Fellow Shareholders
By virtually every measure, the economy strengthened during the Fund's
fiscal year ended February 28, 1994. Gross domestic product grew at an
annual rate of less than 1.5% for the first six months of calendar 1993,
then surged at an annual rate of more than 5% in the second half.
Unemployment dropped steadily, capacity utilization rose, and personal
income gains were impressive. Based on stronger spending by consumers on
durable goods and housing and by businesses on fixed equipment, economic
momentum seemed to carry over into early 1994, though the arctic cold snap
east of the Rockies and the earthquake in Los Angeles tended to depress
business activity early in the new year.
Chart 1: Interest Rate Levels (see appendix)
The upswing in the economy's thrust affected the credit markets.
Perceived weakness in the economy through the autumn of 1993 and the
Federal Reserve's aggressively easy monetary policy encouraged a
substantial decline in note and bond yields. Between the end of February
1993 and mid-October, the yield on the Treasury's benchmark 30-year bond
dropped more than one full percentage point, reaching a low of 5.78%. As it
became increasingly apparent that the economy was entering a phase of
stronger growth, interest rates began to rise. The Fed's stunning February
announcement of a shift to a more restrictive monetary policy only
accelerated the rise. Short- and intermediate-term interest rates increased
30 to 75 basis points over the full course of 1993, though long-term
Treasury bond yields closed a bit lower.
Portfolio Strategy and Performance
Your Fund's yield closed the fiscal year ended February 28 approximately 17
basis points higher than it did at the start, though it still reflected the
effects of the declining interest rate environment that apparently ended in
February. The full effects of the recent Fed tightening will not be
reflected in the portfolio for approximately 30 to 60 days, because
higher-yielding securities can only be purchased as existing holdings
mature or as new money comes into the Fund.
As the accompanying chart shows, the Fund continued to track its
benchmark. As of February 25, 1994, the Fund's 2.69% return compared with
2.70% for the Donoghue's First Tier Peer Group. Both the Fund and its peer
group outperformed the 2.29% registered by the MMDA.
Chart 2: Yield Comparison (see appendix)
We adopted a defensive strategy in late 1993 as economic strength
became apparent and interest rates began to drift upward. The maturity
shortening mentioned in our last report accelerated over the last three
months, largely through purchases of floating rate notes_currently 39% of
Fund assets. Floating rate notes, typically issued by banks and other
financial institutions, are instruments whose rates are reset frequently in
response to changes in a specified benchmark. Their effective maturity is
usually 30 days or less, which had the effect of lowering the Fund's
weighted average maturity. The Fund's overall credit quality remained high
throughout the year.
Chart 3: Maturity Comparison (see appendix)
Outlook
As the Fund enters a new fiscal year, the credit markets are chiefly
concerned with the robust economy and the Fed's commitment to containing
inflation. The Fed has tightened twice thus far in 1994_in February and
March_and Fed Chairman Alan Greenspan clearly intends to raise short-term
interest rates further as the economy approaches full labor and capital
utilization over the next year or two, a policy that should gradually raise
the return on the Fund. Although inflation currently does not look
threatening, investors should be reassured by the Fed's attempt to keep a
lid on it. On balance, we expect modestly increasing yields, though the
course may be choppy in 1994 as inflation expectations wax and wane.
We will continue to position the Fund to take advantage of rising
money market yields within a conservative portfolio structure.
Respectfully submitted,
(signature)
Edward A. Wiese
President
March 25, 1994
Officers and Directors
Carter O. Hoffman, Chairman
Edward A. Wiese, President
Robert P. Campbell, Executive Vice President
James M. McDonald, Executive Vice President
Robert P. Black, Director
Calvin W. Burnett, Director
George J. Collins, Vice President/Director
Anthony W. Deering, Director
F. Pierce Linaweaver, Director
John Sagan, Director
John G. Schreiber, Director
Patrice L. Berchtenbreiter, Vice President
Paul W. Boltz, Vice President
Michael J. Conelius, Vice President
Henry H. Hopkins, Vice President
Joan R. Potee, Vice President
James S. Riepe, Vice President
Robert M. Rubino, Vice President
Lenora V. Hornung, Secretary
Carmen F. Deyesu, Treasurer
David S. Middleton, Controller
Statistical Highlights
T. Rowe Price Prime Reserve Fund / February 28, 1994
Key Statistics
Dividend Yield<F1> Periods Ended 2/28/94
3 Months 2.65%
12 Months 2.60
Dividend Per Share
3 Months $0.01
12 Months 0.03
[FN]
<F1>Dividends earned and reinvested for the periods indicated are
annualized and divided by the average daily net asset values per share for
the same period. The yield will vary with market conditions.
