<PAGE>
- --------------------------------------------------------------------------------
Fellow Shareholders
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
The bond market continued its yearlong rally over the last six months, buoyed by
subdued inflation and the renewed vigor of budget-balancing efforts in
Washington. Yields on money market securities declined. The market's surge in
the first half of 1995 was driven by an inventory correction that pushed
economic growth down to an annualized rate of 1.3% in the second calendar
quarter, well below the robust 4.1% pace of 1994. The economy's anemic
performance sparked concern that the Federal Reserve's long period of monetary
tightening, with seven hikes in the key federal funds target between February
1994 and February 1995, had perhaps gone too far.
- --------------------------------------------------------------------------------
Interest Rate Levels
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
A 4-line chart showing interest rates on the 1-Year Treasury bill, 30-day
commercial paper, 90-day Treasury bill, and the fed funds rate from 11/30/94
through 11/30/95.
Responding to indications of softness, the Fed lowered the federal funds
target to 5.75% in July, its first reduction in nearly three years. Money market
yields, which generally track the fed funds rate, fell in tandem. Subsequently,
they declined further on continued signs of subdued inflation and a belief that
federal deficit reduction will lead to a more stimulative Fed policy over the
next few years. Nevertheless, money market yields remained competitive with
yields of intermediate-term securities, which fell below the fed funds target
due to optimism about deficit reduction.
The economic expansion is now into its fifth year, but there are few, if
any, signs of an impending recession. If the federal government reduces
spending, the slack will have to be taken up by the private sector to maintain
full employment, probably compelling the Fed to ease. That could lead to lower
yields on money market securities.
PORTFOLIO STRATEGY AND PERFORMANCE
The sharp drop in short-term rates was reflected in your fund's yield, which
slid from 5.62% in May to 5.40% on November 30. During the spring, we adopted a
slightly longer maturity posture than our peers, based on our view that the Fed
would lower interest rates due to the markedly slowing economy. On May 31, the
fund's weighted average maturity (WAM)
- --------------------------------------------------------------------------------
Yield Comparison
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
A bar chart showing yields on the Prime Reserve Fund, Donoghue's Average of
First Tier Money Funds, and Money Market Deposit Accounts on 11/30/94, 4/30/95,
8/31/95 and 11/30/95.
<PAGE>
stood at 64 days, and we maintained that posture for most of the succeeding six
months.
Although we reduced the fund's WAM to 60 days as of November 30, normally a
response to an expected rise in rates, we still believe the Fed will ease. The
slightly lower WAM merely reflects a more neutral position relative to our
peers, because we believe the market has fully discounted upcoming reductions in
the federal funds rate. Since the Fed, in our view, is unlikely to raise short-
term interest rates in the near future, we expect to keep the fund's WAM close
to its peer group average. As shown in the chart on the previous page, your
fund's yield closely tracked its peer group average for the last 12 months.
We continued to emphasize fixed rate obligations at 89% of net assets,
versus floating rate instruments, because the former are more attractive in a
falling rate environment. As a result of these moves, your fund produced
favorable results for both reporting periods, essentially matching its peer
group average.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 11/30/95
6 Months 12 Months
----------------------
<S> <C> <C>
Prime Reserve Fund 2.68% 5.49%
Donoghue's Average of
First Tier Money Funds 2.66 5.44
- --------------------------------------------------------------------------------
</TABLE>
The fund remained well diversified in high-quality, short-term debt
instruments. Although exposure to the banking sector dropped from 62% of net
assets to 48% over the last six months, it remains relatively high because banks
account for the bulk of short-term debt issuance. We made some significant
shifts among various bank instruments, but these moves reflected the
availability more than the relative attractiveness of these securities. For
instance, although we are comfortable with the credit outlook for foreign banks,
we decreased our holdings of U.S. dollar-denominated foreign negotiable CDs from
23% of net assets on May 31 to 10% on November 30 due to lack of supply in that
sector.
OUTLOOK
If Congress and the Clinton administration can rise above their rancorous debate
to achieve meaningful steps toward deficit reduction, interest rates are likely
to edge lower in 1996. Although progress could still evaporate, as it did with
the Gramm-Rudman-Hollings proposals in the 1980s, we remain cautiously
optimistic on the prospects for a balanced budget by 2002. In our view,
inflation will remain subdued, and the economy will grow in real terms at its
historical pace of approximately 2.5%.
