Item 1. Report to Shareholders
T. Rowe Price Short-Term Bond Fund
- --------------------------------------------------------------------------------
May 31, 2004
Certified Annual 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 Annual Report
Performance Comparison
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
[Graphic Omitted]
SHORT-TERM BOND FUND
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As of 5/31/04
Short-Term Bond Fund $16,694
Lehman Brothers 1-3 Yr. U.S. Government/Credit Index $17,870
Lehman Brothers
1-3 Yr. U.S.
Government/ Short-Term
Credit Index Bond Fund
5/31/94 $ 10,000 $ 10,000
5/95 10,747 10,341
5/96 11,321 10,814
5/97 12,075 11,494
5/98 12,921 12,284
5/99 13,615 12,803
5/00 14,162 13,237
5/01 15,623 14,642
5/02 16,632 15,556
5/03 17,701 16,605
5/04 17,870 16,694
Average Annual Compound Total Return
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Periods Ended 5/31/04 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Short-Term Bond Fund 0.54% 5.45% 5.26%
Lehman Brothers 1-3 Yr.
U.S. Government/
Credit Index 0.96 5.59 5.98
Lipper Short
Investment-Grade Debt
Funds Average 0.43 4.73 5.30
Returns do not reflect taxes that the shareholder may pay on fund distributions
or the redemption of fund shares. Past performance cannot guarantee future
results.
T. Rowe Price Short-Term Bond Fund
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Certified Annual Report
Dear Shareholder,
Your fund generated a positive return of 0.54% during the 12 months ended May
31, 2004, in a difficult environment for fixed-income securities. Fund
performance trailed that of the unmanaged Lehman Brothers 1-3 Year U.S.
Government/Credit Index during the period, but surpassed the Lipper Short
Investment-Grade Debt Funds Average of similarly managed funds, as shown in the
table on the preceding page. Over the past six months, particularly in April,
the dollar strengthened and currency exposure was negative, hindering results
relative to Lehman.
[Graphic Omitted]
Quality Diversification
- --------------------------------------------------------------------------------
AAA 37%
AA 23%
A 20%
BBB 20%
As you know, the fund seeks a high level of income consistent with minimal
fluctuation in principal value and liquidity by investing in a diversified
portfolio of short- and intermediate-term investment-grade corporate,
government, and mortgage-backed securities. The fund's weighted average maturity
will not exceed three years.
Major Index Returns
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Period Ended 5/31/04 12 Months
- --------------------------------------------------------------------------------
Lehman Brothers U.S. Treasury Index -2.64%
Lehman Brothers U.S. Aggregate Index -0.44
Lehman Brothers U.S. Credit Index -0.58
Lehman Brothers Mortgage-Backed
Securities Index 1.50
CS First Boston High Yield Index 13.25
Source: Lehman Brothers and CS First Boston.
The Major Index Returns table shows how various quality bonds performed over the
fund's fiscal year. High-yield bonds, which tend to act more like equities than
bonds in an improving economy, far outpaced higher-quality bonds such as
Treasuries and higher-rated corporate securities over the 12-month period. In
fact, all fixed-income classes except for high-yield and mortgage-backed bonds
posted negative returns during the fund's fiscal year. Eighty percent of
portfolio assets were rated A or above, and the balance was allocated to BBB
securities, as shown in the Quality Diversification pie chart.
The Interest Rate Levels chart reflects the pattern of bond yields during the
same period. Yields rose in general before declining earlier this year, only to
spike sharply higher in April as the economy continued to grow and investors
focused their attention on the threat of higher inflation in the months ahead.
[Graphic Omitted]
Interest Rate Levels
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5-Year 2-Year Federal Funds
Treasury Treasury Target
Note Note Rate
5/31/03 2.29 1.32 1.25
2.41 1.30 1.00
3.22 1.74 1.00
8/03 3.46 1.97 1.00
2.83 1.46 1.00
3.24 1.82 1.00
11/03 3.35 2.04 1.00
3.25 1.82 1.00
3.14 1.82 1.00
2/04 2.94 1.64 1.00
2.78 1.57 1.00
3.62 2.32 1.00
5/31/04 3.79 2.53 1.00
Portfolio Characteristics
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Periods Ended 5/31/03 5/31/04
- --------------------------------------------------------------------------------
Price Per Share $ 4.87 $ 4.76
30-Day Standardized
Yield to Maturity 2.42% 2.50%
Weighted Average Maturity (years) 2.1 2.3
Weighted Average
Effective Duration (years) 1.9 1.6
Weighted Average Quality * AA+ AA
* Based on T. Rowe Price research.
The Portfolio Characteristics table shows various portfolio details as of May
31, 2004, compared with one year earlier. The weighted average maturity of the
portfolio rose slightly to 2.3 years, and the duration declined to 1.6 years.
The quality of the portfolio's holdings slipped a notch from AA+ to AA. An
increased weighting in BBB securities, the lowest rating within the
investment-grade spectrum, enhanced results as higher-yielding bonds
outperformed.
We thank you for your continued support.
Respectfully,
James S. Riepe
Chairman
June 18, 2004
T. Rowe Price Short-Term Bond Fund
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Certified Annual Report
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Year
Ended
5/31/04 5/31/03 5/31/02 5/31/01 5/31/00
NET ASSET VALUE
Beginning of period $ 4.87 $ 4.75 $ 4.71 $ 4.52 $ 4.63
Investment activities
Net investment
income (loss) 0.14* 0.19* 0.25* 0.28* 0.26
Net realized and
unrealized gain
(loss) (0.11) 0.12 0.04 0.19 (0.11)
Total from
investment
activities 0.03 0.31 0.29 0.47 0.15
Distributions
Net investment
income (0.14) (0.19) (0.25) (0.28) (0.26)
NET ASSET VALUE
End of period $ 4.76 $ 4.87 $ 4.75 $ 4.71 $ 4.52
---------------------------------------------------------
Ratios/Supplemental Data
Total return^ 0.54%* 6.74%* 6.24%* 10.61%* 3.39%
Ratio of total
expenses
to average
net assets 0.55%* 0.55%* 0.55%* 0.59%* 0.72%
Ratio of net
investment income
(loss) to average
net assets 2.67%* 3.85%* 5.11%* 5.99%* 5.74%
Portfolio turnover
rate 69.5% 110.1% 49.9% 77.6%(Ckmk.)50.7%
Net assets,
end of period
(in millions) $ 1,596 $ 1,052 $ 696 $ 469 $ 287
* Excludes expenses in excess of a 0.55% contractual expense limitation in
effect through 9/30/04.
