-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JtT21HtIn7kShdBeeDE92KWkV2MWM8gl0PdDD62wV9zA8ghyyyqtxQpjs3zdKm75 uIx33BgJO//fBhxf0LJqhw== 0000080249-97-000001.txt : 19970103 0000080249-97-000001.hdr.sgml : 19970103 ACCESSION NUMBER: 0000080249-97-000001 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970102 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE NEW INCOME FUND INC CENTRAL INDEX KEY: 0000080249 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 520980581 FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02396 FILM NUMBER: 97500124 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105472000 FORMER COMPANY: FORMER CONFORMED NAME: PRICE T ROWE NEW INCOME FUND INC ET AL DATE OF NAME CHANGE: 19920703 N-30D 1 NEW INCOME FUND SEMIANNUAL REPORT - -------------------------------------------------------------------------------- T. Rowe Price - -------------------------------------------------------------------------------- SemiAnnual Report New Income Fund - -------------------------------------------------------------------------------- November 30, 1996 - -------------------------------------------------------------------------------- Report Highlights ================================================================================ * Bond markets rebounded from their first-half weakness to provide strong returns for the six months ended November 30, 1996, and positive returns for the past 12 months. * Corporate bonds generated the best results for the first half, followed by mortgage-backed securities, but the latter outperformed for the 12-month period. * Your fund's 6- and 12-month returns of 7.42% and 5.14%, respectively, exceeded its benchmarks for the shorter period but not for the longer. * Mortgage-backed securities remained the fund's major holding, followed by Treasuries. * We expect the economic environment of 1997 to remain favorable for fixed income investments, with income largely determining performance. - -------------------------------------------------------------------------------- Fellow Shareholders ================================================================================ The fixed income market turned around during the six months ended November 30 as interest rates retreated and bond prices rose. The pace of consumer spending and employment growth, which had invigorated the economy in the first half, slowed sharply in the third quarter. This assuaged fears that the Federal Reserve would tighten monetary policy and paved the way for strong six-month bond performance; 12-month results still reflected the unfavorable markets of early 1996. Short-term rates were relatively steady during most of the period before dipping toward the end. Intermediate- and long-term rates fell approximately 65 and 50 basis points, respectively, measured by 5- and 30- year Treasury securities. (One hundred basis points equal one percentage point.) Gratifying as this rally was, it did not fully recoup the price losses experienced in the first five months of 1996. Corporate bonds outperformed both Treasuries and mortgage-backed securities during the past six months, as mortgages lost some luster when falling interest rates sparked prepayment concerns. For the 12-month period, however, mortgage-backed securities were the clear winner among high-quality bonds, surpassing returns on comparable Treasuries by 200 basis points and corporate returns by about 100. - -------------------------------------------------------------------------------- PERFORMANCE AND STRATEGY REVIEW ================================================================================ For the six-month period ending November 30, 1996, your fund's income of $0.29 per share was augmented by a $0.34 increase in share price to generate an excellent total return of 7.42%. This was slightly ahead of the 7.31% posted by both the Lehman Aggregate Bond Index and Lipper Average of Corporate Bond Funds A-Rated. Results for the 12-month period were less favorable, reflecting the weaker bond markets of last spring. The fund's $0.59 of income per share was partly offset by a $0.15 net drop in share price, resulting in a 5.14% return that was roughly in line with its peer group average but trailed the Lehman index. - -------------------------------------------------------------------------------- Performance Comparison ================================================================================ Periods Ended 11/30/96 6 Months 12 Months - -------------------------------------------------------------------------------- New Income Fund 7.42% 5.14% Lehman Aggregate Bond Index 7.31 6.07 Lipper Average of Corporate Bond Funds A-Rated 7.31 5.19 ================================================================================ We did not make any major portfolio changes during the past six months. Our single largest commitment remained mortgage-backed securities, which we increased from 38% of net assets at the end of last May to 44% as of November 30. This significantly overweighted position served the fund well on the whole over the past year and should continue to do so in coming months, unless mortgage prepayments accelerate, which we do not expect. (Rising prepayment levels are viewed