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