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Previous: FIDELITY MT VERNON STREET TRUST, 497, 1995-01-05 |
Next: SANTA FE PACIFIC CORP, SC 14D9/A, 1995-01-05 |
<PAGE>
SemiAnnual Report
T.RowePrice
- ------------
Short-Term Bond
Fund
November 30, 1994
FOR YIELD, PRICE, LAST TRANSACTION, AND CURRENT BALANCE, 24 HOURS,
7 DAYS A WEEK, CALL:
1-800-638-2587 toll free
625-7676 Baltimore area
FOR ASSISTANCE WITH YOUR EXISTING FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distri-bution only to shareholders and to others
who have received a copy of the prospectus of the T. Rowe Price Short-Term
Bond Fund[registered trademark].
[logo]
<PAGE>
Fellow Shareholders
Over the past year, the Federal Reserve changed course from an easy monetary
policy to a progressive tightening as evidence mounted that the economic
expansion had gained momentum. Spurred by the lowest interest rates in a
generation, the economy has been expanding at roughly a 4% real rate since the
middle of last year. The civilian unemployment rate has dropped steadily and
is now well under 6%, and capacity utilization is near 85%. Concerned about
the inflationary impact of tight labor markets and capacity constraints, the
Fed raised the federal funds rate incrementally from 3% last year to 5.5% as
of November 30. The Fed's goal is to restrain the economy's growth to its
long-term trend rate of about 2.5% and deter inflation without raising
unemployment.
Money market rates began to rise in February of this year when the Fed
first lifted its objective for the federal funds rate, and longer-term rates
rose in response to the credit demands generated by a stronger economy.
Interest rates across the maturity spectrum are now one and three-quarters to
over three percentage points higher than a year ago, with the largest
increases in the two- to three-year range. In the last three months,
intermediate-term yields rose one to one and a quarter percentage points,
prompted by the Fed's mid-November increase in the funds rate and a stream of
robust economic data that fueled inflation fears.
PERFORMANCE AND STRATEGY REVIEW
As mentioned in our last report, we are restructuring the portfolio to enhance
returns in the higher rate environment. Over the past three months, we
continued to reduce our collateralized mortgage obligation (CMO) holdings in
favor of Treasuries and corporate notes, which together compose 70% of the
portfolio. As a result, overall mortgage-backed exposure has been reduced
significantly.
[chart]
Interest Rate Levels
A line graph compares the yields of the Five-Year Treasury Bond, the Two-Year
Treasury Note, Two-Year AA Finance Note, and the Federal Funds Rate from
11/30/93 to 11/30/94.
- ------------------------------------------------------------------------------
Because mortgage prepayments have dropped sharply, the effective maturities of
many CMO securities have lengthened and, therefore, their prices have adjusted
lower.
Over the last three months, income earned on short-term bonds was unable
to completely offset widespread price declines, resulting in negative
performance for the average mutual fund in this category, as shown below.
Money market securities, which mature in one year or less, were the only
fixed-income investments with a positive return for the quarter.
The Fund's performance lagged that of its peer group principally for two
reasons. First, although we reduced duration (a measure of sensitivity to
interest rate changes) from 2.1 to 1.6 years, we generally held a smaller cash
balance than our peer group. In view of the steep, short-term yield curve, we
have been reluctant to accept the income sacrifice that a larger cash position
would entail. Second, an adjustable rate mortgage (ARM) holding, which
composes about 1% of net assets, suffered a credit downgrading and dropped in
price.
Performance Comparison
Periods Ended 11/30/94
3 Months 6 Months
----------------------
Short-Term Bond Fund -1.04% -0.49%
Lipper Short Investment-
Grade Debt Funds Average -0.39 0.82
<PAGE>
OUTLOOK
The Federal Reserve will likely continue to raise its objective for the
federal funds rate until it sees that economic growth is slowing to its
long-term trend. So far the main impact of higher interest rates has fallen on
residential and business construction activity, while the rest of the economy
has not been materially affected. In fact, real GDP growth in the third
quarter was revised upward from 3.4% to 3.9%.
Money market rates should climb in step with a higher funds rate, and we
expect bond yields to drift slightly higher. Bond yields have already risen
nearly to the levels of the late 1980s---when the economy was last at full
employment---and may soon plateau.
