6.65%, 4/17/95........................ 4,500 4,597 The May Department Stores, Deb., 9.875%, 12/1/02..................... 5,000 6,047 21,996 SAVINGS & LOAN - 0.7% World Savings & Loan Assn., MTN, 4.875%, 3/1/96...................... 10,150 10,117 TELEPHONE - 3.0% AT&T Capital, MTN, 6.87%, 10/23/95................................... 5,000 5,160 AT&T Company, Deb., 8.125%, 7/15/24.................................. 5,000 5,367 Bellsouth Telecom, 7.875%, 8/1/32.................................... 6,400 6,503 GTE, Deb., 9.375%, 12/1/00........................................... 10,000 11,420 NYNEX Credit, MTN, (144a), 6.30%, 6/15/94............................ 4,000 4,025 6.45%, 9/15/94..................................................... 2,000 2,024 Pacific Bell, Notes, 7.125%, 3/15/26................................. 10,000 9,823 44,322 - ------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS (COST - $725,129) 753,699 U.S. Government Mortgage-Backed Securities - 24.5% U.S. GOVERNMENT GUARANTEED OBLIGATIONS - 21.6% Government National Mortgage Assn., I, 6.50%, 1/15 - 2/15/24......... 2,677 2,610 7.00%, 1/15/23 - 1/15/24......................................... 29,012 29,120 7.50%, 8/15/16 - 1/15/24......................................... 68,994 71,114 8.00%, 7/15/16 - 11/15/21........................................ 29,879 31,658 8.50%, 9/15/16 - 8/15/23......................................... 25,315 26,922 9.00%, 1/15/09 - 9/15/23......................................... 12,656 13,528 9.50%, 2/15/16 - 1/15/22......................................... 58,421 63,480 10.00%, 11/15/09 - 6/15/21....................................... 49,641 54,833 II, 9.00%, 6/20/16 - 2/20/19....................................... 16,358 17,278 Graduated Payment Mortgage, I, 10.25%, 8/15/17 - 9/15/20........... 4,412 4,727 315,270 U.S. GOVERNMENT AGENCY OBLIGATIONS - 2.9% Federal Home Loan Mortgage, 6.50%, 11/1/04........................... 88 92 7.00%, 2/1/24...................................................... 5,295 5,310 8.00%, 6/1/08...................................................... 226 236 9.00%, 3/1/21 - 5/1/22............................................. 13,376 14,243 9.75%, 12/1/17..................................................... 4,703 5,070 10.50%, 7/1/11 - 8/1/20............................................ 2,156 2,361 11.00%, 5/1/11 - 7/1/20............................................ 1,337 1,479 11.50%, 6/1/01..................................................... 32 34 Federal National Mortgage Assn., 7.80%, 12/25/04..................... 6,548 6,717 8.75%, 3/1/10...................................................... 38 41 10.50%, 7/1/09 - 4/1/22............................................ 5,442 6,041 41,624 - ------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES (COST - $356,119) 356,894 Asset-Backed Securities - 4.8% AUTO LOANS-BACKED - 4.0% Capital Auto Receivables Asset Trust, 4.20%, 11/15/95................ 7,500 7,500 Daimler-Benz Auto Grantor Trust, 3.90%, 10/15/98..................... 8,348 8,269 Ford Credit Grantor Trust, 4.30%, 7/15/98............................ 5,934 5,897 GMAC Grantor Trust, 4.15%, 8/15/97................................... 5,319 5,310 Olympic Automobile Receivable, 4.95%, 10/15/99....................... 4,481 4,439 Premier Auto Trust, 4.22%, 3/2/99.................................... 10,000 9,872 RCSB Grantor Trust, 7.75%, 11/15/96.................................. 2,294 2,330 8.85%, 5/15/95..................................................... 892 886 Toyota Auto Receivables, 3.90%, 8/17/98.............................. 7,600 7,536 World Omni Grantor Trust, 7.95%, 7/15/96 (Private Placement)......... 1,014 1,018 Zions Auto Trust, 4.65%, 6/15/99..................................... 4,687 4,640 57,697 CREDIT CARD RECEIVABLES-BACKED - 0.7% Standard Credit Card Trust, Credit Card Participation Cert., 9.375%, 6/10/95............................................................ 10,000 10,572 WHOLE LOANS-BACKED - 0.1% Home Equity Loan Remic Trust, 5.65%, 8/15/00......................... 1,531 1,518 - ------------------------------------------------------------------------------------------------- TOTAL ASSET-BACKED SECURITIES (COST - $69,549) 69,787 U.S. Government Obligations - 12.3% U.S. Treasury Bonds, 7.125%, 2/15/23................................. 5,000 5,219 8.00%, 11/15/21.................................................... 96,260 110,338 8.125%, 5/15/21.................................................... 15,000 17,384 U.S. Treasury Notes, 4.625%, 8/15/95................................. 1,395 1,399 5.125%, 4/30/98.................................................... 