-----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, DD3LvhjTDQ0tOMxvI4/drtJfwuVL5EQ1eWu+oM0N1RJoQ/kc8+eG1Fk/amuNbAeq 3MvxTcK7AQKPkNGsqz7RzQ== 0000950109-03-000191.txt : 20030121 0000950109-03-000191.hdr.sgml : 20030120 20030121121823 ACCESSION NUMBER: 0000950109-03-000191 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021130 FILED AS OF DATE: 20030121 EFFECTIVENESS DATE: 20030121 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE NEW INCOME FUND INC CENTRAL INDEX KEY: 0000080249 IRS NUMBER: 520980581 FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02396 FILM NUMBER: 03519012 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105472000 N-30D 1 dn30d.txt T. ROWE CORPORATE INCOME FUND Semiannual Report NEW INCOME FUND ----------------- NOVEMBER 30, 2002 ----------------- [GRAPHIC] [LOGO OF T. ROWE PRICE(R)] TABLE OF CONTENTS - -------------------------------------------------------------------------------- Highlights ................................................................. 1 Portfolio Manager's Report ................................................. 2 Interest Rates and Economy ............................................... 2 Market Activity .......................................................... 3 Performance and Strategy Review .......................................... 4 Outlook .................................................................. 5 Performance Comparison ..................................................... 7 Financial Highlights ....................................................... 8 Portfolio of Investments ................................................... 11 Statements of Assets and Liabilities ....................................... 24 Statement of Operations .................................................... 25 Statement of Changes in Net Assets ......................................... 26 Notes to Financial Statements .............................................. 27 About the Fund's Directors and Officers .................................... 34 REPORTS ON THE WEB Sign up for our E-mail Program, and you can begin to receive updated fund reports and prospectuses online rather than through the mail. Log on to your account at www.troweprice.com for more information. - ---------- HIGHLIGHTS - -------------------------------------------------------------------------------- .. High-quality bonds performed well, boosted by falling interest rates and investors' deepening risk aversion. .. Your fund posted positive returns but trailed its benchmark index and the Lipper average for similar funds. .. Our primary strategies this year have been to maintain neutral portfolio duration, seek out opportunities in the corporate and mortgage markets, and establish nondollar positions. .. Balance sheet repair, restored financial discipline, and a renewed deference to bond-holders make the longer-term prospects for corporate bonds compelling. - ---------------------- PERFORMANCE COMPARISON - -------------------------------------------------------------------------------- Periods Ended 11/30/02 6 Months 12 Months - -------------------------------------------------------------------------------- New Income Fund 2.90% 4.52% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Index 4.98 7.34 - -------------------------------------------------------------------------------- Lipper Average of Corporate Bond Funds A-Rated 3.86 5.29 - -------------------------------------------------------------------------------- - --------------- PRICE AND YIELD - -------------------------------------------------------------------------------- 5/31/02 11/30/02 - -------------------------------------------------------------------------------- Price Per Share $8.70 $8.75 - -------------------------------------------------------------------------------- Dividends Per Share - -------------------------------------------------------------------------------- For 6 months 0.22 0.20 - -------------------------------------------------------------------------------- For 12 months 0.47 0.42 - -------------------------------------------------------------------------------- 30-Day Dividend Yield * 5.00% 4.48% - -------------------------------------------------------------------------------- 30-Day Standardized Yield to Maturity 5.08 4.42 - -------------------------------------------------------------------------------- * Dividends earned for the last 30 days of each period indicated are annualized and divided by the fund's net asset value at the end of the period. 1 - -------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- In the six months ended November 30, 2002, the economy struggled to find solid footing, unable to gather momentum from its strong first-quarter rebound. High-quality bonds continued to perform well, boosted by falling interest rates and investors' deepening risk aversion. Your fund posted positive returns but trailed its benchmark index and the Lipper average for similar funds. INTEREST RATES AND ECONOMY - -------------------- INTEREST RATE LEVELS - -------------------------------------------------------------------------------- [CHART] 10-Year Treasury Note 5-Year Treasury Note 2-Year Treasury Note 11/30/2001 4.75 4.06 2.84 5.05 4.3 3.02 5.03 4.37 3.16 02-Feb 4.88 4.19 3.06 5.4 4.84 3.72 5.09 4.41 3.22 02-May 5.04 4.35 3.19 4.8 4.03 2.81 4.46 3.45 2.23 02-Aug 4.14 3.22 2.13 3.59 2.56 1.68 3.89 2.73 1.67 11/30/2002 4.21 3.27 2.06 SEC investigations, accounting scandals, excessive debt burdens, and the intensifying competitive environment deflated any nascent optimism about a sustained recovery and sent investors scurrying for safe havens. However, the extended Treasury market broke its streak of strong performance and sold off in October and November. The correction occurred after yields in the Treasury market had reached their lows of the year. The 10-year U.S. Treasury note yield, for example, dipped to 3.59% at the end of September before spiking to 4.21% at the end of the reporting period. The five-year U.S. Treasury note was even more volatile. After sprinting from the gate in the first quarter, the economy slowed considerably, with gross domestic product--a measure of the total value of goods and services produced in the U.S.--growing at a modest 1.3% annual rate in the second quarter. The Federal Reserve left the federal funds rate unchanged at 1.75% for most of the year but altered its policy stance in August, stating that the risks were tilted toward economic weakness. In November, the Fed finally lowered its benchmark rate to 1.25%. In its policy statement, the central bank noted that uncertainty, including the possibility of war in Iraq, was 2 holding back spending, production, and employment, and said that the easing "should prove helpful as the economy works its way through this current soft spot." The economy may have already been working its way through the softness when the Fed acted, as the news was mildly upbeat as the period ended. Weekly unemployment claims resumed a gradual downtrend, which suggests a return to a modest pace of net employment growth. Consumer sentiment improved, calming fears about reduced private spending, and factory activity showed renewed growth as well, bolstering prospects for increased business spending. Gross domestic product rose at a surprisingly strong 4% annualized rate during the third quarter, according to the Commerce Department, but fourth-quarter expectations remain modest. MARKET ACTIVITY - ------------------- BOND MARKET RETURNS - -------------------------------------------------------------------------------- [CHART] 6-month Return 12-month Return Treasury 6.58 7.81 Mortgage 3.88 7.33 AAA 5.97 8.41 BBB 2.13 2.46 BBB/BB -4.98 -0.3 Bond market returns were skewed heavily toward the high-quality sectors. High-quality bonds provided solid returns during the period as longer-term interest rates fell to levels not seen in more than 40 years. Factors supporting the bond market included a faltering economy, corporate accounting scandals, severe declines in stock prices, fears of war with Iraq, and greater investor demand for the relative safety of fixed-income securities. The Lehman Brothers U.S. Aggregate Index, an unmanaged measure of the broad domestic investment-grade market, gained 4.98% for the six months, contributing to a strong 7.34% increase for the 12-month period. Treasuries and AAA rated corporate bonds performed better than the benchmark in the 6- and 12-month periods, mortgage securities were roughly in line, but lower-quality bonds significantly lagged. 3 PERFORMANCE AND STRATEGY REVIEW The latest 6- and 12-month periods proved somewhat challenging for your fund. While positive, your fund's results trailed the returns of the Lehman Brothers U.S. Aggregate Index and our Lipper peer group average as shown in the performance comparison table on page 1. The underperformance reflects several strategic shifts: overweighting lower-quality corporates, which underperformed, and underweighting the stronger Treasury and agency sectors. - ------------------------- PORTFOLIO CHARACTERISTICS - -------------------------------------------------------------------------------- Periods Ended 5/31/02 11/30/02 - -------------------------------------------------------------------------------- Weighted Average Maturity (years) 7.6 6.9 - -------------------------------------------------------------------------------- Weighted Average Effective Duration (years) 5.0 4.1 - -------------------------------------------------------------------------------- Weighted Average Quality * AA+ AA+ - -------------------------------------------------------------------------------- * Based on T. Rowe Price research Our primary strategies this year have been to maintain a neutral portfolio duration posture, seek out opportunities in the corporate and mortgage markets, and to establish nondollar positions. Our duration posture did not hurt us, and mortgages were steady throughout the year. Our corporate strategy, however, proved disappointing. Relying on our fundamental research, we felt that the distress in particular credits and the accompanying historically wide yield spreads offered exceptional opportunity. Our view was that balance sheet restructuring, restoration of financial discipline, and an improving economy would ultimately be positives for the sector. What we failed to fully appreciate was the magnitude of the risk aversion enveloping the corporate bond market. Despite a recovery during October and November, yield spreads on many credits continue to reflect distress. Our nondollar positions, representing between 5% and 10% of assets, are focused on Canadian government and Australian bonds and euro-denominated debt. These positions have offered a significant yield pickup, especially given our positive outlook on each of these currencies against the dollar. We believe that given the prospect of rising U.S deficits, nondollar bonds should fare well. We continue to evaluate opportunities within the utility sector because the bonds of many issuers seem oversold. Additionally, we are encouraged by positive trends in the fundamentals of the sector as many companies have focused on balance sheet repair by reducing leverage 4 through the management of free cash flow and issuance of equity. These factors portend improving valuations looking forward, as positive credit events begin to outweigh the negative headlines of the last several months. - ------------------------ SECURITY DIVERSIFICATION - -------------------------------------------------------------------------------- [CHART] U.S. Treasuries 10% Corporate Bonds and Convertibles 29% Mortgage-Backed Securities 39% Foreign Government and Muni 9% Asset-Backed Securities 5% U.S. Agency Obligations 5% Cash 3% Based on net assets as of 11/30/02. Your portfolio has maintained a strong and growing commitment to mortgage, corporate, and asset-based obligations. The mortgage allocation increased to 39% from 36% during the six-month period, and the sector delivered strong relative returns. Our holdings in corporate nondollar bonds also expanded as we redeployed assets from the sale of Treasuries. Overall, the Treasury allocation was trimmed to 10% of the fund from 17% six months ago. OUTLOOK We believe the underpinnings for a cyclical recovery are substantially in place. Inventories are lean, capital expenditures and payrolls have been trimmed, productivity is surging, and monetary policy is stimulative. Real GDP may register 3% this year, inflation is low, and the consumer continues to spend at a healthy pace. So, why is the Fed worried enough to keep short-term rates at their lowest point in 40 years? Falling goods prices and a slowdown in service price increases are a concern, as are heavy corporate and individual debt loads. Claims of accounting fraud and corporate malfeasance notwithstanding, many problems in the credit markets during 2002 stemmed from excessive leverage and meager top-line revenue growth. Job security and real income growth also remain critical for consumers who continue to borrow and save very little. Nevertheless, repairing corporate balance sheets to address the realities of the competitive global environment is proceeding, but it may take longer than we first suspected. 