Item 1. Report to Shareholders
T. Rowe Price Short-Term Bond Fund
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November 30, 2003
Certified Semiannual Report
This report is certified under the Sarbanes-Oxley Act of 2002, which
requires that public companies, including mutual funds, affirm that the
information provided in their annual and semiannual shareholder reports
fully and fairly represents their financial position.
T. Rowe Price Short-Term Bond Fund
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Certified Semiannual Report (Unaudited)
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
6 Months Year
Ended Ended
11/30/03 5/31/03 5/31/02 5/31/01 5/31/00 5/31/99
NET ASSET VALUE
Beginning of period $ 4.87 $ 4.75 $ 4.71 $ 4.52 $ 4.63 $ 4.69
Investment activities
Net investment
income (loss) 0.07* 0.19* 0.25* 0.28* 0.26 0.26
Net realized and
unrealized gain
(loss) (0.06) 0.12 0.04 0.19 (0.11) (0.06)
Total from
investment
activities 0.01 0.31 0.29 0.47 0.15 0.20
Distributions
Net investment
income (0.07) (0.19) (0.25) (0.28) (0.26) (0.26)
NET ASSET VALUE
End of period $ 4.81 $ 4.87 $ 4.75 $ 4.71 $ 4.52 $ 4.63
------------------------------------------------------------
Ratios/Supplemental Data
Total return^ 0.21%* 6.74%* 6.24%* 10.61%* 3.39% 4.23%
Ratio of total
expenses to
average net assets 0.55%*! 0.55%* 0.55%* 0.59%* 0.72% 0.73%
Ratio of net
investment income
(loss) to average
net assets 2.71%*! 3.85%* 5.11%* 5.99%* 5.74% 5.44%
Portfolio turnover
rate 108.5%! 110.1% 49.9% 77.6%CKMK 50.7% 51.6%
Net assets,
end of period
(in millions) $ 1,246 $ 1,052 $ 696 $ 469 $ 287 $ 324
^ 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.
* Excludes expenses in excess of a 0.55% contractual expense limitation in
effect through 9/30/04.
CKMK Excludes the effect of the acquisition of Summit Limited-Term Bond Fund's
and Short-Term U.S. Government's Fund's assets.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Short-Term Bond Fund
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Certified Semiannual Report (Unaudited) November 30, 2003
STATEMENT OF NET ASSETS ss. Par/Shares Value
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In thousands
CORPORATE BONDS AND NOTES 41.1%
Banking and Finance 12.4%
ABN AMRO Bank (Chicago), 7.25%, 5/31/05 $ 3,620 $ 3,895
AIG Sunamerica Global Financing XII, 144A,
5.30%, 5/30/07 3,450 3,665
Allstate Financial Global Funding, 144A, 5.25%, 2/1/07 4,500 4,774
AT&T Capital Corporation, 6.60%, 5/15/05 1,110 1,173
Bank of America, 5.25%, 2/1/07 9,000 9,570
Bank of New York, 2.20%, 5/12/06 6,000 5,949
Bank One Corporation, 6.50%, 2/1/06 3,000 3,232
Bear Stearns, 3.00%, 3/30/06 8,000 8,052
CIT Group, 5.50%, 11/30/07 3,000 3,190
Citigroup
4.125%, 6/30/05 3,000 3,098
5.75%, 5/10/06 6,000 6,424
Countrywide Home Loan, 5.50%, 8/1/06 2,800 2,979
