<PAGE>
- --------------------------------------------------------------------------------
Fellow Shareholders
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
Buoyed by the Federal Reserve's prolonged effort to corral the robust economy
and stave off inflation, money market securities and your fund enjoyed a good
year. Beginning in February 1994, the Fed raised the federal funds target rate
seven times, topping it out at 6% last February 1. Money market yields, which
generally track the federal funds rate on overnight loans among banks, rose in
tandem.
In the most recent quarter, during a robust rally in the bond market, money
market yields declined while the federal funds rate remained relatively steady.
- --------------------------------------------------------------------------------
Interest Rate Levels
- --------------------------------------------------------------------------------
[INTEREST RATE CHART APPEARS HERE]
A 4-line chart showing the Federal Funds Rate, 90-Day Treasury Bill, 30-Day
Commercial Paper and 1-Year Treasury Bill from 5/94 to 5/95.
The Fed's tightening restrained the economy's growth as intended. After
soaring at an annualized rate of 5.1% in the fourth quarter of last year, growth
slowed considerably to a 2.7% annual rate in this year's first quarter.
Recently, the economy showed signs of landing somewhat harder than expected.
Payroll employment declined in April and May, inventories of unsold new homes
and automobiles rose to uncomfortable levels, and residential construction and
manufacturing dropped. Economic growth in the second calendar quarter will
likely end up well below the long-term trend of 2% to 2.5%.
PORTFOLIO STRATEGY AND PERFORMANCE
The Prime Reserve Fund's yield reaped the benefits of the Fed's prolonged
tightening, rising to 5.62% on May 31, up significantly from 3.38% a year
earlier. As the Fed pushed the federal funds and discount rates steadily higher,
your fund maintained a defensive position, trailing by 5 to 10 days the weighted
average maturity (WAM) of similar money market funds, as represented by
Donoghue's Average of First Tier Money Funds. This strategy allowed the fund to
hasten the rollover of maturing assets into higher-yielding instruments.
In the first quarter of 1995, when it became clear that the economy was
slowing and the Fed was less likely to tighten further, we began to lengthen the
maturities of our holdings. The fund's WAM was 64 days on
- --------------------------------------------------------------------------------
Yield Comparison
- --------------------------------------------------------------------------------
[YIELD COMPARISON CHART APPEARS HERE]
A bar chart comparing yields on the Prime Reserve Fund, Donoghue's First Tier
Peer Group Average and Money Market Deposit Accounts in 5/94, 10/94, 2/95 and
5/95.
<PAGE>
May 31, up considerably from 43 days at the end of February; the Donoghue
average was 56 days in May, up from 42 days in February. We also increased
the fund's holdings of instruments that mature in more than 90 days. These
moves gave your fund a slight edge over the peer group average, for both the
quarter and the year, as shown in the following table.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 5/31/95
3 Months 12 Months
---------------------
<S> <C> <C>
Prime Reserve Fund 1.41% 4.85%
Donoghue's Average of
First Tier Money Funds 1.39 4.78
- --------------------------------------------------------------------------------
</TABLE>
Unless the economy heats up and the Fed intends to tighten further, we
expect to maintain this more aggressive maturity position. We will continue to
narrowly adjust maturities, increasing or decreasing the frequency of
reinvestment, depending on our outlook for short-term rates.
Sector diversification changed little during the quarter, remaining heavily
concentrated in a mix of domestic and foreign certificates of deposit, bank
notes, and bank holding company commercial paper. We doubled our weightings in
Eurodollar CDs and U.S. dollar-denominated foreign CDs because they became
readily available at attractive yields with no concession to quality. We
continued to trim our position in floating rate notes by not replacing those
that matured. They represented 8% of net assets on May 31, down from 12% in
February and 50% a year ago. Yields on floating rate notes are less attractive
than a year ago in comparison to fixed rate instruments, and we have favored the
latter since short-term rates stabilized earlier this year.
OUTLOOK
With the economy slowing and inflation holding steady at around 3.5% on an
annualized basis, speculation abounds that the Federal Reserve may ease, perhaps
as soon as July. Lower interest rates could ease concerns of a recession,
leading to a modest pickup in growth in the second half of 1995. Fundamentally,
the economy remains strong and stands little chance of slipping into a
recession, in our view.
However, given the uncertain timing of Fed action, we will keep our
maturity posture close to the peer group average and uphold a very high credit
quality, possibly even upgrading it further if the economy remains sluggish.
