<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Semiannual Report
Short-Term Bond Fund
- --------------------------------------------------------------------------------
November 30, 1999
- --------------------------------------------------------------------------------
REPORT HIGHLIGHTS
================================================================================
SHORT-TERM BOND FUND
* Interest rates rose and bond prices fell in the past six months in
response to Federal Reserve efforts to tighten the money supply.
* Results for the six and 12 months were positive but trailed the fund's
Lipper benchmark modestly.
* We reduced the portfolio's interest rate sensitivity as rates
increased.
* Corporate bond yields are attractive, although some holdings in this
sector weakened.
* Yields in our market are very attractive, which could contribute to
better returns in 2000.
================================================================================
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.
================================================================================
FELLOW SHAREHOLDERS
- -------------------
The U.S. economy continued its remarkable run of strong, steady growth
during the six months ended November 30, 1999, and signs of inflation were
modest. Nonetheless, the Federal Reserve raised the federal funds target rate
three times to forestall a rise in inflation, and interest rates overall rose
significantly. Bond funds struggled as rates rose, and your fund was no
exception.
<PAGE>
MARKET ENVIRONMENT
- ------------------
There was little doubt during either the past six or 12 months that the
U.S. economy was on solid footing. Annual GDP data has painted an attractive
picture, with growth rates fluctuating between 3.5% and 4.5% for nearly four
years now. During the past spring and summer, however, economic data hinted at
an increase in inflationary pressure. That, combined with an improving outlook
overseas, prompted the Fed to raise the federal funds target rate in June,
August , and November by a total of 75 basis points (100 basis points equal one
percent). The target rate now stands at 5.5% N the same as August 1998, just
before the Fed cut rates three-quarters of a percent to alleviate a short-lived
global financial crisis. The Fed appears comfortable that this rate level will
provide an appropriate balance between economic growth potential and price
control.
*****************************************
[Chart showing interest rates for
five-year Treasury notes, two-year
Treasury notes, and the Federal
Funds Target Rate 10/30/98 through
10/30/99.]
*****************************************
There were some signs of higher prices, and at times the bond market
appeared concerned about the possibility of inflation. However, the extent to
which real inflation has been held in check is remarkable. Both the closely
watched employment cost index and the wage component of the GDP report have
shown only modest increases. Clearly technology and increased globalization have
played significant roles in containing costs, reducing pricing power, and
improving productivity and efficiency. These trends, combined with the Fed's
sound monetary policy, are very positive for bonds in the long term.
The market largely anticipated the Fed's actions, pushing rates sharply
higher throughout the year, especially on intermediate-term bonds. For example,
five-year Treasury note yields climbed 141 basis points to 6.03% on November 30
from one year earlier, and two-year note yields rose 132 basis points to 5.96%
in the same time frame. In comparison, 30-year Treasury bond yields climbed only
101 basis points to 6.22%.
The rising interest rate environment was not the only challenge the bond
markets faced. In the second half of 1999, Wall Street broker-dealers cut back
their bond market activities in advance of year-end by reducing inventories and
committing less capital to market-making (that is, buying and selling existing
issues for clients). As a result, liquidity declined after midyear. Reduced
liquidity exaggerated volatility in the markets and made it more difficult for
money managers to trade efficiently. The trend also created supply and demand
<PAGE>
imbalances that hurt issues with relatively high yields, including many
corporate and some mortgage-backed bonds. However, mortgages improved after
August and now are among the more liquid bonds in the marketplace. Corporate
bonds also improved late in the period.
PERFORMANCE AND STRATEGY REVIEW
- -------------------------------
PERFORMANCE COMPARISON
----------------------
Periods Ended 11/30/99 6 Months 12 Months
---------------------- -------- ---------
Short-Term Bond Fund 1.27% 2.27%
Lipper Short Investment-
Grade Debt Funds Average 1.63 3.08
- --------------------------------------------------------------------------------
In an environment of steadily rising rates, your fund achieved total
returns of 1.27% for the six months and 2.27% for the year. While positive,
these performances trailed the 1.63% and 3.08% moves, respectively, for the
Lipper peer group average. The fund's relatively greater interest rate exposure
contributed somewhat to the lagging results during both periods, while specific
holdings weighed down results during the more recent six-month period. Gains
came entirely from income, as the net asset value declined to $4.56 from $4.63
on May 31.
