Item 1. Report to Shareholders
T. Rowe Price New Income Fund
- --------------------------------------------------------------------------------
November 30, 2003
Certified Semiannual Report
This report is certified under the Sarbanes-Oxley Act of 2002, which requires
that public companies, including mutual funds, affirm that the information
provided in their annual and semiannual shareholder reports fully and fairly
represents their financial position.
T. Rowe Price New Income Fund
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Certified Semiannual Report (Unaudited)
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
New Income class
6 Months Year
Ended Ended
11/30/03 5/31/03 5/31/02 5/31/01 5/31/00 5/31/99
NET ASSET VALUE
Beginning
of period $ 9.21 $ 8.70 $ 8.53 $ 8.07 $ 8.50 $ 9.09
Investment
activities
Net investment
income (loss) 0.15 0.37 0.47 0.53 0.52 0.54
Net realized
and unrealized
gain (loss) (0.22) 0.52 0.17 0.46 (0.43) (0.45)
Total from
investment
activities (0.07) 0.89 0.64 0.99 0.09 0.09
Distributions
Net investment
activities (0.16) (0.38) (0.47) (0.53) (0.52) (0.54)
Net realized
gain -- -- -- -- -- (0.14)
Total
distributions (0.16) (0.38) (0.47) (0.53) (0.52) (0.68)
NET ASSET VALUE
End of period $ 8.98 $ 9.21 $ 8.70 $ 8.53 $ 8.07 $ 8.50
--------------------------------------------------------------
Ratios/Supplemental Data
Total return^ (0.80)% 10.52% 7.68% 12.54% 1.13% 1.02%
Ratio of total
expenses to
average
net assets 0.72%! 0.74% 0.72% 0.73% 0.73% 0.72%
Ratio of net
investment
income (loss)
to average
net assets 3.34%! 4.23% 5.38% 6.30% 6.32% 6.16%
Portfolio
turnover rate 245.7%! 221.2% 222.0% 112.1% 83.6% 94.3%
Net assets,
end of period
(in millions) $ 2,261 $ 2,266 $ 1,863 $ 1,684 $1 ,633 $ 1,942
^ 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.
T. Rowe Price New Income Fund
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Certified Semiannual Report (Unaudited)
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Advisor Class
6 Months 9/30/02
Ended Through
11/30/03 5/31/03
NET ASSET VALUE
Beginning of period $ 9.21 $ 8.84
Investment activities
Net investment
income (loss) 0.15* 0.23*
Net realized and
unrealized gain (loss) (0.23) 0.38
Total from investment
activities (0.08) 0.61
Distributions
Net investment income (0.15) (0.24)
NET ASSET VALUE
End of period $ 8.98 $ 9.21
------------------------------------
Ratios/Supplemental Data
Total return^ (0.88)%* 7.02%*
Ratio of total expenses
to average net assets 0.90%!* 0.90%!*
Ratio of net investment
income (loss) to average
net assets 3.13%!* 2.61%!*
Portfolio turnover rate 245.7%! 221.2%
Net assets, end of period
(in thousands) $ 137 $ 107
* Excludes expenses in excess of a 0.90% contractual expense limitation in
effect through 9/30/04.
^ 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.
T. Rowe Price New Income Fund
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Certified Semiannual Report (Unaudited)
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
R Class
6 Months 9/30/02
Ended Through
11/30/03 5/31/03
NET ASSET VALUE
Beginning of period $ 9.21 $ 8.84
Investment activities
Net investment income (loss) 0.26*++ 0.22*
Net realized and
unrealized gain (loss) (0.34)++ 0.38
Total from investment activities (0.08) 0.60
Distributions
Net investment income (0.14) (0.23)
NET ASSET VALUE
End of period $ 8.99 $ 9.21
------------------------------------
Ratios/Supplemental Data
Total return^ (0.90)%* 6.84%*
Ratio of total expenses to
average net assets 1.15%!* 1.15%!*
Ratio of net investment
income (loss) to average
net assets 2.39%!* 2.32%!*
Portfolio turnover rate 245.7%! 221.2%
Net assets, end of period
(in thousands) $ 2,816 $ 321
* 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. The 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.