negatively by investors because prepayments result in capital losses on mortgage-backed securities that were purchased at prices above their par values.) Treasury notes and bonds were trimmed a bit but remained our second-largest holding at 30% of net assets. The fund's high overall credit quality (AA+) was not affected by any asset shifts. [Pie chart showing Security Diversification as of 11-30-96] As evidence mounted that economic growth was moderating, we lengthened the fund's average maturity and duration modestly to 9.9 years and 5.5 years, respectively, to increase appreciation potential. (Duration measures a bond's price sensitivity to interest rate changes. A 5.5-year duration means the fund's price could be expected to rise or fall approximately 5.5% for each one percentage point fall or rise in interest rates.) - -------------------------------------------------------------------------------- OUTLOOK ================================================================================ While there will doubtless be variations from quarter to quarter, we look for 1997 to be a repeat of 1996 on balance, with low unemployment, inflation just edging up, and moderate overall growth. Through most of 1996, the bond market's response to the economic climate assisted the Fed in keeping the economy on a moderate growth track, which is appropriate for this phase of the business cycle. Until either growth or inflation deviates from its current path, we believe long-term Treasury yields will continue to fluctuate between 6% and 7% - -- at the lower end of the range when the economy slows and at the upper end when it strengthens. Against this benign backdrop, we would expect income to be the determining factor in your fund's total return over the coming months. With its focus on high-quality bonds and attractive income, the fund should perform well in this environment. Respectfully submitted, [signature] Charles P. Smith President and Chairman of the Investment Advisory Committee December 17, 1996 - -------------------------------------------------------------------------------- Portfolio Highlights ================================================================================ Key statistics ================================================================================ 5/31/96 11/30/96 Price Per Share $ 8.70 $ 9.04 Dividends Per Share For 6 months ........................ 0.30 0.29 For 12 months ....................... 0.60 0.59 Dividend Yield * For 6 months ............................ 6.66% 6.79% For 12 months ........................... 6.85 6.84 Weighted Average Maturity (years)........ 9.5 9.9 Weighted Average Effective Duration (years) 5.3 5.5 Weighted Average Quality ** AA+ AA+ - -------------------------------------------------------------------------------- * 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. ** Based on T. Rowe Price research. - -------------------------------------------------------------------------------- Portfolio Highlights ================================================================================ SECTOR Diversification ================================================================================ Percent of Percent of Net Assets Net Assets 5/31/96 11/30/96 Mortgage-Backed Securities ........................ 38% 44 U.S. Treasury Securities .......................... 32 30 Banking . ......................................... 7 11 Commercial Paper .................................. 2 5 Electric Utilities ................................ 4 4 U.S. Government Agency Obligations ................ -- 3 Finance and Credit ................................ 1 2 Investment Dealers ................................ 2 2 All Other ......................................... 13 5 Other Assets Less Liabilities ..................... 1 -6 Total ............................................. 100% 100% - -------------------------------------------------------------------------------- Performance Comparison ================================================================================ This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with a broad-based average or index. The index return does not reflect expenses, which have been deducted from the fund's return. [SEC Graph shown here. Periods 11\86 thru 11\96. New Income Fund $21,434 and Lehman Aggregate Bond Index $22,843] - -------------------------------------------------------------------------------- Average Annual Compound Total Return ================================================================================ This table shows how the fund would have performed each year if its actual (or cumulative) returns for the periods shown had been earned at a constant rate. ================================================================================ Periods Ended 11/30/96 1 Year 3 Years 5 Years 10 Years - ------------- -------- ------ ------- ------- -------- New Income Fund 5.14% 6.39% 7.38% 7.92% ================================================================================ Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. - -------------------------------------------------------------------------------- Financial Highlights ================================================================================ Unaudited For a share outstanding throughout each period 6 Months Year 3 Months++ Year Ended Ended Ended Ended 11/30/96 5/31/96 5/31/95 5/31/94 2/28/94 2/28/93 2/29/92 -------- ------- ------- ------- ------- ------- ------- NET ASSET VALUE Beginning of period .......... $ 8.70 $ 8.97 $ 8.65 $ 9.12 $ 9.24 $ 8.94 $ 8.60 Investment activities Net investment income .......... 