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).
Invest With Confidence(registered trademark)
T. Rowe Price
STB
SemiAnnual Report
T. Rowe Price
Short-Term Bond Fund
November 30, 1995
<PAGE>
Fellow Shareholders
Market Environment
Despite giving back some gains during the summer, the bond market continued
its yearlong rally over the last six months, buoyed by subdued inflation and
the renewed vigor of budget-balancing efforts in Washington. The market's
surge in the first half of 1995 was driven by an inventory correction that
pushed economic growth down to an annualized rate of 1.3% in the second
calendar quarter, well below the robust 4.1% pace of 1994. The economy's
anemic performance sparked concern that the Federal Reserve's long period of
monetary tightening, with seven hikes in the key federal funds target between
February 1994 and February 1995, had perhaps gone too far.
Responding to indications of softness, the Fed lowered the federal funds
target to 5.75% in July, its first reduction in nearly three years. The bond
rally sputtered briefly in the summer when the economy appeared stronger than
the Fed had anticipated. Indeed, growth surged to a robust 4.2% rate in the
third calendar quarter. The bond market quickly rebounded, however, on
continued signs of subdued inflation and a belief that federal deficit
reduction will lead to a
Chart 1 - Interest Rate Levels
more stimulative Fed policy over the next few years. That view sparked a sharp
drop in most shorter-term interest rates, despite the economy's strength in
the third quarter.
The economic expansion is now into its fifth year, but there are few if
any signs of an impending recession. If the federal government reduces
spending, the slack will have to be taken up by the private sector to maintain
full employment, probably compelling the Fed to ease. That should produce a
favorable environment for the bond market.
Optimism over a balanced budget and a looser Fed policy is reflected in
the virtually flat Treasury yield curve (which measures the difference in
yields among Treasuries of various maturities). At the end of November, as the
chart shows, Treasuries of less than 10 years were yielding less than the
5.75% federal funds rate on overnight loans. The curve illustrates the
market's belief that interest rates will continue to fall, despite the
economy's underlying strength.
Chart 2 - Treasury Yield Curves
Performance and Strategy Review
After trailing its peer group average earlier in 1995, your fund staged a
comeback in the last six months. We began the year with a relatively short
duration since it was not clear that the Fed was finished raising interest
rates. While a shorter duration protects a fund's share price during periods
of rising rates, it restrains price appreciation when interest rates drop.
Consequently, our performance lagged the benchmark when rates dropped sharply
in the spring.
Since then, however, we gradually extended the fund's duration (from 1.8
years last May to 2.2 years on November 30) and its weighted average maturity
(from 2.2 years to 2.9 years). These moves helped the fund outperform its
benchmark over the last six months as interest rates declined further,
although it continued to lag for the 12-month period mostly due to our earlier
defensive posture.
Performance Comparison
Periods Ended 11/30/95
6 Months 12 Months
________ ________
Short-Term Bond Fund 4.07% 8.14%
Lipper Short Investment-
Grade Debt Funds Average 3.79 10.01
During the last six months, we reduced our holdings of Treasuries to 14%
of net assets, while increasing our exposure to mortgage-backed securities to
22%. With interest rates dropping, the difference in yields between these two
sectors widened modestly, producing relatively attractive yields on
mortgage-backed issues with little additional credit risk. We minimized the
slight increase in risk by selecting issues with intermediate-term cash flow
characteristics.
Our decision to increase the fund's exposure to corporate securities
(including asset-backed issues) to more than half of net assets proved
fortunate. These issues enjoyed healthy demand, buoyed by steadily improving
corporate earnings. The fund benefited particularly from its relatively high
18% position in BBB-rated corporate securities, which outperformed
higher-rated issues. As usual, we focused on a select group of BBB-rated
instruments identified by our credit analysts as having less risk or better
prospects than other BBB-rated issues.
While overall business fundamentals remain strong, some cracks are
beginning to appear in the corporate sector, particularly in retailing and
consumer finance. If other industries begin to show signs of strain,
particularly this late in an expansion, we may seek to improve credit quality
in our corporate holdings over the next six months. The fund's overall credit
quality remained high at a weighted average rating of 2.1.
Outlook
We are cautiously optimistic that interest rates will decline in coming
months. This is reflected in the fund's slightly more aggressive stance
compared with its peer group. For instance, we are modestly overweighted in
mortgage-backed securities and lower-rated corporates, giving the fund a
slightly higher yield. In addition, we have a marginally longer maturity
posture than our peer group.
