-----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, WKLvLYyBnH0dJiRoLRt24mKuXKvjNyFeav//Wopt4YgLwlu3aYb2uVGBCiCL6WTe lpPqAtQT/v9OB1acnvMhDw== 0000080249-94-000016.txt : 19940711 0000080249-94-000016.hdr.sgml : 19940711 ACCESSION NUMBER: 0000080249-94-000016 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940531 FILED AS OF DATE: 19940708 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: 1940 Act SEC FILE NUMBER: 811-02396 FILM NUMBER: 94538173 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 ANNUAL REPORT FELLOW SHAREHOLDERS Before we review the financial markets and your Fund's performance, we want to mention that you have received two consecutive annual reports because your Fund's fiscal year-end was recently changed from February 28 to May 31. MARKET ENVIRONMENT Interest rates rose sharply during the three months ended May 31. Yields on three-month Treasury bills increased approximately 80 basis points and those on 30-year Treasury bonds about 75 basis points. For the 12-month period, the increases were 113 basis points and 44 basis points, respectively. Since yields on short and intermediate maturities rose more than on long maturities, the yield curve has flattened. Although the economy has slowed from the torrid pace of 1993's fourth quarter, it continues to perform very well. In an attempt to contain inflation by keeping the economy from overheating, the Federal Reserve started to tighten credit in February by pushing the federal funds rate higher. In four steps over four months, this basic money market rate was raised from 3% to 4.25%. INTEREST RATE LEVELS CHART A line graph compares the yields of the 30-Year Treasury Bond, the 5-Year Treasury Note, the 1-Year Treasury Bill, and the federal funds rate from 5/31/93 to 5/31/94. PERFORMANCE AND STRATEGY REVIEW In this difficult environment, your Fund provided a modest positive return for the 12-month period fell into negative territory for the quarter. While these numbers may not seem like a cause for cheering, they were significantly better than the average returns of our peer category and also the benchmark index, shown below. PERFORMANCE COMPARISON Periods Ended 5/31/94 3 Months 12 Months -------- ---------- New Income Fund -2.84% 1.40% Lehman Brothers Aggregate Bond Index -3.26 0.71 Lipper Average of Corporate Bond Funds - A Rated -4.03 0.34 - ------------------------------------------------ After making no real change in the Fund's 4.4 year duration for many months prior to the start of the quarter, we began raising it as interest rates rose and bond prices fell. We believe that the major move in long-term rates is behind us and want to take advantage of the new, higher yield levels as well as to increase the portfolio's potential for appreciation if rates should come down a bit. The weighted average quality of the portfolio was little changed over the 12-month period and remains high at AA. The major sector change in the portfolio was a large increase in mortgage-backed securities, as you can see in the chart on the next page. From 9% in May a year ago, our mortgage position soon dropped to 5% as we sought to reduce our exposure to potential losses due to prepayments. (When interest rates fall, prices of mortgage securities frequently rise above par. Investors paying these "premium" prices suffer a loss when homeowners, perhaps seeking to refinance at lower rates, prepay their mortgages at par.) As rates began to rise in November of 1993 and prepayment concerns faded along with the pace of refinancings, we began to rebuild the mortgage-backed sector. As of May 31, it represented almost one-third of net assets. PORTFOLIO DIVERSIFICATION CHART Two pie charts showing percent invested in mortgages, corporate bonds, U.S. Government bonds, and Other for 5/31/93 to 5/31/94. OUTLOOK The rise in interest rates along with higher taxes should dampen the pace of economic growth during the balance of the year. However, consumer sentiment has been buoyed by the falling unemployment rate and gains in personal income, and interest rates are still relatively low compared with the 1980s. Therefore, any slowdown should be gradual. If economic growth is around a 3% rate in the second half, we expect the Federal Reserve to tighten monetary policy a bit further before the year is out. The magnified response of note and bond yields to the initial phase of Fed tightening is probably over, to judge from the reaction of bond yields to the tightening in May. A flattening of the