5 In this environment, we will continue to look for high-quality sources of income. Mortgages, higher yielding nondollar sovereign credits, and longer-term Treasuries will compose a significant part of the portfolio. In addition, corporate bonds will continue to play a critical role in our strategy. Balance sheet repair, restored financial discipline, and a renewed deference to bondholders make the longer-term prospects for corporate bonds compelling. Nevertheless, our near-term success will depend on picking the right corporate subsectors and individual issues. Respectfully submitted, /s/ William T. Reynolds William T. Reynolds President of the fund and chairman of its Investment Advisory Committee December 19, 2002 The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the fund's investment program. - -------------------------------------------------------------------------------- The following updates the Portfolio Management paragraph in Section 3 of the current prospectuses for the New Income Fund, New Income Fund-Advisor Class, and New Income Fund-R Class. Effective December 1, 2002, Daniel O. Shackelford became chairman of the New Income Fund's Investment Advisory Committee and assumed day-to-day responsibility for managing the portfolio. Mr. Shackelford has been managing investments at T. Rowe Price since 1999. Prior to that time, he had been managing fixed-income portfolios for Investment Counselors of Maryland since 1993. 6 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 [CHART] Lehman Brothers U.S. Aggregate Index New Income Fund --------------- --------------- 11/92 10,000 10,000 11/93 11,089 11,015 11/94 10,750 10,731 11/95 12,647 12,617 11/96 13,414 13,265 11/97 14,427 14,185 11/98 15,791 14,946 11/99 15,784 14,887 11/00 17,215 16,117 11/01 19,137 17,967 11/02 20,541 18,780 - ------------------------------------ AVERAGE ANNUAL COMPOUND TOTAL RETURN - -------------------------------------------------------------------------------- This table shows how each fund would have performed each year if its actual (or cumulative) returns for the periods shown had been earned at a constant rate. [CHART]
Since Inception Periods Ended 11/30/02 1 Year 5 Years 10 Years Inception Date - -------------------------------------------------------------------------------------- New Income Fund 4.52% 5.77% 6.51% -- -- New Income Fund-Advisor Class -- -- -- -0.28% 9/30/02 New Income Fund-R Class -- -- -- -0.32% 9/30/02
Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. 7 T. ROWE PRICE NEW INCOME FUND ================================================================================ Unaudited - -------------------- FINANCIAL HIGHLIGHTS For a share outstanding throughout the period - -------------------------------------------------------------------------------
New Income shares 6 Months Year Ended Ended 11/30/0 5/31/02 5/31/01 5/31/00 5/31/99 5/31/98 NET ASSET VALUE Beginning of period $ 8.70 $ 8.53 $ 8.07 $ 8.50 $ 9.09 $ 8.77 - --------------------------------------------------------------------------------------------------------- Investment activities Net investment income (loss) 0.20 0.47 0.53 0.52 0.54 0.57 - --------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) 0.05 0.17 0.46 (0.43) (0.45) 0.36 - --------------------------------------------------------------------------------------------------------- Total from investment activities 0.25 0.64 0.99 0.09 0.09 0.93 - --------------------------------------------------------------------------------------------------------- Distributions Net investment income (0.20) (0.47) (0.53) (0.52) (0.54) (0.57) Net realized gain - - - - (0.14) (0.04) - --------------------------------------------------------------------------------------------------------- Total distributions (0.20) (0.47) (0.53) (0.52) (0.68) (0.61) - --------------------------------------------------------------------------------------------------------- NET ASSET VALUE End of period $ 8.75 $ 8.70 $ 8.53 $ 8.07 $ 8.50 $ 9.09 - --------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Total return/\ 2.90% 7.68% 12.54% 1.13% 1.02% 10.84% - --------------------------------------------------------------------------------------------------------- Ratio of total expenses to average net assets 0.73%+ 0.72% 0.73% 0.73% 0.72% 0.71% - --------------------------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets 4.49%+ 5.38% 6.30% 6.32% 6.16% 6.31% - --------------------------------------------------------------------------------------------------------- Portfolio turnover rate 236.9%+ 222% 112.1% 83.6% 94.3% 147.3% - --------------------------------------------------------------------------------------------------------- Net assets, end of period (in millions) $ 1,968 $ 1,863 $ 1,684 $ 1,633 $ 1,942 $ 2,076 - ---------------------------------------------------------------------------------------------------------
/\ 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. 8 T. ROWE PRICE NEW INCOME FUND ================================================================================ Unaudited - -------------------- FINANCIAL HIGHLIGHTS For a share outstanding throughout the period - ------------------------------------------------------------------------------- New Income - Advisor Class shares 9/30/02 Through 11/30/02 NET ASSET VALUE Beginning of period $ 8.81 ----------- Investment activities Net investment income (loss) 0.06* Net realized and unrealized gain (loss) (0.05)** ----------- Total from investment activities 0.01 ----------- Distributions Net investment income (0.07) ----------- NET ASSET VALUE End of period $ 8.75 ----------- Ratios/Supplemental Data Total return/\ (0.28)%* - ------------------------------------------------------------------------------- Ratio of total expenses to average net assets 0.90%+* - ------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets 4.09%+* - ------------------------------------------------------------------------------- Portfolio turnover rate 236.9%+ - ------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 100 - ------------------------------------------------------------------------------- * Excludes expenses in excess of a 0.90% contractual expense limitation in effect through 9/30/04. ** The amount presented is calculated pursuant to a methodology prescribed by the Securities and Exchange Commission for a share outstanding throughout the period. This amount is inconsistent with the fund's aggregate gains and losses because of the timing of sales and redemptions of fund shares in relation to fluctuating market values for the investment portfolio. /\ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions. + Annualized The accompanying notes are an integral part of these financial statements. 9 T. ROWE PRICE NEW INCOME FUND ================================================================================ Unaudited - -------------------- FINANCIAL HIGHLIGHTS For a share outstanding throughout the period - -------------------------------------------------------------------------------- New Income - R Class shares 9/30/02 Through 11/30/02 NET ASSET VALUE Beginning of period $ 8.81 ------------ Investment activities Net investment income (loss) 0.05* Net realized and unrealized gain (loss) (0.05)** ------------ Total from investment activities - ------------ Distributions Net investment income (0.06) ------------ NET ASSET VALUE End of period $ 8.75 ------------ Ratios/Supplemental Data Total return/\ (0.32)%* - -------------------------------------------------------------------------------- Ratio of total expenses to average net assets 1.15%+* - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets 3.84%+* - -------------------------------------------------------------------------------- Portfolio turnover rate 236.9%+ - -------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 100 - -------------------------------------------------------------------------------- * Excludes expenses in excess of a 1.15% contractual expense limitation in effect through 9/30/04. ** The amount presented is calculated pursuant to a methodology prescribed by the Securities and Exchange Commission for a share outstanding throughout the period. This amount is inconsistent with the fund's aggregate gains and losses because of the timing of sales and redemptions of fund shares in relation to fluctuating market values for the investment portfolio. /\ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions. + Annualized The accompanying notes are an integral part of these financial statements. 10 T. ROWE PRICE NEW INCOME FUND ================================================================================ Unaudited November 30, 2002 - ------------------------ PORTFOLIO OF INVESTMENTS Par/Share Value - -------------------------------------------------------------------------------- In thousands CORPORATE BONDS AND NOTES 25.3% Aerospace & Defense 0.5% Boeing Capital, Sr. Notes, 5.75%, 2/15/07 $ 4,250 $ 4,396 - -------------------------------------------------------------------------------- Lockheed Martin, Sr. Notes, 7.25%, 5/15/06 5,450 6,058 - -------------------------------------------------------------------------------- 10,454 --------- Automobiles and Related 1.3% DaimlerChrysler, Sr. Notes, 7.30%, 1/15/12 2,740 2,980 - -------------------------------------------------------------------------------- Ford Motor, Sr. Notes, 7.45%, 7/16/31 12,730 10,831 - -------------------------------------------------------------------------------- General Motors Acceptance Corp., Sr. Notes 6.125%, 8/28/07 11,395 11,276 - -------------------------------------------------------------------------------- 25,087 --------- Banking 2.2% Banco Santiago, Sr. Sub. Notes, 7.00%, 7/18/07 9,335 9,495 - -------------------------------------------------------------------------------- Bank of America, Sr. Notes, 4.875%, 9/15/12 * 8,035 7,895 - -------------------------------------------------------------------------------- BB&T Sr. Sub. Notes 4.75%, 10/1/12 3,745 3,672 - -------------------------------------------------------------------------------- 6.50%, 8/1/11 2,000 2,211 - -------------------------------------------------------------------------------- Colonial Bank, Sr. Sub. Notes, 9.375%, 6/1/11 7,700 8,205 - -------------------------------------------------------------------------------- North Fork Bancorporation, Sr.Sub. Notes 144A, 5.875%, 