If Congress and the Clinton administration can rise above their
rancorous debate to achieve meaningful steps toward deficit reduction,
interest rates are likely to edge lower in 1996. Although progress could still
evaporate, as it did with the Gramm-Rudman-Hollings proposals in the 1980s, we
are optimistic on the prospects for a balanced budget by 2002. In our view,
inflation will remain subdued, and the economy will grow at its historical
pace of around 2.5% for 1996.
Respectfully submitted,
Edward A. Wiese
President and Chairman of the
Investment Advisory Committee
December 15, 1995
Portfolio Highlights
T. Rowe Price Short-Term Bond Fund / November 30, 1995
Key Statistics
Periods Ended
Dividend Yield* 11/30/95
______________________________ ____________
6 Months 6.37%
12 Months 6.55
Dividend Per Share
______________________________
6 Months $0.15
12 Months 0.30
Change in Price Per Share
______________________________
6 Months (From $4.72 to $4.76) $0.04
12 Months (From $4.69 to $4.76) 0.07
Weighted Average Maturity 2.9 yrs.
Weighted Average Effective Duration 2.2 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.
Quality Diversification
Percent of Net Assets
TRPA Quality Rating* 5/31/95 11/30/95
______________________ _______ _______
1 50% 49%
2 8 8
3 23 24
4 18 18
Below 4 1 1
Weighted Average 2.1 2.1
* On a scale of 1 to 10, with Grade 1 representing highest quality.
Sector Diversification*
Percent of Net Assets
5/31/95 11/30/95
_______ _______
U.S. Government Securities
Treasuries 22% 14%
Agencies 4 5
Mortgage-Backed Securities
U.S. Government 15 22
Corporates
Banking 10 9
Finance and Credit 8 9
Industrial 8 9
Asset-Backed 7 8
Investment Dealers 5 5
Consumer Products and Services 4 5
Media and Communications 2 4
Utilities 2 3
Commercial Paper 3 3
* Sectors representing at least 2% of net assets on 11/30/95.
Average Annual Compound Total Return
Periods Ended November 30, 1995
1 Year 5 Years 10 Years
______ ______ ______
8.14% 5.85% 6.82%
Note: For the periods ended 9/30/95, the fund's returns were 5.15%, 5.84%, and
6.83%, respectively.
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
Statement of Net Assets
T. Rowe Price Short-Term Bond Fund / November 30, 1995 (Unaudited)
(amounts in thousands)
Amount Value
_____ _____
Corporate Bonds and Notes - 44.9%
BANKING - 8.6%
Bankers Trust, Sub. Notes, 9.50%, 6/14/00. . . . . $ 5,000 $ 5,576
Banponce Financial, MTN, 7.73%, 8/15/97. . . . . . 2,000 2,055
Citicorp, 6.00%, 5/29/98 . . . . . . . . . . . . . 5,000 4,972
First USA Bank (Delaware), 6.125%, 10/30/97. . . . 4,750 4,786
Firstar, Sub. Notes, 7.15%, 9/1/00 . . . . . . . . 2,700 2,752
Golden West Financial, 6.70%, 7/1/02 . . . . . . . 5,000 5,086
KeyCorp, MTN, 8.98%, 6/11/96 . . . . . . . . . . . 4,000 4,059
MBNA, MTN, 6.50%, 9/15/00. . . . . . . . . . . . . 5,000 5,068
Mercantile Bankshares, Sr. Notes,
6.13%, 7/15/98 (Private Placement) . . . . . . . . 3,500 3,513
Old Kent Bank & Trust, 7.20%, 10/14/97 . . . . . . 3,500 3,585
41,452
CONSUMER PRODUCTS - 3.7%
General Mills, MTN, 7.16%, 10/3/97 . . . . . . . . 3,000 3,072
Pepsico, MTN, 6.80%, 5/15/00 . . . . . . . . . . . 4,775 4,923
Phillip Morris Companies, MTN, 8.50%, 3/13/96. . . 5,000 5,032
Joseph E. Seagram & Sons, Gtd. Notes,
9.75%, 6/15/00 . . . . . . . . . . . . . . . . . . 4,550 4,618
