-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AlAP4bR21IC3XwtVfiIVLoJDx1VviEjZH4sdl3EAWl/7nqp6WTYP+Qy8Y/0iF0UN UcAmKY9mByzida38HAO8+Q== 0000950109-99-000075.txt : 19990108 0000950109-99-000075.hdr.sgml : 19990108 ACCESSION NUMBER: 0000950109-99-000075 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE NEW INCOME FUND INC CENTRAL INDEX KEY: 0000080249 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 520980581 FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02396 FILM NUMBER: 99501897 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105472000 FORMER COMPANY: FORMER CONFORMED NAME: PRICE T ROWE NEW INCOME FUND INC ET AL DATE OF NAME CHANGE: 19920703 N-30D 1 T. ROWE PRICE NEW INCOME FUND Semiannual Report NEW INCOME FUND --------------------- NOVEMBER 30, 1998 --------------------- T. ROWE PRICE Report Highlights - -------------------------------------------------------------------------------- New Income Fund . The past six months were difficult for most sectors of the bond market, with the exception of U.S. Treasuries and high-grade corporate bonds. . Returns were positive but trailed the Lehman Aggregate Bond Index and the average for similar funds for the 6- and 12-month periods ended November 30, 1998. . Our underweighting in Treasuries and holdings of medium-quality corporate bonds hurt performance. . We expect economic growth to slow, and we believe select corporate and mortgage bonds will provide attractive returns through 1999 given their yield advantage over Treasuries. FELLOW SHAREHOLDERS The summer and fall of 1998 witnessed extraordinary turmoil in financial markets caused by the Asian economic crisis as it spread to Russia and threatened Latin America. Though interest rates declined dramatically, fears of recession and deflation created wide disparities in the bond market. Prices of U.S. Treasury and high-grade (AAA and AA) corporate securities rose strongly, benefiting from a global flight to quality, but most other bonds lagged far behind. Your fund's six-month results reflected this environment, which did not favor our focus on medium-quality corporate bonds. MARKET ENVIRONMENT Though the U.S. continued to enjoy a record-setting economic expansion with high employment and low inflation, a series of events led to severe disruptions in global financial markets, particularly in late summer. The slowing of corporate profit growth, concern about the global economy, hedge-fund liquidations, and weakness in political leadership added up to the worst environment for corporate bonds since the last U.S. recession. Continued political and economic uncertainty in Japan and other Asian nations caused investors to question the stability of Hong Kong and China. - -------------------- Interest Rate Levels - -------------------------------------------------------------------------------- [LINE GRAPH APPEARS HERE] Date 30-Year 5-Year 1-Year ---- ------- ------ ------ Nov-97 6.08 5.82 5.5 5.93 5.71 5.52 5.89 5.48 5.28 Feb-98 5.84 5.6 5.42 5.92 5.62 5.39 6.02 5.72 5.45 May-98 5.83 5.57 5.43 5.65 5.5 5.41 5.73 5.51 5.37 Aug-98 5.42 5.07 5.1 5 4.24 4.41 5.12 4.22 4.1 Nov-98 5.21 4.62 4.59 The real blow came in August, when Russia effectively defaulted on its external debts and devalued its currency. Widespread fears of contagion resulted in severe price declines for emerging market bonds, 1 - --------------------------- PREPARING FOR THE YEAR 2000 - -------------------------------------------------------------------------------- The Year 2000 draws closer every day, and it holds special meaning beyond the arrival of a new millennium. The issue for investors is that many computer programs throughout the world use two digits instead of four to identify the year and may assume the next century starts with 1900. If these programs are not modified, they will not be able to correctly handle the century change when the year changes from "99" to "00" on January 1, 2000, and they will no longer be able to perform necessary functions. The Year 2000 issue affects all companies and organizations. T. Rowe Price has been taking steps to assure that its computer systems and processes are capable of functioning in the Year 2000. Detailed plans for remediation efforts have been developed and are currently being executed. OUR PLAN OF ACTION We began to address these issues several years ago by requiring that all new systems process and store four-digit years. We will complete all reprogramming efforts for the major application systems, including business applications required to service our customers and processing infrastructure necessary to ensure the integrity of customer data and investments, by December 31, 1998, leaving a full 12 months for system testing. Because we exchange data electronically with customers and vendors, we are working with them to assess the adequacy of their own compliance efforts. Our goal is to ensure the continuation of the same level of service to all our mutual fund shareholders and clients after December 31, 1999. We are asking all vendors and companies we do business with for a Year 2000 compliance status, with the expectation that some organizations will not be able to modify their interface files prior to December 31, 1999. Our goal is to identify any noncompliant files so that we can implement alternative solutions. In addition, we are scheduling tests for critical vendors and companies that claim Year 2000 compliance to ensure that time-related data and calculations function properly as we move into the next century. SMOOTH TRANSITION PLANNED We believe our programs and initiatives will provide a smooth transition into the next millennium. We are assessing all systems providing products or services to our retail mutual fund shareholders, retirement plan sponsors, and participants, and we are taking steps to modify them where necessary for the Year 2000. Our plan provides time to develop solutions for all noncompliant systems and data files from customers or vendors. The Securities Industry Association (SIA) is coordinating Year 2000 testing to assure that securities markets, clearing corporations, depositories, and third party service providers can send, receive, and process files and transactions accurately. In late July 1998, the SIA completed a beta test of Year 2000 readiness. The test was considered successful in terms of transactions completed and will serve as the basis for the SIA's industry-wide approach. During October 1998, T. Rowe Price completed its beta test of Year 2000 readiness with the SIA and is ready for the industry-wide test that is scheduled for March and April 1999. For a more detailed discussion of our Year 2000 effort, as well as continuing updates on our progress, please check our Web site (www.troweprice.com). 2 especially those of Latin America. On September 25, news of the near failure of a prominent hedge fund, along with details of the risks to major international banks and the bailout orchestrated by the Federal Reserve, raised the specter of a global liquidity crunch. In addition, concerns persisted about the stability of Brazil's currency and the impact a new Latin American crisis would have on U.S. banks and the economy. These events shook market psychology and dried up demand, which culminated in price declines across the board in U.S. and foreign corporate bonds, agency-backed mortgage securities, and asset-backed securities. Investors flocked to the safety of U.S. Treasury securities, pushing the yield on long-term Treasury bonds to the lowest level in three decades --below even the overnight federal funds rate, which had long held at 5.5%. Volatility and illiquidity in the credit markets, along with signs of a slowdown in the domestic manufacturing sector, caused the Federal Reserve to lower the federal funds rate three times this fall, each time by a quarter of a percentage point. At the height of investor concern, the yield on the 30-year Treasury bond fell briefly below 4.70%. As a measure of confidence