- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
SemiAnnual Report
Prime Reserve Fund
- --------------------------------------------------------------------------------
November 30, 1996
- --------------------------------------------------------------------------------
Report Highlights
================================================================================
* Money market yields were relatively steady over the last six months
amid conflicting economic signals and inflation fears.
* The Prime Reserve Fund returned 2.39% and 4.95% for the 6- and
12-month periods ended November 30, slightly ahead of its peer group
average.
* The fund increased holdings of fixed rate securities and slightly
emphasized short- and long-term money market securities over their
intermediate counterparts.
* The Federal Reserve has little reason to tighten in the near future.
We expect money market yields to remain steady.
- --------------------------------------------------------------------------------
Fellow Shareholders
================================================================================
Money market yields held relatively steady over the last six months amid
conflicting signals on the economy and inflation. Despite widespread expectation
of monetary tightening earlier in the period, the Federal Reserve kept key
short-term interest rates unchanged. Your fund produced a respectable return.
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
================================================================================
For much of the last six months, the financial markets waited for the Federal
Reserve to apply the brakes as economic growth initially surged, fanning
inflation fears. However, the central bank motored along at a steady pace,
keeping the key federal funds target at 5.25%, where it has been since last
January. That strategy proved correct as growth slowed to more sustainable
levels in recent months and inflation fears subsided.
<PAGE>
Money market yields, which generally track the federal funds rate, bounced
around in a relatively narrow range in response to the conflicting economic
signals. They spiked up after the economy grew at a robust 4.7% annualized rate
in the second calendar quarter, but dropped back over the last three months as
growth slowed to 2% in the third quarter.
[ A 3-line chart showing interest rate levels on the 1-Year Treasury bill,
90-day Treasury bill, and Federal Funds rate from 11/30/95 through 11/30/96.]
As shown in the chart, the one-year and 90-day Treasury bills reached recent
highs in August of 6% and 5.3%, respectively, before dropping back as the
economy slowed. Over the last 12 months, despite significant volatility,
short-term interest rates ended up close to where they started, leading to
steady returns on money market securities.
Late in the fund's reporting period, foreign buyers created a huge demand for
U.S. money market securities due to the strong dollar and comparatively lower
interest rates abroad, particularly in Japan.
As prices rose, the difference in yield between the one-year Treasury bill and
the federal funds rate, historically around 35 basis points when the Federal
Reserve is on hold, shrank to around 10 basis points (one-tenth of one
percentage point).
- --------------------------------------------------------------------------------
PERFORMANCE AND STRATEGY REVIEW
================================================================================
Despite the uncertainty over monetary policy, your fund's yield was relatively
steady over the last six months, ending at 4.89% (as shown in the table
following this letter). The fund produced a decent return, essentially in line
with the average money market fund as measured by Lipper Analytical Services.
For the 12 months ended November 30, the fund again produced favorable absolute
and relative performance, as shown in the table.
- --------------------------------------------------------------------------------
Performance Comparison
================================================================================
Periods Ended 11/30/96 6 Months 12 Months
- --------------------------------------------------------------------------------
Prime Reserve Fund 2.39% 4.95%
Lipper Money Market
Funds Average 2.36 4.83
================================================================================
<PAGE>
The apparent stability of your fund's average maturity, rising by only seven
days between May and November, masks the wide range it covered. When economic
growth appeared strong and rates rose earlier in the period, we bought
shorter-maturity issues that could be quickly rolled over into higher-yielding
ones. Conversely, when the economy weakened and rates fell back in recent
months, we purchased instruments with longer maturities to enhance yield and
delay the roll-over of assets into lower-yielding securities. As a result of
this strategy, average maturity ranged between a low of 41 days and a high of 70
days over the last six months. We ended the period near the upper end of that
range, in line with our competitor funds, given our belief that the Fed would
not raise short-term rates in the near future.
As usual, we made only minor changes in the fund's mix of securities, as shown
in the sector diversification table following this letter. Since the fund
invests only in high-quality, short-term debt instruments, portfolio changes
generally reflect the availability more than the relative attractiveness of
these securities. We slightly increased exposure to fixed rate obligations to
90% of net assets, with a corresponding decrease in floating rate instruments,
where yields were driven lower by strong demand. The fund continued to maintain
a well-diversified portfolio, with its heaviest concentrations in domestic bank
commercial paper, foreign negotiable CDs denominated in U.S. dollars, and
finance and credit issues.
