<PAGE>
- --------------------------------------------------------------------------------
Fellow Shareholders
- --------------------------------------------------------------------------------
Against a background of strong economic growth and further tightening by the
Federal Reserve, interest rates continued to rise during the three months
ended November 30. Short-term rates were propelled higher by the Fed's sixth
and largest increase this year in the federal funds target rate. Long-term
rates, which had fluctuated in a fairly narrow range earlier in the summer,
resumed rising as various indicators confirmed the economy's strong growth.
Although rates have climbed across the board this year, the steepest
increases during the last six months have occurred among shorter maturities.
The result has been a continual flattening of the yield curve. As you can
see in the chart below, at quarter-end, yields were only about one-half of a
percentage point higher on 30-year maturities than on three-year maturities.
Reflecting the difficult fixed-income environment, the returns on
virtually all longer-term bonds were negative for the three-month period.
Treasury securities generally provided somewhat better results than mortgage-
backed bonds, and both held up better than corporate bonds, which experienced
relatively larger price declines.
- --------------------------------------------------------------------------------
Treasury Yield Curves
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
Line graph for New Income Fund report (Nov. 30, 1994)
Entitled "Treasury Yield Curves": shows Treasury yield curve on
5/31/94 and on 11/30/94
- --------------------------------------------------------------------------------
PERFORMANCE AND STRATEGY REVIEW
Your Fund could not escape the market downdraft, but our conservative
strategy helped cushion the impact on our three-month total return. For the
six-month period, the more favorable environment of the early summer enabled
the Fund to eke out a positive return. Your Fund's results for both periods
exceeded those of both our benchmark index and the Lipper average of similar
funds.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 11/30/94
3 Months 6 Months
------------------------
<S> <C> <C>
New Income Fund -1.43% 0.13%
Lehman Brothers
Aggregate Index -1.78 0.08
Lipper Average of Corporate
Bond Funds--A-Rated -2.03 -0.58
</TABLE>
- --------------------------------------------------------------------------------
A positive aspect of the long rise in rates is the increase in your
Fund's income. The distribution for the most recent quarter was $0.15 per
share compared with $0.13 for the same quarter a year ago.
We maintained our course during the quarter with only small changes
to the portfolio. We continued to increase our holdings of U.S. Government
and agency securities, as we have been doing for much of 1994, and to trim
our corporate bond investments, particularly
<PAGE>
those in finance and credit-related sectors. As the charts show, Government and
mortgage securities combined were about 56% of net assets on November 30
compared with 45% six months ago.
- --------------------------------------------------------------------------------
Portfolio Diversification
- --------------------------------------------------------------------------------
[CHARTS APPEAR HERE]
Pie charts for New Income Fund report (Nov. 30, 1994)
Entitled "Portfolio Diversification": Shows Corporate Bonds 53%,
Mortgages 30%, U.S. Government Bonds 15%, Other 2% on 5/31/94;
Corporate Bonds 43%, Mortgages 33%, U.S. Government Bonds 23%,
Other 1% on 11/30/94.
- --------------------------------------------------------------------------------
OUTLOOK
The Fed is likely to continue raising the federal funds rate in the coming
months until it sees that economic growth is slowing to its long-term trend
rate of about 2.5%. So far the main impact of higher rates has been on
residential and business construction activity, while the rest of the economy
has not been materially affected. In fact, real GDP growth in the third
quarter was revised from 3.4% to 3.9%.
Money market rates can be expected to climb in step with increases in
fed funds rates, but we believe bond yields are likely to plateau around
their recent levels unless inflation takes off. In the coming months, we
would expect bond returns to be determined primarily by the income they
generate and to be more consistent with their historical performance levels.
We will not be sorry to see the end of 1994 -- one of the most
difficult years for bonds since 1950. Our conservative investment approach
served your Fund well, however, and we look forward to more positive results.
Respectfully submitted,
/s/ Charles P. Smith
Charles P. Smith
President and Chairman of the
Investment Advisory Committee
December 19, 1994
2
<PAGE>
- --------------------------------------------------------------------------------
Statistical Highlights
T. Rowe Price New Income Fund / November 30, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Statistics
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended
Dividend Yield* November 30, 1994
- --------------------------------------------------------------------------------
<S> <C>
3 Months 6.99%
6 Months 6.94
Dividend Per Share
- --------------------------------------
3 Months $0.15
6 Months 0.29
Change in Price Per Share
- --------------------------------------
3 Months (From $8.64 to $8.37) -$0.27
6 Months (From $8.65 to $8.37) -0.28
- --------------------------------------------------------------------------------
</TABLE>
* 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.
