ANNUAL REPORT
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-T
erm U.S. Government Fund.
SHORT-TERM
U.S. GOVERNMENT FUND
MAY 31, 1995
USG
Fellow Shareholders
Your fund's fiscal year ended May 31 on a strong note. The bond market rally
that began with longer-term maturities in late 1994 continued through the
final quarter and broadened to include shorter-term maturities. This
favorable market environment and the expansion of the fund's investment
program, effective March 31, resulted in gratifying performance for the
quarter and year.
MARKET RECAP
A year ago, in the midst of the Federal Reserve's program to dampen
inflationary pressures by slowing the economy, the outlook for fixed income
investments was not encouraging. Short-term rates climbed in lockstep with
successive increases in the federal funds rate (the overnight rate on
interbank loans), and most bond returns for the first half of our fiscal year
were mediocre or negative.
Although the Fed was still tightening, long-term rates began to fall
in late November, as inflation failed to accelerate and investors anticipated
a slowdown in economic growth. Despite another Fed rate hike on February 1,
yields on short and intermediate maturities began to follow suit in early
January and fell steadily during the spring, as shown in the chart.
Indications
of a sharp slowdown in growth convinced many investors that the Fed's next
move would be toward ease, and this expectation pushed the one-year bill rate
slightly BELOW the fed funds rate at quarter-end.
PERFORMANCE AND STRATEGY REVIEW
Your fund's strong 3.54% total return for the quarter was composed of a $0.07
per share quarterly dividend and a $0.09 rise in share price. Reflecting the
difficult environment that prevailed during the first six months, fiscal year
performance was driven primarily by income, with only a modest contribution
from principal appreciation. Due to the broadening in the fund's investment
program, we have been placed in a different peer group and were pleased to
exceed that group's average for the quarter. The comparison for the 12-month
period is less valid, since your fund focused primarily on adjustable rate
mortgages (ARMs) before March 31 and was in a different category.
Performance Comparison
Periods Ended 5/31/95
3 Months 12 Months
______________________
Short-Term U.S.
Government Fund 3.54% 6.14%
Lipper Average of
Short-Term U.S.
Government Funds 3.38 6.65
During the final quarter, your fund's change in investment program
became effective, and we realigned our investments to take advantage of the
greater flexibility now available. As we have explained, the fund's principal
focus is now on short-term U.S. government securities, including those backed
by fixed rate mortgages and ARMS, rather than only on ARMs. The fund's credit
quality will remain high, with all securities rated AA or better when
purchased.
Interest Rate Levels
Your fund's commitment to U.S. government ARMs was reduced from about 83%
of the portfolio at the end of the previous
quarter to 57%, most of which were issued by GNMA. Since GNMA ARMs tend to
prepay at lower rates than other government-related ARMS, such as those
issued by Fannie Mae or Freddie Mac, their durations are longer. (Duration
measures the price sensitivity of a security to changes in interest rates;
the longer the duration, the greater the price movement in relation to a
given change in interest rates.) Thus, these GNMA holdings were a major
contributor to the fund's rise in price.
We continued to increase our investments in U.S. Treasury issues,
with those holdings now at 23% versus 15% last quarter and 3% a year ago.
These securities also performed well as interest rates fell. The largest
position added during the quarter was a Fannie Mae home equity loan-backed
bond -- the first of its kind issued by a U.S. government-sponsored agency.
This security, which composes 11% of net assets, is backed by a pool of first
and second home liens, has an 8% coupon, an average expected life of five
years, and trades at 70 basis points over the five-year Treasury note. With
prepayments likely to be very slow, we expect this to be an attractive core
holding for the fund.
LOOKING AHEAD
We expect mortgage prepayment rates to pick up in the wake of the sharp
decline in interest rates. The brunt of the increase will probably occur in
the ARM market as homeowners seek to lock in newly attractive fixed rates and
avoid
the likelihood of upward adjustments on their ARMs. We plan to continue
selling our premium-coupon, non-GNMA ARMs, which trade at prices over their
par values, and redeploy the assets into Treasury securities to position the
fund around a 2.5-year duration. (This would mean that the fund could be
expected to rise or fall about 2.5% for each one percentage point change in
interest rates.)
