<PAGE>
- --------------------------------------------------------------------------------
Fellow Shareholders
- --------------------------------------------------------------------------------
Over the past year, the Federal Reserve changed course from an easy monetary
policy to a progressive tightening as evidence mounted that the economic
expansion had gained momentum. Spurred by the lowest interest rates in a
generation, the economy has been expanding at roughly a 4% real rate since
the middle of last year. The civilian unemployment rate has dropped steadily
and is now well under 6%, and capacity utilization is near 85%. Concerned
about the potential inflationary impact of tight labor markets and capacity
constraints, the Fed raised the federal funds rate incrementally from 3% last
year to 5.5% as of November 30. The Fed's goal is to restrain the economy's
growth to its long-term trend rate of about 2.5%, and deter inflation without
raising unemployment.
- --------------------------------------------------------------------------------
Interest Rate Levels
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
Interest rates have been climbing for more than a year in response to
the credit demands generated by a stronger economy. Interest rates across the
maturity spectrum are now almost two to over three percentage points higher
than a year ago. Money market rates began to rise significantly in February
of this year when the Fed first started to lift its objective for the federal
funds rate. In just the last three months, several money market rates
climbed more than a full percentage point.
PORTFOLIO STRATEGY AND PERFORMANCE
In contrast to bond investors, money fund shareholders have reason to welcome
the rising trend in interest rates. Since the Prime Reserve Fund is managed
to maintain a $1.00 share price, rising interest rates translate into higher
overall returns. Your Fund's seven-day compound yield rose from 3.38% to
4.98% during the six-month period ended November 30.
The bar chart below shows the significant increases in money market
yields over the past three months and the success of our defensive investment
approach. As of November 30, the Fund's seven-day compound yield exceeded
that of its Donoghue peer group average.
- --------------------------------------------------------------------------------
Yield Comparison
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
<PAGE>
Our Donoghue peer group had shortened maturities to the lowest level
in nearly four years by midsummer, and the Fund's weighted average maturity
(WAM) was close to the industry average. Our peer group's WAM, now at 43
days, has changed little since that time, but the Fund has moved toward a
more defensive posture. Since we expect short-term interest rates to continue
rising at least through early 1995, we reduced the Fund's WAM from 50 to 38
days during the past three months.
The chart below illustrates how we have altered our strategy as the
fixed-income environment has changed this year. The Fund's WAM is now
significantly lower than at its peak last January. We expect to maintain this
comparatively short maturity in order to reinvest proceeds of maturing
securities more quickly as higher rates become available.
- --------------------------------------------------------------------------------
Maturity Comparision
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
We remain committed to supplying a high-quality investment portfolio;
therefore, you will notice very little change in the Fund's weighted average
credit quality compared with last quarter. We added to our holdings of fixed
rate securities during the quarter due to their increased attractiveness, but
still maintained a high allocation (25%) to floating rate instruments to help
maintain the Fund's responsiveness to rising rates. The coupons of these
notes periodically reset to reflect prevailing rates, so their prices tend to
fluctuate less than those of fixed rate notes with comparable maturities. Sector
exposure remains concentrated in banking, finance, and industrial issues.
OUTLOOK
So far the main impact of higher interest rates has fallen on residential and
business construction activity, while the rest of the economy has not been
materially affected. In fact, real GDP growth in the third quarter was
revised upward from 3.4% to 3.9%. The Federal Reserve will likely continue to
raise its objective for the federal funds rate until it sees that economic
growth is slowing to its long-term trend. Money market rates should climb in
step with a higher funds rate. Given our current defensive posture, high-quality
portfolio, and the rising rate environment, your Fund should continue to be an
attractive and rewarding investment into 1995.