Income return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
- --------------------------------------------------------------------------------
Quality Diversification
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
TRPA Quality Rating* 8/31/94 11/30/94
- --------------------------------------------------------------------------------
<S> <C> <C>
1 51% 58%
- --------------------------------------------------------------------------------
2 12 10
- --------------------------------------------------------------------------------
3 23 21
- --------------------------------------------------------------------------------
4 13 10
- --------------------------------------------------------------------------------
Below 4 1 1
Weighted Average 2.0 1.8
- --------------------------------------------------------------------------------
</TABLE>
*On a scale of 1 to 10, with Grade 1 representing highest quality.
- --------------------------------------------------------------------------------
Maturity Diversification
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
Range 8/31/94 11/30/94
- --------------------------------------------------------------------------------
<S> <C> <C>
Short-Term (0 to 1 Year) 13% 15%
- --------------------------------------------------------------------------------
Short Intermediate-Term
(1+ to 5 Years) 16 17
- --------------------------------------------------------------------------------
Long Intermediate-Term
(5+ to 10 Years) 42 38
- --------------------------------------------------------------------------------
Long-Term
(Over 10 Years) 29 30
- --------------------------------------------------------------------------------
Weighted Average
Maturity 9.8 yrs. 9.4 yrs.
- --------------------------------------------------------------------------------
Weighted Average
Effective Duration 5.0 yrs. 4.0 yrs.
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
Sector Diversification*
- --------------------------------------------------------------------------------
Percent of Net Assets
8/31/94 11/30/94
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. Governments, Agencies,
& Agency-Backed 49% 56%
- --------------------------------------------------------------------------------
Banking 11 9
- --------------------------------------------------------------------------------
Industrial 8 8
- --------------------------------------------------------------------------------
Electric Utilities 5 4
- --------------------------------------------------------------------------------
Miscellaneous 3 3
- --------------------------------------------------------------------------------
Commercial Paper 1 3
- --------------------------------------------------------------------------------
Finance & Credit 3 3
- --------------------------------------------------------------------------------
U.S. $ Denominated
Foreign Securities 3 3
- --------------------------------------------------------------------------------
Telephone 3 3
- --------------------------------------------------------------------------------
Auto-Backed 3 2
- --------------------------------------------------------------------------------
Petroleum 3 2
- --------------------------------------------------------------------------------
</TABLE>
*Sectors representing at least 2% of net assets on 11/30/94.
3
<PAGE>
- --------------------------------------------------------------------------------
Statement of Net Assets (Amounts in thousands)
T. Rowe Price New Income Fund / November 30, 1994 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporate Bonds & Notes -- 36.3%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Amount Value
----------- ----------
<S> <C> <C>
BANKING -- 8.8%
Banesto Delaware, Gtd. Notes, 8.25%, 7/28/02...................................... $ 5,700 $ 5,429
Banque Paribas, 8.35%, 6/15/07.................................................... 7,500 7,134
Central Fidelity Banks, 4.38%, 8/7/95............................................. 15,000 14,583
Citicorp, MTN, 5.70%, 2/12/96..................................................... 15,000 14,710
Colonial National Bank USA Delaware, Sub. Notes, 7.00%, 8/1/03.................... 5,000 4,407
First Chicago, MTN, 5.50%, 4/15/96................................................ 5,000 4,879
8.20%, 11/14/96................................................................. 5,000 5,034
First Security, Sub. Deb., 7.50%, 9/1/02.......................................... 2,800 2,573
First USA Bank Wilmington, Delaware, 4.55%, 8/23/95............................... 10,000 9,706
4.80%, 9/15/95.................................................................. 5,000 4,853
Hartford National, Sub. Capital Notes, 9.85%, 6/1/99.............................. 5,000 5,221
Mercantile Bankshares, Sr. Notes, 6.13%, 7/15/98 (Private Placement).............. 5,000 4,573