Respectfully submitted,
/s/ Edward A. Wiese
Edward A. Wiese
President and Chairman of the
Investment Advisory Committee
December 15, 1995
2
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Highlights
T. Rowe Price Prime Reserve Fund / November 30, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Statistics
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
7-Day Compound Dividend Yield*
- --------------------------------------------------------------------------------
As of 5/31/95 5.62%
As of 11/30/95 5.40
Dividend Per Share (Periods Ended 11/30/95)
- --------------------------------------------------------------------------------
6 Months $0.027
12 Months 0.054
- --------------------------------------------------------------------------------
</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.
- --------------------------------------------------------------------------------
Maturity Diversification
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
Range (days) 5/31/95 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
0-30 40% 40%
31-60 22 17
61-90 20 30
91-120 4 8
121-180 8 --
181-365 6 5
- --------------------------------------------------------------------------------
Weighted Average 64 days 60 days
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Quality Diversification
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
TRPA Quality Rating* 5/31/95 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
1 26% 16%
2 62 65
3 12 19
- --------------------------------------------------------------------------------
Weighted Average 1.8 2.0
- --------------------------------------------------------------------------------
</TABLE>
* On a scale of 1 to 10, with Grade 1 representing highest quality.
- --------------------------------------------------------------------------------
Sector Diversification*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
5/31/95 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
Banking 15% 20%
Foreign Government and
Municipalities 4 11
U.S. Dollar-Denominated
Foreign Negotiable CDs 23 10
Domestic Negotiable
Bank Notes 9 7
Finance and Credit 7 7
Eurodollar Negotiable CDs 10 6
Broker/Dealers 1 5
Asset-Backed 8 5
U.K. Building Societies 5 5
Industrial 7 4
U.S. Government and
Agency -- 3
Automobiles -- 3
Telephone 3 3
Canadian Government and
Municipalities -- 3
- --------------------------------------------------------------------------------
Fixed Rate Obligations 92 89
Floating Rate Instruments 8 11
- --------------------------------------------------------------------------------
</TABLE>
* Sectors representing at least 2% of net assets on 11/30/95.
- --------------------------------------------------------------------------------
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
Periods Ended November 30, 1995
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
5.49% 4.19% 5.73%
</TABLE>
- --------------------------------------------------------------------------------
Note: For the above periods ended 9/30/95, the fund's returns were 5.36%, 4.27%,
and 5.77%, 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>
- --------------------------------------------------------------------------------
Statement of Net Assets
T. Rowe Price Prime Reserve Fund / November 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
(amounts in thousands)
<TABLE>
<CAPTION>
Amount Value
---------- ----------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Auto-Backed -- 0.0%
- -----------------------------------------------------------------------------------------------------------------------------
Banc One Auto Trust, 6.363%, 4/15/96 (Cost $1,835)........................................ $ 1,835 $ 1,835
- -----------------------------------------------------------------------------------------------------------------------------
Bank Notes -- 7.0%
- -----------------------------------------------------------------------------------------------------------------------------
Bank of New York (Delaware), 5.92%, 10/24/96.............................................. 65,000 65,000
Bank One Milwaukee, 7.25%, 2/9/96......................................................... 14,000 14,034
Boatmen's Bank, VR, 5.875%, 2/14/96....................................................... 21,000 20,998
FCC National Bank, 5.77%, 2/16/96......................................................... 25,000 24,998
First National Bank of Boston, VR, 5.958%, 1/10/96........................................ 23,000 23,002
First National Bank of Maryland, 5.73%, 2/6/96............................................ 25,000 25,001
First Union National Bank (North Carolina), 5.80%, 1/31/96................................ 25,000 25,000
Huntington National, VR, 5.84%, 12/13/95.................................................. 25,000 25,000
NBD Bank, N.A., 6.125%, 6/3/96............................................................ 14,150 14,182
PNC Bank, N.A., 5.93%, 2/26/96............................................................ 10,000 10,003
VR, 5.763, 12/19/95.................................................................... 30,000 29,993