returned to the markets, corporate bonds, especially of medium and lower quality, and emerging market bonds staged a sharp rally from their early October lows, while long-term Treasuries sold off and the yield crossed back over the 5% threshold. This reduced the unusually large gap between Treasury rates and the yields on other types of debt. (Investors typically demand a higher yield on non-Treasury securities to compensate for assuming greater risk.) While these risk premiums continued to decline through November, yields in some sectors remained attractive compared with historical norms. - ------------------------------- Total Return by Credit Quality - -------------------------------------------------------------------------------- Periods Ended 11/30/98 [BAR GRAPH APPEARS HERE] 6 Months 12 Months -------- --------- Treasury 6.59 10.98 Mortgage 3.44 7.43 AAA 5.25 10.05 BBB 3.21 8.11 BBB/BB 0.16 5.63 Asset- and mortgage-backed securities and BBB and split-rated (BBB/BB) corporate bonds significantly underperformed Treasuries and high-grade corporates during the six and 12 months ended November 30, as shown in the chart. Especially during August and September, investors seemed to want nothing but the most recently issued (and therefore most liquid) 3 Treasury bonds. U.S. government agency obligations, agency-backed mortgage bonds, and even older Treasury securities underperformed. Mortgage-backed bonds, particularly collateralized mortgage obligations (CMOs), were hurt when highly leveraged hedge funds sold off their most liquid securities. Yankee bonds (foreign bonds denominated in U.S. dollars), specifically those issued by Latin American and Asian companies, also lagged high-grade corporate bonds by a wide margin. PERFORMANCE REVIEW While positive, your fund's results for the six and 12 months ended November 30 lagged the returns of the Lehman Aggregate Bond Index and the average for the Lipper peer group. Most of the shortfall occurred in the last six months, which saw a decline in the share price from $9.09 on May 31 to $8.93 at the end of November. This drop was more than offset by income of $0.28 per share, resulting in a positive total return. The fund's performance reflects a number of factors. Primarily, we saw more value in the higher-yielding segments of the corporate bond market than in Treasuries and in the highest-grade corporates, and we felt that over a longer time period these sectors would produce superior results. Our view was predicated on the belief that a recession was not imminent in the U.S. Consequently, we were underweighted in U.S. Treasury bonds compared with the benchmark and overweighted in corporate sectors that were hurt by the recent turmoil in global markets. Within the investment-grade corporate sector, we held significant positions in medium- and lower-quality bonds and in Yankee bonds. The fact that mortgage-backed securities -- especially CMOs -- lagged Treasuries also weighed on results. - ----------------------- Performance Comparison - -------------------------------------------------------------------------------- Periods Ended 11/30/98 6 Months 12 Months - -------------------------------------------------------------------------------- New Income Fund 1.39% 5.36% ................................................................................ Lehman Aggregate Bond Index 5.15 9.45 ................................................................................ Lipper Average of Corporate Bond Funds A-Rated 4.08 8.19 ................................................................................ STRATEGY As we discussed in our last report, our investment strategy focuses on fundamental credit analysis of the companies and sectors in which we invest. We analyze credit trends across a number of U.S. and foreign markets in search of securities that offer higher yield with stable-to- 4 improving credit outlooks. As a result, we increased our holdings of asset- backed securities and Yankee bonds. At the start of our fiscal year six months ago, Yankee bonds constituted approximately 15% of the portfolio, of which a significant portion consisted of Latin American and Asian corporate debt. These are included in the "Corporate Bonds and Asset-Backed Securities" section of the Security Diversification chart. We had largely eliminated our holdings of longer-term Treasuries early this year and moved the proceeds into higher- yielding corporates, such as those issued by the Tennessee Valley Authority and Fannie Mae. As it turned out, investing for yield advantage over Treasuries proved unrewarding during the anxious markets of this past summer. The fund's largest sector concentration globally (18% of net assets) was in the bonds of financial services companies. This sector typically underperforms during periods of financial market turmoil and excessive volatility. In the mortgage market, we largely avoided the sell-off in commercial mortgage-backed securities, and we correctly anticipated a continued high level of prepayments. As a result, we purchased CMOs that are structured to offer protection from prepayments while still offering attractive yields. However, these suffered when highly leveraged hedge funds were forced to sell their more liquid positions to raise cash. - ------------------------ Security Diversification - -------------------------------------------------------------------------------- [PIE CHART APPEARS HERE] Corporate Bonds and Asset-Backed Securities 58% Mortgage-Backed Securities 26% U.S. Government and Agencies 12% Other 4% With liquidity returning to the credit markets in recent weeks, prices have improved markedly in certain segments. Given our outlook for some slowing in economic and corporate profit growth over the next six months, we took advantage of these price improvements to selectively reposition portions of the portfolio. We replaced some holdings in Yankee bonds and in potentially cyclical sectors like financial services with more defensive securities. In the mortgage sector, we will continue to focus on prepayment-protected securities while paying close attention to liquidity. 5 OUTLOOK We believe the current risk/reward relationship for mortgage and corporate bonds presents an attractive opportunity for fixed income investors. A period of slower economic and corporate earnings growth may lie ahead, marked by reduced business investment. We are already seeing signs of a slowdown in the manufacturing sector in the U.S. In addition, the relatively strong dollar and weakening economic conditions in Latin America and Asia should continue to constrain U.S. exports. Finally, with consumer credit at record levels, the likelihood of a slowdown in consumer spending has increased. In this scenario, we would expect interest rates to continue to move in a narrow range. This level of rates, in turn, should be sufficient to keep the U.S. economy from sliding into recession. The psychological factors that drove corporate bond prices down in late summer should continue to dissipate, allowing fundamentals to reassert themselves. Global equity markets have reacted favorably to recent rate cuts, and there are some encouraging signs that Japan and Brazil are serious about addressing their economic problems. Corporate bonds typically respond well to a significant rise in equity prices. Mortgage bonds should also perform well in this environment. Barring a recession in the U.S., or another round of turmoil in financial markets, the environment for corporate bonds and the most liquid prepayment- protected mortgage securities should remain favorable. Against this backdrop, we believe the New Income Fund is well positioned to provide attractive returns for investors during the coming year. Respectfully submitted, /s/ Peter Van Dyke Peter Van Dyke President December 14, 1998 6 CHANGE IN MANAGEMENT Peter Van Dyke, a managing director of T. Rowe Price Associates and director of the taxable bond department, is retiring at the end of 1998. Mr. Van Dyke joined the company in 1985. We are grateful for his contributions and wish him the very best for the future. William T. Reynolds, a managing director of T. Rowe Price Associates and director of the firm's Fixed Income Division, has been appointed chairman of the fund's Investment Advisory Committee. Mr. Reynolds joined the company in 1981 and has been managing investments since 1978. Other members of the New Income Fund committee include Connice A. Bavely, Steven G. Brooks, Heather R. Landon, Edmund M. Notzon III, Robert M. Rubino, Gwendolyn G. Wagner, and Alan Levenson. The preceding updates the New Income Fund prospectus of October 1, 1998. 