We gradually reduced fund duration during the six-month period from 2.2
years to 2.0 years. (Duration is a measure of price sensitivity to interest rate
changes where higher numbers reflect a greater potential negative response to a
rise in rates, and vice versa.) Although we were attracted to yields on the
longer-term issues in our market, we thought it was more prudent to cut back our
interest rate sensitivity in a period of rising rates. Many of our competitor
funds in the Lipper average took similar steps, however, with the result that
your fund remained somewhat more rate sensitive than its average peer. This
explains in part why the fund trailed the Lipper, especially earlier in the
year.
Although rates rose during the past six months, they have yet to show up as
increases in the fund's dividend payment. Dividend income tends to lag a rise in
market rates. However, assuming rates do not fall any time soon, we anticipate
higher dividends in the coming period as current holdings mature, coupons are
paid, and the proceeds are reinvested in higher-coupon instruments. Indeed, with
fixed income securities coming off a difficult year, we are finding generous
yields on securities throughout our market and looking to take advantage of
them.
<PAGE>
As explained in the last report, we trimmed exposure to corporate bonds
from 53% to 47% earlier in the year. This move proved beneficial: corporate
securities (and lower-rated ones in particular) underperformed throughout most
of the summer because of poor market liquidity. During August and September, we
saw an oppor-tunity to take advantage of values created by the liquidity crunch,
and began to rebuild our corporate position selectively. Among the bonds we
added were Johnson & Johnson, Wal-Mart, and US West.
Within the corporate segment, our allocation to utilities declined modestly
over the past six months from 11% of net assets to 9%. We had overweighted
utilities for many quarters, and they performed well for the fund. However, we
think the risk in the sector is rising somewhat along with an increase in
merger-related activity. The proceeds were largely shifted into sectors with
attractive yields, particularly the banking and finance sectors. In addition,
the portfolio's stake in Treasuries and government agency securities fell from
9% to 1%. During a period of tight liquidity, these holdings were the easiest to
trade when we reduced duration. The fund's cash level (shown under the heading
Money Market Funds in the Sector Diversification table on page 7) rose in
tandem, but this is a temporary state as we expect to see numerous opportunities
in the market early next year.
*****************************************
[Pie chart showing the following
segments --- AAA 38%. AA 17%. A
22%. BBB 22%. BB 1%. Based on net
assets as of 11/30/99.]
*****************************************
The fund's quality breakdown was virtually unchanged from last period, and
average credit quality remained high at AA. Nonetheless, some of our corporate
holdings weakened as their issuers encountered problems. In August, we purchased
the debt of Rite Aid, but the firm's surprise downward earnings revisions and
management upheaval disappointed investors and resulted in rating agency
downgrades to below investment grade. This was the reason the fund finished the
period with a 1% stake in bonds rated BB and below, as noted in the Quality
Diversification chart. We continue to hold these bonds because we expect their
prices to recover from distressed levels. Rite Aid has a viable business as the
nation's third-largest drug store chain, and new management is taking aggressive
action to restore its financial health.
Other holdings have come under pressure, including Waste Management/U.S.
Waste Services (2.3% of assets), Raytheon (almost 1% of assets), and Lockheed
Martin (0.9% of assets), which experienced earnings difficulties associated with
recent merger activity. Despite some price weakness, we are not giving up on
them. They contribute significantly to income, which should benefit shareholders
over the long term.
<PAGE>
OUTLOOK
- -------
We expect the year 2000 to be more favorable for bond investors. Neither
inflation nor long-term interest rates are likely to rise significantly from
current levels, though another Fed rate hike is possible in the first quarter of
2000. Economic growth should moderate eventually, to an annual rate of 3.5% or
slightly lower. U.S. consumer demand will likely slow, since mortgage
refinancing (a source of spendable cash) has dried up and because the recent
rise in oil prices will act like a tax increase on consumers. Given the Fed's
proactive stance and the positive influence of technological advancements,
including the Internet, we expect inflation to remain at 3% or lower. In that
environment, the higher yields available in the marketplace today are very
attractive, especially among the mortgage- and asset-backed securities your fund
focuses on. We believe the fund is well positioned to deliver results more in
line with its long-term average in the years ahead.
