-----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, AA/i3sd+3wNdxkhOvOvf01EIvXsEZVxoO+jQUN2NE/ViMMtQIBdMLvNjQZDkJ6VB TwUJ9R03tGI/+kIlMIMvcw== 0000950109-01-000137.txt : 20010123 0000950109-01-000137.hdr.sgml : 20010123 ACCESSION NUMBER: 0000950109-01-000137 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001130 FILED AS OF DATE: 20010116 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: SEC FILE NUMBER: 811-02396 FILM NUMBER: 1509195 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 0001.txt T. ROWE PRICE NEW INCOME FUND, INC. Semiannual Report NEW INCOME FUND ----------------- NOVEMBER 30, 2000 ----------------- [LOGO OF T. ROWE PRICE] REPORT HIGHLIGHTS --------------------------------------------------------------------------- New Income Fund . The Federal Reserve's success in slowing the economy produced banner performance for high-quality bonds. . The New Income Fund posted strong gains that again exceeded the average competing fund but trailed the Lehman Brothers U.S. Aggregate Index. . We increased our investments in Treasury inflation-protected securities, trimmed mortgages, and searched for value in the beaten-down telecom sector. . The environment for bonds remains favorable, especially for those with solid credit outlooks and a yield advantage over Treasuries. UPDATES AVAILABLE For updates on T. Rowe Price funds following the end of each calendar quarter, please see our Web site at www.troweprice.com. FELLOW SHAREHOLDERS High-quality bonds rallied across all sectors over the past six months due to the perception that the Federal Reserve has finished raising interest rates and succeeded in slowing the economy. The New Income Fund posted strong returns in the 6- and 12- month periods ended November 30, 2000, and outperformed the average competing fund. MARKET ENVIRONMENT The Federal Reserve's yearlong tightening program through May 2000 had the desired effect of cooling off a red-hot economy and reducing inflationary pressures. As a result, the past six months provided a healthy environment for fixed-income investors as bond yields fell and prices rose. Barring a surge in equity prices in late December, bonds will have outperformed stocks in 2000 for the first time since 1993, and by a strong margin. - -------------------- INTEREST RATE LEVELS - -------------------------------------------------------------------------------- [GRAPH] [PLOT POINTS TO COME] In contrast to the first half of this year, the most recent economic data sug- gest that the economy has decelerated considerably. Third-quarter GDP showed a 2.4% annualized growth rate, down from the 5.2% recorded for the second quarter. Upward trends in retail sales and industrial production have reversed, and manufacturing activity is slowing. An anemic savings rate, high energy prices, and lower equity prices have left consumers with fewer reserves with which to boost spending. To be sure, the unemployment rate remains stubbornly low at 4% and suggests that the U.S. is near full employment. The latest readings also show wages growing at a 4% annual rate, the highest since January 1999. Driven by higher energy prices, the consumer price index reached 3.4% during October. 1 A recent signal from Fed Chairman Alan Greenspan suggested that the Fed's hawkish stance would soften following its meeting in December, and this, in fact, occurred. Core inflation, which strips out food and energy prices, is well behaved at 2.5% and productivity gains remain high. Removal of the tightening bias confirms the downward move in bond yields that began months ago. Bond yields peaked in May The bond market sensed the deceleration in the U.S. economy toward the end of the second quarter. Helped by an improving budget picture and the continuation of a bimonthly government buyback initiative, long-term Treasuries initially led the rally. Yields reached an interim peak in the long end of the market at around 6.25% during May. Subsequent evidence of an economic slowdown shifted investor focus toward intermediate Treasuries, such as the five-year note, which stood to benefit more than long-term Treasuries from an easier Fed policy. Over the six-month period, five-year note yields fell more than one percentage point. By contrast, 30-year Treasury yields fell less than half a percentage point, as shown in the chart on page 1. As a result, the performance of the five-year note was exceptionally strong, especially considering its moderate interest rate risk. Because of their greater price gains in response to declining rates, however, long-term bonds delivered even better returns, albeit with much more volatility. - ------------------- BOND MARKET RETURNS - -------------------------------------------------------------------------------- [GRAPH] [PLOT POINTS TO COME] Developments in the economy and the Treasury market provided mixed signals to other fixed-income sectors. High-quality bonds with yield advantages, such as U.S. agency, asset-, and mortgage-backed securities, produced impressive returns. Agency bonds also benefited from the announcement that government-sponsored enterprises (such as Fannie Mae and Freddie Mac) would improve their public disclosure and increase their capital bases. 