Semiannual Report
Prime Reserve
Fund
November 30, 1998
T. Rowe Price
Report Highlights
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Prime Reserve Fund
o The six-month period was marked by falling interest rates, international
currency crises, and investor preference for high-quality instruments.
o The Prime Reserve Fund posted better performance than its peer group;
dividends per share were stable.
o Prime Reserve PLUS, a separate class of shares of Prime Reserve, began
operations on November 1, 1998.
o We approximately doubled our positions in floating rate instruments and
Eurodollar certificates of deposit.
o If it becomes clear that the economy is slowing, the Fed may lower interest
rates further.
Fellow Shareholders
Sparked by Federal Reserve action, interest rates fell sharply during the
six-month period ended November 30, 1998. The trend benefited longer maturity
issues but crimped yield on short-term securities. The Prime Reserve Fund posted
a better return than its competitors and kept dividends stable. Meanwhile, Prime
Reserve PLUS began operations on November 1, 1998.
MARKET ENVIRONMENT
After leaving monetary policy unchanged for 17 months, the Fed began to lower
the federal funds target rate in late September, with subsequent cuts in October
and November. This dramatic easing resulted less from domestic economic weakness
than from a spate of international problems. Beginning in August, the markets
for emerging debt and equities experienced a meltdown. Russia devalued its
currency and defaulted on its debts, throwing the currency markets into turmoil
and depressing the U.S. equity market by 15% as measured by the Dow Jones
Industrial Average.
Prime Reserve PLUS
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Starting November 1, 1998, we created a new class of shares for the Prime
Reserve Fund called the Prime Reserve Fund - PLUS Class. The new share class is
offered as part of our new Asset Manager Account, which incorporates a number of
additional services, such as unlimited checkwriting and a debit card. Both the
Prime Reserve Fund and Prime Reserve PLUS are based on the same portfolio, and
as such will be reported on together in future annual and semiannual reports.
However, performance will differ because the classes of shares have different
expense ratios. Prime Reserve PLUS will have no impact on the expenses, share
price, or yield of the original Prime Reserve Fund.
With the September rate cut, the Fed sought to improve a liquidity crunch that
followed the global currency crisis, and many investors expected it to be the
first of several orderly reductions. However, in early October, the collapse of
the Long Term Capital Management hedge fund pushed the Fed to lower rates
unexpectedly because, as it stated at the time, there was a change in the
world's risk profile, and the outlook for the U.S. economy had weakened.
Finally, at the Federal Open Market Committee (FOMC) meeting in mid-November,
the Fed once again cut the federal funds rate to 4.75% and the discount rate to
4.50%. This additional liquidity seemed to stabilize most markets.
Preparing For The Year 2000
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The Year 2000 draws closer every day, and it holds special meaning beyond the
arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all new
systems process and store four-digit years. We will complete all reprogramming
efforts for the major application systems, including business applications
required to service our customers and processing infrastructure necessary to
ensure the integrity of customer data and investments, by December 31, 1998,
leaving a full 12 months for system testing. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be able
to modify their interface files prior to December 31, 1999. Our goal is to
identify any noncompliant files so that we can implement alternative solutions.
In addition, we are scheduling tests for critical vendors and companies that
claim Year 2000 compliance to ensure that time-related data and calculations
function properly as we move into the next century.
SMOOTH TRANSITION PLANNED
We believe our programs and initiatives will provide a smooth transition into
the next millennium. We are assessing all systems providing products or services
to our retail mutual fund shareholders, retirement plan sponsors, and
participants, and we are taking steps to modify them where necessary for the
Year 2000. Our plan provides time to develop solutions for all noncompliant
systems and data files from customers or vendors.
The Securities Industry Association (SIA) is coordinating Year 2000 testing to
assure that securities markets, clearing corporations, depositories, and third
party service providers can send, receive, and process files and transactions
accurately. In late July 1998, the SIA completed a beta test of Year 2000
readiness. The test was considered successful in terms of transactions completed
and will serve as the basis for the SIA's industry-wide approach. During October
1998, T. Rowe Price completed its beta test of Year 2000 readiness with the SIA
and is ready for the industry-wide test that is scheduled for March and April
1999.
For a more detailed discussion of our Year 2000 effort, as well as continuing
updates on our progress, please check our Web site (www.troweprice.com).
