Annual Report
Prime
Reserve
Fund
May 31, 2000
T. Rowe Price
Report Highlights
--------------------------------------------------------------------------------
Prime Reserve Fund
o Sharply rising interest rates helped boost money market yields.
o The Prime Reserve Fund's returns were solid and its yield rose sharply.
o We reduced the fund's weighted average maturity as interest rates rose.
o We expect to keep maturity relatively short to take advantage of a very
positive environment for money market funds.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
Fellow Shareholders
The Federal Reserve steadily tightened monetary policy during the 12 months
ended May 31, 2000, leading to sharply higher interest rates. The environment
was beneficial to money market funds, which were able to quickly reinvest their
assets in new securities with higher rates of income. The Prime Reserve Fund and
the PLUS Shares both registered solid performances that outpaced the Lipper
Money Market Funds Average.
MARKET ENVIRONMENT
The past year has been a roller-coaster ride in the U.S. financial markets.
After months of strong economic growth and attractive investment
performance, the dawn of the new year brought Y2K-related anxiety and, as
2000 progressed, renewed concerns about economic overheating. First-quarter
GDP growth steamed ahead at a 5.4% rate; at the same time, consumer demand
rose 7% and business fixed investment rose 17%. The Fed indicated that it
viewed these growth levels as unsustainable and inflationary, and, indeed,
signs of inflation became evident in labor costs and basic goods. The
central bank responded by raising the federal funds target rate three times
in 2000 by a total of 100 basis points (which is equivalent to a full
percent), the most recent move being a 50-basis-point hike on May 16. Since
beginning its tightening program approximately one year ago, the Fed has
raised this target rate by 175 basis points, to 6.5% on May 31.
Interest Rate Levels
--------------------------------------------------------------------------------
1-Year Treasury Bill 90-Day Treasury Bill Federal Funds Target Rate
5/31/99 4.93 4.65 4.75
5.11 4.77 5.00
5.07 4.71 5.00
8/31 5.29 4.96 5.25
5.24 4.88 5.25
5.51 5.13 5.25
11/30 5.65 5.28 5.50
5.95 5.33 5.50
6.17 5.59 5.50
2/29 6.22 5.81 5.75
6.3 5.88 6.00
6.19 5.78 6.00
5/31/00 6.28 5.92 6.50
The Fed's rate hikes rippled very quickly through the short-term bond and
money markets. As indicated in the accompanying chart, over the past year
the yield on 90-day Treasury bills rose 127 basis points, while the
one-year Treasury yield soared 135 basis points. Yet longer-term bond
yields did not rise as much and, in fact, 30-year Treasury rates actually
fell sharply, at times below money market yields. For this reason, the
yield curve (which charts rates on bonds of increasing maturities) among
bonds with maturities greater than two years has actually inverted.
Part of the reason for this unusual occurrence is that the U.S. Treasury is
buying back a significant amount of 30-year issues due to the budget
surplus, and decreasing supply is helping keep yields down. Likewise, the
surplus is reducing borrowing needs in the money market and causing the
Treasury to change its borrowing schedule. Auctions of one-year Treasury
bills were changed from monthly to quarterly, and three- and six-month
auction amounts held steady at $16 billion. Again in this market, reduced
supply caused Treasury bill yields to be lower than they otherwise would
be.
While Treasury supply has been skimpy, corporate and bank borrowing in the
money market have been plentiful. Yields are relatively high among these
securities, reflecting market sentiment that the Federal Reserve will raise
short-term rates further this year. The yield curve in this sector of the
market is positive, with yields rising along with the maturity of the
security.
PERFORMANCE AND STRATEGY REVIEW
Performance Comparison
--------------------------------------------------------------------------------
Periods Ended 5/31/00 6 Months 12 Months
--------------------------------------------------------------------------------
Prime Reserve Fund 2.79% 5.22%
Prime Reserve
PLUS Shares 2.70 5.04
Lipper Money Market
Funds Average 2.61 4.94
The Prime Reserve Fund posted steady 6- and 12-month returns of 2.79% and
5.22%, respectively, surpassing the 2.61% and 4.94% gains for the Lipper
Money Market Funds Average. Performance was aided by rising interest rates,
which increased yields in our market. The fund's dividends per share rose
significantly, and its seven-day compound dividend yield rose from 5.21% to
6.15%.