yield curve with short-term rates rising more than long-term yields is typical of this phase of the interest rate cycle. Nevertheless, bond investors are highly sensitive to signs of inflation and bond markets will remain volatile. Respectfully submitted, /signature/Charles P. Smith Charles P. Smith President and Chairman of the Investment Advisory Committee June 17, 1994 STATISTICAL HIGHLIGHTS T. ROWE PRICE NEW INCOME FUND / MAY 31, 1994 KEY STATISTICS Periods Dividend Yield* Ended 5/31/94 - ------------------------------------------------------------ 3 Months 6.46% 12 Months 6.06 Dividend Per Share - ------------------------------- 3 Months $0.14 12 Months 0.54 Change in Per-Share Value - ------------------------------- 3 Months (From $9.12 to $8.65) -$0.47[dagger] 12 Months (From $9.19 to $8.65) -0.54[dagger][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. [dagger][dagger] Includes the reductions in the share prices resulting from $0.14 in capital gain distributions. QUALITY DIVERSIFICATION Percent of Net Assets TRPA Quality Rating* 5/31/93 2/28/94 5/31/94 - -------------------------------------------- 1 39% 40% 45% 2 21 17 13 3 29 31 28 4 & Below 11 12 14 - -------------------------------------------- WEIGHTED AVERAGE 2.2 2.2 2.1 - -------------------------------------------- *On a scale of 1 to 10, with Grade 1 representing highest quality. MATURITY DIVERSIFICATION Percent of Net Assets Range 5/31/93 2/28/94 5/31/94 - --------------------------------------------------- Short-Term (0 to 1 Year) 7% 10% 6% Short Intermediate-Term (1+ to 5 Years) 47 45 43 Long Intermediate-Term (5+ to 10 Years) 24 21 28 Long-Term (Over 10 Years) 22 24 23 - --------------------------- ------- ------- ------- WEIGHTED AVERAGE MATURITY (YRS.) 8.3 8.8 9.1 WEIGHTED AVERAGE EFFECTIVE DURATION (YRS.) 4.4 4.4 4.9 - --------------------------------------------------- SECTOR DIVERSIFICATION* Percent of Net Assets 5/31/93 2/28/94 5/31/94 - --------------------------------------------------- U.S. Governments, Agencies, & Agency-Backed 40% 37% 45% Banking 11 12 14 Industrial 8 9 8 Electric Utilities 4 5 6 Finance & Credit 7 5 4 Auto-Backed 1 4 4 Investment Dealers 6 5 4 Miscellaneous 5 3 3 Telephone 3 3 3 U.S. $ Denominated Foreign Securities 4 4 3 Petroleum 3 3 3 - --------------------------------------------------- *Sectors representing at least 2% of net assets on 5/31/94. FISCAL-YEAR PERFORMANCE COMPARISON CHART A line graph compares the 5/31/94 value of a hypothetical $10,000 investment made ten years earlier in both the New Income Fund and the Lehman Brothers Aggregate Index. At 5/31/94, the Fund investment would have been worth $25333, the Lehman Index investment would have been worth $30424. FISCAL-YEAR PERFORMANCE New Income Fund Periods Ended May 31, 1994 Since Inception 1 Year 5 Years* (8/31/73)* ------ -------- --------------- 1.40% 8.49% 8.99% - -------------------------------- * 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 Gains Total Ended Value Dividends Distributions/2/ Reinvested Reinvested/2/ Return - ------------ ------ --------- ---------------- ---------- ------------- ------ [S] [C] [C] [C] [C] [C] [C] 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 1.184 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 0.955 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 5/31/946 8.65 0.14 0.07 58.54 59.71 -2.84 - ------------------------------------------------------------------------------ TOTAL $16.84 $0.18 - ------------------------------------------------------------------------------ /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; long-term capital gain of $0.07 on 12/31/93; and long-term capital gain of $0.07 on 3/31/94. /3/ Fiscal year-end changed from December 31 to February 28; figures are for two months from 1/1/83-2/28/83. /4/ Declaration of dividends changed from quarterly to monthly. /5/ Declaration of dividends changed from monthly to daily. /6/ Fiscal year-end changed from February 28 to May 31; figures are for three months from 3/1/94-5/31/94. STATEMENT OF NET ASSETS (AMOUNTS IN THOUSANDS) T. ROWE PRICE NEW INCOME FUND / MAY 31, 1994
