<PAGE>
Annual Report - Financial Statements
T. ROWE PRICE
PERSONAL STRATEGY
INCOME FUND
------------
MAY 31, 1998
------------
<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
5/31/98 5/31/97 5/31/96 5/31/95
<S> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 11.98 $ 11.85 $ 10.94 $ 10.00
..............................................................
Investment activities
Net investment income 0.50* 0.51* 0.50* 0.41*
Net realized and
unrealized gain (loss) 1.43 1.10 0.98 0.85
..............................................................
Total from investment activities 1.93 1.61 1.48 1.26
..............................................................
Distributions
Net investment income (0.50) (0.50) (0.47) (0.32)
Net realized gain (0.28) (0.98) (0.10) --
..............................................................
Total distributions (0.78) (1.48) (0.57) (0.32)
..............................................................
NET ASSET VALUE
End of period $ 13.13 $ 11.98 $ 11.85 $ 10.94
--------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
<S> <C> <C> <C> <C>
Total return . 16.61%* 14.70%* 13.84%* 12.90%*
.....................................................................................................
Ratio of expenses to
average net assets 0.95%* 0.95%* 0.95%* 0.95%+*
.....................................................................................................
Ratio of net investment
income to average
net assets 4.13%* 4.38%* 4.31%* 4.71%+*
.....................................................................................................
Portfolio turnover rate 30.9% 44.8% 34.1% 50.5%+
.....................................................................................................
Net assets, end of period
(in thousands) $ 85,898 $ 44,368 $ 25,545 $ 20,705
.....................................................................................................
</TABLE>
. Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
* 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, 1998
- ------------------------
Portfolio of Investments Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
COMMON STOCKS 38.9%
FINANCIAL 7.7%
Bank and Trust 4.4%
Abbey National (GBP) 4,000 $ 71
................................................................................
Air Liquide (L)(FRF) 330 65
................................................................................
BANC ONE 6,180 341
................................................................................
Banca Commerciale Italiana (ITL) 20,000 118
................................................................................
Banco de Bilbao Vizcaya ADR 2,400 122
................................................................................
Banco Frances del Rio ADR 1,035 24
................................................................................
BankBoston 1,000 105
................................................................................
Bankgesellschaft Berlin (DEM) 2,300 56
................................................................................
Barclay's (GBP) 3,000 80
................................................................................
Chase Manhattan 2,000 272
................................................................................
Citicorp 900 134
................................................................................
Deutsche Bank (DEM) 680 59
................................................................................
Dresdner Bank (DEM) 1,000 56
................................................................................
First Union 1,900 105
................................................................................
HSBC Holdings (GBP) 3,900 102
................................................................................
J. P. Morgan 1,130 140
................................................................................
KeyCorp 1,200 46
................................................................................
Kredietbank (BEF) 200 140
................................................................................
Mediobanca (ITL) 6,000 81
................................................................................
Mellon Bank 3,500 236
................................................................................
National City 1,600 109
................................................................................
NationsBank 3,500 265
................................................................................
Norwest 3,600 140
................................................................................
Schweizerischer Bankverein (CHF) 440 159
................................................................................
Societe Generale (FRF) 610 121
................................................................................
Societe Generale de Belgique (BEF) 350 62
................................................................................
Svenska Handelsbank (SEK) 1,000 42
................................................................................
U.S. Bancorp 3,100 121
................................................................................
Union Bank of Switzerland (CHF) 40 67
................................................................................
Washington Mutual 3,660 259
................................................................................
Wells Fargo 200 72
................................................................................
Westpac Bank (AUD) 6,000 40
................................................................................
3,810
...........
3
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Insurance 1.3%
ACE Limited 3,900 $ 139
................................................................................
American General 1,200 80
................................................................................
American International Group 250 31
................................................................................
EXEL 1,300 98
................................................................................
Hartford Financial Services 200 22
................................................................................
Mid Ocean Limited 1,000 76
................................................................................
St. Paul Companies 3,800 169
................................................................................
Sumitomo Marine & Fire Insurance (JPY) 9,000 50
................................................................................
Travelers Property Casualty (Class A) 5,600 233
................................................................................
UNUM 1,300 72
................................................................................
Willis-Corroon ADR 8,100 105
................................................................................
1,075
...........
Financial Services 2.0%
American Express 2,700 277
................................................................................
Associates First Capital (Class A) 800 60
................................................................................
AXA (FRF) 1,000 114
................................................................................
Capital One Financial 800 80
................................................................................
Fannie Mae 4,700 281
................................................................................
Freddie Mac 4,400 200
................................................................................
Household International 600 81
................................................................................
ING Groep (NLG) 1,950 134
................................................................................
Morgan Stanley Dean Witter Discover 800 62
................................................................................
Pearson (GBP) 2,000 37
................................................................................
SLM Holding 1,800 72
................................................................................
Travelers Group 4,099 250
................................................................................
Unidanmark (Class A) (DKK) 900 73
................................................................................
1,721
...........
Total Financial 6,606
...........
UTILITIES 2.5%
Telephone Services 1.5%
ALLTEL 1,400 55
................................................................................
AT&T 4,750 289
................................................................................
BellSouth 1,600 103
................................................................................
British Telecommunications ADR 700 73
................................................................................
Frontier 4,700 143
................................................................................
4
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Hong Kong Telecommunications ADR 1,100 $ 20
................................................................................
Nippon Telephone & Telecom (JPY) 8 66
................................................................................
SBC Communications 7,500 292
................................................................................
Telecom Corp. of New Zealand ADR 800 29
................................................................................
Telefonica de Espana ADR 1,000 134
................................................................................
Telefonos de Mexico (Class L) ADR 1,300 62
................................................................................