2 Corporate bonds, however, responded defensively to reduced economic growth and generally failed to track the advance of Treasury issues. Talk of further downgrades and the volatility in the equity markets added to the uncertainty in many sectors. Nonetheless, high-grade corporate bonds still posted healthy total returns. In general, higher-quality issues outperformed lower-quality, as shown in the bar chart on page 2. Maintaining higher quality, however, did not guarantee strong relative performance. The telecommunications sector, for example, which is dominated by A rated companies, continued to underperform the overall corporate market. A once highly regarded blue chip company, Xerox, (which your fund did not own) fell to junk status because of its deteriorating finances. High-quality or not, corporate bonds had to be chosen carefully. - ---------------------- PERFORMANCE COMPARISON - -------------------------------------------------------------------------------- Periods Ended 11/30/00 6 Months 12 Months New Income Fund 7.02% 8.27% Lehman Brothers U.S. Aggregate Index 7.58 9.06 Lipper Average of Corporate Bond Funds A-Rated 6.69 7.10 Fund performance was strong during the 6- and 12-month periods ended November 30, driven by the recent rebound in high-quality bonds. Results again exceeded the best known average of similar funds, as shown in the table, aided by portfo- lio management and below-average expenses. However, returns trailed an unmanaged benchmark of the overall domestic bond market, the Lehman Brothers U.S. Aggregate Index. As noted in our last letter, nearly a third of the Lehman index is composed of Treasury bonds, which have been the best performers over the past year. Your fund has traditionally emphasized higher-yielding sectors, especially mortgage-backed and corporate bonds, whose strong performance during the periods under review was eclipsed by that of the Treasury market, 30-year Treasuries in particular. Fund returns during the past six months were driven by a $0.29 rise in the share price to $8.36. Dividends per share increased by a penny to $0.27 compared with the previous six months. STRATEGY For most of the six-month period, we remained positive about the U.S. economy but wary of adverse corporate developments, illiquidity, and 3 declining credit quality within certain sectors of the corporate market. As a result, most of our efforts during the summer focused on selecting strong sectors and individual credits rather than on the overall direction of interest rates. A brief period of price weakness during September, however, provided an opportunity to increase our interest rate exposure and extend duration to a more aggressive posture. (Duration is a measure of a bond fund's sensitivity to interest rates; for example, a duration of five years means the fund's share price will rise or fall about 5% for each one-percentage-point fall or rise in interest rates.) Within the Treasury sector, Treasury inflation protected securities (TIPS), which benefit from higher inflation, continued their positive contribution. Over the past six months, allocations to TIPS maturing in '02 and '07 have performed well relative to comparable short-term Treasuries. We also increased our exposure to intermediate-term Treasuries in order to raise the quality of the portfolio and capture their price appreciation as rates declined. Positive supply fundamentals relating to the federal budget surplus also dictated that we maintain a healthy allocation to long-term Treasuries. - ------------------------ SECURITY DIVERSIFICATION - -------------------------------------------------------------------------------- Cash and Other 4% Corporate Bonds and Convertibles 35% Asset-Backed Securities 6% U.S. Treasuries 16% U.S. Agency Obligations 5% Mortgage-Backed Securities 34% Based on net assets as of 11/30/00. Agency, mortgage-, and asset-backed securities continued to supply the portfolio with high-quality yield. We increased our allocation to agencies throughout the six-month period as the political uncertainty surrounding the privileged status of Fannie Mae and Freddie Mac dissipated. Within the mortgage sector, we reduced our GNMA allocation and our exposure to prepayment risk within the sector. Despite a lower overall allocation to mortgages, we increased holdings of more stable commercial mortgage-backed securities. Our corporate credit team has worked diligently to weed out less appealing names and sectors, build better liquidity, and take advantage of special opportunities. Exposure to the energy, high-quality bank, 4 defense, and real estate investment trust sectors has proved beneficial. The increased allocation to telecom over the past six months reflects our view that many high-quality operators trading at distressed levels offer value. In addition, the attractive valuations of several convertible preferreds have led us to initiate modest positions in these special situations. OUTLOOK ". . . WE REMAIN OPTIMISTIC ABOUT THE PROSPECTS FOR BONDS GOING FORWARD." Current yields reflect a high probability that the economy will achieve a much- desired "soft landing," in which excesses are purged but the economy does not enter recession. At 5.52%, five-year Treasury notes are trading almost one percentage point below the overnight federal funds rate. Further appreciation in bond prices and declines in yields would require a faster deceleration in growth or a stronger signal from the Fed that interest rate cuts are imminent. Despite a perception in the market that bond prices have advanced too far, we remain optimistic about the prospects for bonds going forward. The economy continues to slow, and certain sectors of the equity market may remain under pressure as growth and profit expectations ratchet lower. Consumer demand will probably remain subdued. In this environment, the Fed would likely reduce the federal funds target rate. Corporate yields attractive despite risks Long-term indicators remain positive for Treasuries. Despite concerns about additional government spending, the supply fundamentals for the Treasury market support higher prices. We estimate that at least $250 billion in Treasuries maturing in 2001 will not be reissued, and that the government will buy back at least $30 billion in longer-term Treasuries next year. Investing within the corporate bond sector remains a challenge. Negative credit developments have occurred with alarming frequency and over-leveraging within certain sectors is a major concern. Nevertheless, we believe that investors are receiving ample compensation in select issues and sectors, such as telecom, to warrant additional allocations. The highest-quality and more defensive sectors, which are approaching fully valued levels, are becoming less compelling than corporates. However, agencies, mortgages, and asset-backed securities still provide an attractive yield above Treasuries and shelter to investors awaiting a more stable environment for corporates. 