Respectfully submitted,
/s/ Edward A. Wiese
Edward A. Wiese
President and Chairman of the
Investment Advisory Committee
June 19, 1995
2
<PAGE>
- --------------------------------------------------------------------------------
Statistical Highlights
T. Rowe Price Prime Reserve Fund / May 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Key Statistics
- --------------------------------------------------------------------------------
<S> <C>
7-Day Compound Dividend Yield*
- --------------------------------------------------------------------------------
As of 5/31/95 5.62%
- --------------------------------------------------------------------------------
As of 2/28/95 5.63
- --------------------------------------------------------------------------------
As of 5/31/94 3.38
Dividend Per Share (Periods Ended 5/31/95)
- --------------------------------------------------------------------------------
3 Months $0.014
- --------------------------------------------------------------------------------
12 Months 0.047
- --------------------------------------------------------------------------------
</TABLE>
* 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Maturity Diversification
- --------------------------------------------------------------------------------
Percent of Net Assets
Range (days) 5/31/94 2/28/95 5/31/95
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
0-30 55% 54% 40%
- --------------------------------------------------------------------------------
31-60 21 29 22
- --------------------------------------------------------------------------------
61-90 11 12 20
- --------------------------------------------------------------------------------
91-120 5 1 4
- --------------------------------------------------------------------------------
121-180 5 1 8
- --------------------------------------------------------------------------------
181-365 3 3 6
- --------------------------------------------------------------------------------
Over 1 Year -- -- --
- --------------------------------------------------------------------------------
Weighted Average 46 days 43 days 64 days
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Quality Diversification
- --------------------------------------------------------------------------------
Percent of Net Assets
TRPA Quality Rating* 5/31/94 2/28/95 5/31/95
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 20% 18% 26%
- --------------------------------------------------------------------------------
2 60 68 62
- --------------------------------------------------------------------------------
3 20 14 12
- --------------------------------------------------------------------------------
Weighted Average 2.0 1.9 1.8
- --------------------------------------------------------------------------------
</TABLE>
* On a scale of 1 to 10, with Grade 1 representing highest quality.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Sector Diversification*
- --------------------------------------------------------------------------------
Percent of Net Assets
5/31/94 2/28/95 5/31/95
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Dollar-Denominated
Foreign Negotiable CDs 5% 12% 23%
- --------------------------------------------------------------------------------
Banking 19 20 15
- --------------------------------------------------------------------------------
Eurodollar Negotiable CDs 1 4 10
- --------------------------------------------------------------------------------
Domestic Negotiable
Bank Notes 0 7 9
- --------------------------------------------------------------------------------
Structured Finance 6 7 8
- --------------------------------------------------------------------------------
Industrial 8 9 7
- --------------------------------------------------------------------------------
Finance and Credit 12 6 7
- --------------------------------------------------------------------------------
U.K. Building Societies 0 3 5
- --------------------------------------------------------------------------------
Foreign Government and
Municipalities 10 9 4
- --------------------------------------------------------------------------------
Telephone 1 2 3
- --------------------------------------------------------------------------------
Petroleum 3 6 3
- --------------------------------------------------------------------------------
Domestic Negotiable CDs 10 1 3
- --------------------------------------------------------------------------------
Fixed Rate Securities 50 88 92
Floating Rate
Securities 50 12 8
- --------------------------------------------------------------------------------
</TABLE>
* Sectors representing at least 2% of net assets on 5/31/95.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
Periods Ended May 31, 1995
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
4.85% 4.41% 5.84%
</TABLE>
- --------------------------------------------------------------------------------
Note: For the above periods ended 3/31/95, the fund's returns were 4.43%, 4.48%,
and 5.89%, respectively.
Total return represents past performance and may vary. While the fund is managed
to maintain a stable share price of $1.00, this is not guaranteed.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
Investment Record/1/
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.
<TABLE>
<CAPTION>
Adjusted to Reflect Reinvestment
--------------------------------
Cumulative Dollars Annual Percentage Return
Reported Income ------------------ ------------------------
Fiscal Net Asset Dividend Taken Income Value of Total
Year Ended Value in Cash Dividend Investment Return
- -------------- --------- -------------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
12/31/76 /2/ $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 /3/ 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 5.26
- -----------------------------------------------------------------------------------------------------------------
1993 1.00 0.03 3.03 4.03 3.06
- -----------------------------------------------------------------------------------------------------------------
1994 1.00 0.03 3.13 4.13 2.60
- -----------------------------------------------------------------------------------------------------------------
5/31/94 /4/ 1.00 0.01 3.16 4.16 0.76
- -----------------------------------------------------------------------------------------------------------------
1995 1.00 0.05 3.37 4.37 4.85
- -----------------------------------------------------------------------------------------------------------------
Total $1.49
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ All figures adjusted to reflect 10 for 1 stock split of record May 1, 1981.