Interest Rate Levels
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1-Year 90-Day Federal Funds
Treasury Bill Treasury Bill Target Rate
11/30/97 5.50 5.27 5.50
5.52 5.40 5.50
5.28 5.22 5.50
2/28/98 5.42 5.16 5.50
5.39 5.19 5.50
5.45 5.05 5.50
5/31/98 5.43 5.09 5.50
5.38 5.11 5.50
5.37 5.07 5.50
8/31/98 5.10 5.03 5.50
4.41 4.38 5.25
4.10 4.21 5.00
11/30/98 4.59 4.58 4.75
There was a pronounced flight to high-quality assets during the height of the
crisis, with investors abandoning lower-quality corporate or foreign bonds in
favor of Treasuries and short-term instruments. In October, for example, the
yield on 90-day certificates of deposit issued by domestic or foreign banks was
85 basis points higher than the yield on 90-day U.S. Treasury bills (100 basis
points equal one percentage point). This spread was significantly higher than
average (it narrowed to 75 basis points by the end of November) and indicated
that investor demand for Treasuries significantly outpaced the demand for those
corporate issues.
Another important phenomenon of the past six months was the continuing
flattening of the short-term yield curve. In June, one-year Treasury bills
offered 27 basis points more yield than 90-day Treasury bills. By the end of
November, this difference was only one basis point (4.59% vs. 4.58%). This
flatness reduced the incentive to purchase longer-term issues as there was
little incremental yield to be gained.
PERFORMANCE AND STRATEGY REVIEW
The Prime Reserve Fund ended the six-month period with a 2.51% total return,
exceeding the 2.39% result posted by the Lipper Money Market Funds Average. Its
12-month gain of 5.14% also outpaced the peer group's 4.89% showing. We were
able to keep dividends per share stable from prior periods.
Since its inception on November 1, 1998, the Prime Reserve PLUS shares returned
0.35%, slightly behind the 0.37% return of the Lipper peer group. Higher
expenses carried by the PLUS shares, reflecting their additional services, help
explain this result.
The most important factor contributing to the Prime Reserve Fund's above-average
performance was a longer-than-average maturity, which was maintained throughout
the year. Over the past six months, the weighted average maturity was 10 to 15
days longer than the average money fund, which helped us lock in higher income
when interest rates declined.
Performance Comparison
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Since Inception*
Periods Ended 11/30/98 6 Months 12 Months (PLUS Shares)
- --------------------------------------------------------------------------------
Prime Reserve Fund 2.51% 5.14% --
Prime Reserve PLUS Shares -- -- 0.35%
Lipper Money Market
Funds Average 2.39 4.89 0.37
*11/1/98
During the period, we adjusted the portfolios' maturity structure. In the past
we have used a "barbell" approach, splitting assets between CDs or commercial
paper with longer maturities and very short 30-day bills to achieve an average
maturity we found desirable. This approach allowed us to take advantage of
higher yields on the long bills, while the short bills provided some protection
against the possibility of increasing rates. As rates fell and the short-term
yield curve flattened, however, we shifted to issues with maturities in a
narrower three- to six-month range. This "bullet" structure generally results in
a higher return when interest rates are declining, as it did in this case.
We increased our exposure to floating rate instruments from 8% to 17%. The
prices of these instruments became more attractive early in the period when
investors sold off virtually everything except Treasuries. Increased supply also
kept prices down. Priced correctly, floaters can add significant value to a
money market portfolio. We also maintained our exposure to asset-backed related
securities at over 20%. These instruments offer diversification, high credit
quality, and attractive yields when compared with other taxable money market
instruments. We doubled our exposure to Eurodollar CDs as increased supply made
them more competitively priced. However, our overall exposure to the banking
industry stayed the same at 43%.
OUTLOOK
The domestic economy is still exhibiting remarkable strength, as evidenced by a
third quarter 1998 GDP increase of 3.9%. Also, despite the newspaper headlines
about record layoffs, the U.S. expanded employment by well over two million jobs
this year. On the other hand, weakness in other global regions, especially Asia
and Latin America, has significantly depressed the outlook for future growth.
Declining growth rates may inspire the Fed to lower short-term rates further,
although we expect them to wait until they have some confirmation that the
economy is slowing down before doing so.
In this environment, we will tend to move the maturity of the fund closer to the
average of all money funds. We will continue to increase our investment in
asset-backed securities as the supply of this high credit-quality sector
expands, and add to our floating rate position as long as these instruments
remain competitively priced. As always, preservation of principal and liquidity
remain our prime concerns.
Respectfully submitted,
Edward A. Wiese
President and Chairman of the Investment Advisory Committee
December 15, 1998
T. Rowe Price Prime Reserve Fund
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Portfolio Highlights
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KEY STATISTICS
5/31/98 11/30/98
Prime Reserve Shares
- --------------------------------------------------------------------------------
Price Per Sharem $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.025 0.025
For 12 months 0.050 0.050
Dividend Yield (7-Day Compound) * 5.16% 4.94%
Weighted Average Maturity (days) 74 72
Weighted Average Quality ** First Tier First Tier
Prime Reserve PLUS Shares
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Price Per Share $ -- $ 1.00
Dividends Per Share
For 6 months -- --
For 12 months -- --
Dividend Yield (7-Day Compound) * -- 4.12
Weighted Average Maturity (days) -- 72
Weighted Average Quality ** -- 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.