Respectfully submitted,
/s/
Edward A. Wiese
President and Chairman of the Investment Advisory Committee
December 19, 1999
================================================================================
<PAGE>
T. ROWE PRICE SHORT-TERM BOND FUND
- ----------------------------------
PORTFOLIO HIGHLIGHTS
- --------------------
KEY STATISTICS
- --------------
5/31/99 11/30/99
------- --------
Price Per Share $ 4.63 $ 4.56
- -------------------------------------------------------------------------------
Dividends Per Share
- -------------------------------------------------------------------------------
For 6 months 0.13 0.13
- -------------------------------------------------------------------------------
For 12 months 0.26 0.25
- -------------------------------------------------------------------------------
Dividend Yield *
- -------------------------------------------------------------------------------
For 6 months 5.53% 5.67%
- -------------------------------------------------------------------------------
For 12 months 5.65 5.72
- -------------------------------------------------------------------------------
30-Day Standardized Yield 5.54 6.26
- -------------------------------------------------------------------------------
Weighted Average Maturity (years) 2.6 2.3
- -------------------------------------------------------------------------------
Weighted Average Effective Duration (years) 2.2 2.0
- -------------------------------------------------------------------------------
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.
================================================================================
<PAGE>
T. ROWE PRICE SHORT-TERM BOND FUND
- ----------------------------------
PORTFOLIO HIGHLIGHTS
- --------------------
SECTOR DIVERSIFICATION
- ----------------------
Percent of Percent of
Net Assets Net Assets
5/31/99 11/30/99
------- --------
Corporate Bonds and Notes 47% 47%
- -----------------------------------------------------------------------------
Banking and Finance 9 12
- -----------------------------------------------------------------------------
Consumer Products and Services 10 10
- -----------------------------------------------------------------------------
Utilities 11 9
- -----------------------------------------------------------------------------
Industrial 9 8
- -----------------------------------------------------------------------------
Media and Communications 4 4
- -----------------------------------------------------------------------------
Transportation 3 2
- -----------------------------------------------------------------------------
All Other 1 2
- -----------------------------------------------------------------------------
Asset-Backed Securities 15 14
- -----------------------------------------------------------------------------
Mortgage-Backed Securities 20 19
- -----------------------------------------------------------------------------
U.S. Government Obligations 9 1
- -----------------------------------------------------------------------------
U.S. Treasuries 2 1
- -----------------------------------------------------------------------------
Government Agency Obligations 7 -
- -----------------------------------------------------------------------------
Money Market Funds * 11 18
- -----------------------------------------------------------------------------
Other Assets Less Liabilities -2 1
- -----------------------------------------------------------------------------
Total 100% 100%
* See note at end of financial statements.
================================================================================
<PAGE>
T. ROWE PRICE SHORT-TERM BOND FUND
- ----------------------------------
PERFORMANCE COMPARISON
- ----------------------
This chart shows the value of a hypothetical $10,000 investment in the fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with 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.
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- ------------------------------------
This table shows how the fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
Periods Ended 11/30/99 1 Year 3 Years 5 Years 10 Years
- ---------------------- ------ ------- ------- --------
Short-Term Bond Fund 2.27% 4.75% 5.43% 5.67%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
================================================================================
T. ROWE PRICE SHORT-TERM BOND FUND
- ----------------------------------
Unaudited For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
- --------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
6 Months Year
Ended Ended
11/30/99 5/31/99 5/31/98 5/31/97 5/31/96 5/31/95
NET ASSET VALUE
Beginning of period $ 4.63 $ 4.69 $ 4.65 $ 4.64 $ 4.72 $ 4.85
- -------------------------------------------------------------------------------------------
Investment activities
Net investment income 0.13 0.26 0.27 0.27 0.29 0.29
Net realized and
unrealized gain (loss) (0.07) (0.06) 0.04 0.01 (0.08) (0.13)
- -------------------------------------------------------------------------------------------
