Fellow Shareholders
The inaugural year of the Summit Income Funds ended on October 31, with
fixed-income markets weathering 12 months of sharply rising rates. During the
past year, the Federal Reserve shifted from an easy monetary policy to a
progressive tightening as evidence mounted that the economic expansion was
gaining momentum. While the economy has been growing since spring 1991, the
pace was fitful and slow during the first couple of years due to several
factors: an overhang of consumer and business debt from the 1980s, a steady
decline in defense spending, a worsening trade deficit, and higher taxes.
In mid-1993, the Fed's easy policy began to take effect. The economy's
tempo picked up appreciably, the unemployment rate was declining regularly,
capacity utilization climbed, and business and consumer sentiment returned to
levels not seen since the prosperity of the 1980s.
Long-term U.S. Treasury bond yields rose from 5.8% in the fall of 1993 to
over 8% today in response to credit demands generated by a stronger economy.
Short-term rates started to advance as well in early February 1994 when the
Fed, having achieved its goal of rejuvenating the economy, adopted a less
accommodative monetary policy. It raised the fed funds rate-the overnight
lending rate among banks-in a series of steps from 3% to 4.75% by mid-August
(and to 5.5% after the quarter's close).
Economic growth continued at a healthy 4.1% pace in the second quarter
and at 3.4% in the third. The Fed is attempting to slow this pace to the
long-term trend rate of about 2.5% before inflation moves higher. Reflecting
the Fed's actions and investor inflation concerns, interest rates across the
maturity spectrum are now two to almost three percentage points higher than a
year ago, with the largest increases in the two- to three-year maturity range.
Chart 1 - Interest Rate Levels
Cash Reserves Fund
Unlike bond investors, money fund investors had reason to welcome the rise in
interest rates. Since your Fund is managed to maintain a stable share price,
rising interest rates translate into higher overall returns. The Fund's
seven-day compound yield rose from 4.10% to 4.80% over the last three months.
As shown in the table, your Fund's return compared favorably with the Donoghue
First Tier Money Fund peer group average for the three- and 12-month periods
ended October 31, 1994.
Performance Comparison
Periods Ended 10/31/94
3 Months 12 Months
______________________
Cash Reserves Fund 1.11% 3.60%
Donoghue First Tier Average 1.05 3.37
We mentioned in the last Fund report that our Donoghue peer group had
shortened maturities to the lowest levels in nearly four years, and our
portfolio's weighted average maturity (WAM), at 49 days, was close to the
industry average of 44 days. Changing course slightly, our peer group's WAM
rose to 47 days by quarter-end, while we moved the Fund toward a more
defensive posture. Since we expect short-term interest rates to continue
rising at least through the beginning of 1995, we reduced the Fund's WAM from
49 to 36 days over the past three months. To gain perspective on how the
fixed-income environment has changed this year, the Fund's WAM is now 33 days
lower than at the beginning of 1994-a striking movement for such a relatively
brief period. We expect to maintain this comparatively short WAM in order to
reinvest maturing proceeds more quickly as higher rates become available.
Our commitment to high-quality investments is unwavering, and you will
notice very little change in the Fund's weighted average credit quality
compared with last quarter. We maintained a somewhat high allocation (19%) to
floating rate notes to increase the Fund's responsiveness to rising rates. The
coupons of these notes periodically reset to reflect prevailing rates, so
their prices tend to fluctuate less than those of fixed-rate notes with
comparable maturities. Sector exposure remains concentrated in banking and
industrial issues. Although we like foreign governmental notes, our position
was reduced because of their limited availability.
Limited-Term Bond Fund
Your Fund performed well during the most recent quarter and exceeded its
Lipper peer group average. However, for the 12-month period, previous price
declines more than offset income, resulting in a modestly negative return.
Performance Comparison
Periods Ended 10/31/94
3 Months 12 Months
______________________
Limited-Term Bond Fund 1.01% -0.71%
Lipper Short Investment-Grade
Debt Funds Average 0.19 0.10
We restructured the portfolio in several ways during the quarter to
reflect our expectation of rising intermediate-term rates. First, we reduced
duration-a measure of the Fund's sensitivity to movements in interest
rates-from 2.9 to 2.3 years. Second, we pared our noninvestment-grade holdings
(those with a credit rating below BBB+) due to concerns that their performance
may have peaked. Prospects for corporate earnings growth may be fully
reflected in current valuations, leaving less room for future price
appreciation. Finally, we reduced international holdings to less than 1% of
the Fund; more attractive U.S. yields may bring foreign buyers back to our
bond market and help domestic issues outperform foreign alternatives.
After enjoying the good performance of mortgage-backed securities this
year, we reduced our substantial position to accommodate larger holdings of
U.S. Treasury obligations. Nevertheless, the mortgage-backed arena, especially
traditional, pass-through issues, remains our highest sector allocation (42%).
With prepayment risk subsiding as interest rates rise, pass-through
mortgage-backed securities, particularly the less interest-rate sensitive,
higher-coupon issues, should perform well and help moderate the Fund's price
volatility.
We expect the largest rate increases to occur in the short end of the
intermediate-term maturity range, so the yield difference between money market
securities and those with maturities of two to four years will remain
significant. To maintain an attractive level of income for the Fund, we will
likely concentrate assets in the intermediate maturity range through early
1995, with relatively modest amounts invested in money market instruments.
GNMA Fund
Mortgage-backed securities have performed well relative to most longer-term,
high-quality bonds, as their higher income provides a greater offset to
falling prices. Nevertheless, mortgage-backed securities were not immune to
the price declines that accompany rising rates.
To give an indication of the severe bond market conditions in 1994, your
Fund's 12-month return, although negative, was among the best in its Lipper
peer group for the period ended October 31.