T. Rowe Price Prime Reserve Fund
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Portfolio Highlights
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SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
5/31/98 11/30/98
Prime Reserve Fund
- --------------------------------------------------------------------------------
U.S. Negotiable Bank Notes 4% 5%
Certificates of Deposit 29 31
Domestic Negotiable CDs 3 3
Eurodollar Negotiable CDs 6 12
U.S. Dollar Denominated
Foreign Negotiable CDs 20 16
Commercial Paper and
Medium-Term Notes 65 63
Asset-Backed 15 16
Banking 10 7
Investment Dealers 5 6
Insurance -- 5
Asset-Backed Structured Notes 7 5
All Other 28 24
Canadian Government and Municipalities -- 1
Foreign Government and Municipalities 2 --
Other Assets Less Liabilities -- --
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Total 100% 100%
Fixed Rate Obligations 92 83
Floating Rate Obligations 8 17
T. Rowe Price Prime Reserve Fund
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Performance Comparison
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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.
PRIME RESERVE FUND
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As of 11/30/98
Prime Reserve Lipper Money Market
Fund Funds Average
11/88 10,000 10,000
11/89 10,891 10,895
11/90 11,748 11,750
11/91 12,446 12,441
11/92 12,877 12,872
11/93 13,213 13,211
11/94 13,668 13,674
11/95 14,404 14,424
11/96 15,109 15,138
11/97 15,861 15,903
11/98 16,676 16,721
Average Annual Compound Total Return
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This table shows how each share class would have performed each year if its
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Since Inception
Periods Ended 11/30/98 1 Year 5 Years 10 Years Inception Date
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Prime Reserve Shares 5.14% 4.83% 5.28% -- 1/26/76
Prime Reserve PLUS Shares -- -- -- 0.35% 11/1/98
Investment return represents past performance and will vary. An investment in
the fund is not insured or guaranteed by the FDIC or any other government
agency. Although the fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the fund.
T. Rowe Price Prime Reserve Fund
- --------------------------------------------------------------------------------
Unaudited
For a share outstanding throughout each period
Financial Highlights
- --------------------------------------------------------------------------------
Prime
Prime Reserve
Reserve PLUS
shares shares
6 Months Year 11/1/98
Ended Ended Through
11/30/98 5/31/98 5/31/97 5/31/96 5/31/95 11/30/98
NET ASSET VALUE
Beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
Investment activities
Net investment
income 0.025 0.050 0.048 0.051 0.047 0.003*
Distributions
Net investment
income (0.025) (0.050) (0.048) (0.051) (0.047) (0.003)
NET ASSET VALUE
End of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $1.000
-----------------------------------------------------------
Ratios/Supplemental Data
Total return# 2.51% 5.16% 4.92% 5.25% 4.85% 0.35%*
Ratio of expenses to
average net assets 0.63%! 0.63% 0.64% 0.66% 0.67% 1.00%*!
Ratio of net investment
income to average
net assets 4.96%! 5.06% 4.83% 5.07% 4.76% 4.25%*!
Net assets,
end of period
(in millions
except Prime
Reserve PLUS) $ 5,050 $ 4,889 $ 4,561 $ 4,011 $ 3,841 $43,775
# Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
* Excludes expenses in excess of a 1.00% voluntary expense limitation in
effect through 4/30/99.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Prime Reserve Fund
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Unaudited November 30, 1998
Statement of Net Assets
Par Value
- --------------------------------------------------------------------------------
In thousands
BANK NOTES 6.7%
Bank of America National
Trust & Savings, 5.65%, 1/7/99 $ 15,000 $ 14,999
Bankboston N.A.