. . . . . . . . . . . . . . . . . . . . . . . . . 17,645
CONSUMER SERVICES - 1.0%
Columbia HCA Healthcare, Notes,
6.41%, 6/15/00. . . . . . . . . . . . . . . . . . 2,550 2,582
6.50%, 3/15/99. . . . . . . . . . . . . . . . . . 2,000 2,023
4,605
FINANCE AND CREDIT - 8.9%
Advanta, MTN, 7.21%, 12/1/97 . . . . . . . . . . . 3,000 3,074
American Express, 8.75%, 6/15/96 . . . . . . . . . 1,000 1,014
American General Finance, 5.80%, 4/1/97. . . . . . 2,000 2,001
Aristar, Sr. Notes, 6.25%, 7/15/96 . . . . . . . . 3,000 3,004
Ciesco, MTN, 7.38%, 4/19/00. . . . . . . . . . . . 3,750 3,909
Cigna, Notes, 8.00%, 9/1/96. . . . . . . . . . . . 3,250 3,293
Comdisco, 7.25%, 4/15/98 . . . . . . . . . . . . . 5,000 5,131
Countrywide Funding, MTN, 6.02%, 3/25/98 . . . . . 5,000 5,009
Fleet Mortgage Group, Notes, 6.50%, 6/15/00. . . . 4,475 4,538
General Electric Capital, MTN, 8.10%, 1/26/99. . . 5,000 5,352
GPA Leasing USA, Sub. I, Equip. Trust Certs.,
9.125%, 12/2/96. . . . . . . . . . . . . . . . . . 3,749 3,668
Providian, MTN, 6.92%, 5/16/00 . . . . . . . . . . 2,700 2,796
. . . . . . . . . . . . . . . . . . . . . . . . . 42,789
INDUSTRIALS - 8.5%
Boise Cascade, 9.875%, 2/15/01 . . . . . . . . . . 2,500 2,748
Chrysler Financial, MTN, 6.62%, 4/29/97. . . . . . 2,000 2,019
Dow Capital, Deb., 8.25%, 2/15/96. . . . . . . . . 4,150 4,166
Ford Motor, MTN, 7.02%, 10/10/00 . . . . . . . . . 5,000 5,188
General Motors Acceptance Corporation,
9.625%, 12/15/01 . . . . . . . . . . . . . . . . . 5,000 5,833
IBM, 6.375%, 6/15/00 . . . . . . . . . . . . . . . 5,000 5,092
Lockheed, MTN, 4.875%, 2/15/96 . . . . . . . . . . 1,000 997
Noranda, 8.625%, 7/15/02 . . . . . . . . . . . . . 2,750 3,073
Reynolds Metals, MTN, 9.20%, 7/6/00. . . . . . . . 5,750 6,407
Tenneco Credit, Sr. Notes, 10.125%, 12/1/97. . . . 3,975 4,287
Westinghouse Credit, MTN, 9.04%, 6/1/98. . . . . . 1,000 1,053
40,863
INVESTMENT DEALERS - 5.0%
Hutton, E.F. Group, Notes, 8.875%, 5/1/96. . . . . 4,250 4,293
PaineWebber Group, Notes, 7.00%, 3/1/00. . . . . . 4,725 4,809
Salomon, MTN, 5.47%, 8/29/97 . . . . . . . . . . . 4,750 4,678
Shearson Lehman Holdings, MTN, 5.25%, 1/2/96 . . . 5,000 4,995
Smith Barney Holdings, Notes,
7.00%, 5/15/00 . . . . . . . . . . . . . . . . . . 5,000 5,144
23,919
MEDIA AND COMMUNICATIONS - 3.6%
Cox Communications, 6.375%, 6/15/00. . . . . . . . 5,000 5,037
News America Holdings, Sr. Notes,
7.50%, 3/1/00. . . . . . . . . . . . . . . . . . . 4,750 4,970
Tele-Communications, 7.375%, 2/15/00 . . . . . . . 3,000 3,096
Time Warner, Notes, 7.95%, 2/1/00. . . . . . . . . 3,750 3,938
17,041
PETROLEUM - 1.3%
Occidental Petroleum, MTN, 5.85%, 11/9/98. . . . . 2,975 2,967
Union Texas Petroleum Holdings,
8.25%, 11/15/99. . . . . . . . . . . . . . . . . . 3,000 3,177
6,144
RETAIL - 1.4%
Kmart, MTN, 8.71%, 4/7/97. . . . . . . . . . . . . 3,000 2,873
Sears Roebuck & Company, MTN,
8.00%, 10/21/96 . . . . . . . . . . . . . . . . . 1,500 1,526
Notes, 8.55%, 8/1/96. . . . . . . . . . . . . . . 2,280 2,317
6,716
UTILITIES - 2.9%
Commonwealth Edison, 6.25%, 2/1/98 . . . . . . . . 1,550 1,549
Consumers Power, 1st Mtg. Notes,
6.875%, 5/1/98 . . . . . . . . . . . . . . . . . . 3,250 3,271
Florida Power, MTN, 8.40%, 8/1/96. . . . . . . . . 550 559
National Rural Utilities Cooperative Finance,
9.50%, 5/15/97 . . . . . . . . . . . . . . . . . . 2,000 2,096