Total from
investment activities 0.06 0.20 0.31 0.28 0.21 0.16
- -------------------------------------------------------------------------------------------
<PAGE>
Distributions
Net investment income (0.13) (0.26) (0.27) (0.26) (0.28) (0.29)
Tax return of capital - - - (0.01) (0.01) -
- -------------------------------------------------------------------------------------------
Total distributions (0.13) (0.26) (0.27) (0.27) (0.29) (0.29)
- -------------------------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 4.56 $ 4.63 $ 4.69 $ 4.65 $ 4.64 $ 4.72
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Total return* 1.27% 4.23% 6.87% 6.28% 4.58% 3.41%
- -------------------------------------------------------------------------------------------
Ratio of total expenses
to average net assets 0.71%+ 0.73% 0.72% 0.74% 0.72% 0.79%
- -------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets 5.58%+ 5.44% 5.82% 5.91% 6.15% 6.09%
- -------------------------------------------------------------------------------------------
Portfolio turnover rate 49.2%+ 51.6% 73.0% 103.9% 118.7% 136.9%
- -------------------------------------------------------------------------------------------
Net assets, end of
period (in thousands) $ 308,606 $ 324,098 $ 331,955 $ 373,284 $ 429,498 $ 493,726
- -------------------------------------------------------------------------------------------
* Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
+ Annualized
</TABLE>
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. ROWE PRICE SHORT-TERM BOND FUND
- ----------------------------------
Unaudited November 30, 1999
STATEMENT OF NET ASSETS
- -----------------------
` Par/Shares Value
In thousands
CORPORATE BONDS AND NOTES 46.8%
Banking and Finance 11.6%
Amvescap, Sr. Notes, 6.375%, 5/15/03 $ 4,250 $ 4,110
- -------------------------------------------------------------------------------
Banco Generale, Sr. Sub. Notes, (144a), 7.70%, 8/1/02 4,450 4,328
- -------------------------------------------------------------------------------
Countrywide Home Loans, Sr. Sub Notes, 6.85%, 6/15/04 3,000 2,939
- -------------------------------------------------------------------------------
General Electric Capital, MTN, 6.15%, 11/5/01 4,150 4,113
- -------------------------------------------------------------------------------
Marsh and McLennan, Sr. Notes, 6.625%, 6/15/04 3,250 3,203
- -------------------------------------------------------------------------------
MBNA, Sub. Notes, 7.25%, 9/15/02 2,650 2,640
- -------------------------------------------------------------------------------
Mercantile Safe Deposit & Trust, 6.53%, 7/3/00 4,200 4,210
- -------------------------------------------------------------------------------
Morgan Guaranty Trust, Sub. Notes, 7.375%, 2/1/02 4,000 4,037
- -------------------------------------------------------------------------------
Paine Webber Group, 7.875%, 2/15/03 3,000 3,041
- -------------------------------------------------------------------------------
Salomon Smith Barney Holdings, 7.30%, 5/15/02 3,250 3,275
- -------------------------------------------------------------------------------
35,896
- -------------------------------------------------------------------------------
Consumer Products and Services 10.2%
Beckman Instruments, Sr. Notes, 7.10%, 3/4/03 4,000 3,817
- -------------------------------------------------------------------------------
Caterpillar Financial Services, 6.875%, 8/1/04 3,250 3,229
- -------------------------------------------------------------------------------
Federated Department Stores, Sr. Notes, 8.125%, 10/15/02 3,500 3,579
- -------------------------------------------------------------------------------
Grand Metropolitan Investment, Zero Coupon, 1/6/04 5,500 4,160
- -------------------------------------------------------------------------------
Pepsico, MTN, 5.75%, 1/2/03 3,000 2,916
- -------------------------------------------------------------------------------
Philip Morris, 7.25%, 9/15/01 4,300 4,260
- -------------------------------------------------------------------------------
Rite Aid, (144a), 6.00%, 10/1/03 4,000 2,600
- -------------------------------------------------------------------------------
Sony, 6.125%, 3/4/03 4,025 3,929
- -------------------------------------------------------------------------------
Wal-Mart, Sr. Notes, 6.15%, 8/10/01 3,000 2,981
- -------------------------------------------------------------------------------
31,471
- -------------------------------------------------------------------------------
<PAGE>
Energy 1.5%
PDV America, Sr. Notes, 7.875%, 8/1/03 2,400 2,221
- -------------------------------------------------------------------------------
YPF Sociedad Anonima, 7.25%, 3/15/03 2,400 2,335
- -------------------------------------------------------------------------------
4,556
- -------------------------------------------------------------------------------
Industrials 8.1%
Allied Signal, 5.75%, 3/15/01 3,350 3,308
- -------------------------------------------------------------------------------