We intend to maintain our defensive posture, but do not expect to shorten
maturities further over the near term. Current yields in the
short-intermediate market appear to already anticipate future Fed tightening,
so we will concentrate on the wide yield advantage that two- to three-year
notes currently enjoy over shorter-term securities.
Respectfully submitted,
s/Veena A. Kutler
Veena A. Kutler
President and Chairman of the
Investment Advisory Committee
December 22, 1994
[begin boxed text]
We are planning to announce that, effective January 1, 1995, Edward A. Wiese
will become Chairman of the Fund's Investment Advisory Committee. Mr. Wiese
joined T. Rowe Price in 1984 and has been managing fixed-income investments
since 1985. He is the President of the Prime Reserve Fund and has been a
member of the Short-Term Bond Fund's Advisory Committee since 1988.
[end boxed text]
<PAGE>
Statistical Highlights
T. Rowe Price Short-Term Bond Fund / November 30, 1994
Key Statistics
Periods
Dividend Yield* Ended 11/30/94
- --------------------------------------------------
3 Months 5.95%
6 Months 5.79
Dividend Per Share
- -----------------------------------
3 Months $0.07
6 Months 0.14
Change in Price Per Share
- -----------------------------------
3 Months (From $4.81 to $4.69) -$0.12
6 Months (From $4.85 to $4.69) -0.16
Weighted Average Maturity 2.1 yrs.
Weighted Average Effective Duration 1.6 yrs.
- --------------------------------------------------
*Dividends earned and reinvested for the periods indicated are annualized and
divided by the average daily net asset values per share for the same period.
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
Quality Diversification
Percent of Net Assets
TRPA Quality Rating* 8/31/94 11/30/94
- -------------------------------------------
1 41% 46%
2 10 8
3 29 28
4 17 15
5 3 3
- -------------------------------------------
Weighted Average 2.3 2.2
- -------------------------------------------
*On a scale of 1 to 10, with Grade 1 representing highest quality.
Sector Diversification*
Percent of Net Assets
8/31/94 11/30/94
- -----------------------------------------------
Corporate Bonds/Notes 44% 48%
U.S. Government
Obligations/Agencies 12 22
U.S. Government
Mortgage-Backed
Securities 24 20
Asset-Backed Securities
(Fixed and Floating Rate) 16 9
- -----------------------------------------------
*Sectors representing at least 2% of net assets on 11/30/94.
<PAGE>
Statement of Net Assets (Amounts in thousands)
T. Rowe Price Short-Term Bond Fund / November 30, 1994 (Unaudited)
Corporate Bonds & Notes---47.7%
Face
Amount Value
---------- ----------
BANKING & FINANCE---24.5%
Advanta, MTN, 7.21%, 12/1/97.......................... $3,000 $2,914
American Express Company, 8.75%, 6/15/96.............. 1,000 1,015
American General Finance, 5.80%, 4/1/97............... 7,000 6,675
Aristar, Sr. Notes, 6.25%, 7/15/96.................... 3,000 2,924
AVCO Financial Services, Sr. Notes, 7.50%, 11/15/96... 5,000 4,970
Banponce Financial, MTN, 7.73%, 8/15/97............... 2,000 1,971
Branch Banking & Trust Company, MTN, 4.75%, 5/15/96... 5,000 4,801
Cigna Notes, 8.00%, 9/1/96............................ 3,250 3,249
Citicorp, VR, 5.125%, 5/29/98......................... 5,000 4,973
Comdisco, MTN, 6.84%, 8/30/96......................... 3,000 2,952
Countrywide Funding, MTN, 6.92%, 6/1/95............... 4,000 4,004
First Chicago, MTN, 9.00%, 6/6/96..................... 5,000 5,105
First USA Bank, 6.91%, 9/16/96........................ 3,000 2,961
Fleet Financial Group, 7.25%, 10/15/97................ 3,000 2,940
Goldman Sachs Group L.P., VR, 4.80%, 3/30/97.......... 10,000 9,934
Hutton, E.F. Group, Notes, 8.875%, 5/1/96............. 4,250 4,271
KeyCorp, MTN, 8.98%, 6/11/96.......................... 4,000 4,072
Mellon Financial, Gtd. Notes, 5.375%, 8/1/95.......... 5,000 4,947
Mercantile Bankshares, Sr. Notes, 6.13%, 7/15/98