Corporate Bonds & Notes---48.8% Face Amount Value ---------- ---------- BANKING---13.7% Banesto Delaware, Gtd. Notes, 8.25%, 7/28/02 .................................................. $5,700 $5,481 BankAmerica, Sub. Notes, 10.00%, 2/1/03 ....................................................... 9,625 10,793 Banponce Financial, MTN, 5.25%, 1/30/95 ....................................................... 15,000 14,958 Banque Paribas, 8.35%, 6/15/07 ................................................................ 7,500 7,519 Barclays North America Capital, Gtd. Cap. Notes, 10.50%, 12/15/17 ............................. 13,000 14,763 Central Fidelity Banks, 4.38%, 8/7/95 ......................................................... 15,000 14,511 Chase Manhattan, Sub. Notes, 7.75%, 11/1/99 ................................................... 6,500 6,548 8.00%, 5/15/04 .............................................................................. 9,000 8,904 Citicorp, MTN, 5.70%, 2/12/96 ................................................................. 15,000 14,881 Colonial National Bank USA Delaware, Sub. Notes, 7.00%, 8/1/03 ................................ 5,000 4,596 First Chicago, MTN, 5.50%, 4/15/96 ............................................................ 5,000 4,927 8.20%, 11/14/96 ............................................................................. 5,000 5,172 First Security, Sub. Deb., 7.50%, 9/1/02 ...................................................... 2,800 2,673 First USA Bank Wilmington, Delaware, 4.55%, 8/23/95 ........................................... 10,000 9,616 4.80%, 9/15/95 .............................................................................. 5,000 4,832 Great Western Bank, Sub. Notes, 10.25%, 6/15/00 ............................................... 8,860 9,823 Hartford National, Sub. Capital Notes, 9.85%, 6/1/99 .......................................... 5,000 5,454 Mercantile Bankshares, Sr. Notes, 6.13%, 7/15/98 (Private Placement) .......................... 5,000 4,978 Napa Valley Bancorp, Sr. Notes, 10.87%, 6/30/95 ............................................... 5,000 5,315 Scotland International, (144a), 8.80%, 1/27/04 ................................................ 10,000 10,494 Society, MTN, Zero Coupon, 3/11/96 ............................................................ 7,000 6,821 Wells Fargo & Company, MTN, 5.57%, 8/21/95 .................................................... 10,000 9,966 5.61%, 8/18/95 .............................................................................. 5,300 5,285 188,310 BEVERAGES---1.0% Coca-Cola Enterprises, Notes, 8.35%, 6/20/95 .................................................. 11,000 11,263 Seagram (Joseph E.) & Sons, Notes, 7.00%, 4/15/08 ............................................. 3,000 2,679 13,942 ELECTRIC UTILITIES---5.5% Alabama Power, 1st Mtg. Bonds, 7.75%, 2/1/23 .................................................. 3,650 3,381 Commonwealth Edison, 1st Mtg. Bonds, 6.50%, 4/15/00 ........................................... 5,000 4,669 7.00%, 7/1/05 ............................................................................... 8,200 7,370 7.50%, 7/1/13 ............................................................................... 7,400 6,675 9.375%, 2/15/00 ............................................................................. 5,000 5,313 Connecticut Light & Power, 1st Mtg. Bonds, 7.50%, 7/1/23 ...................................... 5,400 4,739 Consumers Power Company, 1st Mtg. Bonds, 6.375%, 9/15/03 ...................................... 5,000 4,393 Cooperative Utility Trust, Equip. Trust Cert., 10.70%, 9/15/17 ................................ 2,500 2,878 Florida Power & Light, MTN, 4.85%, 6/24/96 .................................................... 4,600 4,458 Georgia Power, 1st Mtg. Bonds, 7.625%, 3/1/23 ................................................. 5,750 5,290 7.95%, 2/1/23 ............................................................................... 4,800 4,589 Gulf States Utilities, 1st Mtg. Bonds, 5.375%, 2/1/97 ......................................... 4,000 3,665 Long Island Lighting Company, 1st Mortgage, 5.50%, 4/1/97 ..................................... 5,500 5,169 Pacificorp, MTN, 7.12%, 8/15/02 ............................................................... 3,900 3,769 Southern California Edison, 1st Mtg. Bonds, 9.25%, 6/15/21 .................................... 5,000 5,347 Texas Utilities Electric, 1st Mtg. Bonds, 7.875%, 3/1/23 ...................................... 3,450 3,167 74,872 FINANCE & CREDIT---4.4% Advanta, Notes, 5.125%, 11/15/96 .............................................................. 10,000 9,596 American General Finance, Notes, 8.50%, 8/15/98 ............................................... 5,000 5,218 Associates Corporation of North America, 4.50%, 2/15/96 ....................................... 