<PAGE>
Annual Report
NEW
INCOME
FUND
------------
MAY 31, 2000
------------
[LOGO OF T. ROWE PRICE]
T. ROWE PRICE
<PAGE>
REPORT HIGHLIGHTS
-------------------
New Income Fund
. Interest rates continued to rise and most bond prices fell during the 6-
and 12-month periods ended May 31, 2000.
. The fund's modest gain for each period handily exceeded the results of our
Lipper category but lagged the Lehman U.S. Aggregate Index.
. We increased exposure to Treasury inflation-protected securities as cost
pressures mounted, and we also boosted holdings of mortgage-backed
securities.
. At current yields, corporate bonds and mortgage securities are well posi-
tioned to deliver strong total returns in the years ahead.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
<PAGE>
FELLOW SHAREHOLDERS
Bond prices fell in most sectors and interest rates rose during the past year
due to persistent strength in the U.S. economy, revived global growth, and
mounting cost pressures. The Federal Reserve raised its target for the key
federal funds rate six times over the past 12 months in an effort to slow U.S.
growth and forestall potential inflation. Bond funds in general struggled to
make headway in this environment. The New Income Fund posted modest returns in
the 6- and 12-month periods ended May 31, but performed well compared with its
Lipper peer group average.
MARKET ENVIRONMENT
--------------------
Interest Rate Levels
--------------------------------------------------------------------------------
[GRAPH]
30-Year Treasury Bond 5-Year Treasury Note 1-Year Treasury Bill
5/31/99 5.8 5.51 4.93
Jun-99 6.11 5.88 5.14
Jul-99 6.05 5.75 5.07
Aug-99 6.08 5.86 5.29
Sep-99 6.09 5.81 5.24
Oct-99 6.3 6.09 5.51
Nov-99 6.22 6.03 5.65
Dec-99 6.46 6.33 5.95
Jan-00 6.57 6.63 6.17
Feb-00 6.15 6.58 6.18
Mar-00 5.94 6.42 6.3
Apr-00 5.95 6.42 6.19
5/31/00 6.0 6.49 6.3
The past year was a volatile one for the financial markets, which had to
contend with a number of unusual factors including the white-hot economy and the
Fed's aggressive efforts to cool it off. Robust demand for goods and services in
the U.S. combined with a recovery of demand overseas raised concern within the
Fed and elsewhere that the domestic economy could overheat and revive inflation.
In the first quarter of 2000, GDP grew at an annual rate of 5.4%, while the
jobless rate, currently at 4.1%, hovers near 30-year lows. Foreign demand for
U.S. exports grew 8% in the first quarter compared with the year-earlier
period, while forecasts for growth outside the U.S. are at their highest levels
in years. To date, inflation has risen only modestly from the extremely low
levels of the past three years, achieved in large part through productivity
gains and inexpensive imports. In the past year, the consumer price index rose
3.1%. Excluding the volatile food and energy components, core CPI rose just
2.4%.
1
<PAGE>
The Fed increased the key federal funds target rate 1.75 percentage points, to
6.5%, during the year--above the peak target set during the Fed's last
tightening cycle, which ended in 1995. With the economy showing few signs of
deceleration after five quarter-point rate hikes, the central bank increased
rates a half point on May 16. Data released in the ensuing weeks, however, did
suggest a slowing economy, and investors began to feel that the Fed was nearing
the end of its rate-hike program.
Against this backdrop, Treasury issuance plunged. In fact, the Treasury
Department began a $30 billion debt repurchase program in early 2000. Several
years of greater-than-expected federal budget surpluses have begun to reduce the
supply of Treasury debt. (Salomon Smith Barney projects that more than $200
billion in Treasury bonds will mature this year and not be reissued by the
government.) As a result, the 30-year Treasury bond yield peaked in mid-January
at about 6.75%, well before any letup in Fed rate hikes was in sight. The yield
fell as low as 5.71% in early April, as market participants feared a shortage of
long-term Treasuries. Since then, long-term Treasury yields have zig-zagged,
falling again most recently as evidence of slower economic growth accumulated.
By the end of the period, the 30-year Treasury bond yielded 6.00%, up modestly
from the 5.80% level on May 31, 1999, as shown in the chart on page 1. Yields on
short- and intermediate-term Treasuries rose far more during the year, and the
Treasury yield curve inverted as short-term securities came to yield more than
long-term bonds. (The yield curve is a line plotting the yields on bonds from
short to long maturities.) Normally, long-term bonds offer higher yields than
shorter-term bonds to compensate for their higher risk.
Other sectors of the market fared far worse than Treasuries. According to Lehman
Brothers, the average yield on BAA (medium quality investment grade)
intermediate corporate bonds, for example, rose 1.51 percentage points to 8.86%
during the year. Since five-
-------------------
Bond Market Returns
--------------------------------------------------------------------------------
[GRAPH]
6-Month Return 12-Month Return
Treasury 2.94 3.35
Mortgage 1.28 2.63
AAA 0.82 1.96
BBB -1.58 -1.53
BBB/BB -2.27 -1.99
2
<PAGE>
year Treasury yields rose just one percentage point in the same period, the
yield advantage of corporates over Treasuries grew substantially. The
highest-quality corporates (rated AAA) produced only slight total returns over
the past six and 12 months, as shown in the nearby bar chart. BBB rated bonds,
the lowest-quality investment-grade corporates, provided negative total
returns in both periods, as did split-rated bonds (securities rated BBB by one
major rating agency but only BB by another.) In fact, as the chart on page 2
shows, bond market returns were closely correlated to credit quality, with the
highest-rated debt (that of the U.S. government) performing the best. That is
the opposite of what one would normally expect in an environment where robust
economic growth is pushing both corporate profits and interest rates higher.