Napa Valley Bancorp, Sr. Notes, 10.87%, 6/30/95................................... 5,000 5,080
Scotland International, (144a), 8.80%, 1/27/04.................................... 10,000 10,037
Society, MTN, 4.755%, 3/11/96..................................................... 7,000 6,776
Wells Fargo & Company, MTN, 5.57%, 8/21/95........................................ 10,000 9,896
5.61%, 8/18/95.................................................................. 5,300 5,248
120,139
BEVERAGES -- 1.0%
Coca-Cola Enterprises, Notes, 8.35%, 6/20/95...................................... 11,000 11,094
Seagram (Joseph E.) & Sons, Notes, 7.00%, 4/15/08................................. 3,000 2,591
13,685
ELECTRIC UTILITIES -- 3.8%
Alabama Power, 1st Mtg. Bonds, 7.75%, 2/1/23...................................... 3,650 3,201
Commonwealth Edison, 1st Mtg. Bonds, 9.375%, 2/15/00.............................. 5,000 5,099
Connecticut Light & Power, 1st Mtg. Bonds, 7.50%, 7/1/23.......................... 5,400 4,451
Consumers Power, 1st Mtg. Bonds, 6.375%, 9/15/03.................................. 5,000 4,175
Cooperative Utility Trust, Equip. Trust Cert., 10.70%, 9/15/17.................... 2,500 2,753
Florida Power & Light, MTN, 4.85%, 6/24/96........................................ 4,600 4,418
Georgia Power, 1st Mtg. Bonds, 7.625%, 3/1/23..................................... 5,750 5,290
7.95%, 2/1/23................................................................... 3,300 2,944
Gulf States Utilities, 1st Mtg. Bonds, 5.375%, 2/1/97............................. 4,000 3,630
Long Island Lighting, 1st Mtg. Bonds, 5.50%, 4/1/97............................... 5,500 5,198
Pacificorp, MTN, 7.12%, 8/15/02................................................... 3,900 3,592
Southern California Edison, 1st Mtg. Bonds, 9.25%, 6/15/21........................ 5,000 4,965
Texas Utilities Electric, 1st Mtg. Bonds, 7.875%, 3/1/23.......................... 3,450 2,976
52,692
FINANCE & CREDIT -- 3.2%
Advanta, Notes, 5.125%, 11/15/96.................................................. 10,000 9,505
American General Finance, Notes, 8.50%, 8/15/98................................... 5,000 5,035
AVCO Financial Services, MTN, 4.33%, 3/3/95....................................... 5,000 4,977
Cenfed Financial, 11.17%, 12/15/01................................................ 5,000 5,000
GPA Leasing USA Sub I, Equip. Trust Cert., (144a), 9.125%, 12/2/96................ 9,518 8,733
Greyhound Financial, MTN, 6.95%, 5/19/95.......................................... 10,000 10,000
43,250
GAS & GAS TRANSMISSION -- 0.9%
Southern California Gas, MTN, 4.69%, 6/16/95...................................... 13,000 12,867
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Face Amount Value
----------- ----------
<S> <C> <C>
INDUSTRIALS -- 8.1%
Chrysler Financial, MTN, 4.62%, 10/13/95.......................................... $ 10,000 $ 9,762
Clark Equipment, MTN, 5.57%, 6/11/96.............................................. 5,000 4,841
Clorox, Notes, 8.80%, 7/15/01..................................................... 5,000 5,116
Deere & Company, MTN, 8.78%, 3/16/98.............................................. 9,000 9,110
Ford Holdings, Gtd. Notes, 9.25%, 3/1/00.......................................... 5,000 5,145
Ford Motor Credit, MTN, 9.70%, 6/2/95............................................. 5,000 5,068
General Motors Acceptance Corporation, MTN, 6.00%, 1/30/95........................ 15,000 14,987
IBM Credit, MTN, 4.70%, 8/1/95.................................................... 31,000 30,538
MCA Funding, MTN, 4.88%, 5/20/96.................................................. 5,000 4,812
Qantas Airways, Sr. Notes, (144a), 6.625%, 6/30/98................................ 7,000 6,557
United Technologies, Deb., 8.875%, 11/15/19....................................... 4,340 4,362
Weyerhaeuser, Notes, 9.05%, 2/1/03................................................ 10,600 10,819
111,117
INVESTMENT DEALERS -- 0.6%
PaineWebber Group, MTN, 7.07%, 8/11/97............................................ 8,000 7,760
MISCELLANEOUS -- 3.1%
Capital Cities/ABC, Notes, 8.75%, 8/15/21......................................... 11,500 11,496
8.875%, 12/15/00................................................................ 10,000 10,253
ITT, Notes, 8.375%, 3/15/96....................................................... 5,000 5,037
Kaiser Foundation Health Plan, Notes, 9.00%, 11/1/01.............................. 10,325 10,628
Waste Management, Deb., 7.875%, 8/15/96........................................... 5,000 5,007
42,421
PETROLEUM -- 2.1%
BP America, Gtd. Notes, 8.50%, 4/15/01............................................ 5,000 5,051
Mobil, Deb., 7.625%, 2/23/33...................................................... 9,250 8,140
Texaco Capital, Deb., 7.875%, 5/1/95.............................................. 10,000 10,046
8.65%, 1/30/98.................................................................. 6,000 6,078
