Fellow Shareholders
Market Overview
The past three months have been difficult for the bond markets. Interest rates
rose sharply across the board and bond prices fell as the Federal Reserve
tightened monetary policy to cool the economy's accelerating pace and thus
head off a buildup of inflationary pressures.
The Fed's action during the quarter took the form of three successive
increases in the federal funds rate between early February and late April,
raising it to 3.75%. Uncharacteristically, each increase was preceded by an
announcement to prevent any misinterpretation. The Fed has clearly abandoned
its aggressively easy policy that kept the fed funds rate equal to the
inflation rate for about two years.
Gross Domestic Product for the final quarter of 1993 weighed in at a
very strong 7% annual rate, followed by a preliminary first quarter 1994
figure of 2.6%. The first quarter pace seems moderate but was achieved despite
arctic-like weather and earthquakes in Los Angeles-one-time events that caused
most forecasters to expect a stronger growth rate to resume in the spring
quarter. A number of factors supported this outlook: impressive gains in
employment numbers and personal income, steady consumer spending, rising
consumer confidence, and improving productivity and corporate profits.
Evidence of accelerating growth combined with the nature and manner of
the Fed's moves resulted in a dramatic reaction in the capital markets. The
yield curve shifted higher, as shown in the chart, with the steepest increases
occurring among maturities up to five years. The one-year Treasury bill yield
rose 145 basis points and the 30-year Treasury bond yield was up 108 basis
points; both gave back in three months the price gains they had taken more
than a year to achieve. To illustrate the severity of the move, the yields
posted by a 30-year Treasury only six months ago could be earned on a two-year
Treasury security at the beginning of May. The substantive rise in yields was
good news for money funds but not for bond funds, most of which experienced
negative total returns for the quarter.
Chart 1 - Treasury Yield Curves
Cash Reserves Fund
We sharply reduced the Fund's weighted average maturity during the quarter
from 69 days to 47 days-close to the industry average-to take advantage of the
rise in interest rates. The shorter the average maturity, the quicker we can
shift assets into higher-yielding securities. Reflecting this and other
aspects of our strategy discussed next, the Fund's average annualized yield
rose from 2.8% for its first quarter to 3.1% for the most recent.
Your Fund's assets grew substantially during the quarter, enabling us to
further diversify the portfolio while investing in only the highest-quality
money market securities. We reduced our emphasis on U.S. Government securities
which, as we explained in the prior report, was unusually high when the Fund
had relatively small amounts to invest. Governments dropped from 22% to 2%,
and holdings of higher-yielding commercial paper increased. Within this area,
the largest sector exposure was 18% in industrial companies at quarter-end.
Another aspect of our strategy was to initiate a position in floating rate
notes, which respond more quickly than fixed-rate paper to interest rate
changes. Our 15% current commitment to such investments compares with about 8%
for the average money fund.
Our present policy is to maintain a maturity posture equal to or shorter
than that of Donoghue's first-tier (highest quality) money market fund
average. We expect the Fed to raise short-term rates further, which, in turn,
should lead to higher returns for Cash Reserves shareholders.
Limited-Term Bond Fund
Your Fund's average three-month yield increased substantially from 5.87%
during the previous quarter to 6.77%, but the same trends that boosted yields
pushed bond prices lower and the Fund's overall return into negative
territory. To capture the significant yield advantage of three-year maturities
over the money market maturity range, we minimized the Fund's cash position
and thus had less of a cushion against rising rates.
Our strategy during the quarter was to maintain a "neutral" duration
(i.e., similar to that of our bond market sector) and to broaden the Fund's
overall diversification. (Duration is explained in the sidebar.) The bulk of
your Fund's portfolio (57%) was invested in mortgage-backed securities and
collateralized mortgage obligations (CMOs), which have shown relatively good
performance recently versus other sectors of the fixed-income market. Some of
our smaller positions were more directly in the path of falling prices,
however. For instance, high-yield (junk) bonds fell in conjunction with the
stock market decline, emerging market bonds suffered exaggerated declines as
highly leveraged investors dumped holdings to meet margin calls, and
currency-hedged European notes declined modestly along with the U.S.
fixed-income market.
Despite the rough quarter, we believe these small positions will be
advantageous for your Fund in the future. High-yield bonds (about 8% of
assets) should benefit from the economy's
Duration as a Guide to Interest Rate Risk
Duration is a more accurate measure of interest rate sensitivity than
maturity. Unlike maturity, which merely indicates when the bond repays
principal, "duration" incorporates the cash flows of all interest and
principal payments over the life of the bond to reflect the recovery of your
original investment. Future payments are discounted to reflect their present
value. These payments are then multiplied by the number of years over which
they will be received to produce a value that is expressed in years, i.e., the
duration. Effective duration is an even better measure of a bond's sensitivity
to interest rate changes because it takes into account call features and
sinking fund payments which may shorten a bond's life.
You can multiply the duration by the potential change in interest rates
to estimate the change in principal value. For example, a bond or bond fund
with a duration of five years would rise or fall roughly 5% in price if rates
fell or rose by one percentage point.
continued strength, and the European notes (4% of assets) should perform well
if, as we expect, European rates retrace their rise of earlier this year.
Although we believe the case for emerging debt markets is fundamentally sound,
we have pared our holdings (now about 1.7% of assets) until these markets
settle down.
We expect to maintain a defensive (i.e., shorter than average) maturity
posture for our domestic bond positions while seeking the highest possible
income consistent with the Fund's high average credit quality.