(Lower-quality corporate bonds are more sensitive to corporate profit growth
than to interest rates.) Increased volatility in the stock market and rising
potential for negative surprises from individual companies raised investor
concern about credit quality. In addition, corporates suffered in comparison
with Treasuries because of the dramatic reduction in the supply of Treasury
bonds.
Mortgage-backed and asset-backed securities posted modest returns over the past
six and 12 months, benefiting from high credit quality and liquidity. (Liquidity
refers to the ease with which a security can be bought and sold in significant
quantity without much effect on the security's price.) GNMA pass-throughs in
particular performed well as market participants assigned more value to the
explicit U.S. government guarantee of GNMA loans. However, mortgage- and
asset-backed securities overall underperformed Treasuries, and as a result their
already attractive yield advantages over Treasuries grew larger.
PERFORMANCE REVIEW
----------------------
PERFORMANCE COMPARISON
--------------------------------------------------------------------------------
Periods Ended 5/31/00 6 Months 12 Months
--------------------------------------------------------------------------------
New Income Fund 1.16% 1.13%
Lehman U.S. Aggregate Index 1.38 2.11
Lipper Average of Corporate Bond Funds A-Rated 0.34 0.14
In a difficult environment for bonds, the New Income Fund delivered modest total
returns for the 6- and 12-month periods ended May 31, 2000. Results handily
exceeded those of the Lipper category, as shown in the table. Performance
lagged.
3
<PAGE>
the unmanaged Lehman U.S. Aggregate Index, however, partly due to the impact of
fund expenses, which the index does not incur. The Lehman index was also boosted
by the strong relative performance of Treasury bonds, which compose nearly a
third of the benchmark but a much smaller portion of the fund. Your returns were
provided entirely by dividend income over both periods. As a result of rising
interest rates, the fund's share price declined $0.43 during the year, from
$8.50 on May 31, 1999, to $8.07 at the end of the period. Dividend income per
share of $0.52 during the year offset the decline in net asset value. The fund's
six-month dividend yield rose to 6.57% from 6.22% on November 30 and 6.09% a
year ago.
STRATEGY
The themes discussed in the Market Environment section guided our strategy over
the past six months. We focused on the careful selection of sectors and
individual securities as well as the most advantageous points of the yield curve
rather than on the overall direction of interest rates. As a result, fund
duration remained roughly neutral compared with the Lehman index. (Duration is a
measure of a bond fund's sensitivity to interest rates; for example, a
duration of five years means the fund's share price will rise or fall about 5%
for each one-percentage-point fall or rise in interest rates.)
Rising costs in the economy and the modest uptick in inflation led us to
increase our allocation to Treasury inflation-protected securities (TIPS). In
addition to their stated coupon yield, TIPS provide additional interest income
when inflation rises. As of May 31, more than 5% of fund assets was invested in
TIPS, and the fund's overall Treasury exposure was 17%, compared with 12% six
months earlier. While long-term Treasuries appear expensive as measured by many
traditional value yardsticks (for example, their yields are low compared with
alternative securities), we increased our exposure. Conventional long-term
Treasuries (not TIPS) are the target of the Treasury buyback program and few--if
any--will be sold by the government after August. By purchasing more of these
dwindling Treasury bonds, we positioned the fund to participate in the
best-performing segment of the investment-grade market during the period.
As we discussed in our last shareholder report, our outlook for corporate bonds
was positive entering the latest six-month period. The wave of new supply
created by the rush by corporations to issue debt before
4
<PAGE>
------------------------
SECURITY DIVERSIFICATION
--------------------------------------------------------------------------------
[GRAPH]
Cash and Other 4%
U.S. Treasuries 17%
U.S. Agency Obligations 3%
Corporate Bonds and Convertibles 34%
Mortgage - Backed Securities 37%
Asset - Backed Securities 5%
Based on net assets as of 5/31/00.
the fourth quarter of last year (due to Y2K concerns) had subsided, liquidity
had improved, and the corporate yield advantage over Treasuries had reached
historically significant levels. However, early in the new year, the positive
tone and liquidity of the corporate market gave way to concerns about stock
market volatility and its effect on the debt market, a more aggressive Fed, and
the potential for adverse credit events (such as a company taking on a large
amount of debt to finance an acquisition). Rather than sell corporate bonds into
this distressed market, we opted to maintain an overweighting in corporates and
to focus on those securities identified by our credit research group as the most
fundamentally attractive, such as Yankee bonds (foreign bonds denominated in
U.S. dollars). We also improved diversification by holding smaller positions in
more securities. As yields climbed, we targeted large, liquid issues from
companies with strong cash flow.
Exposure to mortgage-backed securities increased significantly over the past six
months, from 29% of net assets to 37%, since they offer very high credit
quality, attractive yield advantages over Treasuries, and high liquidity. We
favored GNMA pass-through securities because, in light of the rally in
Treasuries, we felt the explicit U.S. government guarantee of GNMA loans was
underappreciated in the market. Fundamentals in the mortgage market are also
excellent because of decreasing supply.