7 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- - --------------------- PORTFOLIO HIGHLIGHTS - -------------------------------------------------------------------------------- KEY STATISTICS 5/31/98 11/30/98 - -------------------------------------------------------------------------------- Price Per Share $9.09 $8.93 ................................................................................ Dividends Per Share ................................................................................ For 6 months 0.28 0.28 .......................................................................... For 12 months 0.57 0.56 .......................................................................... Dividend Yield * ................................................................................ For 6 months 6.25% 6.39% .......................................................................... For 12 months 6.49 6.42 .......................................................................... 30-Day Standardized Yield 6.29 6.61 ................................................................................ Weighted Average Maturity (years) 14.4 11.4 ................................................................................ Weighted Average Effective Duration (years) 5.9 5.5 ................................................................................ Weighted Average Quality ** A+ AA- ................................................................................ * Dividends earned and reinvested for the periods indicated are annualized and divided by the average daily net asset values per share for the same period. ** Based on T. Rowe Price research. 8 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- PORTFOLIO HIGHLIGHTS - -------------------------------------------------------------------------------- SECTOR DIVERSIFICATION Percent of Percent of Net Assets Net Assets 5/31/98 11/30/98 - -------------------------------------------------------------------------------- Mortgage-Backed Securities 27% 26% ................................................................................ Banking 16 11 ................................................................................ Asset-Backed 6 9 ................................................................................ U.S. Treasury Obligations 1 7 ................................................................................ U.S. Government Agency Obligations 7 6 ................................................................................ Petroleum 3 5 ................................................................................ Insurance 3 4 ................................................................................ Investment Dealers 3 3 ................................................................................ Telecommunications - 3 ................................................................................ Media and Communications 2 3 ................................................................................ Electric Utilities 1 2 ................................................................................ Conglomerates 1 2 ................................................................................ Health Care 1 2 ................................................................................ Building and Real Estate 2 2 ................................................................................ Entertainment and Leisure 2 2 ................................................................................ All Other 25 9 ................................................................................ Money Markets Funds - 6 ................................................................................ Other Assets Less Liabilities - -2 - -------------------------------------------------------------------------------- Total 100% 100% 9 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 a broad-based average or index. The index return does not reflect expenses, which have been deducted from the fund's return. NEW INCOME FUND - -------------------------------------------------------------------------------- [LINE GRAPH APPEARS HERE] Date Lehman Aggregate Bond Index New Income Fund ---- --------------------------- --------------- Nov-88 $10,000 $10,000 Nov-89 11,435 11,177 Nov-90 12,302 12,031 Nov-91 14,075 13,613 Nov-92 15,322 14,654 Nov-93 16,991 16,142 Nov-94 16,471 15,725 Nov-95 19,376 18,489 Nov-96 20,553 19,439 Nov-97 22,105 20,787 Nov-98 24,194 21,901 - ------------------------------------ AVERAGE ANNUAL COMPOUND TOTAL RETURN - -------------------------------------------------------------------------------- This table shows how the fund would have performed each year if its actual (or cumulative) returns for the periods shown had been earned at a constant rate. Periods Ended 11/30/98 1 Year 3 Years 5 Years 10 Years - -------------------------------------------------------------------------------- New Income Fund 5.36% 5.81% 6.29% 8.16% ................................................................................ Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. 10 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- Unaudited FINANCIAL HIGHLIGHTS For a share outstanding throughout each period - --------------------------------------------------------------------------------
6 Months Year 3 Months++ Year Ended Ended Ended Ended 11/30/98 5/31/98 5/31/97 5/31/96 5/31/95 5/31/94 2/28/94 NET ASSET VALUE Beginning of period $ 9.09 $ 8.77 $ 8.70 $ 8.97 $ 8.65 $ 9.12 $ 9.24 .............................................................. Investment activities Net investment income 0.28 0.57 0.58 0.60 0.58 0.14 0.54 Net realized and unrealized gain (loss) (0.16) 0.36 0.07 (0.27) 0.34 (0.40) (0.05) .............................................................. Total from investment activities 0.12 0.93 0.65 0.33 0.92 (0.26) 0.49 .............................................................. Distributions Net investment income (0.28) (0.57) (0.58) (0.60) (0.58) (0.14) (0.54) Net realized gain -- (0.04) -- -- (0.02) (0.07) (0.07) .............................................................. Total distributions (0.28) (0.61) (0.58) (0.60) (0.60) (0.21) (0.61) .............................................................. NET ASSET VALUE End of period $ 8.93 $ 9.09 $ 8.77 $ 8.70 $ 8.97 $ 8.65 $ 9.12 -------------------------------------------------------------- Ratios/Supplemental Data Total return* 1.39% 10.84% 7.70% 3.70% 11.13% (2.84)% 5.36% ......................................................................................... Ratio of expenses to average net assets 0.71%+ 0.71% 0.74% 0.75% 0.78% 0.80%+ 0.82% ......................................................................................... Ratio of net investment income to average net assets 6.32%+ 6.31% 6.65% 6.66% 6.95% 6.43%+ 5.77% ......................................................................................... Portfolio turnover rate 97.6%+ 147.3% 87.1% 35.5% 54.1% 91.5%+ 58.3% ......................................................................................... Net assets, end of period (in millions) $ 2,133 $ 2,076 $1,711 $1,634 $1,566 $1,375 $1,458 .........................................................................................