2,400 2,326 AVCO Financial Services, MTN, 4.33%, 3/3/95 ................................................... 5,000 4,962 GPA Leasing USA Sub I, Equip. Trust Cert., (144a), 9.125%, 12/2/96 ............................ 9,677 8,624 Greyhound Financial, MTN, 5.75%, 7/28/95 ...................................................... 9,550 9,506 6.95%, 5/19/95 .............................................................................. 10,000 10,096 Transamerica Finance Group, Sr. Sub. Notes, 8.30%, 5/1/95 ..................................... 10,000 10,217 60,545 GAS & GAS TRANSMISSION---0.9% Southern California Gas, MTN, 4.69%, 6/16/95 .................................................. 13,000 12,859 INDUSTRIALS---8.2% Chrysler Financial, MTN, 4.62%, 10/13/95 ...................................................... 10,000 9,713 Clark Equipment, MTN, 5.57%, 6/11/96 .......................................................... 5,000 4,889 Clorox, Notes, 8.80%, 7/15/01 ................................................................. 5,000 5,343 Deere & Company, MTN, 8.47%, 3/18/96 .......................................................... 9,000 9,327 Ford Holdings, Gtd. Notes, 9.25%, 3/1/00 ...................................................... 5,000 5,381 Ford Motor Credit, MTN, 9.70%, 6/2/95 ......................................................... 5,000 5,185 General Motors Acceptance Corporation, MTN, 6.00%, 1/30/95 .................................... 15,000 15,037 IBM Credit, MTN, 4.70%, 8/1/95 ................................................................ 31,000 30,567 MCA Funding, MTN, 4.88%, 5/20/96 .............................................................. 5,000 4,854 Qantas Airways, Sr. Notes, (144a), 6.625%, 6/30/98 ............................................ 7,000 6,743 United Technologies, Deb., 8.875%, 11/15/19 ................................................... 4,340 4,598 Weyerhaeuser, Notes, 9.05%, 2/1/03 ............................................................ 10,600 11,304 112,941 INVESTMENT DEALERS---3.5% Goldman Sachs Group, L.P., Notes, (144a), 7.80%, 7/15/02 ...................................... 10,000 9,831 PaineWebber Group, MTN, 7.07%, 8/11/97 ........................................................ 8,000 7,969 Notes, 7.625%, 2/15/14 ...................................................................... 5,000 4,418 Sr. Notes, 9.25%, 12/15/01 .................................................................. 5,000 5,267 Salomon, MTN, Zero Coupon, 6/15/99 ............................................................ 6,000 6,007 5.50%, 1/19/95 .............................................................................. 14,500 14,489 47,981 MISCELLANEOUS---3.2% Capital Cities/ABC, Notes, 8.75%, 8/15/21 ..................................................... 11,500 12,143 8.875%, 12/15/00 ............................................................................ 10,000 10,867 ITT, Notes, 8.375%, 3/15/96 ................................................................... 5,000 5,149 Kaiser Foundation Health Plan, Notes, 9.00%, 11/1/01 .......................................... 10,325 11,083 Waste Management, Deb., 7.875%, 8/15/96 ....................................................... 5,000 5,117 44,359 PETROLEUM---2.7% Atlantic Richfield, Deb., 8.50%, 4/1/12 ....................................................... 6,650 6,816 BP America, Gtd. Notes, 8.50%, 4/15/01 ........................................................ 5,000 5,226 Mobil, Deb., 7.625%, 2/23/33 .................................................................. 9,250 8,613 Texaco Capital, Deb., 7.875%, 5/1/95 .......................................................... 10,000 10,180 8.65%, 1/30/98 .............................................................................. 6,000 6,309 37,144 RAILROADS---0.4% Consolidated Rail, Deb., 9.75%, 6/15/20 ....................................................... 5,000 5,765 RETAIL---1.5% Dayton Hudson, Notes, 7.875%, 6/15/23 ......................................................... 5,000 4,613 9.40%, 2/15/01 .............................................................................. 5,620 6,108 Sears, Roebuck & Company, MTN, 6.65%, 4/17/95 ................................................. 4,500 4,532 The May Department Stores, Deb., 9.875%, 12/1/02 .............................................. 5,000 5,622 20,875 SAVINGS & LOAN---0.7% World Savings & Loan Assn., MTN, 4.875%, 3/1/96 ............................................... 