5.335%, 2/17/99 30,000 30,000
5.61%, 2/10/99 25,000 25,000
Depfa Bank, VR, 5.273%, 1/7/99 24,800 24,798
FCC National Bank, 5.13%, 3/12/99 20,000 20,000
First Bank N.A., 5.297%, 12/16/98 5,000 4,999
First National Bank of Chicago,
5.09%, 3/31/99 9,000 9,000
First Union National,
5.28%, 2/17/99 48,000 47,991
Key Bank, 4.998%, 12/29/98 35,600 35,585
Nationsbank, VR, 5.273%, 7/1/99 20,000 19,995
PNC Bank, VR, 5.296%, 12/14/98 35,900 35,900
Wachovia Bank
5.25%, 12/7/98 30,000 29,986
7.00%, 5/12/99 7,000 7,045
Westpac Banking, 5.67%, 1/7/99 35,000 34,998
Total Bank Notes (Cost $340,296) 340,296
CERTIFICATES OF DEPOSIT 28.6%
Abbey National, (London),
5.51%, 12/4/98 99,000 99,000
ABN AMRO
5.63%, 3/12/99 10,000 10,000
(London)
5.58%, 2/26/99 25,000 25,004
5.59%, 2/24/99 10,000 10,002
Australia & New Zealand Banking,
5.53%, 2/1/99 25,000 25,001
Bank Austria
5.70%, 3/30/99 3,000 3,002
5.72%, 4/19/99 3,000 3,004
5.74%, 4/26/99 1,000 1,000
Bank of Nova Scotia
5.52%, 12/8/98 22,500 22,500
5.75%, 4/27/99 16,500 16,518
Banque Nationale de Paris, (London),
5.60%, 1/28/99 25,000 24,997
Barclays Bank PLC, (London)
5.70%, 2/1 - 8/5/99 41,000 41,015
Bayerische Landesbank,
5.033%, 1/22/99 $ 25,000 $ 24,977
Bayerische Vereinsbank
5.60%, 2/2/99 2,500 2,500
5.70%, 1/7/99 50,000 50,008
5.75%, 5/7/99 5,000 5,006
(London)
5.58%, 12/29/98 15,000 15,001
5.60%, 2/25/99 40,000 40,009
Canadian Imperial Bank of Commerce
5.705%, 3/30/99 2,000 2,003
5.74%, 4/1/99 2,000 2,001
Chase Manhattan Bank,
5.03%, 4/6/99 19,500 19,500
Commerzbank,
5.41%, 3/11/99 50,000 50,004
Credit Agricole Indosuez
5.78%, 5/14/99 22,000 22,032
(London), 5.72%, 4/6/99 3,000 3,003
Credit Commercial de France,
5.53%, 12/3/98 45,000 45,000
Credit Suisse,
5.87%, 5/4/99 1,000 1,003
Creditanstalt Bankverien, (London),
5.60%, 12/14/98 15,000 15,000
Den Danske,
5.75%, 4/26/99 2,000 2,002
Deutsche Bank AG
5.60%, 8/23/99 2,000 2,006
5.70%, 3/5/99 19,600 19,597
5.82%, 5/4/99 3,000 3,004
Fleet National Bank,
5.335%, 12/6/99 22,000 21,989
Ing Bank
(London)
5.59%, 2/26/99 10,000 10,002
5.61%, 2/18/99 25,000 25,000
6.00%, 12/11/98 15,000 15,002
Kredietbank N.V.
5.69%, 3/29/99 21,000 20,997
5.75%, 4/28/99 24,700 24,728
Mellon Bank N.A.,
5.27%, 1/12/99 18,000 18,002
Merita, (London),
5.14%, 1/22/99 40,000 40,001
Natexis Banque
5.15%, 1/21/99 20,000 20,000
5.52%, 3/9/99 30,000 30,001
National Bank of Canada
5.065%, 11/18/99 $ 32,000 $ 31,989
5.76%, 6/10/99 2,000 2,002
5.80%, 5/12/99 5,000 4,999
Norddeutsche Landesbank Girozentrale,
5.57%, 1/29/99 30,000 29,998
Rabobank Nederland
5.40%, 2/16/99 50,000 50,001
5.70%, 4/20/99 69,000 69,059
Regions Bank,
5.30%, 9/10/99 49,750 49,749
Royal Bank of Canada,
5.56%, 2/26/99 5,000 4,999
Societe Generale
5.56%, 2/23/99 10,000 9,999
5.565%, 2/23/99 10,000 9,999
5.73%, 1/7/99 5,000 5,000
5.75%, 4/6/99 37,000 37,027
Sudwestdeutsche Landesbank, (London),
5.61%, 2/18/99 75,000 75,002
Svenska Handelsbank
5.58%, 12/22/98 15,000 15,000
(London), 5.50%, 3/9/99 50,000 50,000
Swiss Bank,
5.75%, 5/7/99 5,000 5,006
Union Bank,
5.27%, 3/12/99 40,000 40,000
Westdeutsche Landesbank
5.16%, 9/17/99 1,000 1,000
5.31%, 2/5/99 50,000 50,000
(London), 5.51%, 1/11/99 50,000 50,001
Westpac, (London),
5.82%, 1/6/99 24,000 24,002