^ 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.
(Ckmk.) Excludes the effect of the acquisition of Summit Limited-Term Bond
Fund's and Short-Term U.S. Government's Fund's assets.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Short-Term Bond Fund
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Certified Annual Report May 31, 2004
Portfolio of Investments (1) $ Par/Shares Value
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(Amounts in 000s)
CORPORATE BONDS AND NOTES 44.7%
Banking and Finance 15.6%
ABN AMRO Bank (Chicago),
7.25%, 5/31/05 3,620 3,802
AIG Sunamerica Global
Financing XII, 144A,
5.30%, 5/30/07 3,450 3,603
Allstate Financial
Global Funding, 144A,
5.25%, 2/1/07 4,500 4,705
AT&T Capital Corporation,
6.60%, 5/15/05 1,110 1,156
Bank of America, 5.25%, 2/1/07 9,000 9,391
Bank of New York, 2.20%, 5/12/06 6,000 5,928
Bank One Corporation, 6.50%, 2/1/06 3,000 3,185
Bear Stearns, 3.00%, 3/30/06 8,000 8,023
CIT Group
4.125%, 2/21/06 5,162 5,266
5.50%, 11/30/07 3,000 3,143
Citigroup
4.125%, 6/30/05 3,000 3,050
5.75%, 5/10/06 6,000 6,321
Countrywide Home Loan,
5.50%, 8/1/06 7,000 7,323
Developers Diversified Realty,
3.875%, 1/30/09 5,000 4,829
Eop Operating Limited Partnership,
8.375%, 3/15/06 6,000 6,539
Fifth Third Bank, 2.70%, 1/30/07 10,000 9,870
First Union, 7.55%, 8/18/05 4,750 5,036
Goldman Sachs Group, 144A,
6.75%, 2/15/06++ 8,900 9,478
HBOS, 144A, 3.125%, 1/12/07 8,000 7,954
Household Finance, 5.75%, 1/30/07 4,330 4,577
ING Institutional Funding, 144A,
2.70%, 2/15/07 9,000 8,830
International Lease Finance,
3.75%, 8/1/07 7,500 7,472
JP Morgan Chase, 3.125%, 12/11/06 5,800 5,780
Keycorp, 6.75%, 3/15/06 1,850 1,978
Landwirtschaftliche Rentenbank,
3.75%, 6/15/09 15,000 14,720
Lehman Brothers, 6.25%, 5/15/06 5,500 5,843
Marsh & McLennan, 3.625%, 2/15/08 4,810 4,733
Marshall & Ilsley
2.625%, 2/10/07 3,000 2,974
4.125%, 9/4/07 2,160 2,201
Massmutual Global Funding, 144A,
3.25%, 6/15/07 6,430 6,362
Merrill Lynch
7.00%, 3/15/06 225 241
VR, 2.853%, 3/2/09 7,000 6,878
Midland Bank, 7.625%, 6/15/06 4,300 4,671
Morgan Stanley Dean Witter,
6.10%, 4/15/06 6,700 7,097
National City Bank,
2.375%, 8/15/06 5,000 4,970
National Rural Utilities,
6.00%, 5/15/06 6,000 6,337
Regions Bank, 2.90%, 12/15/06 5,635 5,592
SLM Corporation, VR,
2.862%, 4/1/09 10,000 9,785
St. Paul Travelers Companies,
5.75%, 3/15/07 2,475 2,606
Swedish Export Credit,
2.875%, 1/26/07 6,015 5,960
Travelers Property Casualty,
3.75%, 3/15/08 1,770 1,746
U.S. Bank NA
2.85%, 11/15/06 9,000 8,939
2.87%, 2/1/07 3,000 2,955
Wachovia Corporation,
7.45%, 7/15/05 2,000 2,111
Zions Bancorporation,
2.70%, 5/1/06 4,800 4,772
248,732
Consumer Products and Services 7.2%
Abbott Laboratories,
5.625%, 7/1/06 4,225 4,449
AOL Time Warner, 6.125%, 4/15/06 6,650 7,004
Brown-Forman, 2.125%, 3/15/06 9,000 8,900
Bunge Limited Finance,
4.375%, 12/15/08 5,950 5,880
Cargill Incorporated, 144A,
6.25%, 5/1/06 6,500 6,881
Clear Channel Communications,
6.00%, 11/1/06 6,578 6,954
Comcast Cable, 8.375%, 5/1/07 6,000 6,738
Dayton Hudson Corporation,
7.50%, 7/15/06 2,500 2,728
Diageo, 3.50%, 11/19/07 5,000 4,953
Diageo Capital, 6.625%, 6/24/04 2,000 2,006
Disney, 6.75%, 3/30/06 6,000 6,383
Fred Meyer, 7.375%, 3/1/05 4,700 4,873
General Mills, 3.875%, 11/30/07 5,000 4,994
Gillette, 3.50%, 10/15/07 6,250 6,271
IBM, 2.375%, 11/1/06 5,500 5,400
Kraft Foods, 4.625%, 11/1/06 4,850 4,976
McCormick
3.35%, 4/15/09 5,000 4,810
6.40%, 2/1/06 3,400 3,598
Newell Rubbermaid, 2.00%, 5/1/05 1,515 1,511
Pfizer, 2.50%, 3/15/07 6,000 5,874
Ralcorp Holdings, 8.75%, 9/15/04 5,500 5,611