(Private Placement)................................. 3,500 3,201
Merrill Lynch & Company Inc., 4.75%, 6/24/96.......... 2,875 2,751
Morgan Stanley Group, Sr. Notes, 8.00%, 10/15/96...... 5,000 5,006
Nationsbank, 5.375%, 12/1/95.......................... 5,000 4,906
Old Kent Bank & Trust Company, 7.20%, 10/14/97........ 3,500 3,417
Shearson Lehman Holdings, MTN, 5.25%, 1/2/96.......... 5,000 4,882
Smith Barney Holdings, Sr. Notes, 5.375%, 6/1/96...... 5,000 4,832
Suntrust Banks, Notes, 8.375%, 3/1/96................. 3,000 3,022
Tenneco Credit, 10.125%, 12/1/97...................... 3,975 4,162
Wells Fargo & Company, MTN, 8.35%, 11/1/96............ 4,200 4,242
World Savings & Loan Assn., MTN, 4.875%, 3/1/96....... 5,000 4,865
119,964
INDUSTRIALS---17.3%
Chrysler Financial, MTN, 6.62%, 4/29/97............... 2,000 1,937
CSX, 9.50%, 11/15/95.................................. 1,700 1,732
Dow Capital, 8.25%, 2/15/96........................... 4,150 4,177
Ford Capital, Eurobond, 9.125%, 4/8/96................ 5,000 5,106
General Motors Acceptance Corporation, MTN, 7.125%,
8/18/97............................................. 5,000 4,864
GPA Leasing USA, Sub. I, Equip. Trust Certs., 9.125%,
12/2/96............................................. 3,807 3,492
Great Atlantic & Pacific Tea, 9.125%, 1/15/98......... 1,325 1,319
IBM, Notes, 9.00%, 5/1/98............................. 5,000 5,043
KMart, MTN, 8.71%, 4/7/97............................. 3,000 3,046
Lockheed Corporation, MTN, 4.875%, 2/15/96............ 1,000 969
Lyondell Petrochemical, 9.95%, 6/1/96................. 1,975 2,020
Macmillan Bloedel, Notes, 9.00%, 3/5/96............... 2,000 2,023
McDermott, 10.25%, 6/1/95............................. 3,250 3,299
McDonnell Douglas, 8.625%, 4/1/97..................... 3,000 3,021
Mitchell Energy & Development, Notes, 5.10%, 2/15/97.. 3,000 2,813
Northern Telecom, Notes, 8.25%, 6/13/96............... 5,000 5,028
Occidental Petroleum, MTN, 5.85%, 11/9/98............. 2,975 2,716
Phillip Morris Companies, MTN, 8.50%, 3/13/96......... 5,000 5,062
Sears Roebuck & Company, MTN, 8.00%, 10/21/96......... 1,500 1,503
8.58%, 7/24/95.................................... 2,500 2,526
9.19%, 3/7/95..................................... 600 604
Notes, 8.55%, 8/1/96................................ 1,500 1,516
Sony Capital, MTN, 6.97%, 6/30/97..................... 4,500 4,363
Tele Communications, MTN, 5.28%, 8/26/96.............. 3,000 2,870
Time Warner, Sr. Notes, 7.45%, 2/1/98................. 3,000 2,859
Toyota Motor Credit, Eurobond, 7.25%, 12/13/96........ 5,000 4,976
USX Marathon Group, 8.875%, 9/15/97................... 2,975 3,001
Westinghouse Credit, MTN, 9.04%, 6/1/98............... 1,000 1,000
9.13%, 8/1/95..................................... 2,000 2,015
84,900
UTILITIES---5.9%
Commonwealth Edison Company, 6.25%, 2/1/98............ 1,550 1,435
Consumers Power, 5.875%, 7/1/96....................... 2,750 2,682
Florida Power, MTN, 8.40%, 8/1/96..................... 550 556
General Telephone Company Indiana, 4.70%, 8/1/95...... 4,000 3,940
Grand Metropolitan Investment., Sr. Notes, 8.125%,
8/15/96............................................. 5,000 5,032
Long Island Lighting, 5.50%, 4/1/97................... 1,975 1,867
National Rural Utilities Cooperative Finance, 9.50%,
5/15/97............................................. 2,000 2,062
Potomac Capital, MTN, 6.38%, 10/6/97.................. 1,500 1,426
Potomac Capital Investment, 6.61%, 3/16/98............ 1,000 951
Public Service Company of Colorado, 5.875%, 7/1/97.... 1,000 942
Public Service Company of New Hampshire, 9.17%,
5/15/98............................................. 4,000 3,975
Southern New England Telecommunications, MTN, 7.65%,
9/5/95.............................................. 4,000 4,020
28,888
- ----------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES (COST---$238,436) 233,752
