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 distribution only to shareholders and to others
who have received a copy of the prospectus of the T. Rowe Price Short-Term
U.S. Government Fund.
Invest With Confidence (registered trademark)
T. Rowe Price
USG
SemiAnnual Report
T. Rowe Price
Short-Term U.S. Government Fund
November 30, 1995
Fellow Shareholders
The bond market rally that began about one year ago continued through the most
recent six-month period ended November 30, 1995, resulting in solid returns
for your fund. This 12-month rally, one of the strongest on record, followed
one of the sharpest bond market sell-offs in history in 1994. The rise in bond
prices and decline in yields was underpinned by moderate economic growth, low
inflation, and good prospects for meaningful budget reform.
Market Environment
Long-term rates as measured by 30-year Treasury bonds fell by almost two
percentage points over the 12 months from 8% to 6.2%, with about one-third of
the drop occurring since May 31. The drop in shorter-term rates was less steep
but still pronounced, as shown in the chart. Yields on the two-year Treasury
note and one-year Treasury bill fell about 184 and 124 basis points,
respectively, during the 12-month period, with about 60 to 70 basis points of
each decline occurring in the most recent six-month period. (A basis point is
one-hundredth of one percent.)
Responding to a sharp slowdown in growth, the Federal Reserve cut the
federal funds rate to 5.75% in early July. Nevertheless, on November 30, the
fed funds rate was the highest of all short-term rates - higher, in fact, than
yields on all Treasury securities with maturities under 10 years. This
development reflected the widespread optimism among fixed income investors
that progress on deficit reduction would prompt the Fed to cut rates in the
near future.
Corporate securities were the top performing sector for both the most
recent 6- and 12-month periods. Treasury securities outperformed
mortgage-backed securities primarily because investors feared a significant
upsurge in mortgage prepayments as interest rates fell. Although the increase
was less than expected, prepayment concerns dampened enthusiasm for securities
such as Ginnie Maes (GNMAs). (Because mortgages are paid off at par value,
prepayments cause a loss to any investors who may have purchased them at a
price above par.)
Chart 1 - Interest Rate Levels
Performance and Strategy Review
The broader investment program adopted by your fund last winter was beneficial
in this market environment and contributed to its strong returns. As shown in
the table, results compared favorably with our peer group average for the
six-month period and lagged slightly for the 12 months, due primarily to the
portfolio's high exposure to mortgages earlier in the year. For both periods,
performance consisted of share price gains as well as the income return.
(Reflect-ing mortgage prepayments, 14.6% of the fund's income distributions
for January through April 1995 was classified as a "return of capital" and is
reported on Form 1099-DIV we send to you in January. This percentage of the
dividends paid to you is not subject to federal income tax and should be
subtracted from the cost basis of your fund investment.)
Performance Comparison
Periods Ended 11/30/95
6 Months 12 Months
_________ _________
Short-Term U.S.
Government Fund 3.93% 10.14%
Lipper Average of Short-Term
U.S. Government Funds 3.83 10.73
We made a number of shifts in the portfolio during the past six months
that increased its interest rate sensitivity and helped us maintain an
attractive income level. A 20% position was established in three-year Freddie
Mac (FHLMC) mortgage securities (callable in one year) offering higher yields
than Treasuries. We invested another 20% of assets in short-term debt issued
by Fannie Mae (FNMA). And our third major change was to purchase AA-rated,
short-term corporate bonds that also enhanced income and, along with our
Treasury holdings, helped boost the fund's share price as rates declined. The
fund's Treasury position declined four percentage points to 19%, but stayed
within the 15% to 25% range we expect to maintain. This core position provides
high liquidity and a convenient way for us to adjust duration (a measure of
the fund's price sensitivity to interest rate changes) in response to our
outlook for interest rates and prepayments.
We sharply reduced our exposure to adjustable rate mortgage (ARM)
securities from 62% on May 31 to 8% on November 30, completely eliminating our
holdings of Ginnie Mae (GNMA) and Freddie Mac ARMs. Like fixed rate mortgages,
ARMS lagged the market rally because investors feared a sharp rise in
prepayments like the one that accompanied the bond rally of 1993. While
prepayments accelerated, they never even approached 1993 levels. ARMs,
however, bore the brunt of increased refinancing activity as many homeowners
switched to fixed rate loans when confronted with their first upward rate
adjustments.