[/FN]
Maturity Diversification
Percent of Net Assets
Range 2/28/93 11/30/93 2/28/94
0-30 Days 38% 37% 52%
31-60 Days 20 24 22
61-90 Days 8 11 3
91-120 Days 11 13 5
121-180 Days 19 13 15
181-365 Days 4 2 2
Over 1 Year 0 0 1
Weighted Average (Days) 71 59 46
Quality Diversification
Percent of Net Assets
TRPA Quality Rating<F1> 2/28/93 11/30/93 2/28/94
1 32% 18% 21%
2 61 68 59
3 7 14 20
Weighted Average 1.8 1.9 2.0
[FN]
<F1>On a scale of 1 to 10, with Grade 1 representing highest quality.
[/FN]
Sector Diversification
Percent of Net Assets
2/28/93 11/30/93 2/28/94
Banking 14% 20% 22%
Finance & Credit 9 6 14
Foreign Government
& Municipalities 15 20 11
Structured Finance 6 5 11
Investment Dealers 8 8 8
Industrial 7 7 7
U.S. Dollar-Denominated
Foreign Negotiable CDs 17 14 7
Petroleum 5 5 6
Domestic Negotiable CDs 0 5 6
Miscellaneous 2 4 3
Telephone 1 1 2
Canadian Government
& Municipalities 1 3 2
Eurodollar Negotiable CDs 11 2 1
Food & Beverage 1 1 0
Gas & Gas Transmission 1 0 0
Letters of Credit 1 0 0
Retail 1 0 0
Other Assets Less Liabilities 0 -1 0
Fixed Obligations 84 71 61
Floating Rate Instruments 16 29 39
<TABLE>
<CAPTION>
Investment Record<F1>
T. Rowe Price Prime Reserve Fund
The table below shows the investment record of one share of the T. Rowe
Price Prime Reserve Fund purchased at the adjusted original offering price
of $1.00. Over this time, interest rates have been volatile. The results
shown should not be considered a representation of the dividend income
which may be realized from an investment made in the Fund today.
Adjusted to Reflect Reinvestment
Fiscal Reported Income Cumulative Dollars Annual Percentage Return
Year Net Asset Dividend Taken Income Value of Total
Ended Value in Cash Dividend Investment Return
<S> <C> <C> <C> <C> <C>
12/31/76<F2> $1.00 $0.05 $0.05 $1.05 5.36%
1977 1.00 0.05 0.11 1.11 5.08
1978 1.00 0.07 0.19 1.19 7.53
1979 1.00 0.11 0.32 1.32 11.17
1980 1.00 0.13 0.50 1.50 13.34
1981 1.00 0.16 0.76 1.76 17.35
1982 1.00 0.12 0.99 1.99 12.89
2/28/83<F3> 1.00 0.01 1.02 2.02 1.36
1984 1.00 0.09 1.20 2.20 9.12
1985 1.00 0.10 1.43 2.43 10.32
1986 1.00 0.08 1.62 2.62 7.85
1987 1.00 0.06 1.77 2.77 6.01
1988 1.00 0.06 1.95 2.95 6.49
1989 1.00 0.07 2.17 3.17 7.49
1990 1.00 0.09 2.45 3.45 8.79
1991 1.00 0.07 2.71 3.71 7.56
1992 1.00 0.05 2.91 3.91 5.25
1993 1.00 0.03 3.03 4.03 3.06
1994 1.00 0.03 3.13 4.13 2.60
Total $1.43
<FN>
<F1> All figures adjusted to reflect 10 for 1 stock split of record May 1, 1981.