T. Rowe Price New Income Fund
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Certified Semiannual Report (Unaudited) November 30, 2003
Portfolio of Investments (ss.) Par/Shares Value
- --------------------------------------------------------------------------------
($ 000s)
CORPORATE BONDS AND NOTES 25.5%
Aerospace & Defense 0.1%
Boeing,8.75%,8/15/21 2,425 3,068
3,068
Automobiles and Related 1.6%
DaimlerChrysler,6.50%,11/15/13 7,845 8,084
Ford Motor Credit,6.50%,1/25/07 10,915 11,454
General Motors, 8.375%,7/15/33 5,885 6,395
GMAC,5.85%,1/14/09 7,520 7,812
Hertz,4.70%, 10/2/06 2,170 2,162
35,907
Banking 1.3%
Bank One,5.25%,1/30/13 5,300 5,421
Capital One Bank,4.25%,12/1/08 4,500 4,455
Citigroup,5.625%,8/27/12 5,300 5,568
First Union,6.40%,4/1/08 2,215 2,453
HBOS, 144A,6.00%,11/1/33 4,300 4,216
J.P. Morgan Chase, 5.75%,1/2/13 4,900 5,141
Union Planters,4.375%, 12/1/10 3,070 3,024
30,278
Beverages 0.4%
Bottling Group,4.625%,11/15/12 4,675 4,621
Coca-Cola Enterprises,6.125%,8/15/11 4,500 4,938
9,559
Broadcasting 0.5%
AOL Time Warner,7.625%,4/15/31 4,415 4,989
Hearst-Argyle Television,7.00%,1/15/18 3,685 4,026
Univision Communications,2.875%,10/15/06 2,540 2,520
11,535
Cable Operators 0.7%
Clear Channel
Communications,4.625%,1/15/08 4,190 4,300
Comcast
5.50%, 3/15/11 1,500 1,544
5.85%, 1/15/10 8,450 8,936
14,780
Computer Service
& Software 0.2%
IBM,4.25%,9/15/09 5,155 5,231
5,231
Conglomerates 0.9%
GE Capital
3.50%, 5/1/08 5,860 5,830
6.00%, 6/15/12 9,800 10,540
Hutchison Whampoa,
144A,5.45%,11/24/10 3,235 3,212
19,582
Consumer Products 0.3%
Masco,5.875%,7/15/12 5,190 5,525
5,525
Container 0.2%
Sealed Air, 144A,
5.375%,4/15/08 5,200 5,410
5,410
Diversified Chemicals 0.2%
Dow Chemical, 6.125%, 2/1/11 3,225 3,426
3,426
Electric Utilities 3.2%
American Electric Power,
Series C, 5.375%, 3/15/10 3,095 3,207
Appalachian Power, Series E,
4.80%,6/15/05 5,115 5,287
Black Hills, 6.50%, 5/15/13 5,160 5,230
ComEd Financing III,
6.35%, 3/15/33 2,100 2,037
DPL, 6.875%, 9/1/11 2,000 2,087
Entergy Gulf States,
5.20%, 12/3/07 4,675 4,755
FirstEnergy, 5.50%, 11/15/06 6,925 7,195
Florida Power & Light,
5.95%, 10/1/33 3,325 3,366
Noram Energy, 6.50%, 2/1/08 2,247 2,403
Ohio Edison, 144A,
4.00%, 5/1/08 2,300 2,259
Pinnacle West Capital,
6.40%, 4/1/06 4,165 4,448
Potomac Electric Power,
3.75%, 2/15/06 4,125 4,170
PSEG Power
6.875%, 4/15/06 1,930 2,100
8.625%, 4/15/31 2,605 3,340
Public Service of
New Mexico,4.40%,9/15/08 4,320 4,361
Sempra Energy, 6.00%,
2/1/13 4,780 5,007
Tri-State Generation &
Transmission Assn.,
144A, 6.04%, 1/31/18 2,850 2,919
TXU Energy, 7.00%,
3/15/13 5,120 5,631
WPD Holdings, 144A,
6.875%, 12/15/07 2,690 2,761
72,563
Electronic Components 0.1%
Motorola, 6.75%, 2/1/06 2,665 2,848
2,848
Energy 0.6%
Petroleos de Venezuela
(PDVSA) Finance, 6.80%,
11/15/08 4,705 4,376
Transocean Sedco Forex,
7.50%, 4/15/31 2,960 3,368
YPF Sociedad Anonima,
10.00%, 11/2/28 4,660 4,963
12,707
Entertainment and Leisure 0.1%
Viacom, 5.625%, 8/15/12 2,805 2,962
2,962
Exploration and Production 0.5%
Canadian Natural Resources,
7.20%, 1/15/32 5,200 5,901
Kaneb Pipe Line Operating
5.875%, 6/1/13 2,900 2,861
7.75%, 2/15/12 2,900 3,215
11,977
Finance and Credit 1.8%
CIT Group, 7.75%, 4/2/12 6,805 7,973
Colonial Bank, 9.375%, 6/1/11 3,980 4,478
Countrywide Home Loans, 5.50%,
2/1/07 3,860 4,110
Household Finance
5.75%, 1/30/07 2,925 3,132
6.375%, 11/27/12 1,550 1,683
International Lease Finance,
6.375%, 3/15/09 5,520 6,089
Northern Trust, 4.60%,
2/1/13 3,075 3,010
PHH Corporation, 7.125%,
3/1/13 3,475 3,873
SLM Corporation, 4.00%,
1/15/09 5,600 5,572
39,920
Food Processing 0.6%
McCormick, 6.40%, 2/1/06 7,300 7,864
Unilever, 5.90%, 11/15/32 5,035 5,020
12,884
Food/Tobacco 0.3%
UST, 6.625%, 7/15/12 5,400 5,938
5,938
Gas & Gas Transmission 0.6%
Buckeye Partners, 144A, 6.75%,
8/15/33 2,140 2,209
Duke Capital, 7.50%, 10/1/09 4,250 4,797
Kinder Morgan, 6.50%, 9/1/12 5,000 5,449
Panhandle Eastern Pipe Line,
144A, 4.80%, 8/15/08 2,055 2,089
14,544
Healthcare Services 0.1%
Highmark, 144A, 6.80%,
8/15/13 2,265 2,446
2,446
Insurance 2.5%
AIG Sunamerica Global
Financing XII, 144A, 5.30%,
5/30/07 6,070 6,448
Allstate Financial Global
Funding, 144A, 5.25%, 2/1/07 5,200 5,516
Cigna, 7.40%, 5/15/07 2,000 2,198
Fund American Companies,
5.875%, 5/15/13 2,185 2,172
Jefferson Pilot, 144A,
8.14%, 1/15/46 3,000 3,293
Mangrove Bay Trust, 144A,
6.102%, 7/15/13 2,500 2,468
Marsh & McLennan, 3.625%,
2/15/08 2,250 2,240
Nationwide Financial
Services, 5.90%, 7/1/12 6,535 6,864
NLV Financial, 144A,
7.50%, 8/15/33 2,175 2,211
Principal Life Global,
144A, 5.25%, 1/15/13 4,900 4,929
Prudential, 3.75%, 5/1/08 4,520 4,491
Security Benefit, 144A,
7.45%, 10/1/33 2,150 2,142
Sun Life of Canada U.S.