Outlook
Your fund benefited from the optimistic tenor of the bond market in recent
months - an optimism fueled by widespread expectations of federal deficit
reduction. A consensus has emerged that if government spending is indeed
curtailed, the Federal Reserve will loosen monetary policy to encourage the
greater private-sector spending needed to maintain acceptable economic growth.
We hope this scenario will play out, bringing further declines in interest
rates and favorable bond markets.
We are reasonably hopeful of this outcome and expect to maintain current
duration near the high end of the fund's range (approximately 2.25 to 2.75
years) until the budget impasse is resolved. However, if it becomes apparent
that Washington is reverting to "business as usual" regarding the deficit and
the Fed is, therefore, less likely to ease further, we may adopt a more
defensive posture.
Respectfully submitted,
Peter Van Dyke
President and Chairman of the
Investment Advisory Committee
December 18, 1995
Portfolio Highlights
T. Rowe Price Short-Term U.S. Government Fund / November 30, 1995
Key Statistics
Periods Ended
Dividend Yield* November 30, 1995
________________________________________________________________
6 Months 6.09%
12 Months 6.18
Dividend Per Share
_________________________
6 Months $0.14
12 Months 0.28
Change in Price Per Share
_________________________
6 Months (From $4.67 to $4.71) $0.04
12 Months (From $4.54 to $4.71) 0.17
5/31/95 11/30/95
_______ _______
Weighted Average Quality** 1.1 1.3
* 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.
Sector Diversification*
Percent of Net Assets
5/31/95 11/30/95
_________________
Corporate Notes and Bonds - 21%
FHLMC Fixed Rate Mortgages - 20
FNMA Debentures - 20
U.S. Treasury Securities 23% 19
U.S. Government Agency 11 9
Asset-Backed
Home Equity Loan-Backed - 5
FNMA Adjustable Rate Mortgages 11 4
GNMA Fixed Rate Mortgages 4 4
Non-Government Adjustable
Rate Mortgages 5 4
* Sectors representing at least 2% of net assets on 11/30/95. Allocations
as of 11/30/95 exceed 100% due to unsettled trades.
Maturity Diversification
Percent of Net Assets
Range 5/31/95 11/30/95
_______________________________________________________________
0 to 1 Year 24% 3%
1+ to 2 Years 9 7
2+ to 3 Years - 36
Over 3 Years 67 54
Weighted Average Maturity 2.7 yrs. 2.8 yrs.
Weighted Average Duration 2.6 yrs. 2.6 yrs.
Average Annual Compound Total Return
Periods Ended November 30, 1995
Since Inception
1 Year 9/30/91
______ ____________
10.14% 4.35%
Note: For the above periods ended 9/30/95, the fund's returns were 7.71%, and
4.00%, 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 U.S. Government Fund / November 30, 1995 (Unaudited)
(amounts in thousands)
Amount Value
______ ______
U.S. Government Mortgage-Backed Securities - 40.2%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 20.3%
Federal Home Loan Mortgage,
6.50%, 6/1/99. . . . . . . . . . . . . . . . . $ 4,788 $ 4,833
8.00%, 1/1/96 - 2/1/00 . . . . . . . . . . . . 6,835 6,909
TBA, 5.50%, 12/1/00. . . . . . . . . . . . . . . 5,000 4,934
6.00%, 12/1/00 . . . . . . . . . . . . . . . . 5,000 5,005
21,681
U.S. GOVERNMENT AGENCY ASSET-BACKED - 9.4%
Federal National Mortgage Assn.,
8.00%, 4/25/25 . . . . . . . . . . . . . . . . . . 9,500 10,013
U.S. GOVERNMENT GUARANTEED OBLIGATIONS - 4.4%
Government National Mortgage Assn., I,
11.50%, 3/15/10 - 12/15/15 . . . . . . . . . . . . 2,505 2,856
Project Loan, 9.125%, 12/15/28 . . . . . . . . . 1,813 1,915
4,771
U.S. GOVERNMENT AGENCY ARM - 4.4%
Federal National Mortgage Assn.,
6.315%, 1/1/19 . . . . . . . . . . . . . . . . 854 859
6.361%, 5/1/17 - 8/1/20. . . . . . . . . . . . 539 544
6.374%, 3/1/20 . . . . . . . . . . . . . . . . 220 222
6.375%, 8/1/17 - 7/1/18. . . . . . . . . . . . 506 508
6.38%, 3/1/18. . . . . . . . . . . . . . . . . 41 42
6.383%, 10/1/17 - 7/1/27 . . . . . . . . . . . 893 902
6.39%, 5/1/24. . . . . . . . . . . . . . . . . 144 145
6.394%, 12/1/16 - 5/1/31 . . . . . . . . . . . 999 1,009