5 An economic slowdown, the chronic U.S. trade deficit, and the potential benefits of diversification also led us to explore opportunities in nondollar bonds. In consultation with our colleagues at T. Rowe Price International in London, we have come to view the euro, after its 25% decline, as undervalued. We believe modest allocations to high-quality nondollar debt can enhance returns while lowering overall portfolio risk. Respectfully submitted, /s/ William T. Reynolds William T. Reynolds President, T. Rowe Price New Income Fund Inc. December 17, 2000 6 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- - -------------------- PORTFOLIO HIGHLIGHTS - -------------------------------------------------------------------------------- KEY STATISTICS 5/31/00 11/30/00 - -------------------------------------------------------------------------------- Price Per Share $ 8.07 $ 8.36 Dividends Per Share For 6 months 0.26 0.27 For 12 months 0.52 0.53 30-Day Dividend Yield * 6.98% 6.50% 30-Day Standardized Yield to Maturity 7.46 6.82 Weighted Average Maturity (years) 9.9 9.3 Weighted Average Effective Duration (years) 4.9 5.0 Weighted Average Quality ** AA AA * Dividends earned for the last 30 days of each period indicated are annualized and divided by the fund's net asset value per share at the end of the period. ** Based on T. Rowe Price research. 7 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- - --------------------- PORTFOLIO HIGHLIGHTS - -------------------------------------------------------------------------------- SECTOR DIVERSIFICATION Percent of Percent of Net Assets Net Assets 5/31/00 11/30/00 - ------------------------------------------------------------------------------ Mortgage-Backed Securities 37% 34% U.S. Treasury Obligations 17 16 Asset-Backed Securities 5 6 Banking 4 5 U.S. Government Agency Obligations 3 5 Telephones 1 4 Electric Utilities 3 2 Energy 2 2 Money Market Funds * 3 3 All Other 24 22 Other Assets Less Liabilities 1 1 - -------------------------------------------------------------------------------- Total 100% 100% * See note at end of financial statements. 8 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- - ----------------------- PERFORMANCE COMPARISON - -------------------------------------------------------------------------------- This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which may include a broad-based market index and a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes. NEW INCOME FUND --------------------------------------------------------------------------- As of 11/30/00 [GRAPH] [PLOT POINTS TO COME] - ------------------------------------ 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 11/30/00 1 Year 3 Years 5 Years 10 Years --------------------------------------------------------------------------- New Income Fund 8.27% 4.35% 5.02% 6.98% Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. 9 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- - -------------------- FINANCIAL HIGHLIGHTS For a share outstanding throughout each period - -------------------------------------------------------------------------------- Unaudited
6 Months Year Ended Ended 11/30/00 5/31/00 5/31/99 5/31/98 5/31/97 5/31/96 NET ASSET VALUE Beginning of period $ 8.07 $ 8.50 $ 9.09 $ 8.77 $ 8.70 $ 8.97 Investment activities Net investment income (loss) 0.27 0.52 0.54 0.57 0.58 0.60 Net realized and unrealized gain (loss) 0.29 (0.43) (0.45) 0.36 0.07 (0.27) Total from investment activities 0.56 0.09 0.09 0.93 0.65 0.33 Distributions Net investment income (0.27) (0.52) (0.54) (0.57) (0.58) (0.60) Net realized gain -- -- (0.14) (0.04) -- -- Total distributions (0.27) (0.52) (0.68) (0.61) (0.58) (0.60) NET ASSET VALUE End of period $ 8.36 $ 8.07 $ 8.50 $ 9.09 $ 8.77 $ 8.70 ----------------------------------------------------------- Ratios/Supplemental Data Total return++ 7.02% 1.13% 1.02% 10.84% 7.70% 3.70% Ratio of total expenses to average net assets 0.71%+ 0.73% 0.72% 0.71% 0.74% 0.75% Ratio of net investment income (loss) to average net assets 6.54%+ 6.32% 6.16% 6.31% 6.65% 6.66% Portfolio turnover rate 74.6%+ 83.6% 94.3% 147.3% 87.1% 35.5% Net assets, end of period (in millions) $ 1,710 $ 1,633 $ 1,942 $ 2,076 $ 1,711 $ 1,634
++ 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. 10 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- Unaudited November 30, 2000
- ------------------------ PORTFOLIO OF INVESTMENTS Par/Shares Value - ---------------------------------------------------------------------------------------- In thousands CORPORATE BONDS AND NOTES 33.6% Aerospace & Defense 0.4% Lockheed Martin, Sr. Notes, 8.20%, 12/1/09 $ 7,125 $ 7,618 --------- 7,618 --------- Airlines 1.6% Atlas Air, 7.63%, 1/2/15 9,601 9,315 Continental Airlines, 8.312%, 4/2/11 10,000 10,052 Delta Air Lines, Sr. Notes, 7.70%, 12/15/05 5,000 4,920 Qantas Airways, Sr. Notes, (144a), 7.75%, 6/15/09 3,000 2,943 --------- 27,230 --------- Automobiles and Related 0.4% Ford Motor Credit, Sr. Notes, 6.125%, 4/28/03 6,350 6,232 --------- 6,232 --------- Banking 5.4% Banco Generale, Sr. Notes, (144a), 7.70%, 8/1/02 10,000 9,785 Banco Santiago, Sr. Sub. Notes, 7.00%, 7/18/07 10,800 9,887 Bank United, MTN, 8.00%, 3/15/09 5,000 4,892 Bankboston, Sr. Sub. Notes, 6.50%, 12/19/07 4,100 3,857 Capital One Bank, Sr. Notes, 8.25%, 6/15/05 10,000 9,835 FCB/NC Capital Trust I, Jr. Sub Notes, 8.05%, 3/1/28 5,900 4,897 Imperial Bank, Sr. Sub. Notes, 8.50%, 4/1/09 9,265 9,020 MBNA, Sr. Notes, 7.75%, 9/15/05 8,500 8,362 MBNA, MTN, 6.875%, 11/15/02 2,000 1,959 Riggs National, Sr. Sub. Notes, 9.65%, 6/15/09 10,000 9,325 State Street, Sr. Sub. Notes, 7.65%, 6/15/10 8,975 9,192 Sumitomo Bank International, Sr. Sub. Notes 8.50%, 6/15/09 4,300 4,401 Wells Fargo, Sr. Notes, 7.25%, 8/24/05 7,000 7,135 --------- 92,547 --------- Beverages 0.3% Panamerican Beverages, Sr. Notes, 7.25%, 7/1/09 5,550 4,842 --------- 4,842 --------- Broadcasting 0.5% Hearst-Argyle Television, Sr. Notes, 7.50%, 11/15/27 10,000 8,538 --------- 8,538 --------- Building and Real Estate 0.6% EOP Operating, Sr. Notes, 7.75%, 11/15/07 10,000 10,021 --------- 10,021 ---------
