ANNUAL REPORT
----------------------
Balanced Fund
----------------------
FOR YIELD, PRICE, LAST TRANSACTION,
AND CURRENT BALANCE, 24 HOURS,
7 DAYS A WEEK, CALL:
1-800-638-2587 toll free
625-7676 Baltimore area
----------------------
FOR ASSISTANCE WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
----------------------
T. ROWE PRICE
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
Balanced Fund.
<PAGE>
================================================================================
Fellow Shareholders
================================================================================
The past year was exhilarating for investors, as the U.S. stock and bond markets
rallied on a broad front. The domestic stock market, as measured by the
unmanaged Standard & Poor's 500 Stock Index, continued its bull run through the
second half, rising more than 14% and bringing its full year gain to 37.6%, the
best since 1958. Meanwhile, the Lehman Aggregate Bond Index returned 6% over the
last six months, ending with a full year gain of 18.5%, also one of its best
ever. Your fund, with its 53%/47% mix of stocks and bonds, enjoyed a stellar
year, as shown in the table below. PERFORMANCE AND STRATEGY REVIEW Fund
performance essentially matched the Lipper peer group index for the six months
and year ended December 31, but we lagged the unmanaged index portfolio in both
reporting periods.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 12/31/95
6 Months 12 Months
----------------------
Balanced Fund 9.6% 24.9%
Lipper Balanced Funds Index 9.9 24.6
Combined Index Portfolio* 11.2 29.7
* An unmanaged portfolio of 60% stocks (S&P 500) and 40%
bonds (Lehman Aggregate Index)
- --------------------------------------------------------------------------------
YEAR-END DISTRIBUTIONS
Your Board of Directors declared a fourth quarter dividend of $0.11 per
share and a long-term capital gain of $0.09, payable on December 28 to
shareholders of record on December 26. You should have received a check or
statement reflecting these distributions as well as your Form 1099-DIV reporting
them for tax purposes.
MARKET ENVIRONMENT
Both stocks and bonds benefited from nearly perfect conditions last year:
falling interest rates, rising corporate earnings, a slowing yet fundamentally
sound economy, subdued inflation, and prospects for a balanced budget.
<PAGE>
While the stock market was led by large-capitalization, technology,
financial, and health care issues, the bull charged into nearly every equity
category. The technology rally faded in the fourth quarter, hurt by
profit-taking and earnings disappointments at some semiconductor firms, but the
market as a whole suffered no serious correction all year.
Foreign stocks, hampered earlier in the year by fallout from the Mexican
peso devaluation, rebounded over the last six months to post solid gains for the
year, though still well below their U.S. counterparts. Their poor first half
performance was partly offset for U.S. investors by an extremely weak dollar,
but the benefit of currency translation eroded in the second half as the dollar
strengthened against most foreign currencies. Europe was the best-performing
region for the year. The Japanese market, plagued by deflation and a banking
loan crisis, improved in the last quarter, continuing the slow economic recovery
that began in midyear.
After sputtering briefly in the summer, bonds regained momentum on
continued signs of subdued inflation and the renewed budget-balancing efforts in
Washington. Over the last six months, interest rates fell across all maturities,
reflecting widespread expectations of further easing by the Federal Reserve to
keep the economy healthy. Indeed, in December, the Fed lowered the key federal
funds target to 5.5%, its second cut of the year. As the year ended, the
benchmark 30-year Treasury bond yield dipped below 6%, its lowest level since
1993 and nearly two percentage points lower than a year ago.
[A 3-line chart showing interest rate levels on the 30-year Treasury bond,
5-year Treasury notr, and 90-day Trasury bill from 12/31/94 through 12/31/95.]
Most sectors of the bond market performed well. Corporate bonds were the
top performers for the second half and the year. Treasuries outpaced
mortgage-backed securities because investors feared a significant upsurge in
mortgage prepayments as interest rates fell. (Because mortgages are paid off at
par value, prepayments cause a loss to investors who may have purchased them at
a price above par.) As we expected, mortgage refinancings did not mushroom, and
mortgage-backed bonds provided respectable gains for the year.
PORTFOLIO REVIEW
Over the last six months, we made minimal changes in the fund's mix of
securities, shown in the chart. A third of our assets remained in large-compan y
stocks. We were modestly overweighted relative to the combined index portfolio
in financial stocks, enjoying strong contributions from Travelers and Chase
Manhattan, which announced a merger with Chemical Banking. Although the fund was
underweighted in highflying technology stocks, we had good results from
workstation giant Sun Microsystems and Hewlett-Packard, a diversified computer
and electronics manufacturer.