The six-month return on the PLUS shares of the Prime Reserve Fund was
2.70%, and its 12-month advance was 5.04%. These results outpaced the
benchmark averages. The seven-day dividend yield on the PLUS shares also
rose significantly, from 4.98% to 5.91%. We were pleased with these results
as the PLUS shares carry a higher expense ratio than the Prime Reserve
Fund, reflecting additional services available to its investors.
We carefully modulated the fund's weighted average maturity throughout the
past year to reflect both the circumstances of the money market and the
changes in the interest rate environment. With rates steadily rising, our
predominant strategy was to reduce maturity, because that approach allows
us to rapidly reinvest the proceeds of maturing issues into new securities
with higher yields. Since May 31, 1999, maturity has declined from 68 days
to 43 at the period's end. In 1999's fourth quarter, we lengthened maturity
to avoid Y2K-related supply-and-demand disruptions, but this was a
temporary strategy as the new year came without event. Throughout the
period, we used a "barbell" portfolio structure to achieve the desired
maturity-that is, dividing significant assets between securities with
one-month and one-year maturities. As long as the possibility of rising
interest rates remains high, we will preserve an average maturity that is
generally the same as or shorter than the average money market fund.
We made only minor changes in sector positioning during the past six
months. We modestly enhanced the fund's significant exposure to commercial
paper and medium-term notes, which we believe have been the most attractive
securities in our market. Within this sector, asset-backed securities
remained our largest single position. These securities provide extremely
high quality, liquidity, diversification, and high relative returns.
On the other hand, holdings of floating-rate securities declined, after
reaching a high level late last year when a flood of supply made their
yields very attractive. Indeed, we had more than doubled our position to
31% in November 1999. More recently, floating-rate note issuance has
subsided, minimizing their yield advantage. Thus, as our positions have
matured, we have reinvested in other areas, bringing exposure down to 20%
by the end of May.
OUTLOOK
In the wake of the 50-basis-point rate hike in May, new data suggest that
the economy may have begun to slow. The Fed will undoubtedly watch these
signs of moderating growth carefully, as it does not want to push the
economy into recession. Nevertheless, inflation pressures have not
disappeared, and we think further rate hikes are a strong possibility,
although they may come at a slower pace than in the first half of the year.
We therefore expect to maintain a lower-than-average maturity until we see
more stability in the economy and the rate environment. With short-term
rates as high as they've been in a decade, we believe stronger returns for
your fund are possible over the next six and 12 months than in the past
year.
Respectfully submitted,
Edward A. Wiese
President
June 21, 2000
T. Rowe Price Prime Reserve Fund
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Portfolio Highlights
KEY STATISTICS
11/30/99 5/31/00
Prime Reserve Shares
--------------------------------------------------------------------------------
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.023 0.028
For 12 months 0.046 0.051
Dividend Yield (7-Day Compound) * 5.21% 6.15%
Weighted Average Maturity (days) 59 43
Weighted Average Quality ** First Tier First Tier
Prime Reserve PLUS Shares
--------------------------------------------------------------------------------
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.023 0.027
For 12 months 0.044 0.049
Dividend Yield (7-Day Compound) * 4.98% 5.91%
Weighted Average Maturity (days) 59 43
Weighted Average Quality ** First Tier First Tier
* Dividends earned and reinvested for the periods indicated are annualized
and divided by the fund's net asset value per share at the end of the
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.
To request a prospectus for any T. Rowe Price fund, please call 1-800-638-5660.
Read the prospectus carefully before investing.