6.396%, 3/1/19 . . . . . . . . . . . . . . . . 21 21
6.817%, 10/1/14. . . . . . . . . . . . . . . . 11 11
7.20%, 1/1/16. . . . . . . . . . . . . . . . . 109 109
7.482%, 11/1/21. . . . . . . . . . . . . . . . 222 222
7.725%, 8/1/21 . . . . . . . . . . . . . . . . 32 33
8.00%, 5/1/17. . . . . . . . . . . . . . . . . 52 52
4,679
STRIPPED MORTGAGE SECURITIES - 1.7%
Federal National Mortgage Assn., Principal Only,
Zero Coupon, 9/25/23 . . . . . . . . . . . . . . . 1,832 1,800
Total U.S. Government Mortgage-Backed Securities
(Cost $42,645) 42,944
U.S. Government Obligations - 39.2%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 20.7%
Federal Home Loan Mortgage, Deb.,
6.23%, 9/25/98 . . . . . . . . . . . . . . . . . . 1,000 1,003
Federal National Mortgage Assn., MTN,
5.22%, 7/10/98 . . . . . . . . . . . . . . . . 5,000 4,964
5.85%, 2/2/98. . . . . . . . . . . . . . . . . 5,000 5,037
6.35%, 6/9/00. . . . . . . . . . . . . . . . . 5,000 5,063
6.63%, 9/3/98. . . . . . . . . . . . . . . . . 6,000 6,080
22,147
U.S. GOVERNMENT GUARANTEED OBLIGATIONS - 18.5%
U.S. Treasury Notes, 5.875%, 6/30/00 . . . . . . . 2,350 2,382
6.125%, 7/31/00. . . . . . . . . . . . . . . . 15,000 15,347
6.25%, 5/31/00 . . . . . . . . . . . . . . . . 2,000 2,056
19,785
Total U.S. Government Obligations
(Cost $41,140) 41,932
Corporate Bonds and Notes - 20.5%
FINANCE AND CREDIT - 5.9%
Associates Corporation of North America,
8.80%, 8/1/98. . . . . . . . . . . . . . . . . . . 3,000 3,207
Norwest Financial, 6.23%, 9/1/98 . . . . . . . . . 3,000 3,038
6,245
INDUSTRIALS - 9.8%
Du Pont (E. I.) De Nemours & Co.,
9.15%, 4/15/00 . . . . . . . . . . . . . . . . . . 2,900 3,255
General Electric, 7.875%, 9/15/98. . . . . . . . . 3,000 3,161
Pitney Bowes Credit, MTN, 5.84%, 6/9/98. . . . . . 2,000 2,002
Rockwell International, 7.625%, 2/17/98. . . . . . 2,000 2,076
10,494
MISCELLANEOUS - 2.9%
Ciesco, MTN, 7.38%, 4/19/00. . . . . . . . . . . . 3,000 3,127
TELEPHONE - 1.9%
BellSouth Telecom, 6.50%, 2/1/00 . . . . . . . . . 2,000 2,047
Total Corporate Bonds and Notes
(Cost $21,604) 21,913
Non-Government Securities - 8.3%
HOME EQUITY LOAN-BACKED - 4.6%
HFC Home Equity Loan, 4.75%, 5/20/08 . . . . . . . 1,899 1,885
Vanderbilt Mortgage & Finance,
6.475%, 6/7/03 . . . . . . . . . . . . . . . . . . 3,000 3,041
4,926
NON-GOVERNMENT AGENCY ARM - 3.7%
Resolution Trust Corp., MPC,
7.37%, 7/25/21 . . . . . . . . . . . . . . . . 977 975
8.141%, 12/25/20 . . . . . . . . . . . . . . . 562 571
Ryland Mercury Savings Trust, MPC,
6.129%, 5/20/18. . . . . . . . . . . . . . . . . . 708 703
Ryland Mortgage Securities, MPC,
7.744%, 3/25/17. . . . . . . . . . . . . . . . . . 626 592
Salomon Brothers Mortgage Securities, MPC,
6.835%, 8/25/18. . . . . . . . . . . . . . . . . . 1,122 1,075
3,916
Total Non-Government Securities
(Cost $8,991) 8,842
Commercial Paper - 0.1%
Investments in Commercial Paper through a
joint account, 5.90-5.93%, 12/1/95
(Cost $120). . . . . . . . . . . . . . . . . . . . 120 120
Total Investments in Securities - 108.3% of Net Assets
(Cost $114,500) 115,751
Payable for Investments Purchased . . . . . . . . (9,954)
Other Assets Less Liabilities . . . . . . . . . . 1,049
__________
Net Assets Consist of: Value
__________
Accumulated net investment income -
net of distributions . . . . . . . . . . . . . . . $ (590)
Accumulated net realized gain/loss -
net of distributions . . . . . . . . . . . . . . . (23,508)
Net unrealized gain (loss) . . . . . . . . . . . . 1,251
Paid-in-capital applicable to 22,683,479 shares
of $0.01 par value capital stock outstanding;
1,000,000,000 shares authorized. . . . . . . . . . 129,693
__________
NET ASSETS . . . . . . . . . . . . . . . . . . . . $ 106,846
__________
__________
NET ASSET VALUE PER SHARE. . . . . . . . . . . . . $4.71
_____
_____
ARM Adjustable Rate Mortgage
MPC Mortgage Pass-through Certificate
MTN Medium Term Note
TBA To be announced security was purchased on a forward commitment basis