<PAGE>
We manage this fund conservatively and, therefore, made our moves in
financial and technology stocks based not on momentum but on their valuations
relative to other stocks. Consequently, we maintained our technology holdings in
the second half at 4.3% of net assets after their valuations reached
unattractive levels. However, in light of the recent sell-off, we will be
keeping our eye on this sector for good opportunities.
[A pie chart showing security diversification among various sectors
as of 12/31/95.]
Despite lagging performance from foreign stocks, we remained committed to
them as a counterbalance to domestic equities. The fund had only modest exposure
to troubled areas such as Japan and Latin America and more emphasis on Europe,
the best-performing equity region outside the U.S. for the year. Foreign stocks
now have more attractive valuations than their U.S. counterparts, persuading us
to modestly increase our exposure to 13% from 10% six months ago.
The bond part of your portfolio benefited from our slight lengthening in
maturities over the last six months as interest rates declined. Longer
maturities enhance your fund's price appreciation in a falling rate environment.
As mentioned, most sectors of the market produced solid gains. In the area of
investment-grade bonds, we emphasized industrial corporate bonds because of
their yield advantage relative to other high-quality issues. Our exposure to
lower-quality bonds held steady at nearly 7% of assets, helping us maintain an
attractive level of income. We minimized credit risk by purchasing only double-
and single-B-rated bonds, the upper echelon of the high-yield universe.
How-ever, since high-yield issues are more sensitive to the economy than to
daily fluctuations in interest rates, we are ready to reduce our holdings if we
see signs of a recession.
We moved to a neutral position in mortgage-backed securities, but may
increase our exposure when interest rates seem more likely to increase.
OUTLOOK
While 1995 will be a tough act to follow, the fundamentals still look
favorable for stocks and bonds: stable to lower interest rates, subdued
inflation, and moderate economic growth. Corporate earnings should continue to
grow, although more slowly.
<PAGE>
Given its relatively high valuations, the stock market is vulnerable to a
correction, as evidenced by the volatility at the beginning of the year.
However, a pullback could lead to more appealing valuations. In fact, we have
already begun to put some cash to work this year. If events transpire as we
expect, we intend to move the portfolio toward a mix of 60% stocks, 40% bonds.
Looking abroad, we believe foreign stocks offer good value. As global economies
improve, especially in Japan, the performance of these markets should benefit
your fund.
The fund seeks a diversified portfolio in an effort to reduce overall
volatility while providing attractive returns. Through diversification, declines
in some sectors can be offset by gains in other, unrelated sectors. While a more
concentrated portfolio -- for example in the S&P 500 -- did better in 1995, a
diversified portfolio is a sound choice for conservative investors seeking
long-term capital growth. Welcome to all our new shareholders, who helped boost
the fund's assets to more than $600 million as of December 31. We thank you for
your continued confidence. Respectfully submitted,
Richard T. Whitney
[Signature]
President and Chairman of the
Investment Advisory Committee
January 17, 1996
<PAGE>
- --------------------------------------------------------------------------------
A Word on Market Corrections
- --------------------------------------------------------------------------------
After the stock market's spectacular run in 1995, concerns about a
"correction" have intensified. Most market observers consider a correction to be
a short and sometimes steep decline following a period of rising prices.
Moderate corrections of around 10% have been quite common, occurring on average
about once every two years over the last half-century, according to Ned Davis
Research.
The market as measured by the Dow Jones Industrial Average has not
experienced a moderate correction since early 1994. Furthermore, the Dow last
hit a bear market bottom -- defined as a drop of at least 20% -- in October
1990. Therefore, it would not be surprising to see a modest pullback in 1996, on
the order of 5% to 10%. In fact, as we write, the market has gotten off to a
rocky start.
Corrections are not only common, but can be beneficial for long-term
investors, especially those who invest in regular amounts through dollar cost
averaging. In a correction, overall stock prices decline, often leading to more
attractive valuations and good buying opportunities. History has shown that
investors who continue to buy through a downturn fare quite well. In fact, the
Dow has proven resilient in the aftermath of past corrections of around 10%,
taking an average of just six months to recover its losses, according to Ned
Davis. (To realize the benefits of dollar cost averaging, you should be prepared
to continuously purchase securities over a period of time, in up and down
markets. This approach does not assure a gain nor protect you from a loss in
declining markets.)