Capital Trust, 144A, 8.526%,
5/29/49 7,000 7,930
XL Capital Finance, 6.50%,
1/15/12 4,070 4,415
57,317
Investment Dealers 0.8%
Franklin Resources, 3.70%,
4/15/08 1,650 1,642
Goldman Sachs Group
4.125%, 1/15/08 7,025 7,168
6.125%, 2/15/33 2,065 2,058
Lehman Brothers, 4.00%,
1/22/08 3,045 3,082
Morgan Stanley, 3.625%,
4/1/08 3,165 3,147
17,097
Long Distance 0.4%
Sprint, 6.375%, 5/1/09 8,300 8,786
8,786
Manufacturing 0.3%
John Deere Capital,
7.00%, 3/15/12 5,250 6,025
6,025
Media and Communications 0.6%
Cox Enterprises,
144A, 4.375%, 5/1/08 5,500 5,552
Liberty Media, VR,
2.64%, 12/17/03 2,175 2,203
News America
6.55%, 3/15/33 1,260 1,303
6.75%, 1/9/38 1,705 1,907
7.625%, 11/30/28 2,160 2,499
13,464
Metals and Mining 0.6%
BHP Finance, 4.80%,
4/15/13 4,240 4,219
Falconbridge Limited,
7.35%, 6/5/12 5,100 5,732
WMC Finance USA,
5.125%, 5/15/13 2,975 2,892
12,843
Paper and Paper Products 0.8%
Celulosa Arauco Y
Constitucion, 8.625%,
8/15/10 7,500 8,890
SCA Coordination Center,
144A, 4.50%, 7/15/15 3,425 3,185
Weyerhaeuser, 6.75%, 3/15/12 4,850 5,226
17,301
Petroleum 0.9%
ConocoPhillips, 5.90%,
10/15/32 4,560 4,552
Devon Financing, 6.875%,
9/30/11 4,035 4,532
Occidental Petroleum,
4.25%, 3/15/10 2,125 2,111
Pemex Project Funding
Master Trust, 7.375%,
12/15/14 5,970 6,306
PF Export Receivables
Master Trust, 144A, 6.436%,
6/1/15 2,865 2,782
20,283
Railroads 0.7%
Canadian National
Railway, 4.40%, 3/15/13 3,980 3,803
Norfolk Southern, 6.00%,
4/30/08 6,175 6,657
Union Pacific, 6.50%,
4/15/12 5,020 5,545
16,005
Savings and Loan 0.2%
Washington Mutual,
2.40%, 11/3/05 4,560 4,547
4,547
Services 0.2%
Waste Management,
6.375%, 11/15/12 4,000 4,346
4,346
Specialty Chemicals 0.2%
Chevron Phillips
Chemical, 5.375%,
6/15/07 3,935 4,138
4,138
Specialty Retailers 0.5%
AutoZone, 4.75%,
11/15/10 3,535 3,551
Lowes, 6.50%,
3/15/29 4,000 4,290
Office Depot, 6.25%,
8/15/13 4,145 4,273
12,114
Supermarkets 0.2%
Fred Meyer, 7.45%,
3/1/08 4,635 5,252
5,252
Telephones 1.9%
British Telecommunications,
VR, 8.375%, 12/15/10 4,300 5,157
Citizens Communications,
9.00%, 8/15/31 3,540 4,612
Deutsche Telekom, 5.25%,
7/22/13 4,300 4,272
France Telecom, VR, 9.25%,
3/1/11 2,100 2,506
Royal Koninkljke KPN,
8.00%, 10/1/10 5,000 5,931
Telecom Italia, Series C,
144A, 6.375%, 11/15/33 4,035 3,999
Telefonos de Mexico (Telmex),
144A, 4.50%, 11/19/08 2,480 2,477
Telus Corporation, 7.50%,
6/1/07 3,200 3,552
Verizon Florida, 6.125%,
1/15/13 3,080 3,272
Verizon Global Funding,
7.75%, 12/1/30 4,155 4,775
Verizon Virginia, 4.625%,
3/15/13 3,090 2,955
43,508
Wireless Communications 0.4%
AT&T Wireless Group,
8.75%, 3/1/31 3,530 4,139
AT&T Wireless Services,
7.875%, 3/1/11 3,450 3,896
INTELSAT, 144A, 5.25%,
11/1/08 1,885 1,919
9,954
Total Corporate Bonds
and Notes (Cost $557,468) 576,070
ASSET-BACKED SECURITIES 5.1%
Auto-Backed 1.3%
Capital Auto Receivables
Asset Trust, Series 2002-2,
Class CERT, 4.18%, 10/15/07 7,255 7,391
Chase Manhattan Auto Owner Trust
Series 2001-B,
Class CTFS, 3.75%, 5/15/08 3,583 3,637
Series 2003-A,
Class A4, 2.06%, 12/15/09 9,125 8,895
Hyundai Auto Receivables Trust
Series 2003 A,
Class A4, 3.02%, 10/15/10 4,950 4,911
Series 2003 A,