First Union, 7.55%, 8/18/05 4,750 5,178
Goldman Sachs Group, 144A, 6.75%, 2/15/06 !! 8,900 9,664
Household Finance, 5.75%, 1/30/07 4,330 4,636
International Lease Finance, 3.75%, 8/1/07 7,500 7,541
Keycorp, 6.75%, 3/15/06 1,850 1,987
Lehman Brothers, 6.25%, 5/15/06 5,500 5,958
Marsh & McLennan, 3.625%, 2/15/08 4,810 4,788
Marshall & Ilsley Bank, 4.125%, 9/4/07 2,160 2,226
Merrill Lynch, 7.00%, 3/15/06 225 245
Midland Bank, 7.625%, 6/15/06 4,300 4,804
Morgan Stanley Dean Witter, 6.10%, 4/15/06 6,700 7,225
National City Bank, 2.375%, 8/15/06 5,000 4,974
National Rural Utilities, 6.00%, 5/15/06 6,000 6,407
Regions Bank, 2.90%, 12/15/06 5,635 5,629
St. Paul Companies, 5.75%, 3/15/07 2,475 2,653
Travelers Property Casualty, 3.75%, 3/15/08 1,770 1,765
U.S. Bank NA, 2.85%, 11/15/06 9,000 8,974
Wachovia Corporation, 7.45%, 7/15/05 2,000 2,171
Washington Mutual, 5.625%, 1/15/07 5,850 6,264
Zions Bancorporation, 2.70%, 5/1/06 4,800 4,793
153,883
Consumer Products and Services 9.0%
Abbott Laboratories, 5.625%, 7/1/06 4,225 $ 4,523
AOL Time Warner, 5.625%, 5/1/05 6,000 6,269
Brown-Forman, 2.125%, 3/15/06 9,000 8,917
Clear Channel Communications, 6.00%, 11/1/06 6,578 7,065
Comcast Cable, 8.375%, 5/1/07 6,000 6,895
Cox Communications, 6.875%, 6/15/05 2,350 2,504
Dayton Hudson Corporation, 7.50%, 7/15/06 2,500 2,796
Diageo Capital, 6.625%, 6/24/04 2,000 2,059
Fred Meyer, 7.375%, 3/1/05 4,700 4,987
General Mills, 3.875%, 11/30/07 5,000 5,052
Gillette, 3.50%, 10/15/07 6,250 6,308
Grand Metropolitan Investment, Zero Coupon, 1/6/04 3,925 3,920
IBM, 2.375%, 11/1/06 5,500 5,429
Kellogg, 2.875%, 6/1/08 5,950 5,716
Kraft Foods, 4.625%, 11/1/06 4,850 5,029
Lenfest Communications, 8.375%, 11/1/05 5,802 6,371
McCormick, 6.40%, 2/1/06 3,400 3,663
Newell Rubbermaid, 2.00%, 5/1/05 1,515 1,504
Ralcorp Holdings, 8.75%, 9/15/04 5,500 5,802
Univision Communications, 2.875%, 10/15/06 4,730 4,692
Viacom, 6.40%, 1/30/06 4,440 4,791
Wal-Mart Stores, 5.45%, 8/1/06 6,750 7,209
111,501
Energy 1.3%
BP Canada Finance, 3.375%, 10/31/07 5,700 5,697
Conocophillips, 3.625%, 10/15/07 6,350 6,399
Devon Energy, 2.75%, 8/1/06 4,600 4,558
16,654
Industrial 7.4%
Agrium, 7.00%, 2/1/04 1,000 1,005
Alcoa, 4.25%, 8/15/07 2,475 2,558
American Honda Finance, 144A, 2.875%, 4/3/06 4,400 4,417
Boeing Capital, 7.10%, 9/27/05 4,500 4,861
Caterpillar Financial Services, 2.35%, 9/15/06 6,500 6,418
Daimler Chrysler North America, 6.90%, 9/1/04 5,000 5,182
Dow Chemical, 7.00%, 8/15/05 6,000 6,444
Falconbridge, 7.35%, 11/1/06 5,000 5,509
Ford Motor Credit, 6.50%, 1/25/07 3,750 3,935
General Electric, VR, 1.22%, 1/24/04 $ 2,665 $ 2,665
General Electric Capital, 5.00%, 6/15/07 6,000 6,327
GMAC, 7.50%, 7/15/05 5,000 5,353
Hutchison Whampoa Finance, 144A, 6.95%, 8/1/07 4,500 4,983
John Deere Capital, 3.90%, 1/15/08 4,000 4,053