The fund's unusually high cash position of 9% six months ago was reduced
significantly, to 4% as of May 31, as the Y2K transition went smoothly and
concerns about financial market disruption proved to be overblown. Portfolio
allocations to U.S. agency-backed and asset-backed securities were also
reduced. Proceeds from these transactions were invested in Treasuries, TIPS, and
mortgages.
5
<PAGE>
INVESTMENT-GRADE CORPORATES AT CURRENT LEVELS...PROVIDE SOLID PROSPECTIVE
RETURNS BASED ON INCOME ALONE.
OUTLOOK
The economic environment may continue to provide some surprises for fixed-income
investors, but we believe the Fed is well on its way toward successfully
orchestrating a soft landing. Economic data released in late May and early June
suggest that GDP is set to slow in the second quarter, after growing at an
amazingly fast clip the previous three quarters, and that upward pressure on
wages and other costs appears contained. Unemployment even rose two-tenths of a
percentage point in May, albeit from historic lows. A slowdown in the economy
does not necessarily signal lower rates soon. Even a 4% annualized GDP growth
rate would be high by historical standards, and lower rates could quickly
reignite stock market exuberance and fuel economic activity. With this in mind,
we continue to focus on sector and security selection while remaining neutral on
the overall direction of interest rates.
The federal budget surplus and its effect on Treasury debt will continue to
influence our strategy. Fewer Treasuries in the future could continue to drive a
wedge between the yields on "risk-free" assets such as Treasuries and yields in
other sectors. We are therefore sensitive to the fact that despite much lower
yields, Treasuries, particularly those with long maturities, may continue to
post strong relative performance.
We remain optimistic about the bond market. Investment-grade corporates at
current levels, with yields as high as 8.5%, provide solid prospective returns
based on income alone. We are confident that our strong research team can
continue to identify attractive companies and minimize credit risk, and
therefore we are planning to increase our corporate holdings. Mortgage
pass-through yields are also appealing; however, we are more inclined to reduce
prepayment risk than add more of it. Together with well-positioned Treasuries, a
portfolio composed of higher-yielding securities from strong issuers at
current levels should prove rewarding for investors in the years ahead.
Respectfully submitted,
/s/William T. Reynolds
William T. Reynolds
Director, Fixed Income Division
June 21, 2000
6
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
--------------------
PORTFOLIO HIGHLIGHTS
--------------------------------------------------------------------------------
KEY STATISTICS 11/30/99 5/31/00
--------------------------------------------------------------------------------
Price Per Share $8.24 $8.07
Dividends Per Share
For 6 months 0.26 0.26
For 12 months 0.52 0.52
Dividend Yield *
For 6 months 6.22% 6.57%
For 12 months 6.25 6.50
30-Day Standardized Yield 6.58 7.46
Weighted Average Maturity (years) 9.9 9.9
Weighted Average Effective Duration (years) 5.0 4.9
Weighted Average Quality ** AA AA
* Dividends earned and reinvested for the periods indicated are annualized
and divided by the fund's net asset value per share at the end of the
period.
** Based on T. Rowe Price research.
7
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
--------------------
PORTFOLIO HIGHLIGHTS
--------------------------------------------------------------------------------
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
11/30/99 5/31/00
--------------------------------------------------------------------------------
Mortgage-Backed Securities 29% 37%
U.S. Treasury Obligations 12 17
Asset-Backed Securities 9 5
Banking 5 4
Money Market Funds* 13 3
U.S. Government Agency Obligations 6 3
Electric Utilities 3 3
Energy 2 2
Petroleum 4 2
Entertainment and Leisure 2 2
Airlines 1 2
Investment Dealers 2 2
All Other 16 17
Other Assets Less Liabilities -4 1
--------------------------------------------------------------------------------
Total 100% 100%
*See note at end of financial statements.