* 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 fund's fiscal year-end was changed to May 31. The accompanying notes are an integral part of these financial statements. 11 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- Unaudited November 30, 1998 - ------------------------ PORTFOLIO OF INVESTMENTS - --------------------------------------------------------------------------------
Par/Shares Value - ------------------------------------------------------------------------------------------ In thousands CORPORATE BONDS AND NOTES 48.4% Automobiles and Related 0.9% Federal-Mogul, 7.875%, 7/1/10 $ 4,000 $ 3,967 .......................................................................................... Hertz, 7.00%, 1/15/28 15,000 15,322 .......................................................................................... 19,289 ........... Banking 11.2% Banco Generale, Sr. Sub. Notes, (144a), 7.70%, 8/1/02 10,000 9,562 .......................................................................................... Banco Latinoamericano, (144a), 6.69%, 12/23/99 10,000 10,039 .......................................................................................... Banco Santiago, Sub. Notes, 7.00%, 7/18/07 15,000 12,272 .......................................................................................... Bank of Boston Capital Trust, Gtd. Notes, 8.25%, 12/15/26 15,000 15,981 .......................................................................................... Bank United, 8.875%, 5/1/07 15,000 15,620 .......................................................................................... BCI Funding Trust, (144a), 8.01%, 7/15/08 20,000 18,900 .......................................................................................... Den Danske Bank, (144a), VR, 7.40%, 6/15/10 10,000 10,691 .......................................................................................... FCNCB Capital Trust I, Gtd. Cap. Securities, (144a) 8.05%, 3/1/28 12,000 12,672 .......................................................................................... First Empire Capital Trust I, Gtd. Bonds, 8.234%, 2/1/27 5,000 5,440 .......................................................................................... Hubco Capital Trust I, 8.98%, 2/1/27 9,000 9,479 .......................................................................................... Mason Dixon Bancshares, Sr. Notes, 7.48%, 4/23/08 + 20,000 20,125 .......................................................................................... Merita Bank, Non-Cum. Step-Up Perpetual Cap. Securities 7.15%, 9/11/02 11,000 10,637 .......................................................................................... Natexis, (144a), 8.44%, 12/29/49 15,000 14,344 .......................................................................................... Riggs National, 9.65%, 6/15/09 10,000 11,923 .......................................................................................... SB Treasury, (144a), 9.40%, 6/30/08 20,625 20,202 .......................................................................................... Skandinaviska Enskilda Banken Step-Up Perpetual Sub. Notes, (144a) 6.50%, 6/4/03 19,500 18,915 ................................................................................... 8.125%, 9/6/06 10,000 9,804 .......................................................................................... Societe Generale, Step-Up Perpetual Sub. Notes, (144a) 7.85%, 4/30/07 13,000 13,081 .......................................................................................... 239,687 ........... Beverages 1.0% Embotelladora Andina, 7.00%, 10/1/07 10,000 8,947 .......................................................................................... Panamerican Beverages, Sr. Notes, (144a), 7.25%, 7/1/09 13,000 11,867 .......................................................................................... 20,814 ........... Broadcasting 0.9% Hearst-Argyle Television, 7.50%, 11/15/27 20,000 19,623 .......................................................................................... 19,623 ...........
12 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------
Par/Shares Value - ----------------------------------------------------------------------------------------- In thousands Building Products 1.2% Owens Corning, 7.70%, 5/1/08 $ 24,000 $ 24,669 ......................................................................................... 24,669 .......... Building and Real Estate 1.6% BRE Properties, 7.125%, 2/15/13 10,000 9,438 ......................................................................................... Hospitality Properties Trust, Sr. Notes, 7.00%, 3/1/08 10,000 9,457 ......................................................................................... Spieker Properties, 7.125%, 7/1/09 14,700 14,318 ......................................................................................... 33,213 .......... Cable Operators 0.9% Clear Channel, Deb., 7.25%, 10/15/27 20,000 18,898 ......................................................................................... 18,898 .......... Conglomerates 0.9% Harcourt General, Sr. Deb., 7.20%, 8/1/27 20,000 19,005 ......................................................................................... 19,005 .......... Container 0.9% Owens Illinois, Sr. Notes, 7.35%, 5/15/08 20,000 19,753 ......................................................................................... 19,753 .......... Electric Utilities 1.9% Aep Resources, Sr. Notes, (144a), 6.50%, 12/1/03 15,000 15,113 ......................................................................................... Alabama Power, 5.35%, 11/15/03 10,000 10,141 ......................................................................................... DDTE Capital, (144a), 7.11%, 11/15/38 15,000 15,131 ......................................................................................... 40,385 .......... Entertainment and Leisure 1.5% Royal Caribbean Cruises, Sr. Notes, 6.75%, 3/15/08 20,000 19,482 ......................................................................................... Time Warner, Sr. Notes, 9.125%, 1/15/13 10,000 12,524 ......................................................................................... 32,006 .......... Finance and Credit 1.0% Hutchison Whampoa Finance, (144a) 7.45%, 8/1/17 14,500 12,284 .................................................................................. 7.50%, 8/1/27 10,000 8,228 .................................................................................. 20,512 .......... Financial 0.6% Fairfax Financial Holdings, 8.25%, 10/1/15 12,760 12,782 ......................................................................................... 12,782 .......... Food Processing 0.9% Flowers Industries, 7.15%, 4/15/28 20,000 19,569 ......................................................................................... 19,569 .......... Food/Tobacco 1.1% Philip Morris, 7.75%, 1/15/27 20,500 23,412 ......................................................................................... 23,412 ..........
13 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------
Par/Shares Value - ------------------------------------------------------------------------------------------ In thousands Health Care 1.6% Beckman Instruments, Sr. Notes, (144a), 7.45%, 3/4/08 $ 20,000 $ 20,150 ......................................................................................... Columbia/HCA Healthcare, 6.91%, 6/15/05 15,000 14,658 ......................................................................................... 34,808 .......... Industrials 0.5% WMX Technologies, Step-Up Notes, 8.00%, 4/30/04 10,000 10,911 ......................................................................................... 10,911 .......... Insurance 3.7% Jefferson Pilot Capital Trust, (144a), 8.14%, 1/15/46 10,000 10,451 ......................................................................................... Liberty Mutual Insurance, (144a), 8.20%, 5/4/07 12,000 13,319 ......................................................................................... Metropolitan Life Insurance, (144a), 7.80%, 11/1/25 16,850 17,472 ......................................................................................... Safeco Capital Trust I, 8.072%, 7/15/37 15,000 15,534 ......................................................................................... Trenwick Capital Trust I, Cap. Securities, 8.82%, 2/1/37 10,500 10,375 ......................................................................................... Zurich Capital Trust, (144a), 8.376%, 6/1/37 10,000 11,269 ......................................................................................... 78,420 .......... Investment Dealers 3.0% Goldman Sachs Group, (144a), 6.625%, 12/1/04 10,000 10,210 ......................................................................................... Jefferies Group, Sr. Notes, 7.50%, 8/15/07 10,000 10,008 ......................................................................................... Paine Webber Group, MTN 6.45%, 12/1/03 14,200 14,289 .................................................................................. 6.64%, 4/14/10 10,000 9,662 .................................................................................. 6.72%, 4/1/08 20,000 20,255 ......................................................................................... 64,424 .......... Media and Communications 2.6% News America, (144a), 6.75%, 1/9/38 25,500 26,139 ......................................................................................... USA Networks, Sr. Notes, (144a), 6.75%, 11/15/05 30,000 29,955 ......................................................................................... 56,094 .......... Oil Field Services 0.9% R & B Falcon, Sr. Notes, (144a), 6.95%, 4/15/08 20,000 18,776 ......................................................................................... 18,776 .......... Paper and Paper Products 0.5% Celulosa Arauco Y Constitucion, (144a), 7.20%, 9/15/09 12,500 10,055 ......................................................................................... 10,055 .......... Petroleum 4.7% PDV America, 7.875%, 8/1/03 10,000 9,763 ......................................................................................... PDVSA Finance, (144a), 7.50%, 11/15/28 20,000 16,797 ......................................................................................... Union Texas Petroleum, 7.00%, 4/15/08 20,000 21,669 ......................................................................................... Woodside Finance, (144a), 6.60%, 4/15/08 20,000 19,817 .........................................................................................