<F2> From inception 1/26/76 to 12/31/76.
<F3> Fiscal year-end changed from December 31 to February 28; figures are for two months from 12/31/82-2/28/83.
</FN>
</TABLE>
Statement of Net Assets (Amounts in thousands)
T. Rowe Price Prime Reserve Fund/February 28, 1994
Auto Loans Backed _ 1.9%
Face Amount Value
John Deere Owner Trust, VR, 3.3125%, 10/15/94 $14,864 $14,843
Premier Auto Trust, 3.28%, 2/2/95 50,000 49,975
Total Auto-Backed (Cost _ $64,862) 64,818
Bank Notes _ 7.5%
Bank of New York, 3.41%, 6/8/94 10,000 9,991
First National Bank of Chicago, VR, 3.57491%, 3/4/94 50,000 49,957
Huntington National Bank, 3.30 - 3.45%, 4/28 - 5/10/94 28,000 27,979
Landeskreditbank Baden-Wuerttemburg, 3.55%, 6/10/94 15,000 14,992
Lasalle National Bank, 3.15%, 4/21/94 25,000 24,988
MBNA America Bank, 3.35%, 4/28/94 25,000 24,988
Pittsburgh National Bank, 3.25 - 3.65%, 4/19 - 7/28/94 50,000 49,972
U.S. National Bank of Oregon, VR, 3.52%, 4/5/94 50,000 49,915
Total Bank Notes (Cost _ $252,963) 252,782
Certificates of Deposit _ 6.5%
Bank of Nova Scotia, 3.13%, 4/25/94 20,000 19,989
Bank One Columbus, 3.19%, 3/4/94 25,000 25,000
Banque Nationale de Paris, 3.39%, 8/8/94 10,000 9,978
Caisse Nationale de Credit Agricole, LCD,
3.29 - 3.30%, 7/12/94 20,000 19,965
Canadian Imperial Bank of Commerce, 3.25%, 7/12/94 25,000 24,953
Credit Suisse, 3.63%, 6/3/94 20,000 19,994
Landesbank Hessen-Thuringen Girozentrale, 3.12%, 4/25/94 23,000 22,987
Royal Bank of Canada, 3.38%, 7/11/94 25,000 24,965
Societe Generale, 3.35 - 3.60%, 5/2 - 8/16/94 41,000 40,964
Union Bank Switzerland, 3.46%, 8/30/94 12,000 11,972
Total Certificates of Deposit (Cost _ $221,053) 220,767
Commercial Paper _ 47.3%
Abbey National North America, 3.21 - 3.22%,4/5-4/14/94 15,000 14,773
American Cynamid, 3.38%, 3/30/94 4,000 3,985
American Express Credit, 3.25 - 3.26%, 3/30 - 4/4/94 40,000 39,389
Anheuser Busch, 3.40%, 3/22/94 1,200 1,196
Arco Coal Australia, 4(2), 3.12 - 3.22%, 3/14-4/29/94 25,304 24,981
Asset Securitization Cooperative, 4(2), 3.10 - 3.40%,
3/14 - 4/20/94 77,000 76,572
Avco Financial Services, 3.40%, 3/22/94 10,430 10,404
B.A.T. Capital, 3.40%, 3/23/94 4,000 3,988
BMW U.S. Capital, 3.12 - 3.45%, 3/1 - 3/28/94 38,303 38,195
BNP U.S. Finance, 3.24%, 7/8 - 7/13/94 40,000 39,295
Bombardier Capital (LOC National Westminster Bank),
3.10%, 3/1/94 15,000 14,963
BP Oil New Zealand Ltd., 3.18%, 4/4/94 19,127 19,026
British Gas Capital, 3.15%, 3/31/94 2,500 2,488
Caisse des Depots et Consignations, 4(2),
3.13 - 3.52%, 3/1 - 4/4/94 105,971 105,360
Canadian Wheat Board, 3.20%, 3/23/94 10,000 9,841
Chase Manhattan, 3.16%, 4/25/94 6,000 5,949
Cheltenham & Glouster Building, 3.11%, 4/27/94 5,750 5,746
Colgate Palmolive, 4(2), 3.35%, 3/1/94 20,000 19,961