Without question, the economy's much ballyhooed soft landing has hit
some bumps,
but we do not expect it to leave the runway altogether. Rather, we foresee a
gradual return by year-end to a rate of growth closer to the long-term trend
of 2% to 2.5%. Therefore, we believe the bulk of the decline in rates is
behind us and that returns in coming months will be powered more by income
than by robust appreciation.
With or without an imminent easing by the Federal Reserve, we see a
benign environment for bond investors for the balance of 1995. The wider
investment latitude your fund now enjoys should enable it to provide solid
returns in the coming months.
Respectfully submitted,
Peter Van Dyke
President and Chairman of the
Investment Advisory Committee
June 19, 1995
Statistical Highlights
T. Rowe Price Short-Term U.S. Government Fund / May 31, 1995
Key Statistics
Dividend Yield* Periods Ended 5/31/95
_________________________ ___________________
3 Months 6.13%
12 Months 5.69
Dividend Per Share
_________________________
3 Months $0.07
12 Months 0.25
Change in Price Per Share
_________________________
3 Months (From $4.58 to $4.67) $0.09
12 Months (From $4.65 to $4.67) 0.02
5/31/94 2/28/95 5/31/95
Weighted Average
Quality** 1.2 1.2 1.1
*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.
**On a T. Rowe Price scale of 1 to 10, with Grade 1 representing the highest
quality.
Maturity Diversification
Percent of Net Assets
Range 5/31/95
_______________________ ________
0 to 1 year 24%
1+ to 2 years 9
2+ to 3 years --
Over 3 years 67
Weighted Average
Maturity (years) 2.7
Weighted Average
Duration (years) 2.6
Note:This table appears in this report for the first time. It was not
applicable to the fund's previous investment programs that
focused on adjustable rate mortgage securities.
Sector Diversification*
Percent of Net Assets
5/31/94 2/28/95 5/31/95
_______________________ _______ _______ _______
GNMA Adjustable
Rate Mortgages 11% 41% 38%
U.S. Treasury Securities 3 15 23
U.S. Government
Agency Asset-Backed -- -- 11
FNMA Adjustable
Rate Mortgages 47 33 11
FHLMC Adjustable
Rate Mortgages 13 8 8
Non-Government Adjust-
able Rate Mortgages 15 13 5
GNMA Fixed Rate
Mortgages 1 3 4
Non-Government
Fixed Rate Mortgages 4 2 2
*Sectors representing at least 2% of net assets on 5/31/95.
Investment Record
T. Rowe Price Short-Term U.S. Government Fund
The table below shows the investment record of one share of the T. Rowe Price
Short-Term U.S. Government Fund, purchased at the
initial offering price of $5.00. Over this time, interest rates have been
volatile. The results shown should not be considered a
representation of the dividend income or capital gain or loss which may be
realized from an investment made in the fund today.
Fiscal Net Capital With Dividends
Year Asset Income Gain With Dividends and Capital Gains Total
Ended Value Dividends Distributions Reinvested Reinvested Return
______ _______ ________ ______ _________ _____ ______
2/29/921 $4.97 $0.16 -- $5.13 $5.13 2.58%
1993 4.83 0.30 -- 5.30 5.30 3.33
1994 4.75 0.23 -- 5.46 5.46 3.11
5/31/942 4.65 0.05 -- 5.41 5.41 -0.97
19953 4.67 0.25 -- 5.74 5.74 6.14
Total $0.99 --
1From inception 9/30/91 to 2/29/92.
2Fiscal year-end changed from February 28 to May 31; figures are for three
months from 3/1/94 to 5/31/94.
3Investment program and fund name changed effective 3/31/95.