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Short-Term U.S. Government Fund / Six Months Ended November 30,
1995 (Unaudited)
(in thousands)
INVESTMENT INCOME
Interest income. . . . . . . . . . . . . . . . . . $ 3,690
___________
Expenses
Investment management. . . . . . . . . . . . . . 156
Shareholder servicing. . . . . . . . . . . . . . 89
Custody and accounting . . . . . . . . . . . . . 84
Prospectus and shareholder reports . . . . . . . 17
Legal and audit. . . . . . . . . . . . . . . . . 16
Registration . . . . . . . . . . . . . . . . . . 12
Organization . . . . . . . . . . . . . . . . . . 5
Directors. . . . . . . . . . . . . . . . . . . . 3
Miscellaneous. . . . . . . . . . . . . . . . . . 3
___________
Total expenses . . . . . . . . . . . . . . . . . 385
Expenses paid indirectly . . . . . . . . . . . . (1)
___________
Net expenses . . . . . . . . . . . . . . . . . . 384
___________
Net investment income. . . . . . . . . . . . . . . 3,306
___________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on securities . . . . . . 471
Change in net unrealized gain or
loss on securities . . . . . . . . . . . . . . . . 409
___________
Net realized and unrealized gain (loss). . . . . . 880
___________
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS. . . . . . . . . . . . . . . . . . $ 4,186
___________
___________
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Short-Term U.S. Government 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. . . . . . . . . . $ 3,306 $ 7,577
Net realized gain (loss) . . . . . . . . 471 (5,753)
Change in net unrealized gain or loss. . 409 4,952
____________ ____________
Increase (decrease) in net assets
from operations. . . . . . . . . . . . . 4,186 6,776
____________ ____________
Distributions to shareholders
Net investment income. . . . . . . . . . (3,308) (7,212)
Tax return of capital. . . . . . . . . . - (326)
. . . . . . . . . . . . . . . . . . . .____________ ____________
Decrease in net assets
from distributions . . . . . . . . . . . (3,308) (7,538)
. . . . . . . . . . . . . . . . . . . .____________ ____________
Capital share transactions*
Shares sold. . . . . . . . . . . . . . . 9,172 21,194
Distributions reinvested . . . . . . . . 2,682 6,030
Shares redeemed. . . . . . . . . . . . . (18,273) (101,592)
____________ ____________
Increase (decrease) in net assets
from capital share transactions. . . . . . (6,419) (74,368)
____________ ____________
Increase (decrease) in net assets. . . . . (5,541) (75,130)
NET ASSETS
Beginning of period. . . . . . . . . . . . 112,387 187,517
____________ ____________
End of period. . . . . . . . . . . . . . . $ 106,846 $ 112,387
____________ ____________
____________ ____________
*Share information
Shares sold. . . . . . . . . . . . . . . 1,965 4,608
Distributions reinvested . . . . . . . . 574 1,314
Shares redeemed. . . . . . . . . . . . . (3,915) (22,159)
____________ ____________
Increase (decrease) in
shares outstanding . . . . . . . . . . . (1,376) (16,237)
____________ ____________
____________ ____________
Notes to Financial Statements
T. Rowe Price Short-Term U.S. Government Fund / November 30, 1995 (Unaudited)
Note 1 - Significant Accounting Policies
T. Rowe Price Short-Term U.S. Government 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
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) Other - Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $22,671,000 and $2,614,000,
respectively, for the six months ended November 30, 1995. Purchases and sales
of U.S. government securities aggregated $110,298,000 and $132,808,000,
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 $19,701,000, of which $12,778,000 expires
in 2000, $5,229,000 in 2001, and $1,694,000 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 $114,500,000 and net
unrealized gain aggregated $1,251,000, of which $1,647,000 related to
appreciated investments and $396,000 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 $18,000 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.