Class D, 4.06%, 10/15/10 2,050 2,033
SSB Auto Loan Trust, Series
2002-1, Class C, 4.13%, 2/15/09 2,639 2,669
29,536
Credit Card-Backed 2.8%
Citibank Credit Card Issuance Trust
Series 2001-C1,
Class C1, VR, 2.23%, 2/9/04 6,035 6,073
Series 2002-C1,
Class C1, VR, 2.16%, 2/9/04 12,715 12,754
Series 2000-C1,
Class C1, 7.45%, 9/15/07 11,075 11,921
MBNA Credit Card Master Note Trust,
Series 2001-C2, Class C2, 144A,
VR, 2.27%, 12/15/10 11,300 11,457
MBNA Master Credit Card Trust,
Series 2000-D, Class C, 144A,
VR, 8.40%, 9/15/09 10,075 11,445
World Financial Network,
Series 2003-A, Class A2, VR,
1.49%, 12/15/03 10,925 10,929
64,579
Motorcycles 0.4%
Harley-Davidson Motorcycle Trust,
Series 2003-3, Class B,
2.28%, 12/15/03 8,096 8,085
8,085
Recreational Vehicles 0.2%
CIT RV Trust, Series 1997-A,
Class A6, 6.35%, 4/15/11 4,274 4,366
4,366
Stranded Asset 0.4%
Reliant Energy Transition Bond,
Series 2001-1, Class A4,
5.63%, 9/15/15 8,572 9,077
9,077
Total Asset-Backed Securities
(Cost $114,181) 115,643
EQUITY AND CONVERTIBLE SECURITIES 1.7%
Bank and Trust 0.7%
AmSouth,
Common Stock 60 1,439
Bank of America,
Common Stock 9 641
BB&T, Common Stock 37 1,456
Charter One Financial,
Common Stock 45 1,495
Citizens Banking,
Common Stock 23 735
FleetBoston Financial,
Common Stock 22 893
KeyCorp,
Common Stock 55 1,529
National City,
Common Stock 45 1,510
PNC Financial Services Group,
Common Stock 30 1,631
Regions Financial,
Common Stock 40 1,484
U.S. Bancorp,
Common Stock 55 1,524
Union Planters,
Common Stock 45 1,553
15,890
Building and Real Estate 0.4%
CarrAmerica Realty, REIT 60 1,745
Equity Office
Properties Trust,
Series B, REIT, Pfd.
Conv. Stock, 5.25% 54 2,654
Reckson Associates Realty,
Series A, REIT, Pfd. Conv.
Stock, 7.625% 90 2,238
Vornado Realty Trust, REIT 33 1,805
Weingarten Realty Investors,
REIT 39 1,758
10,200
Computer Service & Software 0.0%
Juniper Networks, Conv. Notes,
4.75%, 3/15/07 446 457
457
Electric Utilities 0.1%
PPL Energy, Conv. Notes,
144A, 2.625%, 5/15/08 1,572 1,553
1,553
Financial Services 0.1%
Citigroup,
Common Stock 25 1,176
1,176
Integrated Petroleum - International 0.3%
BP, ADR 49 2,083
ChevronTexaco,
Common Stock 28 2,103
Royal Dutch Petroleum,
ADS 47 2,093
6,279
Media and Communications 0.0%
Liberty Media/Sprint PCS,
Conv. Notes, 4.00%, 11/15/29 985 672
672
Telephones 0.1%
SBC Communications,
Common Stock 86 2,002
2,002
Total Equity and Convertible
Securities (Cost $37,211) 38,229
NON-U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES
7.4%
Commercial Mortgage-Backed 5.0%
Banc of America, Series 2003-1,
Class A2, CMO, 4.648%, 9/11/36 11,450 11,264
Bear Stearns, Series 2002-TOP8,
Class A2, CMO, 4.83%, 8/15/38 8,210 8,256
DLJ Commercial Mortgage, Series
1999-CG2, Class A1B, CMO, 7.30%,
6/10/32 13,000 14,974
GE Capital, Series 2001-1, Class
A2, CMO, 6.531%, 5/15/33 11,300 12,644
J.P. Morgan Chase
Series 1999-C7, Class A2,
CMO, 6.507%, 10/15/35 9,500 10,470
Series 1999-PLS1, Class A2,
CMO, 7.313%, 12/1/03 19,203 21,768
Series 2001-CIB2, Class A2,
CMO, 6.244%, 4/15/35 6,750 7,391
Morgan Stanley, Series 2002,
Class A2, CMO, 5.98%, 1/15/39 9,400 10,184
Prudential Securities
Secured Financing,