Performance Comparison
Periods Ended 10/31/94
3 Months 12 Months
_____________________
GNMA Fund -1.84% -1.67%
Lipper GNMA Funds Average -1.48 -3.08
We structured the Fund more aggressively over the past three months,
reflecting our belief that long-term interest rates are less likely to rise
than shorter-term rates. We lengthened duration from 4.2 to 5.7 years to
increase the portfolio's income and position it for a possible future rally in
the long-term market. The maturities and durations of mortgage-backed
securities also naturally extend when prepayments slow appreciably.
We increased GNMA exposure to 81% of the portfolio, the largest
allocation since the Fund's inception. We concentrated purchases in
lower-coupon GNMAs, which dominate available supply. These securities are more
sensitive to interest rate movements than higher-coupon mortgages and should
benefit from any future rate decline. We purchased some of these securities in
the forward market. (In a forward transaction, we commit to a price at the
time of purchase but pay for and take delivery of the securities on a
designated future date.) Long-term government agency bonds were maintained at
10% of the portfolio, with the remainder of assets invested mostly in
collateralized mortgage obligations (CMOs).
Outlook
The Fed's efforts to dampen economic growth have had little impact so far,
increasing the likelihood of further increases in the fed funds rate in coming
months. We expect money market rates to climb in step with these hikes, which
will increase returns to Cash Reserves Fund shareholders.
The Summit Income Funds commenced at the beginning of one of the worst
12-month periods in the fixed-income markets since 1950. While our outlook
remains cautious, we have reason to think the worst is behind us for the bond
funds. Bond yields have regained the heights of the late 1980s, and we believe
they may plateau around recent levels. The combination of attractive income
levels and less principal volatility should provide better results in the
coming months.
Respectfully submitted,
William T. Reynolds
Director, Fixed-Income Division
November 21, 1994
Financial Summary
Net Asset Value Dividend Per Share Dividend Yield*
Per Share 3 Months Ended 3 Months Ended
________________ ________________ ________________
7/31/94 10/31/94 7/31/94 10/31/94 7/31/94 10/31/94
Cash Reserves Fund $1.00 $1.00 $0.010 $0.011 4.10% 4.80%
Limited-Term Bond Fund 4.68 4.64 0.08 0.09 7.08 7.47
GNMA Fund 9.50 9.15 0.17 0.18 7.16 7.58
* 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. Cash Reserves Fund reports a seven-day compound yield.
Quality Diversification
Weighted Average
Quality Ratings as of 10/31/94* Quality*
__________________________________ __________________
1 2 3 4 5-10 7/31/94 10/31/94
Cash Reserves Fund 16% 73% 11% 0% 0% 1.8 1.9
Limited-Term Bond Fund73 1 5 13 8 1.9 1.9
GNMA Fund 90 10 0 0 0 1.1 1.1
* On a T. Rowe Price scale of 1 to 10, with Grade 1 representing the highest
credit quality.
Duration and Maturity
Weighted Average Weighted Average
Effective Duration (years) Maturity (years)
____________________________ ____________________
7/31/94 10/31/94 7/31/94 10/31/94
Cash Reserves Fund - - 49* 36*
Limited-Term Bond Fund 2.9 2.3 3.0 2.8
GNMA Fund 4.2 5.7 10.1 12.5
* Maturity is in days.
Sector Diversification
Summit Cash Reserves Fund
Percent of Net Assets
_____________________
7/31/94 10/31/94
______ _______
Industrial 12% 14%
Banking 17 12
Domestic Negotiable CD/BNs 6 11
Structured Finance 5 11
Telephone 0 9
Finance & Credit 7 7
Investment Dealers 5 6
U.S. Dollar-Denominated
Foreign Negotiable CDs 0 6
Canadian Gov't. & Municipalities 6 4
Foreign Gov't. & Municipalities 16 4
Petroleum 6 3
Food & Beverage 0 3
Electric 0 2
Bankers' Acceptance - U.S. Banks 0 2
Miscellaneous 10 0
All Other 10 6
Fixed Rate Obligations 81 81
Floating Rate Instruments 19 19
Summit Limited-Term Bond Fund
Percent of Net Assets
_____________________
7/31/94 10/31/94
______ _______
Mortgage-Backed Securities 63% 42%
U.S. Treasury Obligations 4 31
Corporates
Industrial 7 9
High Yield 10 7
Banking & Finance 7 6
Hybrid 4 3
All Other 5 2
Summit GNMA Fund
Percent of Net Assets
_____________________
7/31/94 10/31/94
______ _______
GNMA 76% 81%
Government Agency-Backed 10 10
Government Agencies 9 8
Agency-Backed STRIPS 4 4