Average Annual Compound
Total Return
Periods Ended May 31, 1995
Since Inception
1 Year 9/30/91
_______ ______________
6.14% 3.86%
Note: For the above periods ended 3/31/95, the fund's returns were 2.30% and
3.24%, respectively.
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
Fiscal-Year Performance Comparison
* THE INDEX RETURN DOES NOT REFLECT EXPENSES, WHICH HAVE BEEN DEDUCTED FROM
THE FUND'S RETURN
Portfolio of Investments
T. Rowe Price Short-Term U.S. Government Fund / May 31, 1995
(amounts in thousands)
U.S. Government-Backed Securities -- 95.8%
U.S. Government Guaranteed Obligations -- 42.5%
Government National Mortgage Assn., I, 11.50%,
3/15/10 - 12/15/15 ..................................... $ 2,787 $ 3,111
ARM1, II, 6.00%, 5/20/25................................ 5,000 5,016
6.125%, 12/20/20........................................ 694 662
7.00%, 1/20 - 4/20/25................................... 21,545 22,039
7.50%, 1/20 - 2/20/25................................... 14,587 15,036
Project Loan, 9.125%, 12/15/28.......................... 1,817 1,885
47,749
U.S. Government Obligations -- 23.0%
U.S. Treasury Notes, 6.75%, 4/30/00..................... 2,000 2,057
7.50%, 12/31/96......................................... 9,500 9,734
7.50%, 10/31/99......................................... 7,290 7,690
7.75%, 12/31/99......................................... 5,000 5,332
8.50%, 11/15/95......................................... 1,000 1,011
25,824
U.S. Government Agency ARM1 -- 19.1%
Federal Home Loan Mortgage,
1 Year CMT, resets annually, 7.813%, 5/1/20............. 935 941
resets semi-annually, 7.145 - 7.279%, 12/1/18 - 9/1/19.. 2,091 2,071
COFI, resets annually, 5.95%, 4/1/18.................... 624 645
resets monthly, 5.839 - 6.175%, 8/1/15 - 1/1/30......... 3,800 3,851
resets semi-annually, 5.593%, 6/1/29.................... 1,408 1,403
Federal National Mortgage Assn.,
1 Year CMT, resets annually, 6.856 - 7.355%,
1/1/16 - 10/1/21 .................................... 1,288 1,291
7.540 - 8.000%, 12/1/13 - 8/1/21....................... 821 800
resets semi-annually, 7.509%, 10/1/18.................. 216 215
6 month T-Bill Index, resets semi-annually,
6.775 - 6.904%, 1/1/16 - 9/1/26...................... 3,259 3,331
7.256 - 7.905%, 9/1/00 - 3/1/26........................ 688 690
COFI, resets monthly, 5.997%, 12/1/16 - 5/1/31......... 879 897
6.032 - 6.257%, 10/1/17 - 7/1/27....................... 3,461 3,493
6.817%, 10/1/14........................................ 11 11
resets semi-annually, 5.375 - 5.875%, 8/1/17 - 11/1/20. 1,829 1,829
21,468
U.S. Government Agency Asset-Backed -- 11.2%
Federal National Mortgage Assn., 8.00%, 4/25/25........ 12,000 12,563
Total U.S. Government-Backed Securities (Cost $106,422) 107,604
T. Rowe Price Short-Term U.S. Government Fund/Portfolio of Investments
Non-Government Securities -- 6.8%
Amount Value
________ ________
Non-Government Agency ARM1 -- 4.7%
Resolution Trust Corp., MPC, 1 Year CMT,
resets annually, 7.776%, 12/25/20.................... $ 614 $ 607
6 month T-Bill Index, resets monthly, 8.235%, 7/25/21.. 1,047 1,065
Ryland Mercury Savings Trust, MPC, COFI, resets semi-annually,
6.064%, 5/20/18..................................... 731 722
Ryland Mortgage Securities, MPC, COFI, resets monthly,
7.522%, 3/25/17 ...................................... 842 793
Salomon Brothers Mortgage Securities, MPC, COFI,
resets semi-annually, 5.833%, 8/25/18 .............. 1,206 1,139
Western Federal Savings And Loan, MPC, COFI,
resets semi-annually, 5.754%, 5/25/18............... 1,028 969
5,295
Other Asset-Backed Securities -- 2.1%
HFC Home Equity Loan, 4.75%, 5/20/08.................. 2,430 2,400
Total Non-Government Securities (Cost $8,035) 7,695
Commercial Paper -- 1.2%
President & Fellows Harvard College, 6.15%,
6/1/95 (Cost $1,383)................................ 1,383 1,383
TOTAL INVESTMENTS IN SECURITIES -- 103.8% OF
NET ASSETS (COST $115,840) 116,682
Other Assets Less Liabilities......................... (4,295)