Respectfully submitted,
/s/ Edward A. Wiese
Edward A. Wiese
President
December 19, 1994
2
<PAGE>
- --------------------------------------------------------------------------------
Statistical Highlights
T. Rowe Price Prime Reserve Fund / November 30, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Statistics
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dividend Yield Periods Ended 11/30/94
- --------------------------------------------------------------------------------
<S> <C>
7-Day Compound 4.98%
</TABLE>
<TABLE>
<CAPTION>
Dividend Per Share
- --------------------------------------------------------------------------------
<S> <C>
3 Months $0.011
6 Months 0.020
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Maturity Diversification
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
Range (days) 8/31/94 11/30/94
- --------------------------------------------------------------------------------
<S> <C> <C>
0-30 60% 54%
- --------------------------------------------------------------------------------
31-60 11 19
- --------------------------------------------------------------------------------
61-90 10 22
- --------------------------------------------------------------------------------
91-120 8 2
- --------------------------------------------------------------------------------
121-180 5 3
- --------------------------------------------------------------------------------
181-365 6 0
- --------------------------------------------------------------------------------
Weighted Average 50 days 38 days
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Quality Diversification
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
TRPA Quality Rating* 8/31/94 11/30/94
- --------------------------------------------------------------------------------
<S> <C> <C>
1 21% 18%
- --------------------------------------------------------------------------------
2 59 64
- --------------------------------------------------------------------------------
3 20 18
- --------------------------------------------------------------------------------
Weighted Average 2.0 2.0
- --------------------------------------------------------------------------------
</TABLE>
* On a scale of 1 to 10, with Grade 1 representing highest quality.
- --------------------------------------------------------------------------------
Sector Diversification*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
8/31/94 11/30/94
--------- ----------
<S> <C> <C>
Banking 17% 16%
- --------------------------------------------------------------------------------
Industrial 13 13
- --------------------------------------------------------------------------------
Finance & Credit 12 13
- --------------------------------------------------------------------------------
Structured Finance 5 9
- --------------------------------------------------------------------------------
Domestic Negotiable
Bank Notes 11 8
- --------------------------------------------------------------------------------
Investment Dealers 7 7
- --------------------------------------------------------------------------------
Foreign Government &
Municipalities 7 6
- --------------------------------------------------------------------------------
U.S. Dollar-Denominated
Foreign Negotiable CDs 3 4
- --------------------------------------------------------------------------------
Canadian Government &
Municipalities 7 4
- --------------------------------------------------------------------------------
Petroleum 3 4
- --------------------------------------------------------------------------------
Eurodollar Negotiable CDs 0 4
- --------------------------------------------------------------------------------
Miscellaneous 9 2
- --------------------------------------------------------------------------------
Food & Beverage 2 2
- --------------------------------------------------------------------------------
Telephone 1 2
- --------------------------------------------------------------------------------
Electric Utilities 1 2
- --------------------------------------------------------------------------------
Retail 1 2
- --------------------------------------------------------------------------------
Fixed Rate Obligations 59 75
Floating Rate
Instruments 41 25
- --------------------------------------------------------------------------------
</TABLE>
* Sectors representing at least 2% of net assets on 11/30/94.
3
<PAGE>
- --------------------------------------------------------------------------------
Statement of Net Assets (Amounts in thousands)
T. Rowe Price Prime Reserve Fund / November 30, 1994 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Bank Notes - 8.3%
- ------------------------------------------------------------------------------------------------------------------
Face Amount Value
----------- --------
<S> <C> <C>
Bank of New York (Delaware), VR, 5.87%, 12/1/94................................ $ 15,000 $ 14,994
Bank of New York, VR, 5.40%, 4/24/95........................................... 38,000 37,828
Boatmen's Bancshares, VR, 5.125%, 12/6/94...................................... 21,000 20,991
Branch Banking & Trust, VR, 5.82%, 12/1/94..................................... 30,000 29,988