Delphi Auto Systems, 6.125%, 5/1/04 1,500 1,426
- -------------------------------------------------------------------------------
International Paper, 6.125%, 11/1/03 2,750 2,647
- -------------------------------------------------------------------------------
Lockheed, 6.75%, 3/15/03 3,000 2,901
- -------------------------------------------------------------------------------
McDonnell Douglas Finance, Sr. Notes, 6.39%, 1/15/02 2,000 1,978
- -------------------------------------------------------------------------------
Raytheon, 5.70%, 11/1/03 3,000 2,811
- -------------------------------------------------------------------------------
Toyota Motor Credit, 5.625%, 11/13/03 $ 3,000 $ 2,872
- -------------------------------------------------------------------------------
USA Waste Services, Sr. Notes, 6.50%, 12/15/02 4,300 3,918
- -------------------------------------------------------------------------------
Waste Management, 6.625%, 7/15/02 3,350 3,093
- -------------------------------------------------------------------------------
24,954
- -------------------------------------------------------------------------------
Media and Communications 3.7%
360 Communications, Sr. Notes, 7.125%, 3/1/03 3,000 3,001
- -------------------------------------------------------------------------------
Seagram, 6.40%, 12/15/03 3,000 2,901
- -------------------------------------------------------------------------------
Sprint Capital, 5.70%, 11/15/03 2,800 2,674
- -------------------------------------------------------------------------------
US West Capital Funding, (144a), 6.875%, 8/15/01 3,000 2,996
- -------------------------------------------------------------------------------
11,572
- -------------------------------------------------------------------------------
Transportation 2.4%
ERAC USA Finance, (144a), 6.375%, 5/15/03 2,000 1,932
- -------------------------------------------------------------------------------
Norfolk Southern, 6.95%, 5/1/02 4,000 3,990
- -------------------------------------------------------------------------------
Union Pacific, 6.125%, 1/15/04 1,500 1,424
- -------------------------------------------------------------------------------
7,346
- -------------------------------------------------------------------------------
<PAGE>
Utilities 9.3%
CE Electric UK Funding, Sr. Notes, (144a), 6.853%, 12/30/04 2,100 2,039
- -------------------------------------------------------------------------------
National Rural Utilities, 5.00%, 10/1/02 4,000 3,819
- -------------------------------------------------------------------------------
Niagara Mohawk, Sr. Disc. Notes, 7.375%, 7/1/03 3,024 3,025
- -------------------------------------------------------------------------------
Pacific Gas & Electric, 1st Mtg. Bonds, 8.75%, 1/1/01 4,500 4,599
- -------------------------------------------------------------------------------
Potomac Capital Investment, MTN, 7.55%, 11/19/01 1,500 1,496
- -------------------------------------------------------------------------------
Public Service Electric & Gas, Mtg. Bonds, 8.875%, 6/1/03 4,350 4,443
- -------------------------------------------------------------------------------
Texas NM Power, 1st Mtg. Bonds, 9.25%, 9/15/00 1,750 1,779
- -------------------------------------------------------------------------------
United Illuminating, 6.25%, 12/15/02 2,150 2,092
- -------------------------------------------------------------------------------
Utilicorp United, Sr. Notes, 7.00%, 7/15/04 3,000 2,913
- -------------------------------------------------------------------------------
Williams, 6.125%, 2/15/12 2,500 2,438
- -------------------------------------------------------------------------------
28,643
- -------------------------------------------------------------------------------
Total Corporate Bonds and Notes (Cost $146,578) 144,438
- -------------------------------------------------------------------------------
U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES 16.2%
U.S. Government Agency Obligations 15.5%
Federal Home Loan Mortgage
5.75%, 6/15/10 6,000 5,954
- -------------------------------------------------------------------------------
6.00%, 8/15/06 - 5/15/16 21,790 21,505
- -------------------------------------------------------------------------------
6.40%, 1/15/08 4,000 3,945
- -------------------------------------------------------------------------------
6.92%, 1/25/12 793 791
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage
9.00%, 2/1 - 7/1/02 $ 393 $ 399
- -------------------------------------------------------------------------------
9.50%, 8/1/01 - 9/1/02 223 227
- -------------------------------------------------------------------------------
10.00%, 1/1/01 - 10/1/05 184 190
- -------------------------------------------------------------------------------
11.00%, 8/1/00 - 2/1/01 38 39
- -------------------------------------------------------------------------------
7 year balloon, 6.50%, 12/1/99 282 282
- -------------------------------------------------------------------------------
<PAGE>
Federal National Mortgage Assn.