_______
NET ASSETS............................................ $112,387
_______
_______
1 Rates disclosed are as of May 31, 1995.
ARM -- Adjustable Rate Mortgages
MPC -- Mortgage Pass-through Certificates
The Adjustable Rate Mortgage securities are reset periodically based on the
following indices:
COFI-- Cost of Funds Index in the Eleventh Federal Reserve district.
CMT-- Constant Maturity U.S. Treasury Index.
6 Month Treasury Bill Index -- 6 Month Treasury Bill discount rate index.
The accompanying notes are an integral part of these financial statements.
Statement of Assets and Liabilities
T. Rowe Price Short-Term U.S. Government Fund / May 31, 1995
(IN THOUSANDS)
ASSETS
Investments in securities, at value (cost $115,840).......... $116,682
Receivable for investment securities sold.................... 9,988
Other assets................................................. 1,032
_______
Total assets................................................. 127,702
_______
LIABILITIES
Payable for investment securities purchased.................. 15,009
Other liabilities............................................ 306
_______
Total liabilities............................................ 15,315
NET ASSETS................................................... $112,387
_______
_______
Net Assets Consist of:
Accumulated net investment income - net of distributions..... $ (588)
Accumulated net realized gain/loss - net of distributions.... (23,979)
Net unrealized gain (loss)................................... 842
Paid-in-capital applicable to 24,058,588 shares of $0.01 par
value capital stock outstanding; 1,000,000,000 shares
authorized................................................. 136,112
_______
NET ASSETS................................................... $112,387
_______
_______
NET ASSET VALUE PER SHARE.................................... $4.67
_______
_______
The accompanying notes are an integral part of these financial statements.
INVESTMENT INCOME
Interest income..................................... $8,391
_______
Expenses
Investment management............................... 284
Shareholder servicing............................... 237
Custody and accounting.............................. 142
Registration........................................ 47
Prospectus and shareholder reports.................. 35
Legal and audit..................................... 32
Proxy and annual meeting............................ 12
Organization........................................ 11
Directors........................................... 7
Miscellaneous....................................... 7
_______
Total expenses...................................... 814
_______
Net investment income............................... 7,577
_______
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on securities.............. (5,753)
Change in net unrealized gain or loss on securities. 4,952
_______
Net realized and unrealized gain (loss)............. (801)
_______
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS... $6,776
_______
_______
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Short-Term U.S. Government Fund / Year Ended May 31, 1995
(IN THOUSANDS)
Statement of Changes in Net Assets
T. Rowe Price Short-Term U.S. Government Fund
(IN THOUSANDS)
Three
Year Ended Months Ended Year Ended
May 31, 1995 May 31, 1994 Feb. 28, 1994
___________ ____________ _____________
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income............ $7,577 $2,428 $15,586
Net realized gain (loss)......... (5,753) (954) (3,117)
Change in net unrealized gain
or loss......................... 4,952 (3,465) (2,319)
__________________________________
Increase (decrease) in net
assets from operations.......... 6,776 (1,991) 10,150
__________________________________
Distributions to shareholders
Net investment income............ (7,212) (2,355) (11,303)
Tax return of capital............ (326) -- (4,132)
__________________________________
Decrease in net assets from
distributions................... (7,538) (2,355) (15,435)
__________________________________
Capital share transactions*
Shares sold...................... 21,194 15,975 86,042
Distributions reinvested......... 6,030 1,885 13,827
Shares redeemed.................. (101,592) (51,151) (345,878)
