<PAGE>
- --------------------------------------------------------------------------------
Annual Report - Financial Statements
- --------------------------------------------------------------------------------
T. Rowe Price
Personal Strategy
Income Fund
--------------
May 31, 1997
--------------
- --------------------------------------------------------------------------------
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
- ---------------------
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year 7/29/94
Ended through
5/31/97 5/31/96 5/31/95
<S> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 11.85 $ 10.94 $ 10.00
..........................................
Investment activities
Net investment income 0.51* 0.50* 0.41*
Net realized and
unrealized gain (loss) 1.10 0.98 0.85
..........................................
Total from
investment activities 1.61 1.48 1.26
..........................................
Distributions
Net investment income (0.50) (0.47) (0.32)
Net realized gain (0.98) (0.10) -
..........................................
Total distributions (1.48) (0.57) (0.32)
..........................................
NET ASSET VALUE
End of period $ 11.98 $ 11.85 $ 10.94
------------------------------------------
Ratios/Supplemental Data
Total return 14.70%* 13.84%* 12.90%*
................................................................................
Ratio of expenses to
average net assets 0.95%* 0.95%* 0.95%+*
................................................................................
Ratio of net investment
income to average
net assets 4.38%* 4.31%* 4.71%+*
................................................................................
Portfolio turnover rate 44.8% 34.1% 50.5%+
................................................................................
Average commission rate paid $ 0.0375 $ 0.0522 -
................................................................................
Net assets, end of period
(in thousands) $ 44,368 $ 25,545 $ 20,705
................................................................................
</TABLE>
* Excludes expenses in excess of a 0.95% voluntary expense limitation in effect
through 5/31/98.
+ Annualized.
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
May 31, 1997
<TABLE>
<CAPTION>
- ------------------------
Statement of Net Assets Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Common Stocks 39.9%
FINANCIAL 8.0%
Bank and Trust 3.8%
Abbey National (GBP) 4,000 $ 58
................................................................................
Air Liquide (L) (FRF) 220 34
................................................................................
BANC ONE 1,000 43
................................................................................
Banca Commerciale Italiana (ITL) 20,000 39
................................................................................
Banco de Bilbao Vizcaya ADR 800 56
................................................................................
Banco Frances del Rio ADR 1,035 34
................................................................................
Bank Boston 600 44
................................................................................
Barclay's (GBP) 3,000 58
................................................................................
Chase Manhattan 1,200 113
................................................................................
Citicorp 600 69
................................................................................
Deutsche Bank (DEM) 500 28
................................................................................
Development Bank of Singapore (SGD) 3,000 38
................................................................................
Great Western Financial 3,400 165
................................................................................
HSBC Holdings (GBP) 3,400 105
................................................................................
J. P. Morgan 530 57
................................................................................
KeyCorp 550 30
................................................................................
Kredietbank (BEF) 200 82
................................................................................
Mellon Bank 1,550 136
................................................................................
National City 1,000 51
................................................................................
NationsBank 700 41
................................................................................
Norwest 1,600 86
................................................................................
Overseas Chinese Bank (SGD) 3,000 37
................................................................................
Schweizerischer Bankverein (CHF)* 300 72
................................................................................
Societe Generale (FRF) 400 44
................................................................................
Societe Generale de Belgique (BEF) 150 14
................................................................................
Svenska Handelsbank (SEK) 1,000 27
................................................................................
Union Bank of Switzerland (CHF) 40 44
................................................................................
Wells Fargo 200 53
................................................................................
Westpac Bank (AUD) 6,000 33
................................................................................
1,691
............
Insurance 2.1%
ACE Limited 1,400 90
................................................................................
American General 1,400 62
................................................................................
</TABLE>
3
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
American International Group 400 $ 54
................................................................................
CKAG Colonia Konzern (DEM) 600 58
................................................................................
EXEL 800 35
................................................................................
Mid Ocean Limited 1,100 50
................................................................................
St. Paul Companies 2,900 208
................................................................................
Travelers Property Casualty (Class A) 5,200 200
................................................................................
UNUM 1,000 79
................................................................................
Willis-Corroon ADR 7,000 79
................................................................................
915
..........
Financial Services 2.1%
American Express 1,700 118
................................................................................
AXA (FRF) 700 42
................................................................................
Fannie Mae 2,500 109
................................................................................
Freddie Mac 3,000 99
................................................................................
Green Tree Financial 1,000 35
................................................................................
H&R Block 5,800 191
................................................................................
Hartford Life (Class A)* 200 7
................................................................................
Household International 300 30
................................................................................
ING Groep (NLG) 1,750 77
................................................................................
Mercury Finance 6,900 18
................................................................................
Money Store 1,600 41
................................................................................
Pearson (GBP) 2,000 24
................................................................................
Sallie Mae 550 67
................................................................................
Travelers Group 1,733 95
................................................................................
953
..........
Total Financial 3,559
..........
UTILITIES 3.0%
Telephone Services 2.0%
................................................................................
ALLTEL 1,200 40
................................................................................
AT&T 4,350 160
................................................................................
BellSouth 1,700 77
................................................................................
British Telecommunications ADR 700 51
................................................................................
Frontier 5,300 97
................................................................................
Hong Kong Telecommunications ADR 1,100 25
................................................................................
SBC Communications 3,300 193
................................................................................
Sprint 400 20
................................................................................
</TABLE>
4
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Telecom Corp. of New Zealand ADR 800 $ 31
................................................................................
Telefonica de Espana ADR 1,000 87
................................................................................
Telekom Malaysia (MYR) 2,000 15
................................................................................
Telmex ADR 1,300 58
................................................................................
854
.........
Electric Utilities 1.0%
Centerior Energy 4,800 52
................................................................................
Electrabel (BEF) 50 11
................................................................................
Empresa Nacional de Electricidad ADR 300 23
................................................................................
Entergy 800 21
................................................................................
Hong Kong Electric (HKD) 10,000 36
................................................................................
Niagara Mohawk* 4,100 36
................................................................................
Ohio Edison 3,500 74
................................................................................
PECO Energy 2,700 51
................................................................................
Texas Utilities 500 17
................................................................................
Unicom 3,800 87
................................................................................
Veba (DEM) 800 45
................................................................................
453
.........
Total Utilities 1,307
.........
CONSUMER NONDURABLES 8.7%
Cosmetics 0.4%
Gillette 100 9
................................................................................
Intl Flavors & Fragrances 2,100 93
................................................................................
Kao (JPY) 5,000 68
................................................................................
170
.........