Total Certificates of Deposit (Cost $1,445,253) 1,445,253
COMMERCIAL PAPER 44.4%
AC Acquisition Holding, 4(2),
5.03%, 1/28/99 2,139 2,122
Alliance & Leicester
5.00%, 4/6/99 25,000 24,563
5.02%, 3/23/99 28,550 28,104
5.28%, 3/8/99 19,260 18,986
AON, 5.30%, 2/18/99 5,000 4,942
Archer Daniels Midland,
5.17%, 2/8/99 2,500 2,475
Asset Securitization Cooperative
4(2)
5.10%, 3/11/99 $ 26,400 $ 26,026
5.12%, 1/27/99 26,200 25,988
5.18%, 3/12/99 50,000 49,273
5.20%, 3/12/99 13,500 13,303
Avco Financial,
5.13%, 12/21/98 11,250 11,218
B.B.V. Finance (Delaware),
5.05%, 2/12/99 5,000 4,949
Bank of Montreal,
5.10%, 12/2/98 30,000 29,996
Banque Nationale de Paris,
5.25%, 3/22/99 5,000 4,919
BBL North America,
5.30%, 2/17/99 3,000 2,966
Beta Finance
4(2)
5.01%, 5/17/99 20,000 19,535
5.14%, 1/21/99 16,400 16,281
5.20%, 1/15/99 2,250 2,235
5.25%, 1/29/99 4,000 3,966
5.27%, 3/9/99 36,700 36,173
Bex America Finance,
5.23%, 1/12/99 20,000 19,878
BP America,
5.40%, 12/1/98 10,000 10,000
BT Alex Brown,
5.50%, 1/14/99 16,900 16,786
California Pollution Control
5.19%, 2/11/99 35,750 35,750
5.62%, 12/10/98 49,500 49,500
Caterpillar Financial Services N.V.
5.00%, 3/22 - 3/23/99 34,651 34,116
Chevron,
5.02%, 2/11/99 15,000 14,849
Corporate Asset Funding
4(2)
5.05%, 2/8/99 25,000 24,758
5.10%, 1/28/99 30,000 29,754
5.125%, 2/10/99 45,700 45,238
5.20%, 2/23/99 11,750 11,607
5.25%, 2/22/99 11,000 10,867
5.35%, 2/18/99 8,250 8,153
Countrywide Funding
5.22%, 1/29/99 18,250 18,094
5.45%, 1/21/99 2,000 1,984
Cregem North America,
5.50%, 1/8/99 $ 19,500 $ 19,387
CS First Boston Group
5.08%, 5/11/99 20,000 19,546
5.12%, 1/27/99 9,000 8,927
5.18%, 1/28/99 11,250 11,156
Daimler-Benz North America,
5.25%, 2/23/99 49,000 48,400
Delaware Funding
4(2)
5.13%, 1/20/99 23,500 23,333
5.15%, 1/25/99 6,500 6,449
5.22%, 2/24/99 4,400 4,346
5.25%, 1/13/99 50,000 49,686
5.33%, 2/10/99 10,470 10,360
Diageo Capital PLC,
5.29%, 1/25/99 50,000 49,596
Dover, 4(2),
5.40%, 12/1/98 6,143 6,143
Dresdner U.S. Finance,
5.10%, 12/1/98 20,000 20,000
EW Scripps
5.00%, 2/12/99 35,000 34,645
5.05%, 2/25/99 15,000 14,819
Falcon Asset Securitization
4(2)
5.17%, 1/5/99 24,940 24,815
5.21%, 1/20/99 10,000 9,927
5.23%, 1/25/99 9,500 9,424
5.29%, 12/4/98 7,000 6,997
5.50%, 1/19/99 2,000 1,985
FCAR Owner Trust,
5.09%, 1/29/99 15,000 14,875
Finova Capital
5.25%, 1/14/99 6,000 5,961
5.40%, 1/14/99 6,800 6,755
5.41%, 1/25/99 3,200 3,174
Gap, 5.10%, 12/11/98 12,495 12,477
General Electric Capital
5.02%, 2/23/99 35,000 34,590
5.29%, 1/26/99 100,000 99,177
General Motors Acceptance Corporation,
5.10%, 1/14/99 12,750 12,671
Generale Bank,
5.13%, 12/29/98 22,000 21,912
Golden Funding
5.20%, 12/17/98 - 1/14/99 $ 11,551 $ 11,490
5.30%, 1/7/99 1,600 1,591
5.35%, 2/23/99 31,500 31,107
Island Finance of Puerto Rico,
5.10%, 12/14/98 10,300 10,281
Jefferson Pilot,
5.43%, 12/7/98 22,200 22,180
Koch Industries,
5.38%, 12/1/98 25,000 25,000
Market Street Funding
5.28%, 12/18/98 15,975 15,935
5.37%, 1/15/99 17,862 17,742
Morgan Stanley Dean Witter
5.00%, 2/25/99 24,000 23,713
5.15%, 1/27/99 21,000 20,829
5.25%, 2/12/99 27,500 27,207
National Rural Utilities
Cooperative Finance,
5.00%, 2/8/99 23,000 22,780
New Center Asset Trust,
5.40%, 12/17/98 1,100 1,097
Panasonic Finance