10,150 9,902 TELEPHONE---3.1% AT&T, 8.125%, 7/15/24 ......................................................................... 5,000 4,945 AT&T Capital, MTN, 6.87%, 10/23/95 ............................................................ 5,000 5,055 Bellsouth Telecom, 7.875%, 8/1/32 ............................................................. 6,400 6,121 GTE, Deb., 9.375%, 12/1/00 .................................................................... 10,000 10,827 NYNEX Credit, MTN, (144a), 6.30%, 6/15/94 ..................................................... 4,000 4,004 6.45%, 9/15/94 .............................................................................. 2,000 2,009 Pacific Bell, 6.625%, 10/15/34 ................................................................ 11,200 9,099 42,060 - --------------------------------------------------------------------------------------------------------------------- TOTAL CORPORATE BONDS & NOTES (COST---$674,015) 671,555 U.S. Government Mortgage-Backed Securities---29.5% U.S. GOVERNMENT GUARANTEED OBLIGATIONS---25.3% Government National Mortgage Assn., I, 6.50%, 1/15 - 2/15/24 .................................. 2,668 2,406 7.00%, 1/15/23 - 3/15/24 .................................................................. 32,742 30,639 7.50%, 8/15/16 - 1/15/24 .................................................................. 77,749 75,175 8.00%, 7/15/16 - 9/15/22 .................................................................. 39,898 39,797 8.50%, 9/15/16 - 5/15/24 .................................................................. 23,336 23,768 9.00%, 1/15/09 - 5/15/20 .................................................................. 16,539 17,166 9.50%, 2/15/16 - 1/15/22 .................................................................. 59,937 63,347 10.00%, 11/15/09 - 6/15/21 ................................................................ 52,367 56,113 11.00%, 1/15/10 - 10/15/17 ................................................................ 18,600 21,030 II, 9.00%, 6/20/16 - 5/20/22 ................................................................ 13,739 14,081 Graduated Payment Mortgage, I, 10.25%, 8/15/17 - 9/15/20 .................................... 3,719 3,879 347,401 U.S. GOVERNMENT AGENCY OBLIGATIONS---4.2% Federal Home Loan Mortgage, 6.50%, 11/1/04 - 6/1/24 ........................................... 12,859 11,774 7.00%, 2/1/24 ............................................................................... 5,264 4,978 7.50%, 5/1/24 - 6/1/24 ...................................................................... 10,883 10,594 8.00%, 6/1/08 ............................................................................... 211 211 9.00%, 3/1/21 - 5/1/22 ...................................................................... 11,418 11,778 9.75%, 12/1/17 .............................................................................. 4,338 4,548 10.50%, 2/1/01 - 8/1/20 ..................................................................... 2,023 2,192 11.00%, 5/1/11 - 7/1/20 ..................................................................... 1,213 1,336 11.50%, 6/1/01 .............................................................................. 28 30 Federal National Mortgage Assn., 7.80%, 12/25/04 .............................................. 4,545 4,583 8.75%, 3/1/10 ............................................................................... 34 35 10.50%, 7/1/09 - 4/1/22 ..................................................................... 4,947 5,440 57,499 - --------------------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES (COST---$419,413) 404,900 Asset-Backed Securities---4.4% AUTO LOANS-BACKED---3.6% Capital Auto Receivables Asset Trust, 4.20%, 11/15/95 ......................................... 7,190 7,145 Daimler-Benz Auto Grantor Trust, 3.90%, 10/15/98 .............................................. 7,209 7,056 Ford Credit Grantor Trust, 4.30%, 7/15/98 ..................................................... 5,252 5,141 GMAC Grantor Trust, 4.15%, 3/15/98 ............................................................ 4,375 4,323 Olympic Automobile Receivable, 4.95%, 10/15/99 ................................................ 3,933 3,832 Premier Auto Trust, 4.22%, 3/2/99 ............................................................. 10,000 9,665 RCSB Grantor Trust, 7.75%, 11/15/96 ........................................................... 