Telekom Malaysia (MYR) 3,000 7
................................................................................
1,273
...........
Electric Utilities 1.0%
Electrabel (BEF) 210 52
................................................................................
Endesa ADR 1,200 29
................................................................................
FirstEnergy 6,595 196
................................................................................
Hong Kong Electric (HKD) 14,000 41
................................................................................
PECO Energy 2,400 68
................................................................................
Texas Utilities 4,600 182
................................................................................
Unicom 5,000 172
................................................................................
Veba (DEM) 1,710 112
................................................................................
852
...........
Total Utilities 2,125
...........
CONSUMER NONDURABLES 7.9%
Cosmetics 0.4%
Gillette 400 47
................................................................................
International Flavors & Fragrances 4,900 235
................................................................................
Kao (JPY) 6,000 90
................................................................................
372
...........
Beverages 0.5%
Anheuser-Busch 4,900 225
................................................................................
Diageo ADR 950 43
................................................................................
LVMH (FRF) 275 58
................................................................................
PepsiCo 2,600 106
................................................................................
432
...........
Food Processing 1.7%
Bestfoods 1,800 102
................................................................................
Cadbury Schweppes ADR 1,500 92
................................................................................
CSM (NLG) 800 43
................................................................................
Danisco (DKK) 1,200 75
................................................................................
5
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Dean Foods 400 $ 20
................................................................................
Eridania Beghin-Say (FRF) 390 85
................................................................................
General Mills 2,660 182
................................................................................
Heinz 800 42
................................................................................
Hershey Foods 700 49
................................................................................
Interstate Bakeries 900 29
................................................................................
McCormick 3,700 123
................................................................................
Nestle (CHF) 88 188
................................................................................
Ralston Purina 1,500 167
................................................................................
Sara Lee 4,100 241
................................................................................
1,438
...........
Hospital Supplies/Hospital Management 0.6%
Abbott Laboratories 700 52
................................................................................
Arterial Vascular Engineering * 800 25
................................................................................
Boston Scientific * 300 19
................................................................................
HealthSouth * 4,400 125
................................................................................
Medtronic 700 39
................................................................................
Smith & Nephew (GBP) 8,000 23
................................................................................
Tenet Healthcare * 2,000 70
................................................................................
Terumo (JPY) 3,000 45
................................................................................
United States Surgical * 2,800 111
................................................................................
509
...........
Pharmaceuticals 2.4%
American Home Products 6,760 327
................................................................................
Astra (Class B) (SEK) 3,200 62
................................................................................
Biogen * 1,500 66
................................................................................
Bristol-Myers Squibb 2,200 237
................................................................................
Eli Lilly 500 31
................................................................................
Gehe (DEM) 1,000 53
................................................................................
Glaxo Wellcome ADR 1,100 59
................................................................................
Johnson & Johnson 1,600 111
................................................................................
Merck 1,400 164
................................................................................
Novartis (CHF) 74 125
................................................................................
Pfizer 2,720 285
................................................................................
Pharmacia & Upjohn 1,905 84
................................................................................
Schering-Plough 1,500 126
................................................................................
Takeda Chemical Industries (JPY) 4,000 103
................................................................................
Warner-Lambert 3,200 204
................................................................................
2,037
...........
6
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Biotechnology 0.0%
Guidant 500 $ 32
................................................................................
32
...........
Health Care Services 0.2%
Altana AG (DEM) 400 32
................................................................................
United HealthCare 2,300 147
................................................................................
179
...........
Miscellaneous Consumer Products 2.1%
Benetton Group (ITL) 4,160 91
................................................................................
Bridgestone (JPY) 3,000 68
................................................................................
Colgate-Palmolive 3,400 296
................................................................................
Hasbro 2,500 96
................................................................................
Kuraray (JPY) 3,000 25
................................................................................
Lion Nathan (NZD) 20,000 49
................................................................................
Mattel 1,400 53
................................................................................
Newell 1,800 87
................................................................................
Philip Morris 10,550 394
................................................................................
Procter & Gamble 700 59
................................................................................
Service Corp. International 2,400 98
................................................................................
Stanley Works 800 38
................................................................................
Tomkins ADR 2,600 60
................................................................................
Unifi 2,600 101
................................................................................
Unilever N.V. ADR 1,200 95
................................................................................
UST 6,000 160
................................................................................
1,770
...........
Total Consumer Nondurables 6,769
...........
CONSUMER SERVICES 4.3%
General Merchandisers 1.0%
Dayton Hudson 3,000 139
................................................................................
Fred Meyer * 2,500 107
................................................................................
JUSCO (JPY) 2,000 35
................................................................................
Marui (JPY) 3,000 46
................................................................................
Neiman-Marcus * 1,700 58
................................................................................
Pinault Printemps (FRF) 90 74
................................................................................
Tesco (GBP) 10,107 89
................................................................................
Wal-Mart 3,600 199
................................................................................
7
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Warnaco Group (Class A) 2,900 $ 120
................................................................................
867
...........
Specialty Merchandisers 1.3%
American Stores 8,300 207
................................................................................
CVS 1,984 139
................................................................................
Federated Department Stores * 900 47
................................................................................
General Nutrition * 1,600 50
................................................................................
Home Depot 1,350 106
................................................................................
Kohl's * 1,000 48
................................................................................
Omron (JPY) 2,000 30
................................................................................
Safeway * 4,600 168
................................................................................
Toys "R" Us * 3,100 82
................................................................................
Tupperware 8,500 230
................................................................................
1,107
...........
Entertainment and Leisure 0.8%
Carnival (Class A) ADR 1,800 122
................................................................................
Disney 1,300 147
................................................................................
Hilton 2,000 63
................................................................................