Since yields on intermediate-term money market securities were only
incrementally higher than those on short-term issues, we underweighted
intermediates in favor of both short- and long-term instruments. This "barbell"
strategy helped enhance the fund's yield by taking advantage of temporarily
higher yields on very short-term issues as well as the customarily higher yields
of one-year maturities.
- --------------------------------------------------------------------------------
OUTLOOK
================================================================================
The economy has slowed to a more sustainable rate of growth and inflation
remains moderate. There appears to be little reason for the Fed to raise
interest rates in the near future. While demand for U.S. money market securities
from foreign buyers is strong, it is more unpredictable than demand from
domestic buyers. Therefore, we expect to keep overall maturity in line with our
competitor funds. Money market yields should remain relatively steady over the
next six months.
Respectfully submitted,
[signature]
Edward A. Wiese
President and
Chairman of the Investment Advisory Committee
December 18, 1996
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Highlights
================================================================================
Key statistics
5/31/96 11/30/96
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.025 0.024
For 12 months 0.051 0.048
Dividend Yield (7-Day Compound) * 4.79% 4.89%
Weighted Average Maturity (days) 59 66
Weighted Average Quality ** First Tier First Tier
- --------------------------------------------------------------------------------
* 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.
** All securities purchased in the money fund are rated in the two
highest categories (tiers) as established by national rating agencies
or, if unrated, are deemed of comparable quality by T. Rowe Price.
================================================================================
- --------------------------------------------------------------------------------
<PAGE>
T. Rowe Price Prime Reserve Fund
================================================================================
Portfolio Highlights
- --------------------
SECTOR Diversification
Percent of Percent of
Net Assets Net Assets
5/31/96 11/30/96
------- --------
Banking .................................................. 15% 14%
U.S. Dollar-Denominated Foreign Negotiable CDs ........... 14 14
Finance and Credit ....................................... 12 14
Eurodollar Negotiable CDs ................................ 14 9
Foreign Government and Municipalities .................... 5 7
Domestic Negotiable CDs .................................. 4 6
Automobiles and Related .................................. 5 6
Asset-Backed ............................................. 7 6
Domestic Negotiable Bank Notes ........................... 5 5
Pharmaceuticals .......................................... 3 4
Industrial ............................................... 5 4
U.S. Government Agency ................................... 3 3
Broker-Dealers ........................................... 3 3
Petroleum ................................................ 1 2
Food Processing .......................................... 2 2
All Other ................................................ 3 3
Other Assets Less Liabilities ............................ -1 -2
Total .................................................... 100% 100%
--- ---
Fixed Rate Obligations ................................... 86 90
Floating Rate Instruments ................................ 14 10
================================================================================
- --------------------------------------------------------------------------------
<PAGE>
Performance Comparison
================================================================================
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with a broad-based average or index. The index
return does not reflect expenses, which have been deducted from the fund's
return.
[SEC Graph shown here. Periods 11\87 thru 11\96. Prime Reserve Fund $17,201 and
Lipper Money Market Funds Average $17,110]
- --------------------------------------------------------------------------------
Average Annual Compound Total Return
================================================================================
This table shows how the fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
================================================================================
Periods Ended 11/30/96 1 Year 3 Years 5 Years 10 Years
- ------------- -------- ------ ------- ------- --------
Prime Reserve Fund 4.95% 4.64% 4.00% 5.57%
- --------------------------------------------------------------------------------
Investment return represents past performance and will vary. While the
fund is managed to maintain a stable share price of $1.00, this is not
guaranteed. An investment in the fund is not insured or guaranteed by the
U.S. government.
================================================================================
The accompanying notes are an integral part of these financial statements.
================================================================================
- --------------------------------------------------------------------------------
Financial Highlights
================================================================================
Unaudited
<PAGE>
T. Rowe Price Prime Reserve Fund
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
6 Months Year 3 Months++ Year
Ended Ended Ended Ended
11/30/96 5/31/96 5/31/95 5/31/94 2/28/94 2/28/93 2/29/92
-------- ------- ------- ------- ------- ------- -------
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 0.024 0.051 0.047 0.008 0.026 0.030 0.051
Distributions
Net investment income (0.024) (0.051) (0.047) (0.008) (0.026) (0.030) (0.051)
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 ............ 2.39% 5.25% 4.85% 0.76% 2.60% 3.06% 5.26%
Ratio of expenses to
average net assets ...... 0.66%+ 0.66% 0.67% 0.73%+ 0.74% 0.75% 0.78%
Ratio of net investment
income to average
net assets .............. 4.76%+ 5.07% 4.76% 3.02%+ 2.56% 3.04% 5.14%
Net assets, end of period
(in millions) ........... $4,375 $4,011 $3,841 $3,627 $3,379 $3,597 $4,115
</TABLE>
- --------------------------------------------------------------------------------
+ Annualized.