4(2)
5.05%, 2/17/99 50,000 49,453
5.17%, 1/26/99 25,000 24,799
Park Avenue Recreation
5.30%, 2/10/99 2,100 2,078
5.32%, 1/25/99 20,000 19,838
5.33%, 1/19/99 23,000 22,833
5.45%, 2/10/99 25,000 24,731
5.48%, 2/12/99 10,000 9,889
Power Authority of New York,
5.10%, 2/22/99 17,000 16,800
Preferred Receivables Funding
5.03%, 6/25/99 6,000 5,827
5.10%, 5/25/99 5,345 5,213
5.16%, 1/20/99 20,000 19,857
5.20%, 1/11/99 24,455 24,310
5.50%, 1/19/99 10,000 9,925
4(2), 5.05%, 2/25/99 3,000 2,964
Reed Elsevier,
5.20%, 1/11/99 4,621 4,594
Repeat Offering Security
5.21%, 1/19/99 21,524 21,371
5.24%, 1/11/99 9,004 8,950
5.29%, 1/7/99 4,500 4,476
Repeat Offering Security
4(2)
5.26%, 1/28/99 $ 4,000 $ 3,966
5.33%, 1/28/99 27,000 26,768
5.37%, 1/19/99 12,400 12,310
Repsol International,
5.00%, 3/30/99 22,400 22,030
Rio Tinto Finance
5.01%, 2/24/99 19,000 18,775
5.10%, 2/25/99 15,000 14,817
Safeco Credit
5.25%, 2/23/99 16,800 16,594
5.27%, 12/4/98 7,000 6,997
5.35%, 12/9/98 25,000 24,970
Salomon Smith Barney Holdings,
5.28%, 1/22/99 40,000 39,695
Shell Finance
5.00%, 3/29/99 4,000 3,935
5.12%, 1/28/99 43,600 43,240
St. Paul Companies, 4(2), 5.25%,
1/28 - 1/29/99 39,000 38,667
Telstra
5.12%, 2/19/99 30,000 29,659
5.13%, 1/8/99 30,000 29,837
5.26%, 2/8/99 10,000 9,899
Unifunding,
5.45%, 1/5/99 1,460 1,452
United States Borax,
5.25%, 2/19/99 29,000 28,662
Wells Fargo,
5.26%, 1/29/99 48,000 47,586
Yale University
5.17%, 3/11/99 5,500 5,421
5.50%, 12/9/98 27,750 27,716
5.52%, 12/16/98 2,412 2,407
Yorkshire Building Society,
5.00%, 3/2/99 25,000 24,684
Total Commercial Paper (Cost $2,239,834) 2,239,834
MEDIUM-TERM NOTES 17.1%
Abbey National Treasury,
5.64%, 7/15/99 6,500 6,504
American Express,
7.375%, 2/1/99 5,700 5,716
American General Finance
7.10%, 12/23/99 4,250 4,334
7.125%, 12/1/99 1,500 1,530
7.70%, 10/15/99 1,250 1,277
Associates Corporation of North America
7.25%, 9/1/99 $ 5,100 $ 5,168
8.25%, 12/1/99 1,000 1,029
Sr. Notes, 6.68%, 9/17/99 5,000 5,049
Barclays Bank PLC, VR,
5.11%, 12/4/98 25,000 24,982
Bear Stearns,
5.80%, 4/27/99 14,800 14,800
British Telecom,
9.375%, 2/15/99 23,810 23,988
Campbell Soup,
5.50%, 1/8/99 2,217 2,216
Caterpillar Financial Services
6.10%, 7/15/99 1,045 1,049
6.71%, 4/19/99 4,000 4,020
6.80%, 7/1/99 3,200 3,230
Chrysler Financial
6.35%, 6/22/99 9,800 9,864
9.50%, 12/15/99 12,000 12,528
13.25%, 10/15/99 1,700 1,814
Sr. Notes
6.32%, 7/14/99 3,500 3,517
6.37%, 6/21/99 1,000 1,005
VR, 5.257%, 12/16/98 5,000 5,000
Cit Group,
6.625%, 9/13/99 3,900 3,947
Citicorp, Sr. Notes, VR,
5.48%, 12/17/98 42,550 42,543
Corestates Capital, VR,
5.327%, 12/16/98 5,000 5,000
Credit Suisse,
5.217%, 12/18/98 30,000 29,992
FCE Bank,
5.428%, 11/19/99 15,500 15,490
First Fidelity Bancorp.,
9.625%, 8/15/99 17,542 18,046
First Security Auto Owner Trust,
5.248%, 11/16/98 9,767 9,766
Ford Motor Credit
6.375%, 9/15/99 2,750 2,778
7.15%, 8/9/99 15,450 15,630
7.40%, 7/7/99 4,350 4,401
General Motors Acceptance Corporation
5.70%, 2/9/99 11,000 11,000
6.45%, 4/15/99 1,000 1,005
7.375%, 4/15 - 5/26/99 5,000 5,036
8.00%, 10/1/99 6,000 6,125
8.40%, 10/15/99 1,100 1,130
8.625%, 6/15/99 3,745 3,813
General Motors Acceptance Corporation
VR, 5.00%, 12/4/98 $ 25,000 $ 25,005
Goldman Sachs Group L.P.