GNMA Fund
Mortgage-backed securities have declined in price as rates have risen but, as
is typical in such an environment, have generally outperformed comparable
Treasury issues. Their relative performance advantage reflects the declining
prepayment rate, as homeowners' enthusiasm for refinancing wanes. Since
mortgages are paid off at par (face value), declining prepayments is good news
for securities trading at premiums to par, a category that includes virtually
all GNMAs in your portfolio.
Your Fund increased its GNMA allocation to about 76% of assets. We
emphasize higher-coupon mortgages, which, in a rising rate environment, are
less price sensitive than those with lower coupons and also stand to benefit
the most from falling prepayments. Since these securities have a relatively
low duration, we also hold some discount-coupon mortgages, which have longer
durations, to maintain an overall duration similar to that of our peer group.
Most of the remaining assets are invested in collateralized mortgage
obligations (CMOs), including a 2% position in interest-only, "stripped" CMOs.
These securities, which receive only the interest portion of payments on the
underlying mortgages, rise in price as interest rates rise and prepayments
fall and thus have performed well as defensive instruments.
We expect the yield curve to flatten gradually in coming months (as
short-term rates rise proportionately more than long-term) and have structured
the Fund accordingly. In particular, our defensive CMOs and small position in
high-yielding, long-maturity government agency bonds should prove beneficial.
Mortgages should maintain their performance advantage over Treasuries by
virtue of their higher income and lower volatility in a stable to rising rate
environment.
Outlook
The economy continues to show vigor, due in part to the Fed's aggressively
easy monetary policy that lasted all last year. The Fed has finally reversed
course out of concern for inflation. Nevertheless, the sharp rise in long-term
bond rates suggests concern that the Fed waited too long, given the
considerable lag between policy changes and their economic impact. To the
extent that a more restrictive policy today reduces the threat of higher
inflation down the road, additional tightening should not trigger a magnified
rise in intermediate- and long-term yields.
For money market investors, higher yields are a blessing. For bond
investors, they are good news on the income side but can involve principal
declines. While bond markets may experience occasional rallies, we believe the
returns will be more modest than in recent years, as we discussed in our first
report, and will be generated mainly by income. The low-cost structure of the
Summit Funds should help maximize the income passed through to shareholders
and, therefore, should be particularly advantageous in this environment.
Respectfully submitted,
George J. Collins
President
May 24, 1994
Performance Comparison
Summit Periods Benchmark Periods
Income Funds Ended 4/30/94 Comparisons Ended 4/30/94
_________________ __________________ __________________ __________________
3 Months 6 Months 3 Months 6 Months
Cash Reserves 0.77% 1.49% Donoghue's First 0.72% 1.38%
Tier Average
Limited-Term Bond -4.74 -2.18 Lipper Short -2.00 -1.03
Investment-Grade
Debt Funds Average
GNMA -3.92 -1.48 Lipper GNMA Funds -4.13 -3.07
Average
Financial Summary
Net Asset Dividend Per Dividend
Value Share 3 Yield* 3
Per Share Net Assets Months Ended Months Ended
_______________ _________________ _______________ _______________
1/31/94 4/30/94 1/31/94 4/30/94 1/31/94 4/30/94 1/31/94 4/30/94
Cash $1.00 $1.00 $15.0 mil.$111.4 mil. $0.007 $0.008 2.82% 3.13%
Reserves
Fund
Limited- 5.06 4.74 15.5 17.7 0.08 0.08 5.87 6.77
Term
Fund
GNMA Fund 10.08 9.51 14.7 15.8 0.17 0.18 6.86 7.38
* 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.
Portfolio Characteristics
Weighted Average Weighted Average Weighted Average
Effective Duration Maturity Quality*
__________________ ________________ ________________
1/31/94 4/30/94 1/31/94 4/30/94 1/31/94 4/30/94
(Days)
Cash Reserves - - 69 47 1.4 1.9
Fund
(Years) (Years)
Limited-Term
Bond Fund 2.5 3.0 2.8 3.2 1.7 1.9
GNMA Fund 4.5 3.9 9.5 9.1 1.1 1.1
* On a T. Rowe Price scale of 1 to 10, with Grade 1 representing the highest
credit quality.