++ The fund's fiscal year-end was changed to May 31.
================================================================================
<PAGE>
Statement of Net Assets
================================================================================
Unaudited November 30, 1996
Par Value
--- -----
BANK NOTES 5.1%
Comerica Bank, 5.77%, 8/13/97 ............................ $20,000 $20,023
FCC National Bank of Wilmington, 5.60%, 11/4/97 .......... 25,000 25,001
First America Bank of Michigan N.A., 5.60%, 11/20/97 ..... 25,000 24,999
Key Bank, VR, 5.295%, 12/23/96 ........................... 15,000 14,991
Mellon Bank N.A., 6.25%, 12/16/97 ........................ 50,000 50,336
PNC Bank N.A
VR
5.275%, 12/2/96 .................................. 38,000 37,978
5.295%, 12/6/96 .................................. 6,000 5,999
Southtrust Bank of North Carolina, VR, 5.375%, 12/12/96 .. 22,000 22,000
Southtrust Bank of Georgia, VR, 5.315%, 12/22/96 ......... 12,000 11,996
Wachovia Bank of North Carolina, 6.65%, 9/5/97 ........... 7,200 7,244
Total Bank Notes (Cost $220,567) ......................... 220,567
CERTIFICATES OF DEPOSIT 28.8%
Abbey National, (London), 5.39%, 3/17/97 ................. 100,000 100,003
ABN Amro Bank, 5.68%, 4/17/97 ............................ 25,000 25,008
Australia & New Zealand Banking
5.51%, 8/18/97 ................................... 30,000 30,002
(London)
5.45%, 5/6/97 .................................... 25,000 25,001
5.50%, 4/23/97 ................................... 45,000 45,012
Bank of Nova Scotia
6.08%, 8/4/97 .................................... 10,000 10,033
(London), 6.05%, 6/25/97 ............................. 18,000 18,043
Bank of Scotland, 5.26%, 12/2/96 ......................... 50,000 50,000
Banque Nationale de Paris
5.385%, 3/6/97 ................................... 8,000 8,000
(London)
5.51%, 4/28/97 ................................... 46,000 46,012
5.52%, 4/25/97 ................................... 25,000 25,008
Barclays Bank PLC, (London), 5.40%, 1/27/97 .............. 40,000 40,000
Bayerische Landesbank Girozentrale, 5.31%, 12/9/96 ....... 31,900 31,900
<PAGE>
Bayerische Vereinsbank
(London)
5.415%, 1/10/97 .................................. $ 10,000 $ 10,000
5.43%, 5/14/97 ................................... 45,000 45,002
5.70%, 10/31/97 .................................. 15,000 15,017
Branch Banking & Trust, 5.28%, 12/12/96 .................. 50,000 50,000
Canadian Imperial Bank
5.31%, 12/5/96 ................................... 50,000 50,000
5.36%, 1/10/97 ................................... 50,000 50,000
Chase Manhattan Bank, 5.50%, 8/5/97 ...................... 50,000 50,007
Credit Agricole, 5.42%, 12/30/96 ......................... 40,000 40,003
Deutsche Bank
5.31%, 12/6/96 ................................... 20,000 20,000
5.37%, 1/21/97 ................................... 75,000 75,000
FCC National Bank of Wilmington, 5.73%, 8/21/97 .......... 33,000 33,035
Hessische Landesbank Girozentrale, 6.09%, 9/11/97 ........ 45,000 45,180
National Westminster Bank PLC, 5.57%, 12/9/96 ............ 40,000 40,002
Providian National Bank, 5.65%, 4/4/97 ................... 21,000 21,014
Societe Generale, 5.73%, 10/15/97 ........................ 45,000 45,049
Sudwesdeutsche Landesbank, (London), 5.43%, 4/1/97 ....... 20,000 20,002
Svenska Handelsbank, 5.45%, 5/7/97 ....................... 30,000 30,000
U.S. Bank of Oregon, 5.35%, 1/10/97 ...................... 50,000 50,000
Union Bank, 5.50%, 4/8/97 ................................ 50,000 50,000
Westpac Capital
6.23%, 9/5/97 .................................... 28,000 28,136
6.24%, 9/4/97 .................................... 40,000 40,197
Total Certificates of Deposit (Cost $1,261,666) .......... 1,261,666
COMMERCIAL PAPER 48.2%
American Express Credit, 5.25%, 12/3/96 .................. 50,000 49,985
Ameritech Capital Funding, 4(2), 5.30%, 12/19/96 ......... 35,000 34,907
