Report
Summit
Income
Funds
October 31, 1996
T. Rowe Price
REPORT HIGHLIGHTS
o After a dismal first half, bonds recovered somewhat over
the last six months as the economy slowed and inflation
fears subsided.
o The Summit Cash Reserves Fund outperformed its Lipper peer
group for both the six and 12 months ended October 31,
producing a return of 5.23% for the full year.
o Despite a poor return in the first fiscal half, the Summit
Limited-Term Bond Fund rebounded over the last six months to
post a respectable gain of 5.48% for the full year, essentially
matching its peers.
o The GNMA Fund gained a modest 5.47% for the full year, with
virtually all of the return coming over the last six months
following a disappointing first half. Mortgages again outperformed
Treasuries.
o As the current expansion nears its sixth anniversary, bonds
should do well if growth remains moderate and inflation stays
in check.
Fellow Shareholders
The bond market traveled nearly full circle in the last year.
After continuing its 1995 rally into the early weeks of this year, the
market quickly hit a wall as economic growth and inflation fears surged,
causing interest rates to rise sharply. Over the last six months, however,
the market recovered somewhat as the economy slowed and inflation fears
subsided, allowing interest rates to settle into a narrow range. Bond
returns were solid in the last half year.
MARKET ENVIRONMENT
Although interest rates ended at roughly the same levels as a year ago,
there was a lot of action in between. On October 31, the yield on five-year
Treasury notes was less than one-half of a percentage point higher than a
year ago. However, as the chart below attests, interest rates were on a
roller coaster all year, rising sharply in early 1996 before leveling off
somewhat over the last six months. Bond prices, which move in the opposite
direction of rates, went along for the ride. However, since prices finished
little changed over the year, bond returns came mostly from income.
Chart 1: A 3-line chart showing interest rate levels on current coupon
GNMA, 5-year treasury, and 90-day treasury bill from 10/31/95 through
10/31/96
The bright start to your fund's fiscal year quickly turned bleak early in
1996 after balanced budget talks collapsed and economic growth rose to
worrisome levels, leading to sharply rising interest rates and weak returns
for most bond funds over the first half. When we last reported to you in
April, most of the bond market assumed that the Federal Reserve would raise
short-term interest rates to corral growth. However, the widely anticipated
tightening never came to pass, as economic growth slowed in the third
quarter and inflation remained largely under control. As shown in the
chart, after rising to a 12-month high of 6.8% in August, the yield on
five-year Treasury notes dropped back to 6.2% by the end of October.
The bond market seesawed with every shift in the economic and inflation
outlooks. For instance, the five-year Treasury yield bounced between a low
of 5.3% in January when the economy appeared tame to its August high of
6.8%. Similarly, the yield on the current coupon GNMA rose from a low of
6.8% in January to highs of 8% in April and August, before settling back to
7.5% at the end of October. Amid this volatility, the Fed held the key
federal funds rate steady around 5.25%, where it has been since last
February. The best-performing securities in this environment were corporate
bonds, especially lower-quality (high-yield) issues which are more
sensitive to the direction of the economy than to interest rates.
Summit Cash Reserves Fund
Money market rates were little changed from October 1995 to October 1996,
ending around 5%. Your fund's yield also ended the period at about the same
level - 5.15% (as shown in the table following this letter). However, while
certainly not as volatile as longer rates, money market yields reversed
direction several times due to the uncertainty over economic growth and Fed
policy. (Money market yields generally track the federal funds rate on
overnight loans among banks.) The 90-day Treasury yield fluctuated in a
range of 20 basis points (one-fifth of one percentage point) since April.
Your fund outperformed the average Lipper money market fund over the last
six months. The fund's 5.23% return for the 12 months ended October 31
outpaced its peer group by an even bigger margin, helped by a generally
lower expense ratio.
Performance Comparison
Periods Ended 10/31/966 Months 12 Months
Cash Reserves Fund 2.55% 5.23%
Lipper Money Market
Funds Average 2.37 4.86
The apparent stability of your fund's weighted average maturity, rising by
only two days between April and October, masks the wide range it covered.
When the economy appeared weak and rates fell back, we purchased
instruments with longer maturities to enhance yield and delay the rollover
of assets into lower-yielding securities. Conversely, when growth appeared
to pick up and yields rose, we bought shorter-maturity issues that could be
quickly rolled over into higher-yielding securities. As a result, our
average maturity ranged between a high of 63 days and a low of 42 days over
the last six months. We ended the period at the higher, more aggressive end
of that range, given our belief that the Fed will not raise short-term
rates in the near future.
As usual, we made only minor changes in sector diversification. We
increased exposure to negotiable certificates of deposit and bank notes
from 21% to 33% of net assets (as shown in the table following this letter)
due to an abundance of attractively priced issues in this sector. We
slightly increased exposure to fixed rate obligations to 90%, with a
corresponding decrease in floating rate instruments because strong demand
from some buyers drove their yields lower.
Summit Limited-Term Bond Fund
The fund produced a good return over the last six months, slightly behind
the Lipper average for similar funds. This return bolstered the fund's
modest gain in the first half of the fiscal year when bonds were under
pressure, helping lift the 12-month return to a respectable 5.48%, almost
matching the Lipper peer group.
Performance Comparison
Periods Ended 10/31/966 Months 12 Months
Limited-Term Bond Fund3.93% 5.48%
Lipper Short Intermediate
Investment-Grade
Debt Funds Average 4.06 5.54
Over the last six months, we adjusted the fund's effective duration within
a range of 2.6 to 2.8 years. We allowed duration to drift to the lower end
of this range at the end of October as rising mortgage prepayments
shortened the overall duration of our mortgage-backed securities. (Duration
is a more accurate measure than maturity of a fund's price sensitivity to
changes in interest rates. Shortening duration cushions the fund's share
price in the event that rates rise.)
During the last year, the fund relied on sizable allocations to
high-quality corporate issues (51% of net assets, including asset-backed
securities and commercial paper) and mortgage-backed securities (32%) to
enhance overall yield. This strategy proved beneficial because both these
sectors outperformed Treasuries. Our mortgage holdings are concentrated in
securities with relatively stable cash flows in changing rate environments,
namely short-duration, 15-year pass-throughs, collateralized mortgage
obligations (CMOs), and securities with balloon payments. Therefore, our
mortgage securities tend to be less volatile than more traditional
pass-through mortgage issues.
Chart 2: A pie chart showing quality diversification of Limited-Term Bond
fund on 10/31/96.