8
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
---------------------
PORTFOLIO COMPARISON
--------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
NEW INCOME FUND
--------------------------------------------------------------------------------
[GRAPH]
Lehman Aggregate Bond Index New Income Fund New Income Fund
5/31/90 10,000 10,000 10,000
May-91 11,253 11,243 11,243
May-92 12,653 12,547 12,547
May-93 14,083 13,734 13,734
May-94 14,183 13,926 13,926
May-95 15,812 15,475 15,475
May-96 16,505 16,047 16,047
May-97 17,878 17,282 17,282
May-98 19,829 19,155 19,155
May-99 20,692 19,350 19,350
May-00 21,128 19,570 19,570
-------------------------------------
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 5/31/00 1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
New Income Fund 1.13% 4.23% 4.81% 6.94%
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
9
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
--------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughtout each period
--------------------------------------------------------------------------------
Year
Ended
5/31/00 5/31/99 5/31/98 5/31/97 5/31/96
NET ASSET VALUE
Beginning of period $ 8.50 $ 9.09 $ 8.77 $ 8.70 $ 8.97
Investment activities
Net investment income (loss) 0.52 0.54 0.57 0.58 0.60
Net realized and
unrealized gain (loss) (0.43) (0.45) 0.36 0.07 (0.27)
Total from
investment activities 0.09 0.09 0.93 0.65 0.33
Distributions
Net investment income (0.52) (0.54) (0.57) (0.58) (0.60)
Net realized gain -- (0.14) (0.04) -- --
Total distributions (0.52) (0.68) (0.61) (0.58) (0.60)
NET ASSET VALUE
End of period $ 8.07 $ 8.50 $ 9.09 $ 8.77 $ 8.70
------------------------------------------------
Ratios/Supplemental Data
Total return u 1.13% 1.02% 10.84% 7.70% 3.70%
Ratio of total expenses to
average net assets 0.73% 0.72% 0.71% 0.74% 0.75%
Ratio of net investment
income (loss) to average
net assets 6.32% 6.16% 6.31% 6.65% 6.66%
Portfolio turnover rate 83.6% 94.3% 147.3% 87.1% 35.5%
Net assets, end of period
(in millions) $ 1,633 $ 1,942 $ 2,076 $ 1,711 $ 1,634
u 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.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
May 31, 2000
------------------------
PORTFOLIO OF INVESTMENTS Par/Shares Value
--------------------------------------------------------------------------------
In thousands
CORPORATE BONDS AND NOTES 31.9%
Aerospace & Defense 0.8%
Lockheed Martin, 8.20%, 12/1/09 $ 7,125 $ 6,960
Raytheon, (144a), 6.75%, 3/1/02+ 6,500 6,485
-----------
13,445
-----------
Airlines 0.9%
Qantas Airways, (144a), 7.75%, 6/15/09+ 15,000 14,573
-----------
14,573
-----------
Automobiles and Related 1.1%
Ford Motor Credit, 6.125%, 4/28/03 6,350 6,085
Hertz, 7.00%, 1/15/28 15,000 12,473
-----------
18,558
-----------
Banking 4.4%
Banco Generale, Sr. Sub. Notes, (144a), 7.70%, 8/1/02+ 10,000 9,427
Banco Santiago, Sub. Notes, 7.00%, 7/18/07 12,855 11,162
Bank United, 8.875%, 5/1/07 5,000 4,614
FCB/NC Capital Trust I, 8.05%, 3/1/28 12,000 9,808
Imperial Bank, Sub. Notes, 8.50%, 4/1/09 9,265 8,380
M&I Marshall & Ilsley Bank, Sr. Sub. Notes,
7.875%, 3/15/10 7,400 7,209
Riggs National, 9.65%, 6/15/09 10,000 9,904
Sanwa Finance Aruba, Gtd. Notes, 8.35%, 7/15/09 5,500 5,544
Sumitomo Bank, 8.50%, 6/15/09 5,300 5,386
-----------
71,434
-----------
Beverages 0.3%
Panamerican Beverages, Sr. Notes, 7.25%, 7/1/09 5,550 4,362
-----------
4,362
-----------
Broadcasting 0.5%
Hearst-Argyle Television, 7.50%, 11/15/27 10,000 8,477
-----------
8,477
-----------
Building and Real Estate 0.9%
BRE Properties, REIT, 7.125%, 2/15/13 10,000 8,324
Hospitality Properties, Sr. Notes, REIT, 7.00%,
3/1/08 7,000 5,925
-----------
14,249
-----------
Cable Operators 0.9%
Tele-Communications, 7.875%, 8/1/13 15,000 14,503
-----------
14,503
-----------
11
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
Electric Utilities 2.7%
AEP Resources, Sr. Notes, (144a), 6.50%, 12/1/03+ $ 15,000 $ 14,056
DTE Capital, (144a), 7.11%, 11/15/03+ 15,000 14,332
Korea Electric Power, 7.00%, 10/1/02 5,500 5,319
South Carolina Electric & Gas, 1st Mtg. Bonds
6.125%, 3/1/09 12,000 10,404
-----------
44,111
-----------
Energy 2.5%
PDVSA Finance Limited
6.80%, 11/15/08 8,000 6,344
Sr. Notes, 9.75%, 2/15/10 7,750 7,171
YPF Sociedad Anonima
7.25%, 3/15/03 10,000 9,521
10.00%, 11/2/28 16,525 17,663
-----------
40,699
-----------
Entertainment and Leisure 1.9%
International Speedway, Sr. Notes, 7.875%, 10/15/04 10,000 9,651
Royal Caribbean Cruises, Sr. Notes, 6.75%, 3/15/08 20,000 16,882
Time Warner, 8.11%, 8/15/06 5,000 4,984
-----------
31,517
-----------
Finance and Credit 1.2%
CIT Group, 5.50%, 2/15/04 6,000 5,489
General Electric Capital, MTN, 7.375%, 1/19/10 14,000 13,794
-----------
19,283
-----------
Food Processing 0.4%
Flowers Industries, 7.15%, 4/15/28 10,000 7,068
-----------
7,068
-----------
Foreign Government and Municipalities 1.8%
Banco Latinoamericano, 6.55%, 4/15/03 7,900 7,493
Korea Development Bank, 7.125%, 4/22/04 5,000 4,764
Petroleos Mexicanos, Gtd. Notes, 9.25%, 3/30/18 7,490 6,877