8/15/12 1,370 1,443 - -------------------------------------------------------------------------------- Regions Financial, Sr. Sub. Notes, 6.375%, 5/15/12 5,300 5,775 - -------------------------------------------------------------------------------- Washington Mutual Bank, Sr. Sub. Notes, 5.50%,1/15/13 5,000 4,960 - -------------------------------------------------------------------------------- 43,656 --------- Beverages 0.7% Bottling Group LLC, Sr. Notes, 144A, 4.625%, 11/15/12 4,675 4,545 - -------------------------------------------------------------------------------- Coca Cola Enterprises, Sr. Notes, 6.125%, 8/15/11 4,500 4,869 - -------------------------------------------------------------------------------- Diageo, Sr. Notes, 3.50%, 11/19/07 4,700 4,603 - -------------------------------------------------------------------------------- 14,017 --------- Cable Operators 0.7% Clear Channel Communications, Sr. Notes, 7.875%, 6/15/05 6,420 6,894 - -------------------------------------------------------------------------------- Cox Communications, Sr. Notes, 6.75%, 3/15/11 7,000 7,194 - -------------------------------------------------------------------------------- 14,088 --------- Computer Service & Software 0.3% IBM, Sr. Notes, 4.25%, 9/15/09 5,155 5,053 - -------------------------------------------------------------------------------- 5,053 --------- 11 T. ROWE PRICE NEW INCOME FUND ================================================================================ Par/Shares Value - -------------------------------------------------------------------------------- In thousands Conglomerates 0.2% Tyco International, Sr. Notes, 5.80%, 8/1/06 $ 5,150 $ 4,584 - -------------------------------------------------------------------------------- 4,584 --------- Consumer Products 0.3% Masco, Sr. Notes, 5.875%, 7/15/12 5,190 5,340 - -------------------------------------------------------------------------------- 5,340 --------- Diversified Chemicals 0.2% Praxair, Sr. Notes, 6.75%, 3/1/03 4,500 4,553 - -------------------------------------------------------------------------------- 4,553 --------- Electric Utilities 4.4% Allegheny Energy Supply, Sr. Notes, 144A, 8.50%, 4/15/12 8,050 3,944 - -------------------------------------------------------------------------------- Appalachian Power Company, Series E, Sr. Notes 4.80%, 6/15/05 7,640 7,587 - -------------------------------------------------------------------------------- Cincinnati Gas & Electric, Sr. Notes, 5.70%, 9/15/12 4,025 4,021 - -------------------------------------------------------------------------------- Constellation Energy Group, Sr. Notes, 6.35%, 4/1/07 4,250 4,410 - -------------------------------------------------------------------------------- Consumers Energy Group, 1st Mtg., 6.00%, 3/15/05 5,670 5,642 - -------------------------------------------------------------------------------- Entergy Gulf States, 1st Mtg., 144A, 5.20%, 12/3/07 4,675 4,580 - -------------------------------------------------------------------------------- FirstEnergy, Sr. Notes, 7.375%, 11/15/31 8,350 8,087 - -------------------------------------------------------------------------------- Mirant Americas Generation, Sr. Notes, 8.30%, 5/1/11 3,500 1,680 - -------------------------------------------------------------------------------- NiSource Finance, Sr. Notes, 7.625%, 11/15/05 6,700 6,968 - -------------------------------------------------------------------------------- Oncor Electric Delivery, Sr. Notes, 144A, 7.00%, 9/1/22 5,000 4,819 - -------------------------------------------------------------------------------- PG&E National Energy, Sr. Notes, 10.375%, 5/16/11 4,300 1,204 - -------------------------------------------------------------------------------- Pinnacle West Capital, Sr. Notes, 6.40%, 4/1/06 4,165 4,092 - -------------------------------------------------------------------------------- PPL Energy, Sr. Notes, 6.40%, 11/1/11 4,870 4,613 - -------------------------------------------------------------------------------- Progress Energy, Sr. Notes, 6.75%, 3/1/06 * 3,775 3,998 - -------------------------------------------------------------------------------- PSEG Power Sr. Notes 6.875%, 4/15/06 1,930 1,944 - -------------------------------------------------------------------------------- 8.625%, 4/15/31 3,605 3,686 - -------------------------------------------------------------------------------- Public Service Company of Colorado, 1st Mtg. 144A, 7.875%, 10/1/12 5,000 5,507 - -------------------------------------------------------------------------------- Sempra Energy, Sr. Notes, 6.80%, 7/1/04 3,675 3,759 - ------------------------------------------------------------------------------- Southern Power Company, Sr. Notes, 6.25%, 7/15/12 3,565 3,652 - -------------------------------------------------------------------------------- Tampa Electric Company, Sr. Notes, 6.375%, 8/15/12 2,000 2,023 - -------------------------------------------------------------------------------- 86,216 --------- Energy 1.1% Noram Energy, Sr. Notes, 6.50%, 2/1/08 2,247 1,741 - -------------------------------------------------------------------------------- PDVSA Finance, Sr. Notes, 6.80%, 11/15/08 8,000 6,885 - -------------------------------------------------------------------------------- 12 T. ROWE PRICE NEW INCOME FUND ================================================================================
Par/Shares Value - --------------------------------------------------------------------------------------------------------- In thousands YPF Sociedad Anonima Sr. Notes 7.25%, 3/15/03 $ 10,000 $ 9,775 ------------------------------------------------------------------------------------------------- 10.00%, 11/2/28 4,660 3,542 - --------------------------------------------------------------------------------------------------------- 21,943 ----------- Entertainment and Leisure 0.7% International Speedway, Sr. Notes, 7.875%, 10/15/04 10,000 10,639 - --------------------------------------------------------------------------------------------------------- Viacom, Sr. Notes, 5.625%, 8/15/12 2,805 2,903 - --------------------------------------------------------------------------------------------------------- 13,542 ----------- Exploration and Production 0.6% Anadarko Petroleum, Sr. Notes, 5.00%, 10/1/12 5,950 5,839 - --------------------------------------------------------------------------------------------------------- Canadian Natural Resources, Sr. Notes, 7.20%, 1/15/32 5,200 5,604 - --------------------------------------------------------------------------------------------------------- 11,443 ----------- Finance and Credit 2.1% CIT Group, Sr. Notes, 7.75%, 4/2/12 6,805 7,263 - --------------------------------------------------------------------------------------------------------- Countrywide Home Loans, Sr. Notes, 5.50%, 2/1/07 (S) 8,200 8,488 - --------------------------------------------------------------------------------------------------------- General Electric Capital Corp., MTN, 6.00%, 6/15/12 4,900 5,142 - --------------------------------------------------------------------------------------------------------- International Lease Finance, Sr. Notes, 6.375%, 3/15/09 5,520 5,691 - --------------------------------------------------------------------------------------------------------- PHH, MTN, 8.125%, 2/3/03 7,000 6,999 - --------------------------------------------------------------------------------------------------------- Wells Fargo Financial, Sr. Notes, 5.50%, 8/1/12 7,265 7,521 - --------------------------------------------------------------------------------------------------------- 41,104 ----------- Food Processing 1.0% Kellogg, Series B, Sr. Notes, 6.60%, 4/1/11 5,000 5,516 - --------------------------------------------------------------------------------------------------------- Kraft Foods, Sr. Notes, 6.25%, 6/1/12 6,400 6,987 - --------------------------------------------------------------------------------------------------------- McCormick, Sr. Notes, 6.40%, 2/1/06 7,300 7,728 - --------------------------------------------------------------------------------------------------------- 20,231 ----------- Food/Tobacco 0.3% UST, Sr. Notes, 144A, 6.625%, 7/15/12 5,400 5,634 - --------------------------------------------------------------------------------------------------------- 5,634 ---------- Gas & Gas Transmission 0.3% - --------------------------------------------------------------------------------------------------------- Kinder Morgan, Sr. Notes, 6.50%, 9/1/12 5,000 5,140 - --------------------------------------------------------------------------------------------------------- 5,140 ----------- Insurance 2.2% AIG Sunamerica Global Financing XII, Sr. Notes 144A, 5.30%, 5/30/07 6,070 6,290 - --------------------------------------------------------------------------------------------------------- Allstate Financial Global Funding, Sr. Notes 144A, 5.25%, 2/1/07 9,000 9,377 - --------------------------------------------------------------------------------------------------------- Cigna, Sr. Notes, 7.875%, 5/15/27 1,500 1,430 - ---------------------------------------------------------------------------------------------------------
13 T. ROWE PRICE NEW INCOME FUND ================================================================================
Par/Shares Value - --------------------------------------------------------------------------------------------------------- In thousands Jefferson Pilot Capital Trust A, Jr. Sub. Notes 144A, 8.14%, 1/15/46 $ 3,000 $ 3,085 - --------------------------------------------------------------------------------------------------------- Nationwide Financial Services, Sr. Notes, 5.90%, 7/1/12 6,535 6,366 - --------------------------------------------------------------------------------------------------------- Sun Life of Canada U.S. Capital Trust, Jr. Sub. Notes 144A, 8.526%, 5/29/49 7,000 6,989 - --------------------------------------------------------------------------------------------------------- XL Capital Finance, Sr. Notes, 6.50%, 1/15/12 9,100 9,266 - --------------------------------------------------------------------------------------------------------- 42,803 ----------- Investment Dealers 0.5% Credit Suisse First Boston, Sr. Notes, 6.50%, 1/15/12 4,700 4,855 - --------------------------------------------------------------------------------------------------------- Morgan Stanley, Sr. Notes, 6.60%, 4/1/12 4,900 5,262 - --------------------------------------------------------------------------------------------------------- 10,117 ----------- Long Distance 0.5% AT&T, Sr. Notes, STEP, 8.00%, 11/15/31 9,825 9,923 - --------------------------------------------------------------------------------------------------------- 9,923 ----------- Media and Communications 0.6% AOL Time Warner, Sr. Notes, 7.625%, 4/15/31 5,970 5,867 - --------------------------------------------------------------------------------------------------------- News America Sr. Notes 6.75%, 1/9/10 1,705 1,713 ------------------------------------------------------------------------------------------------- 7.625%, 11/30/28 2,160 2,143 - --------------------------------------------------------------------------------------------------------- News America Holdings, Sr. Notes, 8.50%, 2/15/05 1,000 1,082 - --------------------------------------------------------------------------------------------------------- 10,805 ----------- Metals 0.4% Alcan Aluminum, Sr. Notes, 4.875%, 9/15/12 5,155 5,081 - --------------------------------------------------------------------------------------------------------- Alcoa, Sr. Notes, 5.375%, 1/15/13 3,540 3,629 - --------------------------------------------------------------------------------------------------------- 8,710 ----------- Metals and Mining 0.2% Inco Limited, Sr. Notes, 7.75%, 5/15/12 4,000 4,330 - --------------------------------------------------------------------------------------------------------- 4,330 ----------- Paper and Paper Products 0.7% Celulosa Arauco Y Constitucion, Sr. Notes, 8.625%, 8/15/10 7,500 8,350 - --------------------------------------------------------------------------------------------------------- Weyerhaeuser, Sr. Notes, 5.95%, 11/1/08 5,000 5,189 - --------------------------------------------------------------------------------------------------------- 13,539 ----------- Petroleum 0.2% ConocoPhillips, Sr. Notes, 144A, 5.90%, 10/15/32 4,560 4,401 - --------------------------------------------------------------------------------------------------------- 4,401 ----------- Railroads 0.6% Norfolk Southern, Sr. Notes, 6.00%, 4/30/08 6,175 6,661 - ---------------------------------------------------------------------------------------------------------