Meadwestvaco Corp, 2.75%, 12/1/05 3,700 3,690
Northrop Grumman, 8.625%, 10/15/04 5,550 5,861
Praxair, VR, 4.75%, 7/15/03 4,000 4,192
Sealed Air, 144A, 5.375%, 4/15/08 6,000 6,243
United Technologies, 6.625%, 11/15/04 3,250 3,398
Weyerhaeuser, 5.50%, 3/15/05 5,000 5,200
92,294
Media and Communications 3.9%
Alltel, 6.75%, 9/15/05 3,750 4,032
Bellsouth, 5.00%, 10/15/06 9,000 9,506
British Telecommunications, STEP, 7.875%, 12/15/05 5,000 5,511
SBC Communications, 5.75%, 5/2/06 9,000 9,628
Telefonica Europe, 7.35%, 9/15/05 3,000 3,259
Telefonos de Mexico (Telmex), 144A, 4.50%, 11/19/08 3,545 3,541
U.S. West Communications, 7.20%, 11/1/04 3,500 3,596
Verizon Global Funding, 6.125%, 6/15/07 9,000 9,775
48,848
Transportation Services 0.9%
ERAC USA Finance, 144A, 6.625%, 2/15/05 !! 5,665 5,915
Norfolk Southern, 7.875%, 2/15/04 125 126
Union Pacific, 5.84%, 5/25/04 4,500 4,581
10,622
Utilities 6.2%
Alabama Power, 5.49%, 11/1/05 4,250 4,501
American Electric Power, 6.125%, 5/15/06 2,055 2,200
Arizona Public Service, 5.875%, 2/15/04 2,750 2,773
CE Electric UK Funding, 144A, 6.853%, 12/30/04 2,370 2,424
CINergy, 6.25%, 9/1/04 3,900 4,014
Consumers Energy Group, 6.00%, 3/15/05 2,150 2,247
Dominion Resources, 4.125%, 2/15/08 3,000 3,048
DTE Energy, 6.00%, 6/1/04 4,500 4,586
Energy East, 5.75%, 11/15/06 5,750 6,111
Entergy Gulf States, 5.20%, 12/3/07 5,310 5,401
FirstEnergy, 5.50%, 11/15/06 3,175 3,299
Niagara Mohawk Power, 5.375%, 10/1/04 $ 5,250 $ 5,375
NISource Financial Corp., VR, 1.919%, 2/4/04 6,000 6,000
Pinnacle West Capital, 6.40%, 4/1/06 3,300 3,524
Potomac Electric Power, 3.75%, 2/15/06 3,800 3,842
PSEG Power, 6.875%, 4/15/06 3,345 3,640
Sempra Energy, 6.925%, 7/1/04 4,950 5,092
Texas-New Mexico Power, 144A, 6.125%, 6/1/08 3,650 3,674
TXU Energy, 6.125%, 3/15/08 2,900 3,099
WPD Holdings, 144A, 6.875%, 12/15/07 2,700 2,772
77,622
Total Corporate Bonds and Notes (Cost $501,068) 511,424
ASSET-BACKED SECURITIES 13.1%
Aesop Funding II, 144A, 2.78%, 12/20/07 6,350 6,318
Bank One Auto Securitization
Series 2003-1, Class A3, 1.82%, 9/20/07 9,850 9,756
BMW Vehicle Owner Trust
Series 2003-A, Class A3, 1.94%, 2/25/07 8,750 8,759
Capital Auto Receivables Asset Trust
Series 2002-2, Class A4, 4.50%, 10/15/07 3,000 3,099
Series 2002-2, Class CERT, 4.18%, 10/15/07 1,727 1,760
Chase Manhattan Auto Owner Trust
Series 2001-B, Class CTFS, 3.75%, 5/15/08 937 951
CIT RV Trust
Series 1997-A, Class A6, 6.35%, 4/15/11 479 490
Series 1998-A, Class A4, 6.09%, 2/15/12 1,849 1,876
Citibank Credit Card Issuance Trust
Series 2000-A1, 6.90%, 10/15/07 11,100 12,002
Series 2000-A3, Class A3, 6.875%, 11/16/09 3,700 4,139
Series 2001-A6, Class A6, 5.65%, 6/16/08 7,000 7,507
Comed Transitional Funding Trust
Series 1998-1, Class A5, 5.44%, 3/25/07 3,894 4,000
CPL Transition Funding
Series 2002-1, Class A1, 3.54%, 1/15/07 3,475 3,516