/2/ From inception 1/26/76 to 12/31/76.
/3/ Fiscal year-end changed from December 31 to February 28; figures are for
two months from 1/1/83-2/28/83.
/4/ Fiscal year-end changed from February 28 to May 31; figures are for three
months from 3/1/94-5/31/94.
4
<PAGE>
- --------------------------------------------------------------------------------
Statement of Net Assets
T. Rowe Price Prime Reserve Fund / May 31, 1995
- --------------------------------------------------------------------------------
(amounts in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Auto-Backed -- 0.4%
- --------------------------------------------------------------------------------------------------------------------------
Amount Value
----------- -----------
<S> <C> <C>
Banc One Auto Trust, 6.3625%, 4/15/96 (Cost $14,735)............................ $ 14,735 $ 14,740
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Bank Notes -- 6.4%
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank of New York (Delaware), VR, 6.17%, 6/1/95.................................. 15,000 15,000
Bank One Milwaukee, 6.00%, 6/6/95............................................... 25,000 25,000
Boatmen's Bank, VR, 6.125%, 8/15/95............................................. 21,000 20,997
Comerica Bank, 6.18%, 5/28/96................................................... 50,000 50,078
Fifth Third Bank, 6.08 - 6.21%, 10/27 - 11/10/95................................ 12,000 12,003
First National Bank of Maryland, 6.45%, 1/5/96.................................. 14,000 14,031
Lasalle National Bank, 6.10%, 9/5/95............................................ 15,000 15,002
NBD Bank, N.A., 6.17%, 10/31/95................................................. 15,000 15,008
PNC Bank, N.A., VR, 6.0125%, 6/19/95............................................ 30,000 30,000
U.S. National Bank of Oregon, 6.00%, 6/2/95..................................... 25,000 25,000
Wachovia Bank, 6.00%, 6/1/95.................................................... 23,000 23,000
- --------------------------------------------------------------------------------------------------------------------------
TOTAL BANK NOTES (COST $250,076) 245,119
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Bankers' Acceptances -- 0.8%
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Alabama Bank, 6.00 - 6.14%, 6/23 - 8/21/95................................ 26,500 26,421
First National Bank of Chicago, 6.00%, 6/1/95................................... 1,000 999
Republic National Bank, 6.01 - 6.04%, 8/9 - 10/6/95............................. 3,000 2,933
- --------------------------------------------------------------------------------------------------------------------------
TOTAL BANKERS' ACCEPTANCES (COST $30,348) 30,353
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit -- 36.4%
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Abbey National, (London), 6.02 - 6.22%, 8/16 - 10/31/95......................... 88,000 88,010
Australia & New Zealand Banking, 6.03%, 8/25/95................................. 10,000 10,000
Bank of America, (London), 6.00%, 7/18/95....................................... 20,000 20,000
Bank of Montreal, 6.03%, 8/17/95................................................ 25,000 25,001
Bank of Nova Scotia, 6.01 - 6.02%, 7/7 - 7/10/95................................ 43,000 43,000
(London), 6.12%, 7/21 - 8/2/95............................................... 50,000 50,007
Bank of Scotland, (London), 6.01%, 10/12/95..................................... 35,000 35,000
BankAmerica, Eurodollar, VR, 6.6875%, 6/9/95.................................... 24,000 24,020
Banque Nationale de Paris, 6.05 - 6.12%, 6/6 - 7/6/95........................... 88,000 88,000
Barclays Bank PLC, (London), 6.25 - 6.40%, 6/9 - 9/13/95........................ 62,000 62,020
Bayerische Hypotheken Wechsel, 5.98%, 6/5/95.................................... 3,000 3,000
Bayerische Landesbank, 6.43%, 5/13/96........................................... 100,000 99,870
Bayerische Vereinsbank, 6.00%, 7/17/95.......................................... 50,000 49,995
Canadian Imperial Bank of Commerce, 5.98 - 6.02%, 6/26 - 8/10/95................ 95,000 94,999
Citicorp, Eurodollar, VR, 6.4375%, 6/15/95...................................... 9,000 9,002
Commerzbank, (London), 6.10%, 8/7/95............................................ 15,000 15,002
6.12 - 6.17%, 8/14 - 9/22/95................................................. 33,000 33,008
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund / Statement of Net Assets (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit (cont.)