Sector Diversification
Summit Cash Reserves Fund
Percent of Net Assets
_____________________
1/31/94 4/30/94
_______ _______
Industrial 13% 18%
Foreign Gov't. & Municipalities 10 14
Banking 2 12
Structured Finance 6 10
Miscellaneous 12 10
Canadian Gov't. & Municipalities 0 7
Telephone 2 7
Food & Beverage 10 5
Petroleum 3 5
Domestic Negotiable CDs 0 4
U.S. Dollar-Denominated
Foreign Negotiable CDs 0 3
Finance & Credit 7 3
Other U.S. Gov't. & Agencies 0 2
Bankers Acceptance - U.S. Banks 0 2
Investment Dealers 3 1
Electric 0 1
Savings & Loan 0 1
U.S. Gov't. & Agencies 17 0
U.S. Treasury Securities 5 0
Pharmaceuticals 4 0
Bankers Acceptance - Foreign 3 0
Other Assets Less Liabilities 3 -5
Summit Limited-Term Bond Fund
Percent of Net Assets
_____________________
1/31/94 4/30/94
_______ _______
Mortgage-Backed Securities 46% 57%
U.S. Government Obligations 32 9
Corporates
Hybrid Securities 8 9
High Yield 8 8
Banking 0 3
Finance & Credit 0 3
Industrial 7 3
Miscellaneous 0 2
Investment Dealers 0 1
Utilities 0 1
Asset-Backed 0 1
U.S. Dollar Denominated
Foreign Securities 1 0
Non-U.S. Dollar Denominated
Foreign Securities 0 1
Other Assets Less Liabilities -2 2
Summit GNMA Fund
Percent of Net Assets
_____________________
1/31/94 4/30/94
_______ _______
GNMA 68% 76%
Gov't. Agency-Backed CMOs 18 13
Government Agencies 9 8
Agency-Backed Strips 2 2
Non-Gov't. Agency-Backed CMOs 1 1
Other Assets Less Liabilities 2 0
Portfolio of Investments (Amounts in thousands)
T. Rowe Price Summit Income Funds / April 30, 1994 (Unaudited)
Cash Reserves Fund
Face Amount Value
___________ ___________
Bank Notes - 4.5%
Bank of New York, VR, 3.978%, 5/23/94. . . . . . . . $ 2,000 $ 2,000
Branch Banking & Trust, VR, 3.90%, 5/2/94. . . . . . 1,000 999
Comerica Bank of Illinois, VR, 3.87%, 5/3/94 . . . . 1,000 1,000
Huntington National Bank, VR, 3.82%, 5/3/94. . . . . 1,000 1,000
_____________________________________________________________________________
Total Bank Notes (Cost - $4,999) 4,999
Bankers' Acceptances - 1.8%
Republic National Bank of New York, 3.60%,
5/20/94 (Cost - $1,988). . . . . . . . . . . . . . 2,000 1,989
Certificates of Deposit - 2.7%
Commerzbank, VR, 3.933%, 5/5/95
(Cost - $3,000). . . . . . . . . . . . . . . . . . 3,000 3,000
Commercial Paper - 87.4%
Air Products & Chemicals, 3.60%, 5/2/94. . . . . . . 300 298
Allied Signal, 3.85%, 5/27/94. . . . . . . . . . . . 1,500 1,495
American General Investment, 3.80%, 6/6/94 . . . . . 1,000 994
Anheuser Busch, 3.32%, 6/15/94 . . . . . . . . . . . 200 197
Arco Coal Australia, 4(2), 3.82%, 5/27/94. . . . . . 1,500 1,495
Asset Securitization Cooperative, 4(2),
3.65 - 3.95%, 5/4 - 6/13/94. . . . . . . . . . . . 4,061 4,041
AT&T, 3.70 - 3.78%, 5/4 - 6/15/94. . . . . . . . . . 1,500 1,494
Australian Wheat Board, 3.75%, 5/2/94. . . . . . . . 100 100
Bankers Trust New York, 4.20%, 10/4/94 . . . . . . . 1,500 1,466
Barclays U.S. Funding, 3.83%, 5/10/94. . . . . . . . 1,000 998
Becton Dickinson Real Estate, 4(2),
3.65%, 5/16/94 . . . . . . . . . . . . . . . . . . 600 598
Bell Atlantic Financial Services,
3.75%, 5/4/94. . . . . . . . . . . . . . . . . . . 1,800 1,795
Bell South Telecommunication, 3.80%, 6/6/94. . . . . 500 496
BMW U.S. Capital, 3.70 - 3.82%, 5/31 - 6/6/94. . . . 2,000 1,987
BP Australia Finance Ltd., 3.80%, 6/6/94 . . . . . . 1,500 1,490
BP Capital, 3.65%, 5/2/94. . . . . . . . . . . . . . 540 540
Caisse des Depots et Consignations, 4(2),
3.63%, 5/11/94 . . . . . . . . . . . . . . . . . . 2,316 2,309
Canadian Wheat Board, 3.65 - 4.05%,
5/24 - 9/29/94 . . . . . . . . . . . . . . . . . . 2,438 2,404
Coca-Cola, 4(2), 3.80%, 6/9/94 . . . . . . . . . . . 800 800
Corporate Asset Funding, 3.55 - 3.87%,
5/6 - 6/9/94 . . . . . . . . . . . . . . . . . . . 4,116 4,095
Credit Commerce de France, 3.75%, 6/13/94. . . . . . 2,000 1,986
Dover, 4(2), 3.63%, 5/13/94. . . . . . . . . . . . . 700 698
Du Pont (EI) de Nemours, 3.71%, 6/16/94. . . . . . . 1,500 1,484
Dun & Bradstreet, 3.72%, 5/3/94. . . . . . . . . . . 1,400 1,396
European Investment Bank, 3.75%, 6/6/94. . . . . . . 1,000 992
Finnish Export Credit Limited, 4.22%, 10/7/94. . . . 1,500 1,465
Face Amount Value
___________ ___________
Ford Credit Europe, 3.72%, 5/23/94 . . . . . . . . . $ 1,000 $ 995