Potomac Capital, MTN, 6.38%, 10/6/97 . . . . . . . 1,500 1,504
6.61%, 3/16/98. . . . . . . . . . . . . . . . . . 1,000 1,000
Public Service Company of Colorado,
5.875%, 7/1/97 . . . . . . . . . . . . . . . . . . 1,000 1,001
Texas Utilities Electric, MTN,
6.29%, 11/22/00. . . . . . . . . . . . . . . . . . 3,000 3,014
13,994
Total Corporate Bonds and Notes
(Cost $211,529) 215,168
Asset-Backed Securities - 8.3%
AUTO-BACKED - 1.5%
Ford Credit Auto Loan Master Trust,
6.50%, 8/15/02 . . . . . . . . . . . . . . . . . . 5,000 5,088
USAA Auto Loan Grantor Trust,
5.00%, 11/15/99. . . . . . . . . . . . . . . . . . 1,885 1,872
6,960
CREDIT CARD-BACKED - 4.1%
Banc One Credit Card Master Trust,
6.15%, 7/15/02 . . . . . . . . . . . . . . . . . . 4,500 4,553
MBNA Master Credit Card Trust,
5.963%, 3/15/01. . . . . . . . . . . . . . . . . . 5,000 4,994
NationsBank Credit Card Master Trust,
6.45%, 4/15/03 . . . . . . . . . . . . . . . . . . 4,750 4,855
Standard Credit Card Master Trust,
7.85%, 2/7/02. . . . . . . . . . . . . . . . . . . 5,000 5,336
19,738
HOME EQUITY LOAN-BACKED - 0.7%
SPNB Home Equity Loan, 7.85%, 5/15/98. . . . . . . 47 47
U.S. Home Equity Loan, 8.50%, 4/15/21. . . . . . . 620 630
UCFC Loan Trust, 6.325%, 12/25/24. . . . . . . . . 2,566 2,562
3,239
RECEIVABLES-BACKED - 2.0%
Case Equipment Loan Trust, 7.60%, 12/15/97 . . . . 2,158 2,180
Oakwood Mortgage, 6.45%, 12/31/99. . . . . . . . . 5,000 5,055
Unisys Receivables, 5.05%, 11/15/96. . . . . . . . 2,500 2,496
9,731
Total Asset-Backed Securities
(Cost $38,979) 39,668
U.S. Government Mortgage-Backed Securities - 21.7%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 18.2%
Federal Home Loan Mortgage, 5.25%, 7/1/97. . . . . 15 14
7.50%, 1/1/97 - 2/15/06 . . . . . . . . . . . . . 10,380 10,564
9.00%, 7/1/01 - 7/1/02. . . . . . . . . . . . . . 2,017 2,103
9.50%, 8/1/01 - 9/1/02. . . . . . . . . . . . . . 1,433 1,500
10.00%, 1/1/01 - 10/1/05. . . . . . . . . . . . . 839 874
11.00%, 8/1/00 - 2/1/01 . . . . . . . . . . . . . 676 710
5 year balloon, 6.00%, 4/1/99 . . . . . . . . . . 13,862 13,875
7 year balloon, 7.00%, 7/1/02 . . . . . . . . . . 14,196 14,446
9.50%, 4/1 - 8/1/97 . . . . . . . . . . . . . . . 108 113
CMO, 7.50%, 2/15/06 . . . . . . . . . . . . . . . 13,550 14,033
8.25%, 7/15/12. . . . . . . . . . . . . . . . . . 9,000 9,315
Federal National Mortgage Assn.,
5.50%, 8/1/97 - 11/1/05 . . . . . . . . . . . . . 190 186
9.00%, 1/1 - 7/1/98 . . . . . . . . . . . . . . . 2,056 2,103
9.50%, 12/1/97 - 1/1/98 . . . . . . . . . . . . . 76 79
11.00%, 10/1/00 - 1/1/01. . . . . . . . . . . . . 308 325
ARM, 9.00%, 3/1 - 9/1/97. . . . . . . . . . . . . 310 317
9.50%, 5/1 - 10/1/97. . . . . . . . . . . . . . . 197 202
11.00%, 4/1/04. . . . . . . . . . . . . . . . . . 145 153
CMO, 5.40%, 3/25/04 . . . . . . . . . . . . . . . 11,000 10,876
REMIC, Accrual Bond, 7.50%, 8/25/05 . . . . . . . 5,196 5,307
87,095
U.S. GOVERNMENT GUARANTEED OBLIGATIONS - 3.5%
Government National Mortgage Assn.,
I, 8.50%, 2/15/05 - 3/15/06 . . . . . . . . . . . 884 933
10.50%, 11/15/15. . . . . . . . . . . . . . . . . 366 406
Government National Mortgage Assn.,
13.00%, 11/15/12 - 4/15/15 . . . . . . . . . . . . 120 142
GPM, I, 8.50%, 1/15/06. . . . . . . . . . . . . . 114 120
9.50%, 8/15 - 10/15/09. . . . . . . . . . . . . . 123 132