1,827 1,839 Toyota Auto Receivables, 3.90%, 8/17/98 ....................................................... 6,493 6,359 Zions Auto Trust, 4.65%, 6/15/99 .............................................................. 3,883 3,825 49,185 CREDIT CARD RECEIVABLES-BACKED---0.7% Standard Credit Card Trust, Credit Card Participation Cert., 9.375%, 8/10/96 .................. 10,000 10,325 WHOLE LOANS-BACKED---0.1% Home Equity Loan Remic Trust, 5.65%, 11/15/14 ................................................. 1,325 1,279 - --------------------------------------------------------------------------------------------------------------------- TOTAL ASSET-BACKED SECURITIES (COST---$61,414) 60,789 U.S. Government Obligations---15.0% U.S. Treasury Bonds, 6.25%, 8/15/23 ........................................................... 15,750 13,535 7.875%, 2/15/21 ............................................................................. 35,000 36,094 8.00%, 11/15/21 ............................................................................. 42,160 44,255 8.125%, 5/15/21 ............................................................................. 15,000 15,907 U.S. Treasury Notes, 5.875%, 2/15/04 .......................................................... 125 114 7.25%, 5/15/04 .............................................................................. 95,000 95,593 - --------------------------------------------------------------------------------------------------------------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (COST---$203,957) 205,498 U.S. $ Denominated Foreign Securities/1/---3.2% British Columbia Hydro & Power, Notes, 15.50%, 11/15/11 ....................................... 14,150 17,692 Inter-American Development Bank, Notes, 9.50%, 10/15/97 ....................................... 2,600 2,800 Province of Ontario, Deb., 6.125%, 6/28/00 .................................................... 6,000 5,610 15.75%, 3/15/12 ............................................................................. 9,000 11,451 17.00%, 11/5/11 ............................................................................. 5,000 6,391 - --------------------------------------------------------------------------------------------------------------------- TOTAL U.S. $ DENOMINATED FOREIGN SECURITIES (COST---$42,648) 43,944 Commercial Paper---0.2% BASF, 4.25%, 6/22/94 .......................................................................... 3,290 3,277 Harvard University, 4.25%, 6/1/94 ............................................................. 14 14 - --------------------------------------------------------------------------------------------------------------------- TOTAL COMMERCIAL PAPER (COST---$3,291) 3,291 - --------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS IN SECURITIES---101.1% (COST $1,404,738) .................................... 1,389,977 - --------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities---(1.1)% (14,921) ---------- NET ASSETS CONSISTING OF: Accumulated net investment income - net of distributions ...................................... 22 Accumulated realized gains/losses - net of distributions ...................................... 872 Unrealized depreciation of investments ........................................................ (14,761) Paid-in-capital applicable to 158,991,275 shares of $1.00 par value capital stock outstanding; 300,000,000 shares authorized ............................................................... 1,388,923 ---------- NET ASSETS---100.0% ........................................................................... $1,375,056 ---------- ---------- NET ASSET VALUE PER SHARE ..................................................................... $8.65 ---------- ---------- - --------------------------------------------------------------------------------------------------------------------- /1/Marketable securities (payable in U.S. dollars) issued or guaranteed by a foreign government or community. MTN - Medium Term Notes 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