Viacom, 6.40%, 1/30/06 4,440 4,704
115,498
Energy 1.6%
BP Canada Finance, 3.375%, 10/31/07 5,700 5,652
Conocophillips, 3.625%, 10/15/07 6,350 6,339
Devon Energy, 2.75%, 8/1/06 4,600 4,546
Halliburton, 144A, VR, 1.92%, 1/26/07 4,000 3,999
Smith International Incorporated,
7.00%, 9/15/07 5,000 5,466
26,002
Industrial 6.4%
Alcoa, 4.25%, 8/15/07 2,475 2,517
American Honda Finance, 144A,
2.875%, 4/3/06 4,400 4,400
Boeing Capital, 7.10%, 9/27/05 4,500 4,766
Caterpillar Financial Services
2.35%, 9/15/06 6,500 6,404
2.625%, 1/30/07 3,500 3,439
Daimler Chrysler North America,
6.90%, 9/1/04 5,000 5,062
Dow Chemical, 7.00%, 8/15/05 6,000 6,307
Falconbridge, 7.35%, 11/1/06 5,000 5,397
Ford Motor Credit, 6.50%, 1/25/07 3,750 3,933
General Electric, VR, 1.22%, 10/24/05 2,665 2,667
General Electric Capital,
5.00%, 6/15/07 6,000 6,246
GMAC, 6.75%, 1/15/06 7,000 7,372
Hutchison Whampoa Finance,
144A, 6.95%, 8/1/07 4,500 4,868
John Deere Capital, 3.90%, 1/15/08 4,000 3,994
Meadwestvaco Corp, 2.75%, 12/1/05 3,700 3,675
Northrop Grumman, 8.625%, 10/15/04 5,550 5,684
Praxair, VR, 4.75%, 7/15/07 4,000 4,134
Raytheon, 4.50%, 11/15/07 5,651 5,736
Sealed Air, 144A, 5.375%, 4/15/08 6,000 6,167
United Technologies, 6.625%, 11/15/04 3,250 3,321
Weyerhaeuser, 5.50%, 3/15/05 5,000 5,117
101,206
Media and Communications 5.3%
Alltel, 6.75%, 9/15/05 3,750 3,963
Bellsouth, 5.00%, 10/15/06 4,800 4,990
British Telecommunications,
STEP, 7.875%, 12/15/05 8,000 8,609
Cox Enterprises, 144A, 4.375%, 5/1/08 6,150 6,131
Deutsche Telekom International Finance,
3.875%, 7/22/08 6,000 5,917
France Telecom, STEP, 8.20%, 3/1/06 8,600 9,294
Liberty Media, VR, 2.61%, 9/17/06 5,000 5,090
SBC Communications, 5.75%, 5/2/06 5,000 5,260
Sprint Capital, 6.00%, 1/15/07 5,600 5,886
Telefonica Europe, 7.35%, 9/15/05 3,000 3,176
Telefonos De Mexico, S. A.,
4.50%, 11/19/08 3,545 3,448
Telus, 7.50%, 6/1/07 5,000 5,468
U.S. West Communications, 7.20%, 11/1/04 3,500 3,553
Verizon Global Funding, 6.125%, 6/15/07 5,000 5,344
Verizon Wireless, 5.375%, 12/15/06 7,600 7,970
84,099
Other 0.4%
United Mexican States, VR,
1.84%, 1/13/09ss. 6,000 6,081
6,081
Transportation Services 0.6%
ERAC USA Finance, 144A,
6.625%, 2/15/05++ 5,665 5,830
Union Pacific, 5.75%, 10/15/07 4,000 4,214
10,044
Utilities 7.6%
Alabama Power, 5.49%, 11/1/05 4,250 4,421
Arizona Public Service, 7.625%, 8/1/05 5,000 5,276
CE Electric UK Funding,
144A, 6.995%, 12/30/07 2,370 2,508
CINergy, 6.25%, 9/1/04 3,900 3,938
Consumers Energy, 6.00%, 3/15/05 2,150 2,210
Dominion Resources, 7.625%, 7/15/05 3,000 3,171
DTE Energy, 6.00%, 6/1/04 4,500 4,500
Duke Capital, 4.302%, 5/18/06 6,500 6,530
Energy East, 5.75%, 11/15/06 5,750 6,001
Entergy Gulf States, 5.20%, 12/3/07 5,310 5,349
FirstEnergy, 5.50%, 11/15/06 3,175 3,289
Niagara Mohawk Power, 5.375%, 10/1/04 5,250 5,300
Nisource Finance Corp.,
VR, 1.929%, 5/4/05 6,000 5,996
Panhandle Eastern Pipeline,
144A, 2.75%, 3/15/07 6,000 5,837
Pepco Holdings, 5.50%, 8/15/07 5,000 5,208
PG&E, VR, 1.81%, 4/30/06 5,810 5,824
Pinnacle West Capital, 6.40%, 4/1/06 3,300 3,476
PPL Capital Funding, 144A, 4.33%, 3/1/09 5,000 4,869
PSEG Power, 6.875%, 4/15/06 5,345 5,701
Sempra Energy, VR, 1.74%, 5/21/08 8,950 8,948
Southern California Edison,
8.00%, 2/15/07 7,000 7,784
Texas-New Mexico Power, 6.125%, 6/1/08 3,650 3,778
TXU Energy, 6.125%, 3/15/08 2,900 3,059
Westar Energy, 7.875%, 5/1/07 5,055 5,569
Western Power Distribution Holdings,
144A 6.875%, 12/15/07 2,700 2,795
121,337
Total Corporate Bonds and Notes (Cost $712,408) 712,999
ASSET-BACKED SECURITIES 14.7%