Series 1999, Class A1,
CMO, 6.074%, 1/15/08 5,229 5,516
Salomon Brothers
Mortgage Securities VII,
Series 2001-C1, Class
A2, CMO, 6.226%, 12/18/35 10,875 11,842
114,309
Home Equity Loans-Backed 2.0%
BankBoston Home
Equity Loan Trust,
Series 1998-1, Class A6,
6.35%, 2/25/13 4,570 4,734
Chase Funding Mortgage Loan
Series 1998-1, Class 1M1, 6.59%, 5/25/28 2,123 2,198
Series 2002-1, Class 1A3, 5.039%, 12/25/23 10,675 10,829
Series 2002-2, Class 1M1, 5.599%, 9/25/31 1,750 1,797
Series 2002-3, Class 1A6, 4.707%, 8/25/13 5,365 5,476
Series 2003-1, Class 1A6, 4.458%, 3/25/14 5,960 5,908
Series 2003-3, Class 1M1, 4.537%, 9/25/32 4,400 4,139
Countrywide Asset-Backed
Certificates, Series 2003-5,
Class AF-3, 3.613%, 4/25/30 7,925 7,945
Mellon Residential Funding,
Series 2001-HEIL, Class A3,
5.945%, 2/25/11 1,599 1,599
44,625
Whole Loans-Backed 0.4%
Residential Accredit Loans
Series 1997-QS12, Class
A7, CMO, 7.25%, 11/25/27 1,352 1,376
Series 1998-QS9, Class A11,
CMO, 6.75%, 7/25/28 496 496
Summit Mortgage Trust,
Series 2002, Class A2,
CMO, 144A, 6.259%, 12/1/03 7,450 7,466
9,338
Total Non-U.S. Government
Mortgage-Backed Securities (Cost $168,293) 168,272
U.S. GOVERNMENT & AGENCY MORTGAGE-BACKED
SECURITIES 28.3%
U.S. Government Agency Obligations
(misc. symbol1) 19.4%
Federal Home Loan Mortgage
5.00%, 1/1/09 - 11/1/18 72,341 73,423
5.50%, 4/1/29 930 945
6.50%, 5/1/17 - 5/1/24 9,715 10,230
7.00%, 2/1/24 - 6/1/32 8,497 8,978
7.50%, 5/1 - 6/1/24 511 551
8.00%, 6/1/08 0 0
10.50%, 3/1/13 - 8/1/20 45 48
11.00%, 11/1/17 - 7/1/20 22 25
ARM, 4.641%, 12/1/03 6,040 6,091
CMO
4.50%, 3/15/16 31,450 31,586
5.50%, 4/15/28 21,750 22,190
6.50%, 3/15/23 10,810 11,328
Principal Only, 8/1/28 998 884
IO, 4.50%, 6/15/11 - 4/15/18 34,628 4,067
TBA, 6.00%, 1/1/32 51,200 52,480
Federal National Mortgage Assn.
5.00%, 1/1/09 1,318 1,348
5.50%, 2/1/17 - 11/1/33 47,794 48,974
6.00%, 4/1/14 - 2/1/33 2,778 2,881
6.50%, 6/1/13 - 7/1/32 15,122 15,826
7.00%, 10/1/29 - 11/1/30 290 306
CMO
2.91%, 11/25/33 6,325 6,232
5.00%, 3/25/15 15,800 16,149
5.50%, 5/25/28 18,925 19,385
IO, 5.50%, 11/25/28 8,491 991
IO, 6.50%, 2/1/32 4,136 739
TBA
4.50%, 1/1/18 22,450 22,310
5.50%, 1/1/18 - 1/1/32 46,408 47,103
6.00%, 1/1/33 33,413 34,342
439,412
U.S. Government Obligations 8.9%
Government National Mortgage Assn.
4.00%, 9/15 - 11/15/18 22,550 21,887
5.00%, 9/20/33 20,695 20,314
6.00%, 2/15/14 - 4/20/33 54,291 56,514
6.50%, 8/15/25 - 9/20/32 8,100 8,533
7.00%, 3/15/13 - 11/20/28 14,658 15,688
7.50%, 8/15/16 - 8/15/28 3,046 3,277
8.00%, 7/15/16 - 10/15/27 8,991 9,792
8.50%, 9/15/16 - 9/20/26 1,767 1,947
9.00%, 1/15/09 - 11/15/19 389 433
9.50%, 6/15/09 - 2/15/25 100 109
10.25%, 9/15/19 - 11/15/20 205 230
11.00%, 12/15/09 - 6/15/19 2,447 2,732
11.50%, 3/15/10 - 10/15/15 329 371
CMO, Principal Only,
3/16/28 1,821 1,531
TBA, 5.50%, 1/1/32 57,100 57,618
200,976
Total U.S. Government
& Agency Mortgage-Backed
Securities (Cost $636,708) 640,388
U.S. GOVERNMENT & AGENCY OBLIGATIONS
(EXCLUDING MORTGAGE-BACKED) 17.7%
U.S. Government Agency Obligations
(misc. symbol1) 3.1%
Federal Home Loan Mortgage
4.75%, 10/11/12 10,000 9,839
6.875%, 1/15/05 4,750 5,024
Federal National Mortgage Assn.
