N-CSRS 1 nif.txt T. ROWE PRICE NEW INCOME FUND Item 1. Report to Shareholders T. Rowe Price New Income Fund -------------------------------------------------------------------------------- November 30, 2003 Certified Semiannual 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 New Income Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) Financial Highlights For a share outstanding throughout each period -------------------------------------------------------------------------------- New Income class 6 Months Year Ended Ended 11/30/03 5/31/03 5/31/02 5/31/01 5/31/00 5/31/99 NET ASSET VALUE Beginning of period $ 9.21 $ 8.70 $ 8.53 $ 8.07 $ 8.50 $ 9.09 Investment activities Net investment income (loss) 0.15 0.37 0.47 0.53 0.52 0.54 Net realized and unrealized gain (loss) (0.22) 0.52 0.17 0.46 (0.43) (0.45) Total from investment activities (0.07) 0.89 0.64 0.99 0.09 0.09 Distributions Net investment activities (0.16) (0.38) (0.47) (0.53) (0.52) (0.54) Net realized gain -- -- -- -- -- (0.14) Total distributions (0.16) (0.38) (0.47) (0.53) (0.52) (0.68) NET ASSET VALUE End of period $ 8.98 $ 9.21 $ 8.70 $ 8.53 $ 8.07 $ 8.50 -------------------------------------------------------------- Ratios/Supplemental Data Total return^ (0.80)% 10.52% 7.68% 12.54% 1.13% 1.02% Ratio of total expenses to average net assets 0.72%! 0.74% 0.72% 0.73% 0.73% 0.72% Ratio of net investment income (loss) to average net assets 3.34%! 4.23% 5.38% 6.30% 6.32% 6.16% Portfolio turnover rate 245.7%! 221.2% 222.0% 112.1% 83.6% 94.3% Net assets, end of period (in millions) $ 2,261 $ 2,266 $ 1,863 $ 1,684 $1 ,633 $ 1,942 ^ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions. ! Annualized The accompanying notes are an integral part of these financial statements. T. Rowe Price New Income Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) Financial Highlights For a share outstanding throughout each period -------------------------------------------------------------------------------- Advisor Class 6 Months 9/30/02 Ended Through 11/30/03 5/31/03 NET ASSET VALUE Beginning of period $ 9.21 $ 8.84 Investment activities Net investment income (loss) 0.15* 0.23* Net realized and unrealized gain (loss) (0.23) 0.38 Total from investment activities (0.08) 0.61 Distributions Net investment income (0.15) (0.24) NET ASSET VALUE End of period $ 8.98 $ 9.21 ------------------------------------ Ratios/Supplemental Data Total return^ (0.88)%* 7.02%* Ratio of total expenses to average net assets 0.90%!* 0.90%!* Ratio of net investment income (loss) to average net assets 3.13%!* 2.61%!* Portfolio turnover rate 245.7%! 221.2% Net assets, end of period (in thousands) $ 137 $ 107 * Excludes expenses in excess of a 0.90% contractual expense limitation in effect through 9/30/04. ^ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions. ! Annualized The accompanying notes are an integral part of these financial statements. T. Rowe Price New Income Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) Financial Highlights For a share outstanding throughout each period -------------------------------------------------------------------------------- R Class 6 Months 9/30/02 Ended Through 11/30/03 5/31/03 NET ASSET VALUE Beginning of period $ 9.21 $ 8.84 Investment activities Net investment income (loss) 0.26*++ 0.22* Net realized and unrealized gain (loss) (0.34)++ 0.38 Total from investment activities (0.08) 0.60 Distributions Net investment income (0.14) (0.23) NET ASSET VALUE End of period $ 8.99 $ 9.21 ------------------------------------ Ratios/Supplemental Data Total return^ (0.90)%* 6.84%* Ratio of total expenses to average net assets 1.15%!* 1.15%!* Ratio of net investment income (loss) to average net assets 2.39%!* 2.32%!* Portfolio turnover rate 245.7%! 221.2% Net assets, end of period (in thousands) $ 2,816 $ 321 * Excludes expenses in excess of a 1.15% contractual expense limitation in effect through 9/30/04. ++ The amount presented is calculated pursuant to a methodology prescribed by the Securities and Exchange Commission for a share outstanding throughout the period. The amount is inconsistent with the fund's aggregate gains and losses because of the timing of sales and redemptions of fund shares in relation to fluctuating market values for the investment portfolio. ^ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions. ! Annualized The accompanying notes are an integral part of these financial statements. T. Rowe Price New Income Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) November 30, 2003 Portfolio of Investments (ss.) Par/Shares Value -------------------------------------------------------------------------------- ($ 000s) CORPORATE BONDS AND NOTES 25.5% Aerospace & Defense 0.1% Boeing,8.75%,8/15/21 2,425 3,068 3,068 Automobiles and Related 1.6% DaimlerChrysler,6.50%,11/15/13 7,845 8,084 Ford Motor Credit,6.50%,1/25/07 10,915 11,454 General Motors, 8.375%,7/15/33 5,885 6,395 GMAC,5.85%,1/14/09 7,520 7,812 Hertz,4.70%, 10/2/06 2,170 2,162 35,907 Banking 1.3% Bank One,5.25%,1/30/13 5,300 5,421 Capital One Bank,4.25%,12/1/08 4,500 4,455 Citigroup,5.625%,8/27/12 5,300 5,568 First Union,6.40%,4/1/08 2,215 2,453 HBOS, 144A,6.00%,11/1/33 4,300 4,216 J.P. Morgan Chase, 5.75%,1/2/13 4,900 5,141 Union Planters,4.375%, 