Hutchison Whampoa (HKD) 13,000 68
................................................................................
McDonald's 1,000 66
................................................................................
Reader's Digest (Class A) 6,800 194
................................................................................
Reader's Digest (Class B) 1,440 40
................................................................................
Sharp (JPY) 3,000 22
................................................................................
722
...........
Media and Communications 1.2%
Asatsu (JPY) 2,000 40
................................................................................
CBS 2,500 79
................................................................................
Elsevier (NLG) 3,000 47
................................................................................
France Telecom ADR * 2,200 124
................................................................................
R.R. Donnelley 3,700 166
................................................................................
Time Warner 1,700 132
................................................................................
Tribune 2,200 147
................................................................................
U S WEST Media * 1,600 59
................................................................................
Valassis Communications * 900 32
................................................................................
Vodafone ADR 1,700 187
................................................................................
1,013
...........
Total Consumer Services 3,709
...........
8
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
CONSUMER CYCLICALS 1.6%
Automobiles and Related 0.2%
Cycle & Carriage (SGD) 2,000 $ 6
................................................................................
Federal-Mogul 900 53
................................................................................
Honda ADR 1,000 67
................................................................................
SPX * 600 41
................................................................................
167
...........
Building and Real Estate 0.9%
Cheung Kong Holdings (HKD) 8,000 43
................................................................................
Crescent Real Estate Equities, REIT 2,200 75
................................................................................
DBS Land (SGD) 10,000 11
................................................................................
Federal Realty Investment Trust, REIT 7,300 181
................................................................................
Simon DeBartolo Group, REIT 7,068 236
................................................................................
Starwood Hotels & Resorts, REIT 5,500 260
................................................................................
806
...........
Miscellaneous Consumer Durables 0.5%
Corning 6,600 260
................................................................................
Masco 1,800 101
................................................................................
OCE (NLG) 1,200 51
................................................................................
Ricoh (JPY) 4,000 43
................................................................................
455
...........
Total Consumer Cyclicals 1,428
...........
TECHNOLOGY 1.9%
Electronic Components 0.3%
ASM Lithography * 600 23
................................................................................
EMC * 1,500 62
................................................................................
Intel 1,100 79
................................................................................
Linear Technology 900 63
................................................................................
Maxim Integrated Products * 1,500 50
................................................................................
Texas Instruments 300 15
................................................................................
292
...........
Electronic Systems 0.3%
Hewlett-Packard 1,300 81
................................................................................
Honeywell 800 67
................................................................................
Nokia ADR 1,500 97
................................................................................
245
...........
9
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Information Processing 0.2%
COMPAQ Computer 1,400 $ 38
................................................................................
Dell Computer* 600 50
................................................................................
Hitachi ADR 500 33
................................................................................
IBM 500 59
................................................................................
180
...........
Office Automation 0.0%
Xerox 300 31
................................................................................
31
...........
Specialized Computer 0.0%
Sun Microsystems* 300 12
................................................................................
12
...........
Telecommunications Equipment 0.7%
Cisco Systems* 1,450 110
................................................................................
Lucent Technologies 200 14
................................................................................
MCI 2,400 128
................................................................................
Telebras ADR 700 75
................................................................................
Tellabs* 1,600 110
................................................................................
WorldCom* 2,800 127
................................................................................
564
...........
Aerospace and Defense 0.4%
AlliedSignal 5,200 222
................................................................................
Raytheon (Class B) 1,400 77
................................................................................
299
...........
Total Technology 1,623
...........
CAPITAL EQUIPMENT 1.5%
Electrical Equipment 0.9%
ABB (CHF) 30 51
................................................................................
Canon (JPY) 2,000 48
................................................................................
GE 4,500 375
................................................................................
Mitsubishi Electric (JPY) 5,000 12
................................................................................
Siemens (DEM) 1,000 64
................................................................................
Tyco International 3,432 190
................................................................................
740
...........
Machinery 0.6%
Cooper Industries 700 45
................................................................................
Danaher 2,600 188
................................................................................
GKN (GBP) 6,000 89
................................................................................
10
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Man (DEM) 240 $ 96
................................................................................
Teleflex 2,100 85
................................................................................
Valmet (FIM) 2,000 35
................................................................................
538
.................
Total Capital Equipment 1,278
.................
BUSINESS SERVICES AND
TRANSPORTATION 3.1%
Computer Service and Software 1.1%
Automatic Data Processing 1,600 102
................................................................................
BMC Software * 3,200 147
................................................................................
Cadence Design Systems * 1,600 57
................................................................................
First Data 3,318 110
................................................................................
Galileo International 1,900 75
................................................................................
Microsoft * 1,900 161
................................................................................
Network Associates * 1,400 86
................................................................................
Oracle * 3,200 76
................................................................................
Parametric Technology * 3,600 110
................................................................................
SunGard Data Systems * 2,000 68
................................................................................
992
.................
Distribution Services 0.1%
U.S. Foodservice * 1,587 52
................................................................................
52
.................
Environmental 0.2%
USA Waste Services * 2,900 137
................................................................................
137
.................
Transportation Services 0.0%
Mitsubishi Heavy Industries (JPY) 4,000 14
................................................................................
14
.................
Miscellaneous Business Services 1.0%
British Airport Authorities (GBP) 4,100 49
................................................................................
Browning-Ferris 6,600 235
................................................................................
Cendant * 3,000 65
................................................................................
H&R Block 6,600 290
................................................................................
Omnicom 2,000 94
................................................................................
Sime Darby (MYR) 6,000 5
................................................................................
Waste Management 4,960 161
................................................................................
899
.................
11
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Airlines 0.3%
Delta 2,200 $ 253
................................................................................