U.S. Treasury Securities 0 2
All Other 1 -5
Chart 2 - Performance Comparison
Chart 3 - Performance Comparison
Fiscal-Year Performance
Period Ended October 31, 1994
1 Year
(Since Inception 10/29/93)
Cash Reserves Fund 3.60%
Limited-Term Bond Fund -0.71%
GNMA Fund -1.67%
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
Statement of Net Assets (Amounts in thousands)
T. Rowe Price Summit Income Funds / October 31, 1994
Cash Reserves Fund
Face Amount Value
_____________________
Bank Notes - 8.3%
Bank of New York, VR, 5.40%, 4/24/95 . . . . . . . $ 2,000 $ 1,995
Boatmen's Bancshares, VR, 5.05%, 11/6/94 . . . . . 4,000 3,998
Branch Banking & Trust, VR,
4.92%, 11/1/94 . . . . . . . . . . . . . . . . . 2,000 1,999
Commerica Bank of Illinois, VR,
5.36%, 11/8/94 . . . . . . . . . . . . . . . . . 1,000 1,000
Huntington National Bank, VR,
5.31%, 11/8/94 . . . . . . . . . . . . . . . . . 1,000 1,000
MBNA America Bank, 5.00%, 11/3/94. . . . . . . . . 3,500 3,500
Old Kent Bank & Trust, VR, 5.00%, 5/19/95. . . . . 2,000 1,999
_____________________________________________________________________________
Total Bank Notes (Cost - $15,499). . . . . . . . . 15,491
Bankers' Acceptances - 1.8%
Chemical Bank, 5.47%, 1/24/95
(Cost - $3,453). . . . . . . . . . . . . . . . . 3,500 3,452
Certificates of Deposit - 10.2%
Banque Nationale de Paris, 5.02%, 12/1/94. . . . . 4,000 4,000
Bayerische Hypotheken-Und Wechsel Bank,
4.875%, 11/18/94 . . . . . . . . . . . . . . . . 2,000 2,000
Commerzbank, VR, 5.061%, 11/1/94 . . . . . . . . . 3,000 2,985
Hessische Landesbank-Girozentrale,
4.82%, 11/28/94. . . . . . . . . . . . . . . . . 5,000 4,999
NBD Bank N.A., 5.00%, 11/14/94 . . . . . . . . . . 5,000 5,000
_____________________________________________________________________________
Total Certificates of Deposit
(Cost - $19,000) . . . . . . . . . . . . . . . . 18,984
Commercial Paper - 67.4%
Albertson's, 4.80%, 11/18/94 . . . . . . . . . . . 2,500 2,472
AON, 4.85%, 11/1/94. . . . . . . . . . . . . . . . 611 611
Asset Securitization Cooperative, 4(2),
5.375 - 5.45%, 1/9 - 1/18/95 . . . . . . . . . . 7,000 6,908
AT&T Capital, 4.85%, 11/29/94. . . . . . . . . . . 2,000 1,972
Barclays U.S. Funding, 4.75%, 11/9/94. . . . . . . 3,000 2,963
Becton Dickinson Real Estate, 4(2),
5.02 - 5.05%, 11/28 - 12/12/94 . . . . . . . . . 3,500 3,472
Bell Atlantic Financial Services,
4.80%, 11/10/94. . . . . . . . . . . . . . . . . 3,000 2,974
Bell South Telecommunication, 4.87 - 5.50%,
11/2/94 - 1/17/95. . . . . . . . . . . . . . . . 5,000 4,977
BMW U.S. Capital, 4.72 - 5.00%,
11/3 - 12/14/94. . . . . . . . . . . . . . . . . 3,900 3,853
British Telecommunications, 5.00 - 5.08%,
11/29/94 . . . . . . . . . . . . . . . . . . . . 5,500 5,463
Cargill Financial Services, 4.83%, 11/18/94. . . . 1,550 1,531
Ciesco L.P., 4.74%, 11/7/94. . . . . . . . . . . . 1,000 988
Commonwealth Bank of Australia,
5.055%, 12/13/94 . . . . . . . . . . . . . . . . 1,000 992
Countrywide Funding, VR, 4.97%, 11/1/94. . . . . . 1,400 1,400
CS First Boston, 4(2), VR, 4.972%, 11/24/94. . . . 1,500 1,500
Delaware Funding, 4.88%, 11/17/94. . . . . . . . . 6,000 5,976
Du Pont (EI) de Nemours, 4.85%, 11/3/94. . . . . . 3,700 3,690
Dun & Bradstreet, 5.47%, 2/7/95. . . . . . . . . . 2,000 1,966
Fleet Financial Group, 5.13%, 11/10/94 . . . . . . 1,500 1,494
General Electric Capital, 5.10%, 2/6/95. . . . . . 1,000 974
Heinz (H. J.), 4.75%, 11/1/94. . . . . . . . . . . 3,000 2,978
Commercial Paper (cont'd)
KFW International Finance, 5.05%,
11/29/94 . . . . . . . . . . . . . . . . . . . . $ 2,000 $ 1,983
MCA Funding, 4(2), 5.10 - 5.50%,
1/25 - 2/14/95 . . . . . . . . . . . . . . . . . 6,000 5,875
Metlife Funding, 5.10%, 12/7/94. . . . . . . . . . 2,300 2,282
Miles, 5.00%, 11/15/94 . . . . . . . . . . . . . . 4,000 3,974
Mobil Australia Finance, 4(2),
4.86 - 5.15%, 11/17 - 12/9/94. . . . . . . . . . 5,801 5,770
New South Wales Treasury, 5.00 - 5.50%,
11/10/94 - 1/24/95 . . . . . . . . . . . . . . . 5,000 4,939
Norfolk Southern, 4(2), 4.90%, 11/7/94 . . . . . . 1,800 1,794
Northern States Power Company Minnesota,
4.87%, 11/3/94 . . . . . . . . . . . . . . . . . 3,000 2,992
PNC Funding, 4.82 - 4.83%, 11/29 - 12/5/94 . . . . 3,500 3,445
Pepsico, VR, 5.40%, 11/1/94. . . . . . . . . . . . 1,000 997
Preferred Receivables Funding, 4.85 - 5.50%,