12/1/10 3,070 3,024 30,278 Beverages 0.4% Bottling Group,4.625%,11/15/12 4,675 4,621 Coca-Cola Enterprises,6.125%,8/15/11 4,500 4,938 9,559 Broadcasting 0.5% AOL Time Warner,7.625%,4/15/31 4,415 4,989 Hearst-Argyle Television,7.00%,1/15/18 3,685 4,026 Univision Communications,2.875%,10/15/06 2,540 2,520 11,535 Cable Operators 0.7% Clear Channel Communications,4.625%,1/15/08 4,190 4,300 Comcast 5.50%, 3/15/11 1,500 1,544 5.85%, 1/15/10 8,450 8,936 14,780 Computer Service & Software 0.2% IBM,4.25%,9/15/09 5,155 5,231 5,231 Conglomerates 0.9% GE Capital 3.50%, 5/1/08 5,860 5,830 6.00%, 6/15/12 9,800 10,540 Hutchison Whampoa, 144A,5.45%,11/24/10 3,235 3,212 19,582 Consumer Products 0.3% Masco,5.875%,7/15/12 5,190 5,525 5,525 Container 0.2% Sealed Air, 144A, 5.375%,4/15/08 5,200 5,410 5,410 Diversified Chemicals 0.2% Dow Chemical, 6.125%, 2/1/11 3,225 3,426 3,426 Electric Utilities 3.2% American Electric Power, Series C, 5.375%, 3/15/10 3,095 3,207 Appalachian Power, Series E, 4.80%,6/15/05 5,115 5,287 Black Hills, 6.50%, 5/15/13 5,160 5,230 ComEd Financing III, 6.35%, 3/15/33 2,100 2,037 DPL, 6.875%, 9/1/11 2,000 2,087 Entergy Gulf States, 5.20%, 12/3/07 4,675 4,755 FirstEnergy, 5.50%, 11/15/06 6,925 7,195 Florida Power & Light, 5.95%, 10/1/33 3,325 3,366 Noram Energy, 6.50%, 2/1/08 2,247 2,403 Ohio Edison, 144A, 4.00%, 5/1/08 2,300 2,259 Pinnacle West Capital, 6.40%, 4/1/06 4,165 4,448 Potomac Electric Power, 3.75%, 2/15/06 4,125 4,170 PSEG Power 6.875%, 4/15/06 1,930 2,100 8.625%, 4/15/31 2,605 3,340 Public Service of New Mexico,4.40%,9/15/08 4,320 4,361 Sempra Energy, 6.00%, 2/1/13 4,780 5,007 Tri-State Generation & Transmission Assn., 144A, 6.04%, 1/31/18 2,850 2,919 TXU Energy, 7.00%, 3/15/13 5,120 5,631 WPD Holdings, 144A, 6.875%, 12/15/07 2,690 2,761 72,563 Electronic Components 0.1% Motorola, 6.75%, 2/1/06 2,665 2,848 2,848 Energy 0.6% Petroleos de Venezuela (PDVSA) Finance, 6.80%, 11/15/08 4,705 4,376 Transocean Sedco Forex, 7.50%, 4/15/31 2,960 3,368 YPF Sociedad Anonima, 10.00%, 11/2/28 4,660 4,963 12,707 Entertainment and Leisure 0.1% Viacom, 5.625%, 8/15/12 2,805 2,962 2,962 Exploration and Production 0.5% Canadian Natural Resources, 7.20%, 1/15/32 5,200 5,901 Kaneb Pipe Line Operating 5.875%, 6/1/13 2,900 2,861 7.75%, 2/15/12 2,900 3,215 11,977 Finance and Credit 1.8% CIT Group, 7.75%, 4/2/12 6,805 7,973 Colonial Bank, 9.375%, 6/1/11 3,980 4,478 Countrywide Home Loans, 5.50%, 2/1/07 3,860 4,110 Household Finance 5.75%, 1/30/07 2,925 3,132 6.375%, 11/27/12 1,550 1,683 International Lease Finance, 6.375%, 3/15/09 5,520 6,089 Northern Trust, 4.60%, 2/1/13 3,075 3,010 PHH Corporation, 7.125%, 3/1/13 3,475 3,873 SLM Corporation, 4.00%, 1/15/09 5,600 5,572 39,920 Food Processing 0.6% McCormick, 6.40%, 2/1/06 7,300 7,864 Unilever, 5.90%, 11/15/32 5,035 5,020 12,884 Food/Tobacco 0.3% UST, 6.625%, 7/15/12 5,400 5,938 5,938 Gas & Gas Transmission 0.6% Buckeye Partners, 144A, 6.75%, 8/15/33 2,140 2,209 Duke Capital, 7.50%, 10/1/09 4,250 4,797 Kinder Morgan, 6.50%, 9/1/12 5,000 5,449 Panhandle Eastern Pipe Line, 144A, 4.80%, 8/15/08 2,055 2,089 14,544 Healthcare Services 0.1% Highmark, 144A, 6.80%, 8/15/13 2,265 2,446 2,446 Insurance 2.5% AIG Sunamerica Global Financing XII, 144A, 5.30%, 5/30/07 6,070 6,448 Allstate Financial Global Funding, 144A, 5.25%, 2/1/07 5,200 5,516 Cigna, 7.40%, 5/15/07 2,000 2,198 Fund American Companies, 5.875%, 5/15/13 2,185 2,172 Jefferson Pilot, 144A, 8.14%, 1/15/46 3,000 3,293 Mangrove Bay Trust, 144A, 6.102%, 7/15/13 2,500 2,468 Marsh & McLennan, 3.625%, 2/15/08 2,250 2,240 Nationwide Financial Services, 5.90%, 7/1/12 6,535 6,864 NLV Financial, 144A, 7.50%, 8/15/33 2,175 2,211 Principal Life Global, 144A, 5.25%, 1/15/13 4,900 4,929 Prudential, 3.75%, 5/1/08 4,520 4,491 Security Benefit, 144A, 7.45%, 10/1/33 2,150 2,142 Sun Life of Canada U.S. Capital Trust, 144A, 8.526%, 5/29/49 7,000 7,930 XL Capital Finance, 6.50%, 1/15/12 4,070 4,415 57,317 Investment Dealers 0.8% Franklin Resources, 3.70%, 4/15/08 1,650 1,642 Goldman Sachs Group 4.125%, 1/15/08 7,025 7,168 6.125%, 2/15/33 2,065 2,058 Lehman Brothers, 4.00%, 1/22/08 3,045 3,082 Morgan Stanley, 3.625%, 4/1/08 3,165 3,147 17,097 Long Distance 0.4% Sprint, 6.375%, 5/1/09 8,300 8,786 8,786 Manufacturing 0.3% John Deere Capital, 7.00%, 3/15/12 5,250 6,025 6,025 Media and Communications 0.6% Cox Enterprises, 144A, 4.375%, 5/1/08 5,500 5,552 Liberty Media, VR, 2.64%, 12/17/03 2,175 2,203 News America 6.55%, 3/15/33 1,260 1,303 6.75%, 1/9/38 1,705 1,907 7.625%, 11/30/28 2,160 2,499 13,464 Metals and Mining 0.6% BHP Finance, 4.80%, 4/15/13 4,240 4,219 Falconbridge Limited, 7.35%, 6/5/12 5,100 5,732 WMC Finance USA, 5.125%, 5/15/13 2,975 2,892 12,843 Paper and Paper Products 0.8% Celulosa Arauco Y Constitucion, 8.625%, 8/15/10 7,500 8,890 SCA Coordination Center, 144A, 4.50%, 7/15/15 3,425 3,185 Weyerhaeuser, 6.75%, 3/15/12 4,850 5,226 17,301 Petroleum 0.9% ConocoPhillips, 5.90%, 10/15/32 4,560 4,552 Devon Financing, 6.875%, 9/30/11 4,035 4,532 Occidental Petroleum, 4.25%, 3/15/10 2,125 2,111 Pemex Project Funding Master Trust, 7.375%, 12/15/14 5,970 6,306 PF Export Receivables Master Trust, 144A, 6.436%, 6/1/15 2,865 2,782 20,283 Railroads 0.7% Canadian National Railway, 4.40%, 3/15/13 3,980 3,803 Norfolk