KLM (NLG) 1,000 39
................................................................................
292
..............
Railroads 0.4%
Burlington Northern Santa Fe 600 60
................................................................................
Norfolk Southern 7,900 247
................................................................................
307
..............
Total Business Services and Transportation 2,693
..............
ENERGY 2.9%
Energy Services 0.4%
Camco International 700 49
................................................................................
Cooper Cameron * 900 53
................................................................................
Elf Aquitaine ADR 800 55
................................................................................
Halliburton 2,000 95
................................................................................
TOTAL ADR 1,200 75
................................................................................
327
..............
Exploration and Production 0.0%
Santos (AUD) 7,000 23
................................................................................
23
..............
Integrated Petroleum - Domestic 1.1%
Atlantic Richfield 2,600 205
................................................................................
British Petroleum ADR 4,380 388
................................................................................
Occidental Petroleum 4,700 130
................................................................................
Unocal 1,600 57
................................................................................
USX-Marathon 4,200 147
................................................................................
927
..............
Integrated Petroleum - International 1.4%
Amoco 6,300 263
................................................................................
ENI S.P.A. ADR 800 57
................................................................................
Exxon 1,960 138
................................................................................
Mobil 4,800 374
................................................................................
Repsol ADR 800 44
................................................................................
Royal Dutch Petroleum ADR 1,200 67
................................................................................
Shell Transport & Trading ADR 1,800 80
................................................................................
Texaco 3,300 191
................................................................................
1,214
..............
Total Energy 2,491
..............
12
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
PROCESS INDUSTRIES 2.8%
Diversified Chemicals 0.8%
Dow Chemical 2,500 $ 242
................................................................................
DuPont 3,400 262
................................................................................
Hercules 4,100 181
................................................................................
685
.................
Specialty Chemicals 1.2%
3M 1,200 111
................................................................................
A. Schulman 3,000 60
................................................................................
Akzo Nobel (NLG) 200 42
................................................................................
BASF AG (DEM) 2,130 99
................................................................................
Bayer (DEM) 2,030 97
................................................................................
Great Lakes Chemical 6,540 262
................................................................................
Octel * 1,310 28
................................................................................
Pall 9,600 190
................................................................................
Technip (FRF) 845 121
................................................................................
1,010
.................
Paper and Paper Products 0.6%
Dai Nippon Printing (JPY) 3,000 49
................................................................................
Fort James 3,600 172
................................................................................
Kimberly-Clark 5,400 268
................................................................................
489
.................
Forest Products 0.1%
Georgia-Pacific 1,600 103
................................................................................
International Paper 900 41
................................................................................
144
.................
Building and Construction 0.1%
Blue Circle Industries (GBP) 8,095 52
................................................................................
Holderbank Financiere Glarus (CHF) 60 77
................................................................................
129
.................
Total Process Industries 2,457
.................
BASIC MATERIALS 0.5%
Metals 0.3%
Anglo American Platinum (ZAR) 3,000 36
................................................................................
Inco 5,400 78
................................................................................
Reynolds Metals 3,100 180
................................................................................
294
.................
13
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Mining 0.1%
Newmont Mining 1,800 $ 45
................................................................................
Rio Tinto (AUD) 3,200 38
................................................................................
83
...............
Miscellaneous Materials 0.1%
Crown Cork & Seal 500 26
................................................................................
Malayan Cement (MYR) 26,250 12
................................................................................
38
...............
Total Basic Materials 415
...............
MISCELLANEOUS 2.0%
Conglomerates 0.1%
Orkla (NOK) 2,800 64
................................................................................
64
...............
Other Miscellaneous Common Stocks 1.9%
SPDR Trust 8,900 972
................................................................................
Other Miscellaneous Common Stocks 657
................................................................................
1,629
...............
Total Miscellaneous 1,693
...............
FOREIGN 0.2%
Europe 0.1%
AXA Colonia Konzern (DEM) 600 79
................................................................................
79
...............
Other Foreign 0.1%
Bobst (CHF) 43 81
................................................................................
81
...............
Total Foreign 160
...............
Total Common Stocks (Cost $26,742) 33,447
...............
Corporate Bonds 23.2%
AEI Holding, Sr. Notes (144a), 10.00%, 11/15/07 $ 125,000 125
................................................................................
Agricultural Minerals, Sr. Notes, 10.75%, 9/30/03 50,000 53
................................................................................
Agrium, 7.00%, 2/1/04 200,000 207
................................................................................
Ahmanson, H.F., Sub. Notes, 7.875%, 9/1/04 100,000 108
................................................................................
Airplane Pass Through Trust, 10.875%, 3/15/19 150,000 165
................................................................................
Allied Waste, Sr. Sub. Notes, 10.25%, 12/1/06 150,000 165
................................................................................
14
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
AMC Entertainment, Sr. Sub. Notes, 9.50%, 3/15/09 $ 100,000 $ 103
................................................................................
American Builders & Contractors Supply, Sr. Sub. Notes
10.625%, 5/15/07 150,000 153
................................................................................
American Express, 7.60%, 8/15/02 300,000 314
................................................................................
American Radio Systems, Sr. Sub. Notes, 9.00%, 2/1/06 100,000 107
................................................................................
American Safety Razor, Sr. Notes, 9.875%, 8/1/05 100,000 108
................................................................................
American Standard, 9.25%, 12/1/16 85,000 88
................................................................................
Amerigas Partners L.P., Sr. Notes, 10.125%, 4/15/07 100,000 107
................................................................................
Ametek, Sr. Notes, 9.75%, 3/15/04 10,000 11
................................................................................
APCOA, Sr. Sub. Notes (144a), 9.25%, 3/15/08 200,000 200
................................................................................