29,315
RAILROADS -- 0.4%
Consolidated Rail, Deb., 9.75%, 6/15/20........................................... 5,000 5,501
RETAIL -- 1.1%
Dayton Hudson, Notes, 7.875%, 6/15/23............................................. 5,000 4,412
9.40%, 2/15/01.................................................................. 5,620 5,856
Sears, Roebuck & Company, MTN, 6.65%, 4/17/95..................................... 4,500 4,497
14,765
SAVINGS & Loan -- 0.7%
World Savings & Loan Assn., MTN, 4.875%, 3/1/96................................... 10,150 9,876
TELEPHONE -- 2.5%
AT&T, 8.125%, 7/15/24............................................................. 5,000 4,730
AT&T Capital, MTN, 6.87%, 10/23/95................................................ 5,000 4,990
Bellsouth Telecom, 7.875%, 8/1/32................................................. 6,400 5,770
GTE, Deb., 9.375%, 12/1/00........................................................ 10,000 10,376
Pacific Bell, 6.625%, 10/15/34.................................................... 11,200 8,688
34,554
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES (COST -- $512,885) 497,942
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price New Income Fund/Statement of Net Assets
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. Government Mortgage-Backed Securities--33.2%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Amount Value
----------- ----------
<S> <C> <C>
U.S. GOVERNMENT GUARANTEED OBLIGATIONS -- 29.5%
Government National Mortgage Assn., I, 6.00%, 12/15/23 - 4/15/24................. $ 3,671 $ 3,023
6.50%, 9/15/23 - 5/15/24...................................................... 8,330 7,144
7.00%, 9/15/22 - 8/15/24...................................................... 44,238 39,367
7.50%, 8/15/16 - 8/15/24...................................................... 81,938 75,804
8.00%, 7/15/16 - 11/15/24..................................................... 53,678 52,119
8.50%, 9/15/16 - 11/15/24..................................................... 30,152 29,633
9.00%, 1/15/09 - 11/15/24..................................................... 26,637 26,944
9.50%, 6/15/09 - 3/15/23...................................................... 101,027 104,705
11.00%, 12/15/09 - 1/15/21.................................................... 33,972 37,487
11.50%, 3/15/10 - 10/15/15.................................................... 4,292 4,780
II, 7.00%, 12/20/23............................................................. 1,651 1,457
9.00%, 6/20/16 - 5/20/22...................................................... 12,483 12,406
Graduated Payment Mortgage, I, 10.25%, 8/15/17 - 3/15/22........................ 8,689 9,101
403,970
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 3.7%
Federal Home Loan Mortgage, 6.50%, 11/1/04 - 6/1/24............................... 12,727 11,180
7.00%, 2/1/24................................................................... 5,165 4,676
7.50%, 3/1 - 6/1/24............................................................. 10,891 10,146
8.00%, 6/1/08................................................................... 194 192
9.00%, 3/1/21 - 5/1/22.......................................................... 10,085 10,152
9.75%, 12/1/17.................................................................. 3,540 3,646
10.50%, 2/1/01 - 8/1/20......................................................... 1,812 1,919
11.00%, 5/1/11 - 7/1/20......................................................... 787 846
11.50%, 6/1/01.................................................................. 25 26
Federal National Mortgage Assn., 7.80%, 12/25/04.................................. 3,097 3,093
8.75%, 3/1/10................................................................... 29 29
10.50%, 7/1/09 - 4/1/22......................................................... 4,173 4,483
50,388
- ---------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES (COST -- $477,482) 454,358
- ---------------------------------------------------------------------------------------------------------------------
Asset-Backed Securities--3.2%
- ---------------------------------------------------------------------------------------------------------------------
AUTO-BACKED -- 2.4%
Capital Auto Receivables Asset Trust, 4.20%, 11/15/95............................. 3,099 3,079
Daimler-Benz Auto Grantor Trust, 3.90%, 10/15/98.................................. 5,192 5,043
Ford Credit Grantor Trust, 4.30%, 7/15/98......................................... 4,017 3,875
GMAC Grantor Trust, 4.15%, 3/15/98................................................ 2,898 2,835
Olympic Automobile Receivable, 4.95%, 10/15/99.................................... 2,942 2,859
Premier Auto Trust, 4.22%, 3/2/99................................................. 7,887 7,513
RCSB Grantor Trust, 7.75%, 11/15/96............................................... 1,093 1,092