4.25%, 7/15/07 20,000 20,740
5.125%, 1/2/14 3,960 3,951
5.75%, 2/15/08 15,045 16,414
7.125%, 1/15/30 11,300 13,452
69,420
U.S. Treasury Obligations 14.6%
U.S. Treasury Bonds
5.375%, 2/15/31 5,425 5,617
6.00%, 2/15/26 6,515 7,160
6.25%, 8/15/23 - 5/15/30 ++ 30,100 34,022
6.50%, 11/15/26 29,650 34,589
7.50%, 11/15/16 21,100 26,678
U.S. Treasury
Inflation-Indexed Notes,
1.875%, 7/15/13 33,529 33,152
U.S. Treasury Notes
2.125%, 8/31/04 30,660 30,861
3.25%, 5/31/04 21,570 21,799
3.875%, 2/15/13 10,780 10,482
4.25%, 8/15 - 11/15/13 15,485 15,393
5.875%, 11/15/04 86,420 90,066
6.50%, 8/15/05 8,320 8,971
U.S. Treasury Stripped
Interest Payment,
Zero Coupon, 5/15/20 32,250 13,172
331,962
Total U.S. Government & Agency Obligations
(Excluding Mortgage-Backed)
(Cost $394,764) 401,382
FOREIGN GOVERNMENT OBLIGATIONS/AGENCIES 8.9%
Canadian Government and Municipalities 4.7%
Government of Canada
3.50%, 6/1/04 (CAD) 27,125 20,992
5.50%, 6/1/09 (CAD) 24,820 20,228
6.00%, 9/1/05 (CAD) 81,150 65,589
106,809
Foreign Government and Municipalities
(Excluding Canadian) 4.2%
Asian Developement Bank,
6.25%, 6/15/11 (AUD) 16,075 11,647
Bundesrepublic, 5.00%,
1/4/12 (EUR) 11,300 14,201
European Investment Bank,
6.00%, 7/15/05 (AUD) 16,850 12,253
Federal Republic of Germany,
5.00%, 5/20/05 (EUR) 18,600
23,043
Republic of Chile,
5.50%, 1/15/13 4,710 4,835
United Kingdom Treasury,
5.00%, 3/7/08 (GBP) 13,500 23,353
United Mexican States,
6.375%, 1/16/13 5,800 5,968
95,300
Total Foreign Government
Obligations/Agencies (Cost $174,763) 202,109
MUNICIPAL BONDS 0.4%
California, GO, 5.50%,
11/1/33 2,500 2,571
Illinois, GO, 5.10%,
6/1/33 4,000 3,635
Oregon, GO, 5.892%,
6/1/27 1,640 1,669
Total Municipal Bonds
(Cost $8,170) 7,875
INTEREST RATE SWAP AGREEMENTS 0.0%
Morgan Stanley
Pay 3.955% Fixed, Receive 3 month LIBOR
(currently 1.17%) 11/12/08 20,000 (235)
Total Interest Rate Swaps
(Premium Paid $0) (235)
MONEY MARKET FUNDS 13.5%
T. Rowe Price Reserve
Investment Fund,1.12%#! 305,717 305,717
Total Money Market Funds (Cost $305,717) 305,717
SECURITIES LENDING COLLATERAL 11.7%
Money Market Trust 11.7%
State Street Bank
and Trust Company
of New Hampshire N.A.
Securities Lending
Quality Trust units 264,826 264,826
Total Securities Lending
Collateral (Cost $264,826) 264,826
Total Investments in Securities
120.2% of Net Assets (Cost $2,662,101) $2,720,276
----------
Forward Currency Exchange Contracts
Amounts in (000s)
Unrealized
Counterparty Settlement Receive Deliver Gain (Loss)
- ------------- ---------- ----------- ----------- -----------
Credit Suisse
First Boston 12/9/03 USD 13,470 CAD 17,978 $ (381)
Credit Suisse
First Boston 12/9/03 USD 10,670 EUR 9,085 (226)
Credit Suisse
First Boston 12/9/03 USD 18,675 EUR 16,000 (515)
Morgan
Stanley 12/9/03 CAD 29,000 USD 21,887 456
Morgan
Stanley 12/9/03 USD 30,128 CAD 40,210 (852)
Morgan
Stanley 12/9/03 EUR 2,000 USD 2,296 103
Morgan
Stanley 12/9/03 USD 16,450 EUR 14,000 (341)
Royal Bank
of Canada 12/9/03 USD 4,761 CAD 6,350 (131)
Net unrealized gain (loss) on open
forward currency exchange contracts $ (1,887)
Futures Contracts
($ 000s)
Contract Unrealized
Expiration Value Gain (Loss)
--------- -------- -----------
Long, 209 thirty year
U.S. Treasury contracts,
$1,075 par of U.S. Treasury
Bonds pledged as
initial margin 12/03 $ 22,840 $ 772
Short, 302 five year
U.S. Treasury contracts,
$350 par of U.S. Treasury
Bonds pledged as
initial margin 12/03 (33,720) (730)
Net payments (receipts)
of variation
margin to date (96)
Variation margin receivable
(payable) on open futures
contracts $ (54)
ss Denominated in USD unless otherwise noted
# Seven-day yield
(misc. symbol1) The issuer is a publicly-traded company that operates under a
congressional charter; its securities are neither issued nor guaranteed by
the U.S. government.
++ All or a portion of this security is pledged to cover margin requirements
on futures contracts at November 30, 2003 .
! Affiliated company--See Note 2.
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 $114,293,000 and represents 5.0% of net assets.
ADR American Depository Receipts
ADS American Depository Shares
ARM Adjustable Rate Mortgage
AUD Australian dollar
CAD Canadian dollar
CMO Collateralized Mortgage Obligation
EUR Euro
GBP British pound
GO General Obligation
IO Interest Only security for which the fund receives interest on notional
principal (par)
REIT Real Estate Investment Trust
TBA To Be Announced security was purchased on a forward commitment basis
USD United States dollar
VR Variable Rate
The accompanying notes are an integral part of these financial statements.