Archibald Candy, Sr. Secured Notes, 10.25%, 7/1/04 150,000 160
................................................................................
Associated Materials, 9.25%, 3/1/08 200,000 205
................................................................................
Associates, Sr. Notes, 5.25%, 3/30/00 60,000 59
................................................................................
Aurora Foods, Sr. Sub. Notes, 9.875%, 2/15/07 50,000 53
................................................................................
B&G Foods, Sr. Sub. Notes, 9.625%, 8/1/07 100,000 102
................................................................................
Bank Nova Scotia, Sub. Notes, 6.25%, 9/15/08 80,000 80
................................................................................
Bay View Capital, Sub. Notes, 9.125%, 8/15/07 100,000 103
................................................................................
Boise Cascade, Deb., 7.35%, 2/1/16 100,000 101
................................................................................
CE Electric UK Funding, 6.853%, 12/30/04 625,000 641
................................................................................
Celestica International, Gtd. Sr. Sub. Notes
10.50%, 12/31/06 125,000 137
................................................................................
Chattem, Sr. Sub. Notes, 12.75%, 6/15/04 200,000 225
................................................................................
Citicorp, Sub. Notes, 7.75%, 6/15/06 100,000 109
................................................................................
Coach USA, Gtd. Sr. Sub. Notes, 9.375%, 7/1/07 175,000 183
................................................................................
Coca-Cola Bottling Group, Sr. Sub. Notes
9.00%, 11/15/03 90,000 95
................................................................................
Coinmach, Sr. Sub. Notes, 11.75%, 11/15/05 150,000 167
................................................................................
Communications & Power Industries, Sr. Sub. Notes
12.00%, 8/1/05 150,000 168
................................................................................
Container Corporation of America, Sr. Notes
9.75%, 4/1/03 100,000 108
................................................................................
Container Corporation of America, Gtd., 10.75%, 5/1/02 100,000 109
................................................................................
Continental Airlines, 6.94%, 10/15/13 480,548 496
................................................................................
Courtyard by Marriott II, Sr. Secured Notes
10.75%, 2/1/08 100,000 110
................................................................................
Dan River, Sr. Sub. Notes, 10.125%, 12/15/03 100,000 107
................................................................................
Dayton Power & Light, 1st Mtg. Notes, 8.15%, 1/15/26 400,000 435
................................................................................
Doane Products, Sr. Notes, 10.625%, 3/1/06 150,000 163
................................................................................
Dyersburg, Sr. Sub. Notes, 9.75%, 9/1/07 200,000 206
................................................................................
15
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- -------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Dyncorp, Sr. Sub. Notes, 9.50%, 3/1/07 $ 100,000 $ 103
...............................................................................
Eli Lilly, 7.125%, 6/1/25 400,000 435
...............................................................................
Energy Corporation of America, Sr. Sub. Notes
9.50%, 5/15/07 200,000 198
...............................................................................
EOP Operating, Sr. Notes (144a), 6.75%, 2/15/08 250,000 250
...............................................................................
Fairchild Semiconductor, Sr. Sub. Notes
10.125%, 3/15/07 150,000 155
...............................................................................
Fairfax Financial Holdings, 8.25%, 10/1/15 250,000 278
...............................................................................
Falcon Building Products, Gtd. Sr. Sub. Notes
9.50%, 6/15/07 50,000 51
...............................................................................
Ferrellgas, Sr. Notes, 10.00%, 8/1/01 90,000 96
...............................................................................
First Federal Financial, 11.75%, 10/1/04 100,000 113
...............................................................................
Flag Limited, Sr. Notes (144a), 8.25%, 1/30/08 150,000 152
...............................................................................
Frontiervision, Sr. Sub. Notes, 11.00%, 10/15/06 100,000 111
...............................................................................
Fundy Cable, Sr. Secured 2nd Priority Notes
11.00%, 11/15/05 150,000 165
...............................................................................
Furon, Sr. Sub. Notes (144a), 8.125%, 3/1/08 125,000 124
...............................................................................
Genesis Health Ventures, Sr. Sub. Notes, 9.25%, 10/1/06 200,000 201
...............................................................................
Grand Casino, 1st Mtg. Notes, 10.125%, 12/1/03 150,000 162
...............................................................................
Grand Metropolitan, Gtd., 9.00%, 8/15/11 300,000 366
...............................................................................
Harcourt General, Deb., 7.20%, 8/1/27 500,000 503
...............................................................................
Herff Jones, Sr. Sub. Notes, 11.00%, 8/15/05 150,000 164
...............................................................................
Host Marriott Travel, Sr. Notes, 9.50%, 5/15/05 100,000 106
...............................................................................
Intertek Finance, Sr. Sub. Notes, 10.25%, 11/1/06 100,000 106
...............................................................................
Iron Mountain, Sr. Sub. Notes, 8.75%, 9/30/09 150,000 153
...............................................................................
ISP Holdings, Sr. Notes, 9.75%, 2/15/02 150,000 158
...............................................................................
Keebler, Sr. Sub. Notes, 10.75%, 7/1/06 150,000 171
...............................................................................
Mastec, Sr. Sub. Notes (144a), 7.75%, 2/1/08 150,000 143
...............................................................................
Maxxam Group Holdings, Sr. Secured Notes
12.00%, 8/1/03 100,000 108
...............................................................................
Nextel Communications, Sr. Disc. Notes
STEP, 0%, 10/31/07 325,000 210
...............................................................................
Northland Cable Television, Sr. Sub. Notes
10.25%, 11/15/07 150,000 159
...............................................................................
Northrop Grumman, 7.00%, 3/1/06 70,000 72
...............................................................................