Commerica Bank of Illinois, VR, 5.74%, 12/6/94................................. 50,000 49,992
First National Bank of Maryland, VR, 5.67%, 12/6/94............................ 35,000 34,995
Fleet National Bank Providence Rhode Island, 5.60%, 1/26/95.................... 30,000 29,986
Huntington National Bank, VR, 5.69%, 12/6/94................................... 20,000 19,993
Old Kent Bank & Trust, VR, 5.625%, 12/20/94.................................... 30,000 29,993
U.S. National Bank of Oregon, VR, 4.992%, 12/5/94.............................. 50,000 49,986
- ------------------------------------------------------------------------------------------------------------------
TOTAL BANK NOTES (COST - $318,979) 318,746
- ------------------------------------------------------------------------------------------------------------------
Certificates of Deposit - 8.1%
- ------------------------------------------------------------------------------------------------------------------
Abbey National, 5.56%, 2/2/95.................................................. 40,000 39,963
ABN-AMRO, 5.58%, 2/2/95........................................................ 50,000 49,955
Banque Nationale de Paris, 5.02%, 12/1/94...................................... 40,000 40,000
Bayerische Hypotheken-Und Wechsel Bank, 5.40 - 5.67%, 1/17 - 1/20/95........... 36,000 35,994
Commerzbank, 5.30%, 5/5/95..................................................... 40,000 39,792
Morgan Guaranty, 5.63%, 2/7/95................................................. 25,000 24,981
Societe Generale, 4.93 - 5.80%, 12/21/94 - 3/6/95.............................. 77,000 76,914
- ------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT (COST - $308,008) 307,599
- ------------------------------------------------------------------------------------------------------------------
Commercial Paper - 64.7%
- ------------------------------------------------------------------------------------------------------------------
ABB Treasury Center (USA), 4(2), 4.67%, 12/5/94................................ 15,000 14,652
Abbey National North America, 5.50%, 2/2/95.................................... 12,000 11,816
ABN AMRO Bank N.V., 5.05%, 12/16/94............................................ 15,000 14,876
American General Investment, 4(2), 5.75%, 12/1/94.............................. 40,000 39,994
American Home Products, 4(2), 5.90%, 1/23 - 1/26/95............................ 49,175 48,654
Asset Securitization Cooperative, 4(2), 5.45 - 5.80%, 1/18 - 2/8/95............ 61,500 60,642
AT&T, 5.50%, 2/16/95........................................................... 10,000 9,823
AT&T Capital, 5.80%, 2/7/95.................................................... 26,179 26,171
B.A.T. Capital, 5.50%, 12/22/94................................................ 15,000 14,938
Banc One, 4(2), 5.80%, 2/15/95................................................. 20,000 19,695
Bankers Trust New York, 6.00%, 2/15/95......................................... 10,000 9,875
Bayerische Vereinsbank, 5.70%, 12/1/94......................................... 39,650 39,644
BMW U.S. Capital, 4.72 - 5.75%, 12/14/94 - 1/25/95............................. 72,863 71,936
BNP U.S. Finance, 4.78%, 12/20/94.............................................. 10,000 9,754
BP Capital, 5.70%, 12/1/94..................................................... 7,000 6,999
BT Securities, 5.52 - 5.76%, 12/21/94 - 1/19/95................................ 20,000 19,847
Caisse des Depots et Consignations, 4(2), 5.50 - 5.70%, 12/1 - 12/21/94........ 49,743 49,532
Canadian Wheat Board, 5.45%, 3/10/95........................................... 11,700 11,417
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Commercial Paper (cont.)
- ------------------------------------------------------------------------------------------------------------------
Face Amount Value
----------- --------
<S> <C> <C>
Cargill Financial Services, 5.45%, 12/6/94..................................... $ 3,380 $ 3,373
Chase Manhattan, 5.76%, 1/19/95................................................ 25,000 24,744
Ciesco L.P., 5.71 - 5.75%, 12/1/94 - 1/23/95................................... 88,600 88,366
Colgate Palmolive, 4(2), 5.50%, 12/12/94....................................... 15,000 14,940
Commonwealth Bank of Australia, 5.71 - 5.75%, 12/1/94 - 1/23/95................ 40,000 39,662
Corestates Capital, VR, 5.26 - 5.29%, 12/5 - 12/10/94.......................... 65,000 64,995
Corporate Asset Funding, 5.65%, 12/1/94........................................ 30,000 29,995
Countrywide Funding, VR, 5.87%, 12/1/94........................................ 25,000 24,997
5.67% , 12/6/94............................................................ 20,000 19,981
CS First Boston, 4(2), VR, 5.981%, 2/24/95..................................... 45,000 44,967
Daimler-Benz North America, 5.50%, 2/8/95...................................... 37,840 37,219
Dillard Investment, 5.50%, 12/6 - 12/7/94...................................... 35,000 34,891
Dover, 4(2), 5.51 - 5.52%, 12/1 - 12/21/94..................................... 31,220 31,096