- --------------------------------------------------------------------------------------------------------------------------
Amount Value
----------- -----------
<S> <C> <C>
Credit Suisse, 6.125%, 10/5/95.................................................. $ 35,000 $ 35,013
Dresdner Bank, 6.65%, 3/15/96................................................... 8,000 8,037
Harris Trust & Savings Bank, 6.06%, 6/5/95...................................... 35,000 35,000
Hessische Landesbank-Girozentrale, 6.02%, 8/9/95................................ 40,000 40,001
Lloyds Bank, 6.03%, 8/21/95..................................................... 10,000 10,001
National Bank of Canada, VR, 6.0625%, 6/27/95................................... 20,000 19,987
National Westminster Bank PLC, 6.01 - 6.22%, 8/11 - 10/24/95.................... 58,000 58,006
NBD Bank, N.A., 6.02%, 6/29/95.................................................. 55,000 55,000
Norddeutsche Landesbank Girozentrale, 6.02%, 8/17/95............................ 50,000 50,001
Societe Generale, 6.03 - 6.21%, 6/5 - 11/6/95................................... 91,500 91,510
Swiss Bank, 6.01%, 7/21/95...................................................... 90,000 90,001
Toronto Dominion Bank, (London), 6.02 - 6.075%, 8/15 - 12/11/95................. 100,000 100,013
Union Bank Switzerland, 6.00%, 6/1/95........................................... 50,000 50,000
Westdeutsche Landesbank, 6.14%, 9/1/95.......................................... 5,000 5,001
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT (COST $1,392,633) 1,397,505
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Commercial Paper -- 49.1%
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
A H Robins, 4(2), 5.96%, 6/23/95................................................ 6,000 5,971
Alliance & Leicester, 6.02%, 7/20/95............................................ 25,000 24,610
American Express Company, 6.00 - 6.05%, 6/7 - 10/31/95.......................... 80,000 78,529
American General, 5.95%, 6/19/95................................................ 1,800 1,793
American Home Products, 4(2), 5.96 - 6.00%, 6/6 - 8/1/95........................ 23,255 23,072
ANZ (Delaware), 6.01%, 8/1/95................................................... 22,000 21,660
AON, 5.97 - 6.00%, 6/5 - 8/18/95................................................ 9,300 9,195
Asset Securitization Cooperative, 4(2), 6.00%, 6/12 - 7/24/95................... 78,000 77,187
AT&T, 6.01%, 8/4/95............................................................. 10,000 9,821
AT&T Capital, 6.01%, 8/4/95..................................................... 6,000 5,893
Barnett Banks, 6.00%, 6/8 - 6/19/95............................................. 25,000 24,901
BASF, 6.00%, 6/7/95............................................................. 20,000 19,792
Bayer, 4(2), 6.01%, 7/18/95..................................................... 14,000 13,787
Bayerische Vereinsbank, 6.15%, 6/1/95........................................... 20,000 19,996
Bell Atlantic Financial Services, 5.94 - 6.00%, 6/14 - 6/23/95.................. 20,236 20,158
BMW U.S. Capital, 6.00 - 6.01%, 6/2 - 8/3/95.................................... 33,800 33,372
BNP Canada, 6.02%, 10/24/95..................................................... 2,700 2,621
Caisse des Depots et Consignations, 4(2), 5.95 - 6.15%, 6/1 - 6/22/95........... 27,187 27,172
Caisse Nationale des Telecommunications, 6.00%, 7/31/95......................... 1,485 1,462
Chase Manhattan, 6.03%, 7/18/95................................................. 15,000 14,771
Cheltenham & Glouster, 6.05%, 7/6/95............................................ 15,000 14,771
Ciesco L.P., 5.91 - 6.00%, 6/20 - 8/23/95....................................... 43,700 43,137
4(2), 6.01%, 7/21/95......................................................... 10,000 9,844
Commerzbank, 6.00%, 7/26/95..................................................... 7,400 7,289
Corestates Capital, 6.07%, 7/5/95............................................... 20,000 19,694
VR, 6.09 - 6.10%, 6/3 - 6/6/95............................................... 45,000 44,989
Corporate Asset Funding, 6.00 - 6.01%, 6/13 - 7/24/95........................... 45,000 44,374
4(2), 6.01%, 7/25/95......................................................... 26,600 26,169
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
----------- -----------
<S> <C> <C>