Beverages 0.5%
Coca-Cola 200 14
................................................................................
LVMH (FRF) 200 48
................................................................................
PepsiCo 4,000 147
................................................................................
209
.........
Food Processing 1.8%
Cadbury Schweppes ADR 1,500 54
................................................................................
CPC International 1,000 86
................................................................................
CSM (NLG) 500 26
................................................................................
Danisco (DKK) 1,000 59
................................................................................
Eridania Beghin-Say (FRF) 300 42
................................................................................
</TABLE>
5
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
General Mills 860 $ 54
................................................................................
Heinz 1,800 78
................................................................................
Interstate Bakeries 700 38
................................................................................
McCormick 2,900 76
................................................................................
Nabisco Holdings (Class A) 800 32
................................................................................
Nestle (CHF) 50 62
................................................................................
Ralston Purina 800 68
................................................................................
Sara Lee 2,600 106
................................................................................
781
..........
Hospital Supplies/Hospital Management 0.6%
Baxter International 600 32
................................................................................
Boston Scientific * 800 43
................................................................................
Columbia/HCA Healthcare 1,600 58
................................................................................
HealthSouth * 1,600 37
................................................................................
Medtronic 600 44
................................................................................
Quest Diagnostics * 325 6
................................................................................
Vencor * 1,600 65
................................................................................
285
..........
Pharmaceuticals 2.6%
American Home Products 1,580 121
................................................................................
Amgen 500 33
................................................................................
Astra (SEK) 3,200 49
................................................................................
Bristol-Myers Squibb 500 37
................................................................................
Eli Lilly 596 55
................................................................................
Gehe (DEM) 1,000 71
................................................................................
Glaxo Wellcome ADR 1,100 44
................................................................................
Johnson & Johnson 1,600 96
................................................................................
Merck 900 81
................................................................................
Novartis (CHF) 64 87
................................................................................
Pfizer 1,460 150
................................................................................
Pharmacia & Upjohn 2,005 69
................................................................................
Schering-Plough 700 64
................................................................................
SmithKline Beecham ADR 1,200 105
................................................................................
Takeda Chemical Industries (JPY) 2,000 51
................................................................................
Warner-Lambert 400 40
................................................................................
1,153
..........
</TABLE>
6
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Health Care Services 0.2%
Altana AG (DEM) 40 $ 37
................................................................................
PacifiCare Health Systems (Class B)* 600 48
................................................................................
United HealthCare 500 28
................................................................................
113
..........
Miscellaneous Consumer Products 2.6%
Benetton Group (ITL) 4,000 56
................................................................................
Bridgestone (JPY) 3,000 68
................................................................................
Colgate-Palmolive 1,300 81
................................................................................
CUC International* 1,800 41
................................................................................
Grand Metropolitan ADR 1,100 41
................................................................................
Jones Apparel Group* 600 28
................................................................................
Kuraray (JPY) 3,000 29
................................................................................
Lion Nathan (NZD) 20,000 52
................................................................................
Mattel 1,800 54
................................................................................
Newell 1,300 50
................................................................................
NIKE 200 11
................................................................................
Philip Morris 4,350 191
................................................................................
Procter & Gamble 400 55
................................................................................
Richfood Holdings 1,500 35
................................................................................
Service Corp. 1,500 53
................................................................................
Stanley Works 1,000 41
................................................................................
Tambrands 1,640 79
................................................................................
Unilever N.V. ADR 300 58
................................................................................
UST 4,100 117
................................................................................
1,140
..........
Total Consumer Nondurables 3,851
..........
CONSUMER SERVICES 3.9%
General Merchandisers 0.8%
Dayton Hudson 1,000 48
................................................................................
Marui (JPY) 2,000 37
................................................................................
Tesco (GBP) 10,107 62
................................................................................
TJX 800 39
................................................................................
Wal-Mart 3,000 89
................................................................................
Warnaco Group (Class A) 2,300 76
................................................................................
351
..........
</TABLE>
7
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Specialty Merchandisers 1.0%
American Stores 600 $ 27
................................................................................
Circuit City Stores 400 16
................................................................................
CVS* 884 42
................................................................................
Federated Department Stores* 1,600 59
................................................................................
General Nutrition* 2,000 46
................................................................................
Home Depot 700 44
................................................................................
Kohl's* 900 48
................................................................................
McKesson 100 8
................................................................................
Safeway* 1,100 50
................................................................................
The Gap 500 17
................................................................................
Toys "R" Us* 3,400 106
................................................................................
463
..........
Entertainment and Leisure 1.3%
Boston Chicken* 800 14
................................................................................
Carnival (Class A) 1,500 57
................................................................................
Disney 1,000 82
................................................................................
Hutchison Whampoa (HKD) 11,000 92
................................................................................
ITT* 1,500 89
................................................................................
McDonald's 1,100 55
................................................................................
Reader's Digest (Class B) 5,040 130
................................................................................
Sharp (JPY) 3,000 39
................................................................................
558
..........
Media and Communications 0.8%
Elsevier (NLG) 3,000 51
................................................................................
R. R. Donnelley 2,200 82
................................................................................
Time Warner 900 42
................................................................................
Tribune 1,200 52
................................................................................
U S WEST Media* 2,800 55
................................................................................
Vodafone ADR 2,100 94
................................................................................
376
..........
Total Consumer Services 1,748
..........
CONSUMER CYCLICALS 2.1%
Automobiles and Related 0.4%
Cycle & Carriage (SGD) 2,000 20
................................................................................
Honda ADR 1,000 61
................................................................................
</TABLE>
8
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Lear* 400 $ 15
................................................................................
Lucasvarity ADR* 1,470 47
................................................................................
SPX 800 48
................................................................................
191
..........
Building and Real Estate 0.6%
Cheung Kong Holdings (HKD) 8,000 82
................................................................................
DBS Land (SGD)* 10,000 35
................................................................................
Federal Realty Investment Trust, REIT 2,700 71
................................................................................
Patriot American Hospitality, REIT 500 11
................................................................................
Simon DeBartolo Group, REIT 1,968 59
................................................................................
258
..........
Miscellaneous Consumer Durables 1.1%
Corning 4,200 212
................................................................................
Eastman Kodak 800 66
................................................................................
Masco 700 27
................................................................................
Oce Van Der Grinten NV (NLG) 300 39
................................................................................
Ricoh (JPY) 4,000 52
................................................................................
Whirlpool 1,800 90
................................................................................
486
..........
Total Consumer Cyclicals 935
..........
TECHNOLOGY 2.5%
Electronic Components 0.5%
Altera* 500 27
................................................................................