0.29 0.60 0.58 0.14 0.54 0.57 0.67 Net realized and unrealized gain (loss) ......... 0.34 (0.27) 0.34 (0.40) (0.05) 0.30 0.36 Total from investment activities .......... 0.63 0.33 0.92 (0.26) 0.49 0.87 1.03 Distributions Net investment income .......... (0.29) (0.60) (0.58) (0.14) (0.54) (0.57) (0.67) Net realized gain .............. -- -- (0.02) (0.07) (0.07) -- (0.02) Total distributions ............ (0.29) (0.60) (0.60) (0.21) (0.61) (0.57) (0.69) NET ASSET VALUE End of period .................. $ 9.04 $ 8.70 $ 8.97 $ 8.65 $ 9.12 $ 9.24 $ 8.94 Ratios/Supplemental Data Total return ................... 7.42% 3.70% 11.13% (2.84)% 5.36% 10.12% 12.40% Ratio of expenses to average net assets ............. 0.76%+ 0.75% 0.78% 0.80%+ 0.82% 0.84% 0.87% Ratio of net investment income to average net assets ..................... 6.70%+ 6.66% 6.95% 6.43%+ 5.77% 6.36% 7.64% Portfolio turnover rate ........ 72.1%+ 35.5% 54.1% 91.5%+ 58.3% 85.8% 49.7% Net assets, end of period (in millions) .................. $ 1,710 $ 1,634 $ 1,566 $ 1,375 $ 1,458 $ 1,527 $ 1,307 - -------------------------------------------------------------------------------- + Annualized. ++ The fund's fiscal year-end was changed to May 31. ================================================================================
- -------------------------------------------------------------------------------- Statement of Net Assets ================================================================================ Unaudited November 30, 1996 Par/Shares Value ---------- ----- CORPORATE BONDS AND NOTES 22.7% Banking 10.1% ABN Amro Bank N.V., Sub. Deb., 7.30%, 12/1/26 .............. $10,000 $ 9,870 Banca Commerciale Italiana, Sr. Sub. Notes, 8.25%, 7/15/07 . 8,070 8,844 BCH Cayman Islands, Gtd. Notes, 7.50%, 6/15/05 ..................................... 6,000 6,184 Banesto Delaware, Sub. Notes, 8.25%, 7/28/02 ............... 2,700 2,911 Bank of Boston, Sub. Notes, 6.625%, 12/1/05 ................ 10,000 9,893 Bank of Boston Capital Trust, Gtd. Notes, (144a), 8.25%, 12/15/26 .................................... 10,000 10,350 Chase Capital I, Gtd. Notes, 7.67%, 12/1/26 ................ 7,000 6,982 Den Danske Bank, Sub. Notes, (144a), 7.25%, 6/15/05 ........ 4,500 4,639 Deposit Guaranty, Sr. Notes, 7.25%, 5/1/06 ................. 10,400 10,672 FBS Capital I, (144a), 8.09%, 11/15/26 ..................... 10,000 10,404 Fifth Third Bank, Sub. Notes, 6.75%, 7/15/05 ............... 4,000 4,021 First Chicago, (144a), 8.413%, 12/31/00 .................... 10,000 10,243 First National Bank of Boston, Sub. Notes, 8.375%, 12/15/02 8,000 8,771 J.P. Morgan Capital Trust, Gtd. Notes, 7.54%, 1/15/27 ...... 8,300 8,321 Mercantile Bankshares, Sr. Notes, (144a), 6.13%, 7/15/98+ .. 5,000 4,979 Nationsbank N.A., Sr. Notes, 6.75%, 8/15/00 ................ 10,000 10,207 PNC Bank N.A., Sub. Notes, 7.875%, 4/15/05 ................. 12,000 12,854 Santander Financial Issuances Gtd. Sub. Notes 6.80%, 7/15/05 ..................................... 2,000 2,000 7.875%, 4/15/05 .................................... 4,000 4,290 Scotland International, Sub. Notes, (144a), 8.80%, 1/27/04 . 10,000 11,261 Union Planters MTN, 6.76%, 10/30/01 ................................... 10,000 10,169 Sub. Notes, 6.75%, 11/1/05 ............................. 5,000 4,968 172,833 Par/Shares Value ---------- ----- Electric Utilities 4.3% Alabama Power, 1st Mtg. Bonds, 7.75%, 2/1/23 ............... $ 3,650 $ 3,716 Big Rivers, Cooperative Utility Trust Cert., 10.70%, 9/15/17 2,500 2,717 Commonwealth Edison 1st Mtg. Bonds, 9.375%, 2/15/00 ........................ 5,000 5,407 Deb., 6.40%, 10/15/05 .................................. 11,600 11,045 MTN, 9.17%, 10/15/02 ................................... 2,500 2,760 Connecticut Light & Power 1st Ref. Mtg. Notes 5.75%, 7/1/00 ...................................... 7,000 6,763 7.25%, 7/1/99 ...................................... 4,500 4,543 Consumers Power, 1st Mtg. Bonds, 6.375%, 9/15/03 ........... 5,000 4,821 Georgia Power 1st Mtg. Bonds 7.625%, 3/1/23 ..................................... 5,750 5,793 7.95%, 2/1/23 ...................................... 3,300 3,403 Monongahela Power, 1st Mtg. Bonds, 8.625%, 11/1/21 ......... 4,720 5,018 Montana Power, 1st Mtg. Bonds, 8.25%, 2/1/07 ............... 5,000 5,469 Northern Indiana Public Service, MTN, 6.90%, 6/1/00 ........ 5,000 5,069 Pacificorp, MTN, 7.12%, 8/15/02 ............................ 3,900 4,031 Texas Utilities Electric, 1st Mtg. Bonds, 7.875%, 3/1/23 ... 3,450 3,560 74,115 Finance and Credit 1.9% Advanta, MTN, 6.384%, 8/7/98 ............................... 6,000 6,015 Conseco Financing Trust, Gtd. Bonds, (144a), 8.70%, 11/15/26 10,000 10,293 Fairfax Financial Holdings, Notes, 8.25%, 10/1/15 .......... 8,000 8,544 Worldwide Financial Properties, PTC, (144a), 6.95%, 9/1/13 . 