Toyota Auto Receivables, 3.90%, 8/17/98........................................... 4,588 4,473
Zions Auto Trust, 4.65%, 6/15/99.................................................. 2,673 2,610
33,379
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Face Amount Value
----------- ----------
<S> <C> <C>
CREDIT CARD-BACKED -- 0.7%
Standard Credit Card Trust, Credit Card Participation Cert.,
9.375%, 8/10/96................................................................. $ 10,000 $ 10,103
WHOLE LOANS-BACKED -- 0.1%
Home Equity Loan Remic Trust, 5.65%, 11/15/14..................................... 1,076 1,020
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES (COST -- $45,419) 44,502
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government Obligations--22.7%
- ---------------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds, 6.25%, 8/15/23............................................... 13,295 10,642
7.50%, 11/15/24................................................................. 2,100 1,982
7.875%, 2/15/21................................................................. 35,000 34,103
8.00%, 11/15/21................................................................. 42,160 41,739
8.125%, 5/15/21................................................................. 32,140 32,200
U.S. Treasury Notes, 5.875%, 2/15/04.............................................. 125 108
6.00%, 6/30/96.................................................................. 5,160 5,058
6.375%, 8/15/02................................................................. 2,200 2,013
6.50%, 8/15/97.................................................................. 3,100 3,019
6.75%, 6/30/99.................................................................. 2,500 2,400
6.875%, 3/31/97 - 8/31/99....................................................... 25,750 25,080
7.125%, 9/30/99................................................................. 6,375 6,200
7.25%, 8/31/96 - 8/15/04........................................................ 135,850 130,193
7.875%, 11/15/04................................................................ 16,015 15,972
- ---------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (COST -- $321,523) 310,709
- ---------------------------------------------------------------------------------------------------------------------
U.S. $ Denominated Foreign Securities/1/--3.1%
- ---------------------------------------------------------------------------------------------------------------------
British Columbia Hydro & Power, Notes, 15.50%, 11/15/11........................... 14,150 16,823
Inter-American Development Bank, Notes, 9.50%, 10/15/97........................... 2,600 2,700
Province of Ontario, Deb., 6.125%, 6/28/00........................................ 6,000 5,425
15.75%, 3/15/12................................................................. 9,000 10,848
17.00%, 11/5/11................................................................. 5,000 6,080
- ---------------------------------------------------------------------------------------------------------------------
TOTAL U.S. $ DENOMINATED FOREIGN SECURITIES (COST -- $42,555) 41,876
- ---------------------------------------------------------------------------------------------------------------------
Commercial Paper -- 3.1%
- ---------------------------------------------------------------------------------------------------------------------
Harvard University, 5.75%, 12/1/94................................................ 1,508 1,508
UBS Finance (Delaware), 5.75%, 12/1/94............................................ 40,500 40,493
- ---------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST -- $42,001) 42,001
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price New Income Fund/Statement of Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
----------
<S> <C> <C>
TOTAL INVESTMENTS IN SECURITIES -- 101.6% (COST -- $1,441,865)............. $1,391,388
- ---------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- (1.6)%.................................... (21,364)
NET ASSETS CONSISTING OF:
Accumulated net investment income - net of distributions................... $ 46
Accumulated realized gains/losses - net of distributions................... (8,683)
Net unrealized loss........................................................ (50,477)
Paid-in-capital applicable to 163,686,355 shares of $1.00 par value capital
stock outstanding; 300,000,000 shares authorized......................... 1,429,138
----------
NET ASSETS -- 100.0%....................................................... $1,370,024
==========
NET ASSET VALUE PER SHARE.................................................. $8.37
=====
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/Marketable securities (payable in U.S. dollars) issued or guaranteed by
a foreign government or community.