As always, the fund remained well diversified in various industry sectors,
as shown in the table following this letter. We maintained our utility
exposure at a relatively high 7% because these securities were still
attractively priced. On the other hand, we curtailed our media and
communications position due to increased risk in that industry.
The other major feature of our strategy over the last six months was a
slight improvement in overall credit quality, from AA- to AA. As shown in
the chart, AAA obligations now represent 53% of net assets, up from 45%
last April. We raised overall quality primarily by selling lower-quality
corporates, including all of our high-yield securities, in favor of
better-quality corporates and mortgage securities.
There were two reasons behind this strategy. First, the yield advantage of
high-yield securities versus investment-grade bonds narrowed, making it
harder to justify the additional credit risk of high-yield issues. Second,
the risk of credit downgrades among investment-grade issuers increased
somewhat with the growing use of cash and debt (as opposed to equity) to
finance merger activity in recent weeks.
Summit GNMA Fund
In the seesaw market of the last six months, your fund produced a strong
return, somewhat better than the average competitor fund as measured by
Lipper. However, performance for the 12 months ended October 31 was modest,
hampered by the fund's barely positive return in the first half when rising
interest rates led to price declines that offset the higher income of
GNMAs.
Performance Comparison
Periods Ended 10/31/966 Months 12 Months
GNMA Fund 5.00% 5.47%
Lipper GNMA Funds Average4.65 5.55
During the generally rising interest rate environment of the last year,
prepayment activity remained low, allowing mortgage-backed securities to
outperform Treasuries. (Prepayments can reduce the total return of some
mortgage securities.) Prepayments come from two sources: old mortgages
being paid off as homeowners move into new homes and assume new mortgages;
and the refinancing of existing mortgages on the same residence.
Over the past few years, prepayments from new mortgages have been rather
constant, but those from refinancings have fluctuated widely. In 1993, with
interest rates at their lowest levels in twenty years, prepayment levels
spiked up as homeowners rushed to refinance. The sharp increases in
interest rates in early 1996 pushed prepayment levels back down to the lows
reached in 1994. However, with the 30-year Treasury yield down to 6.6%,
prepayment fears are resurfacing.
We made several moves to enhance the fund's price appreciation as interest
rates fell over the last two months. As the 30-year Treasury bond yield
fell from a high of 7.2%, we again purchased a long Treasury position,
which now represents 4.9% of net assets. In addition, we maintained a more
aggressive duration than that of our peers, ending at 5.1 years on October
31.
We made several moves to enhance the fund's price appreciation as interest
rates fell . . .
As always, we searched for ways to improve the other component of total
return - income. We recently purchased a high-yielding CMO backed by
balloon mortgages. This security boasts a healthy 12% coupon, but has a
final maturity of only three years, limiting its downside risk in the event
of rising interest rates. Over the last few months, it has contributed both
income and price appreciation to the fund's total return, and now
represents 3% of assets.
The bulk of assets, 87%, remained in a diversified selection of GNMAs. Our
strategy of holding lower-coupon issues in the forward market proved
beneficial, since the added liquidity allowed us to change our coupon mix
very efficiently in response to shifting economic signals. The fund
continued to hold its core position in a wide range of GNMAs, from
lower-coupon mortgages trading at a discount to par value to higher-coupon
issues trading at a premium.
OUTLOOK
The economy has settled into a moderate growth pattern, all but eliminating
concerns of a Fed tightening in the near term. Since growth in the fourth
calendar quarter will be pivotal in determining the direction of monetary
policy, the Fed has apparently adopted a wait-and-see approach.
The bond market rallied in the wake of the presidential election, seemingly
heartened by the political balance between the Clinton White House and the
Republican-controlled congress. Indeed, as the century draws to a close,
hopes run high for meaningful progress toward a balanced budget, which
apparently enjoys bipartisan support in Washington. Of course, it remains
to be seen whether it will actually come to pass.
In coming months, as the current economic expansion approaches its sixth
anniversary, bonds should do well as long as growth remains moderate and
inflation stays in check.
Respectfully submitted,
Peter Van Dyke
President
Summit Income Funds
November 22, 1996
T. Rowe Price Summit Income Funds
__________________________________________________________________________
Portfolio Highlights
Key statistics
4/30/96 10/31/96
Summit Cash Reserves Fund
_________________________________________________________________
Price Per Share $1.00 $1.00
Dividends Per Share
For 6 months .026 .025
For 12 months .054 .051
Dividend Yield (7-Day Compound)* 5.13% 5.15%
Weighted Average Maturity (days) 59 61
Weighted Average Quality ** First Tier First Tier
Summit Limited-Term Bond Fund
__________________________________________________________________________
Price Per Share $4.57 $4.60
Dividends Per Share
For 6 months 0.15 0.15
For 12 months 0.30 0.30
Dividend Yield *
For 6 months 6.54% 6.46%
For 12 months 6.70 6.60
Weighted Average Maturity (years) 3.8 3.5
Weighted Average Effective Duration (years)2.8 2.6
Weighted Average Quality *** AA- AA
(continued on next page)
T. Rowe Price Summit Income Funds
__________________________________________________________________________
Portfolio Highlights
__________________________________________________________________________
Key statistics
4/30/96 10/31/96
Summit GNMA Fund
__________________________________________________________________________
Price Per Share $9.52 $9.65
Dividends Per Share
For 6 months 0.34 0.33
For 12 months 0.69 0.67
Dividend Yield *
For 6 months 7.03% 7.11%
For 12 months 7.28 7.19
Weighted Average Maturity (years) 9.8 8.9
Weighted Average Effective Duration (years)5.7 5.1
Weighted Average Quality *** AAA AAA
* Dividends earned and reinvested for the periods indicated are
annualized and divided by the average daily net asset values per share
for the same period.
** All securities purchased in the money fund are rated in the two
highest categories (tiers) as established by national rating agencies
or, if unrated, are deemed of comparable quality by T. Rowe Price.
***Based on T. Rowe Price research.
Note: The Cash Reserves Fund seeks to maintain a stable share price of
$1.00, but this is not guaranteed. An investment in the fund is neither
insured nor guaranteed by the U.S. government.