Intel 600 91
................................................................................
Linear Technology 400 20
................................................................................
Maxim Integrated Products* 800 43
................................................................................
Motorola 400 26
................................................................................
Xilinx* 400 21
................................................................................
228
..........
Electronic Systems 0.4%
ADT* 1,800 52
................................................................................
Hewlett-Packard 600 31
................................................................................
Honeywell 1,150 84
................................................................................
Nokia ADR 300 20
................................................................................
187
..........
</TABLE>
9
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Information Processing 0.5%
COMPAQ Computer * 400 $ 43
................................................................................
Dell Computer * 200 23
................................................................................
Hitachi ADR 400 43
................................................................................
IBM 1,460 126
................................................................................
235
..........
Telecommunications Equipment 0.6%
Cisco Systems * 900 61
................................................................................
LM Ericsson (Class B) ADR 300 11
................................................................................
Lucent Technologies 400 25
................................................................................
MCI 800 31
................................................................................
Telecomunicacoes Brasileiras ADR 700 96
................................................................................
Tellabs * 300 15
................................................................................
World Com 900 27
................................................................................
266
..........
Aerospace and Defense 0.5%
AlliedSignal 1,440 110
................................................................................
Boeing 500 53
................................................................................
Lockheed Martin 500 47
................................................................................
210
..........
Total Technology 1,126
..........
CAPITAL EQUIPMENT 1.9%
Electrical Equipment 1.2%
ABB AG (CHF) 30 41
................................................................................
Canon (JPY) 2,000 51
................................................................................
Emerson Electric 600 33
................................................................................
GE 3,000 181
................................................................................
Hubbell (Class B) 1,600 73
................................................................................
Mitsubishi Electric (JPY) 5,000 28
................................................................................
Siemens (DEM) 1,000 56
................................................................................
Tomkins ADR 2,000 36
................................................................................
Tyco International 800 51
................................................................................
550
..........
Machinery 0.7%
Danaher 1,600 78
................................................................................
GKN (GBP) 3,000 52
................................................................................
</TABLE>
10
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Man (DEM) 200 $ 57
................................................................................
Teleflex 1,300 80
................................................................................
Valmet (FIM) 2,000 36
................................................................................
303
.................
Total Capital Equipment 853
.................
BUSINESS SERVICES AND
TRANSPORTATION 3.3%
Computer Service and Software 1.5%
Ascend Communications * 600 33
................................................................................
Automatic Data Processing 1,200 59
................................................................................
BMC Software * 1,600 86
................................................................................
Electronic Data Systems 4,100 153
................................................................................
First Data 2,218 89
................................................................................
Microsoft * 400 50
................................................................................
National Data 800 35
................................................................................
Oracle * 900 42
................................................................................
Parametric Technology * 300 13
................................................................................
Reynolds & Reynolds 1,100 26
................................................................................
SunGard Data Systems * 1,000 43
................................................................................
Synopsys * 500 19
................................................................................
648
.................
Distribution Services 0.1%
Ikon Office Solutions 1,100 32
................................................................................
32
.................
Environmental 0.1%
USA Waste Services * 700 25
................................................................................
25
.................
Transportation Services 0.1%
Mitsubishi Heavy Industries (JPY) 4,000 29
................................................................................
United Engineers (MYR) 3,000 24
................................................................................
53
.................
Miscellaneous Business Services 0.6%
BAA (GBP) 4,100 36
................................................................................
Corporate Express * 1,500 21
................................................................................
Omnicom 200 12
................................................................................
Sime Darby (MYR) 6,000 19
................................................................................
</TABLE>
11
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Wallace Computer Services 700 $ 20
................................................................................
Waste Management 5,560 176
................................................................................
284
.................
Airlines 0.8%
AMR * 640 64
................................................................................
Delta 2,600 244
................................................................................
KLM (NLG) 1,000 29
................................................................................
Singapore Airlines (SGD) 3,000 25
................................................................................
362
.................
Railroads 0.1%
Burlington Northern Santa Fe 500 42
................................................................................
42
.................
Total Business Services and Transportation 1,446
.................
ENERGY 2.5%
Energy Services 0.6%
BJ Services * 400 22
................................................................................
Camco International 500 26
................................................................................
Cooper Cameron * 500 41
................................................................................
ELF Aquitaine ADR 700 37
................................................................................
Halliburton 700 54
................................................................................
Schlumberger 430 51
................................................................................
Total ADR 400 18
................................................................................
249
.................
Exploration and Production 0.1%
Santos (AUD) 7,000 29
................................................................................
29
.................
Integrated Petroleum - Domestic 0.9%
Atlantic Richfield 700 102
................................................................................
British Petroleum ADR 1,340 194
................................................................................
Unocal 500 21
................................................................................
USX-Marathon 3,000 89
................................................................................
406
.................
Integrated Petroleum - International 0.9%
ENI S.P.A. ADR 700 35
................................................................................
Exxon 660 39
................................................................................
</TABLE>
12
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Mobil 800 $ 112
................................................................................
Repsol ADR 500 21
................................................................................
Royal Dutch Petroleum ADR 300 59
................................................................................
Shell Transport & Trading ADR 500 60
................................................................................
Texaco 800 87
................................................................................
413
.................
Total Energy 1,097
.................
PROCESS INDUSTRIES 3.1%
Diversified Chemicals 0.9%
Dow Chemical 2,700 225
................................................................................
DuPont 800 87
................................................................................
Hercules 1,000 47
................................................................................
Monsanto 600 27
................................................................................
386
.................
Specialty Chemicals 1.3%
3M 400 37
................................................................................
A. Schulman 3,000 66
................................................................................
Akzo Nobel (NLG) 200 27
................................................................................
BASF (DEM) 1,000 37
................................................................................
Great Lakes Chemical 4,640 227
................................................................................
Morton International 600 19
................................................................................
Pall 5,000 118
................................................................................
Technip (FRF) 500 51
................................................................................
582
.................
Paper and Paper Products 0.6%
Dai Nippon Printing (JPY) 3,000 60
................................................................................
James River 2,100 74
................................................................................
Kimberly-Clark 2,400 120
................................................................................
254
.................
Forest Products 0.2%
Georgia-Pacific 300 26
................................................................................
International Paper 1,000 48
................................................................................
74
.................
Building and Construction 0.1%
Blue Circle Industries (GBP) 8,000 55
................................................................................
55
.................
Total Process Industries 1,351
.................