T. Rowe Price Prime Reserve Fund
--------------------------------------------------------------------------------
Portfolio Highlights
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
11/30/99 5/31/00
--------------------------------------------------------------------------------
U.S. Negotiable Bank Notes 7% 3%
Certificates of Deposit 26 24
Domestic Negotiable CDs 5 4
Eurodollar Negotiable CDs 6 3
U.S. Dollar Denominated Foreign Negotiable CDs 15 17
Commercial Paper and Medium-Term Notes 65 69
Asset-Backed 22 20
Banking 15 17
Insurance 3 5
Petroleum 3 3
Telephone 2 3
All Other 20 21
Canadian Government and Municipalities 1 --
Foreign Government and Municipalities 1 1
Funding Agreements 3 2
Other Assets Less Liabilities -3 1
Total 100% 100%
--------------------------------------------------------------------------------
Fixed Rate Obligations 69 80
Floating Rate Obligations 31 20
T. Rowe Price Prime Reserve Fund
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Performance Comparison
--------------------------------------------------------------------------------
These charts show the value of a hypothetical $10,000 investment in each
class over the past 10 fiscal year periods or since inception (for classes
lacking 10-year records). The result is compared with benchmarks, which may
include a broad-based market index and a peer group average or index.
Market indexes do not include expenses, which are deducted from fund
returns as well as mutual fund averages and indexes.
PRIME RESERVE SHARES
--------------------------------------------------------------------------------
Prime Reserve Lipper Money Market
Shares Funds Average
5/90 10,000 10,000
5/91 10,711 10,719
5/92 11,205 11,215
5/93 11,520 11,534
5/94 11,835 11,846
5/95 12,408 12,410
5/96 13,059 13,050
5/97 13,701 13,687
5/98 14,408 14,384
5/99 15,102 15,062
5/00 15,890 15,827
PRIME RESERVE PLUS SHARES
Lipper Money Market Prime Reserve
Funds Average PLUS Shares
11/98 10,000 10,000
05/99 10,251 10,250
05/00 10,757 10,766
Average Annual Compound Total Return
--------------------------------------------------------------------------------
This table shows how each 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 5/31/00 1 Year 5 Years 10 Years Inception Date
--------------------------------------------------------------------------------
Prime Reserve Shares 5.22% 5.07% 4.74% - -
Prime Reserve PLUS Shares 5.04 - - 4.78% 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
--------------------------------------------------------------------------------
Financial Highlights For a share outstanding throughout each period
--------------------------------------------------------------------------------
Prime Reserve shares
Year
Ended
5/31/00 5/31/99 5/31/98 5/31/97 5/31/96
NET ASSET VALUE
Beginning of period $1.000 $1.000 $1.000 $1.000 $1.000
Investment activities
Net investment income (loss) 0.051 0.047 0.050 0.048 0.051
Distributions
Net investment income (0.051) (0.047) (0.050) (0.048) (0.051)
NET ASSET VALUE
End of period $1.000 $1.000 $1.000 $1.000 $1.000
-----------------------------------------------
Ratios/Supplemental Data
Total return(diamond) 5.22% 4.82% 5.16% 4.92% 5.25%
Ratio of total expenses
to average net assets 0.62% 0.66% 0.63% 0.64% 0.66%
Ratio of net investment income
(loss) to average net assets 5.11% 4.70% 5.06% 4.83% 5.07%
Net assets, end of period
(in millions) $5,618 $5,169 $4,889 $4,561 $4,011
(diamond) 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.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Prime Reserve Fund
--------------------------------------------------------------------------------
Financial Highlights For a share outstanding throughout each period
--------------------------------------------------------------------------------
Prime Reserve PLUS shares
Year 11/1/98
Ended Through
5/31/00 5/31/99
NET ASSET VALUE
Beginning of period $1.000 $1.000
Investment activities
Net investment income (loss) 0.049 0.025
Distributions
Net investment income (0.049) (0.025)
NET ASSET VALUE
End of period $1.000 $1.000
--------------------------
Ratios/Supplemental Data
Total return(diamond) 5.04% 2.50%
Ratio of total expenses
to average net assets 0.79% 0.82%!
Ratio of net investment income
(loss) to average net assets 5.03% 4.22%!