11 T. ROWE PRICE NEW INCOME FUND - --------------------------------------------------------------------------------
Par/Shares Value - ------------------------------------------------------------------------------------------ In thousands Cable Operators 0.5% Tele-Communications, Sr. Notes, 7.875%, 8/1/13 $ 8,000 $ 7,981 -------- 7,981 -------- Electric Utilities 2.4% AEP Resources, Sr. Notes, (144a), 6.50%, 12/1/03 15,000 14,761 DTE Capital, Sr. Notes, (144a), 7.11%, 11/15/03 15,000 14,840 Korea Electric Power, Sr. Notes, 7.00%, 10/1/02 5,500 5,427 South Carolina Electric & Gas, 1st Mtg. Bonds 6.125%, 3/1/09 8,000 7,541 -------- 42,569 -------- Electronic Components 0.4% Arrow Electronics, Sr. Notes, (144a), 8.20%, 10/1/03 + 6,200 6,271 -------- 6,271 -------- Energy 2.4% PDVSA Finance, Sr. Notes 6.80%, 11/15/08 8,000 6,892 9.75%, 2/15/10 7,750 7,778 YPF Sociedad Anonima, Sr. Notes 7.25%, 3/15/03 10,000 9,726 10.00%, 11/2/01 16,525 17,490 -------- 41,886 -------- Entertainment and Leisure 1.1% International Speedway, Sr. Notes, 7.875%, 10/15/04 10,000 9,899 Royal Caribbean Cruises, Sr. Notes, 6.75%, 3/15/08 9,560 8,422 -------- 18,321 -------- Finance and Credit 1.2% CIT Group, Sr. Notes, 5.50%, 2/15/04 6,000 5,658 General Electric Capital, Sr. Notes, 7.375%, 1/19/10 14,000 14,681 -------- 20,339 -------- Food Processing 0.4% Flowers Industries, Sr. Notes, 7.15%, 4/15/28 10,000 7,006 -------- 7,006 -------- Foreign Government and Municipalities 3.2% Banco Latinoamericano, Sr. Notes, 6.55%, 4/15/03 7,900 7,697 Canada Government, 6.00%, 9/1/05 (CAN) 22,000 14,721 Federal Republic of Germany, Sr. Notes 5.25%, 7/4/10 (EUR) 19,500 17,237 12
T. ROWE PRICE NEW INCOME FUND - ------------------------------------------------------------------------------------------ Par/Shares Value - ------------------------------------------------------------------------------------------ In thousands Petroleos Mexicanos, Sr. Notes, 9.25%, 3/30/18 $ 5,000 $ 4,892 Province of Manitoba, Sr. Notes, 7.50%, 2/22/10 10,000 10,575 -------- 55,122 -------- Insurance 1.2% AIG Sunamerica Global Financing II Sr. Notes, (144a), 7.60%, 6/15/05 + 7,000 7,228 Jefferson Pilot Capital Trust, Jr. Sub. Notes, (144a) 8.14%, 1/15/46 5,750 5,180 Trenwick Capital Trust I, Jr. Sub. Notes, 8.82%, 2/1/37 10,500 8,434 -------- 20,842 -------- Investment Dealers 1.2% Goldman Sachs Group, Sr. Notes, (144a), 6.625%, 12/1/04 10,000 9,817 Morgan Stanley Dean Witter, Sr. Notes, 7.75%, 6/15/05 10,000 10,254 -------- 20,071 -------- Media and Communications 0.9% Seagrams, Sr. Notes, 6.80%, 12/15/08 10,000 10,321 Time Warner, Sr. Notes, 8.11%, 8/15/06 5,000 5,233 -------- 15,554 -------- Metals 0.2% Alcoa, Sr. Notes, 7.375%, 8/1/10 3,320 3,403 -------- 3,403 -------- Paper and Paper Products 0.8% Celulosa Arauco Y Constitucion, Sr. Notes 8.625%, 8/15/10 7,500 7,460 International Paper, Sr. Notes, (144a), 8.00%, 7/8/03 5,350 5,457 -------- 12,917 -------- Petroleum 1.2% Union Texas Petroleum, Sr. Notes, 7.00%, 4/15/08 20,000 20,028 -------- 20,028 -------- Savings and Loan 0.9% Dime Bancorp, Sr. Notes, 6.375%, 1/30/01 10,000 9,973 Greenpoint Bank, Sr. Sub Notes, 9.25%, 10/1/10 5,550 5,426 -------- 15,399 -------- Service 1.1% Federal Express, ETC, 8.25%, 1/15/19 9,674 9,801 Waste Management, Sr. Notes, 7.70%, 10/1/02 8,579 8,486 -------- 18,287 --------
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T. ROWE PRICE NEW INCOME FUND - ---------------------------------------------------------------------------------------- Par/Shares Value - ---------------------------------------------------------------------------------------- In thousands Telecommunications 0.9% Sprint, Sr. Notes, 6.125%, 11/15/08 $ 8,420 $ 7,503 Telefonica Europe, Sr. Notes, 7.75%, 9/15/10 8,680 8,647 -------- 16,150 -------- Telephones 3.7% Ameritech Capital Funding, Sr. Notes, 6.25%, 5/18/09 10,000 9,238 AT&T, Sr. Notes, 6.50%, 3/15/29 4,500 3,628 Centurytel, Sr. Notes, 8.375%, 10/15/10 7,000 7,126 Deutsche Telekom, Sr. Notes, 8.00%, 6/15/10 12,000 12,156 KPN, Sr. Notes, (144a), 8.00%, 10/1/10 + 5,550 5,373 Qwest Capital Funding, Sr. Notes, (144a) 7.90%, 8/15/10 + 11,580 11,771 U.S. West Capital Funding, Sr. Notes, 6.875%, 8/15/01 15,000 14,957 -------- 64,249 -------- Wireless Communications 0.7% Vodafone Airtouch, Sr. Notes, (144a), 7.75%, 2/15/10 + 11,000 11,286 -------- 11,286 -------- Total Corporate Bonds and Notes (Cost $586,058) 574,709 -------- ASSET-BACKED SECURITIES 5.8% Auto-Backed 1.8% DaimlerChrysler Auto Trust, 6.66%, 1/8/05 9,800 9,851 Dealer Auto Receivables Trust, 7.12%, 3/15/05 15,526 15,762 Provident Auto Lease, 7.73%, 10/14/07 5,680 5,767 -------- 31,380 -------- Credit Card-Backed 1.6% First USA Credit Card Master Trust, 7.269%, 12/19/00 8,548 8,548 MBNA Master Credit Card Trust II, 7.42%, 12/15/00 5,250 5,250 World Financial Network Credit Card Master Trust 6.95%, 4/15/06 5,500 5,585 6.981%, 12/15/00 8,500 8,526 -------- 27,909 --------
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T. ROWE PRICE NEW INCOME FUND - ---------------------------------------------------------------------------------------- Par/Shares Value - ---------------------------------------------------------------------------------------- In thousands Stranded Asset 0.5% California Special Purpose Trust, 6.42%, 9/25/08 $ 8,550 $ 8,518 -------- 8,518 -------- Equipment Lease Heavy Duty 0.4% Case Equipment Loan Trust, 5.77%, 8/15/05 6,000 5,932 -------- 5,932 -------- Recreational Vehicles 1.5% Chase Manhattan Owner Trust, 6.54%, 8/15/17 11,795 11,793 CIT RV Trust, 6.35%, 4/15/11 13,375 13,327 -------- 25,120 -------- Total Asset-Backed Securities (Cost $98,041) 98,859 -------- EQUITY AND CONVERTIBLE SECURITIES 1.7% Automobiles and Related 0.1% Ford Motor, Common 102 2,309 -------- 2,309 -------- Banking 0.1% Silicon Valley Bancshares, Pfd., 8.25% 30 630 -------- 630 -------- Building and Real Estate 0.8% Equity Residential Properties Trust, REIT, Cv. Pfd., 7.25% 150 3,623 Reckson Associates Realty, REIT Cv. Pfd., (Series A), 7.625% 429 9,447 -------- 13,070 -------- Media and Communications 0.3% Media One Group, Cv. Pfd., 7.00% 144 5,121 -------- 5,121 -------- Paper and Paper Products 0.1% International Paper, Cv. Pfd., 5.25% 52 2,136 -------- 2,136 -------- Railroads 0.1% Union Pacific Capital Trust, Cv. Pfd., 6.25% 50 2,210 -------- 2,210 -------- Telephones 0.2% Liberty Media, Cv. Pfd., (Class A), 4.00% 5,000 3,590 -------- 3,590 -------- Total Equity and Convertible Securities (Cost $29,503) 29,066 --------