Asset-Backed Securities---9.3%
AUTO-BACKED---1.8%
Olympic Automobile Receivable, 4.95%, 10/15/99........ 1,471 1,430
UCFC Loan Trust, VR, 5.5125%, 12/25/24................ 4,166 4,162
USAA Auto Loan Grantor Trust, 5.00%, 11/15/99......... 3,538 3,446
9,038
CREDIT CARD-BACKED---3.1%
Chase Credit Card Trust, 8.45%, 11/15/97.............. 77 77
MBNA Master Credit Card Trust, VR, 5.275%, 3/15/01.... 10,000 9,938
Sears Credit Account Trust, 9.35%, 10/15/97........... 5,000 5,061
15,076
FOREIGN GOVERNMENT BACKED---2.0%
MAS Capital Cayman Limited, (144a), Zero Coupon,
4/15/95............................................. 10,000 9,725
HOME EQUITY LOANS-BACKED---0.2%
SPNB Home Equity Loan, 7.85%, 5/15/98................. 79 79
U.S. Home Equity Loan, 8.50%, 4/15/21................. 1,016 1,018
1,097
RECEIVABLES-BACKED---0.8%
John Deere Owner Trust, 5.55%, 9/29/99................ 1,423 1,417
Unisys Receivables, 5.05%, 11/15/96................... 2,500 2,433
3,850
WHOLE LOANS-BACKED---1.4%
Great Western Bank, ARM, 4.910%, 7/25/17.............. 1,870 1,806
Guardian Savings & Loan, MPC, ARM, 6.7896%, 12/25/19.. 3,497 2,623
6.8324%, 12/25/19................................... 2,749 2,062
Salomon Mortgage Security VII, CMO, 7.8063%,
11/25/20............................................ 365 360
6,851
- ----------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES (COST---$47,693) 45,637
U.S. Government Obligations---22.1%
U.S. Treasury Notes, 8.00%, 10/15/96.................. 11,500 11,622
9.375%, 4/15/96..................................... 94,000 96,570
- ----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (COST---$109,721) 108,192
US $ Denominated Foreign Securities/1/---0.4%
Asian Development Bank, Eurobonds, 8.00%, 12/10/96
(Cost---$1,990)..................................... 2,000 2,018
U.S. Government Mortgage-Backed Securities---19.9%
U.S. GOVERNMENT GUARANTEED OBLIGATIONS---7.8%
Government National Mortgage Assn., I, 8.50%,
2/15/05 - 3/15/06............................... 1,226 1,229
10.50%, 11/15/15.................................. 505 547
11.00%, 12/15/09 - 8/15/18........................ 14,316 15,797
11.50%, 10/15/10 - 3/15/15........................ 315 351
12.00%, 1/15/13 - 4/15/15......................... 151 170
12.50%, 7/15/10 - 5/15/14......................... 328 374
13.00%, 11/15/12 - 4/15/15........................ 162 186
ARM, II, 4.00%, 11/20 - 12/20/23.................... 6,876 6,251
4.875%, 7/20/21................................... 1,129 1,079
5.50%, 3/20/22.................................... 972 915
6.00%, 4/20/22.................................... 1,366 1,321
Graduated Payment Mortgage, I, 9.50%,
8/15 - 10/15/09............................... 130 133
11.00%, 8/15/10................................. 122 133
11.25%, 6/15/13 - 1/15/16....................... 1,244 1,355
11.75%, 7/15/13 - 11/15/15...................... 4,400 4,854
13.00%, 9/15/11................................. 17 19
II, 11.00%, 9/20/13 - 4/20/14..................... 80 87
11.25%, 8/20/13 - 12/20/15...................... 130 141
Midget, I, 9.00%, 7/15/01 - 2/15/06................. 1,504 1,543
9.50%, 5/15/01 - 4/15/05.......................... 344 359
10.00%, 4/15/98 - 10/15/04........................ 1,066 1,121
11.50%, 4/15 - 5/15/00............................ 112 122
38,087
U.S. GOVERNMENT AGENCY OBLIGATIONS---7.7%
Federal Home Loan Mortgage, 5.25%, 7/1/97............. 64 63
6.00%, 10/15/20................................... 2,200 1,780
7.00%, 7/15/21.................................... 2,700 2,398
9.00%, 7/1/01 - 7/1/02............................ 2,422 2,456
9.50%, 8/1/01 - 9/1/02............................ 1,839 1,895
10.00%, 1/1/01 - 10/1/05.......................... 1,058 1,096
11.00%, 8/1/00 - 2/1/01........................... 996 1,044
5 year balloon, 9.50%, 8/1 - 11/1/95................ 455 468