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL BANK NOTES (COST $277,211).......................................................... 277,211
- -----------------------------------------------------------------------------------------------------------------------------
Bankers' Acceptances -- 0.0%
- -----------------------------------------------------------------------------------------------------------------------------
First Alabama Bank, 5.72%, 2/14/96 (Cost $983)............................................ 1,000 983
- -----------------------------------------------------------------------------------------------------------------------------
Certificates of Deposit -- 17.1%
- -----------------------------------------------------------------------------------------------------------------------------
ABN AMRO, 5.74%, 12/19/95................................................................. 10,000 10,001
(London), 5.74%, 1/18/96............................................................... 46,000 46,001
Banco Bilbao Vizcaya, (London), 5.81%, 2/1/96............................................. 15,000 15,000
Bank of Nova Scotia, 5.71 - 5.75%, 1/31 - 2/13/96......................................... 27,000 26,999
Bank of Scotland, (London), 5.79%, 2/20/96................................................ 65,000 65,003
Banque Nationale de Paris, 5.75 - 5.84%, 1/23 - 2/29/96................................... 78,000 77,996
Bayerische Hypotheken und Wechsel, 5.68%, 3/22/96......................................... 33,000 32,989
(London), 5.76 - 5.79%, 2/12 - 2/14/96................................................. 55,000 55,001
Bayerische Landesbank, 5.67%, 12/15/95.................................................... 20,000 20,000
Canadian Imperial Bank of Commerce, 5.77 - 5.78%, 12/26/95................................ 45,000 45,000
Chemical Bank, (London), 5.74%, 12/6/95................................................... 22,000 22,000
Commerzbank, 5.76%, 12/1/95............................................................... 9,000 9,000
Credit Suisse, 5.64%, 1/17/96............................................................. 5,000 4,999
MBNA America Bank N.A., 5.75 - 5.85%, 3/4 - 3/18/96....................................... 45,000 45,000
National Bank of Canada, VR, 5.813%, 12/26/95............................................. 20,000 20,000
NBD Bank, N.A., (London), 5.75%, 3/11/96.................................................. 12,000 12,001
Royal Bank of Canada, 5.62%, 12/21/95..................................................... 50,000 49,999
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
---------- ----------
<S> <C> <C>
Societe Generale, 5.73 - 5.86%, 1/8 - 3/20/96............................................. $ 100,000 $ 100,004
(London), 5.77%, 2/29/96............................................................... 20,000 20,002
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CERTIFICATES OF DEPOSIT (COST $676,995) 676,995
- -----------------------------------------------------------------------------------------------------------------------------
Commercial Paper -- 61.1%
- -----------------------------------------------------------------------------------------------------------------------------
Abbey National North America, 5.67 - 5.72%, 12/7/95 - 1/31/96............................. 84,300 83,077
A H Robins, 4(2), 5.72 - 5.75%, 12/13/95 - 2/6/96......................................... 30,600 30,236
American Express Credit, 5.65 - 5.67%, 12/5/95 - 3/14/96.................................. 67,900 66,612
American Home Products, 4(2), 5.72%, 2/7/96............................................... 29,000 28,456
ANZ (Delaware), 5.70 - 5.73%, 12/1/95 - 1/26/96........................................... 22,839 22,496
Asset Securitization Cooperative, 4(2), 5.65 - 5.74%, 12/8/95 - 2/16/96................... 85,700 84,481
AT&T, 5.64 - 5.70%, 1/25 - 2/22/96........................................................ 55,700 54,674
Bank of Nova Scotia, 5.70%, 12/18/95...................................................... 50,000 49,557
Barnett Banks, 5.81%, 12/7/95............................................................. 30,400 30,297
B.B.V. Finance (Delaware), 5.61%, 1/26/96................................................. 17,000 16,531
BMW U.S. Capital, 5.66 - 5.69%, 2/12 - 2/22/96............................................ 46,550 45,808
BNP Canada, 5.65 - 5.70%, 12/13 - 12/19/95................................................ 7,000 6,878
Cadbury Schweppes Money Management, 5.75%, 12/6/95........................................ 10,000 9,909
Caisse des Depots et Consignations, 4(2), 5.62 - 5.77%, 12/5/95 - 2/1/96.................. 97,302 96,242
Caisse Nationale des Telecommunications, 5.75%, 12/4/95................................... 7,480 7,455
Chase Manhattan, 5.67%, 2/13/96........................................................... 50,000 49,287
Cheltenham & Glouster, 5.55 - 5.71%, 12/14/95 - 2/8/96.................................... 49,200 48,285
Chemical Banking, 5.72%, 1/31/96.......................................................... 10,000 9,854