</TABLE>
13
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
BASIC MATERIALS 0.9%
Metals 0.5%
Alcoa 400 $ 30
................................................................................
Nucor 700 41
................................................................................
Reynolds Metals 1,700 115
................................................................................
Rustenburg Platinum (ZAR) 3,000 49
................................................................................
235
.................
Mining 0.2%
CRA Limited (AUD) 2,000 33
................................................................................
Newmont Mining 1,200 47
................................................................................
80
.................
Miscellaneous Materials 0.2%
Crown Cork & Seal 900 52
................................................................................
Malayan Cement (MYR) 26,250 44
................................................................................
96
.................
Total Basic Materials 411
.................
Total Common Stocks (Cost $ 14,569) 17,684
.................
Corporate Bonds 26.5%
Agricultural Minerals and Chemicals
Sr. Notes, 10.75%, 9/30/03 $ 50,000 54
................................................................................
Agrium, 7.00%, 2/1/04 200,000 198
................................................................................
Ahmanson, H.F., Sub. Notes, 7.875%, 9/1/04 100,000 103
................................................................................
Allied Waste North America, Sr. Sub. Notes,
(144a) 10.25%, 12/1/06 100,000 107
................................................................................
AMC Entertainment, Sr. Sub. Notes, (144a)
9.50%, 3/15/09 100,000 102
................................................................................
American Express, 7.60%, 8/15/02 300,000 308
................................................................................
American Radio Systems, Sr. Sub. Notes, 9.00%,
2/1/06 100,000 102
................................................................................
American Safety Razor, Sr. Notes, 9.875%,
8/1/05 100,000 104
................................................................................
American Standard, Deb.
9.25%, 12/1/16 100,000 105
................................................................................
9.875%, 6/1/01 100,000 105
................................................................................
Amerigas Partners L.P., Sr. Notes, 10.125%,
4/15/07 100,000 105
................................................................................
Ametek, Sr. Notes, 9.75%, 3/15/04 10,000 11
................................................................................
Associated Materials, Sr. Sub. Notes, 11.50%,
8/15/03 80,000 85
................................................................................
</TABLE>
14
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Associates Corporation, Sr. Notes, 5.25%, 3/30/00 $ 60,000 $ 58
................................................................................
B. F. Saul REIT, Sr. Secured Notes, 11.625%, 4/1/02 90,000 96
................................................................................
Bank Nova Scotia, Sub. Notes, 6.25%, 9/15/08 80,000 73
................................................................................
BE Aerospace, Sr. Sub. Notes, 9.875%, 2/1/06 100,000 104
................................................................................
Boise Cascade, Deb., 7.35%, 2/1/16 100,000 93
................................................................................
Building Material Corporation of America, Sr. Disc. Notes
STEP, Zero Coupon, 7/1/04 100,000 90
................................................................................
Celestica International, Gtd. Sr. Sub. Notes
10.50%, 12/31/06 200,000 215
................................................................................
Chancellor Radio Broadcasting, Sr. Sub. Notes
9.375%, 10/1/04 100,000 102
................................................................................
Chief Auto Parts, Sr. Notes, 10.50%, 5/15/05 75,000 76
................................................................................
Citicorp, Sub. Notes, 7.75%, 6/15/06 100,000 103
................................................................................
Coca-Cola Bottling SW, Sr. Sub. Notes, 9.00%, 11/15/03 90,000 93
................................................................................
Coinmach, Sr. Notes, 11.75%, 11/15/05 100,000 110
................................................................................
Communications & Power Industries, Sr. Sub. Notes
12.00%, 8/1/05 100,000 110
................................................................................
Consolidated Cigar, Sr. Sub. Notes, 10.50%, 3/1/03 100,000 105
................................................................................
Container Corporation of America, Sr. Notes
9.75%, 4/1/03 100,000 105
................................................................................
10.75%, 5/1/02 100,000 108
................................................................................
Continental Airlines, PTC, 6.94%, 10/15/13 490,196 475
................................................................................
Courtyard by Marriott II, Sr. Secured Notes
10.75%, 2/1/08 100,000 107
................................................................................
Daimler-Benz Auto Grantor Trust, 3.90%, 10/15/98 2,233 2
................................................................................
Doane Products, Sr. Notes, 10.625%, 3/1/06 50,000 53
................................................................................
Dominion Textile USA, Gtd. Sr. Notes, 9.25%, 4/1/06 100,000 104
................................................................................
Dr. Pepper Bottling, Sr. Disc. Notes, STEP
Zero Coupon, 2/15/03 150,000 148
................................................................................
Dyncorp, Sr. Sub. Notes, (144a), 9.50%, 3/1/07 100,000 100
................................................................................
El Paso Electric, 1st Mtg. Notes, 8.90%, 2/1/06 100,000 106
................................................................................
Eli Lilly & Company, 7.125%, 6/1/25 400,000 383
................................................................................
Energy Corporation of America, Sr. Sub. Notes, (144a)
9.50%, 5/15/07 100,000 100
................................................................................
Fairchild Semiconductor, Sr. Sub. Notes, (144a)
10.125%, 3/15/07 100,000 106
................................................................................
Fairfax Financial Holdings, 8.25%, 10/1/15 250,000 253
................................................................................
</TABLE>
15
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Ferrellgas, Sr. Notes, 10.00%, 8/1/01 $ 90,000 $ 93
................................................................................
First Federal Financial, 11.75%, 10/1/04 100,000 109
................................................................................
Foamex, Sr. Sub. Deb., 11.875%, 10/1/04 50,000 54
................................................................................
Frontiervision Operating Partners, Sr. Sub. Notes
11.00%, 10/15/06 100,000 104
................................................................................
Fundy Cable, Sr. Secured 2nd Priority Notes
11.00%, 11/15/05 100,000 107
................................................................................
Grand Casinos, 1st Mtg. Notes, 10.125%, 12/1/03 100,000 104
................................................................................
Grand Metropolitan Investment, Gtd., 9.00%, 8/15/11 300,000 342
................................................................................
Herff Jones, Sr. Sub. Notes, 11.00%, 8/15/05 100,000 107
................................................................................
Host Marriott Travel Plazas, Sr. Notes, 9.50%, 5/15/05 100,000 105
................................................................................
Imed, Sr. Sub. Notes, (144a), 9.75%, 12/1/06 100,000 102
................................................................................
International Knife & Saw, Sr. Sub. Notes
11.375%, 11/15/06 50,000 53
................................................................................
Intertek Finance, Sr. Sub. Notes, 10.25%, 11/1/06 100,000 104
................................................................................