T. Rowe Price Summit Income Funds
__________________________________________________________________________
Portfolio Highlights
__________________________________________________________________________
Sector Diversification
Percent ofPercent of
Net AssetsNet Assets
4/30/96 10/31/96
Summit Cash Reserves Fund
__________________________________________________________________________
Commercial Paper 50% 42%
Negotiable CDs/BNs Foreign and Domestic 21 33
Foreign and Canadian Government and Municipalities6 10
Other Short-Term Obligations 23 15
Total 100% 100%
Fixed Rate Obligations 86 90
Floating Rate Instruments 14 10
Summit Limited-Term Bond Fund
__________________________________________________________________________
Mortgage-Backed Securities 27% 32%
U.S. Treasury Obligations 6 14
Banking 10 8
Utilities 8 7
Industrial 10 6
Asset Backed 5 6
Finance and Credit 6 5
Government Agency Obligations 1 5
Investment Dealers 2 4
Commercial Paper 5 3
Transportation 1 3
Retail 1 2
Media and Communications 6 2
All Other 11 4
Other Assets Less Liabilities 1 - 1
__________________________________________________________________________
Total 100% 100%
Summit GNMA Fund
__________________________________________________________________________
GNMA 92% 87%
Government Agencies 7 13
U.S. Treasury Obligations 8 5
Commercial Paper - 3
Agency-Backed STRIPS 1 1
Other Assets Less Liabilities - 8 - 9
__________________________________________________________________________
Total 100% 100%
T. Rowe Price Summit Income Funds
__________________________________________________________________________
Performance Comparison
__________________________________________________________________________
These charts show the value of a hypothetical $10,000 investment in each
fund over the past 10 fiscal year periods or since inception (for funds
lacking 10-year records). The result is compared with a broad-based average
or index. The index return does not reflect expenses, which have been
deducted from the fund's return.
SEC chart: a line chart showing the cumulative growth of $10,000 invested
in the Summit Cash Reserves Fund over the past 10 years (or "from
inception" for funds lacking 10-year histories) compared with $10,000
invested in a broad-based index or average over the same period.
SEC chart: a line chart showing the cumulative growth of $10,000 invested
in the Summit Limited-Term Bond Fund over the past 10 years (or "from
inception" for funds lacking 10-year histories) compared with $10,000
invested in a broad-based index or average over the same period.
SEC chart: a line chart showing the cumulative growth of $10,000 invested
in the Summit GNMA Fund over the past 10 years (or "from inception" for
funds lacking 10-year histories) compared with $10,000 invested in a
broad-based index or average over the same period.
Average Annual Compound Total Return
This table shows how the fund 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 10/31/96 1 Year 3 YearsInceptionDate
__________________________________________________________________________
Summit Cash Reserves Fund 5.23% 4.83% 4.82% 10/29/93
Summit Limited-Term Bond Fund5.48 3.99 3.98 10/29/93
Summit GNMA Fund 5.47 6.18 6.17 10/29/93
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
T. Rowe Price Summit Cash Reserves Fund
__________________________________________________________________________
Financial Highlights
For a share outstanding throughout each period
__________________________________________________________________________
Year 10/29/93
Ended to
10/31/96 10/31/95 10/31/94
NET ASSET VALUE
Beginning of period $1.000 $1.000 $1.000
Investment activities
Net investment income 0.051 0.055 0.035
Distributions
Net investment income (0.051) (0.055) (0.035)
NET ASSET VALUE
End of period $1.000 $1.000 $1.000
Ratios/Supplemental Data
Total return 5.23% 5.68% 3.60%
Ratio of expenses to
average net assets 0.45% 0.45% 0.45%!
Ratio of net investment
income to average
net assets 5.09% 5.55% 4.03%!
Net assets, end of period
(in thousands) $741,561 $433,464 $186,523
! Annualized.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Limited-Term Bond Fund
__________________________________________________________________________
Financial Highlights
For a share outstanding throughouteach period
__________________________________________________________________________
Year 10/29/93
Ended to
10/31/96 10/31/95 10/31/94
NET ASSET VALUE
Beginning of period $4.65 $4.64 $5.00
Investment activities
Net investment income 0.30 0.32 0.33
Net realized and
unrealized gain (loss) (0.05) 0.01 (0.36)
Total from
investment activities 0.25 0.33 (0.03)
Distributions
Net investment income (0.29) (0.31) (0.33)
Tax return of capital (0.01) (0.01) -
Total distributions (0.30) (0.32) (0.33)
NET ASSET VALUE
End of period $4.60 $4.65 $4.64
Ratios/Supplemental Data
Total return 5.48% 7.36% (0.71)%
Ratio of expenses to
average net assets 0.55% 0.55% 0.55%!
Ratio of net investment
income to average
net assets 6.43% 6.85% 6.98%!
Portfolio turnover rate 116.1% 84.3% 296.0%!
Net assets, end of period
(in thousands) $25,984 $27,004 $21,116
! Annualized.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit GNMA Fund
__________________________________________________________________________
Financial Highlights
For a share outstanding throughout each period
__________________________________________________________________________
Year 10/29/93
Ended to
10/31/96 10/31/95 10/31/94
NET ASSET VALUE
Beginning of period $9.81 $9.15 $10.00
Investment activities
Net investment income 0.67 0.70 0.69
Net realized and
unrealized gain (loss) (0.16) 0.66 (0.85)
Total from
investment activities 0.51 1.36 (0.16)
Distributions
Net investment income (0.62) (0.67) (0.69)
Tax return of capital (0.05) (0.03) -
Total distributions (0.67) (0.70) (0.69)
NET ASSET VALUE
End of period $9.65 $9.81 $9.15
Ratios/Supplemental Data
Total return 5.47% 15.43% (1.67)%
Ratio of expenses to
average net assets 0.60% 0.60% 0.60%!
Ratio of net investment
income to average
net assets 6.99% 7.40% 7.31%!
Portfolio turnover rate 136.1% 173.8% 61.5%!