Province of Manitoba, 7.50%, 2/22/10 10,000 9,876
-----------
29,010
-----------
Insurance 1.1%
Jefferson Pilot Capital Trust, (144a), 8.14%, 1/15/46+ 10,000 8,785
Trenwick Capital Trust I, Cap. Securities, 8.82%,
2/1/37 10,500 8,585
-----------
17,370
-----------
12
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
Investment Dealers 1.7%
Goldman Sachs Group, 6.625%, 12/1/04+ $ 10,000 $ 9,402
Paine Webber Group, MTN, 6.72%, 4/1/08 20,000 17,689
-----------
27,091
-----------
Media and Communications 1.0%
Seagrams, Sr. Notes, 6.80%, 12/15/08 19,500 17,149
-----------
17,149
-----------
Oil Field Services 0.3%
Halliburton, 5.625%, 12/1/08 5,000 4,345
-----------
4,345
-----------
Paper and Paper Products 0.4%
Celulosa Arauco Y Constitucion, 7.20%, 9/15/09 7,500 6,558
-----------
6,558
-----------
Petroleum 2.0%
Atlantic Richfield, 9.125%, 3/1/11 8,150 8,967
Phillips Petroleum, 8.75%, 5/25/10 4,000 4,084
Union Texas Petroleum, 7.00%, 4/15/08 20,000 18,912
-----------
31,963
-----------
Railroads 0.7%
Norfolk Southern, Sr. Notes, 8.625%, 5/15/10 7,150 7,251
Union Pacific, 6.625%, 2/1/08 5,000 4,524
-----------
11,775
-----------
Savings and Loan 0.6%
Dime Bancorp, Sr. Notes, 6.375%, 1/30/01 10,000 9,883
-----------
9,883
-----------
Services 0.9%
Federal Express, ETC, 8.25%, 1/15/19 9,839 9,603
Waste Management, Sr. Notes, STEP, 7.70%, 10/1/02 5,300 5,064
-----------
14,667
-----------
Telecommunications 0.9%
Sprint, 6.125%, 11/15/08 17,000 14,812
-----------
14,812
-----------
Telephone 1.4%
Ameritech Capital Funding, 6.25%, 5/18/09 10,000 8,625
U.S. West Capital Funding, 6.875%, 8/15/01 15,000 14,846
-----------
23,471
-----------
Wireless Communications 0.6%
Vodafone Airtouch, (144a), 7.75%, 2/15/10+ 11,000 10,663
10,663
-----------
Total Corporate Bonds and Notes (Cost $564,161) 521,036
-----------
13
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
ASSET-BACKED SECURITIES 6.1%
Airlines 1.0%
Atlas Air, 7.63%, 1/2/15 $ 9,782 $ 8,859
Atlas Air, (144a), 9.702%, 1/2/10 7,640 7,566
-----------
16,425
-----------
Auto-Backed 0.9%
Onyx Acceptance, 5.83%, 3/15/04 10,000 9,755
Provident Auto Lease, 7.73%, 10/14/07 5,918 5,825
-----------
15,580
-----------
Credit Card-Backed 1.9%
First USA Credit Card Master Trust, 7.26%, 5/19/05+ 7,048 7,004
MBNA Master Credit Card Trust II
6.95%, 1/16/07+ 10,000 9,641
7.35%, 12/15/06+ 5,250 5,207
World Financial Network Credit Master Trust, 6.853%,
7/15/06 8,500 8,496
-----------
30,348
-----------
Equipment Leasing -- Heavy Duty 0.3%
Case Equipment Loan Trust, 5.77%, 8/15/05 6,000 5,766
-----------
5,766
-----------
Petroleum 0.5%
Pemex Finance Limited, (144a), 9.03%, 2/15/11+ 8,000 7,817
-----------
7,817
-----------
Recreational Vehicle 1.5%
Chase Manhattan Owner Trust, 6.54%, 8/15/17 11,795 10,864
CIT RV Trust, 6.35%, 4/15/11 13,375 13,260
-----------
24,124
-----------
Total Asset-Backed Securities (Cost $117,015) 100,060
-----------
EQUITY AND CONVERTIBLE SECURITIES 1.0%
Banking 0.0%
Silicon Valley Bancshares, Pfd., 8.25% 30 $ 589
-----------
589
-----------
Building and Real Estate 1.0%
Equity Residential Properties Trust, REIT, Cv. Pfd.,
7.25% 350 7,792
Reckson Associates Realty, REIT, Cv. Pfd. (Series A),
7.625% 429 8,910
-----------
16,702
-----------
Total Equity and Convertible Securities (Cost $18,134) 17,291
-----------
14
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
NON-U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 8.8%
Commercial Mortgage-Backed 2.5%
Heller Financial, 6.847%, 5/15/31 $ 10,000 9,375
LB Commercial Conduit Mortgage Trust, 6.78%, 4/15/09 10,000 9,478
PNC Mortgage Acceptance, 7.33%, 10/10/09 10,000 9,662
Prudential Securities, 6.074%, 1/15/08 12,790 11,986
----------
40,501
----------
Home Equity Loans-Backed 2.3%
Chase Funding Mortgage Loan, 6.59%, 5/25/28 5,053 4,761
GE Capital Mortgage Services
REMIC, 6.465%, 6/25/28 14,207 13,639
Money Store Home Equity Trust
6.985%, 10/15/16 6,000 5,911
7.91%, 5/15/24 13,159 13,169
----------
37,480
----------
Whole Loans-Backed 4.0%
BA Mortgage Securities, 7.00%, 7/25/28 20,600 19,454
Countrywide Mortgage Backed Securities, 6.75%,
11/25/23 5,843 5,425
GE Capital Mortgage Services
REMIC, 6.75%, 8/25/28 13,962 13,075
Norwest Asset Securities, 6.75%, 10/25/28 11,803 10,765
Residential Accredited Loans
6.75%, 7/25/28 7,500 7,051
7.25%, 11/25/27 9,985 9,364
----------
65,134
----------
Total Non-U.S. Government Mortgage-Backed Securities
(Cost $138,747) 143,115
----------
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 29.1%
U.S. Government Agency Obligations 10.1%
Federal Home Loan Mortgage
5.50%, 10/15/20 1,659 1,626
15
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
Federal Home Loan Mortgage
6.50%, 11/1/04 - 6/1/24 $ 39,030 $ 36,516
7.00%, 8/15/09 - 6/1/25 42,720 41,109
7.50%, 5/1/24 - 1/1/30 21,949 21,358
8.00%, 6/1/08 34 34
10.50%, 7/1/11 - 8/1/20 327 348
11.00%, 1/1/16 - 7/1/20 167 181
11.50%, 6/1/01 1 1
REMIC, 6.50%, 3/15/23 10,810 10,083
Principal Only, 8/1/28 7,315 4,368
Federal National Mortgage Assn.