14 T. ROWE PRICE NEW INCOME FUND ================================================================================
Par/Shares Value - --------------------------------------------------------------------------------------------------------- In thousands Union Pacific, Sr. Notes, 6.50%, 4/15/12 $ 5,020 $ 5,416 - --------------------------------------------------------------------------------------------------------- 12,077 ----------- Retail 0.2% Sears Roebuck Acceptance Corp., Sr. Notes, 6.70%, 4/15/12 4,190 3,980 - --------------------------------------------------------------------------------------------------------- 3,980 ----------- Specialty Retailers 0.2% Lowes, Sr. Notes, 6.50%, 3/15/29 4,000 4,067 - --------------------------------------------------------------------------------------------------------- 4,067 ----------- Savings and Loan 0.5% Greenpoint Bank, Sr. Sub. Notes, 9.25%, 10/1/10 6,000 7,135 - --------------------------------------------------------------------------------------------------------- Webster Capital Trust I, Jr. Sub. Notes, 144A, 9.36%, 1/29/27 3,200 3,266 - --------------------------------------------------------------------------------------------------------- 10,401 ----------- Services 0.2% Waste Management, Sr. Notes, 144A, 6.375%, 11/15/12 4,000 3,946 - --------------------------------------------------------------------------------------------------------- 3,946 ----------- Specialty Chemicals 0.4% Chevron Phillips Chemical, Sr. Notes, 5.375%, 6/15/07 6,870 7,079 - --------------------------------------------------------------------------------------------------------- 7,079 ----------- Supermarkets 0.3% Kroger, Sr. Notes, 6.20%, 6/15/12 5,230 5,396 - --------------------------------------------------------------------------------------------------------- 5,396 ----------- Telephones 0.7% Royal KPN, Sr. Notes, 8.00%, 10/1/10 5,000 5,662 - --------------------------------------------------------------------------------------------------------- Verizon Florida, Series F, Sr. Notes, 6.125%, 1/15/13 3,080 3,165 - --------------------------------------------------------------------------------------------------------- Verizon Global Funding Sr. Notes 7.375%, 9/1/12 1,500 1,660 ------------------------------------------------------------------------------------------------- 7.75%, 12/1/30 2,615 2,908 - --------------------------------------------------------------------------------------------------------- 13,395 ----------- Total Corporate Bonds and Notes (Cost $496,763) 497,054 ----------- - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES 6.0% - -------------------------------------------------------------------------------- Auto-Backed 0.9% Capital Auto Receivables Asset Trust, Series 2002-2, Class CERT 4.18%, 10/15/07 12,600 12,891 - --------------------------------------------------------------------------------------------------------- Chase Manhattan Auto Owner Trust, Series 2001-B, Class CTFS 3.75%, 5/15/08 5,353 5,441 - --------------------------------------------------------------------------------------------------------- 18,332 -----------
15 T. ROWE PRICE NEW INCOME FUND ================================================================================
Par/Shares Value - --------------------------------------------------------------------------------------------------------- In thousands Credit Card-Backed 2.4% Citibank Credit Card Issuance Trust Series 2000-A3, Class A3, 6.875%, 11/16/09 $ 16,365 $ 18,453 ----------------------------------------------------------------------------------------------------- Series 2000-C1, Class C1, 7.45%, 9/15/07 11,075 12,029 - --------------------------------------------------------------------------------------------------------- MBNA Master Credit Card Trust II Series 2000-D, Class C, 8.40%, 9/15/09 8,400 9,334 ----------------------------------------------------------------------------------------------------- Series 1998-E, Class A, VR, 1.92%, 1/15/03 7,575 7,581 - --------------------------------------------------------------------------------------------------------- 47,397 ----------- Motorcycles 0.3% Harley Davidson Motorcycle Trust, Series 2002-1, Class B 4.36%, 1/15/10 6,221 6,368 - --------------------------------------------------------------------------------------------------------- 6,368 ----------- Recreational Vehicles 1.1% Chase Manhattan RV Owner Trust, Series 1997-A, Class B 6.54%, 8/15/17 11,795 12,404 - --------------------------------------------------------------------------------------------------------- CIT RV Trust, Series 1997-A, Class A6, 6.35%, 4/15/11 9,138 9,421 - --------------------------------------------------------------------------------------------------------- 21,825 ----------- Stranded Asset 0.5% Reliant Energy Transition Bond, Series 2001-1, Class A4 5.63%, 9/15/15 8,572 8,893 - --------------------------------------------------------------------------------------------------------- 8,893 ----------- Transportation 0.8% Atlas Air, 7.63%, 1/2/15 9,052 4,526 - --------------------------------------------------------------------------------------------------------- Federal Express, ETC, 8.25%, 1/15/19 9,674 10,729 - --------------------------------------------------------------------------------------------------------- 15,255 ----------- Total Asset-Backed Securities (Cost $118,993) 118,070 ----------- - -------------------------------------------------------------------------------- EQUITY AND CONVERTIBLE SECURITIES 1.5% - -------------------------------------------------------------------------------- Automobiles and Related 0.2% Ford Motor Company Capital Trust II, Pfd. Conv. Stock 44 1,980 - --------------------------------------------------------------------------------------------------------- General Motors, Series A, Pfd. Conv. Stock 49 1,196 - --------------------------------------------------------------------------------------------------------- 3,176 ----------- Building and Real Estate 0.7% Equity Office Properties Trust, Series B, Pfd. Conv. Stock 60 2,622 - --------------------------------------------------------------------------------------------------------- Equity Residential Properties Trust, REIT, Pfd. Conv. Stock 190 4,708 - --------------------------------------------------------------------------------------------------------- Reckson Associates Realty, Series A, Pfd. Conv. Stock 299 6,569 - --------------------------------------------------------------------------------------------------------- 13,899 -----------
16 T. ROWE PRICE NEW INCOME FUND ================================================================================
Par/Shares Value - --------------------------------------------------------------------------------------------------------- In thousands Computer Service & Software 0.2% Juniper Networks, Conv. Bonds, 4.75%, 3/15/07 $ 4,665 $ 3,594 - --------------------------------------------------------------------------------------------------------- 3,594 ----------- Telecom Equipment 0.1% Corning, Conv. Bonds, Zero Coupon, 11/8/05 4,806 2,768 - --------------------------------------------------------------------------------------------------------- 2,768 ----------- Telecommunications 0.2% Ciena, Conv. Bonds, 3.75%, 2/1/08 5,230 3,496 - --------------------------------------------------------------------------------------------------------- 3,496 ----------- Telephones 0.1% Liberty Media/Sprint PCS, Conv. Bonds, 4.00%, 11/15/29 2,450 1,370 - --------------------------------------------------------------------------------------------------------- Vodafone ADR (S) 20 367 - --------------------------------------------------------------------------------------------------------- 1,737 ----------- Total Equity and Convertible Securities (Cost $30,379) 28,670 ----------- - -------------------------------------------------------------------------------- NON-U.S. GOVERNMENT MORTGAGE- BACKED SECURITIES 9.1% - -------------------------------------------------------------------------------- Commercial Mortgage-Backed 2.6% Bear Stearns, CMO, 4.83%, 8/15/38 8,210 8,053 - --------------------------------------------------------------------------------------------------------- JP Morgan Chase Commercial Mortgage Securities Series 2001, Class A2, CMO, 6.244%, 4/15/35 9,900 10,744 - --------------------------------------------------------------------------------------------------------- Morgan Stanley Dean Witter Capital, CMO, 5.98%, 1/15/39 9,400 9,997 - --------------------------------------------------------------------------------------------------------- Prudential Securities Secured Financing Series 1999, Class A1, CMO, 6.074%, 1/15/08 9,644 10,243 - --------------------------------------------------------------------------------------------------------- Salomon Brothers Mortgage Securities VII, Series 2001-C1 Class A2, CMO, 6.226%, 12/18/35 10,875 11,801 - --------------------------------------------------------------------------------------------------------- 50,838 ----------- Home Equity Loans-Backed 3.7% BankBoston Home Equity Loan Trust, Series 1998-1, Class A6 6.35%, 2/25/13 5,932 6,226 - --------------------------------------------------------------------------------------------------------- Chase Funding Mortgage Loan 4.707%, 8/25/13 5,365 5,318 ------------------------------------------------------------------------------------------------- 6.59%, 5/25/28 3,451 3,619 - --------------------------------------------------------------------------------------------------------- Chase Funding Mortgage Loan Series 2002-1, Class 1A3, 5.039%, 12/25/23 10,675 10,781 ------------------------------------------------------------------------------------------------- Series 2002-2, Class 1 A6, 5.214%, 8/25/13 7,825 7,922 ------------------------------------------------------------------------------------------------- Series 2002-2, Class 1M1, 5.599%, 9/25/31 1,750 1,766 - ---------------------------------------------------------------------------------------------------------
17 T. ROWE PRICE NEW INCOME FUND ================================================================================
