<DOCUMENT>
<TYPE>N-30D
<SEQUENCE>1
<FILENAME>dn30d.txt
<DESCRIPTION>T. ROWE CORPORATE INCOME FUND
<TEXT>
<PAGE>
Semiannual Report
NEW
INCOME
FUND
-----------------
NOVEMBER 30, 2002
-----------------
[GRAPHIC]
[LOGO OF T. ROWE PRICE(R)]
<PAGE>
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.
<PAGE>
----------
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
<PAGE>
--------------------------
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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]
<TABLE>
<CAPTION>
Since Inception
Periods Ended 11/30/02 1 Year 5 Years 10 Years Inception Date
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
T. ROWE PRICE NEW INCOME FUND
================================================================================
Unaudited
--------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout the period
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
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
---------------------------------------------------------------------------------------------------------
</TABLE>
/\ 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
T. ROWE PRICE NEW INCOME FUND
================================================================================
<TABLE>
<CAPTION>
Par/Shares Value
---------------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
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
---------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
T. ROWE PRICE NEW INCOME FUND
================================================================================
<TABLE>
<CAPTION>
Par/Shares Value
---------------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
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
---------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
T. ROWE PRICE NEW INCOME FUND
================================================================================
<TABLE>
<CAPTION>
Par/Shares Value
---------------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
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
-----------
</TABLE>
15
<PAGE>
T. ROWE PRICE NEW INCOME FUND
================================================================================
<TABLE>
<CAPTION>
Par/Shares Value
---------------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
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
-----------
</TABLE>
16
<PAGE>
T. ROWE PRICE NEW INCOME FUND
================================================================================
<TABLE>
<CAPTION>
Par/Shares Value
---------------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
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
---------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
T. ROWE PRICE NEW INCOME FUND
================================================================================
<TABLE>
<CAPTION>
Par/Shares Value
---------------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
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
-------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
T. ROWE PRICE NEW INCOME FUND
================================================================================
Unaudited
------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
6 Months Year
Ended Ended
11/30/02 5/31/02
<S> <C> <C>
-------------------------------------------------------------
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
T. ROWE PRICE NEW INCOME FUND
================================================================================
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Number of
Contracts Premiums
<S> <C> <C>
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
---------------------------
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
Name
(Date of Birth) Principal Occupation(s) During Past 5 Years and
Year Elected* Directorships of Other Public Companies
--------------------------------------------------------------------------------------------------------------------
<S> <C>
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
</TABLE>
*Each independent director oversees 105 T. Rowe Price portfolios and serves
until the election of a successor.
34
<PAGE>
T. ROWE PRICE NEW INCOME FUND
================================================================================
Independent Directors (continued)
<TABLE>
<CAPTION>
Name
(Date of Birth) Principal Occupation(s) During Past 5 Years and
Year Elected* Directorships of Other Public Companies
--------------------------------------------------------------------------------------------------------------------
<S> <C>
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.
--------------------------------------------------------------------------------------------------------------------
</TABLE>
*Each independent director oversees 105 T. Rowe Price portfolios and serves
until the election of a successor.
Inside Directors
<TABLE>
<CAPTION>
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
--------------------------------------------------------------------------------------------------------------------
<S> <C>
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
--------------------------------------------------------------------------------------------------------------------
</TABLE>
**Each inside director serves until the election of a successor.
35
<PAGE>
T. ROWE PRICE NEW INCOME FUND
================================================================================
Officers
<TABLE>
<CAPTION>
Name (Date of Birth)
Title and Fund(s) Served Principal Occupation(s)
--------------------------------------------------------------------------------------------------------------------
<S> <C>
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.
</TABLE>
36
<PAGE>
T. ROWE PRICE NEW INCOME FUND
================================================================================
Officers (continued)
<TABLE>
<CAPTION>
Name (Date of Birth)
Title and Fund(s) Served Principal Occupation(s)
--------------------------------------------------------------------------------------------------------------------
<S> <C>
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.
</TABLE>
37
<PAGE>
T. ROWE PRICE MUTUAL FUNDS
================================================================================
<TABLE>
<CAPTION>
STOCK FUNDS BLENDED ASSET FUNDS MONEY MARKET FUNDS
------------------------------ (CONTINUED) ------------------------------
-----------------------------
<S> <C> <C>
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
</TABLE>
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
</TEXT>
</DOCUMENT>