5.50%, 11/1/05 36 35
- -------------------------------------------------------------------------------
7.00%, 4/1/09 6,451 6,443
- -------------------------------------------------------------------------------
9.00%, 5/1/05 - 1/25/08 7,489 7,760
- -------------------------------------------------------------------------------
11.00%, 10/1 - 12/1/00 20 20
- -------------------------------------------------------------------------------
7 year balloon, 7.00%, 1/1/00 42 43
- -------------------------------------------------------------------------------
REMIC, 7.50%, 8/25/05 313 312
- -------------------------------------------------------------------------------
47,945
- -------------------------------------------------------------------------------
U.S. Government Guaranteed Obligations 0.7%
Government National Mortgage Assn.
I
8.50%, 2/15/05 - 3/15/06 251 257
- -------------------------------------------------------------------------------
10.50%, 11/15/15 111 122
- -------------------------------------------------------------------------------
GPM, I
8.50%, 1/15/06 42 42
- -------------------------------------------------------------------------------
9.50%, 8/15 - 10/15/09 5 5
- -------------------------------------------------------------------------------
11.00%, 8/15/10 54 59
- -------------------------------------------------------------------------------
11.25%, 6/15/13 - 1/15/16 209 235
- -------------------------------------------------------------------------------
11.75%, 8/15/13 - 10/15/15 684 779
- -------------------------------------------------------------------------------
13.00%, 9/15/11 7 8
- -------------------------------------------------------------------------------
GPM, II, 11.00%, 9/20/13 - 4/20/14 5 5
- -------------------------------------------------------------------------------
Midget, I
9.00%, 7/15/01 - 2/15/06 242 250
- -------------------------------------------------------------------------------
9.50%, 5/15/01 - 4/15/05 72 74
- -------------------------------------------------------------------------------
10.00%, 6/15/01 - 10/15/04 258 269
- -------------------------------------------------------------------------------
11.50%, 5/15/00 2 2
- -------------------------------------------------------------------------------
2,107
- -------------------------------------------------------------------------------
Total U.S. Government Mortgage-Backed
Securities (Cost $50,701) 50,052
- -------------------------------------------------------------------------------
<PAGE>
ASSET-BACKED SECURITIES 14.6%
Advanta Mortgage Loan Trust, Interest Only
Zero Coupon, 12/25/00 ** $ 18,000 $ 922
- -------------------------------------------------------------------------------
Banc One Auto Grantor Trust, 6.27%, 11/20/03 1,126 1,127
- -------------------------------------------------------------------------------
BMW Vehicle Owner Trust, 6.54%, 4/25/04 3,000 2,982
- -------------------------------------------------------------------------------
California Infrastructure
6.25%, 6/25/04 2,175 2,161
- -------------------------------------------------------------------------------
6.28%, 9/25/05 1,900 1,874
- -------------------------------------------------------------------------------
6.42%, 9/25/08 1,850 1,815
- -------------------------------------------------------------------------------
Comed Transitional Funding Trust, 5.44%, 3/25/07 4,000 3,768
- -------------------------------------------------------------------------------
Delta Air Lines
9.60%, 6/1/00 1,260 1,277
- -------------------------------------------------------------------------------
ETC, 9.60%, 5/26/00 1,700 1,723
- -------------------------------------------------------------------------------
Fingerhut Master Trust, 6.07%, 2/15/05 3,300 3,283
- -------------------------------------------------------------------------------
First Security Auto Owner Trust, 6.20%, 10/15/06 3,500 3,440
- -------------------------------------------------------------------------------
GMAC Commercial Mortgage Securities, 6.15%, 5/15/35 2,796 2,684
- -------------------------------------------------------------------------------
Harley Davidson Eaglemark
5.94%, 2/15/04 750 741
- -------------------------------------------------------------------------------
6.35%, 10/15/02 853 852
- -------------------------------------------------------------------------------
MBNA Credit Card Trust, 7.45%, 4/16/07 1,500 1,491
- -------------------------------------------------------------------------------
MMCA Automobile Trust, 6.80%, 8/15/03 3,250 3,248
- -------------------------------------------------------------------------------
Neiman Marcus Credit Master Trust, 7.60%, 6/15/03 4,000 4,024
- -------------------------------------------------------------------------------
New Holland Equipment Receivables, 6.80%, 12/15/07 + 3,000 2,988
- -------------------------------------------------------------------------------
Onyx Acceptance Auto Trust, 6.76%, 5/15/04 2,000 1,990
- -------------------------------------------------------------------------------
Peco Energy Transport Trust, 5.63%, 3/1/05 2,650 2,579