11/14/94 - 1/13/95 . . . . . . . . . . . . . . . 5,950 5,893
Province of Alberta, 4.65%, 12/5/94. . . . . . . . 3,000 2,928
Province of Quebec, 5.00%, 11/1/94 . . . . . . . . 4,500 4,482
RTZ America, 4(2), 4.83 - 5.10%,
11/1/94 - 2/23/95. . . . . . . . . . . . . . . . 3,500 3,454
SBNSW (Delaware), VR, 4.88%, 11/2/94 . . . . . . . 1,500 1,500
SmithKline Beecham, 4.90%, 11/14/94. . . . . . . . 1,000 996
Soci_t_ G_n_rale Canada, 4.78%, 12/21/94 . . . . . 2,000 1,949
Southern Califorina Edison Company,
4.82%, 12/6/94 . . . . . . . . . . . . . . . . . 1,000 987
St. Paul Companies, 4(2), 5.00%, 11/3/94 . . . . . 2,700 2,689
Transamerica Financial Group,
5.00%, 11/3/94 . . . . . . . . . . . . . . . . . 2,000 1,992
U.S. West Communications, 5.00%, 11/3/94 . . . . . 2,700 2,689
Yorkshire Building Society, 5.50%, 1/26/95 . . . . 3,000 2,956
_____________________________________________________________________________
Total Commercial Paper (Cost - $125,755) . . . . . 125,720
Medium-Term Notes - 10.5%
Bank of Scotland, (144a), VR, 4.8625%,
5/10/95. . . . . . . . . . . . . . . . . . . . . 3,000 2,989
Bear Stearns Company, VR, 5.116%, 11/29/94 . . . . 1,800 1,799
Beneficial, VR, 5.29%, 11/8/94 . . . . . . . . . . 1,000 1,000
Citicorp, VR, 5.05%, 12/7/94 . . . . . . . . . . . 1,000 1,000
Goldman Sachs Group L.P., VR,
4.829%, 12/1/94. . . . . . . . . . . . . . . . . 2,000 2,000
Merrill Lynch & Company, VR,
5.125%, 11/6/94. . . . . . . . . . . . . . . . . 3,000 2,998
Morgan Stanley Group, VR, 5.1625 - 5.2125%,
12/15 - 12/16/94 . . . . . . . . . . . . . . . . 3,000 3,000
NationsBank, VR, 5.125%, 12/21/94. . . . . . . . . 2,500 2,501
Paccar Financial, VR, 5.11%, 5/23/95 . . . . . . . 2,000 1,990
PHH, VR, 5.36%, 11/8/94. . . . . . . . . . . . . . 300 300
_____________________________________________________________________________
Total Medium-Term Notes (Cost - $19,600) 19,577
Total Investments in Securities - 98.2%
(Cost - $183,307). . . . . . . . . . . . . . . . $183,224
Other Assets Less Liabilities - 1.8% . . . . . . . 3,299
________
Net Assets Consisting of:
Accumulated realized gains/losses -
net of distributions . . . . . . . . . . . . . . $ 1
Net unrealized depreciation
of investments . . . . . . . . . . . . . . . . . (83)
Paid-in-capital applicable to 186,604,911
shares of $0.0001 par value capital
stock outstanding; 1,000,000,000 shares
of the Corporation authorized. . . . . . . . . . 186,605
________
Net Assets - 100.0%. . . . . . . . . . . . . . . . $186,523
________
________
Net Asset Value Per Share. . . . . . . . . . . . . $1.00
_____
_____
VR - Variable Rate
4(2) - Commercial Paper sold within terms of a private placement memorandum,
exempt from registration under section 4.2 of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "accredited investors."
144a - Security was purchased pursuant to Rule 144a under the Securities Act
of 1933 and may only be resold subject to that rule, except to
qualified institutional buyers.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Income Funds / Statement of Net Assets
Limited-Term Bond Fund
Corporate Bonds & Notes - 16.5%
Face Amount Value
_____________________
BANKING & FINANCE - 6.4%
Advanta, 7.07%, 9/2/97 . . . . . . . . . . . . . $ 100 $ 98
Aristar, Sr. Notes, 6.25%, 7/15/96 . . . . . . . 175 172
Comdisco, MTN, 5.375%, 7/15/95 . . . . . . . . . 100 99
Fairfax Financial, Sr. Notes,
7.75%, 12/15/03 . . . . . . . . . . . . . . . 2522
Fleet Financial Group, 7.25%, 10/15/97 . . . . . 125 124
Goldman Sachs Group L.P., 4.80%, 3/30/97 . . . . 250 249
Greyhound Financial, 5.125%, 2/15/96 . . . . . . 200 200
Hartford National, Sub. Capital Notes,
9.85%, 6/1/99 . . . . . . . . . . . . . . . . 50 53
Provident Bank Cincinnati Ohio, MTN,
5.00%, 6/15/96. . . . . . . . . . . . . . . . 125 121
Shawmut, Notes, 8.875%, 4/1/96 . . . . . . . . . 200 204
1,342
ELECTRIC UTILITIES - 1.0%
Long Island Lighting Company, 1st Mtg.
Bonds, 5.25%, 3/1/96. . . . . . . . . . . . . 125 122
Public Service Company of New Hampshire,
9.17%, 5/15/98. . . . . . . . . . . . . . . . 100 100
222
INDUSTRIALS - 9.1%
CSX, Notes, 9.50%, 11/15/95. . . . . . . . . . . 80 82
Dow Capital, 8.25%, 2/15/96. . . . . . . . . . . 125 127
General Motors Acceptance Corporation,
MTN, 7.125%, 8/18/97. . . . . . . . . . . . . 300 296
Great Atlantic & Pacific Tea, Sr.