7 year balloon, 9.50%, 4/1 - 8/1/97................. 149 154
ARM, 5.00%, 12/1/17 - 1/1/20........................ 1,062 1,027
5.054%, 12/1/18................................... 767 741
5.11%, 3/1/19..................................... 1,983 1,918
5.125%, 5/1/18.................................... 697 669
5.271%, 6/1/21.................................... 617 598
5.412%, 1/1/20.................................... 920 890
5.756%, 5/1/19.................................... 225 220
5.875%, 10/1/17................................... 1,499 1,483
6.00%, 4/1/18..................................... 1,028 1,023
6.104%, 9/1/19.................................... 1,455 1,462
6.713%, 8/1/15.................................... 87 86
Federal National Mortgage Assn., 5.50%,
8/1/97 - 11/1/05................................ 301 282
6.00%, 9/1/10..................................... 2,002 1,829
7.50%, 8/25/21.................................... 726 651
9.00%, 1/1 - 7/1/98............................... 2,419 2,469
9.50%, 12/1/97 - 1/1/98........................... 103 107
11.00%, 10/1/00 - 4/1/04.......................... 723 775
ARM, 4.875%, 3/1/17................................. 156 151
5.00%, 9/1/17 - 10/1/18........................... 377 364
5.05%, 8/1/17..................................... 771 746
5.11%, 7/1/17..................................... 583 564
5.219%, 3/1/18.................................... 1,704 1,681
5.421%, 1/1/19.................................... 304 301
5.48%, 10/1/21.................................... 678 671
5.842%, 5/1/19.................................... 905 901
6.235%, 11/1/19................................... 1,843 1,842
6.244%, 9/1/19.................................... 2,176 2,171
6.994%, 9/1/18.................................... 377 378
9.00%, 3/1 - 9/1/97............................... 368 376
9.50%, 5/1 - 10/1/97.............................. 203 209
37,939
U.S. GOVERNMENT AGENCY-BACKED---0.7%
MLTrust XXXIII, CMO, 8.05%, 8/1/18.................... 3,545 3,356
STRIPPED MORTGAGE SECURITIES---3.7%
American Housing Trust, Interest Only, 0.7108%,
1/25/22**........................................... 296,363 7,688
Federal Home Loan Mortgage, CMO, Interest Only, 6.00%,
12/15/08**.......................................... 4,973 1,276
6.50%, 8/15/13**.................................... 17,260 2,891
Federal National Mortgage Assn., CMO, Interest Only,
6.50%, 8/25/13**.................................... 36,986 6,195
18,050
- ----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES
(COST---$98,370) 97,432
Commercial Paper---1.4%
American General Investment, 5.75%, 12/1/94........... 5,000 4,999
Harvard University, 5.75%, 12/1/94.................... 2,118 2,118
- ----------------------------------------------------------------------------
TOTAL COMMERICAL PAPER (COST---$7,117) 7,117
- ----------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES---100.8%
(COST---$503,327) 494,148
- ----------------------------------------------------------------------------
Other Assets Less Liabilities---(0.8)% ............... (3,963)
NET ASSETS CONSISTING OF:
Accumulated net investment income - net of
distributions....................................... 295
Accumulated realized gains/losses - net of
distributions ...................................... (37,194)
Net unrealized loss................................... (9,179)
Paid-in-capital applicable to 104,524,632 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares authorized..................... 536,263
----------
NET ASSETS---100.0%................................... $490,185
----------
----------
NET ASSET VALUE PER SHARE............................. $4.69
-----
-----
- ----------------------------------------------------------------------------
/1/ Marketable securities (payable in U.S. dollars) issued or guaranteed by a
foreign government or community.