Ciesco L.P., 4(2), 5.70%, 12/13 - 12/20/95................................................ 28,700 28,391
CIT Group Holdings, 5.68%, 2/2/96......................................................... 3,897 3,848
Corestates Capital, 5.67%, 2/13/96........................................................ 10,000 9,855
Countrywide Funding, 5.76 - 5.77%, 12/11 - 12/18/95....................................... 58,800 58,448
CPC International, 4(2), 5.67%, 2/13/96................................................... 20,000 19,622
Cregem North America, 5.50 - 5.72%, 12/29/95 - 2/15/96.................................... 75,000 73,356
Daimler-Benz North America, 5.66%, 2/15/96................................................ 17,000 16,738
Dean Witter Discover & Company, 5.70 - 5.73%, 1/11 - 1/23/96.............................. 40,000 39,528
Delaware Funding, 5.62%, 12/14/95......................................................... 5,066 4,998
Dover, 4(2), 5.74 - 5.75%, 12/11 - 12/13/95............................................... 21,000 20,899
Export Development, 5.80%, 12/5/95........................................................ 2,564 2,559
Exxon Imperial, 4(2), 5.72%, 1/19/96...................................................... 22,286 22,003
Finnish Export Credit Ltd., 5.70 - 5.71%, 1/17 - 1/29/96.................................. 26,800 26,371
Ford Credit Europe, 5.68%, 2/12/96........................................................ 31,000 30,418
Ford Motor Credit, 5.65%, 12/12/95........................................................ 25,000 24,651
Generale Bank, 5.65 - 5.68%, 2/21 - 3/6/96................................................ 40,000 39,401
Hanson Finance (U.K.), 4(2), 5.67 - 5.70%, 1/19 - 2/28/96................................. 23,365 22,996
Household Finance, 5.73%, 12/7/95......................................................... 11,000 10,947
Household International, 4(2), 5.70%, 2/15/96............................................. 25,000 24,529
Island Finance Puerto Rico, 5.66 - 5.73%, 1/22 - 3/8/96................................... 80,850 79,579
KFW International Finance, 5.665 - 5.75%, 2/7 - 2/29/96................................... 35,000 34,513
Kingdom of Spain, 5.75%, 1/17/96.......................................................... 13,400 13,293
Kingdom of Sweden, 5.50 - 5.70%, 1/16 - 2/27/96........................................... 107,500 104,800
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
---------- ----------
<S> <C> <C>
Korea Development Bank, 5.67%, 2/8 - 2/26/96.............................................. $ 45,000 $ 44,348
Merrill Lynch & Co., 5.75%, 1/30/96....................................................... 44,000 43,424
Mobil Australia Finance, 4(2), 5.665%, 2/16/96............................................ 6,780 6,681
National Australia Funding (Delaware), 5.72%, 1/22/96..................................... 19,500 19,243
National City Credit, 5.70 - 5.73%, 12/1 - 12/13/95....................................... 60,100 59,488
NationsBank, 5.625%, 1/12/96.............................................................. 15,000 14,634
Nestle Capital, 5.68%, 2/2/96............................................................. 5,000 4,938
New Center Asset Trust, 5.74%, 12/12/95................................................... 25,000 24,884
Nordic Investment, 5.70%, 12/28/95........................................................ 25,000 24,671
Pepsico, 4(2), 6.90%, 2/16/96............................................................. 15,000 15,029
Preferred Receivables Funding, 5.73 - 5.75%, 12/5/95 - 1/24/96............................ 28,900 28,737
Province of British Columbia, 5.60 - 5.65%, 12/12/95 - 1/3/96............................. 65,300 63,646
Province of Quebec, 5.62 - 5.80%, 12/6/95 - 2/27/96....................................... 34,422 33,525
Repsol International, 5.65%, 12/4/95...................................................... 20,000 19,523
Republic New York, 5.61%, 1/4/96.......................................................... 20,000 19,536
Royal Bank of Canada, 5.72%, 1/22/96...................................................... 23,000 22,700
RTZ America, 4(2), 5.62%, 12/15/95........................................................ 10,000 9,858
Santander Finance (Delaware), 5.65%, 12/22/95............................................. 18,000 17,520
SBNSW (Delaware), 5.65%, 2/15 - 2/20/96................................................... 30,000 29,421
Sears Roebuck Acceptance, 5.75%, 1/29/96.................................................. 35,000 34,502
Smith Barney Shearson, 5.75%, 12/22/95.................................................... 35,000 34,827
Southern Company, 4(2), 5.75%, 12/18 - 12/21/95........................................... 6,193 6,165
Southern New England Telecommunications, 4(2), 5.72%, 1/26/96............................. 11,428 11,299
Statoil (Den Norske Stats Oljeselskap), 5.74 - 5.75%, 12/8 - 12/19/95..................... 19,500 19,401
Sysco, 4(2), 5.70%, 12/14/95.............................................................. 17,000 16,841
Tasmanian Public Finance, 5.55 - 5.61%, 2/5 - 3/18/96..................................... 48,000 46,635