MTN - Medium Term Notes
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.
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
T. Rowe Price New Income Fund / Six Months Ended November 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
Amounts in Thousands
------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest income................................................................. $52,614
-------
Expenses
Investment management fees.................................................... $ 3,402
Shareholder servicing fees & expenses......................................... 1,575
Custodian and accounting fees & expenses...................................... 208
Prospectus & shareholder reports.............................................. 61
Proxy & annual meeting expenses............................................... 46
Registration fees & expenses.................................................. 23
Legal & auditing fees......................................................... 14
Directors' fees & expenses.................................................... 14
Miscellaneous expenses........................................................ 16
-------
Total expenses................................................................ 5,359
-------
Net investment income........................................................... 47,255
-------
REALIZED AND UNREALIZED LOSS
Net realized loss............................................................... (9,555)
Change in net unrealized gain or loss........................................... (35,716)
-------
Net loss........................................................................ (45,271)
-------
INCREASE IN NET ASSETS FROM OPERATIONS.......................................... $ 1,984
=======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
T. Rowe Price New Income Fund (Unaudited)
<TABLE>
<CAPTION>
Six Three
Months Ended Months Ended Year Ended
Nov. 30, 1994 May 31, 1994++ Feb. 28,1994
------------- -------------- ------------
Amounts in Thousands
-------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.......................................... $ 47,255 $ 22,707 $ 89,878
Net realized gain (loss)....................................... (9,555) 1,015 24,262
Change in net unrealized gain or loss.......................... (35,716) (65,071) (32,142)
---------- ---------- ----------
Increase (decrease) in net assets from operations.............. 1,984 (41,349) 81,998
---------- ---------- ----------
Distributions to shareholders
Net investment income.......................................... (47,231) (22,682) (89,878)
Net realized gain.............................................. -- (11,110) (11,782)
---------- ---------- ----------
Decrease in net assets from distributions to shareholders...... (47,231) (33,792) (101,660)
---------- ---------- ----------
Capital share transactions/1/
Sold........................................................... 152,392 60,807 323,889
Distributions reinvested....................................... 41,848 30,328 90,466
Redeemed....................................................... (154,025) (98,897) (464,033)
---------- ---------- ----------
Increase (decrease) in net assets from
capital share transactions.................................. 40,215 (7,762) (49,678)
---------- ---------- ----------
Total decrease................................................... (5,032) (82,903) (69,340)
NET ASSETS
Beginning of period............................................ 1,375,056 1,457,959 1,527,299
---------- ---------- ----------
End of period.................................................. $1,370,024 $1,375,056 $1,457,959
========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------
/1/Share transactions
Sold........................................................... 17,842 shs. 6,891 shs. 34,796 shs.
Distributions reinvested....................................... 4,906 3,456 9,735
Redeemed....................................................... (18,053) (11,216) (49,912)
---------- ---------- ----------
Increase (decrease) in shares outstanding...................... 4,695 shs. (869) shs. (5,381) shs.
========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
++ The Fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
T. Rowe Price New Income Fund / November 30, 1994 (Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price New Income Fund (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
A) Security valuation - Debt securities are generally traded in the over-the-
counter market. Investments in securities with remaining 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 remaining maturities less than one year are
stated at fair value which is determined by using a matrix system that
establishes a value for each security based on money market yields.
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.
B) Premiums and Discounts - Except for mortgage-backed securities, premiums
and discounts on debt securities are amortized for both financial and tax
reporting purposes.
C) 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 an identified cost basis. 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 which may differ from generally accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
As a part of its investment program, the Fund engages in the following
activities, the nature, risks and objectives of which are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
A) Securities Lending - To earn additional income, the Fund lends its
securities to approved brokers. At November 30, 1994, the market value of
securities on loan was $270,846,000 for which the Fund was fully
collateralized by cash. Although the risk is mitigated by the collateral,
the Fund could experience a delay in recovering its securities and possibly
experience a capital loss if the borrower fails to return them.
B) Other - Purchases and sales of portfolio securities, other than short-term
and U.S. Government securities, aggregated $12,416,000 and $203,638,000,
respectively. Purchases and sales of U.S. Government securities aggregated
$295,307,000 and $95,735,000, respectively, for the six months ended
November 30, 1994.