General Electric Capital, 3.35 - 3.80%,
5/2 - 5/23/94. . . . . . . . . . . . . . . . . . . 965 961
Golden Peanut, 3.67 - 3.70%, 5/26/94 . . . . . . . . 1,000 992
Goldman Sachs Group, 3.375 - 4.075%,
8/1 - 10/3/94. . . . . . . . . . . . . . . . . . . 1,500 1,467
GTE Northwest, 3.82%, 5/5/94 . . . . . . . . . . . . 2,000 1,997
Halifax Building Society, 3.75%, 5/23/94 . . . . . . 975 967
Hanson Finance (U.K.), 3.785 - 3.95%,
6/9 - 7/6/94 . . . . . . . . . . . . . . . . . . . 1,350 1,336
Heinz H. J., 3.80%, 5/25/94. . . . . . . . . . . . . 900 897
Hydro-Quebec, 3.80%, 5/24/94 . . . . . . . . . . . . 3,000 2,992
ITT Hartford Group, 4(2), 3.85%, 5/20/94 . . . . . . 600 598
KFW International Finance, 3.21%, 7/8/94 . . . . . . 500 491
Kimberly Clark, 3.90%, 6/3/94. . . . . . . . . . . . 880 876
Kingdom of Denmark, 3.80%, 5/25/94 . . . . . . . . . 695 693
Kingdom of Sweden, 3.24%, 7/11/94. . . . . . . . . . 250 246
Knight-Ridder, 3.68%, 6/2/94 . . . . . . . . . . . . 850 846
Leland Stanford Junior University,
3.20%, 7/12/94 . . . . . . . . . . . . . . . . . . 500 491
MCA Funding, 4.00%, 8/10/94. . . . . . . . . . . . . 2,000 1,968
Motorola Credit, 3.71%, 5/3/94 . . . . . . . . . . . 900 897
National Australia Funding (Delaware),
3.65 - 3.70%, 5/16 - 5/31/94 . . . . . . . . . . . 2,500 2,486
Nestle Capital, 3.90%, 6/24/94 . . . . . . . . . . . 1,000 994
New South Wales Treasury, 3.65 - 4.22%,
5/9 - 10/3/94. . . . . . . . . . . . . . . . . . . 2,000 1,962
Nynex, 3.75%, 5/19/94. . . . . . . . . . . . . . . . 900 895
Oesterrichische Kontrollbank, 3.94%,
8/16/94. . . . . . . . . . . . . . . . . . . . . . 1,375 1,349
Pepsico, 4(2), VR, 3.95%, 5/27/94. . . . . . . . . . 1,000 1,000
Preferred Receivables Funding,
3.75 - 3.87%, 5/16 - 6/1/94. . . . . . . . . . . . 3,200 3,185
Procter & Gamble, 3.53%, 5/2/94. . . . . . . . . . . 300 298
Province of British Columbia, 3.83%,
5/24/94. . . . . . . . . . . . . . . . . . . . . . 1,700 1,695
Province of Quebec, 4.00%, 9/6/94. . . . . . . . . . 1,000 978
R.R. Donnelly, 4(2), 3.65%, 5/16/94. . . . . . . . . 800 794
Reed Publishing (USA), 4(2), 3.80%, 6/6/94 . . . . . 1,000 990
RTZ America, 4(2), 3.70 - 3.85%, 5/5 - 6/1/94. . . . 2,000 1,992
SBNSW (Delaware), VR, 3.85%, 5/3/94. . . . . . . . . 1,500 1,500
Siemens AG, 3.62%, 5/20/94 . . . . . . . . . . . . . 400 397
Societe Generale Canada, 3.68 - 4.00%,
5/11 - 7/11/94 . . . . . . . . . . . . . . . . . . 1,500 1,485
Southern California Edison, 4.10%, 7/27/94 . . . . . 944 934
Southwestern Bell Telephone, 3.70%, 5/4/94 . . . . . 800 798
Statoil (Den Norske Stats Oljeselskap),
3.65%, 5/19/94 . . . . . . . . . . . . . . . . . . 1,500 1,494
Tasmanian Public Finance, 3.85%, 6/15/94 . . . . . . 1,000 991
Teco Finance, 3.67%, 6/2/94. . . . . . . . . . . . . 300 299
Times Mirror, 3.85%, 5/20/94 . . . . . . . . . . . . 400 399
Treasury Corporation of Victoria, 3.62 - 3.83%,
5/17 - 5/23/94 . . . . . . . . . . . . . . . . . . 3,000 2,990
U.S. Borax & Chemical, 4(2), 3.70 - 4.15%,
5/4 - 7/6/94 . . . . . . . . . . . . . . . . . . . 654 650
Unilever Capital, 3.65%, 5/31/94 . . . . . . . . . . 1,000 991
T. Rowe Price Summit Income Funds / Portfolio of Investments
Cash Reserves Fund (cont'd)
Face Amount Value
___________ ___________
Commercial Paper (cont'd)
Vermont American, 4(2), 3.62 - 3.83%,
5/12 - 5/25/94 . . . . . . . . . . . . . . . . . . $ 2,310 $ 2,303
Vulcan Materials, 3.70%, 5/4/94. . . . . . . . . . . 1,800 1,795
WMX Technologies, 3.32%, 7/5/94. . . . . . . . . . . 400 394
Wool International, 3.65%, 5/25/94 . . . . . . . . . 1,500 1,494
Yale University, 3.80%, 6/6 - 6/17/94. . . . . . . . 3,000 2,981
_____________________________________________________________________________
Total Commercial Paper (Cost - $97,360) 97,336
Medium-Term Notes - 5.6%
Bank of Scotland, (144a), VR, 4.363%, 5/10/95. . . . 3,000 3,000
Ciesco L.P., (144a), VR, 3.970%, 7/11/94 . . . . . . 3,000 2,998
PHH, VR, 3.87%, 5/3/94 . . . . . . . . . . . . . . . 300 300
_____________________________________________________________________________
Total Medium-Term Notes (Cost - $6,300) 6,298
U.S. Government Guaranteed Obligations - 2.2%
Federal Farm Credit Bank, Disc. Notes,
3.19 - 3.22%, 5/2 - 7/18/94. . . . . . . . . . . . 820 807
Federal National Mortgage Assn., Disc.