Harley-Davidson Motorcycle Trust
Series 2001-1B, Class CTFS, 5.29%, 1/15/09 1,252 1,292
Series 2003-3, Class A2, 2.76%, 5/15/11 4,700 4,691
Series 2003-3, Class B, 2.28%, 11/15/03 2,507 2,504
Honda Auto Receivables Owner Trust
Series 2002-1, Class A4, 4.22%, 4/16/07 $ 6,000 $ 6,171
Household Affinity Credit Card
Series 2003-1, Class A, 1.24%, 11/15/03 5,000 5,004
Hyundai Auto Receivables Trust
Series 2003-A, Class C, 3.19%, 10/15/10 1,225 1,220
Series 2003-A, Class B, 2.99%, 10/15/10 3,275 3,261
John Deere Owner Trust
Series 2001-A, Class A4, 3.78%, 9/15/08 5,175 5,270
Series 2003-A, Class A3, 1.79%, 4/15/07 2,000 1,981
MBNA Master Credit Card Trust
Series 1999-M, Class A, 6.60%, 4/16/07 1,150 1,203
Series 2000-C, Class A, 1.32%, 11/15/03 10,600 10,624
Series 2001-1, Class C, VR, 2.17%, 11/17/03 6,000 6,011
Series 2003-2, Class C, 2.72%, 11/15/03 5,000 5,102
Navistar Financial Corp. Owner Trust
Series 2003-B, Class A3, 1.32%, 11/17/03 10,000 10,013
Nissan Auto Receivables Owner Trust
Series 2002-A, Class A4, 4.28%, 10/16/06 1,000 1,032
Peco Energy Transition Trust, VR, 1.335%, 3/1/04 68 68
Regions Auto Receivables Trust, 2.63%, 1/16/07 5,000 5,044
Reliant Energy Transition Bond Trust
Series 2001-1, Class A1, 3.84%, 9/15/07 4,339 4,432
SSB Auto Loan Trust, Series 2002-1, Class C,
4.13%, 2/15/09 1,883 1,904
USAA Auto Owner Trust
Series 2003-1, Class A3, 1.58%, 6/15/07 10,000 9,938
WFS Financial Owner Trust
Series 2000-4, Class A-4, 7.41%, 9/20/07 2,589 2,636
World Financial Network
Series 2003-A, Class A2, VR, 1.49%, 10/15/03 10,000 10,004
Total Asset-Backed Securities (Cost $162,107) 163,578
U.S. GOVERNMENT & AGENCY MORTGAGE-
BACKED SECURITIES 13.3%
U.S. Government Agency Obligations 12.5% misc. symbol1
Federal Home Loan Mortgage
4.50%, 10/1/07 11,008 11,269
5.00%, 10/1 - 11/1/18 30,665 31,103
6.50%, 12/1/03 $ 23 $ 23
10.00%, 3/1/04 - 10/1/05 7 7
10.75%, 12/1/09 27 29
CMO
4.00%, 1/15/22 9,000 9,101
4.50%, 2/15/13 9,722 9,996
5.00%, 1/15/19 12,000 12,306
6.00%, 1/15/08 1,413 1,433
6.50%, 8/15/23 2,243 2,300
IO, 4.50%, 5/15/16 - 4/15/18 5,700 967
TBA, 6.00%, 1/1/34 2,650 2,714
Federal National Mortgage Assn.
5.00%, 1/1/09 - 11/1/18 11,382 11,558
5.50%, 1/1/17 - 6/1/18 19,960 20,607
6.00%, 7/1 - 11/1/13 343 359
9.00%, 5/1/05 101 103
ARM
2.805%, 11/1/21 111 112
3.173%, 12/1/17 - 8/1/20 71 71
3.196%, 10/1/17 29 29
3.209%, 5/1/17 77 78
3.237%, 7/1/27 190 193
3.24%, 3/1/20 31 31
3.25%, 11/1/17 26 26
3.265%, 3/1/19 4 4
3.268%, 12/1/16 - 11/1/20 60 60
3.276%, 3/1/18 8 8
4.379%, 12/1/32 12,401 12,503
4.75%, 6/1/18 37 37
4.947%, 5/1/24 39 42
5.535%, 1/1/19 192 212
6.817%, 10/1/14 8 8
CMO
4.50%, 6/25/13 12,000 12,321
5.50%, 3/25/30 3,326 3,408
6.00%, 6/25/16 707 724
9.00%, 1/25/08 1,551 1,658
TBA, 4.50%, 1/1/18 10,000 9,937
155,337
U.S. Government Obligations 0.8%
Government National Mortgage Assn.