5.060%, 12/23/98 19,900 19,900
VR
5.274%, 12/17/98 29,800 29,800
5.278%, 12/11/98 15,000 15,000
Hydro Quebec,
8.01%, 4/30/99 11,000 11,109
IBM Credit
5.219%, 2/2/99 36,000 36,000
6.60%, 5/10/99 1,000 1,003
International Lease Finance
5.825%, 12/2/98 8,500 8,507
6.625%, 4/1/99 4,250 4,266
LINCS, VR,
5.277%, 12/18/98 72,700 72,692
Mellon Financial,
7.625%, 11/15/99 11,000 11,255
Merrill Lynch,
5.048%, 12/28/98 48,000 48,000
Newcourt Equipment Trust,
5.007%, 11/20/99 24,000 24,000
Nordstrom Credit,
6.875%, 9/15/99 1,750 1,773
Province of Quebec
7.98%, 4/1/99 6,785 6,837
9.375%, 4/1/99 37,720 38,174
Rabobank, VR,
5.274%, 12/17/98 48,479 48,479
Sears Roebuck Acceptance,
6.54%, 5/6/99 3,250 3,268
Shell Oil,
6.95%, 12/15/98 3,145 3,146
SMM Trust, VR,
5.280%, 12/7/98 59,000 59,000
STINT Trust, VR,
5.313%, 12/30/98 25,000 25,000
Tiers Trust, VR, (144a),
5.278%, 12/15/98 49,700 49,700
Transamerica Finance,
6.80%, 3/15/99 5,485 5,503
Total Medium-Term Notes (Cost $861,739) 861,739
FUNDING AGREEMENTS 2.8%
General American Life Insurance,
5.42%, 12/1/98 ! 39,850 39,850
Peoples Benefit Life Insurance
5.38%, 7/15 - 10/14/99 ! 40,000 40,000
Security Life of Denver,
5.37%, 12/4/98 ! 25,000 25,000
Transamerica Life Insurance, VR,
5.444%, 1/4/99 ! 37,000 37,000
Total Funding Agreements (Cost $141,850) 141,850
Total Investments in Securities
99.6% of Net Assets (Cost $5,028,972) $5,028,972
Other Assets Less Liabilities 20,869
NET ASSETS $5,049,841
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 814
Accumulated net realized gain/loss -
net of distributions 770
Paid-in-capital applicable to $0.01
par value capital stock
outstanding; 15,000,000,000
shares authorized 5,048,257
NET ASSETS $5,049,841
----------
NET ASSET VALUE PER SHARE
Prime Reserve Shares
($5,049,797,261/5,049,710,058 shares outstanding) $ 1.00
----------
Prime Reserve PLUS Shares
($43,775/43,775 shares outstanding) $ 1.00
----------
! Private Placement
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 period-end amounts to
1.0% of net assets.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Prime Reserve Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
11/30/98
Investment Income
Interest
Interest income $ 138,734
Expenses
Investment management 9,244
Shareholder servicing
Prime Reserve shares 5,781
Prime Reserve PLUS shares --
Prospectus and shareholder reports 247
Custody and accounting 136
Proxy and annual meeting 98
Registration 58
Legal and audit 24
Directors 10
Miscellaneous 46
Total expenses 15,644
Net investment income 123,090
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 685
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 123,775
---------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Prime Reserve Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
11/30/98 5/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 123,090 $ 234,175
Net realized gain (loss) 685 1,358
Increase (decrease) in net
assets from operations 123,775 235,533
Distributions to shareholders
Net investment income
Prime Reserve (123,090) (234,175)
Prime Reserve PLUS -- --
Increase (decrease) in net
assets from distributions (123,090) (234,175)
Capital share transactions*
Shares sold
Prime Reserve 5,039,766 9,753,613
Prime Reserve PLUS 64 --
Increase (decrease) in net
assets from shares sold 5,039,830 9,753,613
Distributions reinvested
Prime Reserve 118,866 225,560
Prime Reserve PLUS -- --
Increase (decrease) in
net assets from
distributions reinvested 118,866 225,560
Shares redeemed
Prime Reserve (4,998,789) (9,652,574)
Prime Reserve PLUS (20) --
Increase (decrease)
in net assets from
shares redeemed (4,998,809) (9,652,574
Increase (decrease)
in net assets from
capital share transactions 159,887 326,599
Net Assets
Increase (decrease)
during period 160,572 327,957
Beginning of period 4,889,269 4,561,312
End of period $5,049,841 $4,889,269
-----------------------
* Capital share transactions at net asset value of $1.00 per share
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Prime Reserve Fund
- --------------------------------------------------------------------------------
Unaudited November 30, 1998
Notes to Financial Statements
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. Its goals are preservation of capital, liquidity, and,