11.00%, 8/15/10 . . . . . . . . . . . . . . . . . 119 131
11.25%, 6/15/13 - 1/15/16 . . . . . . . . . . . . 886 975
11.75%, 7/15/13 - 11/15/15 . . . . . . . . . . . . 3,145 3,559
13.00%, 9/15/11 . . . . . . . . . . . . . . . . . 16 18
II, 11.00%, 9/20/13 - 4/20/14 . . . . . . . . . . 76 84
11.25%, 8/20/13 - 12/20/15. . . . . . . . . . . . 128 140
Midget, I, 9.00%, 7/15/01 - 2/15/06 . . . . . . . 1,199 1,267
9.50%, 5/15/01 - 4/15/05 . . . . . . . . . . . . . 309 324
10.00%, 4/15/98 - 10/15/04. . . . . . . . . . . . 943 994
11.50%, 4/15 - 5/15/00. . . . . . . . . . . . . . 57 60
REMIC, 6.25%, 8/16/11 . . . . . . . . . . . . . . 7,500 7,540
16,825
Total U.S. Government Mortgage-Backed Securities
(Cost $102,670) 103,920
Non-U.S. Government Mortgage-Backed Securities - 0.7%
Great Western Bank, ARM, 6.18%, 7/25/17. . . . . . 1,530 1,476
Guardian Savings & Loan, MPC, ARM,
7.180%, 12/25/19 . . . . . . . . . . . . . . . . . 2,242 1,525
Salomon Mortgage Security VII, CMO,
7.789%, 11/25/20 . . . . . . . . . . . . . . . . . 184 172
Total Non-U.S. Government Mortgage-Backed Securities
(Cost $3,912) 3,173
U.S. Government Obligations - 19.2%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 5.4%
Federal Home Loan Mortgage, Deb.,
6.725%, 8/15/00 . . . . . . . . . . . . . . . . . 5,250 5,324
7.75%, 1/27/97. . . . . . . . . . . . . . . . . . 10,000 10,241
7.86%, 1/21/97. . . . . . . . . . . . . . . . . . 10,000 10,248
25,813
U.S. GOVERNMENT GUARANTEED OBLIGATIONS - 13.8%
U.S. Treasury Notes, 6.875%, 3/31/00 . . . . . . . 20,000 21,028
7.50%, 5/15/02. . . . . . . . . . . . . . . . . . 12,500 13,742
7.875%, 7/15/96 . . . . . . . . . . . . . . . . . 15,000 15,216
8.875%, 11/15/97. . . . . . . . . . . . . . . . . 15,000 15,954
65,940
Total U.S. Government Obligations
(Cost $90,293) 91,753
U.S. $ Denominated Foreign Securities1 - 0.4%
Asian Development Bank, Eurobonds,
8.00%, 12/10/96 (Cost $1,995). . . . . . . . . . . 2,000 2,038
Commercial Paper - 2.7%
Dresdner U.S. Finance, 5.77%, 12/5/95. . . . . . . 5,000 4,993
Investments in Commercial Paper through a
joint account, 5.90-5.93%, 12/1/95 . . . . . . . . 7,858 7,857
Total Commercial Paper (Cost $12,851) 12,850
Total Investments in Securities - 97.9% of Net Assets
(Cost $462,229) 468,570
Other Assets Less Liabilities . . . . . . . . . . 10,248
_______
Net Assets Consist of: Value
_________
Accumulated net investment income -
net of distributions . . . . . . . . . . . . . . . $ 312
Accumulated net realized gain/loss -
net of distributions . . . . . . . . . . . . . . . (45,397)
Net unrealized gain (loss) . . . . . . . . . . . . 6,341
Paid-in-capital applicable to 100,678,247 shares
of $0.01 par value capital stock outstanding;
1,000,000,000 shares authorized. . . . . . . . . . 517,562
_________
NET ASSETS . . . . . . . . . . . . . . . . . . . . $478,818
_________
_________
NET ASSET VALUE PER SHARE. . . . . . . . . . . . . $4.76
_____
_____
1 Marketable securities (payable in U.S. dollars) issued or
guaranteed by a foreign government or community.
ARM Adjustable Rate Mortgage
CMO Collateralized Mortgage Obligation
GPM Graduated Payment Mortgage
MTN Medium Term Note
MPC Mortgage Pass-through Certificate
REMIC Real Estate Mortgage Investment Conduit
Accrual Bond Accrued interest is not paid in cash, but is added to remaining
principal.