2,150 2,124 5.50%, 9/30/97..................................................... 42,700 43,033 TOTAL U.S. GOVERNMENT OBLIGATIONS (COST - $162,793) 179,497 U.S. $ Denominated Foreign Securities/1/ - 3.7% British Columbia Hydro & Power, Notes, 15.50%, 11/15/11.............. 14,150 18,484 Inter-American Development Bank, Notes, 9.50%, 10/15/97.............. 2,600 2,922 KFW International Finance, Gtd., MTN, 8.20%, 6/1/06.................. 7,500 8,292 Province of Ontario, Deb., 6.125%, 6/28/00........................... 6,000 5,925 15.75%, 3/15/12.................................................... 9,000 11,975 17.00%, 11/5/11.................................................... 5,000 6,687 - ------------------------------------------------------------------------------------------------- TOTAL U.S. $ DENOMINATED FOREIGN SECURITIES (COST - $50,262) 54,285 Commercial Paper - 1.9% Harvard University, 3.45%, 3/1/94.................................... 7,053 7,052 Pacific Bell, 3.45%, 3/1/94.......................................... 21,115 21,113 - ------------------------------------------------------------------------------------------------- TOTAL COMMERCIAL PAPER (COST - $28,165) 28,165 - ------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES - 98.9% (COST - $1,392,017).......... 1,442,327 - ------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.1%................................. 15,632 NET ASSETS CONSISTING OF: Accumulated realized gains/losses - net of distributions............. 10,964 Unrealized appreciation of investments............................... 50,310 Paid-in-capital applicable to 159,860,044 shares of $1.00 par value capital stock outstanding; 300,000,000 shares authorized........... 1,396,685 ------------- NET ASSETS - 100.0%.................................................. $1,457,959 ------------- ------------- NET ASSET VALUE PER SHARE............................................ $9.12 ------------- ------------- - ------------------------------------------------------------------------------------------------- /1/ Marketable securities (payable in U.S. dollars) issued or guaranteed by a foreign government or community. MTN - Medium Term Note 144a - Security was purchased pursuant to Rule 144a under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers.
The accompanying notes are an integral part of these financial statements. Statement of Operations T. Rowe Price New Income Fund / Year Ended February 28, 1994 Amounts in Thousands --------------------------- INVESTMENT INCOME Interest income................................. $102,703 Expenses Investment management fees.................... $ 7,750 Shareholder servicing fees & expenses......... 4,439 Custodian and accounting fees & expenses...... 323 Prospectus & shareholder reports.............. 166 Registration fees & expenses.................. 52 Legal & auditing fees......................... 33 Directors' fees & expenses.................... 27 Miscellaneous................................. 35 ------------ Total expenses................................ 12,825 ------------ Net investment income........................... 89,878 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain............................... 24,262 Change in unrealized appreciation or depreciation.................................. (32,142) ------------ Net loss on investments......................... (7,880) ------------ INCREASE IN NET ASSETS FROM OPERATIONS.......... $ 81,998 ------------ ------------ - ---------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. Statement of Changes in Net Assets T. Rowe Price New Income Fund Year Ended Year Ended Feb. 28, 1994 Feb. 28, 1993 ------------- ------------- Amounts in Thousands ---------------------------- INCREASE (DECREASE) IN NET ASSETS Operations Net investment income.......................... $ 89,878 $ 89,940 Net realized gain on investments............... 24,262 14,333 Change in unrealized appreciation or depreciation of investments.................. (32,142) 34,028 ------------ ------------- Increase in net assets from operations......... 81,998 138,301 ------------ ------------- Distributions to shareholders Net investment income.......................... (89,878) (89,986) Net realized gain on investments............... (11,782) - ------------ ------------- Decrease in net assets from distributions to shareholders.............................. (101,660) (89,986) ------------ ------------- Capital share transactions Sold 34,796 and 50,001 shares.................. 323,889 451,404 Distributions reinvested of 9,735 and 8,737 shares....................................... 