Dresdner U.S. Finance, 5.71%, 1/17/95.......................................... 50,000 49,516
Electricite de France, 5.50%, 1/24/95.......................................... 40,000 39,418
Enel, 4.85 - 5.15%, 12/8/94.................................................... 20,000 19,760
Exxon Imperial, 4(2), 5.50%, 12/13/94.......................................... 7,294 7,264
Finnish Export Credit Ltd., 6.02%, 2/28/95..................................... 30,000 29,554
Gannett, 4(2), 5.75%, 12/1/94.................................................. 33,200 33,195
General Electric Capital, 5.10 - 5.40%, 1/12 - 2/6/95.......................... 60,250 59,098
General Mills, 5.50%, 12/6/94.................................................. 15,000 14,957
Generale Bank, 5.53%, 2/1/95................................................... 25,000 24,627
Golden Peanut, 4.82 - 5.47%, 12/6/94 - 1/30/95................................. 10,000 9,845
Great Lakes Chemical, 5.52%, 12/12 - 12/13/94.................................. 15,000 14,942
Hanson Finance (U.K.), 5.40%, 1/17/95.......................................... 34,400 33,911
Hewlett Packard, 5.05 - 5.10%, 2/15 - 2/17/95.................................. 26,800 26,072
Internationale Nederlanden Bank, 5.10%, 2/15/95................................ 25,000 24,305
John Hancock Capital, 4(2), 5.75%, 12/1/94..................................... 48,700 48,692
Kingdom of Sweden, 5.71%, 1/13/95.............................................. 25,000 24,774
Koch Industries, 4(2), 5.75%, 12/1/94.......................................... 31,000 30,995
MCA Funding, 4(2), 5.07 - 5.10%, 2/13 - 2/28/95................................ 86,050 83,654
Melville, 4.82%, 12/13/94...................................................... 18,000 17,694
Merrill Lynch & Co., 5.75%, 1/17/95............................................ 6,000 5,942
Miles, 4(2), 5.50%, 2/7/95..................................................... 25,000 24,595
Mobil Australia Finance, 4(2), 4.80 - 5.75%, 12/6/94 - 1/20/95................. 66,184 65,517
Motorola Credit, 5.50%, 12/19/94............................................... 4,585 4,566
NationsBank, 5.52%, 2/6/95..................................................... 25,000 24,602
New Center Asset Funding, 6.00%, 1/27/95....................................... 25,000 24,758
Norfolk Southern, 4.70%, 12/12/94.............................................. 22,140 21,611
Panasonic Finance, 4(2), 5.03 - 5.15%, 12/14 - 12/15/94........................ 42,500 42,122
Pepsico, 4(2), VR, 5.40%, 4/28/95.............................................. 47,000 46,783
PNC Funding, 4.82%, 12/5/94.................................................... 2,000 1,968
Preferred Receivables Funding, 5.50%, 1/13/95.................................. 4,300 4,247
Province of Alberta, 4.65 - 4.82%, 12/5 - 12/7/94.............................. 38,000 37,195
Province of British Columbia, 4.67 - 4.82%, 12/8 - 12/9/94..................... 47,200 46,244
Province of Quebec, 4.75 - 5.92%, 12/12/94 - 2/7/95............................ 65,000 64,081
Repsol International, 5.50%, 1/17/95........................................... 40,000 39,466
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund / Statement of Net Assets (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Commercial Paper (cont.)
- ------------------------------------------------------------------------------------------------------------------
Face Amount Value
----------- --------
<S> <C> <C>
RTZ America, 4(2), 5.10 - 5.55%, 12/1/94 - 2/23/95............................. $ 39,500 $ 38,921
Safeco Credit Company, 4.71%, 12/13 - 12/15/94................................. 20,000 19,530
SBNSW (Delaware), 5.50%, 12/21/94.............................................. 50,000 49,733
VR, 5.69%, 12/7/94......................................................... 50,000 49,998
Smith Barney Shearson, 5.50%, 2/2/95........................................... 20,000 19,693
Societe Generale Canada, 4.78%, 12/21/94....................................... 10,600 10,338
South Australian Government Finance Auth., 5.75%, 1/23/95...................... 25,000 24,729
Southern California Edison Company, 5.50%, 1/27/95............................. 40,000 39,443
Statoil (Den Norske Stats Olejselskap), 5.15%, 12/9/94......................... 10,000 9,918
Teco Finance, 5.07%, 12/19/94.................................................. 18,650 18,483
Transamerica Financial, 5.55%, 2/1 - 2/7/95.................................... 50,000 49,225
U.S. Borax & Chemical, 4(2), 5.54%, 2/3/95..................................... 12,500 12,309
UBS Finance (Delaware), 5.75%, 12/1/94......................................... 38,323 38,317
U.S. West Communications, 4(2), 5.55 - 5.75%, 1/18 - 2/1/95.................... 27,000 26,649
Vulcan Materials, 5.50%, 12/1/94............................................... 9,000 8,979
Wal-Mart Stores, 5.55%, 12/7/94................................................ 3,000 2,994
Western Australian Treasury, 4.78%, 12/19/94................................... 22,000 21,469
Westpac Capital, 5.50%, 12/12/94............................................... 4,000 3,988