Countrywide Funding, 6.00 - 6.02%, 6/2 - 6/5/95................................. $ 39,900 $ 39,693
Cregem North America, 6.02 - 6.04%, 7/11 - 7/19/95.............................. 63,500 62,540
Daimler-Benz North America, 6.00 - 6.02%, 6/19 - 6/23/95........................ 64,800 64,031
Dean Witter Discover & Company, 6.05%, 6/23/95.................................. 40,000 39,426
Delaware Funding, 5.90 - 6.01%, 7/25 - 8/28/95.................................. 20,279 19,935
Dow Jones & Co., 4(2), 6.03%, 8/15/95........................................... 9,000 8,825
Du Pont (EI) de Nemours, 4(2), 6.02%, 9/19/95................................... 20,000 19,504
Electricite de France, 6.00%, 6/19/95........................................... 2,600 2,585
Enel, 6.06%, 6/22/95............................................................ 11,000 10,830
Exxon Imperial, 4(2), 6.00%, 8/21/95............................................ 7,300 7,154
Fleet Financial Group, 6.00%, 6/2 - 6/5/95...................................... 41,000 40,793
Ford Credit Europe, 6.00%, 7/3/95............................................... 11,000 10,888
General Electric, 6.00%, 7/12/95................................................ 8,120 8,005
General Electric Capital, 6.01 - 6.04%, 7/21 - 8/23/95.......................... 65,000 63,732
Generale Bank, 6.01%, 7/28/95................................................... 25,000 24,610
Halifax Building Society, 6.01 - 6.05%, 7/20 - 8/21/95.......................... 51,755 50,940
Hanson Finance (U.K.), 6.00 - 6.03%, 7/18 - 8/4/95.............................. 24,000 23,625
Household Finance, 6.15%, 6/1/95................................................ 25,000 24,996
KFW International Finance, 6.00%, 6/19/95....................................... 1,537 1,531
Kingdom of Sweden, 6.02 - 6.03%, 9/18 - 9/22/95................................. 83,000 80,881
Koch Industries, 6.15%, 6/1/95.................................................. 35,500 35,494
Kredietbank N.A. Finance, 6.00%, 6/16/95........................................ 50,000 49,508
MCA Funding, 4(2), 6.00 - 6.03%, 6/7 - 8/21/95.................................. 22,375 22,061
Mobil Australia Finance, 4(2), 5.94%, 6/16/95................................... 13,945 13,894
National Australia Funding (Delaware), 6.10%, 6/1/95............................ 19,523 19,520
National City Credit, 6.00 - 6.04%, 7/17 - 8/18/95.............................. 75,000 73,708
Nestle Capital, 6.01%, 10/23/95................................................. 9,653 9,361
New Center Asset Trust, 6.05%, 7/6/95........................................... 1,987 1,958
New South Wales Treasury, 6.04%, 6/6/95......................................... 5,964 5,901
Pacificorp, 6.00%, 6/22 - 7/7/95................................................ 18,900 18,734
PHH, 5.94%, 6/27/95............................................................. 12,750 12,681
Preferred Receivables Funding, 5.95 - 6.02%, 6/12 - 6/26/95..................... 51,950 51,515
Province of Quebec, 5.90%, 8/24/95.............................................. 9,950 9,804
Raytheon, 4(2), 6.00%, 6/22/95.................................................. 1,982 1,973
Reed Elsevier, 4(2), 6.05%, 6/19/95............................................. 7,217 7,111
Repsol International, 6.00 - 6.02%, 7/6 - 10/17/95.............................. 47,000 46,233
SmithKline Beecham, 6.04%, 8/31/95.............................................. 5,800 5,669
Southwestern Bell Capital, 6.02%, 10/18/95...................................... 6,000 5,824
Statoil (Den Norske Stats Oljeselskap), 6.15%, 6/1/95........................... 18,000 17,997
Transamerica Financial Group, 6.03%, 8/18/95.................................... 10,000 9,797
Treasury Corporation of Victoria, 6.01%, 10/4/95................................ 25,000 24,354
U.S. Bancorp, 6.05%, 7/7/95..................................................... 2,100 2,069
U.S. Borax & Chemical, 4(2), 6.02 - 6.05%, 7/10 - 10/23/95...................... 9,700 9,445
U.S. West Capital Funding, 4(2), 6.01%, 8/3/95.................................. 7,500 7,382
U.S. West Communications, 6.00%, 7/26/95........................................ 42,000 41,369
UBS Finance (Delaware), 6.15%, 6/1/95........................................... 42,772 42,764
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund / Statement of Net Assets (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Commercial Paper (cont.)