90,466 78,877 Redeemed 49,912 and 39,701 shares.............. (464,033) (357,971) ------------ ------------- Increase (decrease) in net assets from capital share transactions........................... (49,678) 172,310 ------------ ------------- Total increase (decrease)........................ (69,340) 220,625 NET ASSETS Beginning of year.............................. 1,527,299 1,306,674 ------------ ------------- End of year.................................... $1,457,959 $1,527,299 ------------ ------------- ------------ ------------- - ----------------------------------------------------------------------------- Notes to Financial Statements T. Rowe Price New Income Fund / February 28, 1994 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price New Income Fund (the Fund) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. A) Security valuation - Debt securities are generally traded in the over-the-counter market. Investments in securities with remaining maturities of one year or more are stated at fair value as furnished by dealers who make markets in such securities or by an independent pricing service, which considers yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Securities with remaining maturities less than one year are stated at fair value which is determined by using a matrix system that establishes a value for each security based on money market yields. Assets and liabilities for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by, or under the supervision of, the officers of the Fund, as authorized by the Board of Directors. B) Premiums and Discounts - Premiums and discounts on debt securities are amortized for both financial and tax reporting purposes. C) Other - Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on an identified cost basis. Distributions to shareholders are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations which may differ from generally accepted accounting principles. D) Accounting Change - Effective as of the beginning of the year, the Fund adopted a recently issued accounting standard related to shareholder distributions. This change resulted in a reclassification to paid-in-capital of permanent differences between tax and financial reporting of net investment income and net realized gains/losses. The cumulative effect of this change as of February 28, 1993, increased Accumulated net investment income - net of distributions by $46,000, increased Accumulated net realized gains/losses - net of distributions by $793,000 and decreased Paid-in-capital by $839,000. The results of operations, shareholder distributions and net assets were not affected by this change. NOTE 2 - FINANCIAL INSTRUMENTS As a part of its investment program, the Fund loans its portfolio securities to brokers. The nature and risk of these loans and the reasons for using them are set forth more fully in the Fund's Prospectus and Statement of Additional Information. Although risk is mitigated by obtaining collateral, the Fund could experience a delay in recovering its securities and possibly incur a capital loss if the borrower fails to return them. At February 28, 1994, the market value of securities on loan to brokers was $69,531,000 for which the Fund has collateral of $72,067,000, consisting of cash and U.S. Treasury securities. Purchases and sales of portfolio securities, other than short-term and U.S. Government securities, aggregated $386,154,000 and $332,772,000. Purchases and sales of U.S. Government securities aggregated $509,553,000 and $648,331,000 respectively, for the year ended February 28, 1994. 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 February 28, 1994, the aggregate cost of investments for federal income tax and financial reporting purposes was $1,392,017,000 and net unrealized appreciation aggregated $50,310,000, of which $57,338,000 related to appreciated investments and $7,028,000 to depreciated investments. NOTE 4 - RELATED PARTY TRANSACTIONS The investment management agreement between the Fund and T. Rowe Price Associates, Inc. (the Manager) provides for an annual investment management fee, computed daily and paid monthly, consisting of an Individual Fund Fee equal to 0.15% of average daily net assets and a Group Fee. The Group Fee is based on the combined assets of certain mutual funds sponsored by the Manager or Rowe Price-Fleming International, Inc. (the Group). The Group Fee rate ranges from 0.48% for the first $1 billion of assets to 0.31% for assets in excess of $34 billion. The effective annual Group Fee rate at February 28, 1994, was 0.34%, and for the year then ended was 0.35%. The Fund pays a pro rata portion of the Group Fee based on the ratio of the