Net assets, end of period
(in thousands) $24,718 $22,777 $17,184
! Annualized.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Cash Reserves Fund
__________________________________________________________________________
October 31, 1996
Statement of Net Assets Par Value
__________________________________________________________________________
In thousands
BANK NOTES 6.2%
FCC National Bank, 5.70%, 10/28/97 $10,000 $10,000
Key Bank, VR, 5.299%, 11/21/96 10,000 9,994
PNC Bank N.A., VR, 5.334%, 11/4/96 5,000 4,997
Southtrust Bank of Georgia, VR, 5.315%,
11/22/96 8,000 7,997
Southtrust Bank of North Carolina, VR,
5.383%, 11/13/96 2,000 2,000
Wachovia Bank of North Carolina, 4.50%,
1/27/97 11,400 11,378
Total Bank Notes (Cost $46,366) 46,366
CERTIFICATES OF DEPOSIT 27.2%
Abbey National, (London), 5.82%, 1/13/9714,00014,006
ABN AMRO
(London)
5.59%, 12/9/96 10,000 10,002
5.68%, 12/31/96 10,000 10,003
Australia & New Zealand Banking, 5.57%,
2/6/97 8,000 8,000
Bank of Montreal, 5.50%, 1/3/97 1,000 1,000
Bank of Nova Scotia, 5.52%, 12/16/96 2,000 2,000
Banque Nationale de Paris, (London),
5.75%, 1/22/97 8,000 8,004
Bayerische Hypotheken und Wechsel
5.65%, 3/14/97 5,000 5,000
(London), 5.46%, 11/27/96 10,000 10,000
Chase Manhattan Bank, 5.77%, 3/11/9710,000 10,000
Commerzbank
5.33%, 11/1/96 5,000 5,000
(London), 6.00%, 6/5/97 3,000 3,005
Credit Suisse, (London), 5.52%,
2/13/97 10,000 9,999
First National Bank of Boston,
5.38%, 11/25/96 10,000 10,000
First National Bank of Chicago,
5.51%, 11/7/96 3,500 3,500
First Tennessee Bank N.A., 5.32%,
11/4/96 5,000 5,000
Hessische Landesbank-Girozentrale
6.05%, 6/13/97 4,000 4,009
(London), 5.44%, 12/27/96 25,000 25,001
MBNA America Bank N.A.
5.43%, 12/2/96$ 5,000 $5,000
5.75%, 2/3/97 10,000 10,000
Mellon Bank, 5.75%, 1/28/97 8,000 8,004
Providian National Bank, 5.77%,
3/20/97 4,000 4,000
Societe Generale
5.37%, 12/16/96 9,000 9,000
5.65%, 4/1/97 2,000 2,000
5.75%, 5/22/97 5,000 5,001
Sudwest Deutsche Landesbank, (London),
5.62%, 12/31/96 2,000 2,000
Swiss Bank, (London), 5.53%, 2/10/97 6,000 6,000
Westdeutsche Landesbank, 5.28%,
11/22/96 2,000 2,000
Westpac Banking, 5.975%, 6/5/97 5,000 5,007
Total Certificates of Deposit (Cost $201,541)201,541
COMMERCIAL PAPER 51.6%
ABB Treasury Center (USA), 4(2), 5.65%,
11/1/96 1,091 1,091
Abbey National North America, 5.32%,
11/29/96 9,000 8,963
American Express Credit, 5.26%,
12/5/96 12,000 11,940
ANZ (Delaware), 5.50%, 11/12/96 10,000 9,983
Asset Securitization Cooperative,
4(2), 5.30%, 11/18/96 12,800 12,768
Bank of America, 5.40%, 2/5/97 2,141 2,110
Banque Nationale de Paris
5.33%, 11/15/96 2,300 2,295
5.35%, 1/21/97 2,800 2,767
Barclays U.S. Funding, 5.35%, 11/29/96 100 100
Barnett Banks, 5.30%, 11/8/96 2,567 2,564
Beta Finance, 4(2), 5.32%, 11/8/96 -
11/25/96 7,000 6,978
Bex America Finance, 5.31%, 11/4/96 1,500 1,499
BMW U.S. Capital
5.26%, 11/21/96 5,000 4,985
5.27%, 11/21/96 - 12/3/96 9,175 9,138
Caisse D'Amortissement
5.27%, 12/4/96 3,500 3,483
5.33%, 11/20/96 3,000 2,992
Caisse des Depots et Consignations
4(2)
5.25%, 11/13/96 - 11/21/96 $12,500 $12,473
5.33%, 11/7/96 800 799
Caterpillar Financial Services, 5.40%,
2/10/97 10,000 9,849
Ciesco
5.25%, 11/25/96 10,000 9,965
5.30%, 11/25/96 10,000 9,965
Countrywide Home Loans, 5.28%,
11/19/96 10,123 10,096
Delaware Funding, 4(2), 5.33%,
11/15/96 5,700 5,688
Deutsche Bank Finance, 5.25%, 11/4/964,100 4,098
Dover, 4(2), 5.26%, 11/21/96 9,200 9,173
Enel, 5.35%, 11/21/96 5,000 4,985
Finova Capital, 5.39%, 1/22/97 7,000 6,914
First Chicago Financial, 4(2), 5.27%,
11/14/96 5,000 4,991
France Telecom, 5.35%, 11/21/96 3,000 2,991
General Electric Capital, 5.30%,
11/12/96 5,300 5,291
Indosuez North America, 5.35%,
11/20/96 9,500 9,473
Kingdom of Sweden, 5.40%, 2/3/97 1,164 1,148
Korea Development Bank
5.27%, 11/12/96 - 11/13/96 7,750 7,737
5.40%, 1/17/97 8,435 8,337
Lilly (Eli) & Company, 5.35%, 12/2/961,350 1,344
Manufacturers Investment, 5.25%,
11/20/96 19,000 18,947
Market Street Funding, 5.29%, 12/17/9610,000 9,932
Mobil Australia Finance, 4(2), 5.32%,
11/27/96 21,920 21,836
National Australia Funding
5.42%, 1/31/97 3,702 3,651
5.60%, 4/17/97 8,000 7,792
New Center Asset Trust, 5.32%, 11/13/9610,000 9,982
Nordbanken North America
5.33%, 11/8/96 5,000 4,995
5.38%, 5/15/97 5,000 4,854
5.62%, 3/10/97 5,000 4,899
Oesterrichische Kontrollbank, 5.25%,
11/29/96 5,000 4,980
Preferred Receivables Funding
5.25%, 11/1/96 $7,300 $7,300
5.27%, 11/12/96 10,000 9,984
5.33%, 12/2/96 5,300 5,276
Safeco Credit, 5.25%, 11/13/96 12,000 11,979
Sherwood Medical, 5.27%, 11/22/96 1,624 1,619
Tasmanian Public Finance
5.30%, 11/15/96 3,000 2,994
5.36%, 12/16/96 10,000 9,933
U.S. Bancorp, 5.50%, 11/7/96 4,500 4,496
UBS Finance (Delaware), 5.625%, 11/1/964,000 4,000
Western Australian Treasury, 5.60%, 3/11/978,2558,088
Wool International, 5.32%, 11/22/96 800 798
Yorkshire Building Society, 5.43%, 1/24/9715,47215,276
Total Commercial Paper (Cost $382,584) 382,584
MEDIUM-TERM NOTES 16.1%
American General Finance, VR, 5.447%,
11/18/96 5,000 5,001
Associates Corporation of North America,
6.875%, 1/15/97 500 502
AVCO Financial Services, 7.50%, 11/15/962,000 2,001