Three Months Ended May 31, 1994 Year Ended [double dagger] Feb. 28, 1994 ----------------------------------- Amounts in Thousands ----------------------------------- INVESTMENT INCOME Interest income ................................ $25,545 $102,703 -------- -------- Expenses Investment management fees.................... 1,748 7,750 Shareholder servicing fees & expenses......... 940 4,439 Custodian and accounting fees & expenses...... 79 323 Prospectus & shareholder reports.............. 32 166 Legal & auditing fees......................... 15 33 Registration fees & expenses.................. 10 52 Directors' fees & expenses.................... 5 27 Miscellaneous expenses........................ 9 35 -------- -------- Total expenses................................ 2,838 12,825 -------- -------- Net investment income........................... 22,707 89,878 -------- -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain............................... 1,015 24,262 Change in unrealized appreciation or depreciation.................................. (65,071) (32,142) -------- -------- Net loss on investments......................... (64,056) (7,880) -------- -------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS...................................... $(41,349) $81,998 -------- -------- -------- -------- - ------------------------------------------------------------------------------------ [double dagger]The Fund's fiscal year-end was changed to May 31. The accompanying notes are an integral part of these financial statements. STATEMENT OF CHANGES IN NET ASSETS T. ROWE PRICE NEW INCOME FUND
Three Months Ended May 31, 1994 Year Ended [double -------------------------------------- dagger] Feb. 28, 1994 Feb. 28, 1993 ------------ ------------- ------------- Amounts in Thousands --------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations Net investment income.................................. $22,707 $89,878 $89,940 Net realized gain on investments....................... 1,015 24,262 14,333 Change in unrealized appreciation or depreciation of (65,071) (32,142) 34,028 investments.......................................... ------------ ------------- ------------- Increase (decrease) in net assets from operations........................................... (41,349) 81,998 138,301 ------------ ------------- ------------- Distributions to shareholders Net investment income.................................. (22,682) (89,878) (89,986) Net realized gain on investments....................... (11,110) (11,782) - ------------ ------------- ------------- Decrease in net assets from distributions to shareholders......................................... (33,792) (101,660) (89,986) ------------ ------------- ------------- Capital share transactions/1/ Sold................................................... 60,807 323,889 451,404 Distributions reinvested............................... 30,328 90,466 78,877 Redeemed............................................... (98,897) (464,033) (357,971) ------------ ------------- ------------- Increase (decrease) in net assets from capital share transactions......................................... (7,762) (49,678) 172,310 ------------ ------------- ------------- Total increase (decrease)................................ (82,903) (69,340) 220,625 NET ASSETS Beginning of period.................................... 1,457,959 1,527,299 1,306,674 ------------ ------------- ------------- End of period.......................................... $1,375,056 $1,457,959 $1,527,299 ------------ ------------- ------------- ------------ ------------- ------------- - -------------------------------------------------------------------------------------------------------------------- /1/Share transactions Sold................................................... 6,891 shs. 34,796 shs. 50,001 shs. Distributions reinvested............................... 3,456 9,735 8,737 Redeemed............................................... (11,216) (49,912) (39,701) ------------ ------------- ------------- Increase (decrease) in shares outstanding.............. (869) shs. (5,381) shs. 19,037 shs. ------------ ------------- ------------- ------------ ------------- ------------- - -------------------------------------------------------------------------------------------------------------------- [double dagger]The Fund's fiscal year-end was changed to May 31.