Aesop Funding II, Series 2003-5A, Class A1
144A, 2.78%, 12/20/07 6,350 6,320
American Express, Series 2004-1, Class C
144A, VR, 1.65%, 9/15/11 4,500 4,500
Bank One Auto Securitization,
Series 2003-1, Class A3
1.82%, 9/20/07 9,850 9,748
BMW Vehicle Owner Trust, Series 2003-A,
Class A3 1.94%, 2/25/07 8,750 8,761
Capital Auto Receivables Asset Trust
Series 2002-2, Class A4,
4.50%, 10/15/07 3,000 3,068
Series 2002-2, Class CERT,
4.18%, 10/15/07 1,180 1,197
Series 2004-1, Class A4,
2.64%, 11/17/08 9,000 8,796
Series 2004-1, Class CTFS,
2.84%, 9/15/10 7,000 6,834
Capital One Master Trust, Series 1998-1,
Class A 6.31%, 6/15/11 9,000 9,791
Chase Manhattan Auto Owner Trust,
Series 2001-B Class CTFS, 3.75%, 5/15/08 673 680
CIT RV Trust
Series 1997-A, Class A6, 6.35%, 4/15/11 264 268
Series 1998-A, Class A4, 6.09%, 2/15/12 1,125 1,135
Citibank Credit Card Issuance Trust
Series 2000-A1, Class A1,
6.90%, 10/15/07 11,100 11,767
Series 2000-A3, Class A3,
6.875%, 11/16/09ss. 3,700 4,075
Series 2001-A6, Class A6,
5.65%, 6/16/08 7,000 7,374
Comed Transitional Funding Trust,
Series 1998-1, Class A5
5.44%, 3/25/07 2,572 2,617
CPL Transition Funding, Series 2002-1,
Class A1 3.54%, 1/15/07 2,191 2,209
GS Auto Loan Trust
Series 2004-1, Class A3,
2.13%, 11/15/07 3,000 2,972
Series 2004-1, Class C, VR,
2.68%, 5/16/11 6,000 5,972
Harley-Davidson Motorcycle Trust
Series 2001-1, Class B, VR,
5.29%, 1/15/09 950 966
Series 2003-3, Class A2,
2.76%, 5/15/11 4,700 4,668
Series 2004-1, Class B,
2.00%, 11/15/11 4,886 4,796
Hertz, Series 2004-1, Class A2,
144A, 2.38%, 5/25/08 12,500 12,121
Honda Auto Receivables, Series 2003-5,
Class A4 2.96%, 4/20/09 9,125 9,020
Household Affinity Credit Card,
Series 2003-1 Class A,
VR, 1.22%, 2/15/10 5,000 5,011
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 3,248
John Deere Owner Trust
Series 2001-A, Class A4,
3.78%, 9/15/08 5,175 5,217
Series 2003-A, Class A3,
1.79%, 4/16/07 2,000 1,987
MBNA Master Credit Card Trust
Series 2000-D, Class A, VR,
1.30%, 9/15/09 10,600 10,644
Series 1999-M, Class A,
6.60%, 4/16/07 1,150 1,176
MBNA Credit Card Master Note Trust
Series 2001-C1, Class C1, VR,
2.15%, 10/15/08 6,000 6,066
Series 2003-C2, Class C2, VR,
2.70%, 6/15/10 5,000 5,170
Morgan Stanley Auto Loan Trust,
Series 2004-HB1
Class C, 2.88%, 10/15/11 3,750 3,745
Navistar, VR, 1.30%, 4/15/08 10,000 10,021
Nissan Auto Receivables Owner Trust
Series 2002-A, Class A4,
4.28%, 10/16/06 1,000 1,020
Series 2004-A, Class A4,
2.76%, 7/15/09 9,000 8,812
Regions Auto Receivables Trust, Series 2002-1
Class A3, 2.63%, 1/16/07 4,459 4,480
Reliant Energy Transition Bond Trust,
Series 2001-1 Class A1, 3.84%, 9/15/07 3,609 3,659
SSB Auto Loan Trust, Series 2002-1, Class C,
4.13%, 2/15/09 1,276 1,288
USAA Auto Owner Trust, Series 2003-1, Class A3
1.58%, 6/15/07 10,000 9,955
WFS Financial Owner Trust, Series 2004-2
Class C, 3.20%, 11/21/11 12,500 12,437
World Financial Network, Series 2003-A,
Class A2 VR, 1.47%, 5/15/12 10,000 10,016
Total Asset-Backed Securities (Cost $235,522) 234,827
U.S. GOVERNMENT & AGENCY MORTGAGE-BACKED
SECURITIES 12.1%
U.S. Government Agency Obligations+/- 11.6%
Federal Home Loan Mortgage
4.50%, 10/1/07 8,772 8,882
5.00%, 10/1 - 11/1/18 27,028 27,052
10.00%, 6/1 - 10/1/05 3 3
10.75%, 12/1/09 25 28
CMO
2.37%, 12/15/09 12,000 11,717
3.32%, 12/15/11 3,000 2,755
4.00%, 1/15/22 9,000 8,996
4.105%, 10/27/31 5,000 5,048
4.50%, 2/15/13 9,722 9,919
5.00%, 1/15/19 12,000 12,147
6.00%, 1/15/08 586 590
6.50%, 8/15/23 1,786 1,851
IO, 4.50%, 5/15/16 - 4/15/18 5,700 903
Federal National Mortgage Assn.