7,000 7,072 31,924 Industrials 1.3% Clorox, Notes, 8.80%, 7/15/01 .............................. 5,000 5,504 Ford Holdings, Gtd. Notes, 9.25%, 3/1/00 ................... 5,000 5,452 Lockheed, Notes, 7.875%, 3/15/23 ........................... 5,000 5,217 United Technologies, Deb., 8.875%, 11/15/19 ................ 4,340 5,222 21,395 Investment Dealers 2.3% Bear Stearns, Sr. Notes, 7.625%, 4/15/00 ................... 5,000 5,207 Par/Shares Value ---------- ----- Lehman Brothers Sr. Sub. Notes 5.75%, 11/15/98 .................................... $ 5,000 $4,964 7.625%, 8/1/98 ..................................... 8,000 8,179 PaineWebber Group, Notes, 8.875%, 3/15/05 .................. 5,000 5,549 Salomon MTN 6.31%, 10/29/98 .................................... 5,000 5,012 6.625%, 11/30/00 ................................... 6,000 6,006 Sr. Notes, 7.25%, 5/1/01 ............................... 5,000 5,121 40,038 Manufacturing 0.3% Burlington Industries, Notes, 7.25%, 9/15/05 ............... 5,500 5,536 5,536 Savings and Loan 1.0% CENFED Financial, Sr. Deb., (144a), 11.17%, 12/15/01 ....... 5,000 5,525 Great Western Financial, Notes, 6.375%, 7/1/00 ............. 6,000 6,030 Washington Mutual, Sr. Notes, 7.25%, 8/15/05 ............... 5,000 5,170 16,725 Telephone 1.1% BellSouth Telecom, Deb., 7.875%, 8/1/32 .................... 6,400 6,851 GTE, Deb., 9.375%, 12/1/00 ................................. 10,000 11,138 17,989 Transportation 0.4% Qantas Airways, Sr. Notes, (144a), 6.625%, 6/30/98 ......... 7,000 7,033 7,033 Total Corporate Bonds and Notes (Cost $376,555) 387,588 U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES 43.6% Par/Shares Value ---------- ----- U.S. Government Agency Asset-Backed 0.3% Federal National Mortgage Assn., REMIC, 8.10%, 4/25/25 ..... $ 4,500 $4,735 4,735 U.S. Government Agency Obligations 2.3% Federal Home Loan Mortgage 6.50%, 11/1/04 - 6/1/24 ............................ 11,394 11,078 7.00%, 2/1/24 ...................................... 4,551 4,544 7.50%, 3/1/24 - 6/1/24 ............................. 9,508 9,637 8.00%, 6/1/08 ...................................... 121 125 9.00%, 3/1/21 - 5/1/22 ............................. 7,179 7,615 9.75%, 12/1/17 ..................................... 2,523 2,726 10.50%, 2/1/01 - 8/1/20 ............................ 1,155 1,275 11.00%, 5/1/11 - 7/1/20 ............................ 576 645 11.50%, 6/1/01 ..................................... 11 12 Federal National Mortgage Assn ............................. 8.75%, 3/1/10 ...................................... 15 16 10.50%, 7/1/09 - 4/1/22 ............................ 2,525 2,795 40,468 U.S. Government Guaranteed Obligations 41.0% Government National Mortgage Assn. I 6.00%, 12/15/23 - 4/15/24 .............................. $ 3,501 $ 3,356 6.50%, 9/15/23 - 5/15/26 ............................... 63,475 61,928 7.00%, 4/15/22 - 8/15/26 ............................... 119,552 119,095 7.50%, 8/15/16 - 5/15/26 ............................... 110,052 112,167 8.00%, 7/15/16 - 9/15/26 ............................... 83,608 87,041 8.50%, 9/15/16 - 6/15/26 ............................... 63,617 66,814 9.00%, 1/15/09 - 4/15/25 ............................... 22,196 23,737 9.50%, 6/15/09 - 3/15/25 ............................... 69,459 75,689 11.00%, 12/15/09 - 1/15/21 ............................. 20,524 23,205 11.50%, 3/15/10 - 10/15/15 ............................. 2,601 2,996 II 7.00%, 12/20/23 ........................................ 1,468 1,454 8.50%, 9/20/26 ......................................... 183 191 9.00%, 6/20/16 - 5/20/22 ............................... 8,351 8,798 GPM, I, 10.25%, 2/15/16 - 11/15/20 ......................... 3,745 4,170 TBA, I 6.50%, 1/15/24 ......................................... 37,000 35,993 7.00%, 7/15/20 ......................................... 65,000 64,663 7.50%, 7/15/20 ......................................... 10,000 10,151 701,448 Total U.S. Government Mortgage-Backed Securities (Cost $732,613) 746,651 Par/Shares Value ---------- ----- U.S. Government Obligations 29.6% U.S. Treasury Obligations 29.6% U.S. Treasury Bonds 6.00%, 2/15/26 ..................................... $ 3,250 $ 3,065 6.75%, 8/15/26 ..................................... 72,550 75,678 7.875%, 2/15/21 .................................... 35,000 40,840 8.00%, 11/15/21 .................................... 18,860 22,337 8.125%, 5/15/21 .................................... 32,140 38,498 U.S. Treasury Notes 6.125%, 9/30/00 .................................... 3,000 3,035 6.50%, 5/15/05 ..................................... 53,275 54,890 6.625%, 6/30/01 .................................... 11,800 12,176 6.875%, 5/15/06 .................................... 16,025 16,936 7.00%, 7/15/06 ..................................... 3,160 3,369 7.125%, 9/30/99 .................................... 3,450 3,578 7.25%, 5/15/04 - 8/15/04 ........................... 90,435 97,297 7.50%, 11/15/01 - 2/15/05 .......................... 21,400 23,257 7.75%, 11/30/99 .................................... 76,250 80,468 7.875%, 11/15/04 ................................... 27,215 30,379 Total U.S. Government Obligations (Cost $471,493) 505,803 ASSET-BACKED SECURITIES 1.2% Auto-Backed 0.7% Daimler-Benz Auto Grantor Trust, 3.90%, 10/15/98 ........... 