Asset Securitization Cooperative
4(2)
5.27%, 12/5/96 ................................... 22,503 22,490
5.30%, 2/21/97 ................................... 50,000 49,396
5.32%, 12/2/96 ................................... 16,450 16,448
Banc One
4(2)
5.30%, 1/28/97 ................................... 35,000 34,701
5.45%, 12/2/96 ................................... 1,882 1,882
Bank of America, 5.27%, 12/26/96 ......................... 5,000 4,982
Bank of Scotland Treasury, 5.29%, 5/9/97 ................. 20,000 19,533
BBL North America, 5.28%, 12/3/96 ........................ 48,000 47,986
Bell Atlantic Network Funding, 5.25%, 12/3/96 ............ 18,500 18,495
<PAGE>
Bex America Finance, 5.33%, 2/4/97 ....................... $ 24,000 $ 23,769
BMW U.S. Capital
5.26%, 12/12/96 .................................. 33,385 33,332
5.28%, 2/24/97 ................................... 23,000 22,713
Caisse des Depots et Consignations
4(2)
5.26%, 12/2/96 ................................... 80,000 79,988
5.30%, 1/30/97 ................................... 50,000 49,559
California Pollution Control, 5.33%, 12/23/96 ............ 20,000 20,000
Cargill Financial Services, 4(2), 5.25%, 12/5/96 ......... 5,000 4,997
Chrysler Financial
5.30%, 12/23/96 .................................. 27,000 26,913
5.35%, 12/23/96 .................................. 10,000 9,967
Coca-Cola, 5.23%, 12/10/96 ............................... 35,000 34,954
Commercial Credit
5.25%, 12/2/96 - 12/3/96 ......................... 44,500 44,491
5.32%, 12/9/96 ................................... 25,000 24,970
Countrywide Funding, 5.28%, 12/2/96 ...................... 32,000 31,995
Cregem North America, 5.30%, 2/13/97 ..................... 34,500 34,124
CS First Boston Group, 5.26%, 12/6/96 .................... 25,000 24,982
Delaware Funding, 4(2), 5.30%, 12/16/96 .................. 38,000 37,916
Dillard Investment, 5.25%, 12/10/96 ...................... 11,600 11,585
Dover, 4(2), 5.34%, 1/22/97 .............................. 13,243 13,141
Du Pont (EI) de Nemours
4(2)
5.23%, 12/5/96 ................................... 25,000 24,985
5.24%, 12/4/96 ................................... 14,923 14,917
Finova Capital, 5.30%, 12/2/96 - 12/10/96 ................ 15,500 15,493
Gaz de France Service Nationale, 5.25%, 12/18/96 ......... 13,606 13,572
General Electric Capital, 5.30%, 5/1/97 .................. 5,000 4,889
Glaxo Wellcome, 5.30%, 2/13/97 ........................... 43,000 42,531
Golden Managers Acceptance, 5.35%, 1/8/97 ................ 20,000 19,887
Great Lakes Chemical, 4(2), 5.28%, 12/20/96 .............. 11,170 11,139
H.J. Heinz, 4(2), 5.30%, 12/9/96 ......................... $10,000 $ 9,988
Harvard University, 5.26%, 12/5/96 ....................... 25,000 24,985
Island Finance of Puerto Rico, 5.28%, 12/20/96 ........... 25,000 24,930
KFW International Finance, 5.25%, 12/2/96 - 12/5/96 ...... 101,000 100,973
Korea Development Bank, 5.32%, 2/13/97 ................... 30,000 29,672
Lucent Technologies, 5.30%, 2/18/97 ...................... 25,000 24,709
Merck & Co., 4(2), 5.25%, 12/6/96 ........................ 11,275 11,267
Metlife Funding, 5.30%, 1/31/97 .......................... 13,566 13,444
Mobil Australia Finance, 4(2), 5.26%, 12/10/96 ........... 30,000 29,961
Morgan Stanley Group, 5.33%, 12/3/96 ..................... 4,500 4,499
National Australia Funding
5.27%, 12/2/96 ................................... 36,200 36,194
5.30%, 12/5/96 ................................... 80,000 79,953
5.40%, 12/6/96 ................................... 47,000 46,972
<PAGE>
National Bank of Canada, 5.30%, 12/3/96 .................. $ 50,000 $ 49,985
National City Credit
5.26%, 12/2/96 - 12/19/96 ........................ 40,000 39,969
5.27%, 12/13/96 - 12/20/96 ....................... 40,000 39,904
Oesterrichische Kontrollbank, 5.25%, 12/10/96 ............ 24,125 24,093