** - For Interest Only securities, face amount represents notional
principal, on which the Fund receives interest.
ARM - Adjustable Rate Mortgage
CMO - Collateralized Mortgage Obligation
MPC - Mortgage Pass-Through Certificates
MTN - Medium Term Notes
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.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of Operations
T. Rowe Price Short-Term Bond Fund / Six Months Ended November 30, 1994
(Unaudited)
Amounts in
Thousands
-------------------
INVESTMENT INCOME
Interest income......................................... $18,192
Expenses
Investment management fees............................ $1,225
Shareholder servicing fees & expenses................. 789
Custodian and accounting fees & expenses.............. 124
Registration fees & expenses.......................... 27
Proxy & annual meeting expenses....................... 24
Prospectus & shareholder reports...................... 23
Legal & auditing fees................................. 14
Directors' fees & expenses............................ 8
Miscellaneous expenses................................ 7
---------
Total expenses........................................ 2,241
---------
Net investment income................................... 15,951
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss
Securities............................................ (20,722)
Currencies and forward currency exchange
contracts........................................... (1)
---------
Net realized loss..................................... (20,723)
Change in net unrealized gain or loss................... 3,111
---------
Net loss................................................ (17,612)
---------
DECREASE IN NET ASSETS FROM OPERATIONS.................. $(1,661)
---------
---------
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of Changes in Net Assets
T. Rowe Price Short-Term Bond Fund (Unaudited)
Three
Months
Six Ended
Months May 31, Year
Ended 1994 Ended
Nov. 30, [double Feb. 28,
1994 dagger] 1994
--------------- --------------- --------------
Amounts in Thousands
----------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment income........ $15,951 $8,844 $38,541
Net realized loss............ (20,723) (4,543) (4,168)
Change in net unrealized
gain or loss............... 3,111 (15,924) (7,588)
--------- --------- ---------
Increase (decrease) in net
assets from operations..... (1,661) (11,623) 26,785
--------- --------- ---------
Distributions to shareholders
Net investment income........ (15,777) (8,723) (34,238)
Tax return of capital........ - - (4,489)
--------- --------- ---------
Decrease in net assets from
distributions to
shareholders............... (15,777) (8,723) (38,727)
--------- --------- ---------
Capital share transactions/1/
Sold......................... 71,795 63,603 459,507
Distributions reinvested..... 13,443 7,356 35,993
Redeemed..................... (179,539) (116,755) (371,822)
--------- --------- ---------
Increase (decrease) in net
assets from capital share
transactions............... (94,301) (45,796) 123,678
--------- --------- ---------
Total increase (decrease)...... (111,739) (66,142) 111,736
NET ASSETS
Beginning of period.......... 601,924 668,066 556,330
--------- --------- ---------
End of period................ $490,185 $601,924 $668,066
--------- --------- ---------
--------- --------- ---------
- ------------------------------------------------------------------------------
/1/Share transactions
Sold......................... 15,018 shs. 12,926 shs. 90,418 shs.
Distributions reinvested..... 2,812 1,505 7,089
Redeemed..................... (37,528) (23,760) (73,263)
--------- --------- ---------
Increase (decrease) in shares
outstanding................ (19,698) shs. (9,329) shs. 24,244 shs.
--------- --------- ---------
--------- --------- ---------
- ------------------------------------------------------------------------------
[double dagger] The Fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Notes to Financial Statements
T. Rowe Price Short-Term Bond Fund / November 30, 1994 (Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Short-Term Bond Fund (the Fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company.
A) Security valuation - Debt securities are generally traded in the
over-the-counter market. Investments in securities with remaining maturities
of one year or more are stated at fair value as furnished by dealers who make
markets in such securities or by an independent pricing service, which
considers yield or price of bonds of comparable quality, coupon, maturity, and
type, as well as prices quoted by dealers who make markets in such securities.
Securities with remaining maturities less than one year are stated at fair
value which is determined by using a matrix system that establishes a value
for each security based on money market yields.
For purposes of determining the Fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by, or under the supervision of, the officers of
the Fund, as authorized by the Board of Directors.
B) Premiums and Discounts - Except for mortgage-backed securities, premiums
and discounts on debt securities are amortized for both financial and tax
reporting purposes.
C) Other - Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on an identified cost basis. Distributions to shareholders are
recorded by the Fund on the ex-dividend date. Income and capital gain
distributions are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles.