We raise the issue of a market correction not as a prediction, but as a
reminder that stock prices do not move in only one direction. If you are
satisfied that your investments are appropriate for your various objectives, we
recommend that you stay the course when a correction eventually occurs.
<PAGE>
- --------------------------------------------------------------------------------
Sector Diversification
- --------------------------------------------------------------------------------
December 31, 1995
STOCKS*
Percent of
Net Assets
------------
Consumer Nondurables 11.0%
Financial 8.4
Consumer Services 6.5
Utilities 5.2
Technology 4.3
Energy 4.2
Business Services 3.3
Process Industries 3.3
Capital Equipment 3.2
Consumer Cyclicals 2.7
Basic Materials 0.7
Conglomerates 0.3
Total 53.1%
- --------------------------------------------------------------------------------
*Includes foreign securities
BONDS AND RESERVES
Percent of
Net Assets
------------
U.S. Government and Agencies Bonds:
U.S. Treasury Obligations 11.3%
Mortgages 8.4
Other U.S. Government and Agencies 0.7
Project Loans 0.5
Agency-Backed CMOs 0.4
Corporate and Other:
Investment Grade 8.6
Noninvestment Grade 6.9
Reserves 10.1
Total 46.9%
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
Largest Holdings
- --------------------------------------------------------------------------------
December 31, 1995
STOCKS
Percent of
Company Net Assets
- ---------------------------------------- ------------
GE0.9%
American International Group 0.8
Mobil 0.7
Coca-Cola 0.6
Hutchison Whampoa 0.6
SmithKline Beecham 0.6
Bristol-Myers Squibb 0.5
Exxon 0.5
SBC Communications 0.5
Pfizer 0.5
Total 6.2%
- --------------------------------------------------------------------------------
BONDS
Percent of
Company Net Assets
- ---------------------------------------- ------------
U. S. Treasury 11.3%
Ginnie Mae 8.8
Fannie Mae 1.0
British Columbia Hydro & Power 0.6
Banesto Del 0.4
Southwest Airlines 0.3
Lehman Brothers 0.3
Sealand Services 0.3
Golden Financial 0.3
Methanex 0.3
Total 23.6%
================================================================================
[Performance Comparison line graph for Balanced Fund annual report
(December 31, 1995)]
- --------------------------------------------------------------------------------
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
Periods Ended December 31, 1995
1 Year 5 Years 10 Years
------- ------- -------
24.88% 12.74% 11.81%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
Note: Performance prior to 9/1/92 reflects investment managers other than T.
Rowe Price.
================================================================================
<PAGE>
================================================================================
Statement of Net Assets
T. Rowe Price Balanced Fund / December 31, 1995
================================================================================
(VALUES IN THOUSANDS)
- --------------------------------------------------------------------------------
Value
-------
Common Stocks & Warrants -- 53.0%
FINANCIAL -- 8.4%
BANK AND TRUST -- 4.1%
5,400shs AmSouth Bancorporation .............................. $218
4,100 Bancorp Hawaii ...................................... 147
12,200 Bank South .......................................... 372
3,500 BayBanks ............................................ 343
5,700 Berliner Bank (DEM) ................................. 1,462
6,300 Central Fidelity Banks .............................. 201
9,120 Charter One Financial ............................... 278
21,000 Chase Manhattan ..................................... 1,273
33,200 Chemical Banking .................................... 1,950
6,200 Compass Bancshares .................................. 203
3,200 Crestar Financial ................................... 189
18,700 Deutsche Bank (DEM) ................................. 888
200wts* Deutsche Bank 6/30/98 (DEM) ......................... 3
7,800shs First American ...................................... 371
7,400 First Security ...................................... 283
1,800 First Tennessee National ............................ 109
25,000 First Union ......................................... 1,391
3,500 First USA ........................................... 155
5,700 First Virginia Banks ................................ 238
20,000 *Grupo Financiero Bancomer (144a) ADR ................ 108
20,000 J. P. Morgan ........................................ 1,605
50,000 KeyCorp ............................................. 1,813
18,750 Mellon Bank ......................................... 1,008
4,200 Mercantile Bancorporation ........................... 193
5,200 Meridian Bancorp .................................... 242
30,000 NationsBank ......................................... 2,089
30,000 Norwest ............................................. 990
5,670 Old Kent Financial .................................. 232
9,100 Regions Financial ................................... 392
120wts* Schweiz Bankverein (CHF) ............................ 2
4,220shs Schweizerischer Bankverein (CHF) .................... 1,723