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Short-Term Bond Fund / Six Months Ended November 30, 1995
(Unaudited)
(in thousands)
INVESTMENT INCOME
Interest income. . . . . . . . . . . . . . . . . . $ 17,920
___________
Expenses
Investment management . . . . . . . . . . . . . . 1,121
Shareholder servicing . . . . . . . . . . . . . . 529
Custody and accounting. . . . . . . . . . . . . . 113
Prospectus and shareholder reports. . . . . . . . 16
Registration. . . . . . . . . . . . . . . . . . . 15
Legal and audit . . . . . . . . . . . . . . . . . 14
Directors . . . . . . . . . . . . . . . . . . . . 5
Miscellaneous . . . . . . . . . . . . . . . . . . 6
___________
Total expenses. . . . . . . . . . . . . . . . . . 1,819
Expenses paid indirectly. . . . . . . . . . . . . (2)
___________
Net expenses. . . . . . . . . . . . . . . . . . . 1,817
___________
Net investment income. . . . . . . . . . . . . . . 16,103
___________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on securities . . . . . . (135)
Change in unrealized gain or loss on
securities . . . . . . . . . . . . . . . . . . . . 3,384
___________
Net realized and unrealized gain (loss). . . . . . 3,249
___________
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS. . . . . . . . . . . . . . . . . . $ 19,352
___________
___________
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Short-Term Bond Fund (Unaudited)
(in thousands)
Six Months Ended Year Ended
November 30, 1995 May 31, 1995
_________________ ____________
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income . . . . . . . . . $ 16,103 $ 31,347
Net realized gain (loss). . . . . . . . (135) (28,960)
Change in net unrealized gain
or loss . . . . . . . . . . . . . . . . 3,384 15,247
___________ ___________
Increase (decrease) in net assets
from operations. . . . . . . . . . . . . 19,352 17,634
___________ ___________
Distributions to shareholders
Net investment income . . . . . . . . . (16,102) (31,157)
___________ ___________
Capital share transactions*
Shares sold . . . . . . . . . . . . . . 98,412 253,582
Distributions reinvested. . . . . . . . 14,308 26,870
Shares redeemed . . . . . . . . . . . . (130,878) (375,127)
___________ ___________
Increase (decrease) in net assets
from capital share transactions . . . . (18,158) (94,675)
___________ ___________
Increase (decrease) in net assets. . . . (14,908) (108,198)
NET ASSETS
Beginning of period. . . . . . . . . . . 493,726 601,924
___________ ___________
End of period. . . . . . . . . . . . . . $ 478,818 $ 493,726
___________ ___________
___________ ___________
*Share information
Shares sold . . . . . . . . . . . . . . 20,824 54,123
Distributions reinvested. . . . . . . . 3,030 5,684
Shares redeemed . . . . . . . . . . . . (27,697) (79,508)
___________ ___________
Increase (decrease) in
shares outstanding. . . . . . . . . . . (3,843) (19,701)
. . . . . . . . . . . . . . . . . . . . ___________ ___________
___________ ___________
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Short-Term Bond Fund / November 30, 1995 (Unaudited)
Note 1 - Significant Accounting Policies
T. Rowe Price Short-Term Bond Fund, Inc., (the fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company.
A) 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 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.