Jordan Industries, Sr. Notes, 10.375%, 8/1/03 75,000 75
................................................................................
K & F Industries, Sr. Sub. Notes, 10.375%, 9/1/04 100,000 105
................................................................................
Keebler, Sr. Sub. Notes, 10.75%, 7/1/06 125,000 138
................................................................................
Kelley Oil & Gas, Sr. Sub. Notes, 10.375%, 10/15/06 100,000 104
................................................................................
Loomis, Fargo & Co., Sr. Sub. Notes, (144a)
10.00%, 1/15/04 100,000 103
................................................................................
Maxxam Group Holdings, Sr. Secured Notes
12.00%, 8/1/03 100,000 103
................................................................................
Northrop Grumman, 7.00%, 3/1/06 70,000 68
................................................................................
Owens & Minor, Sr. Sub. Notes, 10.875%, 6/1/06 50,000 54
................................................................................
Pennsylvania Power and Light, 1st Mtg. Notes
6.50%, 4/1/05 100,000 95
................................................................................
Pillowtex, Gtd. Sr. Sub. Notes, 10.00%, 11/15/06 100,000 105
................................................................................
Plastic Containers, Sr. Secured Notes, (144a)
10.00%, 12/15/06 100,000 104
................................................................................
PNC Bank, 7.875%, 4/15/05 100,000 103
................................................................................
Pride Petroleum Services, Sr. Notes, 9.375%, 5/1/07 100,000 104
................................................................................
Prime Hospitality, Sr. Sub. Notes, 9.75%, 4/1/07 100,000 103
................................................................................
Principal Mutual, (144a), 8.00%, 3/1/44 250,000 244
................................................................................
Procter & Gamble Profit, Deb., 9.36%, 1/1/21 100,000 118
................................................................................
Provident Capital Trust I, Gtd. Bonds, 8.60%, 12/1/26 300,000 292
................................................................................
</TABLE>
16
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Public Service Electric & Gas, 1st Mtg. Notes
7.00%, 9/1/24 $193,000 $ 174
................................................................................
Quest Diagnostic, Gtd. Sr. Sub. Notes, 10.75%, 12/15/06 50,000 53
................................................................................
Revlon Consumer Products, Sr. Sub. Notes
10.50%, 2/15/03 75,000 79
................................................................................
Rio Hotel & Casino, Sr. Sub. Notes, 9.50%, 4/15/07 100,000 102
................................................................................
Rogers Cablesystems, Sr. Secured 2nd Priority Notes
10.00%, 3/15/05 90,000 97
................................................................................
Rouse, 8.50%, 1/15/03 60,000 62
................................................................................
Safelite Glass, Sr. Sub. Notes, (144a), 9.875%, 12/15/06 100,000 106
................................................................................
Safeway, Sr. Sub. Deb., 9.875%, 3/15/07 90,000 103
................................................................................
Shawmut National, Sub. Notes, 7.20%, 4/15/03 60,000 60
................................................................................
Silgan, Sr. Sub. Notes, 11.75%, 6/15/02 90,000 95
................................................................................
Six Flags Theme Parks, Sr. Sub. Disc. Notes, STEP
Zero Coupon, 6/15/05 100,000 102
................................................................................
Speedy Muffler King, Sr. Notes, 10.875%, 10/1/06 50,000 53
................................................................................
TeleWest, Sr. Disc. Deb., STEP
Zero Coupon, 10/1/07 100,000 70
................................................................................
Tenet Healthcare, Sr. Sub. Notes, 8.625%, 1/15/07 100,000 101
................................................................................
Tenneco, 8.20%, 11/15/99 60,000 62
................................................................................
Texas Utilities, 1st Mtg. Bonds, 7.375%, 10/1/25 120,000 112
................................................................................
Texas-New Mexico Power, Deb., 12.50%, 1/15/99 200,000 215
................................................................................
Time Warner Entertainment, Deb., 8.375%, 3/15/23 300,000 302
................................................................................
TLC Beatrice International Holdings, Sr. Secured Notes
11.50%, 10/1/05 100,000 111
................................................................................
Trump Atlantic City Associates, 1st Mtg. Notes
11.25%, 5/1/06 50,000 49
................................................................................
United Artists Theatre Circuit, PTC, 9.30%, 7/1/15 98,314 95
................................................................................
US Can, Sr. Gtd. Notes, 10.125%, 10/15/06 100,000 106
................................................................................
USF&G Capital II, Gtd. Notes, 8.47%, 1/10/27 500,000 494
................................................................................
Wal-Mart Stores, Deb., 7.25%, 6/1/13 170,000 168
................................................................................
Westinghouse Electric, Deb., 8.875%, 6/1/01 100,000 104
................................................................................
Westpoint Stevens, Sr. Sub. Deb. Notes, 9.375%, 12/15/05 100,000 104
................................................................................
Windy Hill Pet Food, Sr. Sub. Notes, (144a)
9.75%, 5/15/07 100,000 101
................................................................................
Total Corporate Bonds (Cost $ 11,625) 11,749
..........
</TABLE>
17
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------------------------------------------
In thousands
Foreign Government Obligations/
Agencies 4.2%
<S> <C> <C>
Commonwealth of Australia
9.50%, 8/15/03 AUD 10,000 $ 8
...................................................................................................................
European Investment Bank,
3.00%, 9/20/06 JPY 18,000,000 159
...................................................................................................................
Federal Republic of Germany
6.00%, 7/4/07 DEM 150,000 88
...............................................................................................................
6.50%, 7/15/03 DEM 425,000 264
...............................................................................................................
8.50%, 8/21/00 DEM 145,000 95
...................................................................................................................
Government of Canada
6.50%, 6/1/04 CAD 30,000 22
...............................................................................................................
8.50%, 4/1/02 CAD 45,000 36
...............................................................................................................
9.75%, 6/1/21 CAD 70,000 66
...................................................................................................................
Government of France
5.50%, 4/25/07 FRF 520,000 88
...............................................................................................................
8.25%, 2/27/04 FRF 270,000 54
...................................................................................................................
Government of Japan, 4.50%, 6/20/03 ++ JPY 40,500,000 388
...................................................................................................................
Int'l Bank for Reconstruction & Development
6.75%, 3/15/00 JPY 6,000,000 59
...................................................................................................................
Kingdom of Belgium, 7.25%, 4/29/04 BEF 2,900,000 90
...................................................................................................................
Kingdom of Denmark, 7.00%, 12/15/04 DKK 120,000 19
...................................................................................................................
Kingdom of Spain, 8.00%, 5/30/04 ESP 8,000,000 60
...................................................................................................................