770 763 Ford Credit Grantor Trust, 4.30%, 7/15/98 .................. 727 722 GMAC Grantor Trust, 4.15%, 3/16/98 ......................... 292 291 Olympic Automobile Receivable, 4.95%, 10/15/99 ............. 703 701 Premier Auto Trust, 4.22%, 3/2/99 .......................... 2,140 2,116 Western Financial Grantor Trust, 6.20%, 2/1/02 ............. 6,547 6,570 Zions Auto Trust, 4.65%, 6/15/99 ........................... 365 365 11,528 Home Equity Loans-Backed 0.0% Home Equity Loan, REMIC, 5.65%, 11/15/14 ................... 604 592 592 Par/Shares Value ---------- ----- Receivables-Backed 0.5% Continental Airlines, PTC, 6.94%, 10/15/13 ................. $3,500 $3,545 Green Tree Financial, PTC, 6.25%, 1/15/28 .................. 5,000 5,030 8,575 Total Asset-Backed Securities (Cost $20,649) 20,695 EQUITY AND CONVERTIBLE SECURITIES 0.6% Banking 0.6% Chase Preferred Capital, Pfd. Stock, Series A .............. 400 10,250 Total Equity and Convertible Securities (Cost $9,960) 10,250 U.S. $ DENOMINATED FOREIGN SECURITIES(1) 0.6% Province of Ontario, Deb., 15.75%, 3/15/12 ................. 9,000 9,803 Total U.S. $ Denominated Foreign Securities (Cost $8,982) 9,803 COMMERCIAL PAPER 5.2% Coca-Cola, 4(2), 5.23%, 12/17/96 ........................... $30,000 $29,923 Halifax Building Society, 5.28%, 12/19/96 .................. 19,278 19,222 Investments in Commercial Paper through a joint account, 5.70 - 5.90%, 12/2/96 ...................................... 40,010 40,010 Total Commercial Paper (Cost $89,161) 89,155 U.S. GOVERNMENT AGENCY OBLIGATIONS 2.9% Federal Home Loan Mortgage, Discount Notes, 5.21%, 12/18/96 50,000 49,863 Total U.S. Government Agency Obligations (Cost $49,877) 49,863 Total Investments in Securities 106.4% of Net Assets (Cost $1,759,290) $ 1,819,808 Other Assets Less Liabilities (109,609) NET ASSETS $ 1,710,199 Net Assets Consist of: Accumulated net investment income - net of distributions $ 2,679 Accumulated net realized gain/loss - net of distributions (8,103) Net unrealized gain (loss) 60,518 Paid-in-capital applicable to 189,134,592 shares of $1.00 par value capital stock outstanding; 300,000,000 shares authorized 1,655,105 NET ASSETS $ 1,710,199 NET ASSET VALUE PER SHARE $ 9.04 - -------------------------------------------------------------------------------- + Private Placement (1) Marketable securities (payable in U.S. dollars) issued or guaranteed by a foreign government or community. GPM Graduated Payment Mortgage MTN Medium Term Note PTC Pass-through Certificate REMIC Real Estate Mortgage Investment Conduit TBA To be announced security was purchased on a forward commitment basis; the aggregate liability for securities purchased under such agreements totaled $110,339,000 at 11/30/96. 4(2) Commercial Paper sold within terms of a private placement memorandum, exempt from registration under section 4.2 of the Securities Act of 1933, as amended, andmay be sold only to dealers in that program or other "accredited investors". 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-- total of such securities at year-end amounts to 4.8% of net assets. ================================================================================ The accompanying notes are an integral part of these financial statements. - -------------------------------------------------------------------------------- Statement of Operations ================================================================================ Unaudited In thousands 6 Months Ended 11/30/96 -------- Investment Income Interest income ............................................. $ 61,647 Expenses Investment management ..................................... 3,961 Shareholder servicing ..................................... 1,955 Custody and accounting .................................... 215 Prospectus and shareholder reports ........................ 47 Registration .............................................. 38 Legal and audit ........................................... 15 Directors ................................................. 9 Miscellaneous ............................................. 11 Total expenses ................................................ 6,251 Net investment income ......................................... 55,396 Realized and Unrealized Gain (Loss) Net realized gain (loss) on securities ........................ 3,393 Change in net unrealized gain or loss on securities ........................................... 60,155 Net realized and unrealized gain (loss) .................. 63,548 ------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ............. $ 118,944 The accompanying notes are an integral part of these financial statements. - -------------------------------------------------------------------------------- Statement of Changes in Net Assets ================================================================================ Unaudited 6 Months Year Ended Ended 11/30/96 5/31/96 -------- ------- Increase (Decrease) in Net Assets Operations Net investment income ...........................$ 55,396 $ 107,924 Net realized gain (loss) ........................ 3,393 1,379 Change in net unrealized gain or loss ........... 