T. Rowe Price New Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report (Unaudited) November 30, 2003
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value
Affiliated companies (cost $305,717) $ 305,717
Other companies (cost $ 2,356,384) 2,414,559
Total investments in securities 2,720,276
Other assets 125,174
Total assets 2,845,450
Liabilities
Payable for investment
securities purchased 312,387
Obligation to return
securities lending collateral 264,826
Other liabilities 4,624
Total liabilities 581,837
NET ASSETS $ 2,263,613
---------
Net Assets Consist of:
Undistributed net
investment income (loss) $ (547)
Undistributed net
realized gain (loss) (35,773)
Net unrealized gain (loss) 56,496
Paid-in-capital applicable to
251,941,303 shares of $1.00
par value capital stock outstanding;
300,000,000 shares authorized 2,243,437
NET ASSETS $ 2,263,613
---------
NET ASSET VALUE PER SHARE
New Income class
($2,260,660,779/251,612,883 shares outstanding) $ 8.98
----------------
Advisor Class
($136,516/15,196 shares outstanding) $ 8.98
----------------
R Class
($2,815,685/313,224 shares outstanding) $ 8.99
----------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price New Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report (Unaudited)
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
11/30/03
Investment Income (Loss)
Income
Interest $ 42,264
Dividend 2,858
Securities lending 268
Total income 45,390
Expenses
Investment management 5,238
Shareholder servicing
New Income class 2,442
Advisor class --
R Class 1
Custody and accounting 186
Registration 100
Prospectus and shareholder reports
New Income class 76
Advisor Class 1
R Class 1
Legal and audit 15
Directors 6
Distribution and service (12b-1)
Advisor Class --
R Class 2
Miscellaneous 8
Reductions/repayments pursuant to expense limitation
Expenses (reimbursed by) repaid to manager (1)
Total expenses 8,075
Expenses paid indirectly (22)
Net expenses 8,053
Net investment income (loss) 37,337
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities $ 19,546
Futures 2,624
Written options 342
Foreign currency transactions (3,638)
Net realized gain (loss) 18,874
Change in net unrealized gain (loss)
Securities (72,976)
Futures (214)
Other assets and liabilities
denominated in foreign currencies 514
Change in net unrealized gain (loss) (72,676)
Net realized and unrealized gain (loss) (53,802)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (16,465)
--------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price New Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report (Unaudited)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
11/30/03 5/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 37,337 $ 84,987
Net realized gain (loss) 18,874 (2,576)
Change in net unrealized
gain (loss) (72,676) 122,779
Increase (decrease) in
net assets from operations (16,465) 205,190
Distributions to shareholders
Net investment income
New Income class (38,769) (87,016)
Advisor Class (2) (3)
R Class (12) (4)
Decrease in net assets from distributions (38,783) (87,023)
Capital share transactions *
Shares sold
New Income class 224,633 561,473
Advisor Class 30 100
R Class 2,686 321
Distributions reinvested
New Income class 36,528 81,806
Advisor Class 2 3
R Class 12 4
Shares redeemed
New Income class (211,462) (358,633)
R Class (201) (14)
Increase (decrease) in net assets from
capital share transactions 52,228 285,060
Net Assets
Increase (decrease)
during period (3,020) 403,227
Beginning of period 2,266,633 1,863,406
End of period $ 2,263,613 $ 2,266,633
--------------------------------
*Share information
Shares sold
New Income class 24,903 63,287
Advisor Class 3 12
R Class 300 36
Distributions reinvested
New Income class 4,064 9,221
R Class 1 1
Shares redeemed
New Income class (23,490) (40,608)
R Class (23) (2)
Increase (decrease) in shares outstanding 5,758 31,947
The accompanying notes are an integral part of these financial statements.
T. Rowe Price New Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report (Unaudited) November 30, 2003
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 (New Income class), offered since August 31, 1973, New Income Fund-Advisor
Class (Advisor Class), offered since September 30, 2002, and New Income Fund-R
Class (R Class), offered since September 30, 2002. Advisor Class shares are sold
only through brokers and other financial intermediaries, and R Class shares are
available to 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
The fund values its investments and computes its net asset value per share at
the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day
that the NYSE is open for business. 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
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 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 international securities.
Investments in mutual funds are valued at the mutual fund's closing net asset
value per share on the day of valuation. Purchased and written options on
futures contracts are valued at the last sale price. Financial futures contracts
are valued at closing settlement prices.
Other investments and those 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 the T. Rowe Price Valuation Committee,
established by the fund's Board of Directors.
Most foreign markets close before the NYSE. Normally, developments that could
affect the values of securities that occur between the close of a foreign market
and the close of the NYSE will not be reflected in security valuations used by
the fund to compute its share price. However, if developments are so significant
that they will, in the judgment of the fund, clearly and materially affect
security values, such valuations may be adjusted to reflect the estimated fair
value of the securities as of the close of the NYSE, as determined in good faith
by the T. Rowe Price Valuation Committee, established by the fund's Board of
Directors.
Currency Translation
Assets, including investments, 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
as 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
date of the transaction. The effect of changes in foreign currency exchange
rates on realized and unrealized security gains and losses is reflected as a
component of security gains and losses.
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 daily 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 all 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
outstanding shares. Income distributions are declared by each class on a daily
basis and paid monthly. Capital gain distributions, if any, are declared and
paid by the fund, typically on an annual basis.
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
$22,000 for the six months ended November 30, 2003.
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. Premiums and discounts on municipal and
debt securities are amortized for financial reporting purposes. Dividend income
and distributions to shareholders are recorded by the fund on the ex-dividend
date. Dividends from mutual fund investments are reflected as dividend income;
capital gain distributions from mutual fund investments are reflected as
realized gain/loss. 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. In the normal
course of business, the fund enters into contracts that provide general
indemnifications. The fund's maximum exposure under these arrangements is
dependent on claims that may be made against the fund in the future and,
therefore, cannot be estimated; however, based on experience, the risk of
material loss from such claims is considered remote.
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, 2003, 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, 2003, 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 and/or interest rates.
Options
Call and put options on futures contracts give the holder the right to purchase
or sell, respectively, a particular futures contract at a specified price until
a certain date. Risks arise from possible illiquidity of the options market and
from movements in underlying futures prices. Transactions in options written and
related premiums received during the six months ended November 30, 2003, were as
follows:
Number of
Contracts Premiums
Outstanding at beginning of period - $ -
Written 790 828,000
Expired (310) (325,000)
Closed (480) (503,000)
Outstanding at end of period - $ -
--------------------------
Swap Agreements
During the six months ended November 30, 2003, the fund was a party to interest
rate swap agreements under which it is obligated to exchange cash flows based on
the difference between specified interest rates applied to a notional principal
amount for a specified period of time. Risks arise from the possible inability
of counterparties to meet the terms of their agreements and from movements in
interest rates.