6.00%, 1/1/29 1,684 1,511
6.50%, 8/1/14 - 2/1/30 32,002 29,776
7.50%, 5/1/15 18,700 18,425
8.75%, 3/1/10 4 4
-----------
165,340
-----------
U.S. Government Guaranteed Obligations 19.0%
Government National Mortgage Assn.
I
6.00%, 12/15/28 9,200 8,394
6.50%, 8/15/25 - 4/15/29 61,803 57,879
7.00%, 1/15/24 - 5/15/29 66,403 63,861
7.50%, 8/15/16 - 12/15/29 58,286 57,320
8.00%, 7/15/16 - 5/15/30 71,695 71,982
8.50%, 9/15/16 - 7/15/23 6,672 6,819
9.00%, 1/15/09 - 11/15/19 822 855
9.50%, 6/15/09 - 3/15/25 299 310
11.00%, 12/15/09 - 1/15/21 6,768 7,365
11.50%, 3/15/10 - 10/15/15 1,027 1,127
II
7.00%, 12/20/23 - 4/20/30 27,515 26,364
8.50%, 9/20/26 34 35
9.00%, 06/20/16 - 2/20/18 616 634
GPM, I, 10.25%, 4/15/16 - 11/15/20 926 994
Principal Only, 3/16/28 8,727 5,599
-----------
309,538
-----------
Total U.S. Government Mortgage-Backed Securities
(Cost $484,693) 474,878
-----------
16
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
U.S. GOVERNMENT OBLIGATIONS/
AGENCIES 19.6%
U.S. Government Agency Obligations 2.9%
Federal Home Loan Mortgage
5.75%, 6/15/01 $ 10,060 $ 9,932
6.875%, 1/15/05 22,750 22,254
Tennessee Valley Authority, 6.235%, 7/15/45 14,934 14,806
-----------
46,992
-----------
U.S. Treasury Obligations 16.7%
U.S. Treasury Bonds
5.50%, 8/15/28 46,000 41,438
6.125%, 8/15/29 2,700 2,689
6.50%, 11/15/26 41,300 42,358
7.50%, 11/15/16 29,000 32,135
U.S. Treasury Inflation-Indexed Notes
3.375%, 1/15/07 47,505 45,254
3.625%, 7/15/02 39,513 39,170
U.S. Treasury Notes
5.50%, 7/31/01 15,000 14,787
6.875%, 5/15/06 21,500 21,820
7.00%, 7/15/06 32,000 32,680
272,331
-----------
Total U.S. Government Obligations/Agencies
(Cost $332,620) 319,323
-----------
MONEY MARKET FUNDS 2.4%
Reserve Investment Fund, 6.48% # 39,019 39,019
-----------
Total Money Market Funds (Cost $39,019) 39,019
-----------
17
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
Value
--------------------------------------------------------------------------------
In thousands
Total Investments in Securities
98.9% of Net Assets (Cost $1,694,389) $ 1,614,722
Futures Contracts
In thousands
Contract Unrealized
Expiration Value Gain (Loss)
Short, 300 U.S. Agency 10-year contracts,
$38,000 of Federal Home Loan Mortgage
securities pledged as initial margin 9/00 $(26,963) $ (85)
Short, 350 U.S. Treasury 5-year contracts,
$121,000 of Federal Home Loan Mortgage
securities pledged as initial margin 9/00 $(34,158) (284)
Short, 125 U.S. Treasury 10-year contracts,
$163,000 of Federal Home Loan Mortgage
securities pledged as initial margin 9/00 $(12,098) (203)
--------
Net payments (receipts) of variation
margin to date 249
--------
Variation margin receivable
(payable) on open futures contracts (323)
Other Assets Less Liabilities 18,380
-----------
NET ASSETS $ 1,632,779
-----------
# Seven-day yield
+ Private Placement
ETC Equipment Trust Certificate
GPM Graduated Payment Mortgage
MTN Medium Term Note
REIT Real Estate Investment Trust
REMIC Real Estate Mortgage Investment Conduit
STEP Stepped coupon note for which the interest rate will adjust on specified
future date(s).