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 - Premiums and discounts on debt securities, other
than mortgage-backed securities, are amortized for both financial reporting
and tax purposes. Premiums and discounts on mortgage-backed securities are
recognized upon principal repayment as gain or loss for financial reporting
purposes and as ordinary income for tax purposes.
C) Other - Income and expenses are recorded on the accrual basis. Expenses
paid indirectly are custody fees paid by float credits earned on daily
residual cash balances at the custodian. Investment transactions are accounted
for on the trade date. Realized gains and losses are reported on the
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 and may differ from those
determined in accordance with generally accepted accounting principles.
Note 2 - Investment Transactions
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks and 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.
A) Commercial Paper Joint Account - The fund, and other affiliated funds, may
transfer uninvested cash into a commercial paper joint account, the daily
aggregate balance of which is invested in high-grade commercial paper. All
securities purchased by the joint account satisfy the fund's criteria as to
quality, yield, and liquidity.
B) Securities Lending - To earn additional income, the fund lends its
securities to approved brokers. At November 30, 1995, the market value of
securities on loan was $11,255,000, which was fully collateralized with cash.
Although the risk is mitigated by the collateral, the fund could experience a
delay in recovering its securities and a possible loss of income or value if
the borrower fails to return them.
C) Other - Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $95,696,000 and $128,061,000,
respectively, for the six months ended November 30, 1995. Purchases and sales
of U.S. government securities aggregated $207,402,000 and $193,085,000,
respectively, for the six months ended November 30, 1995.
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 $32,555,000, of which $5,393,000 expires in
1996, $3,395,000 in 1997, and $23,767,000 thereafter through 2003. The fund
intends to retain gains realized in future periods that may be offset by
available capital loss carryforwards.
At November 30, 1995, the aggregate cost of investments for federal
income tax and financial reporting purposes was $462,229,000 and net
unrealized gain aggregated $6,341,000, of which $7,567,000 related to
appreciated investments and $1,226,000 to depreciated investments.
Note 4 - Related Party Transactions
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the Manager) provides for an annual investment management
fee, of which $173,000 was payable at November 30, 1995. The fee is computed
daily and paid monthly, and consists 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. At November 30, 1995, and for the six months then ended, the
effective annual Group Fee rate was 0.34%. 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.
(TRPS), 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. Additionally, 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 among 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. The fund incurred expenses pursuant to these related party
agreements totaling approximately $520,000 for the six months ended November
30, 1995, of which $112,000 was payable at period-end.