__________________________________
Increase (decrease) in net assets
from capital share transactions. (74,368) (33,291) (246,009)
__________________________________
Increase (decrease) in net assets. (75,130) (37,637) (251,294)
NET ASSETS
Beginning of period............... 187,517 225,154 476,448
__________________________________
End of period..................... $112,387 $187,517 $225,154
__________________________________
__________________________________
*Share information
Shares sold...................... 4,608 3,396 17,922
Distributions reinvested......... 1,314 402 2,877
Shares redeemed.................. (22,159) (10,875) (71,987)
__________________________________
Increase (decrease) in shares
outstanding..................... (16,237) (7,077) (51,188)
__________________________________
__________________________________
The fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Short-Term U.S. Government Fund / May 31, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Short-Term U.S. Government Fund (the fund), formerly T. Rowe
Price Adjustable Rate U.S. Government 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 - Except for
mortgage-backed securities, premiums and discounts on debt securities are
amortized for both financial and tax reporting purposes. In accordance with
federal income tax regulations, market discounts and premiums on
mortgage-backed securities are included in the gain or loss recorded upon
principal repayment of the security for financial reporting purposes and
ordinary income for tax 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 and may differ from those determined in accordance with generally
accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Sales of portfolio securities, other than short-term and U.S. government
securities, aggregated $25,346,000 for the year ended May 31, 1995.
Purchases and sales of U.S. government securities aggregated $137,076,000 and
$175,270,000, respectively, for the year ended May 31, 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 $19,701,000, $12,778,000 of which expire
in 2000, $5,229,000 in 2001, and $1,694,000 thereafter through 2003. The
fund intends to retain gains realized in future years that may be offset by
available capital loss carryforwards.
In order for the fund's capital accounts and distributions to
shareholders to reflect the tax
character of certain transactions, $1,028,000 of undistributed net investment
income and $1,039,000 of undistributed net realized gains were reclassified
as a $11,000 decrease to paid-in-capital during the year ended May 31, 1995.
The results of operations and net assets were not affected by the
reclassifications.
At May 31, 1995, the aggregate cost of investments for federal income
tax and financial reporting purposes was $115,840,000 and net unrealized gain
aggregated $842,000, of which $1,940,000 related to appreciated investments
and $1,098,000 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 $24,000 was payable at May 31, 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 May 31, 1995, and for the year 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.
Under the terms of the investment management agreement, the Manager
is required to bear any expenses through May 31, 1996, which would cause the
fund's ratio of expenses to average net assets to exceed 0.70%. The
limitation was phased in as follows: 0.50% on March 1, 1994, 0.60% on
September 1, 1994, and 0.70% on March 1, 1995. Thereafter through May 31,
1998, the fund is required to reimburse the Manager for these expenses,
provided that average net assets have grown or expenses have declined sufficie
ntly to allow reimbursement without causing the fund's ratio of expenses to
average net assets to exceed 0.70%. Pursuant to this agreement, $329,000 of
management fees were not accrued by the fund for the year ended May 31, 1995.
Pursuant to a
previous agreement, $267,000 of unaccrued fees from the prior periods are
subject to reimbursement through May 31, 1996.
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. The fund
incurred expenses pursuant to these related party agreements totaling
approximately $294,000 for the year ended May 31, 1995, of which $31,000 was
payable at year-end.