6.00%, 7/15/17 $ 4,190 $ 4,409
7.00%, 9/15/12 - 12/15/13 4,591 4,935
8.00%, 5/15/07 115 121
8.50%, 2/15/05 - 3/15/06 49 50
9.00%, 1/15/05 - 2/15/06 42 43
9.50%, 4/15/05 - 10/15/09 6 6
10.00%, 8/15/04 - 10/15/21 122 135
10.50%, 11/15/15 39 43
11.00%, 4/20/14 2 2
11.25%, 7/15 - 8/15/13 53 60
11.50%, 3/15/10 - 12/15/15 493 556
11.75%, 8/15 - 9/15/13 129 146
10,506
Total U.S. Government & Agency Mortgage-
Backed Securities (Cost $165,484) 165,843
NON-U.S. GOVERNMENT MORTGAGE-
BACKED SECURITIES 4.7%
Banc of America Commercial Mortgage
Series 2003-1, Class A1, CMO, 3.878%, 9/11/3 4,726 4,700
Bankboston Home Equity Loan Trust
Series 1998-2, Class A6, 6.64%, 12/25/28 5,000 5,303
Chase Funding Mortgage Loan
Series 2002-4, Class IIA 1, VR, 1.49%, 11/25/03 8,822 8,837
CWMBS, Series 2001-12, Class Y1 PAC, CMO,
5.75%, 12/31/31 13,000 13,106
DLJ Commercial Mortgage
Series 1999-CG2, Class A1B, CMO, 7.30%, 6/10/32 4,200 4,838
Federal Home Loan Mortgage Structured
Pass Through Securities
Series T-45, Class A3, 4.105%, 10/27/31 5,000 5,095
GMAC Commercial Mortgage Securities, CMO,
6.15%, 5/15/35 1,928 2,018
J.P. Morgan Chase
Series 1999-C7, Class A2, CMO, 6.507%, 10/15/35 4,000 4,408
Money Store Home Equity Trust
Series 197-C, Class AF8, 6.575%, 1/15/39 2,722 2,737
Morgan Stanley Dean Witter Capital, CMO, 5.38%, 1/15/39 5,646 5,930
Prudential Securities Secured Financing, CMO,
6.074%, 1/15/08 453 478
Ryland Mercury Savings Trust, VR, 4.253%, 6/1/03 $ 22 $ 22
Sovereign Bank Home Equity Loan Trust
Series 2000-1, Class A6, 7.25%, 2/25/15 635 684
Summit Mortgage Trust, CMO, 144A, 6.34%, 6/28/16 68 68
Total Non-U.S. Government Mortgage-
Backed Securities (Cost $58,115) 58,224
U.S. GOVERNMENT & AGENCY OBLIGATIONS
(EXCLUDING MORTGAGE-BACKED) 12.1%
U.S. Government Agency Obligations 3.5% misc. symbol1
Federal Home Loan Banks, 3.25%, 8/15/05 10,000 10,204
Federal Home Loan Mortgage, 2.875%, 9/15/05 20,000 20,268
Federal National Mortgage Assn., 3.25%, 8/15/08 14,183 13,958
44,430
U.S. Treasury Obligations 8.6%
U.S. Treasury Notes
1.50%, 7/31/05 11,800 11,741
1.625%, 1/31 - 4/30/05 ++ 95,000 95,065
106,806
Total U.S. Government & Agency Obligations
(Excluding Mortgage-Backed) (Cost $151,259) 151,236
OTHER 3.2%
Bundesobligation, 5.00%, 8/19/05 (EUR) 4,600 5,716
Canada Government
3.50%, 6/1/05 (CAD) 17,540 13,618
5.75%, 9/1/06 (CAD) 17,440 14,228
European Investment Bank, 6.00%, 7/15/05 (AUD) 7,900 5,745
University of Miami, 6.90%, 4/1/04 (MBIA Insured) 50 51
Total Other (Cost $37,023) 39,358
Money Market Funds 12.1%
T. Rowe Price Reserve Investment Fund, 1.12% # 150,528 150,528
Total Money Market Funds (Cost $150,528) 150,528
Total Investments in Securities
99.6% of Net Assets (Cost $1,225,584) $ 1,240,191
Forward Currency Exchange Contracts
In thousands
Unrealized
Counterparty Settlement Receive Deliver Gain (Loss)
- ------------- ----------- ------------ ------------ -----------
Morgan Stanley 12/9/03 USD 10,377 CAD 13,850 $ (293)
Net unrealized gain (loss) on open forward
currency exchange contracts (293)
Futures Contracts
Contract Unrealized
Expiration Value Gain (Loss)
---------- --------- ----------
In thousands
Short, 697 five year U.S. Treasury Note
contracts $700,000 par of U.S. Treasury
Notes pledged as initial margin 12/03 $(77,824) $ (875)
Net payments (receipts) of variation
margin to date 1,202
Variation margin receivable (payable)
on open futures contracts 327
Other Assets Less Liabilities 5,478
NET ASSETS $ 1,245,703
-----------
Net Assets Consist of:
Undistributed net investment income (loss) $ (4,133)
Undistributed net realized gain (loss) (16,062)
Net unrealized gain (loss) 13,463
Paid-in-capital applicable to 258,916,935 shares of $0.01 par
value capital stock outstanding; 1,000,000,000 shares authorized 1,252,435
NET ASSETS $ 1,245,703
-----------
NET ASSET VALUE PER SHARE $ 4.81
-----------
# Seven-day yield
++ All or portion of this security is pledged to cover margin
requirements on futures contracts at November 30, 2003.
misc. symbol1 The issuer is a publicly-traded company that
operates under a congressional charter; its securities are
neither issued nor guaranteed by the U.S. government
ss. Denominated in USD unless otherwise noted
!! Security contains restrictions as to public resale pursuant
to the Securities Act of 1933 and related rules -- total of
such securities at period-end amounts to $15,579,000 and
represents 1.3% of net assets
144A Security was purchased pursuant to Rule 144A under the
Securities Act of 1933 and may be resold in transactions
exempt from registration only to qualified institutional
buyers -- total of such securities at period-end amounts to
$58,458,000 and represents 4.7% of net assets
ARM Adjustable Rate Mortgage
AUD Australian dollar
CAD Canadian dollar
CMO Collateralized Mortgage Obligation
EUR Euro
IO Interest Only security for which the fund receives interest
on notional principal (par)
MBIA MBIA Insurance Corp.