Teco Finance, 4(2), 5.665%, 2/16/96....................................................... 6,000 5,913
Telstra, 5.72%, 12/15/95.................................................................. 8,000 7,954
Transamerica Financial Group, 5.68%, 2/23/96.............................................. 30,000 29,583
U.S. Borax & Chemical, 4(2), 5.665 - 5.67%, 2/12 - 2/20/96................................ 38,700 38,116
Western Australian Treasury, 5.68%, 2/20/96............................................... 3,775 3,726
Westpac Capital, 5.50 - 5.67%, 12/12/95 - 1/31/96......................................... 60,000 58,315
WMX Technologies, 4(2), 5.45%, 3/27/96.................................................... 35,000 33,633
Wool International, 5.64%, 2/2/96......................................................... 21,300 20,783
Woolwich Building Society, 5.52 - 5.57%, 12/14/95......................................... 54,000 52,741
Yale University, 5.66 - 5.70%, 1/19 - 2/20/96............................................. 16,732 16,480
Yorkshire Building Society, 5.68 - 5.70%, 12/11/95 - 2/20/96.............................. 25,000 24,729
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST $2,415,327) 2,415,327
- -----------------------------------------------------------------------------------------------------------------------------
Medium-Term Notes -- 11.6%
- -----------------------------------------------------------------------------------------------------------------------------
AT&T Capital, VR, 5.838%, 12/15/95........................................................ 40,000 40,000
Bear Stearns Company, VR, 5.894%, 12/29/95................................................ 45,000 45,000
Chemical Banking, VR, 6.075 - 6.238%, 1/19 - 2/19/96...................................... 27,295 27,333
Citicorp, Eurodollar, VR, 6.00%, 12/15/95................................................. 9,000 9,000
Corestates Capital, VR, 5.873%, 12/16/95.................................................. 5,250 5,252
Corporate Asset Funding, VR, 5.787%, 12/29/95............................................. 28,000 27,992
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
---------- ----------
<S> <C> <C>
Fleet Mortgage Group, VR, 5.763 - 6.163%, 12/20 - 12/28/95................................ $ 39,000 $ 39,019
Ford Motor Credit, VR, 6.175 - 6.188%, 1/10 - 2/10/96..................................... 8,950 8,965
General Electric Capital, 4.46%, 4/1/96................................................... 5,000 4,977
General Motors Acceptance Corporation, 8.625 - 9.00%, 2/8 - 7/15/96....................... 6,000 6,043
VR, 5.88 - 5.93%, 12/5/95.............................................................. 21,880 21,879
Eurodollar, 6.25%, 12/1/95.......................................................... 6,000 6,013
Goldman Sachs Group LP, VR, 5.828%, 12/24/95.............................................. 42,000 42,000
Morgan Stanley Group, VR, 5.95%, 12/11/95................................................. 10,000 10,000
PHH, VR, 5.791%, 12/9/95.................................................................. 50,000 49,977
Sears Roebuck Acceptance, 8.54%, 8/14/96.................................................. 3,000 3,049
Toyota Motor Credit, 15.00%, 12/29/95..................................................... 30,000 30,205
Wells Fargo & Company, VR, 5.813%, 12/20/95............................................... 5,000 5,000
WMX Technologies, 4.875%, 6/15/96......................................................... 4,000 3,978
World Savings & Loan Association, VR, 5.813%, 12/14 - 12/21/95............................ 72,000 71,999
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL MEDIUM-TERM NOTES (COST $457,681)................................................... 457,681
- -----------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Obligations -- 3.1%
- -----------------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Assn., 5.813 - 6.00%, 12/27/95 - 10/7/96........................ 100,000 100,000
VR, 5.58%, 2/16/96..................................................................... 23,000 22,990
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $122,990).................................. 122,990
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 99.9% OF NET ASSETS (COST $3,953,022).................. 3,953,022
- -----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES............................................................. 2,879
----------
<CAPTION>
NET ASSETS CONSIST OF: Value
----------
<S> <C> <C>
Accumulated net investment income - net of distributions.................................. $ 991
Accumulated net realized gain/loss - net of distributions................................. (2,912)
Paid-in-capital applicable to 3,958,981,723 shares of $0.01 par
value capital stock outstanding; 15,000,000,000 shares authorized...................... 3,957,822
----------
NET ASSETS................................................................................ $3,955,901
==========
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.