Net assets, end of period (in millions) $49 $20
(diamond) Total return reflects the rate that an investor would have
earned on an investment in the fund during the period, assuming
reinvestment of all distributions.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Prime Reserve Fund
--------------------------------------------------------------------------------
May 31, 2000
Statement of Net Assets Par Value
--------------------------------------------------------------------------------
In thousands
BANK NOTES 3.2%
Comerica Bank
VR
6.218%, 6/1/00 $ 12,000 $ 11,998
6.473%, 6/13/00 25,000 24,999
First USA Bank of Delaware, 6.08%, 10/10/00 21,000 20,996
Key Bank N.A., 5.60%, 6/19/00 20,000 19,994
National City Bank, VR, 6.631%, 6/29/00 57,700 57,685
U.S. Bank N.A., VR, 6.52%, 6/21/00 35,000 34,997
Westpac Banking Corp., VR, 6.39%, 6/5/00 13,000 12,997
Total Bank Notes (Cost $183,666) 183,666
CERTIFICATES OF DEPOSIT 23.9%
Abbey National, (London), 7.33%, 5/16/01 33,000 33,003
Allfirst Bank
VR
6.251%, 6/19/00 25,000 24,996
6.451%, 6/12/00 5,880 5,880
6.643%, 8/7/00 10,000 10,000
American Express Centurion Bank, 6.42%, 6/7/00 50,000 50,000
Bank of Austria, 6.185%, 12/1/00 50,000 49,985
Bank of Nova Scotia, 6.22%, 12/4/00 45,000 44,983
Banque Paribas, 6.75%, 3/19/01 10,000 9,996
Barclays Bank, 6.55%, 6/30/00 50,000 50,000
Commerzbank, 5.90%, 8/9/00 43,900 43,890
Credit Agricole Indosuez
VR
6.188%, 10/2/00 49,700 49,682
6.416%, 6/8/00 29,700 29,692
Credit Communal De Belgique, VR, 6.828%, 8/29/00 50,000 49,994
Den Danske Bank, 6.55%, 6/22/00 50,000 50,000
Deutsche Bank
6.19%, 12/1/00 30,000 29,990
6.255%, 12/18/00 45,000 44,984
Dresdner Bank, VR, 6.58%, 6/23/00 49,900 49,897
First Union National Bank, VR, 6.83%, 8/29/00 10,000 10,000
Firstar Bank N.A., 6.55%, 6/30/00 50,000 50,000
Halifax, 6.54%, 6/26/00 $50,000 $50,000
Huntington National Bank, 6.26%, 10/27/00 14,900 14,898
Merita Bank, 6.09%, 10/10/00 39,250 39,243
Natexis Banque, 7.45%, 5/22/01 30,250 30,250
National Bank of Canada
VR
5.49%, 6/5/00 14,850 14,850
5.78%, 7/31/00 35,000 34,975
Norddeutsche Landesbank
7.30%, 5/11/01 25,000 25,000
7.42%, 6/4/01 26,150 26,150
Royal Bank of Canada, 6.30%, 12/20/00 50,000 49,987
Skandinaviska Enskilda Banken, 6.59%, 6/26/00 25,000 24,999
Societe Generale, VR, 6.495%, 6/19/00 42,800 42,798
Svenska Handelsbanken
6.54%, 6/26/00 45,000 45,000
6.71%, 3/13/01 50,000 49,985
UBS
5.51%, 6/5/00 24,900 24,900
6.01%, 8/14/00 64,700 64,694
6.275%, 12/18/00 20,000 19,994
Unibank A/S, 5.92%, 8/7/00 9,800 9,799
Union Bank of California, VR, 6.198%, 6/1/00 37,300 37,300
Westdeutsche Landesbank, 6.01%, 6/6/00 50,000 50,000
Wilmington Trust, 6.23%, 10/23/00 15,000 14,996
Total Certificates of Deposit (Cost $1,356,790) 1,356,790
COMMERCIAL PAPER 54.0%
ABB Treasury Center (USA), 4(2), 6.50%, 6/21/00 50,000 49,819
Albertson's, 4(2), VR, 6.503%, 6/14/00 25,000 24,999
ALCOA, 6.50%, 6/9/00 30,000 29,957
Alpine Securitization
4(2)
6.35%, 6/9/00 8,804 8,791
6.42%, 6/12/00 20,000 19,961
6.52%, 6/19/00 47,320 47,166