- -------------------------------------------------------------------------------
Total Asset-Backed Securities (Cost $49,427) 44,969
- -------------------------------------------------------------------------------
<PAGE>
NON-U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 2.5%
Great Western Bank, ARM, 5.61%, 12/28/99 811 777
- -------------------------------------------------------------------------------
LB Commercial Conduit Mortgage Trust, 6.41%, 8/15/07 3,737 3,619
- -------------------------------------------------------------------------------
Prudential Securities, 6.074%, 1/15/08 3,367 3,225
- -------------------------------------------------------------------------------
Total Non-U.S. Government Mortgage-Backed
Securities (Cost $7,105) 7,621
- -------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS/AGENCIES 1.4%
U.S. Government Agency Obligations 0.3%
Chilbar Shipping, 6.98%, 7/15/01 $ 1,005 $ 1,005
- -------------------------------------------------------------------------------
1,005
- -------------------------------------------------------------------------------
U.S. Treasury Obligations 1.1%
U.S. Treasury Inflation-Indexed Notes, 3.625%, 7/15/02 3,407 3,383
- -------------------------------------------------------------------------------
3,383
- -------------------------------------------------------------------------------
Total U.S. Government Obligations/Agencies (Cost $4,412) 4,388
- -------------------------------------------------------------------------------
MONEY MARKET FUNDS 18.0%
Reserve Investment Fund, 5.65% # 55,376 55,376
Total Money Market Funds (Cost $55,376) 55,376
----------
99.4% of Net Assets (Cost $313,599) $ 306,844
----------
Other Assets Less Liabilities 1,762
----------
<PAGE>
NET ASSETS $ 308,606
----------
----------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ (1,371)
----------
Accumulated net realized gain/loss - net of distributions (35,457)
----------
Net unrealized gain (loss) (6,755)
----------
Paid-in-capital applicable to 67,680,064 shares of $0.01 par
value capital stock outstanding; 1,000,000,000 shares authorized 352,189
----------
NET ASSETS $ 308,606
----------
NET ASSET VALUE PER SHARE $ 4.56
----------
----------
+ Private Placement
** For Interest Only securities, amount represents notional principal on which
the fund receives interest
# Seven-day yield
ARM Adjustable Rate Mortgage
ETC Equipment Trust Certificate
GPM Graduated Payment Mortgage
MTN Medium Term Note
REMIC Real Estate Mortgage Investment Conduit
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
5.5% of net assets.
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. ROWE PRICE SHORT-TERM BOND FUND
- ----------------------------------
Unaudited
STATEMENT OF OPERATIONS
- -----------------------
In thousands
6 Months
Ended
11/30/99
--------
Investment Income
Interest income $ 9,854
- --------------------------------------------------------------------
Expenses
Investment management 658
Shareholder servicing 317
Custody and accounting 83
Prospectus and shareholder reports 41
Legal and audit 9
Registration 3
Directors 3
Miscellaneous 2
- --------------------------------------------------------------------
Net expenses 1,116
- --------------------------------------------------------------------
Net investment income 8,738
- --------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (1,569)
Change in net unrealized gain or loss on securities (3,234)
- --------------------------------------------------------------------
Net realized and unrealized gain (loss) (4,803)
- --------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 3,935
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. ROWE PRICE SHORT-TERM BOND FUND
- ----------------------------------
Unaudited
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------
In thousands
6 Months Year
Ended Ended
11/30/99 5/31/99
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Increase (Decrease) in Net Assets
Operations
Net investment income $ 8,738 $ 18,369
Net realized gain (loss) (1,569) 691
Change in net unrealized gain or loss (3,234) (4,962)
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Increase (decrease) in net assets from operations 3,935 14,098
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Distributions to shareholders
Net investment income (8,732) (18,343)
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Capital share transactions *
Shares sold 56,089 158,317
Distributions reinvested 7,725 16,193
Shares redeemed (74,509) (178,122)
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Increase (decrease) in net assets from capital
share transactions (10,695) (3,612)
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Net Assets
Increase (decrease) during period (15,492) (7,857)
Beginning of period 324,098 331,955
End of period $ 308,606 $ 324,098
*Share information
Shares sold 12,208 33,727
Distributions reinvested 1,684 3,451
Shares redeemed (16,208) (37,964)
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Increase (decrease) in shares outstanding (2,316) (786)
The accompanying notes are an integral part of these financial statements.