Notes, 3.12 - 3.38%, 6/27 - 9/23/94. . . . . . . . 1,705 1,665
_____________________________________________________________________________
Total U.S. Government Guaranteed
Obligations (Cost - $2,478) 2,472
U.S. Government Obligations - 0.4%
U.S. Treasury Bills, 3.15 - 3.28%,
5/19/94 (Cost - $464). . . . . . . . . . . . . . . 471 464
_____________________________________________________________________________
Total Investments in Securities - 104.6%
of Net Assets (Cost $116,589). . . . . . . . . . . $ 116,558
_____________________________________________________________________________
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.
Limited-Term Bond Fund
Corporate Bonds & Notes - 13.3%
Face Amount Value
___________ ___________
BANKING - 2.9%
Shawmut, Notes, 8.875%, 4/1/96. . . . . . . . . . $ 200 $ 207
Society Bank, MTN, 6.50%, 4/25/97 . . . . . . . . 300 299
506
FINANCE & CREDIT - 2.6%
Banesto Delaware, Notes, 8.25%, 7/28/02 . . . . . 250 242
Fairfax Financial, Sr. Notes, 7.75%,
12/15/03. . . . . . . . . . . . . . . . . . . . 25 23
Greyhound Financial, 3.89%, 2/15/96 . . . . . . . 200 200
465
INDUSTRIALS - 2.6%
Great Atlantic & Pacific Tea, Sr. Notes,
7.70%, 1/15/04. . . . . . . . . . . . . . . . . 500 460
INVESTMENT DEALERS - 1.4%
Goldman Sachs Group, 4.80%, 3/31/97 . . . . . . . 250 249
MISCELLANEOUS - 2.3%
Tenneco Credit, 9.00%, 7/15/95. . . . . . . . . . 400 413
UTILITIES - 1.5%
GGIB Funding, 7.43%, 1/15/11. . . . . . . . . . . 300 260
_____________________________________________________________________________
Total Corporate Bonds & Notes (Cost - $2,467) 2,353
High Yield Securities - 7.8%
American Standard, Sub. Deb.,
9.25%, 12/1/16. . . . . . . . . . . . . . . . . 200 187
Capital Gaming International, Sr. 2nd Mtg.
Bonds, 11.50%, 2/1/01 . . . . . . . . . . . . . 200 228
# Warrants. . . . . . . . . . . . . . . . . . . . . 1 wts. 1
Continental Medical Systems, Sr. Sub. Notes,
10.875%, 8/15/02. . . . . . . . . . . . . . . . $ 75 71
Gulf Canada Resources Limited, Sr. Sub.
Deb., 9.25%, 1/15/04. . . . . . . . . . . . . . 150 137
Heritage Media, Sr. Sub. Notes, 11.00%,
10/1/02 . . . . . . . . . . . . . . . . . . . . 200 204
Maxus Energy, Sr. Notes, 9.875%, 10/15/02 . . . . 200 186
Repap Wisconsin, 2nd Priority Sr. Secured
Notes, 9.875%, 5/1/06 . . . . . . . . . . . . . 200 190
Showboat, 1st Mtg. Bonds, 9.25%, 5/1/08 . . . . . 200 180
_____________________________________________________________________________
Total High Yield Securities (Cost - $1,481) 1,384
T. Rowe Price Summit Income Funds / Portfolio of Investments
Limited-Term Bond Fund (cont'd)
U.S. Government Mortgage-Backed Securities - 57.2%
Face Amount Value
___________ ___________
U.S. GOVERNMENT GUARANTEED OBLIGATIONS - 23.5%
American Southwest Financial, CMO,
4.075%, 7/25/17 . . . . . . . . . . . . . . . . $ 49 $ 49
Bear Stearns, CMO, 9.00%, 6/1/17. . . . . . . . . 20 21
Government National Mortgage Assn., I,
10.00%, 12/15/17 - 10/15/21 . . . . . . . . . . 717 774
II, 10.00%, 10/20/20. . . . . . . . . . . . . 487 516
10.50%, 12/20/13 - 12/20/20 . . . . . . . . 1,307 1,426
Midget, 7.50%, 10/15/08 . . . . . . . . . . . 820 822
9.00%, 4/15 - 12/15/01. . . . . . . . . . . 152 160
9.50%, 3/15/98. . . . . . . . . . . . . . . 54 57
10.00%, 10/15/00. . . . . . . . . . . . . . 22 24
10.50%, 3/15/98 - 2/15/01. . . . . . . . . 289 314
4,163
U.S. GOVERNMENT AGENCY OBLIGATIONS - 28.2%
Federal Home Loan Mortgage, 6.80%, 4/15/18. . . . 300 302
7.45%, 10/15/15 . . . . . . . . . . . . . . . . 193 195
7.50%, 1/15/19 - 6/15/22. . . . . . . . . . . . 2,020 2,024
Federal National Mortgage Assn.,
7.00%, 9/25/18. . . . . . . . . . . . . . . . . 2,000 1,976
9.00%, 8/25/11. . . . . . . . . . . . . . . . . 45 45
9.50%, 9/25/18. . . . . . . . . . . . . . . . . 430 448
4,990
STRIPPED MORTGAGE SECURITIES** - 4.4%
American Housing Trust, Interest Only,
0.803%, 1/25/22 . . . . . . . . . . . . . . . . 9,680 254
Federal Home Loan Mortgage, Inverse Floating,
Interest Only, 4.40%, 4/15/23. . . . . . . . 2,819 196
4.713%, 4/15/23. . . . . . . . . . . . . . . 2,465 234
Federal National Mortgage Assn., Inverse
Floating, Interest Only, 4.663%, 11/25/23 . . . 1,467 104
788
INVERSE FLOATING RATE CMO's - 1.1%
Federal Home Loan Mortgage, 10.537%,
8/15/08 . . . . . . . . . . . . . . . . . . . . 275 197
_____________________________________________________________________________
Total U.S. Government Mortgage-Backed Securities
(Cost - $10,352) 10,138
Asset-Backed Securities - 1.4%
Face Amount Value
___________ ___________
AUTO-BACKED - 1.4%
USAA Auto Loan Grantor Trust, 5.00%,
11/15/99 (Cost - $240). . . . . . . . . . . . . $ 240 $ 239
Hybrid Instruments - 8.5%
Bankers Trust Bank Note, 5.00%, 12/14/94;
principal repayment value is indexed to the
spread between Mexican par bonds & U.S.