60,155 (53,172) Increase (decrease) in net assets from operations 118,944 56,131 Distributions to shareholders Net investment income ........................... (55,396) (107,911) Capital share transactions * Shares sold ..................................... 147,782 394,756 Distributions reinvested ........................ 36,682 78,213 Shares redeemed ................................. (172,175) (352,730) Increase (decrease) in net assets from capital share transactions .............................. 12,289 120,239 Net Assets Increase (decrease) during period ................... 75,837 68,459 Beginning of period ................................. 1,634,362 1,565,903 End of period .......................................$ 1,710,199 $ 1,634,362 *Share information Shares sold ..................................... 16,837 43,673 Distributions reinvested ........................ 4,165 8,680 Shares redeemed ................................. (19,632) (39,188) Increase (decrease) in shares outstanding ....... 1,370 13,165 - -------------------------------------------------------------------------------- Notes to Financial Statements ================================================================================ Unaudited November 30, 1996 - -------------------------------------------------------------------------------- NOTE 1 - Significant accounting policies ================================================================================ T. Rowe Price New Income Fund, Inc., (the fund) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company and commenced operations on October 12, 1973. Valuation Debt securities are generally traded in the over-the-counter market. Investments in securities originally issued with maturities of one year or more are stated at fair value as furnished by dealers who make markets in such securities or by an independent pricing service, which considers yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Securities with original maturities 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 money market yields. Equity securities listed or regularly traded on a securities exchange are valued at the last quoted sales price at the time the valuations are made. A security which 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 and securities regularly traded in the over-the-counter market are valued at the mean of the latest bid and asked prices. Assets and liabilities for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by or under the supervision of the officers of the fund, as authorized by the Board of Directors. Premiums and Discounts Premiums and discounts on debt securities, other than mortgage-backed securities, are amortized for both financial reporting and tax purposes. Premiums and discounts on mortgage-backed securities are recognized upon principal repayment as gain or loss for financial reporting purposes and as ordinary income for tax purposes. 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. Dividend income and distributions to shareholders are recorded by the fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from those determined in accordance with generally accepted accounting principles. - -------------------------------------------------------------------------------- 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. Commercial Paper Joint Account The fund, and other affiliated funds, may transfer uninvested cash into a commercial paper joint account, the daily aggregate balance of which is invested in high-grade commercial paper. All securities purchased by the joint account satisfy the fund's criteria as to quality, yield, and liquidity. Securities Lending To earn additional income, the fund lends its securities to approved brokers. At November 30, 1996, the market value of securities on loan was $287,483,000, which was fully collateralized with cash. Although the 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 them. Other Purchases and sales of portfolio securities, other than short-term and U.S. government securities, aggregated $159,643,000 and $165,941,000, respectively, for the six months ended November 30, 1996. Purchases and sales of U.S. government securities aggregated $479,697,000 and $421,098,000, respectively, for the six months ended November 30, 1996. - -------------------------------------------------------------------------------- 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 income. The fund has unused realized capital loss carryforwards for federal income tax purposes of $2,377,000, of which $1,115,000 expires in 2003, and $1,262,000 in 2004. The fund intends to retain gains realized in future periods that may be offset by available capital loss carryforwards. At November 30, 1996, the aggregate cost of investments for federal income tax and financial reporting purposes was $1,759,290,000, and net unrealized gain aggregated $60,518,000, of which $63,090,000 related to appreciated investments and $2,572,000 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, of which $663,000 was payable at November 30, 1996. The fee is computed daily and paid monthly, and consists of an individual fund fee equal to 0.15% of average daily net assets and a group fee. The group fee is based on the combined