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 5.7% of net assets.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
May 31, 2000
-----------------------------------
STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
Assets
Investments in securities, at value (cost $1,694,389) $ 1,614,722
Securities lending collateral 297,905
Other assets 21,536
Total assets 1,934,163
Liabilities
Obligation to return securities lending collateral 297,905
Other liabilities 3,479
Total liabilities 301,384
NET ASSETS $ 1,632,779
-----------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 2,791
Accumulated net realized gain/loss - net of distributions (88,407)
Net unrealized gain (loss) (80,239)
Paid-in-capital applicable to 202,438,779 shares of
$1.00 par value capital stock outstanding;
300,000,000 shares authorized 1,798,634
NET ASSETS $ 1,632,779
-----------
NET ASSET VALUE PER SHARE $ 8.07
-----------
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
-----------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
In thousands
Year
Ended
5/31/00
Investment Income (Loss)
Income
Interest $ 124,974
Dividend 1,408
Securities lending 313
Total income 126,695
Expenses
Investment management 8,438
Shareholder servicing 4,106
Custody and accounting 248
Prospectus and shareholder reports 197
Legal and audit 18
Directors 12
Registration 8
Miscellaneous 13
Total expenses 13,040
Expenses paid indirectly (18)
Net expenses 13,022
Net investment income (loss) 113,673
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (70,404)
Futures (1,061)
Foreign currency transactions (189)
Net realized gain (loss) (71,654)
Change in net unrealized gain or loss
Securities (23,426)
Futures (572)
Change in net unrealized gain or loss (23,998)
Net realized and unrealized gain (loss) (95,652)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 18,021
-----------
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
In thousands
Year
Ended
5/31/00 5/31/99
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 113,673 $ 127,277
Net realized gain (loss) (71,654) (20,023)
Change in net unrealized gain or loss (23,998) (85,943)
Increase (decrease) in net assets from operations 18,021 21,311
Distributions to shareholders
Net investment income (113,579) (127,389)
Net realized gain - (33,390)
Decrease in net assets from distributions (113,579) (160,779)
Capital share transactions * \
Shares sold 192,491 378,655
Distributions reinvested 105,794 118,923
Shares redeemed (511,721) (491,927)
Increase (decrease) in net assets from capital
share transactions (213,436) 5,651
Net Assets
Increase (decrease) during period (308,994) (133,817)
Beginning of period 1,941,773 2,075,590
End of period $ 1,632,779 $ 1,941,773
------------ -----------
*Share information
Shares sold 23,373 42,662
Distributions reinvested 12,863 13,507
Shares redeemed (62,339) (55,845)
Increase (decrease) in shares outstanding (26,103) 324
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
May 31, 2000
-----------------------------
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 fund
seeks the highest level of income consistent with the preservation of capi-
tal over time by investing primarily in marketable debt securities.
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. Financial futures
contracts are valued at closing settlement prices.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the
officers of the fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales
22
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
of securities and income and expenses are translated into U.S. dollars at
the prevailing exchange rate on the dates of such transactions. The effect
of changes in foreign exchange rates on realized and unrealized security
gains and losses is reflected as a component of such gains and losses.
Premiums and Discounts Premiums and discounts on debt securities, 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. For tax purposes, premiums and discounts on
MBS acquired on or before June 8, 1997, are recognized upon disposition or
principal repayment 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. Expenses paid
indirectly reflect credits earned on daily uninvested cash balances at the
custodian and are used to reduce the fund's custody charges. Payments
("variation margin") made or received by the fund to settle the daily
fluctuations in the value of futures contracts are recorded as unrealized
gains or losses until the contracts are closed. Unrealized gains and losses
on futures contracts are included in Other assets and Other liabilities,
respectively, and in Change in net unrealized gain or loss in the
accompanying financial statements.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Futures Contracts At May 31, 2000, the fund was a party to futures
contracts, which provide for the future sale by one party and purchase by
another of a
23
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
specified amount of a specific financial instrument at an agreed upon
price, date, time, and place. Risks arise from possible illiquidity of the
futures market and from movements in security values and interest rates.
Securities Lending The fund lends its securities to approved brokers to
earn additional income and receives 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 over the life of the loan in an amount not less than 100% of the
value of loaned securities. Although risk is mitigated by the collateral,
the fund could experience a delay in recovering its securities and a
possible loss of income or value if the borrower fails to return them. At
May 31, 2000, the value of loaned securities was $287,530,000; aggregate
collateral consisted of $302,521,000 in the securities lending collateral
pool.
Other Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $427,746,000 and $519,219,000,
respectively, for the year ended May 31, 2000. Purchases and sales of
U.S. government securities aggregated $960,404,000 and $935,419,000,
respectively, for the year ended May 31, 2000.
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. As of May 31, 2000, the fund has capital loss
carryforwards for federal income tax purposes of $38,446,000, of which
$1,953,000 expires in 2007 and $36,493,000 in 2008. The fund intends to
retain gains realized in future periods that may be offset by available
capital loss carryforwards.