Ocwen Capital Trust I, 10.875%, 8/1/27 150,000 163
...............................................................................
Owens & Minor, Sr. Sub. Notes, 10.875%, 6/1/06 50,000 56
...............................................................................
Pennsylvania Power and Light, 1st Mtg. Notes
6.50%, 4/1/05 100,000 102
...............................................................................
16
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Plastic Containers, Sr. Secured Notes, 10.00%, 12/15/06 $ 150,000 $ 163
................................................................................
PNC Bank, 7.875%, 4/15/05 100,000 108
................................................................................
Pride Petroleum Services, Sr. Notes, 9.375%, 5/1/07 100,000 107
................................................................................
Principal Mutual (144a), 8.00%, 3/1/44 250,000 272
................................................................................
Procter & Gamble, Deb., 9.36%, 1/1/21 100,000 132
................................................................................
Public Service Electric & Gas, 1st Ref. Mtg. Notes
7.00%, 9/1/24 200,000 200
................................................................................
Quest Diagnostics, Gtd. Sr. Sub. Notes, 10.75%, 12/15/06 150,000 168
................................................................................
Rio Hotel & Casino, Gtd. Sr. Sub. Notes, 9.50%, 4/15/07 100,000 107
................................................................................
Rogers Cablesystems, Sr. Sec. 2nd Priority Notes
10.00%, 3/15/05 90,000 99
................................................................................
Rouse, 8.50%, 1/15/03 60,000 64
................................................................................
Safelite Glass, Sr. Sub. Notes (144a), 9.875%, 12/15/06 100,000 106
................................................................................
Shawmut National, Sub. Notes, 7.20%, 4/15/03 60,000 62
................................................................................
Six Flags Theme Parks, Sr. Sub. Disc. Notes
STEP, 0%, 6/15/05 200,000 226
................................................................................
Smithfield Foods, Sr. Sub. Notes (144a), 7.625%, 2/15/08 100,000 100
................................................................................
Southern Foods Group, Sr. Sub. Notes
(144a) 9.875%, 9/1/07 150,000 154
................................................................................
Sovereign Specialty Chemicals, Sr. Sub. Notes
(144a) 9.50%, 8/1/07 150,000 156
................................................................................
Sprint Spectrum, Sr. Notes, 11.00%, 8/15/06 200,000 230
................................................................................
Stellex Industries, Sr. Sub. Notes, 9.50%, 11/1/07 150,000 149
................................................................................
Tenet Healthcare, Sr. Sub. Notes, 8.625%, 1/15/07 100,000 103
................................................................................
Tenneco, 8.20%, 11/15/99 60,000 62
................................................................................
Texas Utilities, 1st Mtg. Bonds, 7.375%, 10/1/25 700,000 716
................................................................................
Texas-New Mexico Power, Deb., 12.50%, 1/15/99 200,000 207
................................................................................
Time Warner Entertainment, Deb., 8.375%, 3/15/23 300,000 349
................................................................................
US Can, Sr. Gtd. Notes, 10.125%, 10/15/06 100,000 105
................................................................................
USF&G Capital II, Gtd. Notes, 8.47%, 1/10/27 500,000 556
................................................................................
Vesta Insurance Group, Deb. 8.75%, 7/15/25 500,000 595
................................................................................
Viasystems, Sr. Sub. Notes, 9.75%, 6/1/07 150,000 156
................................................................................
Wal-Mart, Deb., 7.25%, 6/1/13 170,000 186
................................................................................
Windy Hill Pet Food, Sr. Sub. Notes, 9.75%, 5/15/07 150,000 162
................................................................................
Worldcom, 7.75%, 4/1/07 100,000 108
................................................................................
Miscellaneous Corporate Bonds 2,366
................................................................................
Total Corporate Bonds (Cost $19,351) 19,944
..........
17
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- -------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
FOREIGN GOVERNMENT OBLIGATIONS/
AGENCIES 2.2%
Commonwealth of Australia
9.50%, 8/15/03 AUD 10,000 $ 7
................................................................................
European Investment Bank
3.00%, 9/20/06 JPY 18,000,000 146
................................................................................
Federal Republic of Germany
6.00%, 7/4/07 DEM 150,000 91
.........................................................................
6.50%, 7/15/03 DEM 425,000 259
.........................................................................
8.50%, 8/21/00 DEM 145,000 89
................................................................................
Government of Canada
6.50%, 6/1/04 CAD 30,000 22
.........................................................................
8.50%, 4/1/02 CAD 45,000 35
.........................................................................
9.75%, 6/1/21 CAD 70,000 73
................................................................................
Government of France
5.50%, 4/25/07 FRF 520,000 91
.........................................................................
8.25%, 2/27/04 FRF 270,000 53
................................................................................
Government of Japan++
4.50%, 6/20/03 JPY 40,500,000 340
................................................................................
Int'l Bank for Reconstruction & Development
6.75%, 3/15/00 JPY 6,000,000 48
................................................................................
Kingdom of Belgium
7.25%, 4/29/04 BEF 2,900,000 89
................................................................................
Kingdom of Denmark
7.00%, 12/15/04 DKK 120,000 20
................................................................................
Kingdom of Spain
8.00%, 5/30/04 ESP 8,000,000 61
................................................................................
Kingdom of Sweden
6.00%, 2/9/05 SEK 100,000 14
................................................................................
Republic of Italy
8.50%, 8/1/04 ITL 275,000,000 186
................................................................................
United Kingdom Treasury Notes
7.50%, 12/7/06 GBP 30,000 55
.........................................................................
8.50%, 12/7/05 GBP 65,000 123
.........................................................................
9.00%, 3/3/00 GBP 25,000 43
................................................................................
Total Foreign Government Obligations/Agencies (Cost $1,856) 1,845
..........