Notes, 9.125%, 1/15/98. . . . . . . . . . . . 250 251
McDermott, 10.25%, 6/1/95. . . . . . . . . . . . 125 128
McDonnell Douglas, 8.625%, 4/1/97. . . . . . . . 125 127
Occidental Petroleum, MTN,
5.90%, 11/9/98. . . . . . . . . . . . . . . . 125 116
RJR Nabisco, Sr. Notes,
10.50%, 4/15/98 . . . . . . . . . . . . . . . 125 132
Tenneco Credit, 9.00%, 7/15/95 . . . . . . . . . 400 406
Valassis Inserts, Sr. Notes,
8.375%, 3/15/97 . . . . . . . . . . . . . . . 125 126
Westinghouse Electric, 7.75%,
4/15/96 . . . . . . . . . . . . . . . . . . . 125 125
1,916
_____________________________________________________________________________
Total Corporate Bonds & Notes
(Cost - $3,518) 3,480
High Yield Securities - 7.4%
American Standard, Sr. Deb.,
11.375%, 5/15/04. . . . . . . . . . . . . . . 100 107
Capital Gaming International, Sr.
Secured Notes, 11.50%, 2/1/01 . . . . . . . . 200 133
# Common Stock. . . . . . . . . . . . . . . . . 5 shs. 38
# Warrants. . . . . . . . . . . . . . . . . . . 5 wts. 10
# Promissory Note, 8/1/95 . . . . . . . . . . . 2 nts. 1
Coca-Cola Bottling Group, Sr. Sub.
Notes, 9.00%, 11/15/03. . . . . . . . . . . . $ 100 90
Coltec Industries, Sr. Sub.
Notes, 10.25%, 4/1/02 . . . . . . . . . . . . 100 100
Container Corporation of America, Sr.
Notes, 11.25%, 5/1/04 . . . . . . . . . . . . 100 103
Gulf Canada Resources, Sr. Sub. Deb.,
9.25%, 1/15/04. . . . . . . . . . . . . . . . 100 92
Heritage Media, Sr. Sub. Notes,
11.00%, 10/1/02 . . . . . . . . . . . . . . . $ 100 $ 99
IMO Industries, Sr. Sub. Deb.,
12.00%, 11/1/01 . . . . . . . . . . . . . . . 100 102
Maxus Energy, Sr. Notes,
9.875%, 10/15/02. . . . . . . . . . . . . . . 100 94
Methanex, Sr. Secured 2nd Priority
Notes, 8.875%, 11/15/01 . . . . . . . . . . . 100 97
Owens-Illinois, Sr. Sub. Notes,
10.00%, 8/1/02. . . . . . . . . . . . . . . . 100 99
President Riverboat Casinos, Sr.
Notes, 13.00%, 9/15/01. . . . . . . . . . . . 200 176
# Warrants. . . . . . . . . . . . . . . . . . . 2 wts. 7
Rowan Companies, Sr. Notes,
11.875%, 12/1/01. . . . . . . . . . . . . . . $ 100 106
Sea Containers Ltd., Sr. Sub. Deb.,
12.50%, 12/1/04 . . . . . . . . . . . . . . . 100 105
_____________________________________________________________________________
Total High Yield Securities (Cost - $1,636) 1,559
U.S. Government Mortgage-Backed Securities - 42.2%
U.S. GOVERNMENT GUARANTEED OBLIGATIONS - 30.8%
Bear Stearns, CMO, 9.00%, 6/1/17 . . . . . . . . 18 18
Government National Mortgage Assn.,
I, 10.00%, 8/15/98 - 10/15/21 . . . . . . . . 1,428 1,539
10.50%, 7/15/98 - 12/15/20 . . . . . . . . 1,474 1,610
11.00%, 7/15/13 - 9/15/18. . . . . . . . . 307 339
II, 10.00%, 10/20/20. . . . . . . . . . . . . 372 393
Midget, 9.00%, 4/15 - 12/15/01. . . . . . . . 138 143
9.50%, 3/15/98 . . . . . . . . . . . . . . 41 43
10.00%, 10/15/00 . . . . . . . . . . . . . 1,152 1,223
10.50%, 2/15/98 - 2/15/01. . . . . . . . . 1,115 1,195
6,503
U.S. GOVERNMENT AGENCY OBLIGATIONS - 9.9%
Federal Home Loan Mortgage,
10.75%, 12/1/09 . . . . . . . . . . . . . . . 258 280
6.80%, 4/15/18. . . . . . . . . . . . . . . . 300 281
7.45%, 10/15/15 . . . . . . . . . . . . . . . 193 187
7.50%, 9/15/06 - 6/15/22. . . . . . . . . . . 920 910
Federal National Mortgage Assn.,
9.00%, 8/25/11. . . . . . . . . . . . . . . . 27 28
9.50%, 9/25/18. . . . . . . . . . . . . . . . 398 405
2,091
STRIPPED MORTGAGE SECURITIES - 1.5%
American Housing Trust, VR, Interest
Only, 0.720%, 1/25/22** . . . . . . . . . . . 9,142 243
Federal Home Loan Mortgage, CMO, Inverse
Floating Rate,Interest Only,
3.025%, 4/15/23** . . . . . . . . . . . . . . 2,637 74
317
_____________________________________________________________________________
Total U.S. Government Mortgage-Backed Securities
(Cost - $8,982) 8,911
Asset-Backed Securities - 0.8%
AUTO-BACKED - 0.8%
USAA Auto Loan Grantor Trust,
5.00%, 11/15/99 (Cost - $185) . . . . . . . . 185 182
Hybrid Instruments - 2.7%
Face Amount Value
_____________________
Bankers Trust Bank Notes, 5.00%, 12/14/94;
principal repayment value is indexed
to the spread between Mexican par bonds
& U.S. Treasury bonds;includes a put
option at 65% of par and a call option
at 80% of par. . . . . . . . . . . . . . . . . . $ 250 $ 173
Salomon Basket Notes, 5.00%, 2/1/96;
principal repayment value is
indexed to average swap rate of
three European currencies; includes
put option at 80% of par . . . . . . . . . . . . 500 398
_____________________________________________________________________________
Total Hybrid Instruments (Cost - $651) . . . . . . 571
U.S. Government Obligations - 31.2%
U.S. Treasury Notes, 5.875%, 5/31/96 . . . . . . 200 198
6.00%, 6/30/96. . . . . . . . . . . . . . . . 500 495
7.25%, 8/31/96. . . . . . . . . . . . . . . . 2,000 2,017
8.00%, 10/15/96 . . . . . . . . . . . . . . . 1,000 1,021
9.375%, 4/15/96 . . . . . . . . . . . . . . . 2,750 2,855
_____________________________________________________________________________
Total U.S. Government Obligations
(Cost - $6,622) 6,586
Commercial Paper - 0.2%
Harvard University, 4.75%, 11/1/94
(Cost - $44). . . . . . . . . . . . . . . . . 44 44
Total Investments in Securities - 101.0%
(Cost - $21,638) . . . . . . . . . . . . . . . . 21,333
Other Assets Less Liabilities - (1.0)% . . . . . . (217)
________
Net Assets Consisting of:
Accumulated net investment income -
net of distributions . . . . . . . . . . . . . . 1
Accumulated realized gains/losses -
net of distributions . . . . . . . . . . . . . . (1,132)
Net unrealized depreciation of
investments. . . . . . . . . . . . . . . . . . . (305)
Paid-in-capital applicable to 4,555,579
shares of $0.0001 par value capital
stock outstanding; 1,000,000,000
shares of the Corporation authorized . . . . . . 22,552
________
Net Assets - 100.0%. . . . . . . . . . . . . . . . $ 21,116
________
________
Net Asset Value Per Share. . . . . . . . . . . . . $4.64
_____
_____
** For Interest Only securities, face amount represents notional principal,
on which the Fund receives interest.