Paccar Financial, 5.33%, 12/3/96 ......................... 8,100 8,098
Pacific Mutual, 5.32%, 12/2/96 ........................... 25,000 24,996
Panasonic Finance, 4(2), 5.25%, 12/20/96 ................. 34,000 33,906
Pfizer
4(2)
5.26%, 12/5/96 ................................... 50,000 49,971
5.30%, 12/5/96 ................................... 27,300 27,284
Preferred Receivables Funding, 5.30%, 4/10/97 ............ 17,575 17,239
Reed Elsevier, 4(2), 5.37%, 12/2/96 ...................... 17,300 17,297
Rockwell International, 4(2), 5.60%, 12/3/96 ............. 13,411 13,407
Sandoz, 4(2), 5.30%, 12/2/96 ............................. 59,000 58,991
Sara Lee, 5.30%, 12/9/96 ................................. 32,000 31,962
Statoil (Den Norske Stats Oljeselskap), 5.25%, 12/5/96 ... 35,000 34,980
Tasmanian Public Finance, 5.40%, 12/12/96 ................ 10,000 9,983
Toyota Motor Credit, 5.30%, 12/2/96 ...................... 40,000 39,994
Transamerica Finance, 5.25%, 12/2/96 ..................... 20,400 20,397
UBS Finance (Delaware)
5.35%, 12/3/96 ................................... 50,000 49,985
5.40%, 12/3/96 ................................... 11,474 11,471
Unifunding, 5.32%, 4/21/97 ............................... 5,300 5,190
Unilever Capital, 4(2), 5.25%, 12/13/96 .................. 20,000 19,965
Vereinsbank Finance, 5.25%, 12/11/96 ..................... 50,000 49,927
Yale University, 5.26%, 12/20/96 ......................... 14,500 14,460
Total Commercial Paper (Cost $2,108,615) ................. 2,108,615
MEDIUM-TERM NOTES 16.8%
American General Finance, VR, 5.473%, 12/16/96 ........... 10,000 10,002
Associates Corporation of North America
6.875%, 1/15/97 .................................. 3,000 3,005
8.70%, 1/1/97 .................................... 10,000 10,025
Avco Financial Services, 5.875%, 10/15/97 ................ 2,000 2,000
Bankamerica, Eurodollar, 5.906%, 2/28/97 ................. 9,000 9,009
Bear Stearns, VR, 5.425%, 12/29/96 ....................... 45,000 45,000
CIT Group Holdings, 5.50%, 2/28/97 ....................... 6,500 6,506
Citicorp, 8.50%, 2/24/97 ................................. 5,000 5,037
Corporate Asset Funding, (144a)
5.366%, 12/2/96 .................................. 28,000 28,000
VR
5.383%, 12/10/97 ................................. 25,000 24,998
5.397%, 12/10/96 ................................. 28,000 27,994
<PAGE>
Ford Motor Credit
5.625%, 3/3/97 ................................... $ 10,000 $ 10,014
7.125%, 12/1/97 .................................. 21,075 21,359
8.00%, 12/1/96 ................................... 5,000 5,000
General Electric Capital
5.12%, 1/27/97 ................................... 12,000 11,999
5.30%, 1/3/97 .................................... 119,200 119,196
7.646%, 2/3/97 ................................... 30,000 30,124
General Motors Acceptance Corporation
5.907%, 12/6/96 .................................. 13,000 13,000
7.80%, 5/5/97 .................................... 1,650 1,663
8.125%, 1/13/97 .................................. 1,070 1,073
8.375%, 5/1/97 ................................... 1,000 1,010
Goldman Sachs Group, VR, 5.435%, 12/20/96 ................ 62,000 62,000
International Lease Finance, 4.75%, 1/15/97 .............. 19,000 18,986
John Deere Capital, 7.33%, 11/14/97 ...................... 17,550 17,813
Merrill Lynch & Co., VR, 5.833%, 12/24/96 ................ 5,000 5,007
Nationsbank, 7.50%, 2/15/97 .............................. 2,735 2,749
Norwest
7.75%, 12/31/96 .................................. 1,000 1,002
7.875%, 1/30/97 .................................. 8,000 8,032
Pepsico, Eurodollar, 7.75%, 2/28/97 ...................... 6,000 6,037
PHH, VR, 5.365%, 12/8/96 ................................. 50,000 49,983
Republic National Bank of New York, 7.95%, 1/14/97 ....... 2,000 2,006
Smithkline Beecham, Eurodollar, 7.375%, 11/10/97 ......... 5,000 5,073