Fund's net assets to those of the Group. T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services, Inc. (RPS) are wholly owned subsidiaries of the Manager. TRPS provides transfer and dividend disbursing agent functions and shareholder services for all accounts. RPS provides subaccounting and recordkeeping services for certain retirement accounts invested in the Fund. The Manager, under a separate agreement, calculates the daily share price and maintains the financial records of the Fund. The Fund is one of several T. Rowe Price mutual funds (the Underlying Funds) in which the T. Rowe Price Spectrum Income Fund (Spectrum) invests. In accordance with an Agreement between Spectrum, the Underlying Funds, the Manager and TRPS, expenses from the operation of Spectrum are borne by the Underlying Funds based on each Underlying Fund's proportionate share of assets owned by Spectrum. For the year ended February 28, 1994, the Fund incurred fees totalling approximately $4,072,000 for these services provided by related parties. At February 28, 1994, investment management and service fees payable were $1,024,000. Financial Highlights T. Rowe Price New Income Fund
For a share outstanding throughout each year ended --------------------------------------------------------------------- Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28, 1994 1993 1992 1991 1990 ----------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR.... $9.24 $8.94 $8.60 $8.37 $8.26 ------ ------ ------ ------ ------ Investment Activities Net investment income............... 0.54 0.57 0.67 0.70 0.75 Net realized and unrealized gain (0.05) 0.30 0.36 0.24 0.12 (loss)................................ ------ ------ ------ ------ ------ Total from Investment Activities...... 0.49 0.87 1.03 0.94 0.87 ------ ------ ------ ------ ------ Distributions Net investment income............... (0.54) (0.57) (0.67) (0.70) (0.75) Net realized gain................... (0.07) - (0.02) (0.01) (0.01) ------ ------ ------ ------ ------ Total Distributions................... (0.61) (0.57) (0.69) (0.71) (0.76) ------ ------ ------ ------ ------ NET ASSET VALUE, END OF YEAR.......... $9.12 $9.24 $8.94 $8.60 $8.37 - -------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Total Return.......................... 5.36% 10.12% 12.40% 11.77% 10.73% Ratio of Expenses to Average Net Assets.......................... 0.82% 0.84% 0.87% 0.88% 0.86% Ratio of Net Investment Income to Average Net Assets............... 5.77% 6.36% 7.64% 8.33% 8.85% Portfolio Turnover Rate............... 58.3% 85.8% 49.7% 20.7% 51.1% Net Assets, End of Year (in thousands)...................... $1,457,959 $1,527,299 $1,306,674 $1,130,857 $992,566 Number of Shareholder Accounts, End of Year......................... 47,000 52,000 50,000 50,000 49,000 - --------------------------------------------------------------------------------------------------------
Report of Independent Accountants To the Shareholders and Board of Directors of T. Rowe Price New Income Fund, Inc. In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the selected per share data and information (which appears under the heading "Financial Highlights") present fairly, in all material respects, the financial position of T. Rowe Price New Income Fund, Inc. at February 28, 1994, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the selected per share data and information for each of the five years in the period then ended, in conformity with generally accepted accounting principles. These financial statements and selected per share data and information (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at February 28, 1994 by correspondence with custodians and brokers and, where appropriate, the application of alternative auditing procedures for unsettled security transactions, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE Baltimore, Maryland March 17, 1994 Officers and Directors George J. Collins, Chairman Henry H. Hopkins, Vice President Charles P. Smith, President/Director Heather R. Landon, Vice President Robert P. Black, Director James M. McDonald, Vice President Calvin W. Burnett, Director Edmund M. Notzon, Vice President Anthony W. Deering, Director Joan R. Potee, Vice President Carter O. Hoffman, Vice President/ Robert M. Rubino, Vice President Director Charles H. Salisbury, Jr., Vice F. Pierce Linaweaver, Director President James S. Riepe, Vice President/Director Peter Van Dyke, Vice President John Sagan, Director Lenora V. Hornung, Secretary John G. Schreiber, Director Carmen F. Deyesu, Treasurer Robert P. Campbell, Vice President David S. Middleton, Controller -----END PRIVACY-ENHANCED MESSAGE-----