- --------------------------------------------------------------------------------------------------------------------------
Amount Value
----------- -----------
<S> <C> <C>
Vulcan Materials, 6.00%, 6/13/95................................................ $ 5,000 $ 4,953
Westdeutsche Landesbank, 6.00%, 6/12/95......................................... 50,000 49,466
Westpac Capital, 6.04%, 7/11/95................................................. 15,000 14,772
Woolwich, 6.00%, 8/4/95......................................................... 20,000 19,685
- --------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST $1,885,826) 1,885,556
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Medium-Term Notes -- 6.4%
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AT&T Capital, VR, 6.06147%, 6/15/95............................................. 40,000 39,994
Branch Banking & Trust, VR, 6.40%, 7/13/95...................................... 5,000 5,002
Chemical Banking, VR, 6.55%, 7/19/95............................................ 8,000 8,015
Corestates Capital, VR, 6.0625%, 6/18/95........................................ 5,000 4,999
Fleet Mortgage Group, VR, 6.6625%, 6/21/95...................................... 5,000 5,015
General Electric Capital, 14.00%, 11/1/95....................................... 16,250 16,773
Morgan Stanley Group, VR, 6.3875%, 6/9/95....................................... 10,000 9,993
Pepsico, 15.00%, 11/8/95........................................................ 30,000 31,139
PHH, VR, 6.042%, 6/8/95......................................................... 4,000 3,999
Toyota Motor Credit, 15.00%, 11/1/95............................................ 50,000 51,812
World Savings & Loan Association, VR, 6.0625 - 6.3125%, 6/14 - 6/21/95.......... 72,000 71,953
- --------------------------------------------------------------------------------------------------------------------------
TOTAL MEDIUM-TERM NOTES (COST $248,684) 248,694
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Taxable Municipal -- 0.3%
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
New Orleans Aviation Board, VR, 6.23%, 6/7/95 (Cost $10,600).................... 10,600 10,600
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 99.8% OF NET ASSETS (COST $3,832,902)........ 3,832,567
- --------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES................................................... 8,211
----------
<CAPTION>
NET ASSETS CONSIST OF: Value
-----------
<S> <C> <C>
Accumulated net investment income - net of distributions........................ 1,765
Accumulated net realized gain/loss - net of distributions....................... (3,213)
Net unrealized gain (loss)...................................................... (335)
Paid-in-capital applicable to 3,843,718,825 shares of $0.01 par
value capital stock outstanding; 15,000,000,000 shares authorized............ 3,842,561
----------
NET ASSETS...................................................................... $3,840,778
==========
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.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund / Year Ended May 31, 1995
(in thousands)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest income................................................... $204,597
--------
Expenses
Investment management.......................................... 14,784
Shareholder servicing.......................................... 9,483
Prospectus and shareholder reports............................. 370
Custody and accounting......................................... 324
Proxy and annual meeting....................................... 184
Registration................................................... 104
Directors...................................................... 46
Legal and audit................................................ 40
Miscellaneous.................................................. 63
--------
Total expenses................................................. 25,398
--------
Net investment income............................................. 179,199
--------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on securities............................ 613
Change in net unrealized gain or loss on securities............... 2,005
--------
Net realized and unrealized gain (loss)........................... 2,618
--------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS................. $181,817
========
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund
(in thousands)
<TABLE>
<CAPTION>
Three
Year Ended Months Ended Year Ended
May 31, 1995 May 31, 1994++ Feb. 28, 1994
------------ -------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income.................................................. $179,199 $27,572 $87,522
Net realized gain (loss)............................................... 613 2 389
Change in net unrealized gain or loss.................................. 2,005 204 (3,216)
---------- ---------- ----------
Increase (decrease) in net assets from operations...................... 181,817 27,778 84,695
---------- ---------- ----------
Distributions to shareholders
Net investment income.................................................. (179,540) (27,534) (87,982)
---------- ---------- ----------
Capital share transactions*
Shares sold............................................................ 6,221,625 1,962,952 5,492,781
Distributions reinvested............................................... 172,687 26,277 84,630
Shares redeemed........................................................ (6,183,066) (1,741,194) (5,791,738)
---------- ---------- ----------
Increase (decrease) in net assets from capital share transactions...... 211,246 248,035 (214,327)
---------- ---------- ----------
Increase (decrease) in net assets.......................................... 213,523 248,279 (217,614)
NET ASSETS
Beginning of period........................................................ 3,627,255 3,378,976 3,596,590
---------- ---------- ----------
End of period.............................................................. $3,840,778 $3,627,255 $3,378,976
========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------------
*Share information
Shares sold............................................................ 6,221,625 1,962,952 5,492,781
Distributions reinvested............................................... 172,682 26,277 84,630
Shares redeemed........................................................ (6,183,066) (1,741,194) (5,791,739)
---------- ---------- ----------
Increase (decrease) in shares outstanding.............................. 211,241 248,035 (214,328)
========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------------
</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 / May 31, 1995
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) 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.