Southern, 6.00%, 4/30/08 6,175 6,657 Union Pacific, 6.50%, 4/15/12 5,020 5,545 16,005 Savings and Loan 0.2% Washington Mutual, 2.40%, 11/3/05 4,560 4,547 4,547 Services 0.2% Waste Management, 6.375%, 11/15/12 4,000 4,346 4,346 Specialty Chemicals 0.2% Chevron Phillips Chemical, 5.375%, 6/15/07 3,935 4,138 4,138 Specialty Retailers 0.5% AutoZone, 4.75%, 11/15/10 3,535 3,551 Lowes, 6.50%, 3/15/29 4,000 4,290 Office Depot, 6.25%, 8/15/13 4,145 4,273 12,114 Supermarkets 0.2% Fred Meyer, 7.45%, 3/1/08 4,635 5,252 5,252 Telephones 1.9% British Telecommunications, VR, 8.375%, 12/15/10 4,300 5,157 Citizens Communications, 9.00%, 8/15/31 3,540 4,612 Deutsche Telekom, 5.25%, 7/22/13 4,300 4,272 France Telecom, VR, 9.25%, 3/1/11 2,100 2,506 Royal Koninkljke KPN, 8.00%, 10/1/10 5,000 5,931 Telecom Italia, Series C, 144A, 6.375%, 11/15/33 4,035 3,999 Telefonos de Mexico (Telmex), 144A, 4.50%, 11/19/08 2,480 2,477 Telus Corporation, 7.50%, 6/1/07 3,200 3,552 Verizon Florida, 6.125%, 1/15/13 3,080 3,272 Verizon Global Funding, 7.75%, 12/1/30 4,155 4,775 Verizon Virginia, 4.625%, 3/15/13 3,090 2,955 43,508 Wireless Communications 0.4% AT&T Wireless Group, 8.75%, 3/1/31 3,530 4,139 AT&T Wireless Services, 7.875%, 3/1/11 3,450 3,896 INTELSAT, 144A, 5.25%, 11/1/08 1,885 1,919 9,954 Total Corporate Bonds and Notes (Cost $557,468) 576,070 ASSET-BACKED SECURITIES 5.1% Auto-Backed 1.3% Capital Auto Receivables Asset Trust, Series 2002-2, Class CERT, 4.18%, 10/15/07 7,255 7,391 Chase Manhattan Auto Owner Trust Series 2001-B, Class CTFS, 3.75%, 5/15/08 3,583 3,637 Series 2003-A, Class A4, 2.06%, 12/15/09 9,125 8,895 Hyundai Auto Receivables Trust Series 2003 A, Class A4, 3.02%, 10/15/10 4,950 4,911 Series 2003 A, Class D, 4.06%, 10/15/10 2,050 2,033 SSB Auto Loan Trust, Series 2002-1, Class C, 4.13%, 2/15/09 2,639 2,669 29,536 Credit Card-Backed 2.8% Citibank Credit Card Issuance Trust Series 2001-C1, Class C1, VR, 2.23%, 2/9/04 6,035 6,073 Series 2002-C1, Class C1, VR, 2.16%, 2/9/04 12,715 12,754 Series 2000-C1, Class C1, 7.45%, 9/15/07 11,075 11,921 MBNA Credit Card Master Note Trust, Series 2001-C2, Class C2, 144A, VR, 2.27%, 12/15/10 11,300 11,457 MBNA Master Credit Card Trust, Series 2000-D, Class C, 144A, VR, 8.40%, 9/15/09 10,075 11,445 World Financial Network, Series 2003-A, Class A2, VR, 1.49%, 12/15/03 10,925 10,929 64,579 Motorcycles 0.4% Harley-Davidson Motorcycle Trust, Series 2003-3, Class B, 2.28%, 12/15/03 8,096 8,085 8,085 Recreational Vehicles 0.2% CIT RV Trust, Series 1997-A, Class A6, 6.35%, 4/15/11 4,274 4,366 4,366 Stranded Asset 0.4% Reliant Energy Transition Bond, Series 2001-1, Class A4, 5.63%, 9/15/15 8,572 9,077 9,077 Total Asset-Backed Securities (Cost $114,181) 115,643 EQUITY AND CONVERTIBLE SECURITIES 1.7% Bank and Trust 0.7% AmSouth, Common Stock 60 1,439 Bank of America, Common Stock 9 641 BB&T, Common Stock 37 1,456 Charter One Financial, Common Stock 45 1,495 Citizens Banking, Common Stock 23 735 FleetBoston Financial, Common Stock 22 893 KeyCorp, Common Stock 55 1,529 National City, Common Stock 45 1,510 PNC Financial Services Group, Common Stock 30 1,631 Regions Financial, Common Stock 40 1,484 U.S. Bancorp, Common Stock 55 1,524 Union Planters, Common Stock 45 1,553 15,890 Building and Real Estate 0.4% CarrAmerica Realty, REIT 60 1,745 Equity Office Properties Trust, Series B, REIT, Pfd. Conv. Stock, 5.25% 54 2,654 Reckson Associates Realty, Series A, REIT, Pfd. Conv. Stock, 7.625% 90 2,238 Vornado Realty Trust, REIT 33 1,805 Weingarten Realty Investors, REIT 39 1,758 10,200 Computer Service & Software 0.0% Juniper Networks, Conv. Notes, 4.75%, 3/15/07 446 457 457 Electric Utilities 0.1% PPL Energy, Conv. Notes, 144A, 2.625%, 5/15/08 1,572 1,553 1,553 Financial Services 0.1% Citigroup, Common Stock 25 1,176 1,176 Integrated Petroleum - International 0.3% BP, ADR 49 2,083 ChevronTexaco, Common Stock 28 2,103 Royal Dutch Petroleum, ADS 47 2,093 6,279 Media and Communications 0.0% Liberty Media/Sprint PCS, Conv. Notes, 4.00%, 11/15/29 985 672 672 Telephones 0.1% SBC Communications, Common Stock 86 2,002 2,002 Total Equity and Convertible Securities (Cost $37,211) 38,229 NON-U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES 7.4% Commercial Mortgage-Backed 5.0% Banc of America, Series 2003-1, Class A2, CMO, 4.648%, 9/11/36 11,450 11,264 Bear Stearns, Series 2002-TOP8, Class A2, CMO, 4.83%, 8/15/38 8,210 8,256 DLJ Commercial Mortgage, Series 1999-CG2, Class A1B, CMO, 7.30%, 6/10/32 13,000 14,974 GE Capital, Series 2001-1, Class A2, CMO, 6.531%, 5/15/33 11,300 12,644 J.P. Morgan Chase Series 1999-C7, Class A2, CMO, 6.507%, 10/15/35 9,500 10,470 Series 1999-PLS1, Class A2, CMO, 7.313%, 12/1/03 19,203 21,768 Series 2001-CIB2, Class A2, CMO, 6.244%, 4/15/35 6,750 7,391 Morgan Stanley, Series 2002, Class A2, CMO, 5.98%, 1/15/39 9,400 10,184 Prudential Securities Secured Financing, Series 1999, Class A1, CMO, 6.074%, 1/15/08 5,229 5,516 Salomon Brothers Mortgage Securities VII, Series 2001-C1, Class A2, CMO, 6.226%, 12/18/35 10,875 11,842 114,309 Home Equity Loans-Backed 2.0% BankBoston Home Equity Loan Trust, Series 1998-1, Class A6, 6.35%, 2/25/13 4,570 4,734 Chase Funding Mortgage Loan Series 1998-1, Class 1M1, 6.59%, 5/25/28 2,123 2,198 Series 2002-1, Class 1A3, 5.039%, 12/25/23 