# Non-income Producing
CMO - Collateralized Mortgage Obligation
MTN - Medium Term Note
VR - Variable Rate
The accompanying notes are an integral part of these financial statements.
GNMA Fund
U.S. Government Mortgage-Backed Securities - 103.1%
Face Amount Value
_____________________
U.S. GOVERNMENT GUARANTEED OBLIGATIONS - 81.2%
Government National Mortgage Assn., I,
7.00%, 4/15/24 . . . . . . . . . . . . . . . . . $ 1,850 $ 1,660
7.50%, 6/15/22 - 5/15/24 . . . . . . . . . . 5,340 4,964
8.00%, 4/15/17 - 12/15/21. . . . . . . . . . 615 597
8.50%, 6/15/16 - 11/15/22. . . . . . . . . . 998 999
9.00%, 8/15/08 - 10/15/23. . . . . . . . . . 1,064 1,089
9.50%, 9/15/09 - 2/15/21 . . . . . . . . . . 1,433 1,512
10.00%, 11/15/09 - 8/15/20 . . . . . . . . . 162 175
10.50%, 9/15/13 - 12/15/19 . . . . . . . . . 784 857
11.00%, 12/15/09 - 7/15/19 . . . . . . . . . 384 425
11.50%, 6/15 - 12/15/15. . . . . . . . . . . 129 143
II, 9.50%, 2/20/17 - 12/20/20. . . . . . . . . . 532 550
10.00%, 1/20/14 - 3/20/21. . . . . . . . . . 411 433
11.00%, 9/20/17. . . . . . . . . . . . . . . 59 64
Graduated Payment Mortgage,
9.25%, 8/15/21. . . . . . . . . . . . . . . . 92 93
9.50%, 7/15/09. . . . . . . . . . . . . . . . 97 100
Project Loan, 9.25%, 9/15/23 . . . . . . . . . . 291 291
13,952
U.S. GOVERNMENT AGENCY OBLIGATIONS - 7.9%
Federal Home Loan Mortgage, 5.00%,
11/15/04 - 7/15/05 . . . . . . . . . . . . . . . 76 71
7.50%, 12/15/19. . . . . . . . . . . . . . . . . 500 474
Federal National Mortgage Assn., 5.00%,
11/25/20 - 8/25/22 . . . . . . . . . . . . . . . 1,016 775
6.00%, 3/25/11. . . . . . . . . . . . . . . . . 5 5
8.00%, 1/25/21. . . . . . . . . . . . . . . . . 38 37
1,362
U.S. GOVERNMENT AGENCY-BACKED - 9.7%
Tennessee Valley Authority,
6.875%, 12/15/43 . . . . . . . . . . . . . . . . 670 532
7.25%, 7/15/43 . . . . . . . . . . . . . . . . . 1,350 1,126
1,658
STRIPPED MORTGAGE SECURITIES - 4.3%
Federal Home Loan Mortgage, Principal Only,
Zero Coupon, 2/15/24 . . . . . . . . . . . . . . 176 106
Federal National Mortgage Assn., CMO,
Interest Only, 6.50%, 10/1/23**. . . . . . . . . 820 300
8.50%, 4/1/22** . . . . . . . . . . . . . . . . 934 334
740
_____________________________________________________________________________
Total U.S. Government Mortgage-Backed
Securities (Cost - $18,971) 17,712
U.S. Government Obligations - 2.5%
U.S. Treasury Notes, 4.625%, 8/15/95
(Cost - $421). . . . . . . . . . . . . . . . . . 425 421
WHOLE LOANS-BACKED - 0.5%
Prudential Home Mortgage Securities,
6.00%, 10/25/07 (Cost - $100). . . . . . . . . . $ 100 $ 93
Total Investments in Securities - 106.1%
(Cost - $19,492) . . . . . . . . . . . . . . . . 18,226
Other Assets Less Liabilities - (6.1)% . . . . . . (1,042)
_____
Net Assets Consisting of:
Accumulated realized gains/losses -
net of distributions . . . . . . . . . . . . . . (110)
Net unrealized depreciation of
investments. . . . . . . . . . . . . . . . . . . (1,266)
Paid-in-capital applicable to 1,878,030
shares of $0.0001 par value capital
stock outstanding; 1,000,000,000 shares
of the Corporation authorized. . . . . . . . . . 18,560
________
Net Assets - 100.0%. . . . . . . . . . . . . . . . $ 17,184
________
________
Net Asset Value Per Share. . . . . . . . . . . . . $9.15
_____
_____
** For Interest Only securities, face amount represents notional principal,
on which the Fund receives interest.