STEP Stepped coupon bond for which the coupon rate of interest
will adjust on specified future date(s)
TBA To Be Announced security was purchased on a forward
commitment basis
VR Variable Rate
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Short-Term Bond Fund
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Certified Semiannual Report (Unaudited)
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
In thousands 6 Months
Ended
11/30/03
Investment Income (Loss)
Income
Interest $ 17,876
Dividend 1,048
Securities lending 2
Total income 18,926
Expenses
Investment management 2,423
Shareholder servicing 924
Custody and accounting 103
Registration 73
Prospectus and shareholder reports 70
Legal and audit 9
Directors 4
Miscellaneous 4
Reductions/repayments pursuant to expense limitation
Investment management fees (waived) repaid (429)
Total expenses 3,181
Expenses paid indirectly (2)
Net expenses 3,179
Net investment income (loss) 15,747
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 119
Futures 1,944
Foreign currency transactions (592)
Net realized gain (loss) 1,471
Change in net unrealized gain (loss)
Securities (13,156)
Futures (875)
Other assets and liabilities
denominated in foreign currencies (128)
Change in net unrealized gain (loss) (14,159)
Net realized and unrealized gain (loss) (12,688)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 3,059
----------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Short-Term Bond Fund
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Certified Semiannual Report (Unaudited)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
11/30/03 5/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 15,747 $ 33,839
Net realized gain (loss) 1,471 4,778
Change in net unrealized gain (loss) (14,159) 19,675
Increase (decrease) in net assets from operations 3,059 58,292
Distributions to shareholders
Net investment income (16,870) (35,336)
Capital share transactions *
Shares sold 435,208 595,171
Distributions reinvested 15,039 31,620
Shares redeemed (243,000) (293,855)
Increase (decrease) in net assets from
capital share transactions 207,247 332,936
Net Assets
Increase (decrease) during period 193,436 355,892
Beginning of period 1,052,267 696,375
End of period $ 1,245,703 $1,052,267
----------------------------
*Share information
Shares sold 90,092 124,265
Distributions reinvested 3,117 6,594
Shares redeemed (50,332) (61,320)
Increase (decrease) in shares outstanding 42,877 69,539
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Short-Term Bond Fund
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Certified Semiannual Report (Unaudited) November 30, 2003
Notes To Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Short-Term Bond Fund, Inc. (the fund) is registered under the
Investment Company Act of 1940 (the 1940 Act) as a diversified, open-end
management investment company and commenced operations on March 2, 1984.
The fund seeks a high level of income consistent with minimal fluctuation
in principal value and liquidity.
The accompanying financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America,
which require the use of estimates made by fund management.
Valuation
The fund values its investments and computes its net asset value per share
at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET,
each day that the NYSE is open for business. Debt securities are generally
traded in the over-the-counter market. Securities with original maturities
of one year or more are valued at prices 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 bid-side money market
yields.
Investments in mutual funds are valued at the mutual fund's closing net
asset value per share on the day of valuation. Financial futures contracts
are valued at closing settlement prices. Other investments and those 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 the T. Rowe Price Valuation Committee, established by the fund's Board
of Directors.
Most foreign markets close before the NYSE. Normally, developments that
could affect the values of securities that occur between the close of a
foreign market and the close of the NYSE will not be reflected in security
valuations used by the fund to compute its share price. However, if
developments are so significant that they will, in the judgment of the
fund, clearly and materially affect security values, such valuations may be
adjusted to reflect the estimated fair value of the securities as of the
close of the NYSE, as determined in good faith by the T. Rowe Price
Valuation Committee, established by the fund's Board of Directors.
Currency Translation
Assets, including investments, and liabilities denominated in foreign
currencies are translated into U.S. dollar values each day at the
prevailing exchange rate, using the mean of the bid and ask prices of such
currencies against U.S. dollars as quoted by a major bank. Purchases and
sales of securities, income, and expenses are translated into U.S. dollars
at the prevailing exchange rate on the date of the transaction. The effect
of changes in foreign currency exchange rates on realized and unrealized
security gains and losses is reflected as a component of security gains and
losses.