10,675 10,829 Series 2002-2, Class 1M1, 5.599%, 9/25/31 1,750 1,797 Series 2002-3, Class 1A6, 4.707%, 8/25/13 5,365 5,476 Series 2003-1, Class 1A6, 4.458%, 3/25/14 5,960 5,908 Series 2003-3, Class 1M1, 4.537%, 9/25/32 4,400 4,139 Countrywide Asset-Backed Certificates, Series 2003-5, Class AF-3, 3.613%, 4/25/30 7,925 7,945 Mellon Residential Funding, Series 2001-HEIL, Class A3, 5.945%, 2/25/11 1,599 1,599 44,625 Whole Loans-Backed 0.4% Residential Accredit Loans Series 1997-QS12, Class A7, CMO, 7.25%, 11/25/27 1,352 1,376 Series 1998-QS9, Class A11, CMO, 6.75%, 7/25/28 496 496 Summit Mortgage Trust, Series 2002, Class A2, CMO, 144A, 6.259%, 12/1/03 7,450 7,466 9,338 Total Non-U.S. Government Mortgage-Backed Securities (Cost $168,293) 168,272 U.S. GOVERNMENT & AGENCY MORTGAGE-BACKED SECURITIES 28.3% U.S. Government Agency Obligations (misc. symbol1) 19.4% Federal Home Loan Mortgage 5.00%, 1/1/09 - 11/1/18 72,341 73,423 5.50%, 4/1/29 930 945 6.50%, 5/1/17 - 5/1/24 9,715 10,230 7.00%, 2/1/24 - 6/1/32 8,497 8,978 7.50%, 5/1 - 6/1/24 511 551 8.00%, 6/1/08 0 0 10.50%, 3/1/13 - 8/1/20 45 48 11.00%, 11/1/17 - 7/1/20 22 25 ARM, 4.641%, 12/1/03 6,040 6,091 CMO 4.50%, 3/15/16 31,450 31,586 5.50%, 4/15/28 21,750 22,190 6.50%, 3/15/23 10,810 11,328 Principal Only, 8/1/28 998 884 IO, 4.50%, 6/15/11 - 4/15/18 34,628 4,067 TBA, 6.00%, 1/1/32 51,200 52,480 Federal National Mortgage Assn. 5.00%, 1/1/09 1,318 1,348 5.50%, 2/1/17 - 11/1/33 47,794 48,974 6.00%, 4/1/14 - 2/1/33 2,778 2,881 6.50%, 6/1/13 - 7/1/32 15,122 15,826 7.00%, 10/1/29 - 11/1/30 290 306 CMO 2.91%, 11/25/33 6,325 6,232 5.00%, 3/25/15 15,800 16,149 5.50%, 5/25/28 18,925 19,385 IO, 5.50%, 11/25/28 8,491 991 IO, 6.50%, 2/1/32 4,136 739 TBA 4.50%, 1/1/18 22,450 22,310 5.50%, 1/1/18 - 1/1/32 46,408 47,103 6.00%, 1/1/33 33,413 34,342 439,412 U.S. Government Obligations 8.9% Government National Mortgage Assn. 4.00%, 9/15 - 11/15/18 22,550 21,887 5.00%, 9/20/33 20,695 20,314 6.00%, 2/15/14 - 4/20/33 54,291 56,514 6.50%, 8/15/25 - 9/20/32 8,100 8,533 7.00%, 3/15/13 - 11/20/28 14,658 15,688 7.50%, 8/15/16 - 8/15/28 3,046 3,277 8.00%, 7/15/16 - 10/15/27 8,991 9,792 8.50%, 9/15/16 - 9/20/26 1,767 1,947 9.00%, 1/15/09 - 11/15/19 389 433 9.50%, 6/15/09 - 2/15/25 100 109 10.25%, 9/15/19 - 11/15/20 205 230 11.00%, 12/15/09 - 6/15/19 2,447 2,732 11.50%, 3/15/10 - 10/15/15 329 371 CMO, Principal Only, 3/16/28 1,821 1,531 TBA, 5.50%, 1/1/32 57,100 57,618 200,976 Total U.S. Government & Agency Mortgage-Backed Securities (Cost $636,708) 640,388 U.S. GOVERNMENT & AGENCY OBLIGATIONS (EXCLUDING MORTGAGE-BACKED) 17.7% U.S. Government Agency Obligations (misc. symbol1) 3.1% Federal Home Loan Mortgage 4.75%, 10/11/12 10,000 9,839 6.875%, 1/15/05 4,750 5,024 Federal National Mortgage Assn. 4.25%, 7/15/07 20,000 20,740 5.125%, 1/2/14 3,960 3,951 5.75%, 2/15/08 15,045 16,414 7.125%, 1/15/30 11,300 13,452 69,420 U.S. Treasury Obligations 14.6% U.S. Treasury Bonds 5.375%, 2/15/31 5,425 5,617 6.00%, 2/15/26 6,515 7,160 6.25%, 8/15/23 - 5/15/30 ++ 30,100 34,022 6.50%, 11/15/26 29,650 34,589 7.50%, 11/15/16 21,100 26,678 U.S. Treasury Inflation-Indexed Notes, 1.875%, 7/15/13 33,529 33,152 U.S. Treasury Notes 2.125%, 8/31/04 30,660 30,861 3.25%, 5/31/04 21,570 21,799 3.875%, 2/15/13 10,780 10,482 4.25%, 8/15 - 11/15/13 15,485 15,393 5.875%, 11/15/04 86,420 90,066 6.50%, 8/15/05 8,320 8,971 U.S. Treasury Stripped Interest Payment, Zero Coupon, 5/15/20 32,250 13,172 331,962 Total U.S. Government & Agency Obligations (Excluding Mortgage-Backed) (Cost $394,764) 401,382 FOREIGN GOVERNMENT OBLIGATIONS/AGENCIES 8.9% Canadian Government and Municipalities 4.7% Government of Canada 3.50%, 6/1/04 (CAD) 27,125 20,992 5.50%, 6/1/09 (CAD) 24,820 20,228 6.00%, 9/1/05 (CAD) 81,150 65,589 106,809 Foreign Government and Municipalities (Excluding Canadian) 4.2% Asian Developement Bank, 6.25%, 6/15/11 (AUD) 16,075 11,647 Bundesrepublic, 5.00%, 1/4/12 (EUR) 11,300 14,201 European Investment Bank, 6.00%, 7/15/05 (AUD) 16,850 12,253 Federal Republic of Germany, 5.00%, 5/20/05 (EUR) 18,600 23,043 Republic of Chile, 5.50%, 1/15/13 4,710 4,835 United Kingdom Treasury, 5.00%, 3/7/08 (GBP) 13,500 23,353 United Mexican States, 6.375%, 1/16/13 5,800 5,968 95,300 Total Foreign Government Obligations/Agencies (Cost $174,763) 202,109 MUNICIPAL BONDS 0.4% California, GO, 5.50%, 11/1/33 2,500 2,571 Illinois, GO, 5.10%, 6/1/33 4,000 3,635 Oregon, GO, 5.892%, 6/1/27 1,640 1,669 Total Municipal Bonds (Cost $8,170) 7,875 INTEREST RATE SWAP AGREEMENTS 0.0% Morgan Stanley Pay 3.955% Fixed, Receive 3 month LIBOR (currently 1.17%) 11/12/08 20,000 (235) Total Interest Rate Swaps (Premium Paid $0) (235) MONEY MARKET FUNDS 13.5% T. Rowe Price Reserve Investment Fund,1.12%#! 