Securities Lending
The fund lends its securities to approved brokers to earn additional income. It
receives as collateral cash and U.S. government securities valued at 102% to
105% of the value of the securities on loan. Cash collateral is invested in a
money market pooled trust managed by the fund's lending agent
in accordance with investment guidelines approved by fund management. 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.
Securities lending revenue recognized by the fund consists of earnings on
invested collateral and borrowing fees, net of any rebates to the borrower and
compensation to the lending agent. At November 30, 2003, the value of loaned
securities was $306,548,000; aggregate collateral consisted of $264,826,000 in
the money market pooled trust and U.S. government securities valued at
$52,493,000.
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 5% or more of the outstanding voting securities. At November 30, 2003,
the fund's investment in the T. Rowe Price Reserve Investment Fund was its only
affiliated holding and represented 11.2% of the value of the fund's investments
in securities.
Other
Purchases and sales of portfolio securities, other than short-term and U.S.
government securities, aggregated $417,889,000 and $365,569,000, respectively,
for the six months ended November 30, 2003. Purchases and sales of U.S.
government securities aggregated $2,199,330,000 and $2,218,934,000,
respectively, for the six months ended November 30, 2003.
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 under Subchapter M of the
Internal Revenue Code 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. Financial
records are not adjusted for temporary differences. 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, 2003.
The fund intends to retain realized gains to the extent of available capital
loss carryforwards. As of May 31, 2003, the fund had $39,329,000 of unused
capital loss carryforwards, of which $1,791,000 expire in 2008, and $37,538,000
expire in 2009.
At November 30, 2003, the cost of investments for federal income tax purposes
was $2,662,101,000. Net unrealized gain aggregated $56,496,000 at period-end, of
which $90,637,000 related to appreciated investments and $34,141,000 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 average daily net assets to those of the group. At November 30,
2003, the effective annual group fee rate was 0.32%, and investment management
fee payable totaled $862,000.
The Advisor Class and R Class are also subject to a contractual expense
limitation through the limitation dates indicated in the table below. During the
limitation period, the manager is required to waive its management fee and
reimburse a class for any expenses, excluding interest, taxes, brokerage
commissions, and extraordinary expenses, that would otherwise cause the class's
ratio of total expenses to average net assets (expense ratio) to exceed its
expense limitation. Through the repayment date, each class is required to repay
the manager for expenses previously reimbursed and management fees waived to
the extent the class's net assets have grown or expenses have declined
sufficiently to allow repayment without causing the class's expense ratio to
exceed its expense limitation.
- --------------------------------------------------------------------------------
Advisor Class R Class
Expense Limitation 0.90% 1.15%
Limitation Date 9/30/04 9/30/04
Repayment Date 9/30/06 9/30/06
At November 30, 2003, expenses previously reimbursed by the manager remain
subject to repayment in the amount of $2,000 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 recordkeeping services for certain retirement accounts
invested in the New Income class and R Class. Expenses incurred pursuant to
these service agreements totaled $1,067,000 for the six months ended November
30, 2003, of which $206,000 was payable at period-end.
Additionally, the fund is one of several mutual funds in which certain college
savings plans managed by Price Associates may invest. As approved by the fund's
Board of Directors, shareholder servicing costs associated with each college
savings plan are borne by the fund in proportion to the average daily value of
its shares owned by the college savings plan. For the six months ended November
30, 2003, the fund was charged $4,000 for shareholder servicing costs related to
the college savings plans, of which $3,000 was for services provided by Price
and $1,000 was payable at period-end. At November 30, 2003, approximately 0.2%
of the outstanding shares of the New Income class were held by college savings
plans.
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 expenses
in the accompanying financial statements. For the six months ended November 30,
2003, the fund was allocated $988,000 of Spectrum Funds' expenses and $95,000 of
Retirement Funds' expenses. Of these amounts, $966,000 related to services
provided by Price and $150,000 was payable at period-end. At November 30, 2003,
approximately 36.0% of the outstanding shares of the New Income class were held
by the Spectrum Funds and 2.3% were held by the Retirement Funds.
The fund may invest in the T. Rowe Price Reserve Investment Fund and the 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,
trusts, 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. During the six months ended November 30, 2003, dividend income
from the Reserve Funds totaled $2,353,000.
T. Rowe Price New Income Fund
- --------------------------------------------------------------------------------
Certified Semiannual Report
Information on Proxy Voting
- --------------------------------------------------------------------------------
A description of the policies and procedures that the T. Rowe Price New Income
Fund uses to determine how to vote proxies relating to portfolio securities is
available, without charge, upon request by calling 1-800-225-5132. It also
appears in the fund's Statement of Additional Information (Form 485B), which can
be found on the SEC's Web site, www.sec.gov.
Item 2. Code of Ethics.
The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR,
applicable to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions. A copy of this code of ethics will be filed as a required exhibit to
the registrant's annual Form N-CSR. No substantive amendments were approved or
waivers were granted to this code of ethics during the registrant's most recent
fiscal half-year.
Item 3. Audit Committee Financial Expert.
Not effective until registrant's next annual Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Not effective until registrant's next annual Form N-CSR.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The registrant's principal executive officer and principal financial officer
are aware of no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR will be
filed with the registrant's annual Form N-CSR.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b) A certification by the registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940,
is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price New Income Fund, Inc.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date January 16, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date January 16, 2004
By /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date January 16, 2004