Expenses Paid Indirectly
Credits earned on temporarily uninvested cash balances at the custodian are
used to reduce the fund's custody charges. Custody expense in the
accompanying statement of operations is presented before reduction for
credits, which totaled $2,000 for the six months ended November 30, 2003.
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. Premiums and discounts on debt
securities are amortized for financial reporting purposes. Distributions to
shareholders are recorded by the fund on the ex-dividend date. Dividends
from mutual fund investments are reflected as dividend income; capital gain
distributions from mutual fund investments are reflected as realized
gain/loss. Payments ("variation margin") made or received by the fund to
settle the daily fluctuations in the value of futures contracts are
recorded as unrealized gains or losses until the contracts are closed.
Unrealized gains and losses on futures contracts are included in Change in
net unrealized gain or loss in the accompanying financial statements. In
the normal course of business, the fund enters into contracts that provide
general indemnifications. The fund's maximum exposure under these
arrangements is dependent on claims that may be made against the fund in
the future and, therefore, cannot be estimated; however, based on
experience, the risk of material loss from such claims is considered
remote.
NOTE 2 - INVESTMENT TRANSACTIONS
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.
Forward Currency Exchange Contracts
During the six months ended November 30, 2003, the fund was a party to
forward currency exchange contracts under which
it is obligated to exchange currencies at specified future dates and
exchange rates. Risks arise from the possible inability of counterparties
to meet the terms of their agreements and from movements in currency
values.
Futures Contracts
During the six months ended November 30, 2003, the fund was a party to
futures contracts, which provide for the future sale by one party and
purchase by another of a specified amount of a specific financial
instrument at an agreed upon price, date, time, and place. Risks arise from
possible illiquidity of the futures market and from movements in security
values and interest rates.
Securities Lending
The fund lends its securities to approved brokers to earn additional
income. It receives as collateral cash and U.S. government securities
valued at 102% to 105% of the value of the securities on loan. Cash
collateral is invested in a money market pooled account managed by the
fund's lending agent in accordance with investment guidelines approved by
fund management. Collateral is maintained over the life of the loan in an
amount not less than the value of loaned securities, as determined at the
close of fund business each day; any additional collateral required due to
changes in security values is delivered to the fund the next business day.
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 the securities. Securities lending revenue
recognized by the fund consists of earnings on invested collateral and
borrowing fees, net of any rebates to the borrower and compensation to the
lending agent. At November 30, 2003, there were no securities on loan.
Other
Purchases and sales of portfolio securities, other than short-term and U.S.
government securities, aggregated $361,386,000 and $173,491,000,
respectively, for the six months ended November 30, 2003. Purchases and
sales of U.S. government securities aggregated $338,941,000 and
$379,742,000, respectively, for the six months ended November 30, 2003.
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 under Subchapter M of
the Internal Revenue Code and distribute to shareholders all of its taxable
income and gains. Federal income tax regulations differ from generally
accepted accounting principles; therefore, distributions determined in
accordance with tax regulations may differ in amount or character from net
investment income and realized gains for financial reporting purposes.
Financial reporting records are adjusted for permanent
book/tax differences to reflect tax character. Financial records are
not adjusted for temporary differences. The amount and character of
tax-basis distributions and composition of net assets are finalized at
fiscal year-end; accordingly, tax-basis balances have not been determined
as of November 30, 2003.
The fund intends to retain realized gains to the extent of available
capital loss carryforwards. As of May 31, 2003, the fund had $19,510,000 of
unused capital loss carryforwards, of which $10,744,000 expire in 2004,
$2,405,000 expire in 2005, and $6,361,000 thereafter through 2009.
At November 30, 2003, the cost of investments for federal income tax
purposes was $1,225,584,000. Net unrealized gain aggregated $13,463,000 at
period-end, of which $17,817,000 related to appreciated investments and
$4,354,000 related to depreciated investments.
NOTE 4- RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price
Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The
investment management agreement between the fund and the manager provides
for an annual investment management fee, which is computed daily and paid
monthly. The fee consists of an individual fund fee, equal to 0.10% of the
fund's average daily net assets, and the fund's pro-rata share of a group
fee. The group fee is calculated based on the combined net assets of
certain mutual funds sponsored by Price Associates (the group) applied to a
graduated fee schedule, with rates ranging from 0.48% for the first $1
billion of assets to 0.295% for assets in excess of $120 billion. The
fund's portion of the group fee is determined by the ratio of its average
daily net assets to those of the group. At November 30, 2003, the effective
annual group fee rate was 0.32%, and investment management fee payable
totaled $326,000.