Kingdom of Sweden, 6.00%, 2/9/05 SEK 100,000 12
...................................................................................................................
Republic of Italy, 8.50%, 8/1/04 ITL 275,000,000 173
...................................................................................................................
United Kingdom Treasury
7.50%, 12/7/06 GBP 30,000 50
...............................................................................................................
8.50%, 12/7/05 GBP 65,000 115
...............................................................................................................
9.00%, 3/3/00 GBP 25,000 43
...............................................................................................................
Total Foreign Government Obligations/Agencies (Cost $1,853) 1,889
..........
U.S. Government Mortgage-Backed
Securities 13.2%
Government National Mortgage Assn., I
6.00%, 1/15/24 - 5/15/26 $ 1,219,748 1,130
...............................................................................................................
6.50%, 7/15/23 - 4/15/26 1,234,408 1,177
...............................................................................................................
</TABLE>
18
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
7.00%, 2/15/27 $1,008,192 $ 981
.............................................................................................
7.50%, 9/15/22 - 12/15/25 1,367,873 1,372
.............................................................................................
8.00%, 1/15/22 - 11/15/24 595,726 611
.............................................................................................
8.50%, 9/15/24 347,062 362
.............................................................................................
10.50%, 2/15 - 10/15/13 15,136 17
.................................................................................................
Government National Mortgage Assn., II
8.00%, 10/20/25 195,684 199
.................................................................................................
Total U.S. Government Mortgage-Backed Securities (Cost $5,710) 5,849
............
U.S. Government Obligations/
Agencies 5.1%
Cooperative Utility Trust
9.50%, 2/15/17 400,000 427
.................................................................................................
Tennessee Valley Authority
6.235%, 7/15/45 500,000 494
.............................................................................................
7.25%, 7/15/43 60,000 56
.............................................................................................
8.25%, 4/15/42 1,189,000 1,277
.................................................................................................
Total U.S. Government Obligations/Agencies (Cost $2,165) 2,254
............
Short-Term Investments 9.8%
Commercial Paper 9.0%
Asset Securitization Cooperative, 4(2), 5.55%, 6/11/97 1,000,000 998
.................................................................................................
Caisse des Depots et Consignations, 4(2), 5.58%, 6/17/97 1,000,000 998
.................................................................................................
Falcon Asset Securitization, 4(2), 5.58%, 6/17/97 1,000,000 998
.................................................................................................
Preferred Receivables Funding, 5.58%, 6/12/97 1,000,000 998
.................................................................................................
3,992
............
Medium-Term Notes 0.8%
Nationsbank Texas, VR, 5.66%, 6/18/97 375,000 375
.................................................................................................
375
............
Total Short-Term Investments (Cost $4,367) 4,367
............
</TABLE>
19
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- --------------------------------------------------------------------------------
In thousands
<S> <C>
Total Investments in Securities
98.7% of Net Assets (Cost $40,289) $ 43,792
Other Assets Less Liabilities 576
..............
NET ASSETS $ 44,368
--------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 364
Accumulated net realized gain/loss - net of distributions 795
Net unrealized gain (loss) 3,484
Paid-in-capital applicable to 3,704,813 shares of $0.0001 par
value capital stock outstanding; 1,000,000,000 shares authorized 39,725
..............
NET ASSETS $ 44,368
--------------
NET ASSET VALUE PER SHARE $ 11.98
--------------
</TABLE>
* Non-income producing
++ Securities contain some restrictions as to public resale--total of such
securities at year-end amounts to 0.9% of net assets.
PTC Pass-through Certificate
REIT Real Estate Investment Trust
STEP Stepped Coupon Bond
VR Variable rate
4(2) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under section 4.2 of the Securities Act of 1933,
as amended, and may be sold only to dealers in that program or other
"accredited investors."
144a Security was purchased pursuant to Rule 144a under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers -- total of such securities at year-end amounts to
2.9% of net assets.
AUD Australian dollar
BEF Belgian franc
CAD Canadian dollar
CHF Swiss franc
DEM German deutschemark
DKK Danish krone
ESP Spanish peseta
FIM Finnish mark
FRF French franc
GBP British sterling
HKD Hong Kong dollar
ITL Italian lira
JPY Japanese yen
MYR Malaysian ringgit
NLG Dutch guilder
NZD New Zealand dollar
SEK Swedish krona
SGD Singapore dollar
ZAR South African rand
L Local registered shares
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
- -----------------------
Statement of Operations
- ---------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year
Ended
5/31/97
<S> <C>
Investment Income
Income
Interest $1,519
Dividend 276
Other 20
.........
Total income 1,815
.........
Expenses
Custody and accounting 122
Shareholder servicing 106
Registration 31
Investment management 22
Legal and audit 18
Prospectus and shareholder reports 7
Directors 6
Miscellaneous 11
.........
Total expenses 323
.........
Net investment income 1,492
.........
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 2,236
Foreign currency transactions (18)
.........
Net realized gain (loss) 2,218
.........
Change in net unrealized gain or loss
Securities 1,029
Other assets and liabilities
denominated in foreign currencies (15)
.........
Change in net unrealized gain or loss 1,014
.........
Net realized and unrealized gain (loss) 3,232
.........
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $4,724
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
- ----------------------------------
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year Year
Ended Ended
5/31/97 5/31/96
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ 1,492 $ 1,040
Net realized gain (loss) 2,218 1,154
Change in net unrealized gain or loss 1,014 793
........................
Increase (decrease) in net assets from operations 4,724 2,987
........................
Distributions to shareholders
Net investment income (1,385) (974)
Net realized gain (2,421) (207)
........................
Decrease in net assets from distributions (3,806) (1,181)
........................
Capital share transactions*
Shares sold 24,669 10,965
Distributions reinvested 3,613 1,076
Shares redeemed (10,449) (9,020)
........................
Increase (decrease) in net assets from capital
share transactions 17,833 3,021
........................
Net equalization 72 13
........................
Net Assets
Increase (decrease) during period 18,823 4,840
Beginning of period 25,545 20,705
........................
End of period $ 44,368 $25,545
------------------------
*Share information
Shares sold 2,135 949
Distributions reinvested 315 94
Shares redeeemed (900) (780)
........................