Barnett Banks, 7.10%, 4/1/97 4,450 4,474
Bear Stearns, VR, 5.425%, 11/29/96 5,000 5,000
Campbell Soup, (Eurobond), 7.75%, 2/24/974,6304,665
Caterpillar Financial Services, VR, 5.70%,
12/20/96 1,925 1,926
Corporate Asset Funding, VR, 5.366%,
12/2/96 10,000 10,000
Ford Motor Credit
7.125%, 12/1/97 6,850 6,949
7.875%, 1/15/97 3,000 3,016
8.00%, 12/1/97 1,500 1,535
VR, 5.833%, 11/4/96 1,000 1,002
General Electric Capital
5.30%, 1/3/97 10,000 9,999
7.625%, 1/10/97 1,100 1,105
General Motors Acceptance Corporation
8.25%, 1/13/97 2,000 2,011
8.375%, 5/1/97 4,000 4,048
Goldman Sachs Group
VR
5.374%, 11/19/96 $5,000 $5,000
5.374%, 11/20/96 8,000 8,000
Great Western Bank, 9.50%, 7/1/97 4,950 5,058
Household Finance, VR, 5.709%, 11/12/961,125 1,127
International Lease Finance, 7.83%,
11/14/96 4,000 4,003
Nationsbank, VR, 5.563%, 11/18/96 1,500 1,500
PHH, VR, 5.345%, 11/8/96 10,000 9,996
SMM Trust
VR
5.425%, 11/29/96 5,000 5,000
5.706%, 12/26/96 15,000 15,000
Wells Fargo, VR, 5.628%, 11/18/96 1,500 1,500
Total Medium-Term Notes (Cost $119,418) 119,418
Total Investments in Securities
101.1% of Net Assets (Cost $749,909) $749,909
Other Assets Less Liabilities (8,348)
NET ASSETS $741,561
Net Assets Consist of:
Accumulated net realized gain/loss -
net of distributions $11
Paid-in-capital applicable to 741,550,395
shares of $0.0001 par value capital stock outstanding;
1,000,000,000 shares of the Corporation authorized741,550
NET ASSETS $741,561
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".
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Limited-Term Bond Fund
__________________________________________________________________________
October 31, 1996
Statement of Net Assets Par/Shares Value
__________________________________________________________________________
In thousands
CORPORATE BONDS AND NOTES 41.9%
Banking 8.5%
ABN AMRO Bank (Chicago), N.V., 7.25%,
5/31/05 $250 $256
Chase Manhattan, Sub. Notes, 8.00%,
4/15/02 265 267
Credit Foncier France, 8.00%, 2/23/98 300 308
Firstar, Sub. Notes, 7.15%, 9/1/00 135 137
Hartford National, Sub. Cap. Notes, 9.85%,
6/1/99 50 54
MBNA, Sr. Notes, 7.49%, 9/14/99 250 257
Northern Trust, MTN, 9.15%, 3/13/98 225 234
Union Planters, Sub. Notes, 6.25%, 11/1/03225 217
Washington Mutual, Sr. Notes, 7.25%, 8/15/05225 226
Westamerica Bank of California, Sub. Cap. Notes,
6.99%, 9/30/03 250 245
2,201
Consumer Products 0.9%
Grand Metropolitan Investment, 6.50%, 9/15/99250 251
251
Consumer Services 1.2%
ERAC USA Finance, MTN, 7.00%, 6/15/00 300 305
305
Finance and Credit 5.4%
Advanta, MTN, 7.07%, 9/2/97 100 101
Aristar, Sr. Notes, 7.875%, 2/15/99 225 232
Ciesco, MTN, 7.38%, 4/19/00 250 258
Heller Financial, Notes, 7.875%, 11/1/99220 228
HSBC Finance Nederland, Gtd. Sub. Notes,
7.40%, 4/15/03 270 276
Providian, MTN, 6.92%, 5/16/00 300 305
1,400
Industrials 6.3%
Burlington Industries, Notes, 7.25%, 9/15/05250 246
Ford Motor Credit, MTN, 8.21%, 3/16/99 250 261
Freeport McMoRan, Sr. Notes, 7.00%, 2/15/08250 239
General Motors Acceptance Corporation, MTN,
6.625%, 4/24/00 300 302
Lockheed, Notes, 9.375%, 10/15/99 85 92
Lockheed Martin, Notes, 6.55%, 5/15/99 215 217
Tenneco, Notes, 8.00%, 11/15/99 270 282
1,639
Insurance 0.7%
Chubb, Deb., 8.75%, 11/15/99 $187 $193
193
Investment Dealers 4.3%
Bear Stearns, Notes, 7.625%, 9/15/99 225 232
Lehman Brothers, MTN, 6.75%, 5/24/99 250 251
Merrill Lynch, Notes, 7.05%, 4/15/03 300 301
Morgan Stanley Group, Notes, 7.32%, 1/15/97100 100
Salomon, MTN, 5.90%, 2/9/98 250 250
1,134
Media and Communications 1.9%
Lucent Technologies, Notes, 6.90%, 7/15/01250 255
News America Holdings, Sr. Notes, 7.50%,
3/1/00 225 231
486
Petroleum 0.5%
Occidental Petroleum, MTN, 5.90%, 11/9/98125 124
124
Retail 2.3%
Dayton Hudson, Notes, 9.40%, 2/15/01 275 302
Sears Roebuck & Company, MTN, 8.23%, 5/4/99275 288
590
Transportation 2.5%
Burlington Northern, Notes, 7.40%, 5/15/99150 153
Federal Express, Notes, 6.25%, 4/15/98 250 250
Union Pacific, Notes, 7.00%, 6/15/00 250 253
656
Utilities 7.4%
Commonwealth Edison, 1st Mtg. Bonds, 9.375%,
2/15/00 250 269
Connecticut Light & Power, 1st Ref. Mtg.,
5.50%, 2/1/99 250 242
Consumers Power, 1st Mtg. Bonds, 6.875%,
5/1/98 152 152
Long Island Lighting, Gen. Ref. Mtg., 8.75%,
2/15/97 200 201
Niagara Mohawk Power, 1st Mtg. Notes, 5.875%,
11/1/96 65 65
Orange & Rockland Utilities, Deb., 6.14%,
3/1/00 250 247
Pacific Gas & Electric, 1st Mtg. Bonds, 8.75%,
1/1/01 250 269
Progress Capital Holdings, (144a), 6.88%,
8/1/01 250 253
System Energy Resources, 1st Mtg. Bonds,
7.625%, 4/1/99 215 220
1,918
Total Corporate Bonds and Notes (Cost $10,911)10,897
WARRANTS 0.0%
President Casinos, Warrants (144a) *! $1 $1
Total Warrants (Cost $4) 1
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 31.5%
U.S. Government Agency Obligations 22.2%
Federal Home Loan Mortgage
10.75%, 12/1/09 150 166
5 year balloon
5.00%, 6/1/99 300 295
6.00%, 4/1/99 402 401
7 year balloon
6.50%, 12/1/99 592 594
7.00%, 12/1/99 500 505
REMIC
6.00%, 2/15/03 400 400
6.75%, 10/15/03 500 504
6.80%, 4/15/18 300 303
7.45%, 10/15/15 138 140
7.50%, 2/15/06 - 9/15/06 1,299 1,325
Federal National Mortgage Assn.