10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 and may differ from
those determined in accordance with generally accepted accounting principles.
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 $3,212,000, $904,000 of which expire in 1996,
$1,035,000 in 1997, and $1,273,000 in 1998. Capital loss carryforwards utilized
in 1995 amounted to $613,000. The fund intends to retain gains realized in
future periods that may be offset by available capital loss carryforwards.
At May 31, 1995, the aggregate cost of investments for federal income tax
and financial reporting purposes was $3,832,902,000 and net unrealized loss
aggregated $335,000, of which $185,000 related to appreciated investments and
$520,000 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,
of which $1,266,000 was payable at May 31, 1995. The fee is computed daily and
paid monthly, and consists 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. At May
31, 1995, and for the year then ended, the effective annual Group Fee rate was
0.34%. The fund pays a pro rata share of the Group Fee based on the ratio of its
net assets to those of the Group.
In addition, the fund has entered into agreements with the Manager and two
wholly owned subsidiaries of the Manager, pursuant to which the fund receives
certain other services. The Manager computes the daily share price and maintains
the financial records of the fund. T. Rowe Price Services, Inc. (TRPS) is the
fund's transfer and dividend disbursing agent and provides shareholder and
administrative services to the fund. T. Rowe Price Retirement Plan Services,
Inc. provides subaccounting and recordkeeping services for certain retirement
accounts invested in the fund. Additionally, the fund is one of several T. Rowe
Price mutual funds (the Underlying Funds) in which the T. Rowe Price Spectrum
Growth and Income Funds (Spectrum) invests. In accordance with an Agreement
among 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. The fund incurred
expenses pursuant to these related party agreements totaling approximately
$8,081,000 for the year ended May 31, 1995, of which $636,000 was payable at
year-end.
11
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund
<TABLE>
<CAPTION>
For a share outstanding throughout each period
---------------------------------------------------------------------------------
Three
Year Months Year Ended
Ended Ended -----------------------------------------------------
May 31, May 31, Feb. 28, Feb. 28, Feb. 29, Feb. 28,
1995 1994++ 1994 1993 1992 1991
-------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD................ $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
Investment Activities
Net investment income.............. 0.047 0.008 0.026 0.030 0.051 0.073
Distributions
Net investment income.............. (0.047) (0.008) (0.026) (0.030) (0.051) (0.073)
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD...................... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ======
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return........................... 4.85% 0.76% 2.60% 3.06% 5.26% 7.56%
Ratio of Expenses to Average
Net Assets......................... 0.67% 0.73%+ 0.74% 0.75% 0.78% 0.75%
Ratio of Net Investment Income
to Average Net Assets.............. 4.76% 3.02%+ 2.56% 3.04% 5.14% 7.33%
Net Assets, End of Period
(in millions)...................... $3,841 $3,627 $3,379 $3,597 $4,115 $4,753
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ The fund's fiscal year-end was changed to May 31.
+ Annualized.
12
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of the
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 the T. Rowe
Price Prime Reserve Fund, Inc. at May 31, 1995, and the results of its
operations, the changes in its net assets and the selected per share data and
information for each of the fiscal periods presented, 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 audit, which included confirmation of securities at May 31,
1995 by correspondence with the custodian and brokers and, where appropriate,
the application of alternative auditing procedures for unsettled security
transactions, provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
June 19, 1995
13
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Services
- --------------------------------------------------------------------------------
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety of
information and services--at no extra cost.
KNOWLEDGEABLE SERVICE REPRESENTATIVES
BY PHONE--Shareholder service representatives are available from 8:00 a.m. to
10:00 p.m., Monday - Friday, and weekends from 9:00 a.m. to 5:00 p.m ET. Call
1-800-225-5132 to speak directly with a representative who will be able to
assist you with your accounts.