Treasury bonds. . . . . . . . . . . . . . . . . 250 96
Barclays Bank Derivative, Basket Notes,
5.00%, 1/16/96; principal repayment value
is indexed to average swap rate of four
European currencies; includes put option
at 80% of par . . . . . . . . . . . . . . . . . 750 675
Goldman Sachs L.P., CP, 3.80%, 12/2/94;
principal repayment value is indexed to
the spread between Mexican par bonds & U.S.
Treasury Bonds. . . . . . . . . . . . . . . . . 250 99
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 . . . . . . . . . . . . 750 645
_____________________________________________________________________________
Total Hybrid Instruments (Cost - $1,943) 1,515
U.S. Government Obligations - 9.2%
U.S. Treasury Notes, 5.125%, 3/31/96. . . . . . . 1,505 1,489
5.875%, 2/15/04 . . . . . . . . . . . . . . . . 150 138
_____________________________________________________________________________
Total U.S. Government Obligations (Cost - $1,632) 1,627
Non-U.S. $ Denominated Foreign Securities1 - 0.6%
Mexican Cetes, 15.00%, 5/12/94
(Cost - $103) . . . . . . . . . . . . . . . . . MXN 350 106
_____________________________________________________________________________
Total Investments in Securities - 98.0% of Net
Assets (Cost $18,218) $ 17,362
_____________________________________________________________________________
1 Denominated in foreign currency.
# Non-income Producing
** For Interest Only securities, face amount represents notional principal,
on which the Fund receives interest.
CMO - Collateralized Mortgage Obligation
CP - Commercial Paper
MTN - Medium Term Note
MXN - Mexican peso denominated
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Income Funds / Portfolio of Investments
GNMA Fund
U.S. Government Mortgage-Backed Securities - 99.1%
Face Amount Value
___________ ___________
U.S. GOVERNMENT GUARANTEED OBLIGATIONS - 79.3%
Goverment National Mortgage Assn., I,
7.00%, 12/15/99. . . . . . . . . . . . . . . . . . $ 345 $ 325
150%, 12/15/22 - 2/15/24 . . . . . . . . . . . . . 5,024 4,881
8.00%, 1/15/99 . . . . . . . . . . . . . . . . . . 500 499
8.50%, 6/15/16 - 9/15/21 . . . . . . . . . . . . . 178 182
9.00%, 6/15/16 - 10/15/23. . . . . . . . . . . . . 1,082 1,129
9.50%, 9/15/09 - 2/15/21 . . . . . . . . . . . . . 1,624 1,719
10.00%, 11/15/09 - 8/15/20 . . . . . . . . . . . . 146 158
10.50%, 9/15/13 - 12/15/19 . . . . . . . . . . . . 1,050 1,167
11.00%, 12/15/09 - 7/15/19 . . . . . . . . . . . . 456 519
II, 9.50%, 2/20/17 - 12/20/20. . . . . . . . . . . . 675 702
10.00%, 1/20/14 - 3/20/21. . . . . . . . . . . . . 559 592
Graduated Payment Mortgage, I, 9.25%,
8/15/21. . . . . . . . . . . . . . . . . . . . . . 92 93
9.50%, 7/15/09 . . . . . . . . . . . . . . . . . . 115 118
12,084
U.S. GOVERNMENT AGENCY OBLIGATIONS - 9.2%
Federal Home Loan Mortgage, 5.00%, 7/15/05 . . . . . 50 47
7.50%, 12/15/19. . . . . . . . . . . . . . . . . . 500 498
Federal National Mortgage Assn., 5.00%,
11/25/20 - 8/25/22 . . . . . . . . . . . . . . . . 1,016 862
6.00%, 3/25/11 . . . . . . . . . . . . . . . . . . 8 8
8.00%, 1/25/21 . . . . . . . . . . . . . . . . . . 38 39
1,454
U.S. GOVERNMENT AGENCY-BACKED - 10.2%
American Southwest Financial, 9.00%, 3/1/12. . . . . 319 320
Tennessee Valley Authority, 6.875%, 12/15/43 . . . . 75 65
7.25%, 7/15/43 . . . . . . . . . . . . . . . . . . 1,350 1,221
1,606
STRIPPED MORTGAGE SECURITIES - 3.2%
Federal Home Loan Mortgage, Principal Only,
Zero Coupon, 2/15/24 . . . . . . . . . . . . . . . 244 205
Federal National Mortgage Assn., CMO, Interest
Only, 6.50%, 10/25/23**. . . . . . . . . . . . . . 838 296
501
_____________________________________________________________________________
Total U.S. Government Mortgage-Backed
Securities (Cost - $16,370) 15,645
Asset-Backed Securities - 0.6%
WHOLE LOANS-BACKED - 0.6%
Prudential Home Mortgage Securities, 6.00%,
10/25/07 (Cost - $100) . . . . . . . . . . . . . . 100 97
_____________________________________________________________________________
Total Investments in Securities - 99.7% of
Net Assets (Cost $16,470) $ 15,742
_____________________________________________________________________________
** 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 Assets and Liabilities
T. Rowe Price Summit Income Funds / April 30, 1994 (Unaudited)
Amounts in Thousands
__________________________________
Cash
Reserves Limited-Term GNMA
Fund Bond Fund Fund
________ ___________ ________
ASSETS
Investments in securities at value
(Cost - $116,589, $18,218, and
$16,470) . . . . . . . . . . . . . $ 116,558 $ 17,362 $ 15,742
Receivable for investment
securities sold. . . . . . . . . . - 373 -
Other assets . . . . . . . . . . . . 1,473 361 961
_________ _______ _______
Total assets . . . . . . . . . . . . 118,031 18,096 16,703
_________ _______ _______
LIABILITIES
Payable for investment securities
purchased. . . . . . . . . . . . . 6,000 295 829