7,018 Societe Generale de France (FRF) .................... 867
9,500 SouthTrust .......................................... 245
6,300 Star Banc ........................................... 375
18,522 U. S. Bancorp ....................................... 622
4,200 UJB Financial ....................................... 150
1,400 Union Bank of Switzerland (CHF) ..................... 1,517
16,900 Washington Federal .................................. 435
<PAGE>
24,682
INSURANCE -- 1.5%
53,100shs American International
Group ............................................. $4,912
2,900 Conseco ............................................. 182
9,400 Equitable Companies ................................. 226
10,200 Horace Mann Educators ............................... 319
8,000 John Alden Financial ................................ 167
8,102 *MAIC Holdings ....................................... 272
3,100 MBIA ............................................... 233
11,600 MGIC Investment ..................................... 629
5,100 Ohio Casualty ....................................... 196
4,700 Old Republic International .......................... 167
4,200 Progressive Corporation ............................. 205
4,050 Sunamerica .......................................... 192
39,300 Torchmark ........................................... 1,778
9,478
FINANCIAL SERVICES -- 2.8%
13,475 A.G. Edwards ........................................ 322
4,500 ADVANTA.............................................. 170
5,550 ADVANTA (Class B) ................................... 203
11,100 AMBAC ............................................... 520
30,000 American Express .................................... 1,241
113,925 Countrywide Credit .................................. 2,478
19,500 Fannie Mae .......................................... 2,420
17,200 Green Tree Financial ................................ 454
30,900 H&R Block ........................................... 1,252
24,000 Household International ............................. 1,419
20,000 Internationale Nederlanden Groep (NLG) .............. 1,336
14,600 *Medaphis ............................................ 542
18,600 Mercury Finance ..................................... 247
150,000 Pearson (GBP) ....................................... 1,453
15,000 *Presstek ............................................ 1,419
6,800 Salomon ............................................. 241
15,333 Travelers Group ..................................... 964
8,000 United Asset Management ............................. 307
16,988
TOTAL FINANCIAL 51,148
<PAGE>
UTILITIES -- 5.2%
TELEPHONE -- 3.6%
24,000 Ameritech ........................................... 1,416
47,200 AT&T ................................................ 3,056
18,100 Bell Atlantic ....................................... 1,210
32,000 BellSouth ........................................... 1,392
20,000 British Telecommunications ADR ...................... 1,130
4,900 COMSAT .............................................. 91
50,600shs GTE ................................................. 2,226
36,300 Hong Kong Telecommunications ADR .................... 644
46,300 Pacific Telesis ..................................... 1,557
54,400 SBC Communications .................................. 3,128
4,900 Southern New England Telecommunications ............. 195
520,000 Telecom Corporation of New Zealand (NZD) ............ 2,244
571,000 Telecom Italia (ITL) ................................ 888
571,000 Telecom Italia Mobile (ITL) ......................... 1,005
12,000 Telefonica de Espana ADR ............................ 503
60,000 Telekom Malaysia (MYR) .............................. 468
10,000 Telmex ADR .......................................... 319
20,000 U. S. West .......................................... 380
21,852
ELECTRIC UTILITIES -- 1.6%
27,400 Duke Power .......................................... 1,298
12,200 Empresa Nacional de Electricidad ADR ................ 698
53,000 Entergy ............................................. 1,550
25,600 FPL Group ........................................... 1,187
102,500 Niagara Mohawk ...................................... 987
50,000 *Public Service of New Mexico ........................ 881
54,000 SCEcorp ............................................. 959
20,000 Texas Utilities ..................................... 823
27,000 Unicom .............................................. 884
19,000 VEBA (DEM) .......................................... 807
10,074
TOTAL UTILITIES 31,926
CONSUMER NONDURABLES -- 11.0%
COSMETICS -- 0.3%
11,700 International Flavors & Fragrances ................... 562
87,000 Kao (JPY) ............................................ 1,078
1,640
BEVERAGES -- 1.8%
32,000 Anheuser-Busch ....................................... 2,140
46,300 Coca-Cola ............................................ 3,438
9,541 LVMH (FRF) ........................................... 1,987
50,200 PepsiCo .............................................. 2,805
24,400 *Starbucks ............................................ 511
10,881
<PAGE>
FOOD PROCESSING -- 2.1%
61,110 Archer Daniels Midland ............................... 1,100