7.00%, 4/1/09 434 437
REMIC
6.50%, 5/25/04 400 401
7.50%, 8/25/05 242 243
9.50%, 9/25/18 45 45
5,759
U.S. Government Guaranteed Obligations 9.3%
Government National Mortgage Assn.
I, 10.00%, 11/15/09 - 10/15/21 829 910
II, 10.00%, 10/20/20 207 225
Midget, I
9.00%, 4/15/01 - 12/15/01 73 77
9.50%, 3/15/98 11 11
10.00%, 8/15/98 - 4/15/01 624 662
10.50%, 2/15/98 - 2/15/01 $508 $544
2,429
Total U.S. Government Mortgage-Backed
Securities (Cost $8,130) 8,188
U.S. GOVERNMENT OBLIGATIONS 18.4%
U.S. Government Agency Obligations 4.8%
Federal Home Loan Banks, 7.00%, 8/12/99500 502
Federal Home Loan Mortgage, 6.725%, 8/15/00225 225
Federal National Mortgage Assn., 7.65%,
10/6/06 500 509
1,236
U.S. Treasury Obligations 13.6%
U.S. Treasury Notes
5.875%, 8/15/98 375 376
6.375%, 8/15/02 600 607
6.50%, 8/31/01 1,250 1,271
6.625%, 6/30/01 1,250 1,276
3,530
Total U.S. Government Obligations (Cost $4,691)4,766
ASSET-BACKED SECURITIES 5.5%
Auto-Backed 0.1%
USAA Auto Loan Grantor Trust, 5.00%, 11/15/9940 40
40
Credit Card-Backed 3.9%
American Express Master Trust, 7.15%, 8/15/99250 255
Discover Card Trust, 7.85%, 11/21/00 250 257
First Deposit Master Trust, 6.05%, 8/15/02250 251
Signet Credit Card Master Trust, 5.20%,
2/15/02 250 246
1,009
Home Equity Loans-Backed 1.0%
Access Financial Mortgage Loan Trust, 6.90%,
5/18/11 250 251
251
Receivables-Backed 0.5%
Harley Davidson Eaglemark, (144a), 6.35%,
10/15/02 125 126
126
Whole Loans-Backed 0.0%
Bear Stearns, CMO, 9.00%, 6/1/17 $5 $5
5
Total Asset-Backed Securities (Cost $1,436) 1,431
MUNICIPAL BONDS 0.6%
Taxable Municipal 0.6%
University of Miami, GO, 6.90%, 4/1/04 155 154
Total Municipal Bonds (Cost $155) 154
COMMERCIAL PAPER 3.2%
Chubb Capital, 5.23%, 11/18/96 630 628
Investments in Commercial Paper through a
joint account,
5.56 - 5.63%, 11/1/96 207 207
Total Commercial Paper (Cost $835) 835
Total Investments in Securities
101.1% of Net Assets (Cost $26,162) $26,272
Other Assets Less Liabilities (288)
NET ASSETS $ 25,984
Net Assets Consist of:
Accumulated net investment income - net of
distributions $(134)
Accumulated net realized gain/loss - net of
distributions (1,526)
Net unrealized gain (loss) 110
Paid-in-capital applicable to 5,650,610 shares
of $0.0001 par value capital stock outstanding;
1,000,000,000 shares of the Corporation authorized27,534
NET ASSETS $25,984
NET ASSET VALUE PER SHARE $4.60
! Private Placement
* Non-income producing
Securities contain some restrictions as to public resale.
CMO Collateralized Mortgage Obligation
GO General Obligation
MTN Medium Term Note
REMICReal Estate Mortgage Investment Conduit
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 year-end
amounts to 0.5% of net assets.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit GNMA Fund
October 31, 1996
T. Rowe Price Summit GNMA Fund
__________________________________________________________________________
Statement of Net Assets Par Value
__________________________________________________________________________
In thousands
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 101.0%
U.S. Government Guaranteed Obligations 87.4%
Government National Mortgage Assn.
I
6.50%, 3/15/26 - 6/15/26 $2,018 $1,931
7.00%, 4/15/24 - 12/15/25 2,311 2,270
7.50%, 6/15/22 - 5/15/24 2,318 2,342
8.00%, 4/15/17 - 3/15/25 2,440 2,521
8.50%, 6/15/16 - 12/15/24 2,575 2,702
9.00%, 8/15/08 - 8/15/21 791 848
9.50%, 6/15/09 - 7/15/20 742 806
10.00%, 3/15/18 97 107
10.50%, 9/15/13 - 12/15/19 1,124 1,247
11.00%, 12/15/09 - 7/15/19 211 238
11.50%, 6/15/15 - 12/15/15 76 87
II
9.00%, 5/20/22 - 3/20/25 703 738
9.50%, 2/20/17 - 12/20/20 323 346
10.00%, 1/20/14 - 3/20/21 233 253
11.00%, 9/20/17 41 46
GPM, I
9.25%, 7/15/16 - 8/15/21 133 142
9.50%, 7/15/09 66 72
10.00%, 8/15/13 4 4
Project Loan, I, 8.50%, 1/15/27 200 208
REMIC, 6.50%, 10/16/24 3,000 2,696
TBA, I
7.00%, 12/15/99 1,000 981
8.00%, 12/15/99 1,000 1,024
21,609
U.S. Government Agency Obligations 12.6%
Federal Home Loan Mortgage
5.00%, 7/15/05 50 49
5.85%, 11/15/17 331 329
7.50%, 12/15/19 500 511
Federal National Mortgage Assn.