NOTE 2 - PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term and U.S.
Government securities, aggregated $124,458,000 and $150,464,000. Purchases and
sales of U.S. Government securities aggregated $305,716,000 and $321,576,000
respectively, for the six months ended November 30, 1994.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the Fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income. The Fund has unused realized capital loss carryforwards
for federal income tax purposes of $15,909,000 at May 31, 1994, which expire
in 1995 through 2002.
At November 30, 1994, the aggregate cost of investments for federal income
tax and financial reporting purposes was $503,327,000 and net unrealized loss
aggregated $9,179,000, of which $2,599,000 related to appreciated investments
and $11,778,000 to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the Fund and T. Rowe Price
Associates, Inc. (the Manager) provides for an annual investment management
fee, computed daily and paid monthly, consisting of an Individual Fund Fee
equal to 0.10% of average daily net assets and a Group Fee. The Group Fee is
based on the combined assets of certain mutual funds sponsored by the Manager
or Rowe Price-Fleming International, Inc. (the Group). The Group Fee rate
ranges from 0.48% for the first $1 billion of assets to 0.31% for assets in
excess of $34 billion. The effective annual Group Fee rate at November 30,
1994, and for the six months then ended was 0.34%. The Fund pays a pro rata
portion of the Group Fee based on the ratio of the Fund's net assets to those
of the Group.
<PAGE>
T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services, Inc.
(RPS) are wholly owned subsidiaries of the Manager. TRPS provides transfer and
dividend disbursing agent functions and shareholder services for all accounts.
RPS provides subaccounting and recordkeeping services for certain retirement
accounts invested in the Fund. The Manager, under a separate agreement,
calculates the daily share price and maintains the financial records of the
Fund. The Fund is one of several T. Rowe Price mutual funds (the Underlying
Funds) in which the T. Rowe Price Spectrum Income Fund (Spectrum) invests. In
accordance with an Agreement between Spectrum, the Underlying Funds, the
Manager and TRPS, expenses from the operation of Spectrum are borne by the
Underlying Funds based on each Underlying Fund's proportionate share of assets
owned by Spectrum. For the six months ended November 30, 1994, the Fund
incurred fees totalling approximately $741,000, for these services provided by
related parties. At November 30, 1994, investment management and service fees
payable were $343,000.
<PAGE>
Financial Highlights
T. Rowe Price Short-Term Bond Fund (Unaudited)
<TABLE>
<CAPTION>
For a share outstanding throughout each period
--------------------------------------------------------------
Three
Months
Six ended
Months May 31, Year ended
ended 1994 --------------------------------------------
Nov. 30, [double Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 dagger] 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................................ $4.85 $5.00 $5.09 $5.05 $4.94 $4.91 $4.88
-------- -------- -------- -------- -------- -------- --------
Investment Activities
Net investment income.............................. 0.15 0.07 0.31 0.33 0.35 0.39 0.42
Net realized and unrealized gain (loss)............ (0.17) (0.15) (0.09) 0.04 0.11 0.06 0.03
-------- -------- -------- -------- -------- -------- --------
Total from Investment Activities..................... (0.02) (0.08) 0.22 0.37 0.46 0.45 0.45
-------- -------- -------- -------- -------- -------- --------
Distributions
Net investment income.............................. (0.14) (0.07) (0.28) (0.33) (0.35) (0.39) (0.42)
Net realized gain ................................. - - - - - (0.03) -
Tax return of capital ............................. - - (0.03) - - - -
-------- -------- -------- -------- -------- -------- --------
Total Distributions.................................. (0.14) (0.07) (0.31) (0.33) (0.35) (0.42) (0.42)
-------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE,
END OF PERIOD...................................... $4.69 $4.85 $5.00 $5.09 $5.05 $4.94 $4.91
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
- --------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return......................................... (0.49)% (1.65)% 4.36% 7.63% 9.70% 9.61% 9.42%
Ratio of Expenses to
Average Net Assets................................. 0.81% 0.79% 0.74% 0.76% 0.88% 0.93% 0.95%
[dagger] [dagger]
Ratio of Net Investment Income
to Average Net Assets.............................. 5.78% 5.56% 6.00% 6.59% 7.07% 7.90% 8.43%
[dagger] [dagger]
Portfolio Turnover Rate.............................. 161.0% 222.8% 90.8% 68.4% 380.7% 980.4% 161.1%
[dagger] [dagger]
Net Assets, End of Period
(in thousands)..................................... $490,185 $601,924 $668,066 $556,330 $396,980 $218,634 $209,711
- --------------------------------------------------------------------------------------------------------------------
<FN>
[double dagger] The Fund's fiscal year-end was changed to May 31.