Financial Highlights
T. Rowe Price Short-Term U.S. Government Fund
For a share outstanding throughout each period
Sept. 30, 1991
Three Months (Commencement
Year ended ended Year ended of Operations) to
May 31, May 31, Feb. 28, Feb. 28, Feb. 29,
1995 1994 1994 1993 1992
________ ________ ________ ________ _________
NET ASSET VALUE,
BEGINNING OF
PERIOD.......... $4.65 $4.75 $4.83 $4.97 $5.00
_____ _____ _____ _____ _____
Investment Activities
Net investment
income.......... 0.26* 0.06* 0.23* 0.29* 0.16*
Net realized and
unrealized
gain (loss)..... 0.01 (0.11) (0.08) (0.13) (0.03)
_____ _____ _____ _____ _____
Total from
Investment
Activities...... 0.27 (0.05) 0.15 0.16 0.13
_____ _____ _____ _____ _____
Distributions
Net investment
income.......... (0.24) (0.05) (0.17) (0.28) (0.16)
Tax return of
capital......... (0.01) -- (0.06) (0.02) --
_____ _____ _____ _____ _____
Total
Distributions... (0.25) (0.05) (0.23) (0.30) (0.16)
_____ _____ _____ _____ _____
NET ASSET VALUE,
END OF PERIOD... $4.67 $4.65 $4.75 $4.83 $4.97
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
RATIOS/SUPPLEMENTAL DATA
Total Return.... 6.14%* (0.97)%* 3.11%* 3.33%* 2.58%*
Ratio of Expenses
to Average Net
Assets.......... 0.59%* 0.50%* 0.40%* 0.25%* 0.00%*
Ratio of Net Investment Income
to Average
Net Assets...... 5.48%* 4.69%* 4.78%* 5.96%* 7.45%*
Portfolio Turnover
Rate............ 100.0% 27.6% 70.4% 110.8% 98.4%
Net Assets,
End of Period
(in thousands).. $112,387 $187,517 $225,154 $476,448 $342,939
The fund's fiscal year-end was changed to May 31.
Annualized.
* The manager agreed to bear all expenses of the fund through June 30, 1992.
Excludes expenses in excess of a 0.20% voluntary expense limitation in
effect July 1, 1992 through July 31, 1992, a 0.30% voluntary expense
limitation in effect August 1, 1992, through August 31, 1992, a 0.40%
voluntary expense limitation in effect September 1, 1992, through February
28, 1994, a 0.50% voluntary expense limitation in effect March 1, 1994,
through August 31, 1994, a 0.60% voluntary expense limitation in effect Septem
ber 1, 1994, through February 28, 1995, and a 0.70% voluntary expense
limitation in effect March 1, 1995.
Report of Independent Accountants
To the Shareholders and Board of Directors
of T. Rowe Price Short-Term U.S. Government Fund, Inc.
We have audited the accompanying statement of assets and liabilities of T.
Rowe Price Short-Term U.S. Government Fund, Inc., including the portfolio of
investments, as of May 31, 1995, and the related statement of operations for
the year then ended, the statement of changes in net assets for the year
ended May 31, 1995, the three months ended May 31, 1994, and the year ended
February 28, 1994, and the financial highlights for the year ended May 31,
1995, the three months ended May 31, 1994, each of the two years in the
period ended February 28, 1994 and for the period September 30, 1991
(commencement of operations) to February 29, 1992. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
investments owned as of May 31, 1995, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
T. Rowe Price Short-Term U.S. Government Fund, Inc. as of May 31, 1995, the
results of its operations, the changes in its net assets and financial
highlights for each of the respective periods stated in the first paragraph,
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
June 19, 1995
Shareholder Services
To help shareholders monitor their current
investments and make decisions that accu-
rately 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 8:00 a.m. to
10:00 p.m., Monday - Friday, and weekends from 9:00 a.m. to 5:00 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*ACCESSRegistration Mark (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. Addition-
ally, 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*ACCESSRegistration Mark provides the same information as Tele*Acces
s, 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.
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.
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
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.