18
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 9.1%
Government National Mortgage Assn., I
6.00%, 12/15/23 - 5/15/26 1,668,066 $ 1,633
.........................................................................
6.50%, 7/15/23 - 4/15/26 1,129,386 1,129
.........................................................................
7.00%, 2/15/27 974,862 990
.........................................................................
7.50%, 9/15/22 - 12/15/25 1,133,219 1,170
.........................................................................
8.00%, 3/15/22 - 10/15/24 499,535 521
.........................................................................
8.50%, 9/15/24 254,091 269
.........................................................................
10.50%, 4/15/13 14,751 16
................................................................................
Government National Mortgage Assn., II
7.00%, 7/20/27 1,892,563 1,911
.........................................................................
8.00%, 10/20/25 145,681 151
.........................................................................
Total U.S. Government Mortgage-Backed
Securities (Cost $7,410) 7,790
..........
U.S. GOVERNMENT OBLIGATIONS/
AGENCIES 15.0%
Cooperative Utility Trust
9.50%, 2/15/17 400,000 420
................................................................................
Federal Home Loan Mortgage Corp.
5.75%, 4/15/08 3,000,000 2,966
................................................................................
Tennessee Valley Authority
5.88%, 4/1/36 2,475,000 2,577
.........................................................................
6.235%, 7/15/45 500,000 522
.........................................................................
8.25%, 4/15/42 1,189,000 1,447
................................................................................
U.S. Treasury Bonds
6.75%, 8/15/26 4,470,000 4,993
................................................................................
Total U.S. Government Obligations/Agencies
(Cost $12,250) 12,925
..........
Short-Term Investments 10.3%
Money Market Funds 10.3%
Reserve Investment Fund, 5.67% # 8,850,915 8,851
................................................................................
Total Short-Term Investments (Cost $8,851) 8,851
..........
19
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- --------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------
In thousands
Total Investments in Securities
98.7% of Net Assets (Cost $76,460) $ 84,802
Other Assets Less Liabilities 1,096
..............
NET ASSETS $ 85,898
==============
# Seven-day yield
* Non-income producing
++ Securities contain some restrictions as to public resale--total of such
securities at year-end amounts to 0.40% of net assets.
ADR American Depository Receipt
REIT Real Estate Investment Trust
STEP Stepped coupon note for which
the interest rate will adjust on specified future date(s)
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
2.07% 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
NOK Norwegian krone
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
- --------------------------------------------------------------------------------
May 31, 1998
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value (cost $ 76,460) $ 84,802
Securities Lending Collateral Pool 5,112
Other Assets 1,413
----------
Total Assets 91,327
----------
Liabilities
Securities Lending Collateral 5,112
Other Liabilities 317
----------
Total Liabilities 5,429
----------
NET ASSETS $ 85,898
----------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 579
Accumulated net realized gain/loss - net of distributions 1,355
Net unrealized gain (loss) 8,330
Paid-in-capital applicable to 6,541,465 shares of
$0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized 75,634
----------
NET ASSETS $ 85,898
----------
NET ASSET VALUE PER SHARE $ 13.13
----------
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
5/31/98
Investment Income
Income
Interest $ 2,789
Dividend 466
----------
Total income 3,255
----------
Expenses
Investment management 206
Shareholder servicing 177
Custody and accounting 122
Registration 39
Prospectus and shareholder reports 34
Legal and audit 13
Directors 6
Miscellaneous 12
----------
Total expenses 609
----------
Net investment income 2,646
----------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 2,037
Foreign currency transactions (31)
----------
Net realized gain (loss) 2,006
----------
Change in net unrealized gain or loss
Securities 4,839
Other assets and liabilities
denominated in foreign currencies 7
----------
Change in net unrealized gain or loss 4,846
----------
Net realized and unrealized gain (loss) 6,852
----------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 9,498
----------
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
Year
Ended
5/31/98 5/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 2,646 $ 1,492
Net realized gain (loss) 2,006 2,218
Change in net unrealized gain or loss 4,846 1,014
----------------------
Increase (decrease) in net assets from
operations 9,498 4,724
----------------------
Distributions to shareholders
Net investment income (2,388) (1,385)
Net realized gain (1,446) (2,421)
----------------------
Decrease in net assets from distributions (3,834) (3,806)
----------------------
Capital share transactions *
Shares sold 61,162 24,669
Distributions reinvested 3,679 3,613
Shares redeemed (28,975) (10,449)
----------------------
Increase (decrease) in net assets from
capital share transactions 35,866 17,833
----------------------
Net equalization -- 72
----------------------
Net Assets
Increase (decrease) during period 41,530 18,823
Beginning of period 44,368 25,545
----------------------
End of period $ 85,898 $ 44,368
----------------------
*Share information
Shares sold 4,819 2,135
Distributions reinvested 295 315
Shares redeemed (2,278) (900)
----------------------
Increase (decrease) in shares outstanding 2,836 1,550
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
May 31, 1998
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 fund), a diversified, open-end management
investment company, is one of the portfolios established by the
corporation and commenced operations on July 29, 1994.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
Valuation Equity securities listed or regularly traded on a securities
exchange 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. Other
equity securities are valued at a price within the limits of the latest
bid and asked prices deemed by the Board of Directors, or by persons
delegated by the Board, best to reflect fair value.
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.
Investments in mutual funds are valued at the closing net asset value
per share of the mutual fund on the day of valuation.
For purposes of determining the 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 the 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
24
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
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.
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 on
securities.
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 the fund on the ex-
dividend date. Income and capital gain distributions are determined in
accordance with federal income tax regulations and may differ from those
determined in accordance with generally accepted accounting principles.