305,717 305,717 Total Money Market Funds (Cost $305,717) 305,717 SECURITIES LENDING COLLATERAL 11.7% Money Market Trust 11.7% State Street Bank and Trust Company of New Hampshire N.A. Securities Lending Quality Trust units 264,826 264,826 Total Securities Lending Collateral (Cost $264,826) 264,826 Total Investments in Securities 120.2% of Net Assets (Cost $2,662,101) $2,720,276 ---------- Forward Currency Exchange Contracts Amounts in (000s) Unrealized Counterparty Settlement Receive Deliver Gain (Loss) ------------- ---------- ----------- ----------- ----------- Credit Suisse First Boston 12/9/03 USD 13,470 CAD 17,978 $ (381) Credit Suisse First Boston 12/9/03 USD 10,670 EUR 9,085 (226) Credit Suisse First Boston 12/9/03 USD 18,675 EUR 16,000 (515) Morgan Stanley 12/9/03 CAD 29,000 USD 21,887 456 Morgan Stanley 12/9/03 USD 30,128 CAD 40,210 (852) Morgan Stanley 12/9/03 EUR 2,000 USD 2,296 103 Morgan Stanley 12/9/03 USD 16,450 EUR 14,000 (341) Royal Bank of Canada 12/9/03 USD 4,761 CAD 6,350 (131) Net unrealized gain (loss) on open forward currency exchange contracts $ (1,887) Futures Contracts ($ 000s) Contract Unrealized Expiration Value Gain (Loss) --------- -------- ----------- Long, 209 thirty year U.S. Treasury contracts, $1,075 par of U.S. Treasury Bonds pledged as initial margin 12/03 $ 22,840 $ 772 Short, 302 five year U.S. Treasury contracts, $350 par of U.S. Treasury Bonds pledged as initial margin 12/03 (33,720) (730) Net payments (receipts) of variation margin to date (96) Variation margin receivable (payable) on open futures contracts $ (54) ss Denominated in USD unless otherwise noted # Seven-day yield (misc. symbol1) The issuer is a publicly-traded company that operates under a congressional charter; its securities are neither issued nor guaranteed by the U.S. government. ++ All or a portion of this security is pledged to cover margin requirements on futures contracts at November 30, 2003 . ! Affiliated company--See Note 2. 144A Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration only to qualified institutional buyers--total of such securities at period-end amounts to $114,293,000 and represents 5.0% of net assets. ADR American Depository Receipts ADS American Depository Shares ARM Adjustable Rate Mortgage AUD Australian dollar CAD Canadian dollar CMO Collateralized Mortgage Obligation EUR Euro GBP British pound GO General Obligation IO Interest Only security for which the fund receives interest on notional principal (par) REIT Real Estate Investment Trust TBA To Be Announced security was purchased on a forward commitment basis USD United States dollar VR Variable Rate The accompanying notes are an integral part of these financial statements. T. Rowe Price New Income Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) November 30, 2003 Statement of Assets and Liabilities -------------------------------------------------------------------------------- In thousands Assets Investments in securities, at value Affiliated companies (cost $305,717) $ 305,717 Other companies (cost $ 2,356,384) 2,414,559 Total investments in securities 2,720,276 Other assets 125,174 Total assets 2,845,450 Liabilities Payable for investment securities purchased 312,387 Obligation to return securities lending collateral 264,826 Other liabilities 4,624 Total liabilities 581,837 NET ASSETS $ 2,263,613 --------- Net Assets Consist of: Undistributed net investment income (loss) $ (547) Undistributed net realized gain (loss) (35,773) Net unrealized gain (loss) 56,496 Paid-in-capital applicable to 251,941,303 shares of $1.00 par value capital stock outstanding; 300,000,000 shares authorized 2,243,437 NET ASSETS $ 2,263,613 --------- NET ASSET VALUE PER SHARE New Income class ($2,260,660,779/251,612,883 shares outstanding) $ 8.98 ---------------- Advisor Class ($136,516/15,196 shares outstanding) $ 8.98 ---------------- R Class ($2,815,685/313,224 shares outstanding) $ 8.99 ---------------- The accompanying notes are an integral part of these financial statements. T. Rowe Price New Income Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) Statement of Operations -------------------------------------------------------------------------------- In thousands 6 Months Ended 11/30/03 Investment Income (Loss) Income Interest $ 42,264 Dividend 2,858 Securities lending 268 Total income 45,390 Expenses Investment management 5,238 Shareholder servicing New Income class 2,442 Advisor class -- R Class 1 Custody and accounting 186 Registration 100 Prospectus and shareholder reports New Income class 76 Advisor Class 1 R Class 1 Legal and audit 15 Directors 6 Distribution and service (12b-1) Advisor Class -- R Class 2 Miscellaneous 8 Reductions/repayments pursuant to expense limitation Expenses (reimbursed by) repaid to manager (1) Total expenses 8,075 Expenses paid indirectly (22) Net expenses 8,053 Net investment income (loss) 37,337 Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities $ 19,546 Futures 2,624 Written options 342 Foreign currency transactions (3,638) Net realized gain (loss) 18,874 Change in net unrealized gain (loss) Securities (72,976) Futures (214) Other assets and liabilities denominated in foreign currencies 514 Change in net unrealized gain (loss) (72,676) Net realized and unrealized gain (loss) (53,802) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (16,465) -------- The accompanying notes are an integral part of these financial statements. T. Rowe Price New Income Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) Statement of Changes in Net Assets -------------------------------------------------------------------------------- In thousands 6 Months Year Ended Ended 11/30/03 5/31/03 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 37,337 $ 84,987 Net realized gain (loss) 18,874 (2,576) Change in net unrealized