At May 31, 2000, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$1,694,389,000. Net unrealized loss aggregated $79,667,000 at period-end,
of which $2,658,000 related to appreciated investments and $82,325,000 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
24
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
fee, of which $642,000 was payable at May 31, 2000. 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 0.295% for assets
in excess of $120 billion. At May 31, 2000, and for the year 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 $2,272,000 for the year ended May 31, 2000, of which $260,000
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 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 36% of the
outstanding shares of the fund at May 31, 2000. For the year then ended,
the fund was allocated $1,623,000 of Spectrum expenses, $182,000 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 year ended
May 31, 2000, totaled $8,529,000 and are reflected as interest income in
the accompanying Statement of Operations.
25
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
---------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price New Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of T. Rowe
Price New Income Fund, Inc. (the "Fund") at May 31, 2000, and the results
of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements
in accordance with auditing standards generally accepted in the United
States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at May 31, 2000 by correspondence with the
custodian and broker, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
June 19, 2000
26
<PAGE>
T. ROWE PRICE NEW INCOME FUND
--------------------------------------------------------------------------------
---------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 5/31/00
--------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
For corporate shareholders, $21,000 of the fund's distributed income and
short-term capital gains qualified for the dividends-received deduction.
27
<PAGE>
T. ROWE PRICE SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to
10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your
distributions.
Automated 24-Hour Services Including Tele*Access(R) and the T. Rowe
Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and
other securities at a savings over full-service commission rates.**
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and
results.
T. Rowe Price Report Quarterly investment newsletter discussing
markets and financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit,
Diversifying Overseas: A Guide to International Investing, Personal
Strategy Planner, Retirees Financial Guide, and Retirement Planning
Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a September 1999 survey for representative-assisted
stock trades. Services vary by firm, and commissions may vary
depending on size of order.
28
<PAGE>
T. ROWE PRICE MUTUAL FUNDS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STOCK FUNDS BOND FUNDS MONEY MARKET FUNDS+
<S> <C> <C>
Domestic Domestic Taxable Taxable
Blue Chip Growth Corporate Income Prime Reserve
Capital Appreciation GNMA Summit Cash Reserves
Capital Opportunity High Yield U.S. Treasury Money
Diversified Small-Cap Growth New Income
Dividend Growth Short-Term Bond Tax-Free
Equity Income Short-Term U.S. Government California Tax-Free Money
Equity Index 500 Spectrum Income New York Tax-Free Money
Extended Equity Market Index Summit GNMA Summit Municipal
Financial Services Summit Limited-Term Bond Money Market
Growth & Income U.S. Treasury Intermediate Tax-Exempt Money
Growth Stock U.S. Treasury Long-Term
Health Sciences BLENDED ASSET FUNDS
Media & Telecommunications Domestic Tax-Free
Mid-Cap Growth California Tax-Free Bond Balanced
Mid-Cap Value Florida Intermediate Tax-Free Personal Strategy Balanced
New America Growth Georgia Tax-Free Bond Personal Strategy Growth
New Era Maryland Short-Term Personal Strategy Income
New Horizons* Tax-Free Bond Tax-Efficient Balanced
Real Estate Maryland Tax-Free Bond
Science & Technology New Jersey Tax-Free Bond T. ROWE PRICE NO-LOAD
Small-Cap Stock New York Tax-Free Bond VARIABLE ANNUITY
Small-Cap Value Summit Municipal Income
Spectrum Growth Summit Municipal Intermediate Equity Income Portfolio
Tax-Efficient Growth Tax-Free High Yield International Stock Portfolio
Total Equity Market Index Tax-Free Income Limited-Term Bond Portfolio
Value Tax-Free Intermediate Bond Mid-Cap Growth Portfolio
Tax-Free Short-Intermediate New America Growth Portfolio
International/Global Virginia Short-Term Personal Strategy Balanced
Emerging Markets Stock Tax-Free Bond Portfolio
European Stock Virginia Tax-Free Bond Prime Reserve Portfolio
Global Stock
International Discovery* International/Global
International Growth & Income Emerging Markets Bond
International Stock Global Bond
Japan International Bond
Latin America
New Asia
Spectrum International
</TABLE>
* Closed to new investors.
+ Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the funds.
Please call for a prospectus. 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.
29
<PAGE>
For fund and account information Walk-In Investor Centers:
or to conduct transactions, For directions, call 1-800-225-5132
24 hours, 7 days a week or visit our Web site
By touch-tone telephone
Tele*Access 1-800-638-2587 Baltimore Area
By Account Access on the Internet Downtown
www.troweprice.com/access 101 East Lombard Street
For assistance Owings Mills
with your existing Three Financial Center
fund account, call: 4515 Painters Mill Road
Shareholder Service Center
1-800-225-5132 Boston Area
386 Washington Street
To open a brokerage account Wellesley
or obtain information, call:
1-800-638-5660 Colorado Springs
4410 ArrowsWest Drive
Internet address:
www.troweprice.com Los Angeles Area
Warner Center
Plan Account Lines for retirement 21800 Oxnard Street, Suite 270
plan participants: Woodland Hills
The appropriate 800 number appears
on your retirement account statement. Tampa
4200 West Cypress Street
T. Rowe Price Associates 10th Floor
100 East Pratt Street
Baltimore, Maryland 21202 Washington, D.C.
900 17th Street N.W.
Farragut Square
This report is authorized for distribution only to shareholders and to others
who have received a copy of the prospectus appropriate to the fund or funds
covered in this report.
Invest with Confidence
[LOGO OF T. ROWE PRICE]
T. Rowe Price Investment Services, Inc., Distributor.