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T. ROWE PRICE NEW INCOME FUND - ----------------------------------------------------------------------------------- Par/Shares Value - ----------------------------------------------------------------------------------- In thousands NON-U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES 11.1% Home Equity Loans-Backed 2.2% Chase Funding Mortgage Loan, 6.59%, 5/25/28 $ 5,053 $ 4,800 GE Capital Mortgage Services, REMIC, 6.465%, 6/25/28 14,207 13,914 Money Store Home Equity Trust 6.985%, 10/15/16 6,000 5,981 7.91%, 5/15/24 13,159 13,344 --------- 38,039 --------- Whole Loans-Backed 4.5% BA Mortgage Securities, 7.00%, 7/25/28 20,600 19,937 Countrywide Mortgage Backed Securities 6.75%, 11/25/23 5,673 5,478 GE Capital Mortgage Services, REMIC, 6.75%, 8/25/28 13,962 13,669 Norwest Asset Securities, 6.75%, 10/25/28 11,746 10,691 Residential Accredited Loans 6.75%, 7/25/28 7,500 7,410 7.25%, 11/25/27 10,290 10,242 Securitized Asset Sales, 7.41%, 9/25/24 10,383 10,270 --------- 77,697 --------- Commercial Mortgage-Backed 4.4% COMM 2000 7.416%, 4/15/10 10,000 10,076 7.494%, 4/15/10 8,400 8,609 JP Morgan Commercial Mortgage Finance, 7.68%, 8/15/32 8,500 8,721 LB Commercial Conduit Mortgage Trust, 6.78%, 4/15/09 8,800 8,599 PNC Mortgage Acceptance, 7.33%, 10/10/09 10,000 10,233 Prudential Securities Secured Financing, 6.074%, 1/15/08 12,317 11,978 Salomon Brothers Mortgage Securities VII 7.455%, 4/18/10 8,125 8,374 7.52%, 12/18/09 7,464 7,718 --------- 74,308 --------- Total Non-U.S. Government Mortgage-Backed Securities 190,044 (Cost $193,762) --------- U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES 23.2% U.S. Government Agency Obligations 11.0% Federal Home Loan Mortgage 5.50%, 10/15/20 1,245 1,230
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T. ROWE PRICE NEW INCOME FUND - ---------------------------------------------------------------------------------------- Par/Shares Value - ---------------------------------------------------------------------------------------- In thousands Federal Home Loan Mortgage 6.50%, 11/1/04 - 6/1/24 $ 20,858 $ 20,408 7.00%, 8/15/09 - 11/1/30 47,253 47,093 7.50%, 5/1/24 - 1/1/30 21,007 21,188 8.00%, 6/1/08 28 28 10.50%, 7/1/11 - 8/1/20 278 292 11.00%, 1/1/16 - 7/1/20 160 172 11.50%, 6/1/01 0 0 REMIC, 6.50%, 3/15/23 10,810 10,657 Principal Only, 8/1/28 6,945 4,677 Federal National Mortgage Assn. 6.00%, 1/1/29 1,616 1,536 6.50%, 3/1/29 - 2/1/30 42,925 41,718 7.50%, 5/1/15 - 8/1/30 39,217 39,722 8.75%, 3/1/10 4 4 --------- 188,725 --------- U.S. Government Guaranteed Obligations 12.2% Government National Mortgage Assn. I 6.00%, 12/15/28 8,896 8,500 6.50%, 8/15/25 - 5/15/29 39,262 38,369 7.00%, 1/15/24 - 5/15/29 62,903 62,745 7.50%, 8/15/16 - 8/15/28 19,700 19,968 8.00%, 7/15/16 - 10/15/27 29,561 30,354 8.50%, 9/15/16 - 7/15/23 6,069 6,292 9.00%, 1/15/09 - 11/15/19 765 806 9.50%, 6/15/09 - 3/15/25 262 272 11.00%, 12/15/09 - 1/15/21 6,162 6,607 11.50%, 3/15/10 - 10/15/15 902 974 II 7.00%, 12/20/23 - 11/20/28 21,204 21,070 7.00%, 4/20/30 4,877 4,837 8.50%, 9/20/26 31 31 9.00%, 6/20/16 - 2/20/18 508 527 GPM, I, 10.25%, 4/15/16 - 11/15/20 890 945 Principal Only, 3/16/28 8,103 5,864 --------- 208,161 --------- Total U.S. Government Mortgage-Backed Securities (Cost $390,969) 396,886 ---------
17
T. ROWE PRICE NEW INCOME FUND - ---------------------------------------------------------------------------------------- Par/Shares Value - ---------------------------------------------------------------------------------------- In thousands U.S. GOVERNMENT OBLIGATIONS/AGENCIES 21.5% U.S. Government Agency Obligations 5.1% Federal Home Loan Mortgage 5.25%, 1/15/06 $ 10,000 $ 8,699 6.875%, 1/15/05 22,750 23,280 6.875%, 3/15/10 38,000 39,416 Tennessee Valley Authority, 6.235%, 7/15/45 14,934 14,954 -------- 86,349 -------- U.S. Treasury Obligations 16.4% U.S. Treasury Bonds 5.50%, 8/15/28 46,000 44,683 6.125%, 8/15/29 4,350 4,639 6.50%, 11/15/26 41,300 45,478 7.50%, 11/15/16 29,000 34,299 U.S. Treasury Inflation-Indexed Notes 3.375%, 1/15/07 33,432 32,781 3.625%, 7/15/02 21,194 21,189 U.S. Treasury Notes 5.50%, 7/31/01 5,000 4,979 6.00%, 9/30/02 15,175 15,266 6.50%, 8/15/05 30,500 31,747 6.875%, 5/15/06 21,500 22,873 7.00%, 7/15/06 22,000 23,558 -------- 281,492 -------- Total U.S. Government Obligations/Agencies (Cost $366,587) 367,841 -------- MONEY MARKET FUNDS 2.5% Reserve Investment Fund, 6.70%#++ 41,881 41,881 -------- Total Money Market Funds (Cost $41,881) 41,881 --------
18
T. ROWE PRICE NEW INCOME FUND - ------------------------------------------------------------------------------------------- Value - ------------------------------------------------------------------------------------------- In thousands Total Investments in Securities 99.4% of Net Assets (Cost $1,706,801) $ 1,699,286 Futures Contracts In thousands Contract Unrealized Expiration Value Gain (Loss) ---------- -------- ----------- Long, 300 U.S. Treasury 5-Year Notes contracts, $282,000 par of U.S. Treasury Notes pledged as initial margin 3/01 $ 30,633 $ 196 Net payments (receipts) of variation margin to date (69) ---------- Variation margin receivable (payable) on open futures contracts 127 Forward Currency Exchange Contracts In thousands Unrealized Counterparty Settlement Receive Deliver Gain (Loss) - ------------- ---------- --------------- --------------- ----------- Barclays Bank 4/20/01 USD 14,901 CAD 22,500 $ 202 ---------- Net unrealized gain (loss) on open forward currency exchange contracts 202 Other Assets Less Liabilities 10,062 ------------ NET ASSETS $ 1,709,677 ============