Corestates Capital, VR, 3.41 - 3.46%, 3/6 - 3/13/94 50,000 49,950
Corporate Asset Funding, 3.25%, 7/11/94 5,200 5,068
Cregem North America, 3.34 - 3.38%, 7/5 - 7/7/94 35,000 34,367
Dover, 4(2), 3.12 - 3.43%, 3/2 - 3/22/94 21,000 20,946
Dresdner U.S. Finance, 3.40%, 3/28/94 10,000 9,970
Export Finance & Insurance, 3.34%, 7/1/94 34,000 33,407
Fleet Financial Group, 3.47%, 3/24/94 10,000 9,972
Ford Credit Europe, 3.25 - 3.37%, 4/6 - 6/28/94 46,000 45,229
General Electric Capital, 3.20 - 3.30%, 3/3 - 7/11/94 72,000 70,764
GTE Southwest, 3.35%, 3/22/94 11,313 11,279
Hanson Finance (U.K.), 3.12 - 3.37%, 3/9 - 4/8/94 24,000 23,924
International Nederland Bank, 3.20%, 4/6/94 50,000 49,609
ITT Hartford Group, 4(2), 3.40%, 3/18/94 5,000 4,986
John Hancock Capital, 4(2), 3.50%, 3/1/94 10,000 9,999
KFW International Finance, 3.24 - 3.25%, 7/11 - 7/25/94 50,000 49,115
Kingdom of Spain, 3.22%, 4/15/94 18,966 18,654
Kingdom of Sweden, 3.20 - 3.25%, 3/16 - 7/15/94 90,000 88,455
Koch Industries, 3.50%, 3/1/94 37,000 36,996
MCA Funding, 4(2), 3.22 - 3.40%, 3/9 - 4/8/94 66,300 65,393
Metlife Funding, 3.50%, 3/1/94 1,700 1,700
New Center Asset Trust, 3.22%, 4/7/94 25,000 24,854
Northern States Power Company, 3.50%, 3/1/94 1,700 1,700
Nynex, 3.40 - 3.41%, 3/1 - 3/2/94 38,500 38,458
Panasonic Finance, 4(2), 3.10%, 4/26/94 5,000 4,958
Preferred Receivables Funding,3.10-3.37%,3/2-3/22/94 31,375 31,243
Province of Alberta, 3.20%, 3/10/94 20,000 19,690
Province of Quebec, 3.15%, 3/25/94 14,500 14,437
Queensland Treasury, 3.10%, 4/28/94 10,000 9,913
Rabobank Nederland N.V., 3.22%, 3/16/94 25,000 24,596
Reckitt & Coleman, 4(2), 3.40%, 3/31/94 5,000 4,980
Repsol International, 3.12 - 3.55%, 4/12 - 4/18/94 31,000 30,773
SBNSW (Delaware), 3.10%, 4/11/94 25,000 24,839
Statoil (Den Norske Stats Oljeselskap), 3.375 - 3.40%,
3/11 - 3/22/94 16,500 16,450
Tasmanian Public Finance, 3.25%, 3/23/94 14,520 14,293
Toronto-Dominion Holdings (USA), 3.25%, 4/12 - 7/15/94 90,000 88,351
Total Compagnie Francaise des Petroles, 3.20%,
4/6 - 4/8/94 75,000 74,388
Treasury Corporation of Victoria, 3.25%, 4/6/94 5,000 4,920
U.S. Borax & Chemical, 3.40 - 3.60%, 3/1 - 3/11/94 10,930 10,921
Unilever Capital, 3.45%, 6/17/94 5,000 4,948
U.S. Bancorp, 3.40 - 3.43%, 3/3 - 3/24/94 13,000 12,960
Western Australia Treasury, 3.22%, 3/15 - 4/15/94 35,000 34,513
Wool International, 3.37%, 3/25/94 24,500 24,417
Yale University, 3.225%, 4/7/94 5,000 4,959
Total Commercial Paper (Cost _ $1,598,026) 1,597,456
Medium-Term Notes _ 35.1%
Abbey National, (144a), VR, 3.5475-3.58%,3/4-3/18/94 62,000 61,941
VR, 3.4755%, 3/18/94 15,000 14,990
Avco Financial, VR, 3.175 - 3.51%, 3/4 - 3/28/94 46,200 46,141