Other liabilities. . . . . . . . . . 613 81 81
_________ _______ _______
Total liabilities. . . . . . . . . . 6,613 376 910
_________ _______ _______
Net Assets . . . . . . . . . . . . . $ 111,418 $ 17,720 $ 15,793
_________ _______ _______
_________ _______ _______
Net Assets Consisting of:
Accumulated net investment income -
net of distributions . . . . . . . - (2) (2)
Accumulated realized gains/losses -
net of distributions . . . . . . . - (152) (102)
Unrealized depreciation of
investments. . . . . . . . . . . . (31) (856) (728)
Paid-in-capital applicable to
111,449,610, 3,739,236, and
1,660,109 shares of $0.0001
par value capital stock outstanding;
1,000,000,000 shares of the
Corporation authorized . . . . . . 111,449 18,730 16,625
_________ _______ _______
Net Assets . . . . . . . . . . . . . $ 111,418 $ 17,720 $ 15,793
_________ _______ _______
_________ _______ _______
Net Asset Value Per Share. . . . . . $1.00 $4.74 $9.51
_____ _____ _____
_____ _____ _____
_____________________________________________________________________________
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 April 30, 1994 (Unaudited)
Amounts in Thousands
__________________________________
Cash
Reserves Limited-Term GNMA
Fund Bond Fund Fund
________ ___________ ________
INVESTMENT INCOME
Interest income. . . . . . . . . . $ 567 $ 391 $ 417
EXPENSES
Investment management fee. . . . . (70) (31) (33)
_____ ________ ______
Net investment income. . . . . . . 497 360 384
_____ ________ ______
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss. . . . . . . . . - (152) (102)
Change in unrealized appreciation
or depreciation. . . . . . . . . (31) (856) (728)
_____ ________ ______
Net loss on investments. . . . . . (31) (1,008) (830)
_____ ________ ______
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS. . . . . . . . . . $ 466 $ (648) $ (446)
_____ ________ ______
_____ ________ ______
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 April 30, 1994 (Unaudited)
Amounts in Thousands
__________________________________
Cash
Reserves Limited-Term GNMA
Fund Bond Fund Fund
________ ___________ ________
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income. . . . . . . $ 497 $ 360 $ 384
Net realized loss on
investments. . . . . . . . . . . - (152) (102)
Change in unrealized
appreciation or depreciation
of investments . . . . . . . . . (31) (856) (728)
________ _______ _______
Increase (decrease) in net assets
from operations. . . . . . . . . 466 (648) (446)
________ _______ _______
Distributions to shareholders
Net investment income. . . . . . . (497) (362) (386)
________ _______ _______
Capital share transactions(1)
Sold . . . . . . . . . . . . . . . 137,991 23,080 18,487
Distributions reinvested . . . . . 468 293 298
Redeemed . . . . . . . . . . . . . (27,050) (4,673) (2,190)
________ _______ _______
Increase in net assets from
capital share
transactions . . . . . . . . . . 111,409 18,700 16,595
________ _______ _______
Total increase . . . . . . . . . . . 111,378 17,690 15,763
NET ASSETS
Beginning of period. . . . . . . . 40 30 30
________ _______ _______
End of period. . . . . . . . . . . $ 111,418 $ 17,720 $ 15,793
________ _______ _______
________ _______ _______
_____________________________________________________________________________
(1)Share transactions
Sold . . . . . . . . . . . . . . . 137,991 shs. 4,616 shs. 1,849 shs.
Distributions reinvested . . . . . 468 60 0
Redeemed . . . . . . . . . . . . . (27,050) (943) (222)
________ _______ _______
Net increase in shares
outstanding . . . . . . . . . . . 111,409 3,733 1,657
________ _______ _______
________ _______ _______
_____________________________________________________________________________
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Summit Income Funds / April 30, 1994 (Unaudited)
Note 1 - Significant Accounting Policies
T. Rowe Price Summit Funds, Inc. (the Corpor-ation) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company. 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) 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.
For purposes of determining each Fund's net asset value per share, all
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at the mean of the bid and offer prices of such currencies
against U.S. dollars quoted by a major bank.
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) Currency translation - Foreign currency amounts are translated into U.S.
dollars at prevailing exchange rates as follows: assets and liabilities at the
rate of exchange at the end of the respective period, purchases and sales of
securities and income and expenses at the rate of exchange prevailing on the
dates of such transactions.
C) Premiums and Discounts - Premiums and discounts on debt securities are
amortized for both financial and tax reporting purposes.