4.50%, 5/1/18 9,306 9,145
5.00%, 1/1/09 - 11/1/18 11,251 11,277
5.50%, 1/1/17 - 3/1/34 20,999 21,330
6.00%, 7/1 - 11/1/13 281 294
9.00%, 5/1/05 48 49
ARM
2.805%, 6/1/04 108 109
3.00%, 6/1/04 25 25
3.02%, 6/1/04 3 3
3.061%, 6/1/04 5 5
3.065%, 6/1/04 110 111
3.091%, 6/1/04 27 27
3.115%, 6/1/04 30 30
3.124%, 6/1/04 62 63
3.139%, 6/1/04 173 175
3.187%, 6/1/04 8 8
3.818%, 6/1/04 14,432 14,558
4.382%, 6/1/04 9,892 9,877
4.75%, 6/1/04 22 23
4.942%, 6/1/04 34 37
5.517%, 6/1/04 162 179
CMO
3.50%, 4/25/13 10,000 10,043
4.50%, 6/25/13 12,000 12,163
5.50%, 3/25/30 1,322 1,326
6.00%, 6/25/16 411 420
9.00%, 1/25/08 1,168 1,237
TBA, 5.50%, 1/1/19 2,650 2,703
185,108
U.S. Government Obligations 0.5%
Government National Mortgage Assn.
6.00%, 7/15/17 3,295 3,442
7.00%, 9/15/12 - 12/15/13 3,735 4,013
8.00%, 5/15/07 83 87
8.50%, 2/15/05 - 3/15/06 34 35
9.00%, 12/15/05 - 2/15/06 29 30
9.50%, 4/15/05 - 10/15/09 4 4
10.00%, 8/15/04 - 10/15/21 99 111
10.50%, 11/15/15 27 30
11.00%, 4/20/14 2 2
11.25%, 7/15 - 8/15/13 37 42
11.50%, 3/15/10 - 12/15/15 440 505
11.75%, 8/15 - 9/15/13 111 128
8,429
Total U.S. Government & Agency
Mortgage-Backed Securities (Cost $195,083) 193,537
NON-U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES
4.7%
Banc of America Commercial Mortgage,
Series 2003-1 Class A1, CMO,
3.878%, 9/11/36 4,648 4,528
Bank of America Mortgage Securities
Series 2003-L, Class 2A2, CMO, VR,
4.356%, 1/25/34 10,377 10,357
Series 2004-A, Class 2A2, CMO, VR,
4.18%, 2/25/34 6,012 5,944
Bankboston Home Equity Loan Trust,
Series 1998-2 Class A6, 6.64%, 12/25/28 5,000 5,306
Chase Funding Mortgage Loan,
Series 2002-4, Class 2A 1
VR, 1.47%, 10/25/32 6,165 6,175
Countrywide Home Loans, Series 2003-60
Class 3A-1, CMO, VR, 5.206%, 2/25/34 10,068 10,057
DLJ Commercial Mortgage, Series 1999-CG2
Class A1B, CMO 7.30%, 6/10/32 4,200 4,711
GMAC Commercial Mortgage Securities, CMO
Series 1998-C2, Class A1, 6.15%, 5/15/35 1,240 1,272
Greenwich Capital Commercial Funding,
Series 2004-1 Class 2, CMO, 3.835%, 6/10/36 7,500 7,514
J.P. Morgan Chase Commercial Mortgage,
Series 1999-C7 Class A2 CMO,
6.51%, 10/15/35 4,000 4,312
Morgan Stanley Dean Witter,
CMO, 5.38%, 1/15/39 5,507 5,703
Prudential Securities Secured Financing,
Series 1999-NRF1 Class A1,
CMO, 6.074%, 11/1/31 365 380
Ryland Mercury Savings Trust, Series 1998-MS2
Class A, VR, 3.509%, 10/15/18 21 21
Sovereign Bank Home Equity Loan Trust,
Series 2000-1 Class A6,
7.25%, 2/25/15 584 624
Washington Mutual, Series 2004-AR1,
Class A, CMO 4.23%, 3/25/34 7,849 7,775
Total Non-U.S. Government
Mortgage-Backed Securities (Cost $75,558) 74,679
U.S. GOVERNMENT & AGENCY OBLIGATION
(EXCLUDING MORTGAGE-BACKED) 10.2%
U.S. Government Agency Obligations+/- 3.5%
Federal Home Loan Mortgage,
2.875%, 9/15/05 20,000 20,165
Federal National Mortgage Assn.
2.50%, 6/15/06 10,000 9,948
3.25%, 8/15/08 14,183 13,787
VR, 2.833%, 2/17/09 12,100 12,010
55,910
U.S. Treasury Obligations 6.7%
U.S. Treasury Notes
1.50%, 7/31/05 11,800 11,743
1.625%, 1/31 - 4/30/05 ++ 95,000 94,984
106,727
Total U.S. Government & Agency Obligations
(excluding Mortgage-Backed) (Cost $163,192) 162,637
SHORT-TERM INVESTMENTS 12.8%
Money Market Funds 12.8%
T. Rowe Price Reserve
Investment Fund, 1.09% # 205,066 205,066
Total Short-Term Investments
(Cost $205,066) 205,066
SECURITIES LENDING COLLATERAL 0.4%
Money Market Pooled Account 0.4%
State Street Bank and Trust Company
of New Hampshire N.A. Securities
Lending Quality Trust units, 1.121% # 6,492 6,492
Total Securities Lending Collateral
(Cost $6,492) 6,492
Total Investments in Securities
99.6% of Net Assets (Cost $1,593,321) $ 1,590,237
--------------------
Futures Contracts
- --------------------------------------------------------------------------------
($ 000s)
Contract Unrealized
Expiration Value Gain (Loss)
------------ ------------ ------------
Short, 1,000 U.S.
Treasury 5 year
contracts, $1,000
par of 1.625% U.S.
Treasury Notes
pledged as initial
margin 9/04 $ (108,172) $ (437)
Net payments
(receipts) of
variation margin
to date 796
Variation margin
receivable
(payable) on
open futures
contracts $ 359
--------------------
(1) Denominated in U.S. dollar unless otherwise noted
# Seven-day yield
(ss.)All or a portion of this security is on loan at May 31, 2004
(+/-)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.
++ All or a portion of this security is pledged to cover margin requirements
on futures contracts at May 31, 2004.