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, 1994, the aggregate cost of investments for federal
income tax and financial reporting purposes was $1,441,865,000 and net
unrealized loss aggregated $50,477,000, of which $6,535,000 related to
appreciated investments and $57,012,000 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, computed daily and paid monthly, consisting 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 0.31% for assets in
excess of $34 billion. The effective annual Group Fee rate at November 30,
1994 and for the six months then ended was 0.34%. The Fund pays a pro rata
portion of the Group Fee based on the ratio of the Fund's net assets to those
of the Group.
T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services,
Inc. (RPS) are wholly owned subsidiaries of the Manager. TRPS provides
transfer and dividend disbursing agent functions and shareholder services for
all accounts. RPS provides subac-
10
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
counting and recordkeeping services for certain retirement accounts invested in
the Fund. The Manager, under a separate agreement, calculates the daily share
price and maintains the financial records of the Fund. The Fund is one of
several T. Rowe Price mutual funds (the Underlying Funds) in which the T. Rowe
Price Spectrum Income Fund (Spectrum) invests. In accordance with an Agreement
between Spectrum, the Underlying Funds, the Manager and TRPS, expenses from the
operation of Spectrum are borne by the Underlying Funds based on each Underlying
Fund's proportionate share of assets owned by Spectrum. For the six months ended
November 30, 1994, the Fund incurred fees totalling approximately $1,478,000,
for these services provided by related parties. At November 30, 1994, investment
management and service fees payable were $794,000.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
T. Rowe Price New Income Fund (Unaudited)
<TABLE>
<CAPTION>
For a share outstanding throughout each period
-------------------------------------------------------------------------------
Three
Six Months Months Year Ended
Ended Ended ------------------------------------------------------
Nov. 30, May 31, Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1994++ 1994 1993 1992 1991 1990
----------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $8.65 $9.12 $9.24 $8.94 $8.60 $8.37 $8.26
----- ----- ----- ----- ----- ----- -----
Investment Activities
Net investment income..................... 0.29 0.14 0.54 0.57 0.67 0.70 0.75
Net realized and unrealized
gain (loss)........................... (0.28) (0.40) (0.05) 0.30 0.36 0.24 0.12
----- ----- ----- ----- ----- ----- -----
Total from Investment Activities.............. 0.01 (0.26) 0.49 0.87 1.03 0.94 0.87
----- ----- ----- ----- ----- ----- -----
Distributions
Net investment income..................... (0.29) (0.14) (0.54) (0.57) (0.67) (0.70) (0.75)
Net realized gain......................... -- (0.07) (0.07) -- (0.02) (0.01) (0.01)
----- ----- ----- ----- ----- ----- -----
Total Distributions........................... (0.29) (0.21) (0.61) (0.57) (0.69) (0.71) (0.76)
----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD................ $8.37 $8.65 $9.12 $9.24 $8.94 $8.60 $8.37
===== ===== ===== ===== ===== ===== =====
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return.................................. 0.13% (2.84)% 5.36% 10.12% 12.40% 11.77% 10.73%
Ratio of Expenses to Average Net Assets....... 0.78%+ 0.80%+ 0.82% 0.84% 0.87% 0.88% 0.86%
Ratio of Net Investment Income to
Average Net Assets........................ 6.85%+ 6.43%+ 5.77% 6.36% 7.64% 8.33% 8.85%
Portfolio Turnover Rate....................... 44.1%+ 91.5%+ 58.3% 85.8% 49.7% 20.7% 51.1%
Net Assets, End of Period
(in millions)............................. $1,370 $1,375 $1,458 $1,527 $1,307 $1,131 $993
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++The Fund's fiscal year-end was changed to May 31.
11
<PAGE>
- --------------------------------------------------------------------------------
SemiAnnual Report
- --------------------------------------------------------------------------------
T. Rowe Price
- -------------
NEW INCOME FUND
November 30, 1994
For yield, price, last transaction,
and current balance, 24 hours,
7 days a week, call:
1-800-638-2587 toll free
625-7676 Baltimore area
For assistance with you existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distri-
bution only to shareholders and to
others who have received a copy of
the prospectus of the T. Rowe Price
New Income Fund(R).
T. Rowe Price
Invest With Confidence(R)
NIF