Bayerische Landesbank US Finance, 5.26%, 3/7/94 24,000 24,006
Bear Stearns Company, VR, 3.2665%, 4/1/94 50,000 49,965
Beneficial, VR, 3.49%, 3/2/94 46,000 45,928
Chase Manhattan, VR, 4.10%, 6/1/94 27,000 26,990
Chemical Banking, VR, 3.725 - 4.15%, 5/15 - 6/1/94 34,875 34,779
Ciesco L. P., (144a), VR, 3.479%, 3/18/94 50,000 49,942
CIT Group Holdings, VR, 3.49%, 3/4/94 50,000 49,919
Citicorp, VR, 3.395%, 3/14/94 33,000 32,972
Corestates Capital, VR, 3.475%, 3/19/94 12,000 11,997
Corporate Asset Funding, (144a), VR, 3.4795%, 3/18/94 100,000 99,884
VR, 3.60%, 5/28/94 25,000 24,970
First National Bank of Maryland, VR, 3.49%, 3/4/94 30,000 29,952
Fleet Financial Group, VR, 3.375%, 3/15/94 22,000 21,978
Ford Motor Credit, VR, 3.547%, 3/23/94 5,000 5,002
General Electric Capital, 3.50%, 7/1/94 15,000 14,817
Goldman Sachs Group L.P., VR, 3.168%, 3/7/94 90,000 90,000
Household Finance, VR, 3.56%, 3/4/94 50,000 49,950
Leland Stanford Junior University, VR, 3.51%, 3/1/94 16,000 16,000
Merrill Lynch & Company, VR, 3.128 - 3.178%,3/2-3/7/94 70,000 69,925
Morgan Stanley Group, VR, 3.50 - 3.641%, 3/19-4/22/94 61,000 61,001
Nationsbank, VR, 3.375%, 6/1/94 50,000 49,950
PHH, VR, 3.50 - 3.51%, 3/4/94 72,200 72,108
Province of Ontario, 12.50%, 4/4/94 3,220 3,241
Province of Quebec, 12.75%, 9/15/94 5,150 5,375
Prudential Funding, (144a), 3.5375%, 3/17/94 50,000 49,953
Salomon, VR, 3.695%, 3/16/94 10,000 9,997
Southwestern Bell Telephone Company, 5.30%, 6/27/94 4,000 4,017
Wells Fargo, VR, 3.875%, 3/15/94 33,000 33,034
Westdeusche Landesbank, VR, 3.45%, 8/22/94 25,000 24,943
Total Medium-Term Notes (Cost _ $1,187,083) 1,185,667
Taxable Municipal _ 1.9%
County of San Diego, VR, 3.375 - 3.5975%, 3/4-3/29/94 50,000 49,953
New Orleans Aviation Board, VR, 3.65%, 3/4/94 5,600 5,600
Rhode Island Housing & Mortgage Finance, 3.4375%, 3/1/94 10,000 10,000
Total Taxable Municipal (Cost _ $65,600) 65,553
Total Investments in Securities-100.2% (Cost-$3,389,587) $3,387,043
Other Assets Less Liabilities _ (0.2)% (8,067)
Net Assets Consisting of:
Accumulated net investment income
- net of distributions $ 2,041
Accumulated realized gains/losses
- net of distributions (3,828)
Unrealized depreciation of investments (2,544)
Paid-in-capital applicable to 3,384,442,664
shares of $0.01 par value capital stock
outstanding; 15,000,000,000 shares
authorized 3,383,307
Net Assets - 100.0% $3,378,976
Net Asset Value Per Share $1.00
VR - Variable Rate
LCD - London Certificate of Deposit
LOC - Letter of Credit
4(2) - Commercial Paper sold within terms of a private placement
memorandum, exempt from registration under section 4.2 of
the Securities Act of 1933, as amended, and may be sold only
to dealers in that program or other "accredited investors."