!! Security contains restrictions as to public resale pursuant to the
Securities Act of 1933 and related rules - total value of such securities
at period-end amounts to $15,308 and represents 1.0% 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 value of such securities at
period-end amounts to $118,158 and represents 7.4% of net assets
ARM Adjustable Rate Mortgage
CMO Collateralized Mortgage Obligation
IO Interest Only security for which the fund receives interest on notional
principal (par)
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
- --------------------------------------------------------------------------------
Certified Annual Report May 31, 2004
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
(In thousands except shares and per share amounts)
Assets
Investments in securities, at value
(cost $1,593,321) $ 1,590,237
Other assets 18,910
Total assets 1,609,147
Liabilities
Total liabilities 12,899
NET ASSETS $ 1,596,248
--------------------
Net Assets Consist of:
Undistributed net investment income (loss) $ (3,248)
Undistributed net realized gain (loss) (7,917)
Net unrealized gain (loss) (3,521)
Paid-in-capital applicable to 335,005,925 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares authorized 1,610,934
NET ASSETS $ 1,596,248
--------------------
NET ASSET VALUE PER SHARE $ 4.76
--------------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Short-Term Bond Fund
- --------------------------------------------------------------------------------
Certified Annual Report
Statement of Operations
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
5/31/04
Investment Income (Loss)
Income
Interest $ 40,227
Dividend 1,795
Securities lending 7
Total income 42,029
Expenses
Investment management 5,440
Shareholder servicing 2,262
Custody and accounting 202
Registration 150
Prospectus and shareholder reports 115
Legal and audit 18
Directors 8
Miscellaneous 8
Reductions/repayments pursuant to expense limitation
Investment management fees (waived) repaid (1,016)
Total expenses 7,187
Expenses paid indirectly (4)
Net expenses 7,183
Net investment income (loss) 34,846
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 2,362
Futures 1,599
Foreign currency transactions (1,164)
Net realized gain (loss) 2,797
Change in net unrealized gain (loss)
Securities (30,847)
Futures (437)
Other assets and liabilities
denominated in foreign currencies 141
Change in net unrealized gain (loss) (31,143)
Net realized and unrealized gain (loss) (28,346)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 6,500
--------------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Short-Term Bond Fund
- --------------------------------------------------------------------------------
Certified Annual Report
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
5/31/04 5/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 34,846 $ 33,839
Net realized gain (loss) 2,797 4,778
Change in net unrealized gain (loss) (31,143) 19,675
Increase (decrease) in net assets
from operations 6,500 58,292
Distributions to shareholders
Net investment income (36,742) (35,336)
Capital share transactions *
Shares sold 1,001,801 595,171
Distributions reinvested 33,156 31,620
Shares redeemed (460,734) (293,855)
Increase (decrease) in net assets from
capital share transactions 574,223 332,936
Net Assets
Increase (decrease) during period 543,981 355,892
Beginning of period 1,052,267 696,375
End of period $ 1,596,248 $ 1,052,267
------------------------------------
(Including undistributed net investment income
(loss) of ($3,248) at 5/31/04 and ($3,010)at 5/31/03)
*Share information
Shares sold 207,635 124,265
Distributions reinvested 6,883 6,594
Shares redeemed (95,552) (61,320)
Increase (decrease) in shares outstanding 118,966 69,539
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Short-Term Bond Fund
- --------------------------------------------------------------------------------
Certified Annual Report May 31, 2004
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 close of trading on the NYSE. If the fund
determines that developments between the close of a foreign market and the close
of the NYSE will, in its judgment, materially affect the value of some or all of
its portfolio securities, which in turn will affect the fund's share price, the
fund will adjust the previous closing prices to reflect the 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. A
fund
may also fair value securities in other situations, such as when a particular
foreign market is closed but the fund is open. In deciding whether to make fair
value adjustments, the fund reviews a variety of factors, including developments
in foreign markets, the performance of U.S. securities markets, and the
performance of instruments trading in U. S. markets that represent foreign
securities and baskets of foreign securities. The fund uses outside pricing
services to provide it with closing market prices and information used for
adjusting those prices. The fund cannot predict how often it will use closing
prices and how often it will adjust those prices. As a means of evaluating its
fair value process, the fund routinely compares closing market prices, the next
day's opening prices in the same markets, and adjusted prices.
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 asked 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.
Credits
The fund earns credits on temporarily uninvested cash balances at the custodian
that reduce the fund's custody charges. Custody expense in the accompanying
financial statements is presented before reduction for credits, which are
reflected as expenses paid indirectly.
Investment Transactions, Investment Income, and Distributions
Income and expenses are recorded on the accrual basis. Premiums and discounts on
debt securities are amortized for financial reporting purposes. Dividends
received from mutual fund investments are reflected as dividend income; capital
gain distributions are reflected as realized gain/loss. Dividend income and
capital gain distributions are recorded on the ex-dividend date. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Payments ("variation margin") made or
received 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 other assets
and other liabilities, respectively, and in the change in net unrealized gain or
loss in the accompanying financial statements. Distributions to shareholders are
recorded on the ex-dividend date. Income distributions are declared on a daily
basis and paid
monthly. Capital gain distributions, if any, are declared and paid by the fund,
typically on an annual basis.
Other
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 year ended May 31, 2004, 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 year ended May 31, 2004, 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/or 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 May 31, 2004, the value of loaned securities was $6,356,000;
aggregate collateral consisted of $6,492,000 in a money market pooled account.
Other
Purchases and sales of portfolio securities, other than short-term and U.S.
government securities, aggregated $810,971,000 and $358,701,000, respectively,
for the year ended May 31, 2004. Purchases and sales of U.S. government
securities aggregated $449,693,000 and $445,616,000, respectively, for the year
ended May 31, 2004.
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 significantly 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.