Par/Shares Value - --------------------------------------------------------------------------------------------------------- In thousands GE Capital Mortgage Services, 6.465%, 6/25/28 $ 10,603 $ 11,143 - --------------------------------------------------------------------------------------------------------- GSR Mortgage Loan Trust, Series 2001-1, Class A12 VR, 4.61%, 10/25/31 7,487 7,489 - --------------------------------------------------------------------------------------------------------- Mellon Residential Funding, Series 2001-HEIL, Class A3 5.945%, 2/25/11 17,750 18,236 - --------------------------------------------------------------------------------------------------------- 72,500 ----------- Whole Loans-Backed 2.8% Countrywide Mortgage Backed Securities CMO, 6.75%, 11/25/23 2,525 2,535 - --------------------------------------------------------------------------------------------------------- GE Capital Mortgage Services, 6.75%, 8/25/28 13,962 14,342 - --------------------------------------------------------------------------------------------------------- Norwest Asset Securities, CMO, 6.75%, 10/25/28 11,430 11,761 - --------------------------------------------------------------------------------------------------------- Residential Accredit Loans CMO 6.75%, 7/25/28 7,500 7,709 ------------------------------------------------------------------------------------------------- 7.25%, 11/25/27 6,211 6,383 - --------------------------------------------------------------------------------------------------------- Residential Funding Mortgage, Series 1999-S3, Class A1 CMO, 6.50%, 1/25/29 4,459 4,507 - --------------------------------------------------------------------------------------------------------- Summit Mortgage Trust, Series 2002-1, Class A2 CMO, 6.34003%, 11/30/02 7,450 7,692 - --------------------------------------------------------------------------------------------------------- 54,929 ----------- Total Non-U.S. Government Mortgage-Backed Securities (Cost $173,285) 178,267 ----------- - -------------------------------------------------------------------------------- U.S. GOVERNMENT MORTGAGE- BACKED SECURITIES 30.4% - -------------------------------------------------------------------------------- U.S. Government Agency Obligations 19.3% Federal Home Loan Mortgage 4.701%, 12/1/02 9,570 9,734 ------------------------------------------------------------------------------------------------- 5.00%, 1/1/09 11,805 12,053 ------------------------------------------------------------------------------------------------- 5.50%, 4/1/29 1,639 1,654 ------------------------------------------------------------------------------------------------- 6.50%, 7/15/11 - 6/1/24 18,244 19,018 ------------------------------------------------------------------------------------------------- 7.00%, 2/1/24 - 6/1/32 27,701 28,929 ------------------------------------------------------------------------------------------------- 7.50%, 5/1 - 6/1/24 1,248 1,330 ------------------------------------------------------------------------------------------------- 10.50%, 8/1/20 3 3 ------------------------------------------------------------------------------------------------- 11.00%, 7/1/20 24 27 ------------------------------------------------------------------------------------------------- CMO 6.50%, 3/15/23 - 3/15/28 28,085 29,310 ------------------------------------------------------------------------------------------------- 7.00%, 11/15/22 2,245 2,295 -------------------------------------------------------------------------------------------------
18 T. ROWE PRICE NEW INCOME FUND ================================================================================ Par/Shares Value - -------------------------------------------------------------------------------- In thousands Principal Only, 6.50%, 8/1/28 $ 3,571 $ 3,165 - -------------------------------------------------------------------------------- PTC 6.50%, 11/1/04 0 0 - -------------------------------------------------------------------------------- 8.00%, 6/1/08 5 5 - -------------------------------------------------------------------------------- 10.50%, 7/1/11 - 7/1/20 104 115 - -------------------------------------------------------------------------------- 11.00%, 11/1/17 - 9/1/19 22 25 - -------------------------------------------------------------------------------- Federal National Mortgage Assn. 5.00%, 1/1/09 3,752 3,850 - -------------------------------------------------------------------------------- 6.00%, 11/30/02 - 1/1/29 61,810 64,142 - -------------------------------------------------------------------------------- 6.50%, 4/1/15 - 7/1/32 39,823 41,324 - -------------------------------------------------------------------------------- 7.00%, 10/1/29 - 11/1/30 988 1,032 - -------------------------------------------------------------------------------- Interest Only, 6.00%, 3/1/32+ 18,997 4,137 - -------------------------------------------------------------------------------- CMO 5.50%, 7/25/28 18,925 19,369 - -------------------------------------------------------------------------------- Interest Only, 6.50%, 2/1/32+ 12,505 2,173 - -------------------------------------------------------------------------------- TBA 5.50%, 1/1/17 - 1/1/32 89,044 89,639 - -------------------------------------------------------------------------------- 6.00%, 12/1/99 27,000 27,591 - -------------------------------------------------------------------------------- 6.50%, 12/1/99 17,405 18,254 - -------------------------------------------------------------------------------- 379,174 ---------- U.S. Government Guaranteed Obligations 11.1% Government National Mortgage Assn. I 6.00%, 2/15/14 - 11/15/31 55,538 57,607 - -------------------------------------------------------------------------------- 6.50%, 8/15/25 - 5/15/29 13,083 13,695 - -------------------------------------------------------------------------------- 7.00%, 1/15/24 - 4/15/28 21,190 22,422 - -------------------------------------------------------------------------------- 7.50%, 8/15/16 - 8/15/28 5,178 5,561 - -------------------------------------------------------------------------------- 8.00%, 7/15/16 - 10/15/27 15,647 17,032 - -------------------------------------------------------------------------------- 8.50%, 9/15/16 - 7/15/23 3,159 3,487 - -------------------------------------------------------------------------------- 9.00%, 1/15/09 - 11/15/19 394 439 - -------------------------------------------------------------------------------- 9.50%, 6/15/09 - 3/15/25 173 190 - -------------------------------------------------------------------------------- 11.00%, 12/15/09 - 1/15/21 3,633 4,076 - -------------------------------------------------------------------------------- 11.50%, 3/15/10 - 10/15/15 481 544 - -------------------------------------------------------------------------------- II 6.50%, 1/20 - 9/20/32 11,400 11,849 - -------------------------------------------------------------------------------- 19 T. ROWE PRICE NEW INCOME FUND ================================================================================ Par/Shares Value - -------------------------------------------------------------------------------- In thousands 7.00%, 12/20/23 - 11/20/28 $ 3,168 $ 3,341 - -------------------------------------------------------------------------------- 8.50%, 9/20/26 12 13 - -------------------------------------------------------------------------------- 9.00%, 7/20/16 - 2/20/18 243 269 - -------------------------------------------------------------------------------- CMO, Principal Only, 3/16/28 3,937 3,601 - -------------------------------------------------------------------------------- GPM, I 10.25%, 8/15/18 - 11/15/20 503 565 - -------------------------------------------------------------------------------- Midget, I 6.00%, 9/15/16 - 9/15/17 9,952 10,429 - -------------------------------------------------------------------------------- 7.00%, 3/15 - 12/15/13 5,554 5,970 - -------------------------------------------------------------------------------- TBA II, 6.00%, 1/20/32 57,273 58,508 - -------------------------------------------------------------------------------- 219,598 ---------- Total U.S. Government Mortgage-Backed Securities (Cost $587,786) 598,772 ---------- - ---------------------------- U.S. GOVERNMENT OBLIGATIONS/ AGENCIES 14.7% - ---------------------------- U.S. Government Agency Obligations 5.1% Federal Home Loan Mortgage 4.75%, 10/11/12 10,000 9,663 - -------------------------------------------------------------------------------- 5.125%, 7/15/12 16,385 16,836 - -------------------------------------------------------------------------------- 5.75%, 1/15/12 3,689 3,986 - -------------------------------------------------------------------------------- 6.25%, 7/15/32 3,357 3,616 - -------------------------------------------------------------------------------- 6.75%, 3/15/31 2,649 3,034 - -------------------------------------------------------------------------------- 6.875%, 1/15/05 (S) 4,750 5,191 - -------------------------------------------------------------------------------- Federal National Mortgage Assn. 4.25%, 7/15/07 (S) 20,000 20,587 - -------------------------------------------------------------------------------- 5.25%, 8/1/12 7,184 7,246 - -------------------------------------------------------------------------------- 5.75%, 2/15/08 (S) 15,045 16,429 - -------------------------------------------------------------------------------- 7.125%, 1/15/30 (S) 11,300 13,480 - -------------------------------------------------------------------------------- 100,068 ---------- U.S. Treasury Obligations 9.6% U.S. Treasury Bonds 6.25%, 8/15/23 - 5/15/30 (S) 36,590 41,535 - -------------------------------------------------------------------------------- 6.50%, 11/15/26++(S) 29,650 34,752 - -------------------------------------------------------------------------------- 7.50%, 11/15/16 (S) 21,100 26,678 - -------------------------------------------------------------------------------- U.S. Treasury Inflation-Indexed Notes, 3.875%, 1/15/09 (S) 36,667 39,801 - -------------------------------------------------------------------------------- U.S. Treasury Notes 3.50%, 11/15/06 (S) 2,495 2,545 - -------------------------------------------------------------------------------- 20 T. ROWE PRICE NEW INCOME FUND ================================================================================ Par/Shares Value - -------------------------------------------------------------------------------- In thousands 4.25%, 11/15/03 (S) $ 11,920 $ 12,228 - -------------------------------------------------------------------------------- 4.375%, 8/15/12 (S) 4,096 4,149 - -------------------------------------------------------------------------------- 5.875%, 11/15/04 (S) 12,420 13,328 - -------------------------------------------------------------------------------- 6.50%, 8/15/05 (S)** 1,850 2,048 ------------------------------------------------------------------------------- U.S. Treasury Stripped Interest Payment, Stripped Interest Zero Coupon, 5/15/20 (S) 32,250 12,286 - -------------------------------------------------------------------------------- 189,350 ---------- Total U.S. Government Obligations/Agencies (Cost $282,022) 289,418 ---------- - ------------------------------------------ FOREIGN GOVERNMENT AND MUNICIPALITIES 9.4% - ------------------------------------------ Banco Latinoamericano, 6.55%, 4/15/03 (CAD) 7,900 7,955 - -------------------------------------------------------------------------------- Bundesobligation, 4.00%, 2/16/07 (EUR) 19,000 19,072 - -------------------------------------------------------------------------------- Bundesrepublic, 5.00%, 1/4/12 (EUR) 11,300 11,658 - -------------------------------------------------------------------------------- European Investment Bank, 6.00%, 7/15/05 (EUR) 33,000 18,864 - -------------------------------------------------------------------------------- Federal Republic of Germany, 5.00%, 5/20/05 (AUD) 18,600 19,207 - -------------------------------------------------------------------------------- Government of Canada 3.50%, 6/1/04 (CAD) 43,500 27,895 - -------------------------------------------------------------------------------- 5.25%, 6/1/12 (CAD) 44,440 28,667 - -------------------------------------------------------------------------------- 6.00%, 9/1/05 (CAD) 69,000 46,651 - -------------------------------------------------------------------------------- Petroleos Mexicanos, 9.25%, 3/30/18 (EUR) 5,000 5,341 - -------------------------------------------------------------------------------- Total