Increase (decrease) in shares outstanding 1,550 263
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
T. Rowe Price Personal Strategy Funds
- --------------------------------------------------------------------------------
May 31, 1997
- -----------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1 - Significant Accounting Policies
T. Rowe Price Personal Strategy Funds, Inc. (the corporation) is registered
under the Investment Company Act of 1940. The Personal Strategy Income Fund
(the Income Fund), the Personal Strategy Balanced Fund (the Balanced Fund),
and the Personal Strategy Growth Fund (the Growth Fund), diversified,
open-end management investment companies, are three of the portfolios
established by the corporation and commenced operations on July 29, 1994.
Valuation Equity securities are valued at the last quoted sales price on
the day the valuations are made. A security which is listed or traded on
more than one exchange is valued at the quotation on the exchange
determined to be the primary market for such security. Listed securities
not traded on a particular day and securities regularly traded in the
over-the-counter market are valued at the mean of the latest bid and asked
prices.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers
who make markets in these securities or by an independent pricing service.
Short-term debt securities are valued at amortized cost which, when
combined with accrued interest, approximates fair value.
For purposes of determining each fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using 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 that fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated
into U.S. dollars at the prevailing exchange rate on the dates of such
transactions. The effect of changes in foreign exchange rates on realized
and unrealized security gains and losses is reflected as a component of
such gains and losses.
23
<PAGE>
T. Rowe Price Personal Strategy Funds
- --------------------------------------------------------------------------------
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. Dividend income and
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. Effective January
1, 1997, the Growth Fund discontinued its practice of equalization. The
results of operations and net assets were not affected by this change. The
Income and Balanced Funds follow the practice of equalization, under which
undistributed net investment income per share is unaffected by fund shares
sold or redeemed.
Note 2 - Investment Transactions
Consistent with their investment objectives, the funds engage in the
following practices to manage exposure to certain risks or enhance
performance. The investment objective, policies, program, and risk factors
of each fund are described more fully in each fund's prospectus and
Statement of Additional Information.
Noninvestment-Grade Debt Securities At May 31, 1997, each fund held
investments in noninvestment-grade debt securities, commonly referred to as
"high-yield" or "junk" bonds. A real or perceived economic downturn or
higher interest rates could adversely affect the liquidity or value, or
both, of such securities because such events could lessen the ability of
issuers to make principal and interest payments.
Commercial Paper Joint Account Each 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.
Securities Lending Each fund lends its securities to approved brokers to
earn additional income and takes cash and U.S. Treasury securities as
collateral to
24
<PAGE>
T. Rowe Price Personal Strategy Funds
- --------------------------------------------------------------------------------
secure the loans. Collateral is maintained at not less than 100% of the
value of loaned securities. At May 31, 1997, the value of securities on
loan by the Income Fund was $3,965,000, by the Balanced Fund was
$12,028,000, and by the Growth Fund was $4,561,000. Although the risk is
mitigated by the collateral, each fund could experience a delay in
recovering its securities and a possible loss of income or value if the
borrower fails to return them.
Other Purchases and sales of portfolio securities, other than short-term
securities, for the year ended May 31, 1997, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Income Fund Balanced Fund Growth Fund
<S> <C> <C> <C>
U.S. government securities
Purchases $ 2,043,000 $ 11,426,000 $ 2,816,000
Sales 457,000 985,000 91,000
Other securities
Purchases 23,602,000 140,518,000 48,060,000
Sales 13,162,000 84,327,000 16,317,000
</TABLE>
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.
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 May 31, 1997. The results
of operations and net assets were not affected by the reclassifications.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Income Fund Balanced Fund Growth Fund
<S> <C> <C> <C>
Undistributed net investment income $(18,000) $(165,000) $8,000
Paid-in-capital 18,000 165,000 (8,000)
</TABLE>
25
<PAGE>
T. Rowe Price Personal Strategy Funds
- --------------------------------------------------------------------------------
At May 31, 1997, the aggregate costs of investments for the Income, Balanced,
and Growth Funds for federal income tax and financial reporting purposes were
$40,289,000, $183,489,000, and $59,107,000, respectively. Net unrealized gain
(loss) on investments was as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Income Fund Balanced Fund Growth Fund
<S> <C> <C> <C>
Appreciated investments $4,036,000 $21,860,000 $ 9,278,000
Depreciated investments (533,000) (3,515,000) (1,082,000)
.......................................
Net unrealized gain (loss) $3,503,000 $18,345,000 $ 8,196,000
---------------------------------------
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between each fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management fee,
of which $7,000, $96,000, and $20,000 were payable at May 31, 1997 by the
Income, Balanced, and Growth Funds, respectively. The fee is computed daily and
paid monthly, and consists of an individual fund fee equal to 0.15% of average
daily net assets for the Income Fund, 0.25% of average daily net assets for the
Balanced Fund, and 0.30% of average daily net assets for the Growth Fund, and a
group fee. The group fee is based on the combined assets of certain mutual funds
sponsored by the manager or Rowe Price-Fleming International, Inc. (the group).
The group fee rate ranges from 0.48% for the first $1 billion of assets to 0.30%
for assets in excess of $80 billion. At May 31, 1997, and for the year then
ended, the effective annual group fee rate was 0.33%. Each fund pays a pro-rata
share of the group fee based on the ratio of its net assets to those of the
group.
Under the terms of the investment management agreement, the manager is required
to bear any expenses through May 31, 1998, which would cause each fund's ratio
of expenses to average net assets to exceed 0.95% for the Income Fund, 1.05% for
the Balanced Fund, and 1.10% for the Growth Fund. Thereafter, through May 31,
2000, each fund is required to reimburse the manager for these expenses,
provided that average net assets have grown or expenses have declined
sufficiently to allow reimbursement without causing the fund's ratio of expenses
to average net assets to exceed 0.95%, 1.05%, and 1.10%, respectively. Pursuant
to this agreement, $141,000, $62,000, and $177,000 of management fees were not
accrued by the Income, Balanced, and Growth Funds, respectively for the year
ended May 31, 1997. Pursuant to a previous agreement, $285,000, $191,000, and
$325,000 of fees and expenses remain
26
<PAGE>
T. Rowe Price Personal Strategy Funds
- --------------------------------------------------------------------------------
subject to reimbursement through May 31, 1998 for the Income, Balanced, and
Growth Funds, respectively.
In addition, each fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which each fund receives
certain other services. The manager computes the daily share price and maintains
the financial records of each fund. T. Rowe Price Services, Inc., is each fund's
transfer and dividend disbursing agent and provides shareholder and
administrative services to the funds. T. Rowe Price Retirement Plan Services,
Inc., provides subaccounting and recordkeeping services for certain retirement
accounts invested in each fund. The Income, Balanced, and Growth Funds incurred
expenses pursuant to these related party agreements totaling approximately
$157,000, $578,000, and $211,000, respectively, for the year ended May 31, 1997,
of which $15,000, $52,000, and $21,000, respectively, were payable at period-
end.