assets of certain mutual funds sponsored by the manager or Rowe Price-Fleming International, Inc. (the group). The group fee rate ranges from 0.48% for the first $1 billion of assets to 0.305% for assets in excess of $50 billion. At November 30, 1996, and for the six months then ended, the effective annual group fee rate was 0.33%. The fund pays a pro-rata share of the group fee based on the ratio of its net assets to those of the group. In addition, the fund has entered into agreements with the manager and two wholly owned subsidiaries of the manager, pursuant to which the fund receives certain other services. The manager computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc. (TRPS) is the fund's transfer and dividend disbursing agent and provides shareholder and administrative services to the fund. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. Additionally, 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 among 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. The fund incurred expenses pursuant to these related party agreements totaling approximately $1,790,000 for the six months ended November 30, 1996, of which $349,000 was payable at period-end. ================================================================================ Investment Services And Information - -------------------------------------------------------------------------------- Knowledgeable Service Representatives ================================================================================ By Phone Shareholder service representatives are available from 8 a.m. to 10 p.m. ET Monday through Friday and from 8:30 a.m. to 5 p.m. ET on weekends. Call 1-800-225-5132 to speak directly with a representative who will be able to assist you with your accounts. In Person Visit one of our investor center locations to meet with a representative who will be able to assist you with your accounts. While there, you can drop off applications or obtain prospectuses and other literature. - -------------------------------------------------------------------------------- Automated 24-Hour Services ================================================================================ Tele*Access(Registration mark) Call 1-800-638-2587 to obtain information such as account balance, date and amount of your last transaction, latest dividend payment, fund prices, and yields. Additionally, you have the ability to request prospectuses, statements, and account and tax forms; to reorder checks; and to initiate purchase, redemption, and exchange orders for identically registered accounts. T. Rowe Price OnLine Through a personal computer via dial-up modem, you can replicate all the services available on Tele*Access plus conduct transactions in your Discount Brokerage and Variable Annuity accounts. - -------------------------------------------------------------------------------- Account Services ================================================================================ Checking Write checks for $500 or more on any money market and most bond fund accounts (except the High Yield and Emerging Markets Bond Funds). Automatic Investing Build your account over time by investing directly from your bank account or paycheck with Automatic Asset Builder. Additionally, Automatic Exchange enables you to set up systematic investments from one fund account into another, such as from a money fund into a stock fund. A low, $50 minimum makes it easy to get started. Automatic Withdrawal If you need money from your fund account on a regular basis, you can establish scheduled, automatic redemptions. Dividend and Capital Gains Payment Options Reinvest all or some of your distributions, or take them in cash. We give you maximum flexibility and convenience. - -------------------------------------------------------------------------------- Discount Brokerage * ================================================================================ Investments Available You can trade stocks, bonds, options, precious metals, and other securities at a savings over regular commission rates. To Open an Account Call a shareholder service representative for more information. - -------------------------------------------------------------------------------- Investment Information ================================================================================ Combined Statement A comprehensive overview of your T. Rowe Price accounts is provided. The summary page gives you earnings by tax category, provides total portfolio value, and lists your investments by type--stock, bond, and money market. Detail pages itemize account transactions by fund. Shareholder Reports Portfolio managers review the performance of the funds in plain language and discuss T. Rowe Price's economic outlook. The T. Rowe Price Report This is a quarterly newsletter with relevant articles on market trends, personal financial planning, and T. Rowe Price's economic perspective. Performance Update This quarterly report reviews recent market developments and provides comprehensive performance information for every T. Rowe Price fund. Insights This library of information includes reports on mutual fund tax issues, investment strategies, and financial markets. Detailed Investment