6.53%, 6/9/00 24,059 24,024
6.57%, 7/5/00 40,000 39,752
Asset Securitization Cooperative
4(2)
6.05%, 6/1/00 $ 19,900 $ 19,900
6.33%, 6/7/00 69,000 68,927
6.38%, 6/9/00 50,000 49,929
6.82%, 6/1/00 1,041 1,041
AT&T, 4(2), VR, 6.24%, 7/13/00 50,000 49,998
Barclays U.S. Funding, 6.50%, 6/27/00 7,000 6,967
Bavaria TRR
4(2)
6.50%, 6/16/00 12,500 12,466
6.53%, 6/12 - 6/26/00 97,750 97,489
Beta Finance, VR, 4(2), 6.523%, 6/15/00 5,000 4,984
CDC Commercial Paper, 4(2), 6.50%, 6/16/00 50,000 49,865
Coca Cola, 4(2), 6.42%, 6/15/00 45,000 44,888
Corporate Asset Funding
4(2)
6.04%, 6/1/00 29,735 29,735
6.50%, 6/20/00 25,000 24,914
Corporate Receivables
4(2)
6.50%, 6/13/00 25,000 24,946
6.52%, 6/23/00 50,000 49,801
Delaware Funding
4(2)
6.34%, 6/7/00 20,119 20,098
6.41%, 6/1 - 6/7/00 18,724 18,718
Dover, VR, 4(2), 6.848%, 8/28/00 32,500 32,500
Exxon Imperial Australia Pty. Ltd., 4(2),
6.50%, 6/21/00 50,000 49,819
Exxon Mobil, 4(2), 6.50%, 6/1/00 37,000 37,000
Falcon Asset Securitization
4(2)
6.50%, 6/15/00 50,000 49,874
6.52%, 6/27/00 50,000 49,764
FCAR Owner Trust, 6.31%, 6/5/00 35,000 34,975
Fortis Finance, 4(2), 6.34%, 6/7/00 18,000 17,981
Fortis Funding, 6.48%, 6/15/00 48,255 48,133
France Telecom
4(2)
6.50%, 6/9 - 6/22/00 $ 90,860 $ 90,628
Gannett, 4(2), 6.50%, 6/1/00 40,707 40,707
General Electric Capital Corp.
4(2)
6.42%, 6/12/00 50,000 49,902
6.52%, 6/27/00 74,000 73,651
General Motors Acceptance, 6.50%, 6/19/00 8,000 7,974
Golden Funding, 4(2), 6.43%, 6/5/00 25,000 24,982
Government of New Zealand, 6.50%, 6/8/00 25,000 24,968
Greenwich Funding
4(2)
6.35%, 6/7/00 48,500 48,449
6.53%, 6/22/00 11,935 11,889
Island Finance of Puerto Rico, 6.07%, 6/12/00 5,000 4,991
Market Street Funding, 4(2), 6.39%, 6/5/00 16,000 15,989
Marsh & McLennan, 4(2), 6.50%, 6/12/00 18,266 18,230
Merck, 6.50%, 6/29/00 35,000 34,823
Merita North America, 6.05%, 6/12/00 30,000 29,945
Metlife Funding, 6.50%, 6/26/00 14,133 14,069
Morgan Stanley Group
6.39%, 6/8/00 60,000 59,925
6.50%, 6/21/00 40,000 39,856
Motorola, 6.52%, 6/30/00 6,800 6,764
National Australia Funding (Delaware)
6.32%, 6/5 - 6/6/00 100,000 99,921
Paccar Financial, 6.35%, 6/9/00 10,000 9,986
Panasonic Finance, 4(2), 6.50%, 6/2/00 14,103 14,100
Park Avenue Receivables
4(2)
6.52%, 6/16 - 6/23/00 116,565 116,152
Power Authority of New York, 6.35%, 6/5/00 20,316 20,302
Preferred Receivables Funding
4(2)
6.45%, 6/15/00 30,000 29,925
6.52%, 6/30/00 50,000 49,737
6.53%, 6/12 - 6/15/00 10,282 10,258
Preferred Receivables Funding
4(2)
6.54%, 6/26/00 $ 11,175 $ 11,124
6.58%, 7/3/00 25,000 24,854
Principal Financial Services, 4(2), 6.52%, 6/19/00 30,000 29,902
Prudential Funding, 6.50%, 6/22/00 50,000 49,810
Royal Bank of Scotland Group, 4(2), 6.52%, 6/8/00 48,000 47,939
Salomon Smith Barney Holdings, 6.50%, 6/22/00 15,000 14,943
Sand Dollar Funding
4(2)
6.10%, 6/19/00 13,715 13,673
6.13%, 6/1/00 40,000 40,000
6.52%, 6/28/00 55,700 55,428
Santander Finance (Delaware), 6.36%, 6/7/00 75,000 74,921
St. Paul Companies, 4(2), 6.50%, 6/20/00 24,500 24,416