Distributions during the year ended May 31, 2004 totaled $36,742,000 and were
characterized as ordinary income for tax purposes. At May 31, 2004, the
tax-basis components of net assets were as follows:
- --------------------------------------------------------------------------------
Unrealized appreciation $ 10,301,000
Unrealized depreciation (13,975,000)
Net unrealized appreciation (depreciation) (3,674,000)
Undistributed ordinary income (2,246,000)
Capital loss carryforwards (8,766,000)
Paid-in capital 1,610,934,000
Net assets $ 1,596,248,000
--------------------
The fund intends to retain realized gains to the extent of available capital
loss carryforwards for federal income tax purposes. During the fiscal year ended
May 31, 2004, the fund utilized $2,267,000 of capital loss carryforwards. As of
May 31, 2004, the fund had $2,405,000 of capital loss carryforwards that
expire in fiscal 2005, $1,276,000 that expire in fiscal 2007, and $5,085,000
that expire thereafter through fiscal 2009.
For the year ended May 31, 2004, the fund recorded the following permanent
reclassifications to reflect tax character. Reclassifications to paid-in capital
relate primarily to expiring capital loss carryforwards. Results of operations
and net assets were not affected by these reclassifications.
- --------------------------------------------------------------------------------
Undistributed net investment income $ 1,658,000
Undistributed net realized gain 6,819,000
Paid-in capital (8,477,000)
At May 31, 2004, the cost of investments for federal income tax purposes was
$1,593,474,000.
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 May 31, 2004,
the effective annual group fee rate was 0.32%, and investment management fee
payable totaled $486,000.
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. Pursuant to this agreement, at May 31, 2004, management fees
waived in the amount of $1,704,000 remain subject to repayment by the fund
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 $1,106,000 for the year ended May 31, 2004, of which $94,000 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 year ended May 31, 2004,
the fund was charged $379,000 for shareholder servicing costs related to the
college savings plans, of which $257,000 was for services provided by Price and
$40,000 was payable at period-end. At May 31, 2004, approximately 7.7% 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 year ended May 31,
2004, the fund was allocated $268,000 of Spectrum Funds' expenses and $142,000
of Retirement Funds' expenses. Of these amounts, $252,000 related to services
provided by Price and $57,000 was payable at period-end. At May 31, 2004,
approximately 18.6% of the outstanding shares of the fund were held by the
Spectrum Funds and 5.2% 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 to mutual funds, trusts,
and other accounts managed by Price Associates and/or its affiliates, and are
not available for direct purchase by members of the public. The Reserve Funds
pay no investment management fees. During the year ended May 31, 2004, dividend
income from the Reserve Funds totaled $1,795,000.
T. Rowe Price Short-Term Bond Fund
- --------------------------------------------------------------------------------
Certified Annual Report
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Short-Term Bond Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of T. Rowe Price Short-Term Bond Fund
(the "Fund") at May 31, 2004, the results of its operations, the changes in its
net assets and the financial highlights for each of the fiscal periods
presented, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States), which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
2004 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
June 22, 2004
T. Rowe Price Short-Term Bond Fund
- --------------------------------------------------------------------------------
Certified Annual Report
Tax Information (Unaudited) for the Tax Year Ended 5/31/04
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included $606,000 from short-term
capital gains.
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.
T. Rowe Price Short-Term Bond Fund
- --------------------------------------------------------------------------------
Certified Annual Report
About the Fund's Directors and Officers
Your fund is governed by a Board of Directors that meets regularly to review
investments, performance, expenses, and other business matters, and is
responsible for protecting the interests of shareholders. The majority of the
fund's directors are independent of T. Rowe Price Associates, Inc. (T. Rowe
Price); "inside" directors are officers of T. Rowe Price. The Board of Directors
elects the fund's officers, who are listed in the final table. The business
address of each director and officer is 100 East Pratt Street, Baltimore, MD
21202. The Statement of Additional Information includes additional information
about the fund directors and is available without charge by calling a T. Rowe
Price representative at 1-800-225-5132.
Independent Directors
Name Principal Occupation(s) During Past 5 Years
(Year of Birth) and Directorships of Other Public Companies
Year Elected *
Anthony W. Deering Director, Chairman of the Board, and Chief Executive
(1945) Officer, The Rouse Company, real estate developers;
1983 Director, Mercantile Bank (4/03 to present)
Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an
(1943) acquisition and management advisory firm
2001
David K. Fagin Director, Golden Star Resources Ltd., Canyon
(1938) Resources Corp. (5/00 to present), and Pacific
2001 Rim Mining Corp. (2/02 to present); Chairman and
President, Nye Corp.
Karen N. Horn Managing Director and President, Global Private
(1943) Client Services, Marsh Inc. (1999-2003); Managing
2003 Director and Head of International Private Banking,
Bankers Trust (1996-1999); Director, Eli Lilly and
Company and Georgia Pacific
F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates, Inc.,
(1934) consulting environmental and civil engineers
1983
John G. Schreiber Owner/President, Centaur Capital Partners, Inc., a real
(1946) estate investment company; Partner, Blackstone Real
1992 Estate Advisors, L.P.; Director, AMLI Residential
Properties Trust and The Rouse Company, real
estate developers
* Each independent director oversees 111 T. Rowe Price portfolios and serves
until retirement, resignation, or election of a successor.
Inside Directors
Name Principal Occupation(s) During Past 5 Years and
(Year of Birth) Directorships of Other Public Companies
Year Elected *
[Number of T. Rowe Price
Portfolios Overseen]
Mary J. Miller, CFA Vice President, T. Rowe Price and
(1955) T. Rowe Price Group, Inc.
2004
[37]
James S. Riepe Director and Vice President, T. Rowe Price; Vice
(1943) Chairman of the Board, Director, and Vice President,
1983 T. Rowe Price Group, Inc.; Chairman of the Board and
[111] Director, T. Rowe Price Global Asset Management
Limited, T. Rowe Price Global Investment Services
Limited, T. Rowe Price Investment Services, Inc.,
T. Rowe Price Retirement Plan Services, Inc., and
T. Rowe Price Services, Inc.; Chairman of the Board,
Director, President, and Trust Officer, T. Rowe Price
Trust Company; Director, T. Rowe Price International,
Inc.; Director, The Nasdaq Stock Market, Inc.