[dagger] Annualized.
</TABLE>
<PAGE>
T. Rowe Price No-Load Mutual Funds
STABILITY
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
CONSERVATIVE INCOME
Adjustable Rate U.S. Government
Short-Term Bond
Short-Term Global Income
Summit Limited-Term Bond
U.S. Treasury Intermediate
Florida Insured Intermediate Tax-Free
Maryland Short-Term Tax-Free Bond
Summit Municipal Intermediate
Tax-Free Insured Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term-Tax Free Bond
INCOME
Global Government Bond
GNMA
New Income
Spectrum Income
Summit GNMA
U.S. Treasury Long-Term
California Tax-Free Bond
Georgia Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Tax-Free Income
Virginia Tax-Free Bond
AGGRESSIVE INCOME
High Yield
International Bond
Personal Strategy Income
Tax-Free High Yield
CONSERVATIVE
GROWTH
Balanced
Capital Appreciation
Dividend Growth
Equity Income
Equity Index
Growth & Income
Personal Strategy Balanced
Personal Strategy Growth
Spectrum Growth
Value
GROWTH
Blue Chip Growth
European Stock
Growth Stock
International Stock
Japan
Mid-Cap Growth
New Era
Small-Cap Value
AGGRESSIVE GROWTH
Capital Opportunity
International Discovery
Latin America
New America Growth
New Asia
New Horizons
OTC
Science & Technology
Call if you want to know about any T. Rowe Price Fund. We'll send you a
prospectus with more complete information, including management fees and other
expenses. Read it carefully before you invest or send money.
<PAGE>
Shareholder Services
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety
of information and services---at no extra cost.
TELEPHONE SERVICES
ACCESS YOUR ACCOUNT 24 HOURS A DAY BY CALLING 1-800-638-2587.
Tele*Access[registered trademark]---Gives you your account balance, date
and amount of your last transaction, latest dividend payment, and fund prices
and yields; lets you buy, sell, and exchange shares among identically
registered accounts and move assets between your bank and fund accounts.
SHAREHOLDER SERVICE REPRESENTATIVES ARE AVAILABLE FROM 8:00 A.M. TO 10:00
P.M., MONDAY-FRIDAY, AND SATURDAY AND SUNDAY FROM 9:00 A.M. TO 5:00 P.M., ET
CALL 1-800-225-5132.
Shareholder Service Center---Call to exchange shares or move money between
your bank and fund accounts.
ACCOUNT SERVICES
Checking---Write checks for $500 or more on any money market and most bond
fund accounts.
Automatic Investing---Build your account over time by investing directly
from your bank account or paycheck. A low, $50 minimum makes it easy to get
started.
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.
INVESTMENT INFORMATION
Combined Statement---A comprehensive overview of your T. Rowe Price
accounts. The summary page gives your earnings by tax category, provides total
portfolio value, and lists your investments by type---stock, bond, and money
market. Detail pages itemize account transactions by fund.
Quarterly Shareholder Reports---Portfolio managers review the performance
of the funds in plain language and discuss T. Rowe Price's economic outlook.
The T. Rowe Price Report---A quarterly newsletter with relevant articles
on market trends, personal financial planning, and
T. Rowe Price's economic perspective.
Insights---A library of information that includes reports on mutual fund
tax issues, investment strategies, and financial markets.
Detailed Investment Guides---Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Retirees Financial Guide, Retirement Planning Kit (also
available on disk for PC use) and Guide to Risk-Adjusted Performance can help
you determine and reach your investment goals.
DISCOUNT BROKERAGE
Trade stocks, bonds, options, and precious metals at substantial savings over
full-cost brokers.
Tele*Trade---Call this automated phone service after business hours to
place your orders.
Fax*Trade---Buy and sell by simply faxing your order.
Tele*Quote---Provides 24-hour access to stock and option quotes.
Money Fund Sweep Feature---Buy and sell securities and have your "sweep"
account automatically debited or credited. Dividend and interest payments are
credited daily.
If you have questions or would like to add a service to your account, please
call our Shareholder Service Center.
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