Target, 6.30%, 6/1/00 50,000 50,000
Teachers Insurance & Annuity, 4(2), 6.30%, 6/5/00 16,000 15,989
Teco Finance
4(2)
6.50%, 6/21/00 15,000 14,946
6.52%, 6/27/00 10,000 9,953
Telstra, 6.37%, 6/7/00 29,500 29,469
Three Rivers Funding
4(2)
6.52%, 6/20/00 25,000 24,914
6.54%, 6/27/00 29,000 28,863
Toyota Motor Credit, 4(2), 6.50%, 6/27/00 50,000 49,765
Trident Capital Finance, 4(2), 6.40%, 6/6/00 20,000 19,982
Tulip Funding
4(2)
6.37%, 6/8/00 50,000 49,938
6.40%, 6/9/00 50,000 49,929
6.54%, 6/15/00 9,910 9,885
Variable Funding Capital
4(2)
6.39%, 6/7/00 25,000 24,974
6.40%, 6/8/00 25,000 24,969
6.41%, 6/9/00 30,000 29,957
Wells Fargo & Company, 6.51%, 6/27/00 $50,000 $49,765
ZCM Matched Funding, 6.51%, 6/19/00 100,000 99,674
Total Commercial Paper (Cost $3,057,286) 3,057,286
MEDIUM-TERM NOTES 16.6%
AT&T Capital, VR, 6.971%, 12/1/01 21,250 21,319
Abbey National Treasury Services, 5.92%, 8/7/00 50,000 49,997
Allstate Life Insurance Co., VR, 6.287%, 6/1/00! 25,000 25,000
Associates Manufacturing Housing, (144a)
VR, 6.753%, 6/15/00 32,317 32,317
Banc One, VR, 6.383%, 6/26/00 10,000 10,012
Bank of Scotland Treasury Services,
VR, 6.283%, 7/19/00 59,500 59,495
Beta Finance, (144a)
6.75%, 3/15/01 9,500 9,500
4(2), VR, 6.523%, 6/15/00 50,000 49,997
Caterpillar Financial Services
6.95%, 11/1/00 1,400 1,404
VR
6.68%, 6/26/00 15,000 14,999
6.819%, 7/10/00 15,900 15,900
Chrysler Financial, 5.25%, 10/19/00 3,500 3,489
Ciesco
(144a), VR
6.52%, 6/16/00 50,000 49,998
6.59%, 6/19/00 24,750 24,748
Citicorp
VR
6.321%, 6/2/00 25,000 25,000
6.765%, 8/10/00 10,000 10,000
Colgate Palmolive, VR, 6.553%, 8/7/00 24,800 24,796
Countrywide Funding, 6.43%, 10/23/00 4,000 4,001
DaimlerChrysler North America Holding Corp.,
VR, 6.541%, 6/30/00 49,800 49,797
Diageo plc, 6.24%, 12/4/00 48,900 48,885
Ford Motor Credit
7.02%, 10/10/00 3,000 3,009
VR
6.27%, 6/30/00 20,000 19,993
Ford Motor Credit
VR,
6.375%, 10/6/00 $ 5,000 $ 5,005
6.726%, 8/18/00 25,000 24,995
General Electric Capital Corp.,
VR, 6.101%, 6/1/00 20,000 19,998
General Motors Acceptance Corporation
6.21%, 9/19/00 13,000 13,004
VR, 6.125%, 11/21/00 5,000 4,995
Goldman Sachs Group, 6.60%, 6/19/00 50,000 50,000
GTE Corp., VR, 6.165%, 6/12/00 24,900 24,900
IBM Corp., VR, 6.275%, 7/28/00 12,800 12,798
International Lease Finance
6.25%, 10/15/00 6,000 6,003
VR, 5.875%, 1/15/01 8,600 8,567
John Deere Capital Corp., VR, 6.26%, 6/21/00 19,700 19,705
KFW International Finance, 9.50%, 12/15/00 3,915 3,980
National Rural Utilities
6.10%, 12/22/00 5,000 4,993
VR, 6.198%, 6/2/00 54,900 54,900
Northern Rock, VR, (144a), 6.609%, 6/22/00 19,750 19,750
Norwest Corp., VR, 6.125%, 10/15/00 1,500 1,500
Rabobank Optional Redemption Trust, (144a),
VR, 6.57%, 6/19/00 9,591 9,591
Royal Bank of Canada, VR, 6.375%, 7/28/00 10,000 10,000
Sigma Finance, (144a), 6.75%, 3/15/01 40,000 40,000
Strategic Money Market Trust 2000-B, (144a),
VR, 6.15%, 6/13/00 50,000 50,000
Total Medium-Term Notes (Cost $938,340) 938,340
FUNDING AGREEMENTS 1.8%
Peoples Benefit Life Insurance Co.