consistent with these, the highest possible current income. The fund offers
two classes of shares, Prime Reserve and Prime Reserve PLUS. Prime Reserve
PLUS commenced operations on November 1, 1998, and offers expanded
shareholder services, the cost of which is borne by its shareholders. Each
class has exclusive voting rights on matters related solely to that class,
separate voting rights on matters which relate to both classes, and, in all
other respects, the same rights and obligations as the other class.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
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.
Class Accounting Shareholder servicing expenses are charged directly
to the class to which they relate. Expenses common to both classes,
investment income, and realized gains and losses are allocated to the
classes based upon the relative daily net assets of each class. Income
distributions are declared by each class on a daily basis, and paid
monthly. Capital gain distributions, if any, are declared by the fund on an
annual basis.
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.
At November 30, 1998, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$5,028,972,000.
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 $1,542,000 was payable at November 30, 1998. 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 0.30% for
assets in excess of $80 billion. At November 30, 1998, and for the six
months then ended, the effective annual group fee rate was 0.32%. The fund
pays a pro-rata share of the group fee based on the ratio of its net assets
to those of the group.
The manager has agreed to bear any expenses through April 30, 1999,
which would cause Prime Reserve PLUS' ratio of expenses to average net
assets to exceed 1.00%. Thereafter, through April 30, 2000, Prime Reserve
PLUS is required to reimburse the manager for these expenses, provided that
its average net assets have grown or expenses have declined sufficiently to
allow reimbursement without causing its ratio of expenses to average net
assets to exceed 1.00%.
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. 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. The fund
incurred expenses pursuant to these related party agreements totaling
approximately $4,702,000 for the six months ended November 30, 1998, of
which $879,000 was payable at period-end.
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from
8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark)
and the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
DISCOUNT BROKERAGE*
Individual Investments Stocks, bonds, options, precious metals, and
other securities at a savings over regular commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets
and financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
T. Rowe Price Prime Reserve Fund
- --------------------------------------------------------------------------------
Annual Meeting Results
- --------------------------------------------------------------------------------
The Prime Reserve Fund held an annual meeting on October 15, 1998, to elect
directors of the fund and to ratify the Board of Directors' selection of
PricewaterhouseCoopers L.L.P. as the fund's independent accountants.
The results of voting were as follows (by number of shares):
For nominees to the Board of
Directors of the Prime Reserve
Fund:
Calvin W. Burnett
In favor: 2,558,923,519.708
Withheld: 56,648,651.453
Anthony W. Deering
In favor: 2,566,959,578.964
Withheld: 48,612,592.197
F. Pierce Linaweaver
In favor: 2,562,033,553.354
Withheld: 53,538,617.807
William T. Reynolds
In favor: 2,572,243,868.599
Withheld: 43,328,302.562
James S. Riepe
In favor: 2,571,351,413.229
Withheld: 44,220,757.932
John G. Schreiber
In favor: 2,571,252,719.394
Withheld: 44,319,451.767
M. David Testa
In favor: 2,572,310,043.919
Withheld: 43,262,127.242
For PricewaterhouseCoopers L.L.P.
as independent accountants:
In favor: 2,550,037,363.711
Withheld: 24,108,149.303
Abstained: 41,426,658.147
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
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(registered trademark).
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
Invest With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor. F44-051 11/30/98