Foreign Government And Municipalities (Cost $181,380) 185,310 ---------- - -------------------- MUNICIPAL BONDS 0.2% - -------------------- California Department of Water Resources, Series A, 5.50%, 5/1/11 4,200 4,516 - -------------------------------------------------------------------------------- Total Municipal Bonds (Cost $4,498) 4,516 ---------- - ---------------------- OPTIONS PURCHASED 0.0% - ---------------------- Ciena, 151 contracts (for 100 shares each), Put, 1/18/03 @ $20.00* 15 202 - -------------------------------------------------------------------------------- Juniper Networks, 250 contracts (for 100 shares each) Put, 1/18/03 @ $22.50* 25 320 - -------------------------------------------------------------------------------- Vodafone, 195 contracts (for 100 shares each), Put, 1/18/03 @ $25.00* 20 122 - -------------------------------------------------------------------------------- Total Options Purchased (Cost $419) 644 ---------- 21 T. ROWE PRICE NEW INCOME FUND ================================================================================ Par/Shares Value - -------------------------------------------------------------------------------- In thousands -------------------- OPTIONS WRITTEN 0.0% -------------------- Vodafone, 195 contracts (for 100 shares each), Call 1/18/03 @ $25.00 * $ (19) $ (2) ---------------------------------------------------------------------------- Total Options Written (Cost $(92)) (2) ----------- ------------------------ MONEY MARKET FUNDS 12.6% ------------------------ T. Rowe Price Reserve Investment Fund, 1.66% # + 247,755 247,755 ---------------------------------------------------------------------------- Total Money Market Funds (Cost $247,755) 247,755 ------------- - ------------------------------- Total Investments in Securities - ------------------------------- 109.2% of Net Assets (Cost $2,123,188) $ 2,148,474 - ----------------------------------- Forward Currency Exchange Contracts - ----------------------------------- In thousands Unrealized Counterparty Settlement Receive Deliver Gain (Loss) - ------------ ---------- ------------- --------------- ----------- Credit Suisse First Boston 12/4/02 USD 9,880 EUR 10,000 $ (51) Morgan Stanley 12/4/02 USD 20,223 EUR 20,451 (87) ----------- Net unrealized gain (loss) on open forward currency exchange contracts (138) 22 T. ROWE PRICE NEW INCOME FUND ================================================================================ Value - -------------------------------------------------------------------------------- In thousands - ----------------- Futures Contracts - ----------------- Contract Unrealized Expiration Value Gain (Loss) ---------- -------- ----------- In thousands Short, 700 ten year U.S. Treasury Notes contracts, $1,075,000 of U.S. Treasury Notes pledged as initial margin 3/03 $(77,777) $ 673 Net payments (receipts) of variation margin to date (902) -------- Variation margin receivable (payable) on open futures contracts (229) - ----------------------------- Other Assets Less Liabilities (179,893) - ----------------------------- ------------ NET ASSETS $ 1,968,214 ------------ # Seven-day yield * Non-income producing + Interest Only security for which the fund receives interest on notional principal (par) (S) All or a portion of this security is on loan at November 30, 2002 - See Note 2 + Affiliated company, as defined by the Investment Company Act of 1940 - See Note 2 ** All or a portion of this security is pledged to cover margin requirements on futures contracts at November 30, 2002 ++ All or a portion of this security is pledged to cover written call options at November 30, 2002 144A Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration only to qualified institutional buyers - total of such securities at period-end amounts to $67,826 and represents 3.4% of net assets ADR American Depository Receipts AUD Australian dollar CAD Canadian dollar CMO Collateralized Mortgage Obligation ETC Equipment Trust Certificate EUR Euro GPM Graduated Payment Mortgage MTN Medium-Term Note PTC Pass-Through Certificate REIT Real Estate Investment Trust STEP Stepped coupon bond for which the coupon rate of interest will adjust on specified future date(s) TBA To Be Announced security was purchased on a forward commitment basis VR Variable Rate The accompanying notes are an integral part of these financial statements. 23 T. ROWE PRICE NEW INCOME FUND ================================================================================ Unaudited November 30, 2002 - ------------------------------------ STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- In thousands -------------------------------------------------- Assets -------------------------------------------------- Investments in securities, at value Affiliated companies (cost $247,755) $ 247,755 Other companies (cost $1,875,433) 1,900,719 --------------- Total investments in securities 2,148,474 Securities lending collateral 173,310 Other assets 90,295 --------------- Total assets 2,412,079 --------------- -------------------------------------------------- Liabilities -------------------------------------------------- Payable for investment securities purchased 263,647 Obligation to return securities lending collateral 173,310 Other liabilities 6,908 --------------- Total liabilities 443,865 --------------- NET ASSETS $ 1,968,214 =============== Net Assets Consist of: Undistributed net investment income (loss) $ 1,898 Undistributed net realized gain (loss) (57,056) Net unrealized gain (loss) 25,881 Paid-in-capital applicable to 225,031,235 shares of $1.00 par value capital stock outstanding; 300,000,000 shares authorized 1,997,491 --------------- NET ASSETS $ 1,968,214 =============== NET ASSET VALUE PER SHARE New Income shares ($1,968,014,549/225,008,447 shares outstanding) $ 8.75 --------------- New Income - Advisor Class shares ($99,666/11,396 shares outstanding) $ 8.75 --------------- New Income - R Class shares ($99,624/11,392 shares outstanding) $ 8.75 --------------- The accompanying notes are an integral part of these financial statements. 24 T. ROWE PRICE NEW INCOME FUND ================================================================================ Unaudited - ------------------------ STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- In thousands 6 Months Ended 11/30/02 -------------------------------------------------- Investment Income (Loss) -------------------------------------------------- Income Interest $ 49,283 Dividend 939 Securities lending 328 --------------- Total income 50,550 --------------- Expenses Investment management 4,563 Shareholder servicing New Income shares 2,265 Custody and accounting 168 Prospectus and shareholder reports New Income shares 30 Registration 26 Legal and audit 9 Directors 8 Miscellaneous 5 Reimbursed by manager (1) --------------- Total expenses 7,073 Expenses paid indirectly (1) --------------- Net expenses 7,072 --------------- Net investment income (loss) 43,478 --------------- -------------------------------------------------- Realized and Unrealized Gain (Loss) -------------------------------------------------- Net realized gain (loss) Securities (9,736 Written options 423 Futures 1,961 Foreign currency transactions (748) --------------- Net realized gain (loss) (8,100) --------------- Change in net unrealized gain (loss) Securities 18,998 Written options (114) Futures 697 Other assets and liabilities denominated in foreign currencies (93) --------------- Change in net unrealized gain (loss) 19,488 --------------- Net realized and unrealized gain (loss) 11,388 --------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 54,866 =============== The accompanying notes are an integral part of these financial statements. 25 T. ROWE PRICE NEW INCOME FUND ================================================================================ Unaudited - ------------------------------------ STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- In thousands
6 Months Year Ended Ended 11/30/02 5/31/02 ------------------------------------------------------------- Increase (Decrease) in Net Assets ------------------------------------------------------------- Operations Net investment income (loss) $ 43,478 $ 95,823 Net realized gain (loss) (8,100) 34,057 Change in net unrealized gain (loss) 19,488 (675) ----------------------------- Increase (decrease) in net assets from operations 54,866 129,205 ----------------------------- Distributions to shareholders Net investment income New Income shares (44,573) (96,406) New Income - Advisor Class shares (1) -- New Income - R Class shares (1) -- ----------------------------- Decrease in net assets from distributions (44,575) (96,406) ----------------------------- Capital share transactions * Shares sold New Income shares 248,278 346,902 New Income - Advisor Class shares 100 -- New Income - R Class shares 100 -- Distributions reinvested New Income shares 41,741 90,767 New Income - Advisor Class shares 1 -- New Income - R Class shares 1 -- Shares redeemed New Income shares (195,704) (291,357) ----------------------------- Increase (decrease) in net assets from capital share transactions 94,517 146,312 ----------------------------- ------------------------------------------------------------- Net Assets ------------------------------------------------------------- Increase (decrease) during period 104,808 179,111 Beginning of period 1,863,406 1,684,295 ----------------------------- End of period $ 1,968,214 $ 1,863,406 ============================= *Share information Shares sold New Income shares 28,407 39,834 New Income - Advisor Class shares 11 -- New Income - R Class shares 11 -- Distributions reinvested New Income shares 4,773 10,415 Shares redeemed New Income shares (22,408) (33,537) ----------------------------- Increase (decrease) in shares outstanding 10,794 16,712
The accompanying notes are an integral part of these financial statements. 26 T. ROWE PRICE NEW INCOME FUND ================================================================================ Unaudited November 30, 2002 - ----------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price New Income Fund, Inc. (the fund) is registered under the Investment Company Act of 1940 (the 1940 Act) as a diversified, open-end management investment company. The fund seeks the highest level of income consistent with the preservation of capital over time by investing primarily in marketable debt securities. The fund has three classes of shares: New Income Fund, offered since October 12, 1973, New Income Fund--Advisor Class (Advisor Class), offered since September 30, 2002, and New Income Fund--R Class (R Class), which was first offered on September 30, 2002. Advisor Class shares are offered only through brokers and other financial intermediaries and R Class shares are only available to small retirement plans serviced by intermediaries. The Advisor Class and R Class each operate under separate Board-approved Rule 12b-1 plans, pursuant to which each class compensates financial intermediaries for distribution and certain administrative services. Each class has exclusive voting rights on matters related solely to that class, separate voting rights on matters that relate to all classes, and, in all other respects, the same rights and obligations as the other classes. The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates made by fund management. Valuation Debt securities are generally traded in the over-the-counter market. Securities with original maturities of one year or more are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service, which considers yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Securities with original maturities less than one year are stated at fair value, which is determined by using a matrix system that establishes a value for each security based on bid-side money market yields. Equity securities listed or regularly traded on a securities exchange or in the over-the-counter market are valued at the last quoted sale price, or official closing price for certain markets, at the time the valuations are made. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day are valued at the mean of the latest bid and ask prices for domestic securities and the last quoted sale price for 27 T. ROWE PRICE NEW INCOME FUND ================================================================================ international securities. Other equity securities are valued at a price within the limits of the latest bid and ask 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. In the absence of a last sale price, purchased and written options are valued at the mean of the closing bid and ask prices. 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 ask prices of such currencies against U.S. dollars quoted by a major bank. Purchases and sales of securities, income, and expenses are translated into U.S. dollars at the prevailing exchange rate on the 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. Premiums and Discounts Premiums and discounts on debt securities are amortized for financial reporting purposes. Class Accounting The Advisor Class and R Class each pay distribution and administrative expenses in the form of Rule 12b-1 fees, in an amount not exceeding 0.25% and 0.50%, respectively, of the class's average net assets. Shareholder servicing, prospectus, and shareholder report expenses incurred by each class are charged directly to the class to which they relate. Expenses common to both classes and investment income are allocated to the classes based upon the relative daily net assets of each class's settled shares; realized and unrealized gains and losses are allocated based upon the relative daily net assets of each class's shares outstanding. Income distributions are declared by each class on a daily basis and paid monthly. Expenses Paid Indirectly Credits earned on temporarily uninvested cash balances at the custodian are used to reduce the fund's custody charges. Custody expense in the accompanying statement of operations is presented before reduction for credits, which totaled $1,000 for the six months ended November 30, 2002. 28 T. ROWE PRICE NEW INCOME FUND ================================================================================ 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. Payments ("variation margin") made or received by the fund to settle the daily fluctuations in the value of futures contracts are recorded as unrealized gains or losses until the contracts are closed. Unrealized gains and losses on futures and forward currency exchange contracts are included in Other assets and Other liabilities, respectively, and in Change in net unrealized gain or loss in the accompanying financial statements. 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, 2002, 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, 2002, 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 or interest rates. Options Call and put options give the holder the right to purchase or sell, respectively, a security at a specified price until a certain date. Risks arise from possible illiquidity of the options market and from movements in security values. Options are reflected in the accompanying Portfolio of Investments at market value. Transactions in options written and related premiums received during the six months ended November 30, 2002, were as follows: 29 T. ROWE PRICE NEW INCOME FUND ================================================================================
- --------------------------------------------------------------------------------------------- Number of Contracts Premiums Outstanding at beginning of period 800 $ 369,000 Written 400 345,000 Closed (1,005) (622,000) --------------------------- Outstanding at end of period 195 $ 92,000 ---------------------------
Securities Lending The fund lends its securities to approved brokers to earn additional income. It receives as collateral cash and government securities valued at 102% to 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, 2002, the value of loaned securities was $199,001,000; aggregate collateral consisted of $173,310,000 in the securities lending collateral pool and government securities valued at $34,503,000. Affiliated Companies The fund may invest in certain securities that are considered affiliated companies, as defined by the 1940 Act. An affiliated company is one in which the fund owns at least 5% or more of the company's outstanding voting securities. At November 30, 2002, the value of affiliated companies included in the fund's investments in securities totaled $247,755,000 (12.6%), reflecting the fund's investment in the T. Rowe Price Reserve Investment Fund. For the six months then ended, $2,823,000 (5.7%) of interest income reflected on the accompanying Statement of Operations resulted from transactions with affiliated companies. Other Purchases and sales of portfolio securities, other than short-term and U.S. government securities, aggregated $513,854,000 and $383,738,000, respectively, for the six months ended November 30, 2002. Purchases and sales of U.S. government securities aggregated $1,755,253,000 and $1,798,418,000, respectively, for the six months ended November 30, 2002. 30 T. ROWE PRICE NEW INCOME FUND ================================================================================ 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 to shareholders all of its taxable income and gains. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions determined in accordance with tax regulations may differ in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Temporary differences are not adjusted. The amount and character of tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of November 30, 2002. The fund intends to retain realized gains to the extent of available capital loss carryforwards. As of May 31, 2002, the fund had $46,809,000 of unused capital loss carryforwards, of which $9,271,000 expire in 2008, and $37,538,000 expire in 2009. At November 30, 2002, the cost of investments for federal income tax purposes was $2,123,188,000. Net unrealized gain aggregated $25,881,000 at period-end, of which $51,356,000 related to appreciated investments and $25,475,000 related to depreciated investments. NOTE 4 - RELATED PARTY TRANSACTIONS The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The investment management agreement between the fund and the manager provides for an annual investment management fee, which is computed daily and paid monthly. The fee consists of an individual fund fee, equal to 0.15% of the fund's average daily net assets, and the fund's pro-rata share of a group fee. The group fee is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.295% for assets in excess of $120 billion. The fund's portion of the group fee is determined by the ratio of its net assets to those of the group. At November 30, 2002, the effective annual group fee rate was 0.32%, and investment management fee payable totaled $796,000. 31 T. ROWE PRICE NEW INCOME FUND ================================================================================ Through September 30, 2004, the manager is required to bear any expenses, excluding interest, taxes, brokerage commissions, and extraordinary expenses, for the Advisor Class and R Class that would cause the class's ratio of total expenses to average net assets (expense ratio) to exceed 0.90% and 1.15%, respectively. Thereafter, through September 30, 2006, each class is required to reimburse the manager for these expenses, provided that its average net assets have grown or expenses have declined sufficiently to allow reimbursement without causing its expense ratio to exceed 0.90% for the Advisor Class, and 1.15% for the R Class. Pursuant to these agreements, the Advisor Class's and the R Class's expenses were borne by the manager during the period ended November 30, 2002. These expenses are subject to future reimbursement through September 30, 2006. In addition, the fund has entered into service agreements with Price Associates and two wholly owned subsidiaries of Price Associates (collectively, Price). Price Associates computes the daily share prices and maintains the financial records of the fund. T. Rowe Price Services, Inc. provides shareholder and administrative services in its capacity as the fund's transfer and dividend disbursing agent. T. Rowe Price Retirement Plan Services, Inc. provides subaccounting and record-keeping services for certain retirement accounts invested in the New Income share class. Expenses incurred pursuant to these service agreements totaled $1,166,000 for the six months ended November 30, 2002, of which $228,000 was payable at period-end. The fund is also one of several mutual funds sponsored by Price Associates (underlying Price funds) in which the T. Rowe Price Spectrum Funds (Spectrum Funds) and T. Rowe Price Retirement Funds (Retirement Funds) may invest. Neither the Spectrum Funds nor the Retirement Funds invest in the underlying Price funds for the purpose of exercising management or control. Pursuant to separate, special servicing agreements, expenses associated with the operation of the Spectrum and Retirement Funds are borne by each underlying Price fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by the Spectrum and Retirement Funds, respectively. Expenses allocated under these agreements are reflected as shareholder servicing expense in the accompanying financial statements. For the six months ended November 30, 2002, the New Income class was allocated $822,000 of Spectrum Funds' expenses and $31,000 of Retirement Funds' expenses under these agreements. Of these amounts, $541,000 related to services provided by Price and $148,000 was payable at period-end. At November 30, 2002, approximately 33.8% of the outstanding shares of the New Income class were held by the Spectrum Funds and 0.06% were held by the Retirement Funds. 32 T. ROWE PRICE NEW INCOME FUND ================================================================================ The fund may invest in the T. Rowe Price Reserve Investment Fund and T. Rowe Price Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by Price Associates. The Reserve Funds are offered as cash management options only to mutual funds and other accounts managed by Price Associates and/or its affiliates, and are not available to the public. The Reserve Funds pay no investment management fees. Distributions from the Reserve Funds to the fund for the six months ended November 30, 2002, totaled $2,823,000 and are reflected as interest income in the accompanying Statement of Operations. 33 T. ROWE PRICE NEW INCOME FUND ================================================================================ - --------------------------------------- ABOUT THE FUND'S DIRECTORS AND OFFICERS - -------------------------------------------------------------------------------- Your fund is governed by a Board of Directors that meets regularly to review investments, performance, expenses, and other business matters, and is responsible for protecting the interests of shareholders. The majority of the fund's directors are independent of T. Rowe Price Associates, Inc. (T. Rowe Price); "inside" directors are officers of T. Rowe Price. The Board of Directors elects the fund's officers, who are listed in the final table. The business address of each director and officer is 100 East Pratt Street, Baltimore, MD 21202. Independent Directors