VR
6.34%, 6/1 - 10/14/00 ! 40,000 40,000
6.35%, 6/1/00 ! 25,000 25,000
Protective Life Insurance, VR, 6.251%, 6/1/00 ! 12,500 12,500
Security Life of Denver, 6.665%, 6/30/00 ! 25,000 25,000
Total Funding Agreements (Cost $102,500) 102,500
Total Investments in Securities
99.5% of Net Assets (Cost $5,638,582) $5,638,582
Other Assets Less Liabilities 28,243
NET ASSETS $5,666,825
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $735
Accumulated net realized gain/loss -
net of distributions 697
Paid-in-capital applicable to 5,666,885,819
shares of $0.01 par value capital stock
outstanding; 15,000,000,000 shares authorized 5,665,393
NET ASSETS $5,666,825
----------
Net Asset Value Per Share
Prime Reserve shares
($5,618,252,805 / 5,618,312,908 shares outstanding) $1.00
----------
Prime Reserve PLUS shares
($48,572,282 / 48,572,911 shares outstanding) $1.00
----------
! Private Placement
VR Variable Rate
4(2) Security 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
5.0% of net assets.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Prime Reserve Fund
--------------------------------------------------------------------------------
Statement of Operations
--------------------------------------------------------------------------------
In thousands
Year
Ended
5/31/00
Investment Income (Loss)
Interest income $308,721
Expenses
Investment management 19,882
Shareholder servicing
Prime Reserve shares 12,115
Prime Reserve PLUS shares 138
Prospectus and shareholder reports
Prime Reserve shares 664
Prime Reserve PLUS shares 4
Custody and accounting 346
Registration 75
Legal and audit 25
Directors 24
Miscellaneous 91
Total expenses 33,364
Expenses paid indirectly (7)
Net expenses 33,357
Net investment income (loss) 275,364
Realized Gain (Loss)
Net realized gain (loss) on securities (83)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $275,281
----------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Prime Reserve Fund
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
In thousands
Year
Ended
5/31/00 5/31/99
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 275,364 $ 238,106
Net realized gain (loss) (83) 695
Increase (decrease) in net assets from operations 275,281 238,801
Distributions to shareholders
Net investment income
Prime Reserve shares (273,628) (238,015)
Prime Reserve PLUS shares (1,736) (170)
Decrease in net assets from distributions (275,364) (238,185)
Capital share transactions *
Shares sold
Prime Reserve shares 9,281,286 10,346,430
Prime Reserve PLUS shares 142,392 36,500
Increase in net assets from shares sold 9,423,678 10,382,930
Distributions reinvested
Prime Reserve shares 263,286 230,066
Prime Reserve PLUS shares 1,706 165
Increase in net assets from
distributions reinvested 264,992 230,231
Shares redeemed
Prime Reserve shares (9,095,273) (10,297,344)
Prime Reserve PLUS shares (115,500) (16,691)
Decrease in net assets from shares redeemed (9,210,773 (10,314,035)
Increase (decrease) in net assets from
capital share transactions 477,897 299,126
Net Assets
Increase (decrease) during period 477,814 299,742
Beginning of period 5,189,011 4,889,269
End of period $5,666,825 $5,189,011
-----------------------
* 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
--------------------------------------------------------------------------------
May 31, 2000
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. The fund seeks preservation of capital, liquidity, and,
consistent with these, the highest possible current income by investing in
high-quality, U.S. dollar-denominated money market securities. The fund has
two classes of shares-Prime Reserve offered since March 3, 1976, and Prime
Reserve PLUS, first offered on November 1, 1998. 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 the fund 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. Expenses paid indirectly reflect
credits earned on daily uninvested cash balances at the custodian and are
used to reduce the fund's custody charges.