NOTES TO FINANCIAL STATEMENTS T. ROWE PRICE NEW INCOME FUND / MAY 31, 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. Effective March 1, 1994, the fiscal year-end of the Fund changed from February 28 to May 31. 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. NOTE 2 - FINANCIAL INSTRUMENTS As a part of its investment program, the Fund engages in the following activities, the nature and risk of which are set forth more fully in the Fund's Prospectus and Statement of Additional Information. A) Securities Lending - To earn additional income, the Fund lends its securities to approved brokers. At May 31, 1994, the market value of securities on loan was $179,886,000 for which the Fund was fully collateralized by cash. Although the risk is mitigated by the collateral, the Fund could experience a delay in recovering its securities and possibly experience a capital loss if the borrower fails to return them. B) Other - Purchases and sales of portfolio and U.S. Government securities excluding short-term were as follows: Three Months Ended Year Ended May 31, 1994 Feb. 28, 1994 ------------ ------------- Portfolio Securities Purchases............... $55,162,000 $386,154,000 Sales................... 123,317,000 332,772,000 U.S. Government Securities Purchases............... $310,019,000 $509,553,000 Sales................... 195,322,000 648,331,000 NOTE 3 - FEDERAL INCOME TAXES No provision for federal income taxes is required since the Fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. At May 31, 1994, the aggregate cost of investments for federal income tax and financial reporting purposes was $1,404,738,000 and net unrealized depreciation aggregated $14,761,000, of which $21,720,000 related to appreciated investments and $36,481,000 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 0.30% 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 May 31, 1994 and for the three months then ended was 0.34%. The 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 three months ended May 31, 1994, and the year ended February 28, 1994, the Fund incurred fees totalling approximately $848,000 and $4,072,000, respectively, for these services provided by related parties. At May 31, 1994, investment management and service fees payable were $1,167,000. FINANCIAL HIGHLIGHTS T. ROWE PRICE NEW INCOME FUND
For a share outstanding throughout each period ----------------------------------------------------------------- Three Months Ended Year Ended May 31, 1994 ---------------------------------------------------- [double Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28, dagger] 1994 1993 1992 1991 1990 ------------ ---------- ---------- ---------- ---------- -------- NET ASSET VALUE, BEGINNING OF PERIOD.......... $9.12 $9.24 $8.94 $8.60 $8.37 $8.26 ------------ ---------- ---------- ---------- ---------- -------- Investment Activities Net investment income....................... 0.14 0.54 0.57 0.67 0.70 0.75 Net realized and unrealized gain (loss)..... (0.40) (0.05) 0.30 0.36 0.24 0.12 ------------ ---------- ---------- ---------- ---------- -------- Total from Investment Activities.............. (0.26) 0.49 0.87 1.03 0.94 0.87 ------------ ---------- ---------- ---------- ---------- -------- Distributions Net investment income....................... (0.14) (0.54) (0.57) (0.67) (0.70) (0.75) Net realized gain........................... (0.07) (0.07) - (0.02) (0.01) (0.01) ------------ ---------- ---------- ---------- ---------- -------- Total Distributions........................... (0.21) (0.61) (0.57) (0.69) (0.71) (0.76) ------------ ---------- ---------- ---------- ---------- -------- NET ASSET VALUE, END OF PERIOD................ $8.65 $9.12 $9.24 $8.94 $8.60 $8.37 ------------ ---------- ---------- ---------- ---------- -------- ------------ ---------- ---------- ---------- ---------- -------- - ---------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA Total Return.................................. (2.84)% 5.36% 10.12% 12.40% 11.77% 10.73% Ratio of Expenses to Average Net Assets....... 0.80% 0.82% 0.84% 0.87% 0.88% 0.86% [dagger] Ratio of Net Investment Income to Average Net 6.43% 5.77% 6.36% 7.64% 8.33% 8.85% Assets...................................... [dagger] Portfolio Turnover Rate....................... 91.5% 58.3% 85.8% 49.7% 20.7% 51.1% [dagger] Net Assets, End of Period (in thousands).............................. $1,375,056 $1,457,959 $1,527,299 $1,306,674 $1,130,857 $992,566 - ---------------------------------------------------------------------------------------------------------------- [double dagger]The Fund's fiscal year-end was changed to May 31. [dagger]Annualized.
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 May 31, 1994, the results of its operations, the changes in its net assets and the selected per share data and information for each of the fiscal periods presented 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 May 31, 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 June 17, 1994 -----END PRIVACY-ENHANCED MESSAGE-----