14 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------
Par/Shares Value - ------------------------------------------------------------------------------------------------- In thousands YPF Sociedad Anonima 7.25%, 3/15/03 $ 20,000 $ 18,783 .................................................................................... 10.00%, 11/2/28 14,000 14,420 ........................................................................................... 101,249 ............ Specialty Chemicals 0.8% Sociedad Quimira Y Minera, LCP, (144a), 7.70%, 9/15/06 20,000 16,850 ........................................................................................... 16,850 ............ Supermarkets 0.9% Safeway, 5.75%, 11/15/00 18,700 18,653 ........................................................................................... 18,653 ............ Telecommunications 2.7% Sprint, 6.125%, 11/15/08 21,600 21,987 ........................................................................................... WorldCom 6.40%, 8/15/05 18,500 19,131 .................................................................................... 7.75%, 4/1/07 15,000 16,905 ........................................................................................... 58,023 ............ Total Corporate Bonds and Notes (Cost $1,046,943) 1,031,880 ............ ASSET-BACKED SECURITIES 9.3% Credit Card-Backed 1.0% Capital One Master Trust, 6.356%, 6/15/11 20,000 20,677 ........................................................................................... 20,677 ............ Financial 2.0% MBNA Master Credit Card Trust II, 5.65%, 2/15/06 10,000 9,994 ........................................................................................... Norwest Asset Securities, 6.75%, 10/25/28 11,987 11,755 ........................................................................................... Saxon Asset Security Trust, 6.52%, 11/25/27 20,000 20,006 ........................................................................................... 41,755 ............ Home Equity Loans-Backed 4.4% Chase Funding Mortgage Loan, 6.59%, 5/25/28 5,053 5,066 ........................................................................................... FURST Home Equity Loan Trust, 7.77%, 9/25/27 5,300 5,631 ........................................................................................... GE Capital Mortgage Services 6.465%, 6/25/28 14,207 14,325 .................................................................................... REMIC, 6.75%, 8/25/28 13,962 13,709 ........................................................................................... Money Store Home Equity Trust 6.985%, 10/15/16 6,000 6,104 .................................................................................... 7.91%, 5/15/24 13,159 13,806 ........................................................................................... Residential Accredit Loans, 6.75%, 7/25/28 7,500 7,448 ...........................................................................................
15 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------
Par/Shares Value - ------------------------------------------------------------------------------------------------- In thousands UCFC Home Equity Loan Trust 6.53%, 10/15/29 $ 5,000 $ 4,903 .................................................................................... 7.18%, 2/15/25 7,000 7,219 .................................................................................... 7.22%, 6/15/28 11,400 11,471 .................................................................................... 7.325%, 1/10/27 5,000 5,189 ........................................................................................... 94,871 ............ Receivables-Backed 0.4% Green Tree Financial, Sr. Sub. Certificates, 6.87%, 1/15/29 8,655 9,086 ........................................................................................... 9,086 ............ Whole Loans-Backed 1.5% Amresco Residential Securities, 6.745%, 6/25/28 4,850 4,664 ........................................................................................... BA Mortgage Securities, 7.00%, 7/25/28 20,600 20,426 ........................................................................................... CWMBS, 6.75%, 11/25/23 6,673 6,529 ........................................................................................... 31,619 ............ Total Asset-Backed Securities (Cost $198,698) 198,008 ............ PREFERRED STOCKS 0.5% Banking 0.1% Silicon Valley Bancshares, 8.25% 105 2,546 ........................................................................................... 2,546 ............ Financial 0.4% Pinto Totta International Finance (Series A), (144a), 7.77% 9 7,565 ........................................................................................... 7,565 ............ Total Preferred Stocks (Cost $11,350) 10,111 ............ U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES 25.9% U.S. Government Agency Asset-Backed 0.7% Federal Home Loan Mortgage, REMIC Government National Mortgage Assn. Collateral 5.15%, 8/25/12 982 977 ........................................................................................... Federal National Mortgage Assn. Interest Only, VR, 1.323%, 6/25/28 ** 80,379 3,806 ....................................................................................... REMIC, 7.50%, 8/17/17 8,946 9,317 ........................................................................................... 14,100 ............ U.S. Government Agency Obligations 10.6% Federal Home Loan Mortgage 6.50%, 11/1/04 - 6/1/24 9,339 9,412 .................................................................................... 7.00%, 2/1/24 - 6/1/25 4,551 4,646 ....................................................................................
16 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------
Par/Shares Value - ------------------------------------------------------------------------------------------------- In thousands Federal Home Loan Mortgage 7.50%, 3/1 - 6/1/24 $ 6,628 $ 6,812 .................................................................................... 8.00%, 6/1/08 64 66 .................................................................................... 10.50%, 2/1/01 - 8/1/20 609 666 .................................................................................... 11.00%, 5/1/11 - 7/1/20 263 294 .................................................................................... 11.50%, 6/1/01 2 2 .................................................................................... REMIC 5.50%, 10/15/20 5,000 4,930 .................................................................................... 6.00%, 5/15/16 2,101 2,097 .................................................................................... 6.50%, 7/15/11 - 6/15/23 31,663 32,305 .................................................................................... 7.00%, 8/15/09 - 9/15/24 40,600 41,165 .................................................................................... 7.50%, 2/15/06 335 335 ........................................................................................... Federal National Mortgage Assn. 6.00%, 3/1/28 - 5/1/28 56,647 55,907 .................................................................................... 6.50%, 12/1/25 - 12/1/27 164 165 .................................................................................... 8.75%, 3/1/10 10 11 .................................................................................... REMIC, 8.00%, 11/25/24 8,233 8,746 ....................................................................................... TBA, 6.00%, 1/1/13 59,369 59,467 ........................................................................................... 227,026 ............ U.S. Government Guaranteed Obligations 14.6% Government National Mortgage Assn. I 6.50%, 4/15/23 - 1/15/28 53,230 53,803 .................................................................................... 7.00%, 4/15/22 - 1/15/28 109,477 112,104 .................................................................................... 7.50%, 8/15/16 - 8/15/28 27,298 28,219 .................................................................................... 8.00%, 7/15/16 - 10/15/27 46,684 48,808 .................................................................................... 8.50%, 9/15/16 - 7/15/23 10,822 11,561 .................................................................................... 9.00%, 1/15/09 - 11/15/19 1,337 1,435 .................................................................................... 9.50%, 6/15/09 - 3/15/25 12,569 13,652 .................................................................................... 11.00%, 12/15/09 - 1/15/21 11,386 12,807 .................................................................................... 11.50%, 3/15/10 - 10/15/15 1,629 1,854 .................................................................................... II 7.00%, 12/20/23 - 5/20/28 23,698 24,217 .................................................................................... 8.50%, 9/20/26 73 77 .................................................................................... 9.00%, 6/20/16 - 2/20/18 939 1,004 .................................................................................... GPM, I, 10.25%, 2/15/16 - 11/15/20 1,830 2,014 ........................................................................................... 311,555 ............ Total U.S. Government Mortgage-Backed Securities (Cost $540,824) 552,681 ............