D) 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 April 30, 1994, were as follows:
Limited-Term GNMA
Bond Fund Fund
_____________ ____________
U.S. Government
Purchases $34,706,000 $22,753,000
Sales 22,655,000 6,017,000
Portfolio Securities
Purchases $9,169,000 $100,000
Sales 3,905,000 261,000
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. At April 30, 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 $116,589,000, $18,218,000, and $16,470,000,
respectively. Net unrealized appreciation (depreciation) was as follows:
Cash Limited-
Reserves Term GNMA
Fund Bond Fund Fund
_________ _________ _________
Appreciated
Investments $ 6,000 $ 25,000 $ 31,000
Depreciated
Investments (37,000) (881,000) (759,000)
_________ _________ _________
Net Unrealized
Depreciation $(31,000) $(856,000) $(728,000)
_________ _________ _________
_________ _________ _________
Note 5 - Related Party Transactions
The investment management agreement between each Fund and T. Rowe Price
Associates, Inc. (the Manager) provides for a single all-inclusive fee,
computed daily and paid monthly, based on each Fund's average daily net
assets. This fee will not fluctuate. All the expenses of each Fund are paid by
the Manager, except interest, taxes, brokerage commissions and extraordinary
expenses. The all-inclusive fee is equal to 0.45% of average daily net assets
for the Cash Reserves Fund, 0.55% of average daily net assets for the
Limited-Term Bond Fund, and 0.60% of average daily net assets for the GNMA
Fund.
Financial Highlights
T. Rowe Price Summit Income Funds / From October 29, 1993 (Commencement of
Operations) to April 30, 1994 (Unaudited)
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 . . . . . . . . . . 0.015 0.16 0.35
Net realized and
unrealized gain
(loss) . . . . . . . . . . - (0.26) (0.49)
__________ __________ __________
Total from Investment
Activities. . . . . . . . . 0.015 (0.10) (0.14)
__________ __________ __________
Distributions
Net investment income. . . . (0.015) (0.16) (0.35)
__________ __________ __________
NET ASSET VALUE,
END OF PERIOD. . . . . . . .$ 1.000 $ 4.74 $ 9.51
__________ __________ __________
__________ __________ __________
_____________________________________________________________________________
RATIOS/SUPPLEMENTAL DATA
Total Return . . . . . . . . . 1.49% (2.18)% (1.48)%
Ratio of Expenses
to Average Net Assets. . . . 0.45%! 0.55%! 0.60%!
Ratio of Net Investment
Income to Average
Net Assets . . . . . . . . . 3.21%! 6.41%! 7.14%!
Portfolio Turnover Rate. . . . - 487.8%! 116.5%!
Net Assets, End of
Period (in thousands). . . . $111,418 $ 17,720 $ 15,793
Number of Shareholder
Accounts, End of
Period . . . . . . . . . . . 1,125 251 248
_____________________________________________________________________________
! Annualized.
Shareholder Services
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety
of information and services-at no extra cost.
Telephone Services
Access Your Account 24 Hours a Day by Calling 1-800-638-2587.
Tele*Access(registered trademark)-Gives you your account balance, date
and amount of your last transaction, latest dividend payment, and fund prices
and yields. Also, lets you purchase, exchange, or redeem shares.
Shareholder Service Representatives are available from 8:30 a.m. to 10:00
p.m., Monday-Friday, and Saturday from 9:00 a.m. to 5:00 p.m., E.T. Call
1-800-225-5132.
Shareholder Service Center-Call to exchange shares or move money between
your bank and fund accounts.
Account Services
Checking-Write checks for $500 or more on any money market and most bond
fund accounts.
Automatic Investing-Build your account over time by investing directly
from your bank account or paycheck. A low, $50 minimum makes it easy to get
started.
Automatic Withdrawal-If you need money
from your fund account on a regular basis, you can establish scheduled,
automatic redemptions.
Dividend and Capital Gains Payment
Options-Reinvest all or some of your distributions or take them in cash. We
give you maximum flexibility and convenience.
Investment Information
Combined Statement-A comprehensive overview of your T. Rowe Price
accounts. The summary page gives your earnings by tax category, provides total
portfolio value, and lists your investments by type-stock, bond, and money
market. Detail pages itemize account transactions by fund.
Quarterly Shareholder Reports-Portfolio
managers review the performance of the funds in plain language and discuss T.
Rowe Price's economic outlook.
The T. Rowe Price Report-A quarterly newsletter with relevant articles
on market trends, personal financial planning, and T. Rowe Price's economic
perspective.
Insights-A library of information that includes reports on mutual fund
tax issues, investment strategies, and financial markets.
Detailed Investment Guides-Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Retirees Financial Guide, Retirement Planning Kit (also
available on disk for PC use) and Guide to Risk-Adjusted Performance can help
you determine and reach your investment goals.
Discount Brokerage
Trade stocks, bonds, options, and precious metals at substantial savings over
full-cost brokers.
Tele*Trade-Call this automated phone service after business hours to
place your orders.
Fax*Trade-Buy and sell by simply faxing your order.
Tele*Quote-Provides 24-hour access to stock and option quotes.
Money Fund Sweep Feature-Buy and sell securities and have your "sweep"
account automatically debited or credited. Dividend and interest payments are
credited daily.
If you have questions or would like to add a service to your account, please
call our Shareholder Service Center.
APPENDIX
Chart 1 - Treasury Yield Curves - A line graph compares the yields on the
Current Coupon GNMA, the Five-Year Treasury Note, and the 90-Day Treasury Bill
for the six-month period from 10/29/93 to 4/29/94.