gain (loss) (72,676) 122,779 Increase (decrease) in net assets from operations (16,465) 205,190 Distributions to shareholders Net investment income New Income class (38,769) (87,016) Advisor Class (2) (3) R Class (12) (4) Decrease in net assets from distributions (38,783) (87,023) Capital share transactions * Shares sold New Income class 224,633 561,473 Advisor Class 30 100 R Class 2,686 321 Distributions reinvested New Income class 36,528 81,806 Advisor Class 2 3 R Class 12 4 Shares redeemed New Income class (211,462) (358,633) R Class (201) (14) Increase (decrease) in net assets from capital share transactions 52,228 285,060 Net Assets Increase (decrease) during period (3,020) 403,227 Beginning of period 2,266,633 1,863,406 End of period $ 2,263,613 $ 2,266,633 -------------------------------- *Share information Shares sold New Income class 24,903 63,287 Advisor Class 3 12 R Class 300 36 Distributions reinvested New Income class 4,064 9,221 R Class 1 1 Shares redeemed New Income class (23,490) (40,608) R Class (23) (2) Increase (decrease) in shares outstanding 5,758 31,947 The accompanying notes are an integral part of these financial statements. T. Rowe Price New Income Fund -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) November 30, 2003 Notes to Financial Statements -------------------------------------------------------------------------------- NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price New Income Fund, Inc. (the fund) is registered under the Investment Company Act of 1940 (the 1940 Act) as a diversified, open-end management investment company. The fund seeks the highest level of income consistent with the preservation of capital over time by investing primarily in marketable debt securities. The fund has three classes of shares: New Income Fund (New Income class), offered since August 31, 1973, New Income Fund-Advisor Class (Advisor Class), offered since September 30, 2002, and New Income Fund-R Class (R Class), offered since September 30, 2002. Advisor Class shares are sold only through brokers and other financial intermediaries, and R Class shares are available to retirement plans serviced by intermediaries. The Advisor Class and R Class each operate under separate Board-approved Rule 12b-1 plans, pursuant to which each class compensates financial intermediaries for distribution and certain administrative services. Each class has exclusive voting rights on matters related solely to that class, separate voting rights on matters that relate to all classes, and, in all other respects, the same rights and obligations as the other classes. 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. Equity securities listed or regularly traded on a securities exchange or in the over-the-counter market are valued at the last quoted sale price, or official closing price for certain markets, at the time the valuations are made. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security Listed securities not traded on a particular day are valued at the mean of the latest bid and ask prices for domestic securities and the last quoted sale price for international securities. Investments in mutual funds are valued at the mutual fund's closing net asset value per share on the day of valuation. Purchased and written options on futures contracts are valued at the last sale price. 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 Directors. Most foreign markets close before the NYSE. Normally, developments that could affect the values of securities that occur between the close of a foreign market and the close of the NYSE will not be reflected in security valuations used by the fund to compute its share price. However, if developments are so significant that they will, in the judgment of the fund, clearly and materially affect security values, such valuations may be adjusted to reflect the estimated fair value of the securities as of the close of the NYSE, as determined in good faith by the T. Rowe Price Valuation Committee, established by the fund's Board of Directors. Currency Translation Assets, including investments, and liabilities denominated in foreign currencies are translated into U.S. dollar values each day at the prevailing exchange rate, using the mean of the bid and ask prices of such currencies against U.S. dollars as quoted by a major bank. Purchases and sales of securities, income, and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction. The effect of changes in foreign currency exchange rates on realized and unrealized security gains and losses is reflected as a component of security gains and losses. Class Accounting The Advisor Class and R Class each pay distribution and administrative expenses in the form of Rule 12b-1 fees, in an amount not exceeding 0.25% and 0.50%, respectively, of the class's average daily net assets. Shareholder servicing, prospectus, and shareholder report expenses incurred by each class are charged directly to the class to which they relate. Expenses common to all classes and investment income are allocated to the classes based upon the relative daily net assets of each class's settled shares; realized and unrealized gains and losses are allocated based upon the relative daily net assets of each class's outstanding