SMM Trust, (144a)
VR
5.425%, 12/29/96 ................................. 35,000 35,000
5.706%, 12/26/96 ................................. 75,000 75,000
Toyota Motor Credit
5.55%, 3/20/97 ................................... 40,000 40,011
7.625%, 1/30/97 .................................. 18,500 18,565
Total Medium-Term Notes (Cost $733,278) .................. 733,278
U.S. GOVERNMENT AGENCY OBLIGATIONS 3.3%
<PAGE>
Federal Home Loan Mortgage, Discount Notes, 5.70%, 12/2/96 $145,361 $145,338
Total U.S. Government Agency Obligations (Cost $145,338) . 145,338
Total Investments in Securities
102.2% of Net Assets (Cost $4,469,464) ................... $4,469,464
Other Assets Less Liabilities ........................... (94,675)
NET ASSETS ............................................... $ 4,374,789
Net Assets Consist of:
Accumulated net investment
income - net of distributions $ 814
Accumulated net realized gain/
loss - net of distributions (1,677)
Paid-in-capital applicable to 4,376,938,434
shares of $0.01 par value capital stock outstanding;
15,000,000,000 shares authorized 4,375,652
NET ASSETS $ 4,374,789
NET ASSET VALUE PER SHARE $ 1.00
================================================================================
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 -- total of such securities at year-end amounts to
4.4% of net assets.
================================================================================
<PAGE>
Statement of Operations
================================================================================
In thousands
Unaudited
T. Rowe Price Prime Reserve Fund
================================================================================
6 Months
Ended
11/30/96
--------
Investment Income
Interest income $ 114,642
Expenses
Investment management 8,022
Shareholder servicing 5,507
Prospectus and shareholder reports 239
Custody and accounting 163
Registration 47
Legal and audit 20
Directors 17
Miscellaneous 29
-----------
Total expenses 14,044
-----------
Net investment income 100,598
Realized Gain (Loss)
- ----------------------------------------
Net realized gain (loss) on securities 631
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ 101,229
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
Statement of Changes in Net Assets
================================================================================
In thousands
Unaudited
T. Rowe Price Prime Reserve Fund
6 Months Year
Ended Ended
11/30/96 5/31/96
-------- -------
Increase (Decrease) in Net Assets
Operations
Net investment income ...................... $ 100,598 $ 201,227
Net realized gain (loss) ................... 631 778
Change in net unrealized gain or loss ...... -- 335
Increase (decrease) in net assets from operations 101,229 202,340
Distributions to shareholders
Net investment income (100,598) (202,178)
Capital share transactions *
Shares sold 4,842,964 7,790,741
Distributions reinvested 96,438 196,288
Shares redeemed (4,576,263)(7,816,950)
Increase (decrease) in net assets from capital
share transactions 363,139 170,079
Net Assets
Increase (decrease) during period 363,770 170,241
Beginning of period 4,011,019 3,840,778
End of period $4,374,789 $4,011,019
*Share information
Shares sold 4,842,964 7,790,743
Distributions reinvested 96,437 196,288
Shares redeemed (4,576,263)(7,816,950)
Increase (decrease) in shares outstanding 363,138 170,081
================================================================================
<PAGE>
Notes to Financial Statements
Unaudited November 30, 1996
================================================================================
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
================================================================================
T. Rowe Price Prime Reserve Fund, Inc., (the fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company and commenced operations on March 3, 1976.