During the year ended May 31, 1997, the Income, Balanced, and Growth Funds, in
the ordinary course of business, placed security purchase and sale orders
aggregating $478,000, $3,611,000, and $1,474,000, respectively, with certain
affiliates of the manager and paid commissions of $3,000, $20,000, and $9,000,
respectively related thereto.
27
<PAGE>
T. Rowe Price Personal Strategy Funds
- --------------------------------------------------------------------------------
- ---------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of T. Rowe Price Personal Strategy Funds, Inc.
We have audited the accompanying statement of net assets of T. Rowe Price
Personal Strategy Income Fund, T. Rowe Price Personal Strategy Balanced
Fund and T. Rowe Price Personal Strategy Growth Fund (collectively the
"Funds") as of May 31, 1997, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the
two years in the period then ended and the financial highlights for the
periods presented. 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 audit 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 May 31, 1997, by correspondence with the custodian.
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 Personal Strategy Income Fund, T. Rowe Price Personal
Strategy Balanced Fund and T. Rowe Price Personal Strategy Growth Fund as
of May 31, 1997, the results of their operations, the changes in their net
assets and financial highlights for each of the respective periods stated
in the first paragraph, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
June 18, 1997
28
<PAGE>
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
Knowledgeable Service Representatives
By Phone Shareholder service representatives are available from 8 a.m.
to 10 p.m. ET Monday through Friday and from 8:30 a.m. to 5 p.m. ET on
weekends. Call 1-800-225-5132 to speak directly with a representative
who will be able to assist you with your accounts.
In Person Visit one of our investor center locations to meet with a
representative who will be able to assist you with your accounts. You
can also drop off applications or obtain prospectuses and other
literature at these centers.
Automated 24-Hour Services
Tele*Access(R) Call 1-800-638-2587 to obtain information such as account
balance, date and amount of your last transaction, latest dividend
payment, fund prices, and yields. Additionally, you have the ability to
request prospectuses, statements, and account and tax forms; to reorder
checks; and to initiate purchase, redemption, and exchange orders for
identically registered accounts.
T. Rowe Price OnLine Through a personal computer via dial-up modem, you
can replicate all the services available on Tele*Access plus conduct
transactions in your Discount Brokerage and Variable Annuity accounts.
Account Services
Checking Write checks for $500 or more on any money market and most bond
fund accounts (except the High Yield and Emerging Markets Bond Funds).
Automatic Investing Build your account over time by investing directly
from your bank account or paycheck with Automatic Asset Builder.
Additionally, Automatic Exchange enables you to set up systematic
investments from one fund account into another, such as from a money
fund into a stock fund. A $50 minimum makes it easy to get started.
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T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
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.
DISCOUNT BROKERAGE*
Investments Available You can trade stocks, bonds, options, precious
metals, and other securities at a savings over regular commission rates.
To Open an Account Call a shareholder service representative for more
information.
INVESTMENT INFORMATION
Combined Statement A comprehensive overview of your T. Rowe Price
accounts is provided. The summary page gives you 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.
Shareholder Reports Portfolio managers review the performance of the
funds in plain language and discuss T. Rowe Price's economic outlook.
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 develop-
ments 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, Diversifying Overseas: A Guide to International
Investing, Retirees Financial Guide, and Retirement Planning Kit (also
available on disk for PC use) can help you determine and reach your
investment goals.
*A division of T. Rowe Price Investment Services, Inc. Member
NASD/SIPC.
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T. Rowe Price Mutual Funds
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<TABLE>
<CAPTION>
Stock Funds BOND FUNDS
............................ .............................. .............................
<S> <C> <C>
Domestic Domestic Taxable International/Global
Balanced Corporate Income Global Government Bond
Blue Chip Growth GNMA Emerging Markets Bond
Capital Appreciation High Yield International Bond
Capital Opportunity New Income
Dividend Growth Short-Term Bond MONEY MARKET FUNDS
Equity Income Short-Term U.S. Government .............................
Equity Index Spectrum Income Taxable
Financial Services Summit GNMA Prime Reserve
Growth & Income Summit Limited-Term Bond Summit Cash Reserves
Growth Stock U.S. Treasury Intermediate U.S. Treasury Money
Health Sciences U.S. Treasury Long-Term
Mid-Cap Growth Tax-Free
Mid-Cap Value Domestic Tax-Free California Tax-Free Money
New America Growth California Tax-Free Bond New York Tax-Free Money
New Era Florida Insured Summit Municipal
New Horizons* Intermediate Tax-Free Money Market
Science & Technology Georgia Tax-Free Bond Tax-Exempt Money
Small-Cap Stock** Maryland Short-Term
Small-Cap Value* Tax-Free Bond BLENDED ASSET FUNDS
Spectrum Growth Maryland Tax-Free Bond .............................
Value New Jersey Tax-Free Bond Personal Strategy Income
New York Tax-Free Bond Personal Strategy Balanced
International/Global Summit Municipal Income Personal Strategy Growth
Emerging Markets Stock Summit Municipal Intermediate
European Stock Tax-Free High Yield T. Rowe Price No-Load
Global Stock Tax-Free Income Variable Annuity
International Discovery Tax-Free Insured ...............................
International Stock Intermediate Bond Equity Income Portfolio
Japan Tax-Free Short-Intermediate International Stock Portfolio
Latin America Virginia Short-Term Limited-Term Bond Portfolio
New Asia Tax-Free Bond Mid-Cap Growth Portfolio
Spectrum International Virginia Tax-Free Bond New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
</TABLE>
*Closed to new investors.
**Formerly the OTC Fund.
Please call for a prospectus. Read it carefully before you invest or send money.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY.
T. Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
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<PAGE>
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(R):
1-800-638-2587 toll free
T. Rowe Price
For assistance Financial Center
with your existing 10090 Red Run Blvd.
fund account, call: Owings Mills, MD 21117
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area Farragut Square
900 17th Street, N.W.
To open a Discount Brokerage Washington, D.C. 20006
account or obtain information,
call: 1-800-638-5660 toll free
ARCO Tower
Internet address: 31st Floor
www.troweprice.com 515 South Flower St.
Los Angeles, CA 90071
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202 4200 West Cypress St.
10th Floor
This report is authorized for Tampa, FL 33607
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Personal Strategy Funds.
[LOGO OF T. ROWE PRICE APPEARS HERE]