shares. Income distributions are declared by each class on a daily basis and paid monthly. Capital gain distributions, if any, are declared and paid by the fund, typically on an annual basis. Expenses Paid Indirectly Credits earned on temporarily uninvested cash balances at the custodian are used to reduce the fund's custody charges. Custody expense in the accompanying statement of operations is presented before reduction for credits, which totaled $22,000 for the six months ended November 30, 2003. Other Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Premiums and discounts on municipal and debt securities are amortized for financial reporting purposes. Dividend income and distributions to shareholders are recorded by the fund on the ex-dividend date. Dividends from mutual fund investments are reflected as dividend income; capital gain distributions from mutual fund investments are reflected as realized gain/loss. Payments ("variation margin") made or received by the fund to settle the daily fluctuations in the value of futures contracts are recorded as unrealized gains or losses until the contracts are closed. Unrealized gains and losses on futures and forward currency exchange contracts are included in Other assets and Other liabilities, respectively, and in Change in net unrealized gain or loss in the accompanying financial statements. 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. Forward Currency Exchange Contracts During the six months ended November 30, 2003, the fund was a party to forward currency exchange contracts under which it is obligated to exchange currencies at specified future dates and exchange rates. Risks arise from the possible inability of counterparties to meet the terms of their agreements and from movements in currency values. Futures Contracts During the six months ended November 30, 2003, 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. Options Call and put options on futures contracts give the holder the right to purchase or sell, respectively, a particular futures contract at a specified price until a certain date. Risks arise from possible illiquidity of the options market and from movements in underlying futures prices. Transactions in options written and related premiums received during the six months ended November 30, 2003, were as follows: Number of Contracts Premiums Outstanding at beginning of period - $ - Written 790 828,000 Expired (310) (325,000) Closed (480) (503,000) Outstanding at end of period - $ - -------------------------- Swap Agreements During the six months ended November 30, 2003, the fund was a party to interest rate swap agreements under which it is obligated to exchange cash flows based on the difference between specified interest rates applied to a notional principal amount for a specified period of time. Risks arise from the possible inability of counterparties to meet the terms of their agreements and from movements in interest rates. Securities Lending The fund lends its securities to approved brokers to earn additional income. It receives as collateral cash and U.S. government securities valued at 102% to 105% of the value of the securities on loan. Cash collateral is invested in a money market pooled trust managed by the fund's lending agent in accordance with investment guidelines approved by fund management. Collateral is maintained over the life of the loan in an amount not less than the value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the fund the next business day. Although risk is mitigated by the collateral, the fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities. Securities lending revenue recognized by the fund consists of earnings on invested collateral and borrowing fees, net of any rebates to the borrower and compensation to the lending agent. At November 30, 2003, the value of loaned securities was $306,548,000; aggregate collateral consisted of $264,826,000 in the money market pooled trust and U.S. government securities valued at $52,493,000. 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 November 30, 2003, the fund's investment in the T. Rowe Price Reserve Investment Fund was its only affiliated holding and represented 11.2% of the value of the fund's investments in securities. Other Purchases and sales of portfolio securities, other than short-term and U.S. government securities, aggregated $417,889,000 and $365,569,000, respectively, for the six months ended November 30, 2003. Purchases and sales of U.S. government securities aggregated $2,199,330,000 and $2,218,934,000, respectively, for the six months ended November 30, 2003. 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 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. The amount and character of tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of November 30, 2003. The fund intends to retain realized gains to the extent of available capital loss carryforwards. As of May 31, 2003, the fund had $39,329,000 of unused capital loss carryforwards, of which $1,791,000 expire in 2008, and $37,538,000 expire in 2009. At November 30, 2003, the cost of investments for federal income tax purposes was $2,662,101,000. Net unrealized gain aggregated $56,496,000 at period-end, of which $90,637,000 related to appreciated investments and $34,141,000 related to depreciated investments. 