The fund is also subject to a contractual expense limitation through
September 30, 2004. During the limitation period, the manager is required
to waive its management fee and reimburse the fund for any expenses,
excluding interest, taxes, brokerage commissions, and extraordinary
expenses, that would otherwise cause the fund's ratio of total expenses to
average net assets (expense ratio) to exceed its expense limitation of
0.55%. Through September 30, 2006, the fund is required
to repay the manager for expenses previously reimbursed and management fees
waived to the extent its net assets have grown or expenses have declined
sufficiently to allow repayment without causing the fund's expense ratio to
exceed its expense limitation. At November 30, 2003, management fees waived
remain subject to repayment by the fund in the following amounts: $961,000
through May 31, 2004, and $1,117,000 through September 30, 2006.
In addition, the fund has entered into service agreements with Price
Associates and two wholly owned subsidiaries of Price Associates
(collectively, Price). Price Associates computes the daily share price and
maintains the financial records of the fund. T. Rowe Price Services, Inc.,
provides shareholder and administrative services in its capacity as the
fund's transfer and dividend disbursing agent. T. Rowe Price Retirement
Plan Services, Inc., provides subaccounting and recordkeeping services for
certain retirement accounts invested in the fund. Expenses incurred
pursuant to these service agreements totaled $536,000 for the six months
ended November 30, 2003, of which $92,000 was payable at period-end.
Additionally, the fund is one of several mutual funds in which certain
college savings plans managed by Price Associates may invest. As approved
by the fund's Board of Directors, shareholder servicing costs associated
with each college savings plan are borne by the fund in proportion to the
average daily value of its shares owned by the college savings plan. For
the six months ended November 30, 2003, the fund was charged $101,000 for
shareholder servicing costs related to the college savings plans, of which
$73,000 was for services provided by Price and $39,000 was payable at
period-end. At November 30, 2003, approximately 8.5% of the outstanding
shares of the fund were held by college savings plans.
The fund is also one of several mutual funds sponsored by Price Associates
(underlying Price funds) in which the T. Rowe Price Spectrum Funds
(Spectrum Funds) and T. Rowe Price Retirement Funds (Retirement Funds) may
invest. Neither the Spectrum Funds nor the Retirement Funds invest in the
underlying Price funds for the purpose of exercising management or control.
Pursuant to separate, special servicing agreements, expenses associated
with the operation of the Spectrum and Retirement Funds are borne by each
underlying Price fund to the extent of estimated savings to it and in
proportion to the average daily value of its shares owned by the Spectrum
and Retirement Funds, respectively. Expenses allocated under these
agreements are reflected as shareholder servicing expenses in the
accompanying financial statements. For the six months ended November 30,
2003, the fund was allocated $48,000 of Spectrum Funds' expenses and
$46,000 of Retirement Funds' expenses. Of these amounts, $46,000 related to
services provided by Price and $43,000 was payable at period-end. At
November 30, 2003, approximately 6.8% of the outstanding shares of the fund
were held by the Spectrum Funds and 1.9% were held by the Retirement Funds.
The fund may invest in the T. Rowe Price Reserve Investment Fund and the T.
Rowe Price Government Reserve Investment Fund (collectively, the Reserve
Funds), open-end management investment companies managed by Price
Associates. The Reserve Funds are offered as cash management options only
to mutual funds, trusts, and other accounts managed by Price Associates
and/or its affiliates, and are not available to the public. The Reserve
Funds pay no investment management fees. During the six months ended
November 30, 2003, dividend income from the Reserve Funds totaled
$1,048,000.
T. Rowe Price Short-Term Bond Fund
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Certified Semiannual Report
INFORMATION ON PROXY VOTING
A description of the policies and procedures that the T. Rowe Price
Short-Term Bond Fund uses to determine how to vote proxies relating to
portfolio securities is available, without charge, upon request by calling
1-800-225-5132. It also appears in the fund's Statement of Additional
Information (Form 485B), which can be found on the SEC's Web site,
www.sec.gov.
Item 2. Code of Ethics.
The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR,
applicable to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions. A copy of this code of ethics will be filed as a required exhibit to
the registrant's annual Form N-CSR. No substantive amendments were approved or
waivers were granted to this code of ethics during the registrant's most recent
fiscal half-year.
Item 3. Audit Committee Financial Expert.
Not effective until registrant's next annual Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Not effective until registrant's next annual Form N-CSR.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The registrant's principal executive officer and principal financial officer
are aware of no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR will be
filed with the registrant's annual Form N-CSR.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b) A certification by the registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940,
is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Short-Term Bond Fund, Inc.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date January 16, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date January 16, 2004
By /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date January 16, 2004