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. As of May 31, 2000, the fund has capital loss
carryforwards for federal income tax purposes of $2,000, all of which
expires in 2008. The fund intends to retain gains realized in future
periods that may be offset by available capital loss carryforwards.
At May 31, 2000, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$5,638,582,000.
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 $1,728,000 was payable at May 31, 2000. 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 0.295% for assets
in excess of $120 billion. At May 31, 2000, and for the year 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.
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 $9,245,000 for the year ended May 31, 2000, of which
$1,164,000 was payable at period-end.
T. Rowe Price Prime Reserve Fund
--------------------------------------------------------------------------------
Report of Independent Accountants
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Prime Reserve Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of T. Rowe Price Prime Reserve Fund, Inc. (the "Fund") at May 31, 2000, and
the results of its operations, the changes in its net assets and the
financial highlights for each of the fiscal periods presented, in
conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at May 31, 2000 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
June 19, 2000
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
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service 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.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a September 1999 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary depending on
size of order.
T. Rowe Price Mutual Funds
--------------------------------------------------------------------------------
STOCK FUNDS
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Tax-Efficient Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery*
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
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 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 Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond
International Bond
MONEY MARKET FUNDS!
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 FUNDS
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Closed to new investors.
! Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the funds.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
T. Rowe Price Advisory Services and Retirement Resources
--------------------------------------------------------------------------------
Advisory Services, Retirement Resources
T. Rowe Price is your full-service retirement specialist. We have developed
unique advisory services that can help you meet the most difficult
retirement challenges. Our broad array of retirement plans is suitable for
individuals, the self-employed, small businesses, corporations, and
nonprofit organizations. We also provide recordkeeping, communications, and
investment management services, and our educational materials, self-help
planning guides, and software tools are recognized as among the industry's
best. For information or to request literature, call us at 1-800-638-5660,
or visit our Web site at www.troweprice.com.
ADVISORY SERVICES
T. Rowe Price Retirement Income ManagerSM helps retirees or those within
two years of retirement determine how much income they can take in
retirement. The program uses extensive statistical analysis and the input
of financial planning professionals to suggest an income plan that best
meets your objectives.
T. Rowe Price Rollover Investment Service offers asset allocation advice to
those planning a major change in their qualified retirement plans, such as
a 401(k) rollover from a previous employer or an IRA transfer.
RETIREMENT RESOURCES AT T. ROWE PRICE
Traditional, Roth, and Rollover IRAs
SEP-IRA and SIMPLE IRA
Profit Sharing
Money Purchase Pension
"Paired" Plans (Money Purchase
Pension and Profit Sharing Plans)
401(k) and 403(b)
457 Deferred Compensation
Planning and Informational Guides
Minimum Required Distributions Guide
Retirement Planning Kit
Retirees Financial Guide
Tax Considerations for Investors
Insights Reports
The Challenge of Preparing for Retirement
Financial Planning After Retirement
The Roth IRA: A Review
Software Packages
T. Rowe Price Retirement Planning AnalyzerTM CD-ROM or diskette $19.95. To
order, please call 1-800-541-5760. Also available on the Internet for
$9.95.
T. Rowe Price Variable Annuity AnalyzerTM CD-ROM or diskette, free. To
order, please call 1-800-469-5304.
T. Rowe Price Immediate Variable Annuity (Income Account)
Investment Kits
We will be happy to send you one of our easy-to-follow investment kits when
you are ready to invest in any T. Rowe Price retirement vehicle, including
IRAs, qualified plans, small-business plans, or our no-load variable
annuities.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
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 appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
T. Rowe Price, Invest With Confidence
T. Rowe Price Investment Services, Inc., Distributor. F44-050 5/31/00