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<PAGE>
T. ROWE PRICE SHORT-TERM BOND FUND
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Unaudited November 30, 1999
NOTES TO FINANCIAL STATEMENTS
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
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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 and commenced operations on March 2, 1984.
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.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
Premiums and Discounts Premiums and discounts on debt securities, other
than mortgage-backed securities (MBS), are amortized for both financial
reporting and tax purposes. Premiums and discounts on all MBS are recognized
upon disposition or principal repayment as gain or loss for financial reporting
purposes. 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. 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. Credits earned on daily uninvested cash balances at the
custodian are used to reduce the fund's custody charges.
<PAGE>
NOTE 2 - INVESTMENT TRANSACTIONS
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Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Securities Lending The fund lends its securities to approved brokers to
earn additional income and 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 November 30, 1999, the value of
loaned securities was $2,043,000; aggregate collateral consisted of $2,103,000
in the securities lending collateral pool.
Other Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $56,649,000 and $81,243,000,
respectively, for the six months ended November 30, 1999.
Purchases and sales of U.S. government securities aggregated $8,191,000 and
$21,722,000, respectively, for the six months ended November 30, 1999.
NOTE 3 - FEDERAL INCOME TAXES
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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 capital loss carryforwards for federal income tax
purposes of $34,054,000, of which $96,000 expires in 2001, $4,515,000 in 2002,
and $29,443,000 thereafter through 2005. The fund intends to retain gains
realized in future periods that may be offset by available capital loss
carryforwards.
At November 30, 1999, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$313,599,000. Net unrealized loss aggregated $6,755,000 at period-end, of which
$263,000 related to appreciated investments and $7,018,000 to depreciated
investments.
<PAGE>
NOTE 4 - RELATED PARTY TRANSACTIONS
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The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management fee,
of which $105,000 was payable at November 30, 1999. 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 0.295% for assets in excess of $120 billion. At
November 30, 1999, and for the six months then ended, the effective annual group
fee rate was 0.32%. The fund pays a pro-rata share of the group fee based on the
ratio of its net assets to those of the group.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund receives
certain other services. The manager computes the daily share price and
main-tains 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 $331,000 for the six months
ended November 30, 1999, of which $59,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not available to the public.
The Reserve Funds pay no investment management fees. Distributions from the
Reserve Funds to the fund for the six months ended November 30, 1999, totaled
$1,318,000 and are reflected as interest income in the accompanying Statement of
Operations.
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<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*AccessRegistration Mark
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. **
<PAGE>
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.
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FOR FUND AND ACCOUNT INFORMATION
OR TO CONDUCT TRANSACTIONS,
24 HOURS, 7 DAYS A WEEK
By touch-tone telephone
TELE*ACCESS 1-800-638-2587
By Account Access on the Internet
WWW.TROWEPRICE.COM/ACCESS
FOR ASSISTANCE
WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132
TO OPEN A BROKERAGE ACCOUNT
OR OBTAIN INFORMATION, CALL:
1-800-638-5660
<PAGE>
INTERNET ADDRESS:
www.troweprice.com
PLAN ACCOUNT LINES FOR RETIREMENT
PLAN PARTICIPANTS:
The appropriate 800 number appears on
your retirement account statement.
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus appropriate
to the fund or funds covered in this
report.
WALK-IN INVESTOR CENTERS:
For directions, call 1-800-225-5132
or visit our Web site
BALTIMORE AREA
DOWNTOWN
101 East Lombard Street
OWINGS MILLS
Three Financial Center
4515 Painters Mill Road
BOSTON AREA
386 Washington Street
Wellesley
COLORADO SPRINGS
4410 ArrowsWest Drive
LOS ANGELES AREA
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
TAMPA
4200 West Cypress Street
10th Floor
WASHINGTON, D.C.
900 17th Street N.W.
Farragut Square
T. Rowe Price Investment Services, Inc., Distributor. F55-051 11/30/99