* Each inside director serves until retirement, resignation, or election of a
successor.
Officers
Name (Year of Birth) Principal Occupation(s)
Title and Fund(s) Served
Connice A. Bavely, CFA (1951) Vice President, T. Rowe Price and
Vice President, Short-Term Bond Fund T. Rowe Price Group, Inc.
Stephen V. Booth, CPA (1961) Vice President, T. Rowe Price, T. Rowe
Vice President, Short-Term Bond Fund Price Group, Inc., and T. Rowe Price
Trust Company
Steven G. Brooks, CFA (1954) Vice President, T. Rowe Price and
Vice President, Short-Term Bond Fund T. Rowe Price Group, Inc.
Jennifer A. Callaghan (1969) Assistant Vice President, T. Rowe Price
Vice President, Short-Term Bond Fund
Joseph A. Carrier (1960) Vice President, T. Rowe Price, T. Rowe
Treasurer, Short-Term Bond Fund Price Group, Inc., T. Rowe Price
Investment Services, Inc., and T. Rowe
Price Trust Company
Patrick S. Cassidy, CFA (1964) Vice President, T. Rowe Price and
Vice President, Short-Term Bond Fund T. Rowe Price Group, Inc.
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Officers (continued)
Name (Year of Birth) Principal Occupation(s)
Title and Fund(s) Served
Roger L. Fiery III, CPA (1959) Vice President, T. Rowe Price, T. Rowe
Vice President, Short-Term Bond Fund Price Group, Inc., T. Rowe Price
International Inc., and T. Rowe Price
Trust Company
Gregory S. Golczewski (1966) Vice President, T. Rowe Price and
Vice President, Short-Term Bond Fund T. Rowe Price Trust Company
Charles B. Hill, CFA (1961) Vice President, T. Rowe Price and
Vice President, Short-Term Bond Fund T. Rowe Price Group, Inc.
Henry H. Hopkins (1942) Director and Vice President, T. Rowe
Vice President, Short-Term Bond Fund Price Investment Services, Inc.,
T. Rowe Price Services, Inc., and T.
Rowe Price Trust Company; Vice
President, T. Rowe Price, T. Rowe Price
Group, Inc., T. Rowe Price
International, Inc., and T. Rowe Price
Retirement Plan Services, Inc.
Patricia B. Lippert (1953) Assistant Vice President, T. Rowe
Secretary, Short-Term Bond Fund Price and T. Rowe Price Investment
Services, Inc.
Cheryl A. Mickel, CFA (1967) Vice President, T. Rowe Price
Vice President, Short-Term Bond Fund and T. Rowe Price Group, Inc.
Vernon A. Reid, Jr. (1954) Vice President, T. Rowe Price
Vice President, Short-Term Bond Fund and T. Rowe Price Group, Inc.
Robert M. Rubino, CPA (1953) Vice President, T. Rowe Price and
Vice President, Short-Term Bond Fund T. Rowe Price Group, Inc.
Edward A. Wiese, CFA (1959) Vice President, T. Rowe Price, T. Rowe
President, Short-Term Bond Fund Price Group, Inc., and T. Rowe Price
Trust Company; Chief Investment
Officer, Director, and Vice President,
T. Rowe Price Savings Bank
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Item 2. Code of Ethics.
As of the end of the period covered by this report, 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 is filed as an exhibit to this Form N-CSR. No substantive amendments were
approved or waivers were granted to this code of ethics during the period
covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Directors/Trustees has determined that Mr. David K.
Fagin qualifies as an audit committee financial expert, as defined in Item 3 of
Form N-CSR. Mr. Fagin is considered independent for purposes of Item 3 of Form
N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal accountant were
as follows:
2004 2003
Audit Fees $9,296 9,076
Audit-Related Fees 847 --
Tax Fees 2,569 2,444
All Other Fees 124 --
Audit fees include amounts related to the audit of the registrant's annual
financial statements and services normally provided by the accountant in
connection with statutory and regulatory filings. Audit-related fees include
amounts reasonably related to the performance of the audit of the registrant's
financial statements, specifically the issuance of a report on internal
controls. Tax fees include amounts related to tax compliance, tax planning, and
tax advice. Other fees include the registrant's pro-rata share of amounts for
agreed-upon procedures in conjunction with service contract approvals by the
registrant's Board of Directors/Trustees.
(e)(1) The registrant's audit committee has adopted a policy whereby audit and
non-audit services performed by the registrant's principal accountant for the
registrant, its investment adviser, and any entity controlling, controlled by,
or under common control with the investment adviser that provides ongoing
services to the registrant require pre-approval in advance at regularly
scheduled audit committee meetings. If such a service is required between
regularly scheduled audit committee meetings, pre-approval may be authorized by
one audit committee member with ratification at the next scheduled audit
committee meeting. Waiver of pre-approval for audit or non-audit services
requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) - (d) above were approved pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50 percent of the hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees.
(g) The aggregate fees billed for the most recent fiscal year and the preceding
fiscal year by the registrant's principal accountant for non-audit services
rendered to the registrant, its investment adviser, and any entity controlling,
controlled by, or under common control with the investment adviser that provides
ongoing services to the registrant were $819,000 and $671,000 respectively, and
were less than the aggregate fees billed for those same periods by the
registrant's principal accountant for audit services rendered to the T. Rowe
Price Funds.
(h) All non-audit services rendered in (g) above were pre-approved by the
registrant's audit committee. Accordingly, these services were considered by the
registrant's audit committee in maintaining the principal accountant's
independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Not applicable. The complete schedule of investments is included in Item 1 of
this Form N-CSR.
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. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. 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 11. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is
attached.
(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.
(3) Written solicitation to repurchase securities issued by closed-end
companies: not applicable.
(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 July 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 July 16, 2004
By /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date July 16, 2004