17 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------
Par/Shares Value - ------------------------------------------------------------------------------------------------- In thousands U.S. GOVERNMENT OBLIGATIONS 12.3% U.S. Government Agency Obligations 5.6% Federal National Mortgage Assn. 5.625%, 3/15/01 $ 20,000 $ 20,342 .................................................................................... 5.75%, 2/15/08 60,000 61,792 ........................................................................................... Tennessee Valley Auth. 5.88%, 4/1/36 20,000 20,800 .................................................................................... 6.235%, 7/15/45 14,934 15,768 ........................................................................................... 118,702 ............... U.S. Treasury Obligations 6.7% U.S. Treasury Notes 5.375%, 6/30/03 40,000 41,309 .................................................................................... 5.625%, 5/15/08 44,500 47,349 ........................................................................................... U.S. Treasury Bonds 5.25%, 11/15/28 4,500 4,622 .................................................................................... 5.50%, 8/15/28 30,000 31,688 ........................................................................................... U.S. Treasury Inflation-Indexed Notes, 3.375%, 1/15/07 20,625 20,182 ........................................................................................... 145,150 ............... Total U.S. Government Obligations (Cost $262,151) 263,852 ............... MONEY MARKET FUNDS 5.8% Reserve Investment Fund, 5.34% # 123,803 123,803 ........................................................................................... Total Money Market Funds (Cost $123,803) 123,803 ............... Total Investments in Securities 102.2% of Net Assets (Cost $2,183,769) $ 2,180,335 Other Assets Less Liabilities (47,424) ............... NET ASSETS $ 2,132,911 --------------
# Seven day yield + Private Placement ** For Interest Only securities, amount represents notional principal on which the fund receives interest GPM Graduated Payment Mortgage MTN Medium Term Note REMIC Real Estate Mortgage Investment Conduit TBA To be announced security was purchased on a forward commitment basis VR Variable Rate 144a Security was purchased pursuant to Rule 144a under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers -- total of such securities at period-end amounts to 19.2% of net assets. The accompanying notes are an integral part of these financial statements. 18 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- Unaudited November 30, 1998 - ----------------------------------- STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- In thousands Assets Investments in securities, at value (Cost $2,183,769) $ 2,180,335 Securities lending collateral 125,992 Other assets 56,631 .............. Total assets 2,362,958 .............. Liabilities Obligation to return securities lending collateral 125,992 Other liabilities 104,055 .............. Total liabilities 230,047 .............. NET ASSETS $ 2,132,911 -------------- Net Assets Consist of: Accumulated net investment income - net of distributions $ 2,885 Accumulated net realized gain/loss - net of distributions 30,877 Net unrealized gain (loss) (3,434) Paid-in-capital applicable to 238,901,149 shares of $1.00 par value capital stock outstanding; 300,000,000 shares authorized 2,102,583 .............. NET ASSETS $ 2,132,911 -------------- NET ASSET VALUE PER SHARE $ 8.93 -------------- The accompanying notes are an integral part of these financial statements. 19 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- Unaudited - ----------------------- STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- In thousands 6 Months Ended 11/30/98 Investment Income Income Interest $ 73,636 Dividend 408 .............. Total Income 74,044 .............. Expenses Investment management 4,973 Shareholder servicing 2,256 Custody and accounting 107 Prospectus and shareholder reports 74 Registration 47 Proxy and annual meeting 19 Legal and audit 10 Directors 6 Miscellaneous 5 .............. Total expenses 7,497 .............. Net investment income 66,547 .............. Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities (5,728) Futures (55) .............. Net realized gain (loss) (5,783) Change in net unrealized gain or loss on securities (33,136) .............. Net realized and unrealized gain (loss) (38,919) .............. INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 27,628 -------------- The accompanying notes are an integral part of these financial statements. 20 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- Unaudited - ---------------------------------- STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- In thousands 6 Months Year Ended Ended 11/30/98 5/31/98 Increase (Decrease) in Net Assets Operations Net investment income $ 66,547 $ 120,563 Net realized gain (loss) (5,783) 51,953 Change in net unrealized gain or loss (33,136) 22,374 ........................... Increase (decrease) in net assets from operations 27,628 194,890 ........................... Distributions to shareholders Net investment income (66,471) (120,455) Net realized gain - (8,527) ........................... Decrease in net assets from distributions (66,471) (128,982) ........................... Capital share transactions* Shares sold 225,305 525,602 Distributions reinvested 38,393 79,742 Shares redeemed (167,534) (306,392) ........................... Increase (decrease) in net assets from capital share transactions 96,164 298,952 ........................... Net Assets Increase (decrease) during period 57,321 364,860 Beginning of period 2,075,590 1,710,730 ........................... End of period $2,132,911 $ 2,075,590 --------------------------- *Share information Shares sold 25,058 58,292 Distributions reinvested 4,269 8,829 Shares redeemed (18,644) (33,981) ........................... Increase (decrease) in shares outstanding 10,683 33,140 The accompanying notes are an integral part of these financial statements. 21 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- Unaudited November 30, 1998 - ----------------------------- NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price New Income Fund, Inc. (the fund) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company and commenced operations on October 12, 1973. The accompanying financial statements are prepared in accordance with generally accepted accounting principles for the investment company industry; these principles may require the use of estimates by fund management. Valuation Debt securities are generally traded in the over-the-counter market. Investments in securities with original maturities of one year or more are stated at fair value as furnished by dealers who make markets in such securities or by an independent pricing service, which considers yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Securities with original maturities of less than one year are stated at fair value, which is determined by using a matrix system that establishes a value for each security based on money market yields. Equity securities listed or regularly traded on a securities exchange are valued at the last quoted sales price on the day the valuations are made. A security which is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day and securities regularly traded in the over-the-counter market are valued at the mean of the latest bid and asked prices. Other equity securities are valued at a price within the limits of the latest bid and asked prices deemed by the Board of Directors, or by persons delegated by the Board, best to reflect fair value. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. Assets and liabilities for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by or under the supervision of the officers of the fund, as authorized by the Board of Directors. Premiums and Discounts Premiums and discounts on debt securities, other than mortgage-backed securities (MBS), are amortized for both financial reporting and tax purposes. Premiums and discounts on all MBS are recognized upon disposition or principal repayment as gain or loss for financial reporting purposes. 22 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- For tax purposes, premiums and discounts on MBS acquired on or before June 8, 1997, are recognized upon disposition or principal repayments as ordinary income. For MBS acquired after June 8, 1997, premiums are recognized as gain or loss; discounts are recognized as gain or loss, except to the extent of accrued market discount. Other Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Dividend income and distributions to shareholders are recorded by the fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from those determined in accordance with generally accepted accounting principles. NOTE 2 - INVESTMENT TRANSACTIONS Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks or enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the fund's prospectus and Statement of Additional Information. Securities Lending The fund lends its securities to approved brokers to earn additional income and takes cash and U.S. government securities as collateral against the loans. Cash collateral received is invested in a money market pooled account by the fund's lending agent. Collateral is maintained at not less than 100% of the value of loaned securities. Although the risk is mitigated by the collateral, the fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return them. At November 30, 1998, the value of securities on loan was $124,674,000; aggregate collateral consisted of $125,992,000 in the securities lending collateral pool. Other Purchases and sales of portfolio securities, other than short-term and U.S. government securities, aggregated $414,051,000 and $474,560,000, respectively, for the six months ended November 30, 1998. Purchases and sales of U.S. government securities aggregated $619,295,000 and $532,662,000, respectively, for the six months ended November 30, 1998. 23 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 all of its taxable income. At November 30, 1998, the cost of investments for federal income tax purposes was substantially the same as for financial reporting and totaled $2,183,769,000. Net unrealized loss aggregated $3,434,000 at period end, of which $33,000,000 related to appreciated investments and $36,434,000 to depreciated investments. NOTE 4 - RELATED PARTY TRANSACTIONS The investment management agreement between the fund and T. Rowe Price Associates, Inc. (the manager) provides for an annual investment management fee, of which $812,000 was payable at November 30, 1998. The fee is computed daily and paid monthly, and consists of an individual fund fee equal to 0.15% of average daily net assets and a group fee. The group fee is based on the combined assets of certain mutual funds sponsored by the manager or Rowe Price-Fleming International, Inc. (the group). The group fee rate ranges from 0.48% for the first $1 billion of assets to 0.30% for assets in excess of $80 billion. At November 30, 1998, and for the six months then ended, the effective annual group fee rate was 0.32%. The fund pays a pro-rata share of the group fee based on the ratio of its net assets to those of the group. In addition, the fund has entered into agreements with the manager and two wholly owned subsidiaries of the manager, pursuant to which the fund receives certain other services. The manager computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc. is the fund's transfer and dividend disbursing agent and provides shareholder and administrative services to the fund. T. Rowe Price Retirement Plan Services, Inc. provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. The fund incurred expenses pursuant to these related party agreements totaling approximately $1,247,000 for the six months ended November 30, 1998, of which $206,000 was payable at period-end. Additionally, the fund is one of several T. Rowe Price-sponsored mutual funds (underlying funds) in which the T. Rowe Price Spectrum Funds (Spectrum) may invest. Spectrum does not invest in the underlying funds for the purpose of exercising management or control. Expenses associated with the operation of 24 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- Spectrum are borne by each underlying fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by Spectrum, pursuant to special servicing agreements between and among Spectrum, the underlying funds, T. Rowe Price, and, in the case of T. Rowe Price Spectrum International, Rowe Price-Fleming International. Spectrum Income Fund held approximately 34.8% of the outstanding shares of the New Income Fund at November 30, 1998. For the six months then ended, the fund was allocated $866,000 of Spectrum expenses, $187,000 of which was payable at period-end. The fund may invest in the Reserve Investment Fund and Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds are offered as cash management options only to mutual funds and other accounts managed by T. Rowe Price and 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, 1998, totaled $1,065,000 and are reflected as interest income in the accompanying Statement of Operations. 25 T. ROWE PRICE SHAREHOLDER SERVICES - -------------------------------------------------------------------------------- INVESTMENT SERVICES AND INFORMATION KNOWLEDGEABLE SERVICE REPRESENTATIVES By Phone Shareholder service representatives are available from 8 a.m. to 10 p.m. ET Monday through Friday and from 8:30 a.m. to 5 p.m. ET on weekends. Call 1-800-225-5132 to speak directly with a representative who will be able to assist you with your accounts. In Person Visit one of our investor center locations to meet with a representative who will be able to assist you with your accounts. You can also drop off applications or obtain prospectuses and other literature at these centers. AUTOMATED 24-HOUR SERVICES Tele*Access(R) Call 1-800-638-2587 to obtain information such as account balance, date and amount of your last transaction, latest dividend payment, fund prices, and yields. Additionally, you have the ability to request prospectuses, statements, and account and tax forms; to reorder checks; and to initiate purchase, redemption, and exchange orders for identically registered accounts. Internet. T. Rowe Price Web site: www.troweprice.com All the information and services available on Tele*Access are available on our Web site, including transactions in your fund and Discount Brokerage accounts (with preauthorized access). ACCOUNT SERVICES Checking Write checks for $500 or more on any money market and most bond fund accounts (except the High Yield and Emerging Markets Bond Funds). Automatic Investing Build your account over time by investing directly from your bank account or paycheck with Automatic Asset Builder. Additionally, Automatic Exchange enables you to set up systematic investments from one fund account into another, such as from a money fund into a stock fund. A $50 minimum makes it easy to get started. 