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
T. Rowe Price Short-Term Bond Fund (Unaudited)
For a share outstanding throughout each period
Three
Six Months Year Months
Ended Ended Ended Year Ended
Nov. 30, May 31, May 31, Feb. 28, Feb. 28, Feb. 29,Feb. 28,
1995 1995 1994# 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD . . . . . . . . . . . $4.72 $4.85 $5.00 $5.09 $5.05 $4.94 $4.91
_____ _____ _____ _____ _____ _____ _____
Investment activities
Net investment income . . . . . . . . . . 0.15 0.29 0.07 0.31 0.33 0.35 0.39
Net realized and unrealized
gain (loss). . . . . . . . . . . . . . 0.04 (0.13) (0.15) (0.09) 0.04 0.11 0.06
____ _____ _____ _____ _____ _____ _____
Total from investment activities. . . . . 0.19 0.16 (0.08) 0.22 0.37 0.46 0.45
_____ _____ _____ _____ _____ _____ _____
Distributions
Net investment income . . . . . . . . . . (0.15) (0.29) (0.07) (0.28) (0.33) (0.35) (0.39)
Net realized gain . . . . . . . . . . . . - - - - - - (0.03)
Tax return of capital . . . . . . . . . . - - - (0.03) - - -
_____ _____ _____ _____ _____ _____ _____
Total distributions . . . . . . . . . . . (0.15) (0.29) (0.07) (0.31) (0.33) (0.35) (0.42)
_____ _____ _____ _____ _____ _____ _____
NET ASSET VALUE, END OF PERIOD . . . . . . $4.76 $4.72 $4.85 $5.00 $5.09 $5.05 $4.94
_____ _____ _____ _____ _____ _____ _____
_____ _____ _____ _____ _____ _____ _____
RATIOS/SUPPLEMENTAL DATA
Total return . . . . . . . . . . . . . . . 4.07% 3.41% (1.65)% 4.36% 7.63% 9.70% 9.61%
Ratio of expenses to average
net assets. . . . . . . . . . . . . . . . 0.71%!* 0.79% 0.79%! 0.74% 0.76% 0.88% 0.93%
Ratio of net investment income
to average net assets . . . . . . . . . . 6.29%! 6.09% 5.56%! 6.00% 6.59% 7.07% 7.90%
Portfolio turnover rate. . . . . . . . . .125.0%! 136.9% 222.8%! 90.8% 68.4% 380.7% 980.4%
Net assets, end of period
(in thousands). . . . . . . . . . . . . .$478,818$493,726 $601,924 $668,066 $556,330 $396,980 $218,634
<FN>
! Annualized.
# The fund's fiscal year-end was changed to May 31.
* Beginning in fiscal 1995, includes expenses paid indirectly.
</FN>
</TABLE>
<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.
Knowledgeable Service Representatives
By Phone -- Shareholder service representatives are available from 8 a.m. to
10 p.m. Monday - Friday, and weekends from 8:30 a.m. to 5 p.m. ET. Call
1-800-225-5132 to speak directly with a representative who will be able to
assist you with your accounts.
In Person -- Visit one of our investor center locations to meet with a
representative who will be able to assist you with your accounts. While there,
you can drop off applications or obtain prospectuses and other literature.
Automated 24-Hour Services
Tele*Access(registered trademark) (1-800-638-2587) provides information
such as account balance, date and amount of your last transaction, latest
dividend payment, and fund prices and yields. Additionally, you have the
ability to request prospectuses, statements, account and tax forms; reorder
checks; and initiate purchase, redemption, and exchange orders for identically
registered accounts.
PC*Access(registered trademark) provides the same information as
Tele*Access, but on a personal computer via dial-up modem.
Account Services
Checking -- Write checks for $500 or more on any money market and most
bond fund accounts (except the High Yield Fund and Emerging Markets Bond
Fund).
Automatic Investing -- Build your account over time by investing directly
from your bank account or paycheck with Automatic Asset Builder. Additionally,
Automatic Exchange enables you to set up systematic investments from one fund
account into another, such as from a money fund into a stock fund. A 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.
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.
Performance Update -- A quarterly report reviewing recent market
developments and providing comprehensive performance information for every T.
Rowe Price fund.
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
You can trade stocks, bonds, options, precious metals, and other securities at
a substantial savings over regular commission rates. Call a shareholder
service representative for more information.
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
Short-Term Bond
Short-Term Global Income
Short-Term U.S. Government
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
Corporate Income
Emerging Markets Bond
High Yield
International Bond
Tax-Free High Yield
CONSERVATIVE GROWTH
Balanced
Capital Appreciation
Dividend Growth
Equity Income
Equity Index
Growth & Income
Spectrum Growth
Value
GROWTH
Blue Chip Growth
European Stock
Global Stock
Growth Stock
International Stock
Japan
Mid-Cap Growth
New Era
OTC
Small-Cap Value
AGGRESSIVE GROWTH
Capital Opportunity
Health Sciences
Emerging Markets Stock
International Discovery
Latin America
New America Growth
New Asia
New Horizons
Science & Technology
PERSONAL STRATEGY FUNDS
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
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.
T. Rowe Price Investment Services, Inc., Distributor.
<PAGE>
Chart 1 - Interest Rate Levels
A 4-line chart showing interest rates on the 5-Year Treasury note, 2-Year AA
Finance Note, 2-Year Treasury Note, and the fed funds rate from 11/30/94
through 11/30/95.
Chart 2 - Treasury Yield Curves
A 3-line chart showing yields on 3-month to 10-year Treasuries on 11/30/94,
5/31/95, and 11/30/95.