CMO -Collateralized Mortgage Obligation
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Summit Income Funds / From October 29, 1993 (Commencement of
Operations) to October 31, 1994
Amounts in Thousands
__________________________________
Cash
Reserves Limited-Term GNMA
Fund Bond Fund Fund
________ __________ ________
INVESTMENT INCOME
Interest income . . . . . . . . . . . . . $4,058 $1,141 $1,084
EXPENSES
Investment management and
administrative fee . . . . . . . . . . . (411) (84) (83)
_______ _______ _______
Net investment income . . . . . . . . . . 3,647 1,057 1,001
_______ _______ _______
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss). . . . . . . . . 1 (1,132) (223)
Change in net unrealized
appreciation or depreciation . . . . . . (83) (305) (1,266)
_______ _______ _______
Net loss on investments . . . . . . . . . (82) (1,437) (1,489)
_______ _______ _______
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS . . . . . . . . . . . . . $3,565 $ (380) $ (488)
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Summit Income Funds / From October 29, 1993 (Commencement of
Operations) to October 31, 1994
Amounts in Thousands
______________________________
Cash
Reserves Limited-Term GNMA
Fund Bond Fund Fund
________ __________ ________
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income . . . . . . . .$ 3,647 $ 1,057 $ 1,001
Net realized gain (loss)
on investments . . . . . . . . . . . 1 (1,132) (223)
Change in net unrealized
appreciation or depreciation
of investments . . . . . . . . . . . (83) (305) (1,266)
________ _______ _______
Increase (decrease) in net assets
from operations. . . . . . . . . . . 3,565 (380) (488)
________ _______ _______
Distributions to shareholders
Net investment income . . . . . . . . (3,647) (1,056) (1,001)
________ _______ _______
Capital share transactions(1)
Sold . . . . . . . . . . . . . . . .340,645 32,622 22,577
Distributions reinvested. . . . . . . 3,318 861 774
Redeemed. . . . . . . . . . . . . . .(157,398) (10,961) (4,708)
________ _______ _______
Increase in net assets from
capital share transactions . . . . .186,565 22,522 18,643
________ _______ _______
Total increase . . . . . . . . . . . . .186,483 21,086 17,154
NET ASSETS
Beginning of period . . . . . . . . . 40 30 30
________ _______ _______
End of period . . . . . . . . . . . .$186,523 $ 21,116 $ 17,184
________ _______ _______
________ _______ _______
(1) Share transactions
Sold . . . . . . . . . . . . . . . .340,645 shs. 6,654 shs. 2,285 shs.
Distributions reinvested . . . . . . 3,318 181 81
Redeemed . . . . . . . . . . . . . .(157,398) (2,285) (491)
________ _______ _______
Increase in shares
outstanding . . . . . . . . . . . .186,565 shs. 4,550 shs. 1,875 shs.
________ _______ _______
________ _______ _______
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Summit Income Funds / October 31, 1994
Note 1 - Significant Accounting Policies
T. Rowe Price Summit Funds, Inc. (the Corpor-ation) is registered under the
Investment Company Act of 1940. The Summit Cash Reserves Fund (the Cash
Reserves Fund), the Summit Limited-Term Bond Fund (the Limited-Term Bond Fund)
and the Summit GNMA Fund (the GNMA Fund), diversified, open-end management
investment companies, are the three portfolios established by the Corporation.
A) Security valuation - Debt securities are generally traded in the
over-the-counter market. Investments in securities with remaining maturities
of one year or more are stated at fair value as furnished by dealers who make
markets in such securities or by an independent pricing service, which
considers yield or price of bonds of comparable quality, coupon, maturity, and
type, as well as prices quoted by dealers who make markets in such securities.
Except with respect to certain securities held by the Cash Reserves Fund,
securities with remaining maturities less than one year are stated at fair
value which is determined by using a matrix system that establishes a value
for each security based on money market yields. Securities held by the Cash
Reserves Fund with remaining maturities of 60 days or less are valued at
amortized cost.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by, or under the supervision of, the officers of
the Fund, as authorized by the Board of Directors.
B) Premiums and Discounts - Except for mortgage-backed securities, premiums
and discounts on debt securities are amortized for both financial and tax
reporting purposes.
C) Other - Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on an identified cost basis. Distributions to shareholders are
recorded by the Fund on the ex-dividend date. Income and capital gain
distributions are determined in accordance with federal income tax regulations
which may differ from generally accepted accounting principles.
Note 2 - Organization
The Corporation was organized on September 14, 1993 and had no operations
prior to October 29, 1993, other than those related to organizational matters,
including the following sale of shares of the Funds' capital stock on October
22, 1993, to T. Rowe Price Associates, Inc.:
Cash Limited-
Reserves Term GNMA
Fund Bond Fund Fund
_________ _________ _________
Shares Sold 40,000 6,000 3,000
Net Asset Value
Per Share $1.00 $5.00 $10.00
Note 3 - Portfolio Transactions
Purchases and sales of U.S. Government securities and portfolio securities,
other than short-term, for the period ended October 31, 1994, were as follows:
Limited-Term GNMA
Bond Fund Fund
_____________ ____________
U.S. Government
Purchases $51,357,000 $27,685,000
Sales 36,348,000 8,065,0000
Portfolio Securities
Purchases $13,823,000 $479,000
Sales 6,932,000 308,000
Note 4 - Federal Income Taxes
No provision for federal income taxes is required since each Fund intends to
qualify as a regulated investment company and distribute all of its taxable
income. The Limited-Term Bond Fund has an unused realized capital loss
carryforwards for federal income tax purposes of $1,016,000 at October 31,
1994, which expire in 2002.