Valuation Securities are valued at amortized cost. Assets and liabilities for
which such valuation procedures 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.
Premiums and Discounts Premiums and discounts on debt securities are amortized
for both financial reporting and tax purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. 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 $2,308,000, of which $1,035,000 expires in 1997,
and $1,273,000 in 1998. The fund intends to retain gains realized in future
periods that may be offset by available capital loss carryforwards.
At November 30, 1996, the aggregate cost of investments for federal income tax
and financial reporting purposes was $4,469,464,000.
================================================================================
<PAGE>
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 $1,353,000 was payable at November 30, 1996. 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 0.305% for assets in excess of $50 billion. At
November 30, 1996, and for the six months then ended, the effective annual group
fee rate was 0.33%. 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) invest. 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
$4,436,000 for the six months ended November 30, 1996, of which $1,057,000 was
payable at period-end.
================================================================================
Investment Services And Information
================================================================================
- --------------------------------------------------------------------------------
Knowledgeable Service Representatives
- --------------------------------------------------------------------------------
By Phone Shareholder service representatives are available from 8 a.m. to 10
p.m. ET Monday through Friday and from 8:30 a.m. to 5 p.m. ET on weekends. 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.
- --------------------------------------------------------------------------------
<PAGE>
Automated 24-Hour Services
- --------------------------------------------------------------------------------
Tele*Access(Registration mark) Call 1-800-638-2587 to obtain information such as
account balance, date and amount of your last transaction, latest dividend
payment, fund prices, and yields. Additionally, you have the ability to request
prospectuses, statements, and account and tax forms; to reorder checks; and to
initiate purchase, redemption, and exchange orders for identically registered
accounts.
T. Rowe Price OnLine Through a personal computer via dial-up modem,
you can replicate all the services available on Tele*Access plus conduct
transactions in your Discount Brokerage and Variable Annuity accounts.
- --------------------------------------------------------------------------------
Account Services
- --------------------------------------------------------------------------------
Checking Write checks for $500 or more on any money market and most
bond fund accounts (except the High Yield and Emerging Markets Bond Funds).
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.
- --------------------------------------------------------------------------------
Discount Brokerage *
- --------------------------------------------------------------------------------
Investments Available You can trade stocks, bonds, options, precious metals, and
other securities at a savings over regular commission rates.
To Open an Account
Call a shareholder service representative for more information.
- --------------------------------------------------------------------------------
<PAGE>
Investment Information
- --------------------------------------------------------------------------------
Combined Statement A comprehensive overview of your T. Rowe Price accounts is
provided. The summary page gives you 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.
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 This is a quarterly newsletter with relevant articles
on market trends, personal financial planning, and T. Rowe Price's economic
perspective.
Performance Update This quarterly report reviews recent market developments and
provides comprehensive performance information for every T. Rowe Price fund.
Insights This library of information 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, and Retirement Planning Kit (also
available on disk for PC use) can help you determine and reach your investment
goals.
* A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
================================================================================
- --------------------------------------------------------------------------------
<PAGE>
Mutual Funds
- --------------------------------------------------------------------------------
Stock Funds
- -------------------------
Domestic
- -------------------------
Balanced
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Dividend Growth
Equity Income
Equity Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era New Horizons *
OTC
Science & Technology
Small-Cap Value *
Spectrum Growth
Value
International/Global
- -------------------------
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
================================================================================
<PAGE>
Bond Funds
- -----------------------------
Domestic Taxable
- -----------------------------
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-free
- -----------------------------
California Tax-Free Bond
Florida Insured Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
Virginia Tax-Free Bond
International/Global
- -----------------------------
Global Government Bond
Emerging Markets Bond
International Bond
================================================================================
<PAGE>
Money Market
- -----------------------------
Taxable
- -----------------------------
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
- -----------------------------
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
Blended Asset
- -----------------------------
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
T. Rowe Price No-Load Variable Annuity
- ----------------------------------------
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
*Closed to new investors.
================================================================================
================================================================================
For yield, price, last transaction,
current balance or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(R):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
<PAGE>
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
http://www.troweprice.com
T. Rowe Price Associates
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).
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor
RPRTPRF 11/30/96