IN PERSON--Visit one of our investor center locations to meet with a
representative who will be able to assist you with your accounts. While there,
you can drop off applications or obtain prospectuses and other literature.
AUTOMATED 24-HOUR SERVICES
Tele*Access(R) (1-800-638-2587) provides information such as account
balance, date and amount of your last transaction, latest dividend payment, and
fund prices and yields. Additionally, you have the ability to request
prospectuses, statements, account and tax forms; reorder checks; and initiate
purchase, redemption, and exchange orders for identically registered accounts.
PC*Access(R) provides the same information as Tele*Access, but on a
personal computer via dial-up modem.
ACCOUNT SERVICES
Checking--Write checks for $500 or more on any money market and most bond
fund accounts (except the High Yield Fund and Emerging Markets Bond Fund).
Automatic Investing--Build your account over time by investing directly
from your bank account or paycheck with Automatic Asset Builder. Additionally,
Automatic Exchange enables you to set up systematic investments from one fund
account into another, such as from a money fund into a stock fund. A low, $50
minimum makes it easy to get started.
Automatic Withdrawal--If you need money from your fund account on a regular
basis, you can establish scheduled, automatic redemptions.
Dividend and Capital Gains Payment Options--Reinvest all or some of your
distributions, or take them in cash. We give you maximum flexibility and
convenience.
INVESTMENT INFORMATION
Combined Statement--A comprehensive overview of your T. Rowe Price
accounts. The summary page gives your earnings by tax category, provides total
portfolio value, and lists your investments by type--stock, bond, and money
market. Detail pages itemize account transactions by fund.
Quarterly Shareholder Reports--Portfolio managers review the performance of
the funds in plain language and discuss T. Rowe Price's economic outlook.
The T. Rowe Price Report--A quarterly newsletter with relevant articles on
market trends, personal financial planning, and T. Rowe Price's economic
perspective.
Insights--A library of information that includes reports on mutual fund tax
issues, investment strategies, and financial markets.
Detailed Investment Guides--Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Retirees Financial Guide, Retirement Planning Kit (also
available on disk for PC use), and Guide to Risk-Adjusted Performance can help
you determine and reach your investment goals.
DISCOUNT BROKERAGE
You can trade stocks, bonds, options, precious metals, and other securities at a
substantial savings over regular commission rates. Call a shareholder service
representative for more information.
14
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price No-Load Mutual Funds
- --------------------------------------------------------------------------------
STABILITY
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money
Market
Tax-Exempt Money
CONSERVATIVE INCOME
Short-Term Bond
Short-Term Global Income
Short-Term U.S. Government
Summit Limited-Term Bond
U.S. Treasury Intermediate
Florida Insured Intermediate
Tax-Free
Maryland Short-Term
Tax-Free Bond
Summit Municipal
Intermediate
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
INCOME
Global Government Bond
GNMA
New Income
Spectrum Income
Summit GNMA
U.S. Treasury Long-Term
California Tax-Free Bond
Georgia Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Tax-Free Income
Virginia Tax-Free Bond
AGGRESSIVE INCOME
Emerging Markets Bond
High Yield
International Bond
Tax-Free High Yield
CONSERVATIVE
GROWTH
Balanced
Capital Appreciation
Dividend Growth
Equity Income
Equity Index
Growth & Income
Spectrum Growth
Value
GROWTH
Blue Chip Growth
European Stock
Growth Stock
International Stock
Japan
Mid-Cap Growth
New Era
Small-Cap Value
AGGRESSIVE GROWTH
Capital Opportunity
Emerging Markets Stock
International Discovery
Latin America
New America Growth
New Asia
New Horizons
OTC
Science & Technology
PERSONAL STRATEGY FUNDS
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
Call if you want to know about any T. Rowe Price fund. We'll send you a
prospectus with more complete information, including management fees and other
expenses. Read it carefully before you invest or send money. T. Rowe Price
Investment Services, Inc., Distributor.
15
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
FOR YIELD, PRICE, LAST TRANSACTION, T. Rowe Price
AND CURRENT BALANCE, 24 HOURS, -------------
7 DAYS A WEEK, CALL: PRIME RESERVE FUND
1-800-638-2587 toll free
625-7676 Baltimore area MAY 31, 1995
FOR ASSISTANCE WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to shareholders and to others
who have received a copy of the prospectus of the T. Rowe Price Prime Reserve
Fund(R).
T. Rowe Price
Invest With Confidence(R)
PRF