144a - Security was purchased pursuant to Rule 144a under the
Securities Act of 1933 and may only be resold subject to that
rule, except to qualified institutional buyers.
Statement of Operations
T. Rowe Price Prime Reserve Fund / Year Ended February 28, 1994
Amounts in Thousands
INVESTMENT INCOME
Interest income $112,906
Expenses
Investment management fees $ 13,617
Shareholder servicing fees & expenses 10,760
Prospectus & shareholder reports 396
Custodian and accounting fees & expenses 368
Registration fees & expenses 79
Directors' fees & expenses 45
Legal & auditing fees 43
Miscellaneous 76
Total expenses 25,384
Net investment income 87,522
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain 389
Change in unrealized appreciation or depreciation (3,216)
Net loss on investments (2,827)
INCREASE IN NET ASSETS FROM OPERATIONS $ 84,695
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Prime Reserve Fund
Year Ended Year Ended
Feb. 28,1994 Feb. 28, 1993
Amounts in Thousands
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 87,522 $ 117,604
Net realized gain on investments 389 1,706
Change in unrealized appreciation or
depreciation of investments (3,216) 944
Increase in net assets from operations 84,695 120,254
Distributions to shareholders
Net investment income (87,982) (117,604)
Capital share transactions ($1.00 per share)
Proceeds from sales of shares 5,492,781 4,830,441
Distributions reinvested 84,630 113,294
Payments for shares redeemed (5,791,738) (5,465,019)
Decrease in net assets from capital
share transactions (214,327) (521,284)
Total decrease (217,614) (518,634)
NET ASSETS
Beginning of year 3,596,590 4,115,224
End of year $ 3,378,976 $ 3,596,590
Notes to Financial Statements
T. Rowe Price Prime Reserve Fund / February 28, 1994
Note 1 - Significant Accounting Policies
T. Rowe Price Prime Reserve Fund (the Fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company.
A) Security valuation - Securities with more than 60 days remaining to
maturity are stated at fair value which is determined by using a matrix
system that establishes a value for each security based on money market
yields. Securities with remaining maturities of 60 days or less are valued
at amortized cost.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by, or under the supervision of, the
officers of the Fund, as authorized by the Board of Directors.
B) Premiums and Discounts - Premiums and discounts on debt securities are
amortized for both financial and tax reporting purposes.
C) Other - Income and expenses are recorded on the accrual basis.
Investment transactions are accounted for on the trade date. Realized gains
and losses are reported on an identified cost basis. Distributions to
shareholders are recorded by the Fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income
tax regulations which may differ from generally accepted accounting
principles.
D) Accounting Change - Effective as of the beginning of the year, the Fund
adopted a recently issued accounting standard related to shareholder
distributions. This change resulted in a reclassification to
paid-in-capital of permanent differences between tax and financial
reporting of net investment income and net realized gains/losses. The
cumulative effect of this change as of February 28, 1993, increased
Accumulated net investment income - net of distributions by $2,501,000,
decreased Accumulated net realized gains/losses - net of distributions by
$1,555,000 and decreased Paid-in-capital by $946,000. The results of
operations, shareholder distributions and net assets were not affected by
this change.
Note 2 - Federal Income Taxes
No provision for federal income taxes is required since the Fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income. The Fund has unused realized capital loss carryforwards
for federal income tax purposes of $3,828,000 at February 28, 1994, which
expire in 1996 through 1999.
At February 28, 1994, the aggregate cost of investments for federal
income tax and financial reporting purposes was $3,389,587,000 and net
unrealized depreciation aggregated $2,544,000, of which $168,000 related to
appreciated investments and $2,712,000 to depreciated investments.