Guides Our widely acclaimed Asset Mix Worksheet, College Planning Kit, Retirees Financial Guide, and Retirement Planning Kit (also available on disk for PC use) can help you determine and reach your investment goals. * A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC. ================================================================================ Mutual Funds - -------------------------------------------------------------------------------- Stock Funds - ------------------------- Domestic - ------------------------- Balanced Blue Chip Growth Capital Appreciation Capital Opportunity Dividend Growth Equity Income Equity Index Financial Services Growth & Income Growth Stock Health Sciences Mid-Cap Growth Mid-Cap Value New America Growth New Era New Horizons * OTC Science & Technology Small-Cap Value * Spectrum Growth Value International/Global - ------------------------- Emerging Markets Stock European Stock Global Stock International Discovery International Stock Japan Latin America New Asia Spectrum International ================================================================================ Bond Funds - ----------------------------- Domestic Taxable - ----------------------------- Corporate Income GNMA High Yield New Income Short-Term Bond Short-Term U.S. Government Spectrum Income Summit GNMA Summit Limited-Term Bond U.S. Treasury Intermediate U.S. Treasury Long-Term Domestic Tax-free - ----------------------------- California Tax-Free Bond Florida Insured Intermediate Tax-Free Georgia Tax-Free Bond Maryland Short-Term Tax-Free Bond Maryland Tax-Free Bond New Jersey Tax-Free Bond New York Tax-Free Bond Summit Municipal Income Summit Municipal Intermediate Tax-Free High Yield Tax-Free Income Tax-Free Insured Intermediate Bond Tax-Free Short-Intermediate Virginia Short-Term Tax-Free Bond Virginia Tax-Free Bond International/Global - ----------------------------- Global Government Bond Emerging Markets Bond International Bond ================================================================================ Money Market - ----------------------------- Taxable - ----------------------------- Prime Reserve Summit Cash Reserves U.S. Treasury Money Tax-Free - ----------------------------- California Tax-Free Money New York Tax-Free Money Summit Municipal Money Market Tax-Exempt Money Blended Asset - ----------------------------- Personal Strategy Income Personal Strategy Balanced Personal Strategy Growth T. Rowe Price No-Load Variable Annuity - ---------------------------------------- Equity Income Portfolio International Stock Portfolio Limited-Term Bond Portfolio New America Growth Portfolio Personal Strategy Balanced Portfolio *Closed to new investors. ================================================================================ - -------------------------------------------------------------------------------- Discount Brokerage ================================================================================ A Division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC - -------------------------------------------------------------------------------- This low-cost service gives you the opportunity to easily consolidate all your investments with one company. Through T. Rowe Price Discount Brokerage, you can buy and sell individual securities-stocks, bonds, options, and others-at considerable commission savings. We also provide a wide range of services, including: Automated Telephone and Computer Services You can enter trades, access quotes, and review account information 24 hours a day, seven days a week. Any trades executed through these programs save you an additional 10% on commissions.* Investor Information A variety of informative reports, such as our Brokerage Insights series, S&P Market Month newsletter, and optional S&P Stock Reports, can help you better evaluate economic trends and investment opportunities. Dividend Reinvestment Service Virtually all stocks held in customer accounts are eligible for this service, free of charge. *Discount applies to our current commission schedule; subject to our $35 minimum commission. ================================================================================ For yield, price, last transaction, current balance or to conduct transactions, 24 hours, 7 days a week, call Tele*Access(R): 1-800-638-2587 toll free For assistance with your existing fund account, call: Shareholder Service Center 1-800-225-5132 toll free 625-6500 Baltimore area To open a Discount Brokerage account or obtain information, call: 1-800-638-5660 toll free Internet address: http://www.troweprice.com T. Rowe Price Associates 100 East Pratt Street Baltimore, Maryland 21202 This report is authorized for distribution only to shareholders and to others who have received a copy of the prospectus of the T. Rowe Price New Income Fund(R). Investor Centers: 101 East Lombard St. Baltimore, MD 21202 T. Rowe Price Financial Center 10090 Red Run Blvd. Owings Mills, MD 21117 Farragut Square 900 17th Street, N.W. Washington, D.C. 20006 ARCO Tower 31st Floor 515 South Flower St. Los Angeles, CA 90071 4200 West Cypress St. 10th Floor Tampa, FL 33607 T. Rowe Price Investment Services, Inc., Distributor RPRTNIF 11/30/96 -----END PRIVACY-ENHANCED MESSAGE-----