Name (Date of Birth) Principal Occupation(s) During Past 5 Years and Year Elected* Directorships of Other Public Companies - -------------------------------------------------------------------------------------------------------------------- Anthony W. Deering Director, Chairman of the Board, President, and Chief Executive Officer, The Rouse Company, (1/28/45) real estate developers 1980 - -------------------------------------------------------------------------------------------------------------------- Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an acquisition and management advisory firm (1/27/43) 2001 - -------------------------------------------------------------------------------------------------------------------- David K. Fagin Director, Dayton Mining Corp. (6/98 to present), Golden Star Resources Ltd., and Canyon (4/9/38) Resources Corp. (5/00 to present); Chairman and President, Nye Corp. 2001 - -------------------------------------------------------------------------------------------------------------------- F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates, Inc., consulting environmental and civil (8/22/34) engineers 1983 - -------------------------------------------------------------------------------------------------------------------- Hanne M. Merriman Retail Business Consultant; Director, Ann Taylor Stores Corp., Ameren Corp., Finlay (11/16/41) Enterprises, Inc., The Rouse Company, and US Airways Group, Inc. 2001 - -------------------------------------------------------------------------------------------------------------------- John G. Schreiber Owner/President, Centaur Capital Partners, Inc., a real estate investment company; Senior (10/21/46) Advisor and Partner, Blackstone Real Estate Advisors, L.P.; Director, AMLI Residential 1992 Properties Trust, Host Marriott Corp., and The Rouse Company - -------------------------------------------------------------------------------------------------------------------- Hubert D. Vos Owner/President, Stonington Capital Corp., a private investment company (8/2/33) 2001
*Each independent director oversees 105 T. Rowe Price portfolios and serves until the election of a successor. 34 T. ROWE PRICE NEW INCOME FUND ================================================================================ Independent Directors (continued)
Name (Date of Birth) Principal Occupation(s) During Past 5 Years and Year Elected* Directorships of Other Public Companies - -------------------------------------------------------------------------------------------------------------------- Paul M. Wythes Founding Partner, Sutter Hill Ventures, a venture capital limited partnership, (6/23/33) providing equity capital to young high-technology companies 2001 throughout the United States; Director, Teltone Corp. - --------------------------------------------------------------------------------------------------------------------
*Each independent director oversees 105 T. Rowe Price portfolios and serves until the election of a successor. Inside Directors
Name (Date of Birth) Year Elected** [Number of T. Rowe Price Principal Occupation(s) During Past 5 Years and Portfolios Overseen] Directorships of Other Public Companies - -------------------------------------------------------------------------------------------------------------------- William T. Reynolds Director and Vice President, T. Rowe Price and T. Rowe Price Group, (5/26/48) Inc.; Director, T. Rowe Price Global Asset Management Limited; 1997 President, New Income Fund [38] - -------------------------------------------------------------------------------------------------------------------- James S. Riepe Director and Vice President, T. Rowe Price; Vice Chairman of the (6/25/43) Board, Director, and Vice President, T. Rowe Price Group, Inc.; 1983 Chairman of the Board and Director, T. Rowe Price Global Asset [105] Management Limited, T. Rowe Price Investment Services, Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Services, Inc.; Chairman of the Board, Director, President, and Trust Officer, T. Rowe Price Trust Company; Director, T. Rowe Price International, Inc., and T. Rowe Price Global Investment Services Limited; Chairman of the Board, New Income Fund - -------------------------------------------------------------------------------------------------------------------- M. David Testa Chief Investment Officer, Director, and Vice President, T. Rowe Price; (4/22/44) Vice Chairman of the Board, Chief Investment Officer, Director, and 1997 Vice President, T. Rowe Price Group, Inc.; Director, T. Rowe Price [105] Global Asset Management Limited, T. Rowe Price Global Investment Services Limited, and T. Rowe Price International, Inc.; Director and Vice President, T. Rowe Price Trust Company - --------------------------------------------------------------------------------------------------------------------
**Each inside director serves until the election of a successor. 35 T. ROWE PRICE NEW INCOME FUND ================================================================================ Officers
Name (Date of Birth) Title and Fund(s) Served Principal Occupation(s) - -------------------------------------------------------------------------------------------------------------------- Connice A. Bavely (3/5/51) Vice President, T. Rowe Price and T. Rowe Price Vice President, New Income Fund Group, Inc. - -------------------------------------------------------------------------------------------------------------------- Brian J. Brennan (7/14/64) Vice President, T. Rowe Price and T. Rowe Price Vice President, New Income Fund Group, Inc. - -------------------------------------------------------------------------------------------------------------------- Jennifer A. Callaghan (5/6/69) Assistant Vice President, T. Rowe Price Assistant Vice President, New Income Fund - -------------------------------------------------------------------------------------------------------------------- Joseph A. Carrier (12/30/60) Vice President, T. Rowe Price, T. Rowe Price Treasurer, New Income Fund Group, Inc., and T. Rowe Price Investment Services, Inc. - -------------------------------------------------------------------------------------------------------------------- Patrick S. Cassidy (8/27/64) Vice President, T. Rowe Price and T. Rowe Price Vice President, New Income Fund Group, Inc. - -------------------------------------------------------------------------------------------------------------------- Henry H. Hopkins (12/23/42) Director and Vice President, T. Rowe Price Vice President, New Income Fund Group, Inc., T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Trust Company; Vice President, T. Rowe Price, T. Rowe Price International, Inc., and T. Rowe Price Retirement Plan Services, Inc. - -------------------------------------------------------------------------------------------------------------------- Alan D. Levenson (7/17/58) Vice President, T. Rowe Price and T. Rowe Price Vice President, New Income Fund Group, Inc.; formerly Senior Vice President and Director of Research, Aubrey G. Lanston & Co., Inc. - -------------------------------------------------------------------------------------------------------------------- Patricia B. Lippert (1/12/53) Assistant Vice President, T. Rowe Price and Secretary, New Income Fund T. Rowe Price Investment Services, Inc. - -------------------------------------------------------------------------------------------------------------------- David S. Middleton (1/18/56) Vice President, T. Rowe Price, T. Rowe Price Controller, New Income Fund Group, Inc., and T. Rowe Price Trust Company - -------------------------------------------------------------------------------------------------------------------- Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years.
36 T. ROWE PRICE NEW INCOME FUND ================================================================================ Officers (continued)
Name (Date of Birth) Title and Fund(s) Served Principal Occupation(s) - -------------------------------------------------------------------------------------------------------------------- Edmund M. Notzon III (10/1/45) Vice President, T. Rowe Price, T. Rowe Price Vice President, New Income Fund Group, Inc., T. Rowe Price Investment Services, Inc., and T. Rowe Price Trust Company - -------------------------------------------------------------------------------------------------------------------- Vernon A. Reid, Jr. (5/14/54) Vice President, T. Rowe Price and T. Rowe Price Vice President, New Income Fund Group, Inc. - -------------------------------------------------------------------------------------------------------------------- Robert M. Rubino (8/2/53) Vice President, T. Rowe Price and T. Rowe Price Vice President, New Income Fund Group, Inc. - -------------------------------------------------------------------------------------------------------------------- Daniel O. Shackelford (3/11/58) Vice President, T. Rowe Price, T. Rowe Price Vice President, New Income Fund Group, Inc., and T. Rowe Price Trust Company - -------------------------------------------------------------------------------------------------------------------- Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years.
37 T. ROWE PRICE MUTUAL FUNDS ================================================================================
STOCK FUNDS BLENDED ASSET FUNDS MONEY MARKET FUNDS - ------------------------------ (CONTINUED) ------------------------------ ----------------------------- Domestic Taxable Blue Chip Growth* Retirement 2020 Prime Reserve Capital Appreciation Retirement 2030 Summit Cash Reserves Capital Opportunity Retirement 2040 U.S. Treasury Money Developing Technologies Retirement Income Diversified Small-Cap Growth Tax-Efficient Balanced Tax-Free Dividend Growth California Tax-Free Money Equity Income* BOND FUNDS Maryland Tax-Free Money Equity Index 500 ----------------------------- New York Tax-Free Money Extended Equity Market Index Summit Municipal Money Market Financial Services Domestic Taxable Tax-Exempt Money Growth & Income Corporate Income Growth Stock* GNMA INTERNATIONAL/GLOBAL Health Sciences High Yield* FUNDS Media & Telecommunications Inflation Protected Bond -------------------------------- Mid-Cap Growth* New Income* Mid-Cap Value* Short-Term Bond Stock New America Growth Spectrum Income Emerging Europe & New Era Summit GNMA Mediterranean New Horizons U.S. Bond Index Emerging Markets Stock Real Estate U.S. Treasury Intermediate European Stock Science & Technology* U.S. Treasury Long-Term Global Stock Small-Cap Stock* Global Technology Small-Cap Value*+ Domestic Tax-Free International Discovery+ Spectrum Growth California Tax-Free Bond International Equity Index Tax-Efficient Growth Florida Intermediate Tax-Free International Growth & Income* Tax-Efficient Multi-Cap Growth Georgia Tax-Free Bond International Stock* Total Equity Market Index Maryland Short-Term Japan Value* Tax-Free Bond Latin America Maryland Tax-Free Bond New Asia New Jersey Tax-Free Bond Spectrum International BLENDED ASSET FUNDS New York Tax-Free Bond - ------------------------------ Summit Municipal Income Bond Summit Municipal Intermediate Emerging Markets Bond Balanced Tax-Free High Yield International Bond* Personal Strategy Balanced Tax-Free Income* Personal Strategy Growth Tax-Free Intermediate Bond Personal Strategy Income Tax-Free Short-Intermediate Retirement 2010 Virginia Tax-Free Bond
For more information about T. Rowe Price funds or services, please contact us directly at 1-800-225-5132. * T. Rowe Price Advisor Class available for these funds. The T. Rowe Price Advisor Class is offered only through financial intermediaries. For more information about T. Rowe Price Advisor Class funds, contact your financial professional or T. Rowe Price at 1-877-804-2315. + 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 risks, fees, and expenses. Read it carefully before investing. [GRAPHIC] T. Rowe Price Investment Services, Inc. 100 East Pratt Street Baltimore, MD 21202 28539 F43-051 11/30/02 -----END PRIVACY-ENHANCED MESSAGE-----