In order for the GNMA Fund's capital accounts and distributions to
shareholders to reflect the tax character of certain transactions, $113,000 of
undistributed net realized gains were reclassified as a decrease to
paid-in-capital during the year ended October 31, 1994. The results of
operations and net assets were not affected by the reclassifications.
At October 31, 1994, the aggregate costs of investments for the Cash
Reserves, Limited-Term Bond and GNMA Funds for federal income tax and
financial reporting purposes were $183,307,000, $21,638,000, and $19,492,000,
respectively. Net unrealized depreciation was
as follows:
Cash Limited-
Reserves Term GNMA
Fund Bond Fund Fund
_________ _________ _________
Appreciated
Investments $ - $ 78,000 $ 88,000
Depreciated
Investments (83,000) (383,000) (1,354,000)
________ _________ _________
Net Unrealized
Depreciation $(83,000) $(305,000)$(1,266,000)
________ _________ ___________
________ _________ ___________
Note 5 - Related Party Transactions
The investment management and administrative agreement between each Fund and
T. Rowe Price Associates, Inc. (the Manager) provides for an all-inclusive
investment management fee, computed daily and paid monthly, based on each
Fund's daily net assets. The effective annual all-inclusive fee rate is 0.45%
for the Cash Reserves Fund, 0.55% for the Limited-Term Bond Fund, and 0.60%
for the GNMA Fund. Services provided under the agreement include investment
management, shareholder servicing, transfer agency, fund accounting and
investment custody. The agreement provides that the Fund pay its own interest,
taxes, brokerage commissions and extraordinary expenses. At October 31, 1994,
investment management and administrative fees payable were $36,000 for the
Cash Reserves Fund.
Financial Highlights
T. Rowe Price Summit Income Funds / From October 29, 1993 (Commencement of
Operations) to October 31, 1994
For a share outstanding throughout the period
___________________________________________
Cash
Reserves Limited-Term GNMA
Fund Bond Fund Fund
_________ __________ _________
NET ASSET VALUE,
BEGINNING OF PERIOD . . . . . $ 1.000 $ 5.00 $ 10.00
_______ ________ ________
Investment Activities
Net investment income . . . . 0.035 0.33 0.69
Net realized and
unrealized loss. . . . . . . - (0.36) (0.85)
_______ ________ ________
Total from Investment
Activities. . . . . . . . . . 0.035 (0.03) (0.16)
_______ ________ ________
Distributions
Net investment income . . . . (0.035) (0.33) (0.69)
_______ ________ ________
NET ASSET VALUE,
END OF PERIOD . . . . . . . . $ 1.000 $ 4.64 $ 9.15
_______ ________ ________
_______ ________ ________
RATIOS/SUPPLEMENTAL DATA
Total Return . . . . . . . . . 3.60% (0.71)% (1.67)%
Ratio of Expenses to
Average Net Assets. . . . . . 0.45%! 0.55%! 0.60%!
Ratio of Net Investment
Income to Average
Net Assets. . . . . . . . . . 4.03%! 6.98%! 7.31%!
Portfolio Turnover
Rate. . . . . . . . . . . . . - 296.0%! 61.5%!
Net Assets, End of
Period (in thousands) . . . . $186,523 $ 21,116 $17,184
! Annualized.
Report of Independent Accountants
To the Board of Directors of the T. Rowe Price Summit Funds, Inc.
and Shareholders of the T. Rowe Price Summit Cash Reserves Fund,
T. Rowe Price Summit Limited-Term Bond Fund and T. Rowe Price Summit GNMA
Fund.
We have audited the accompanying statement of net assets of the T. Rowe
Price Summit Funds, Inc. (which include the T. Rowe Price Summit Cash Reserves
Fund, T. Rowe Price Summit Limited-Term Bond Fund and T. Rowe Price Summit
GNMA Fund), as of October 31, 1994, and the related statement of operations,
statement of changes in net assets and financial highlights for the period
October 29, 1993 (commencement of operations) to October 31, 1994. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of October 31, 1994 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the portfolios of the T. Rowe Price Summit Funds, Inc., as
of October 31, 1994, the results of their operations, the changes in their net
assets and financial highlights for the period stated in the first paragraph
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
November 22, 1994
Chart 1 - Interest Rate Levels: A line graph compares the yields on the
Current Coupon GNMA, the Five-Year Treasury Note, and the 90-Day Treasury Bill
for the 12-month period from 10/29/93 to 10/31/94.
Chart 2 - Performance Comparison: A line graph compares a hypothetical $10,000
investment made in the Summit Limited-Term Bond Fund at its inception
(10/29/93) with an identical investment made concurrently in the Merrill Lynch
1-5 Yr. Corporate and Government Index and the Lipper Short Investment-Grade
Debt Funds Average. At 10/31/94, the Fund investment would have been worth
$9,929, the Merrill Lynch investment would have been worth $9,995, and the
Lipper investment would have been worth $10,010.
Chart 3 - A line graph compares a hypothetical $10,000 investment made in the
Summit GNMA Fund at its inception (10/29/93) with a similar one made in the
Salomon GNMA Index and the Lipper GNMA Funds Average. At 10/31/94, the fund
investment would have been worth $9,833, the Salomon investment would have
been worth $9,859, and the Lipper investment would have been worth $9,692.