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 November 30, 2003, the effective annual group fee rate was 0.32%, and investment management fee payable totaled $862,000. The Advisor Class and R Class are also subject to a contractual expense limitation through the limitation dates indicated in the table below. During the limitation period, the manager is required to waive its management fee and reimburse a class for any expenses, excluding interest, taxes, brokerage commissions, and extraordinary expenses, that would otherwise cause the class's ratio of total expenses to average net assets (expense ratio) to exceed its expense limitation. Through the repayment date, each class is required to repay the manager for expenses previously reimbursed and management fees waived to the extent the class's net assets have grown or expenses have declined sufficiently to allow repayment without causing the class's expense ratio to exceed its expense limitation. -------------------------------------------------------------------------------- Advisor Class R Class Expense Limitation 0.90% 1.15% Limitation Date 9/30/04 9/30/04 Repayment Date 9/30/06 9/30/06 At November 30, 2003, expenses previously reimbursed by the manager remain subject to repayment in the amount of $2,000 through September 30, 2006. 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 prices 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 New Income class and R Class. Expenses incurred pursuant to these service agreements totaled $1,067,000 for the six months ended November 30, 2003, of which $206,000 was payable at period-end. Additionally, the fund is one of several mutual funds in which certain college savings plans managed by Price Associates may invest. As approved by the fund's Board of Directors, shareholder servicing costs associated with each college savings plan are borne by the fund in proportion to the average daily value of its shares owned by the college savings plan. For the six months ended November 30, 2003, the fund was charged $4,000 for shareholder servicing costs related to the college savings plans, of which $3,000 was for services provided by Price and $1,000 was payable at period-end. At November 30, 2003, approximately 0.2% of the outstanding shares of the New Income class were held by college savings plans. 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) and T. Rowe Price Retirement Funds (Retirement Funds) may invest. Neither the Spectrum Funds nor the Retirement Funds invest in the underlying Price funds for the purpose of exercising management or control. Pursuant to separate, special servicing agreements, expenses associated with the operation of the Spectrum and Retirement 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 and Retirement Funds, respectively. Expenses allocated under these agreements are reflected as shareholder servicing expenses in the accompanying financial statements. For the six months ended November 30, 2003, the fund was allocated $988,000 of Spectrum Funds' expenses and $95,000 of Retirement Funds' expenses. Of these amounts, $966,000 related to services provided by Price and $150,000 was payable at period-end. At November 30, 2003, approximately 36.0% of the outstanding shares of the New Income class were held by the Spectrum Funds and 2.3% were held by the Retirement 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 only to mutual funds, trusts, and other accounts managed by Price Associates and/or its affiliates, and are not available to the public. The Reserve Funds pay no investment management fees. During the six months ended November 30, 2003, dividend income from the Reserve Funds totaled $2,353,000. T. Rowe Price New Income Fund -------------------------------------------------------------------------------- Certified Semiannual Report Information on Proxy Voting -------------------------------------------------------------------------------- A description of the policies and procedures that the T. Rowe Price New Income 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. Item 2. Code of Ethics. 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 will be filed as a required exhibit to the registrant's annual Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the registrant's most recent fiscal half-year. Item 3. Audit Committee Financial Expert. Not effective until registrant's next annual Form N-CSR. Item 4. Principal Accountant Fees and Services. Not effective until registrant's next annual Form N-CSR. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. [Reserved] 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. 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 10. Exhibits. (a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR will be filed with the registrant's annual Form N-CSR. (a)(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. (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 New Income Fund, Inc. By /s/ James S. Riepe James S. Riepe Principal Executive Officer Date January 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 January 16, 2004 By /s/ Joseph A. Carrier Joseph A. Carrier Principal Financial Officer Date January 16, 2004