7
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund / Six Months Ended November 30, 1995
(Unaudited)
(in thousands)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest income.................................................. $116,483
--------
Expenses
Investment management.......................................... 7,618
Shareholder servicing.......................................... 5,057
Prospectus and shareholder reports............................. 185
Custody and accounting......................................... 168
Registration................................................... 33
Directors...................................................... 19
Legal and audit................................................ 17
Miscellaneous.................................................. 33
--------
Total expenses................................................. 13,130
--------
Net investment income............................................ 103,353
--------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on securities........................... 301
Change in net unrealized gain or loss on securities.............. 335
--------
Net realized and unrealized gain (loss).......................... 636
--------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS................ $103,989
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1995 May 31, 1995
----------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income......................................................... $ 103,353 $ 179,199
Net realized gain (loss)...................................................... 301 613
Change in net unrealized gain or loss......................................... 335 2,005
----------- -----------
Increase (decrease) in net assets from operations............................. 103,989 181,817
----------- -----------
Distributions to shareholders
Net investment income......................................................... (104,127) (179,540)
----------- -----------
Capital share transactions*
Shares sold................................................................... 3,635,426 6,221,625
Distributions reinvested...................................................... 100,634 172,687
Shares redeemed............................................................... (3,620,799) (6,183,066)
----------- -----------
Increase (decrease) in net assets from capital share transactions............. 115,261 211,246
----------- -----------
Increase (decrease) in net assets............................................... 115,123 213,523
NET ASSETS
Beginning of period............................................................. 3,840,778 3,627,255
----------- -----------
End of period................................................................... $ 3,955,901 $ 3,840,778
=========== ===========
- --------------------------------------------------------------------------------------------------------------------------
*Share information
Shares sold................................................................... 3,635,426 6,221,625
Distributions reinvested...................................................... 100,636 172,682
Shares redeemed............................................................... (3,620,799) (6,183,066)
----------- -----------
Increase (decrease) in shares outstanding..................................... 115,263 211,241
=========== ===========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund / November 30, 1995 (Unaudited)
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.
A) 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.
B) Premiums and Discounts - Premiums and discounts on debt securities are
amortized for both financial reporting and tax 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 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 $3,212,000, of which $904,000 expires in 1996,
$1,035,000 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, 1995, the aggregate cost of investments for federal income
tax and financial reporting purposes was $3,953,022,000.
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 $1,269,000 was payable at November 30, 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
November 30, 1995, and for the six months 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
$4,277,000 for the six months ended November 30, 1995, of which $837,000 was
payable at period-end.
10
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
T. Rowe Price Prime Reserve Fund (Unaudited)
<TABLE>
<CAPTION>
For a share outstanding throughout each period
---------------------------------------------------------------------------------
Six Three
Months Year Months Year Ended
Ended Ended Ended -------------------------------------------
Nov. 30, May 31, May 31, Feb. 28, Feb. 28, Feb. 29, Feb. 28,
1995 1995 1994++ 1994 1993 1992 1991
-------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.................. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------
Investment Activities
Net investment income................ 0.027 0.047 0.008 0.026 0.030 0.051 0.073
Distributions
Net investment income................ (0.027) (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 $1.000
====== ====== ====== ====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total return........................... 2.68% 4.85% 0.76% 2.60% 3.06% 5.26% 7.56%
Ratio of expenses to average
net assets........................... 0.67%+ 0.67% 0.73%+ 0.74% 0.75% 0.78% 0.75%
Ratio of net investment income
to average net assets................ 5.26%+ 4.76% 3.02%+ 2.56% 3.04% 5.14% 7.33%
Net assets, end of period
(in millions)........................ $3,956 $3,841 $3,627 $3,379 $3,597 $4,115 $4,753
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ The fund's fiscal year-end was changed to May 31.
11
<PAGE>
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
T. Rowe Price
- -------------
PRIME RESERVE FUND
NOVEMBER 30, 1995
FOR YIELD, PRICE, LAST TRANSACTION, AND CURRENT BALANCE, 24 HOURS,
7 DAYS A WEEK, CALL:
1-800-638-2587 toll free
625-7676 Baltimore area
FOR ASSISTANCE WITH YOUR EXISTING FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to shareholders and to others
who have received a copy of the prospectus of the T. Rowe Price Prime Reserve
Fund/(R)/.
[LOGO OF T. ROWE PRICE APPEARS HERE]
PRF