26 T. ROWE PRICE SHAREHOLDER SERVICES - -------------------------------------------------------------------------------- Automatic Withdrawal If you need money from your fund account on a regular basis, you can establish scheduled, automatic redemptions. Dividend and Capital Gains Payment Options Reinvest all or some of your distributions, or take them in cash. We give you maximum flexibility and convenience. DISCOUNT BROKERAGE* Investments Available You can trade stocks, bonds, options, precious metals, mutual funds, and other securities at a savings over regular commission rates. To Open an Account Call a shareholder service representative for more information. Investment Information Combined Statement A comprehensive overview of your T. Rowe Price accounts is provided. The summary page gives you earnings by tax category, provides total portfolio value, and lists your investments by type. Detail pages itemize account transactions. Shareholder Reports Portfolio managers review the performance of the funds in plain language and discuss T. Rowe Price's economic outlook. T. Rowe Price Report This is a quarterly newsletter with relevant articles on market trends, personal financial planning, and T. Rowe Price's economic perspective. Performance Update This quarterly report reviews recent market developments and provides comprehensive performance information for every T. Rowe Price fund. Insights This library of information includes reports on mutual fund tax issues, investment strategies, and financial markets. Detailed Investment Guides Our widely acclaimed Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A Guide to International Investing, Retirees Financial Guide, and Retirement Planning Kit (also available on disk or CD-ROM for PC use) can help you determine and reach your investment goals. *A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC. 27 T. ROWE PRICE MUTUAL FUNDS - -------------------------------------------------------------------------------- Stock Funds ................................................................................ Domestic Blue Chip Growth Capital Appreciation Capital Opportunity Diversified Small-Cap Growth Dividend Growth Equity Income Equity Index 500* Extended Equity Market Index Financial Services Growth & Income Growth Stock Health Sciences Media & Telecommunications Mid-Cap Growth Mid-Cap Value New America Growth New Era New Horizons** Real Estate Science & Technology Small-Cap Stock Small-Cap Value Spectrum Growth Total Equity Market Index Value International/Global Emerging Markets Stock European Stock Global Stock International Discovery International Stock Japan Latin America New Asia Spectrum International Bond Funds ................................................................................ Domestic Taxable Corporate Income GNMA High Yield New Income Short-Term Bond Short-Term U.S. Government Spectrum Income Summit GNMA Summit Limited-Term Bond U.S. Treasury Intermediate U.S. Treasury Long-Term Domestic Tax-Free California Tax-Free Bond Florida Intermediate Tax-Free*** Georgia Tax-Free Bond Maryland Short-Term Tax-Free Bond Maryland Tax-Free Bond New Jersey Tax-Free Bond New York Tax-Free Bond Summit Municipal Income Summit Municipal Intermediate Tax-Free High Yield Tax-Free Income Tax-Free Intermediate Bond+ Tax-Free Short-Intermediate Virginia Short-Term Tax-Free Bond Virginia Tax-Free Bond International/Global Emerging Markets Bond Global Bond++ International Bond Money Market FUNDS+++ ................................................................................ Taxable Prime Reserve Summit Cash Reserves U.S. Treasury Money Tax-Free California Tax-Free Money New York Tax-Free Money Summit Municipal Money Market Tax-Exempt Money Blended Asset FUNDS ................................................................................ Balanced Personal Strategy Balanced Personal Strategy Growth Personal Strategy Income Tax-Efficient Balanced T. Rowe Price No-Load Variable Annuity ................................................................................ Equity Income Portfolio International Stock Portfolio Limited-Term Bond Portfolio Mid-Cap Growth Portfolio New America Growth Portfolio Personal Strategy Balanced Portfolio Prime Reserve Portfolio *Formerly named Equity Index. **Closed to new investors. ***Formerly named Florida Insured Intermediate Tax-Free. +Formerly named Tax-Free Insured Intermediate Bond. ++Formerly named Global Government Bond. +++Neither the funds nor their share prices are insured or guaranteed by the U.S. government. Please call for a prospectus. Read it carefully before investing. The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by First Security Benefit Life Insurance Company of New York, White Plains, NY. T. Rowe Price refers to the underlying portfolios' investment managers and the distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security Benefit Group of Companies and the T. Rowe Price companies are not affiliated. The variable annuity may not be available in all states. The contract has limitations. Call a representative for costs and complete details of the coverage. 28 T. ROWE PRICE NEW INCOME FUND - -------------------------------------------------------------------------------- - ----------------------------------------------------------------- ANNUAL MEETING RESULTS - -------------------------------------------------------------------------------- The New Income Fund held an annual meeting on October 15, 1998, to elect directors of the fund, to ratify the Board of Directors' selection of PricewaterhouseCoopers L.L.P. as the fund's independent accountants, and to amend the fund's Articles of Incorporation. The results of voting were as follows (by number of shares): For nominees to the Board of Directors of the New Income Fund: Calvin W. Burnett In favor:141,764,177.243 Withheld: 1,973,139.316 Anthony W. Deering In favor:142,034,230.368 Withheld: 1,703,086.191 F. Pierce Linaweaver In favor:141,864,386.415 Withheld: 1,872,930.144 William T. Reynolds In favor:142,150,158.457 Withheld: 1,587,158.102 James S. Riepe In favor:142,092,642.061 Withheld: 1,644,674.498 John G. Schreiber In favor:142,196,746.548 Withheld: 1,540,570.011 M. David Testa In favor:142,130,399.670 Withheld: 1,606,916.889 For PricewaterhouseCoopers L.L.P. as independent accountants: In favor:141,654,766.219 Withheld: 645,049.395 Abstained: 1,437,500.945 To amend the Articles of Incorporation to authorize creation of different classes and series and to conform the provisions describing classes and series to those standard for other T. Rowe Price funds: In favor:129,583,224.561 Against: 8,621,840.138 Abstained: 4,527,187.860 Broker Non-Votes: 1,005,064.000 29 For yield, price, last transaction, current balance, or to conduct transactions, 24 hours, 7 days a week, call Tele*Access(R): 1-800-638-2587 toll free For assistance with your existing fund account, call: Shareholder Service Center 1-800-225-5132 toll free 410-625-6500 Baltimore area To open a Discount Brokerage account or obtain information, call: 1-800-638-5660 toll free Internet address: www.troweprice.com T. Rowe Price Associates 100 East Pratt Street Baltimore, Maryland 21202 This report is authorized for distribution only to shareholders and to others who have received a copy of the prospectus of the T. Rowe Price New Income Fund(R). Investor Centers: 101 East Lombard St. Baltimore, MD 21202 T. Rowe Price Financial Center 10090 Red Run Blvd. Owings Mills, MD 21117 Farragut Square 900 17th Street, N.W. Washington, D.C. 20006 ARCO Tower 31st Floor 515 South Flower St. Los Angeles, CA 90071 4200 West Cypress St. 10th Floor Tampa, FL 33607 [LOGO OF T. ROWE PRICE APPEARS HERE] T. Rowe Price Investment Services, Inc., Distributor. F43-051 11/30/98
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