Effective June 1, 1997, the fund discontinued its practice of
equalization. The results of operations and net assets were not affected
by this change.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the
following practices to manage exposure to certain risks or enhance
performance. The investment objective, policies, program, and risk
factors of the fund are described more fully in the fund's prospectus
and Statement of Additional Information.
Noninvestment-Grade Debt Securities At May 31, 1998, the 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.
Securities Lending The fund lends its securities to approved brokers to
earn additional income and receives cash and U.S. Treasury securities as
collateral against the loans. Cash collateral received is invested in a
money market pooled account by the fund's lending agent. Collateral is
maintained over the life of the loan in an amount not less than 100% of
the value of loaned securities. Although risk is mitigated by the
collateral, the fund could experience a
25
<PAGE>
T. Rowe Price Personal Strategy Income Fund
- --------------------------------------------------------------------------------
delay in recovering its securities and a possible loss of income or
value if the borrower fails to return them. At May 31, 1998, the value
of loaned securities was $4,896,000; aggregate collateral consisted of
$5,112,000 in the securities lending collateral pool.
Other Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $32,724,000 and $14,866,000,
respectively, for the year ended May 31, 1998. Purchases and sales of
U.S. government securities aggregated $14,236,000 and $2,458,000,
respectively, for the year ended May 31, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends
to continue to qualify as a regulated investment company and distribute
all of its taxable income.
At May 31, 1998, the aggregate cost of investments for federal income
tax and financial reporting purposes was $76,460,000, and net unrealized
gain aggregated $8,342,000, of which $9,254,000 related to appreciated
investments and $912,000 to depreciated investments.
In order for the 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,
1998. The results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
- --------------------------------------------------------------------------------
Undistributed net investment income $ (43,000)
Paid-in-capital 43,000
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment
management fee, of which $30,000 was payable at May 31, 1998. The fee is
computed daily and paid monthly, and consists of an individual fund fee
equal to 0.15% of average daily net assets and a group fee. The group
fee is based on the combined assets of certain mutual funds sponsored by
the manager or Rowe Price-
26
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- --------------------------------------------------------------------------------
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, 1998, and for the year then ended, the effective annual group fee
rate was 0.32%. The fund pays a pro-rata share of the group fee based on the
ratio of its net assets to those of the group.
Under the terms of the investment management agreement, the manager is required
to bear any expenses through May 31, 1998, which would cause the fund's ratio of
expenses to average net assets to exceed 0.95%. Thereafter, through May 31,
2000, the 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%. Pursuant to this agreement, $97,000 of management fees
were not accrued by the fund for the year ended May 31, 1998, and $141,000 of
unaccrued 1997 fees remain subject to reimbursement through May 31, 2000.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund receives
certain other services. The manager computes the daily share price and maintains
the financial records of the fund. T. Rowe Price Services, Inc., is the fund's
transfer and dividend disbursing agent and provides shareholder and
administrative services to the fund. T. Rowe Price Retirement Plan Services,
Inc., provides subaccounting and recordkeeping services for certain retirement
accounts invested in the fund. The fund incurred expenses pursuant to these
related party agreements totaling approximately $224,000 for the year ended May
31, 1998, of which $21,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not available to the public.
The Reserve Funds pay no investment management fees. Distributions from the
Reserve Funds to the fund for the year ended May 31, 1998, totaled $337,000 and
are reflected as interest income in the accompanying Statement of Operations.
During the year ended May 31, 1998, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $276,000 with
certain affiliates of the manager and paid commissions of $1,000 related
thereto.
27
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 assets and liabilities of T. Rowe
Price Personal Strategy Income Fund (the "Fund") as of May 31, 1998, and the
related statement of operations for the year then ended, statement of changes in
net assets for each of the two years in the period then ended, and financial
highlights for each of the three years in the period then ended, and for the
period from July 29, 1994 (commencement of operations) to May 31, 1995. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, 1998, by correspondence with the custodian and the 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 Personal Strategy Income Fund as of May 31, 1998, the results of its
operations, the changes in its net assets, and financial highlights for each of
the periods stated in the first paragraph, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
June 17, 1998
28
<PAGE>
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TAX INFORMATION FOR THE TAX YEAR ENDED 10/31/97
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders of record on December 26, 1997,
included:
. $258,000 from short-term capital gains,
. $1,188,000 from long-term capital gains; of which $516,000 was subject to the
20% rate gains category and $672,000 to the 28% rate gains category.
29
<PAGE>
T. ROWE PRICE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10 p.m.
ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(R) and the T. Rowe Price Web
site on the Internet. Address: www.troweprice.com
DISCOUNT BROKERAGE*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over regular commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
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T. ROWE PRICE MUTUAL FUNDS
- --------------------------------------------------------------------------------
STOCK FUNDS
- ---------------------------------------
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500*
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications**
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons***
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value***
Spectrum Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
- ---------------------------------------
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Insured
Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond+
International Bond
MONEY MARKET FUNDS++
- ---------------------------------------
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
- ---------------------------------------
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD VARIABLE ANNUITY
- ---------------------------------------
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
*Formerly named Equity Index.
**Formerly the closed-end New Age Media Fund. Converted to open-end status on
7/28/97.
***Closed to new investors.
+Formerly named Global Government Bond.
++Neither the funds nor their share prices are insured or guaranteed by the
U.S. government.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
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<PAGE>
For yield, price, last transaction, current balance, or to conduct transactions,
24 hours, 7 days a week, call Tele*Access(R): 1-800-638-2587 toll free
For assistance with your existing fund account, call: Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to shareholders and to others
who have received a copy of the prospectus of the T. Rowe Price Personal
Strategy Funds.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor. C11-054 5/31/98