Note 3 - Related Party Transactions
The investment management agreement between the Fund and T. Rowe Price
Associates, Inc. (the Manager) provides for an annual investment management
fee, computed daily and paid monthly, consisting of an Individual Fund Fee
equal to 0.05% of average daily net assets and a Group Fee. The Group Fee
is based on the combined assets of certain mutual funds sponsored by the
Manager or Rowe Price-Fleming International, Inc. (the Group). The Group
Fee rate ranges from 0.48% for the first $1 billion of assets to 0.31% for
assets in excess of $34 billion. The effective annual Group Fee rate at
February 28, 1994, was 0.34%, and for the year then ended was 0.35%. The
Fund pays a pro rata portion of the Group Fee based on the ratio of the
Fund's net assets to those of the Group.
T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services, Inc.
(RPS) are wholly owned subsidiaries of the Manager. TRPS provides transfer
and dividend disbursing agent functions and shareholder services for all
accounts. RPS provides subaccounting and recordkeeping services for certain
retirement accounts invested in the Fund. The Manager, under a separate
agreement, calculates the daily share price and maintains the financial
records of the Fund. The Fund is one of several T. Rowe Price mutual funds
(the Underlying Funds) in which the T. Rowe Price Spectrum Growth Fund and
T. Rowe Price Spectrum Income Fund (Spectrum) invests. In accordance with
an Agreement between Spectrum, the Underlying Funds, the Manager and TRPS,
expenses from the operation of Spectrum are borne by the Underlying Funds
based on each Underlying Fund's proportionate share of assets owned by
Spectrum. For the year ended February 28, 1994, the Fund incurred fees t
otalling approximately $9,141,000 for these services provided by related
parties. At February 28, 1994, investment management and service fees
payable were $2,067,000.
<TABLE>
<CAPTION>
Financial Highlights
T. Rowe Price Prime Reserve Fund
For a share outstanding throughout each year ended
Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $1.000 $1.000 $1.000 $1.000 $1.000
Investment Activities
Net investment income 0.026 0.030 0.051 0.073 0.085
Distributions
Net investment income (0.026) (0.030) (0.051) (0.073) (0.085)
NET ASSET VALUE, END OF YEAR $1.000 $1.000 $1.000 $1.000 $1.000
RATIOS/SUPPLEMENTAL DATA
Total Return 2.60% 3.06% 5.26% 7.56% 8.79%
Ratio of Expenses to Average Net Assets 0.74% 0.75% 0.78% 0.75% 0.75%
Ratio of Net Investment Income to
Average Net Assets 2.56% 3.04% 5.14% 7.33% 8.45%
Net Assets, End of Year
(in thousands) $3,378,976 $3,596,590 $4,115,224 $4,753,267 $4,841,954
Number of Shareholder
Accounts, End of Year 201,000 214,000 243,000 265,000 272,000
</TABLE>
Report of Independent Accountants
To the Shareholders and Board of Directors of T. Rowe Price Prime Reserve
Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the selected per
share data and information (which appears under the heading "Financial
Highlights") present fairly, in all material respects, the financial
position of T. Rowe Price Prime Reserve Fund, Inc. at February 28, 1994,
the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended and the
selected per share data and information for each of the five years in the
period then ended, in conformity with generally accepted accounting
principles. These financial statements and selected per share data and
information (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 generally
accepted auditing standards 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 February 28, 1994 by correspondence with
custodians and brokers and, where appropriate, the application of
alternative auditing procedures for unsettled security transactions,
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Baltimore, Maryland
March 17, 1994
Appendix
Chart 1: Interest Rate Levels
A line graph compares the annual performance of three industry
benchmarks-the 5_Year Treasury Note, the 30-Day Commercial Paper rate, and
the 90-Day Treasury Bill.
Chart 2: Yield Comparison
A bar graph compares the yield derived from investments in the Prime
Reserve Fund, the Donoghue's First Tier Peer Group Average, and the average
Money Market Deposit Account.
Chart 3: Maturity Comparison
A line graph compares the Prime Reserve Fund annual average maturity
against that of the Donoghue's First Tier Peer Group Average.