5.00%, 8/25/22 $16 $15
6.50%, 1/1/26 500 478
CMO, 12.431%, 6/25/99 749 807
REMIC
5.00%, 11/25/20 1,000 891
8.00%, 1/25/21 26 26
3,106
Stripped Mortgage Securities 1.0%
Federal National Mortgage Assn.
CMO, Interest Only, 8.50%, 4/1/22** 742 218
REMIC, Principal Only, Zero Coupon, 9/25/9822 20
238
Total U.S. Government Mortgage-Backed
Securities (Cost $24,751) 24,953
U.S. GOVERNMENT OBLIGATIONS 4.9%
U.S. Treasury Obligations 4.9%
U.S. Treasury Bonds, 6.75%, 8/15/26 1,200 1,214
Total U.S. Government Obligations
(Cost $1,203) 1,214
ASSET-BACKED SECURITIES 0.3%
Home Equity Loans-Backed 0.3%
Prudential Home Mortgage Securities, 6.00%,
10/25/07 69 68
Total Asset-Backed Securities (Cost $68) 68
COMMERCIAL PAPER 3.2%
Investments in Commercial Paper through a
joint account,
5.56 - 5.63%, 11/1/96 804 804
Total Commercial Paper (Cost $804) 804
Total Investments in Securities
109.4% of Net Assets (Cost $26,826) $27,039
Other Assets Less Liabilities (2,321)
NET ASSETS $24,718
Net Assets Consist of:
Accumulated net investment income - net of
distributions $(143)
Accumulated net realized gain/loss -
net of distributions (330)
Net unrealized gain (loss) 213
Paid-in-capital applicable to 2,562,314 shares
of $0.0001 par value capital stock outstanding;
1,000,000,000 shares of the Corporation authorized24,978
NET ASSETS $24,718
NET ASSET VALUE PER SHARE $9.65
** For Interest Only securities, amount represents notional principal,
on which the fund receives interest
CMO Collateralized Mortgage Obligation
GPM Graduated Payment Mortgage
REMICReal Estate Mortgage Investment Conduit
TBA To be announced security was purchased on a forward commitment basis;
the aggregate liability for securities purchased under such
agreements totaled $1,992,000 at 10/31/96.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Income Funds
__________________________________________________________________________
Statement of Operations
__________________________________________________________________________
Cash ReservesLimited-Term GNMA
Fund Bond Fund Fund
In thousands
Year Year Year
Ended Ended Ended
10/31/96 10/31/9610/31/96
Investment Income
Interest income $32,863 $1,829 $1,749
Investment management and
administrative expenses 2,670 144 138
Net investment income 30,193 1,685 1,611
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities6 (235) (274)
Change in net unrealized gain or loss
on securities 61 (88) (68)
Net realized and unrealized gain (loss)67 (323) (342)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $30,260 $1,362 $1,269
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Income Funds
__________________________________________________________________________
Statement of Changes in Net Assets
__________________________________________________________________________
In thousands
Cash ReservesLimited-Term GNMA
Fund Bond Fund Fund
Year Year Year
Ended Ended Ended
10/31/9610/31/9510/31/9610/31/9510/31/9610/31/95
Increase (Decrease) in Net Assets
Operations
Net investment
income $30,193$17,027 $1,685 $1,539 $1,611 $1,384
Net realized
gain (loss) 6 4 (235) (439) (274) (288)
Change in net
unrealized
gain or loss 61 22 (88) 503 (68) 1,547
Increase
(decrease)
in net assets
from
operations 30,260 17,053 1,362 1,603 1,269 2,643
Distributions to
shareholders
Net investment
income (30,193)(17,027)(1,601)(1,478)(1,495) (1,309)
Tax return of
capital - - (84) (62) (116) (75)
Decrease in net
assets from
distributions(30,193)(17,027)(1,685)(1,540)(1,611)(1,384)
Capital share transactions*
Shares sold1,150,499720,69714,00417,791 11,792 11,514
Distributions
reinvested 28,318 15,823 1,266 1,190 1,130 1,002
Shares
redeemed (870,787)(489,605)(15,967)(13,156)(10,639)(8,182)
Increase (decrease) in
net assets from
capital share
transactions308,030246,915 (697) 5,825 2,283 4,334
Net Assets
Increase (decrease)
during period308,097246,941 (1,020) 5,888 1,941 5,593
Beginning of
period 433,464186,523 27,004 21,116 22,777 17,184
End of period$741,561$433,464$25,984$27,004$24,718$22,777
*Share information
Shares sold1,150,499720,6973,032 3,847 1,218 1,206
Distributions
reinvested 28,318 15,823 275 257 117 105
Shares
redeemed (870,787)(489,605)(3,458)(2,858)(1,094) (868)
Increase (decrease)
in shares
outstanding308,030246,915 (151) 1,246 241 443
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Summit Income Funds
__________________________________________________________________________
October 31, 1996
Notes to Financial Statements
__________________________________________________________________________
Note 1 - Significant Accounting Policies
T. Rowe Price Summit Income Fund, Inc., (the corporation) 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 and commenced operations on
October 29, 1993.
Valuation Debt securities are generally traded in the over-the-counter
market. Except for securities held by the Cash Reserves Fund, investments
in securities originally issued with 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. Securities
held by the bond funds with original maturities of 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 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 each fund, as authorized by the Board of Directors.
Premiums and Discounts Premiums and discounts on debt securities, other
than mortgage-backed securities, are amortized for both financial reporting
and tax purposes. Premiums and discounts on mortgage-backed securities are
recognized upon principal repayment as gain or loss for financial reporting
purposes and as ordinary income for tax purposes.
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 each fund on the ex-dividend date. Income and capital gain
distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with
generally accepted accounting principles.
Note 2 - Investment Transactions
Commercial Paper Joint Account The Limited-Term Bond Fund, the GNMA Fund,
and other affiliated funds, may transfer uninvested cash into a commercial
paper joint account, the daily aggregate balance of which is invested in
high-grade commercial paper. All securities purchased by the joint account
satisfy each fund's criteria as to quality, yield, and liquidity.
Other Purchases and sales of U.S. government securities and other
portfolio securities, excluding short-term securities, for the year ended
October 31, 1996, were as follows:
Limited-Term GNMA
Bond Fund Fund
U.S. government securities
Purchases $14,592,000
$35,049,000
Sales 14,044,00033,547,000
Other securities
Purchases 17,103,000 -
Sales 14,634,000 23,000
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since each fund intends
to continue to qualify as a regulated investment company and distribute all
of its taxable income. The Limited-Term Bond Fund has unused realized
capital loss carryforwards for federal income tax purposes of $1,527,000,
of which $1,016,000 expires in 2002, $354,000 in 2003, and $157,000 in
2004. The GNMA Fund has unused realized capital loss carryforwards for
federal income tax purposes of $330,000, of which $187,000 expires in 2003,
and $143,000 in 2004. Each fund intends to retain gains realized in future
periods that may be offset by available capital loss carryforwards.