+ Private Placement ++ Affiliated company # Seven-day yield CAD Canadian dollar ETC Equipment Trust Certificate EUR Euro GPM Graduated Payment Mortgage MTN Medium Term Note REIT Real Estate Mortgage Investment Trust REMIC Real Estate Mortgage Investment Conduit USD US Dollar 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 period-end amounts to 6.1% of net assets. The accompanying notes are an integral part of these financial statements. 19 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- Unaudited November 30, 2000 - ----------------------------------- STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- In thousands Assets Investments in securities, at value (cost $1,664,920) $ 1,657,405 Investment in affiliated companies (cost $41,881) 41,881 Securities lending collateral 293,852 Other assets 52,751 ------------ Total assets 2,045,889 ------------ Liabilities Obligation to return securities lending collateral 293,852 Other liabilities 42,360 ------------ Total liabilities 336,212 ------------ NET ASSETS $ 1,709,677 ------------ Net Assets Consist of: Accumulated net investment income - net of distributions $ 2,904 Accumulated net realized gain/loss - net of distributions (101,738) Net unrealized gain (loss) (7,116) Paid-in-capital applicable to 204,490,062 shares of $1.00 par value capital stock outstanding; 300,000,000 shares authorized 1,815,627 ------------ NET ASSETS $ 1,709,677 ------------ NET ASSET VALUE PER SHARE $ 8.36 ------------ The accompanying notes are an integral part of these financial statements. 20 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- Unaudited STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- In thousands 6 Months Ended 11/30/00 Investment Income (Loss) Income Interest $ 59,704 Dividend 859 Securities lending 151 ------------ Total income 60,714 ------------ Expenses Investment management 3,906 Shareholder servicing 1,831 Custody and accounting 117 Prospectus and shareholder reports 54 Registration 16 Legal and audit 8 Directors 6 Miscellaneous 5 ------------ Total expenses 5,943 Expenses paid indirectly (41) Net expenses 5,902 ------------ Net investment income (loss) 54,812 ------------ Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities (10,277) Futures (3,120) Options 49 Foreign currency transactions 17 ------------ Net realized gain (loss) (13,331) ------------ Change in net unrealized gain or loss Securities 72,152 Futures 768 Other assets and liabilities denominated in foreign currencies 203 ------------ Change in net unrealized gain or loss 73,123 ------------ Net realized and unrealized gain (loss) 59,792 ------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 114,604 ----------- The accompanying notes are an integral part of these financial statements. 21 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- Unaudited - ---------------------------------- STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- In thousands
6 Months Year Ended Ended 11/30/00 5/31/00 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 54,812 $ 113,673 Net realized gain (loss) (13,331) (71,654) Change in net unrealized gain or loss 73,123 (23,998) Increase (decrease) in net assets from operations 114,604 18,021 Distributions to shareholders Net investment income (54,699) (113,579) Capital share transactions * Shares sold 85,514 192,491 Distributions reinvested 51,094 105,794 Shares redeemed (119,615) (511,721) Increase (decrease) in net assets from capital share transactions 16,993 (213,436) Net Assets Increase (decrease) during period 76,898 (308,994) Beginning of period 1,632,779 1,941,773 End of period $ 1,709,677 $ 1,632,779 --------------------------- *Share information Shares sold 10,393 23,373 Distributions reinvested 6,188 12,863 Shares redeemed (14,530) (62,339) Increase (decrease) in shares outstanding 2,051 (26,103)
The accompanying notes are an integral part of these financial statements. 22 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- Unaudited November 30, 2000 - ----------------------------- 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 as a diversified, open-end management investment company and commenced operations on October 12, 1973. The fund seeks the highest level of income consistent with the preservation of capital over time by investing primarily in marketable debt securities. The accompanying financial statements were prepared in accordance with generally accepted accounting principles, which require the use of estimates made by fund management. Valuation Debt securities are generally traded in the over-the-counter market. Investments in securities 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. 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 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 and securities regularly traded in the over-the-counter market are valued at the mean of the latest bid and asked prices. Other equity securities are valued at a price within the limits of the latest bid and asked prices deemed by the Board of Directors, or by persons delegated by the Board, best to reflect fair value. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. Financial futures contracts are valued at closing settlement 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. Currency Translation Assets 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 offer prices of such currencies against U.S. dollars quoted by a major bank. Purchases and sales of securities and income and 23 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- expenses are translated into U.S. dollars at the prevailing exchange rate on the dates of such transactions. The effect of changes in foreign exchange rates on realized and unrealized security gains and losses is reflected as a component of such gains and losses. Affiliated Companies As defined by the Investment Company Act of 1940, an affiliated company is one in which the fund owns at least 5% of the outstanding voting securities. Premiums and Discounts Premiums and discounts on debt securities, other than mortgage-backed securities (MBS), are amortized for both financial reporting and tax purposes. Premiums and discounts on all MBS are recognized upon disposition or principal repayment as gain or loss for financial reporting purposes. For tax purposes, premiums and discounts on MBS acquired on or before June 8, 1997, are recognized upon disposition or principal repayment as ordinary income. For MBS acquired after June 8, 1997, premiums are recognized as gain or loss; discounts are recognized as gain or loss, except to the extent of accrued market discount. In November, 2000, the American Institute of Certified Public Accountants issued a revised Audit and Accounting Guide - Audits of Investment Companies (the guide), which will be adopted by the fund as of June 1, 2001. The guide requires all premiums and discounts on debt securities to be amortized, and gain/loss on paydowns of MBS to be accounted for as interest income. Upon adoption, the fund will adjust the cost of its debt securities, and corresponding unrealized gain/loss thereon, in the amount of the cumulative amortization that would have been recognized had amortization been in effect from the purchase date of each holding. This adjustment will have no effect on the fund's net assets or results of operations. 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 net investment income and realized gains determined in accordance with generally accepted accounting principles. Expenses paid indirectly reflect credits earned on daily uninvested cash balances at the custodian and are used to reduce the fund's custody charges. 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 24 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- losses until the contracts are closed. Unrealized gains and losses on futures contracts are included in Other assets and Other liabilities and in Change in net unrealized gain or loss in the accompanying financial statements. 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, 2000, 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, 2000, 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. 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%-105% of the value of the securities on loan. Cash collateral is invested in a money market pooled account by the fund's lending agent. 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. At November 30, 2000, the value of loaned securities was $287,081,000; aggregate collateral consisted of $293,852,000 in the securities lending collateral pool. Other Purchases and sales of portfolio securities, other than short-term and U.S. government securities, aggregated $388,390,000 and $309,568,000, respectively, for the six months ended November 30, 2000. Purchases and sales of 25 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- U.S. government securities aggregated $232,484,000 and $293,852,000, respectively, for the six months ended November 30, 2000. 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. As of May 31, 2000, the fund had $38,446,000 of capital loss carryforwards, $1,953,000 of which expres in 2007, and $36,493,000 in 2008. The fund intends to retain gains realized in future periods that may be offset by available capital loss carryforwards. At November 30, 2000, the cost of investments for federal income tax purposes was substantially the same as for financial reporting and totaled $1,706,801,000. Net unrealized loss aggregated $7,515,000 at period-end, of which $24,446,000 related to appreciated investments and $31,961,000 to depreciated investments. NOTE 4- RELATED PARTY TRANSACTIONS The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price Associates). The investment management agreement between the fund and the manager provides for an annual investment management fee, of which $648,000 was payable at November 30, 2000. 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 T. Rowe Price International, Inc. (the group). The group fee rate ranges from 0.48% for the first $1 billion of assets to 0.295% for assets in excess of $120 billion. At November 30, 2000, and for the six months then ended, the effective annual group fee rate was 0.32%. 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 Price Associates and two wholly owned subsidiaries of Price Associates, pursuant to which the fund receives certain other services. Price Associates computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc. 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. 26 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. The fund incurred expenses pursuant to these related party agreements totaling approximately $1,065,000 for the six months ended November 30, 2000, of which $195,000 was payable at period-end. Additionally, the fund is one of several T. Rowe Price-sponsored mutual funds (underlying funds) in which the T. Rowe Price Spectrum Funds (Spectrum) may invest. Spectrum does not invest in the underlying funds for the purpose of exercising management or control. Expenses associated with the operation of Spectrum are borne by each underlying fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by Spectrum, pursuant to special servicing agreements between and among Spectrum, the underlying funds, Price Associates, and, in the case of T. Rowe Price Spectrum International, T. Rowe Price International. Spectrum Income Fund held approximately 36% of the outstanding shares of the New Income Fund at November 30, 2000. For the six months then ended, the fund was allocated $672,000 of Spectrum expenses, $207,000 of which was payable at period-end. The fund may invest in the Reserve Investment Fund and 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 and other accounts managed by Price Associates or T. Rowe Price International, and are not available to the public. The Reserve Funds pay no investment management fees. Distributions from the Reserve Funds to the fund for the six months ended November 30, 2000, totaled $1,857,000 and are reflected as interest income in the accompanying Statement of Operations. 