Yale University, 5.50%, 2/6/95................................................. 15,240 14,996
Yorkshire Building Society, 5.50%, 1/26/95..................................... 20,000 19,700
- ------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST - $2,465,981) 2,464,873
- ------------------------------------------------------------------------------------------------------------------
Medium-Term Notes - 20.0%
- ------------------------------------------------------------------------------------------------------------------
Abbey National, (144a), VR, 5.715%, 12/6/94.................................... 5,000 4,998
AT&T, VR, 5.6875%, 2/4/95...................................................... 5,000 4,998
Bank of Scotland, (144a), VR, 5.3625%, 2/10/95................................. 40,000 39,820
Bear Stearns Company, VR, 5.725%, 12/29/94..................................... 47,000 46,984
Beneficial, VR, 5.67%, 12/6/94................................................. 46,000 45,997
Branch Banking & Trust, VR, 5.775%, 1/13/95.................................... 5,000 5,004
Chase Manhattan, 5.40%, 12/9/94................................................ 4,000 4,001
Chemical Banking, VR, 5.175 - 5.40%, 12/1/94 - 2/15/95......................... 19,875 19,867
Ciesco L.P., (144a), VR, 5.40196%, 12/12/94.................................... 50,000 49,984
CIT Group Holdings, VR, 5.67%, 12/6/94......................................... 50,000 49,989
Citicorp, VR, 5.02 - 5.05%, 12/7 - 12/13/94.................................... 34,000 33,985
Corporate Asset Funding, (144a), VR, 5.40196%, 12/12/94........................ 100,000 99,969
VR, 5.81575%, 2/28/95.................................................... 25,000 24,996
Ford Motor Credit, VR, 5.725 - 6.25%, 12/15/94 - 2/25/95....................... 25,000 25,012
Goldman Sachs, VR, 5.626%, 12/27/94............................................ 46,000 46,000
Household Finance, VR, 5.74%, 12/6/94.......................................... 50,000 49,993
Merrill Lynch & Co., VR, 5.115 - 5.125%, 12/6 - 12/7/94........................ 75,000 74,975
Morgan Stanley Group, VR, 5.1625 - 6.2625%, 12/15/94 - 12/11/95................ 17,500 17,501
Paccar Financial, VR, 5.61%, 2/23/95........................................... 48,000 47,760
PHH, VR, 5.69 - 5.74%, 12/6/94................................................. 70,000 69,994
- ------------------------------------------------------------------------------------------------------------------
TOTAL MEDIUM-TERM NOTES (COST - $762,387) 761,827
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Taxable Municipal - 0.3%
- ------------------------------------------------------------------------------------------------------------------
Face Amount Value
----------- --------
<S> <C> <C>
New Orleans Aviation Board, VR, 5.80%, 12/7/94 (Cost - $10,600)................ $ 10,600 $ 10,600
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES - 101.4% (COST - $3,865,955)................... 3,863,645
- ------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (1.4)%......................................... (53,418)
NET ASSETS CONSISTING OF:
Accumulated net investment income - net of distributions....................... 2,133
Accumulated realized gains/losses - net of distributions....................... (3,835)
Net unrealized loss............................................................ (2,310)
Paid-in-capital applicable to 3,815,397,212 shares of $0.01 par
value capital stock outstanding; 15,000,000,000 shares authorized.......... 3,814,239
NET ASSETS - 100.0%............................................................ $3,810,227
NET ASSET VALUE PER SHARE...................................................... $1.00
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
VR - Variable Rate
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 not be resold subject to that rule except to qualified
institutional buyers.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund / Six Months Ended November 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME Amounts in Thousands
--------------------
<S> <C> <C>
Interest income........................................... $88,065
-------
Expenses
Investment management fees.............................. $7,244
Shareholder servicing fees & expenses................... 5,007
Custodian and accounting fees & expenses................ 157
Proxy & annual meeting expenses......................... 153
Prospectus & shareholder reports........................ 126
Registration fees & expenses............................ 61
Legal & auditing fees................................... 20
Directors' fees & expenses.............................. 23
Miscellaneous expenses.................................. 21
------
Total expenses.......................................... 12,812
-------
Net investment income..................................... 75,253
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss......................................... (9)
Change in net unrealized gain or loss..................... 30
------
Net gain.................................................. 21
-------
INCREASE IN NET ASSETS FROM OPERATIONS.................... $75,274