In order for each fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended October 31, 1996. The
results of operations and net assets were not affected by the
reclassifications.
Limited-Term GNMA
Bond Fund Fund
Undistributed net investment income$(79,000)$(131,000)
Undistributed net realized gain 79,000 131,000
At October 31, 1996, the aggregate costs of investments for the Cash
Reserves, Limited-Term Bond, and GNMA Funds for federal income tax and
financial reporting purposes were $749,909,000, $26,162,000, and
$26,826,000, respectively. For the Cash Reserves Fund, amortized cost is
equivalent to value; and for the Limited-Term Bond and GNMA Funds, net
unrealized gain (loss) on investments was as follows:
__________________________________________________________________________
Limited-Term GNMA
Bond Fund Fund
Appreciated investments $216,000 $459,000
Depreciated investments (106,000) (246,000)
Net unrealized gain (loss) $110,000 $213,000
Note 4 - 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 annual fee, of which $184,000 was payable at October 31, 1996
by the Cash Reserves Fund. The fee, computed daily and paid monthly, 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. Pursuant to the agreement,
investment management, shareholder servicing, transfer agency, accounting,
and custody services are provided to each fund, and interest, taxes,
brokerage commissions, and extraordinary expenses are paid directly by each
fund.
T. Rowe Price Summit Income Funds
__________________________________________________________________________
Report of Independent Accountants
__________________________________________________________________________
To the Board of Directors of T. Rowe Price Summit Funds, Inc. and
Shareholders of 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 statements of net assets of T. Rowe Price
Summit Funds, Inc. (which includes 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, 1996, and the related statements of operations for
the year then ended, the statement of changes in net assets for each of the
two years then ended and financial highlights for each of the two years
then ended and the period from October 29, 1993 (commencement of
operations) to October 31, 1994. These financial statements and financial
highlights are the responsibility of the Funds' 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, 1996 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 T. Rowe Price Summit Funds, Inc. as of October 31, 1996, the results of
their operations, the changes in their net assets and financial highlights
for the periods stated in the first paragraph in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
November 22, 1996
T. Rowe Price
__________________________________________________________________________
Investment Services And Information
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weekends. Call 1-800-225-5132 to speak directly with a representative who
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T. Rowe Price
__________________________________________________________________________
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bond, and money market. Detail pages itemize account transactions by fund.
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 This is a quarterly newsletter with relevant
articles on market trends, personal financial planning, and T. Rowe Price's
economic perspective.
Performance Update This quarterly report reviews recent market
developments and provides comprehensive performance information for every
T. Rowe Price fund.
Insights This library of information 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, and Retirement Planning Kit
(also available on disk for PC use) can help you determine and reach your
investment goals.
Mutual Funds
Stock Funds Bond Funds
Domestic Domestic Taxable International/Global
Balanced Corporate Income Global Government Bond
Blue Chip Growth GNMA Emerging Markets Bond
Capital AppreciationHigh Yield International Bond
Capital Opportunity New Income
Dividend Growth Short-Term Bond Money Market
Equity Income Short-Term U.S. Government
Equity Index Spectrum Income Taxable
Financial Services Summit GNMA Prime Reserve
Growth & Income Summit Limited-Term BondSummit Cash Reserves
Growth Stock U.S. Treasury IntermediateU.S. Treasury Money
Health Sciences U.S. Treasury Long-Term
Mid-Cap Growth Tax-Free
Mid-Cap Value Domestic Tax-free California Tax-Free
New America Growth California Tax-Free Money
New Era Florida Insured New York Tax-Free Money
New Horizons Intermediate Tax-Free Summit Municipal Bond
OTC Georgia Tax-Free Bond Money Market
Science & TechnologyMaryland Short-Term Tax-Exempt Money
Small-Cap Value Tax-Free Bond Intermediate Tax-Free
Spectrum Growth Maryland Tax-Free BondBlended Asset
Value New Jersey Tax-Free BondPersonal Strategy Income
New York Tax-Free BondPersonal Strategy
Balanced
International/GlobalSummit Municipal IncomePersonal Strategy Growth
Tax-Free High Yield
Emerging Markets Tax-Free Income T. Rowe Price No-Load
European Stock Tax-Free Insured Variable Annuity
Global Stock Summit Municipal
International Discovery Intermediate Equity Income Portfolio
International Stock Tax-Free Short-Intermediate International Stock
Japan Virginia Short-Term Limited-Term Bond
Portfolio
Latin America Tax-Free Bond New America Growth
New Asia Virginia Tax-Free BondPortfolio
Personal Strategy
Balanced
Portfolio
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
For yield, price, last transaction, Investor Centers:
current balance or to conduct 101 East Lombard St.
transactions, 24 hours, 7 days Baltimore, MD 21202
a week, call Tele*Access(registered trademark):T. Rowe Price
1-800-638-2587 toll free Financial Center10090
Red Run Blvd.
For assistance Owings Mills, MD 21117
with your existing
fund account, call: Farragut Square
Shareholder Service Center 900 17th Street, N.W.
1-800-225-5132 toll free Washington, D.C. 20006
625-6500 Baltimore area
To open a Discount Brokerage ARCO Tower
account or obtain information, 31st Floor
call: 1-800-638-5660 toll free 515 South Flower St.
Los Angeles, CA 90071
Internet address:
http://www.troweprice.com 4200 West Cypress St.
T. Rowe Price Associates 10th Floor
100 East Pratt Street Tampa, FL 33607
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Summit Income Funds.
T. Rowe Price Investment Services, Inc., DistributorRPRTSINC 10/31/96
Chart 1 - A 3-line chart showing interest rate levels on current coupon
GNMA, 5-year treasury, and 90-day treasury bill from 10/31/95 through
10/31/96
Chart 2 - A pie chart showing quality diversification of Limited-Term Bond
fund on 10/31/96.
Chart 3, 4, 5 -SEC chart: a line chart showing the cumulative growth of
$10,000 invested in the Summit Cash Reserves Fund, Summit GNMA Fund, and
Summit Limited-Term Bond Fund over the past 10 years (or "from inception"
for funds lacking 10-year histories) compared with $10,000 invested in a
broad-based index or average over the same period.