27 T. ROWE PRICE SHAREHOLDER SERVICES - -------------------------------------------------------------------------------- INVESTMENT SERVICES AND INFORMATION KNOWLEDGEABLE SERVICE REPRESENTATIVES By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET. In Person Available in T. Rowe Price Investor Centers. ACCOUNT SERVICES Checking Available on most fixed-income funds ($500 minimum). Automatic Investing From your bank account or paycheck. Automatic Withdrawal Scheduled, automatic redemptions. Distribution Options Reinvest all, some, or none of your distributions. Automated 24-Hour Services Including Tele*Access(R) and the T. Rowe Price Web site on the Internet. Address: www.troweprice.com. BROKERAGE SERVICES* Individual Investments Stocks, bonds, options, precious metals, and other securities at a savings over full-service commission rates. ** INVESTMENT INFORMATION Combined Statement Overview of all your accounts with T. Rowe Price. Shareholder Reports Fund managers' reviews of their strategies and results. T. Rowe Price Report Quarterly investment newsletter discussing markets and financial strategies. Performance Update Quarterly review of all T. Rowe Price fund results. Insights Educational reports on investment strategies and financial markets. Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A Guide to International Investing, Personal Strategy Planner, Retirees Financial Guide, and Retirement Planning Kit. * T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC. ** Based on a July 2000 survey for representative-assisted stock trades. Services vary by firm, and commissions may vary depending on size of order. 28 T. ROWE PRICE MUTUAL FUNDS - -------------------------------------------------------------------------------- STOCK FUNDS Domestic Blue Chip Growth Capital Appreciation Capital Opportunity Developing Technologies Diversified Small-Cap Growth Dividend Growth Equity Income Equity Index 500 Extended Equity Market Index Financial Services Growth & Income Growth Stock Health Sciences Media & Telecommunications Mid-Cap Growth Mid-Cap Value New America Growth New Era New Horizons* Real Estate Science & Technology Small-Cap Stock Small-Cap Value Spectrum Growth Tax-Efficient Growth Total Equity Market Index Value BLENDED ASSET FUNDS Balanced Personal Strategy Balanced Personal Strategy Growth Personal Strategy Income Tax-Efficient Balanced BOND FUNDS Domestic Taxable Corporate Income GNMA High Yield New Income Short-Term Bond Spectrum Income Summit GNMA U.S. Bond Index U.S. Treasury Intermediate U.S. Treasury Long-Term Domestic Tax-Free California Tax-Free Bond Florida 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 Intermediate Bond Tax-Free Short-Intermediate Virginia Tax-Free Bond MONEY MARKET FUNDS+ 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 INTERNATIONAL/GLOBAL FUNDS Stock Emerging Europe & Mediterranean Emerging Markets Stock European Stock Global Stock Global Technology International Discovery* International Equity Index International Growth & Income International Stock Japan Latin America New Asia Spectrum International Bond Emerging Markets Bond International Bond T. ROWE PRICE NO-LOAD VARIABLE ANNUITY Equity Income Portfolio International Stock Portfolio Limited-Term Bond Portfolio Mid-Cap Growth Portfolio New America Growth Portfolio Personal Strategy Balanced Portfolio Prime Reserve Portfolio * Closed to new investors. + Investments in the funds are not insured or guaranteed by the FDIC or any other government agency. Although the funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the funds. Please call for a prospectus, which contains complete information, including fees and expenses. Read it carefully before investing. The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by First Security Benefit Life Insurance Company of New York, White Plains, NY. T. Rowe Price refers to the underlying portfolios' investment managers and the distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security Benefit Group of Companies and the T. Rowe Price companies are not affiliated. The variable annuity may not be available in all states. The contract has limitations. Call a representative for costs and complete details of the coverage. 29 For fund and account information or to conduct transactions, 24 hours, 7 days a week By touch-tone telephone Tele*Access 1-800-638-2587 By Account Access on the Internet www.troweprice.com/access For assistance with your existing fund account, call: Shareholder Service Center 1-800-225-5132 To open a brokerage account or obtain information, call: 1-800-638-5660 For the hearing impaired, call: 1-800-367-0763 Internet address: www.troweprice.com Plan Account Lines for retirement plan participants: The appropriate 800 number appears on your retirement account statement. 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 appropriate to the fund or funds covered in this report. Walk-In Investor Centers: For directions, call 1-800-225-5132 or visit our Web site at www.troweprice.com/investorcenters Baltimore Area Downtown - new address 105 East Lombard Street Owings Mills Three Financial Center 4515 Painters Mill Road Boston Area 386 Washington Street Wellesley Colorado Springs 2260 Briargate Parkway Los Angeles Area Warner Center 21800 Oxnard Street, Suite 270 Woodland Hills San Francisco Area 1990 North California Boulevard Suite 100 Walnut Creek Tampa 4200 West Cypress Street 10th Floor Washington, D.C. 900 17th Street N.W. Farragut Square [LOGO OF T. ROWE PRICE] T. Rowe Price Investment Services, Inc., Distributor. F43-051 11/30/00 -----END PRIVACY-ENHANCED MESSAGE-----