=======
- -----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund (Unaudited)
<TABLE>
<CAPTION>
Six Three Year
Months Ended Months Ended Ended
Nov. 30, 1994 May 31, 1994++ Feb. 28, 1994
------------- -------------- -------------
Amounts in Thousands
-----------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.................................................. $ 75,253 $ 27,572 $ 87,522
Net realized gain (loss)............................................... (9) 2 389
Change in net unrealized gain or loss.................................. 30 204 (3,216)
---------- ---------- ----------
Increase in net assets from operations................................. 75,274 27,778 84,695
---------- ---------- ----------
Distributions to shareholders
Net investment income.................................................. (75,227) (27,534) (87,982)
---------- ---------- ----------
Capital share transactions ($1.00 per share)
Sold................................................................... 2,998,278 1,962,952 5,492,781
Distributions reinvested............................................... 72,221 26,277 84,630
Redeemed............................................................... (2,887,574) (1,741,194) (5,791,738)
---------- ---------- ----------
Increase (decrease) in net assets from capital share transactions...... 182,925 248,035 (214,327)
---------- ---------- ----------
Total increase (decrease)................................................ 182,972 248,279 (217,614)
NET ASSETS
Beginning of period.................................................... 3,627,255 3,378,976 3,596,590
---------- ---------- ----------
End of period.......................................................... $3,810,227 $3,627,255 $3,378,976
========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ The Fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund / November 30, 1994 (Unaudited)
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.
9
<PAGE>
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 $3,826,000 at May 31, 1994, which expire
in 1995 through 1998.
At November 30, 1994, the aggregate cost of investments for federal
income tax and financial reporting purposes was $3,865,955,000 and net
unrealized loss aggregated $2,310,000, of which $318,000 related to appreciated
investments and $2,628,000 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 November 30,
1994, and for the six months then ended was 0.34%. 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 six months ended November 30, 1994, the
Fund incurred fees totalling approximately $4,294,000, for these services
provided by related parties. At November 30, 1994, investment management and
service fees payable were $2,076,000.
10
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund (Unaudited)
<TABLE>
<CAPTION>
For a share outstanding throughout each period
------------------------------------------------------------------------------------------
Three
Six Months Months Year Ended
Ended Ended -------------------------------------------------------------
Nov. 30, May 31, Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1994++ 1994 1993 1992 1991 1990
---------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD........... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Investment Activities
Net investment income......... 0.020 0.008 0.026 0.030 0.051 0.073 0.085
Distributions
Net investment income......... (0.020) (0.008) (0.026) (0.030) (0.051) (0.073) (0.085)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return...................... 2.06% 0.76% 2.60% 3.06% 5.26% 7.56% 8.79%
Ratio of Expenses to Average
Net Assets.................... 0.70%+ 0.73%+ 0.74% 0.75% 0.78% 0.75% 0.75%
Ratio of Net Investment Income
to Average Net Assets......... 4.08%+ 3.02%+ 2.56% 3.04% 5.14% 7.33% 8.45%
Net Assets, End of Period
(in millions)................. $3,810 $3,627 $3,379 $3,597 $4,115 $4,753 $4,842
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ The Fund's fiscal year-end was changed to May 31.
+ Annualized.
11
<PAGE>
SEMIANNUAL REPORT
T. Rowe Price
- -------------
PRIME RESERVE FUND
NOVEMBER 30, 1994
FOR YIELD, PRICE, LAST TRANSACTION,
AND CURRENT BALANCE, 24 HOURS,
7 DAYS A WEEK, CALL:
1-800-638-2587 toll free
625-7676 Baltimore area
FOR ASSISTANCE WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distri-
bution only to shareholders and to
others who have received a copy of
the prospectus of the T. Rowe Price
Prime Reserve Fund(R).
T. Rowe Price
Invest With Confidence(R)
PRF
<PAGE>
GRAPHICS APPENDIX LIST
----------------------
EDGAR Version
- -------------
Prime Reserve Fund
Interest Rate Levels
A line graph compares the yields of three of the 5-Year Treasury Note, the
30-Day Commercial paper rate, and the 90-Day Treasury Bill.
Maturity Comparison
A line graph compares the Prime Reserve Fund average maturity against that of
the Donoghue's First Tier Peer Group Average over the course of one year.
Yield Comparison
A bar graph compares the seven-day yield derived from investments in the Prime
Reserve Fund, the Donoghue's First Tier Peer Group Average, and the average
Money Market Deposit Account over the last quarter.