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 net expenses to average net assets to exceed 0.70%. 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 sufficiently to allow reimbursement without causing the fund's ratio
of net expenses to average net assets to exceed 0.70%. Pursuant to this
agreement, $85,000 of management fees were not accrued by the fund for the six
months ended November 30, 1995. Pursuant to a previous agreement, $596,000 of
unaccrued fees from the prior periods remains 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.,
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 $126,000 for the six
months ended November 30, 1995, of which $26,000 was payable at period-end.
<TABLE>
<CAPTION>
Financial Highlights
T. Rowe Price Short-Term U.S. Government Fund (Unaudited)
For a share outstanding throughout each period
Six Months Year Three Months Sept. 30,
Ended Ended Ended Year Ended 1991** to
Nov. 30, May 31, May 31, Feb. 28, Feb. 28, Feb. 29,
1995 1995 1994# 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD. . . . . . . . . . . . . . . $4.67 $4.65 $4.75 $4.83 $4.97 $5.00
_____ _____ _____ _____ _____ _____
Investment activities
Net investment income . . . . . . . . 0.14* 0.26* 0.06* 0.23* 0.29* 0.16*
Net realized and unrealized
gain (loss) . . . . . . . . . . . . . 0.04 0.01 (0.11) (0.08) (0.13) (0.03)
_____ _____ _____ _____ _____ _____
Total from investment
activities. . . . . . . . . . . . . . 0.18 0.27 (0.05) 0.15 0.16 0.13
. . . . . . . . . . . . . . . . . . ._____ _____ _____ _____ _____ _____
Distributions
Net investment income . . . . . . . . (0.14) (0.24) (0.05) (0.17) (0.28) (0.16)
Tax return of capital . . . . . . . . - (0.01) - (0.06) (0.02) -
_____ _____ _____ _____ _____ _____
Total distributions . . . . . . . . . (0.14) (0.25) (0.05) (0.23) (0.30) (0.16)
_____ _____ _____ _____ _____ _____
NET ASSET VALUE, END OF PERIOD . . . . $4.71 $4.67 $4.65 $4.75 $4.83 $4.97
_____ _____ _____ _____ _____ _____
_____ _____ _____ _____ _____ _____
RATIOS/SUPPLEMENTAL DATA
Total return . . . . . . . . . . . . . 3.93%* 6.14%* (0.97)%* 3.11%* 3.33%* 2.58%*
Ratio of expenses to average
net assets. . . . . . . . . . . . . . 0.70%!*+ 0.59%* 0.50%!* 0.40%* 0.25%* 0.00%!*
Ratio of net investment income
to average net assets . . . . . . . . 6.01%!* 5.48%* 4.69%!* 4.78%* 5.96%* 7.45%!*
Portfolio turnover rate. . . . . . . . 239.1%! 100.0% 27.6%! 70.4% 110.8% 98.4%!
Net assets, end of period
(in thousands). . . . . . . . . . . . $106,846 $112,387 $187,517 $225,154 $476,448 $342,939
<FN>
! Annualized.
# The fund's fiscal year-end was changed to May 31.
** Commencement of Operations.
* 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
September 1, 1994 through February 28, 1995, and a 0.70% voluntary expense limitation in effect March 1,
1995.
+ Beginning in fiscal 1995, includes expenses paid indirectly.
During fiscal 1995, Price Waterhouse LLP succeeded Coopers & Lybrand, L.L.P. as independent accountants for
the T. Rowe Price Short-Term U.S. Government Fund, a decision that was approved by the fund's Board of
Directors. During the last two fiscal years, the fund has received unqualified opinions and has had no
disagreements with Coopers & Lybrand, L.L.P. or reportable events that caused the change.
</FN>
</TABLE>
Chart 1 - Interest Rate Levels - A 3-line chart showing yields on the 2-yr.
Treasury note, the 1-year Treasury bill, and the federal funds rate from
11/30/94 to 11/30/95.