31,586 Cadbury Schweppes ADR ................................ 1,056
24,900 ConAgra .............................................. 1,027
12,900 CPC International .................................... 885
4,000 Eridania Beghin-Say (FRF) ............................ 686
6,300shs General Mills ........................................ 364
15,000 Hershey Foods ........................................ 975
3,100 Kellogg .............................................. 240
10,300 McCormick ............................................ 250
1,684 Nestle (CHF) ......................................... 1,863
23,204 Ralston Purina ....................................... 1,447
38,800 Sara Lee ............................................. 1,237
72,000 Unilever (GBP) ....................................... 1,479
7,100 Universal Foods ...................................... 285
12,894
HOSPITAL SUPPLIES/HOSPITAL
MANAGEMENT -- 1.2%
58,800 Abbott Laboratories .................................. 2,455
29,000 Columbia/HCA Healthcare .............................. 1,472
24,075 *Health Management (Class A) .......................... 629
12,900 *HealthCare COMPARE ................................... 563
11,600 Hillenbrand Industries ............................... 393
22,400 *Humana ............................................... 613
7,100 *Quantum Health Resources ............................. 70
12,000 U. S. Healthcare ..................................... 557
12,700 *United HealthCare .................................... 832
7,584
PHARMACEUTICALS -- 3.3%
20,800 American Home Products ............................... 2,018
49,600 *Amgen ................................................ 2,942
30,000 Astra (Class B) (SEK) ................................ 1,188
38,400 Bristol-Myers Squibb ................................. 3,298
926 *Chiron ............................................... 102
4,500 *Forest Laboratories .................................. 204
900 Gehe (DEM) ........................................... 458
225 Gehe, new (DEM) ...................................... 111
11,800 *IDEXX Laboratories ................................... 552
35,500 Merck ................................................ 2,334
9,900 *Perrigo .............................................. 118
48,600 Pfizer ............................................... 3,062
61,200 SmithKline Beecham ADR ............................... 3,396
19,783
<PAGE>
MISCELLANEOUS CONSUMER PRODUCTS -- 2.3%
2,550 Arctco ............................................... 33
69,000 Bridgestone (JPY) .................................... 1,096
17,700 *Burlington Industries ................................ 232
30,100 Colgate-Palmolive .................................... 2,115
10,500 *CUC International .................................... 358
6,900 Duracell International ............................... 357
3,300 *Fruit of the Loom (Class A) .......................... 80
63,000 Hanson ADR ........................................... 961
13,100 Ideon Group .......................................... 133
16,800 *Jones Apparel Group .................................. 661
175,000 Lion Nathan (NZD) .................................... 418
29,400shs P&G .................................................. 2,440
2,500 Philip Morris ........................................ 226
31,200 Philips N.V. ADR ..................................... 1,119
37,300 Service Corp. ........................................ 1,641
39,700 Springs Industries ................................... 1,643
9,500 Tambrands ............................................ 454
13,967
TOTAL CONSUMER NONDURABLES 66,749
CONSUMER SERVICES -- 6.5%
GENERAL MERCHANDISERS -- 1.5%
2,000 Carrefour (FRF) ...................................... 1,213
28,700 Dayton Hudson ........................................ 2,152
51,400 May Department Stores ................................ 2,172
60,000 *Price/Costco ......................................... 922
200,000 Tesco (GBP) .......................................... 923
44,000 TJX .................................................. 831
51,400 Wal-Mart ............................................. 1,150
9,363
SPECIALTY MERCHANDISERS -- 1.8%
13,000 Callaway Golf ........................................ 294
65,900 Circuit City Stores .................................. 1,821
8,000 Fingerhut Companies .................................. 111
8,400 *Gymboree ............................................. 173
4,500 Heilig-Meyers ........................................ 83
5,000 Ito-Yokado ADR ....................................... 1,236
9,300 *Kohl's ............................................... 488
50,000 *Kroger ............................................... 1,875
33,500 Petrie Stores ........................................ 92
5,600 *R. P. Scherer ........................................ 275
6,300 *Safeway .............................................. 324
12,150 *Staples .............................................. 298
5,600 *Stop & Shop .......................................... 130
39,600 The Gap .............................................. 1,663
59,100 *Toys "R" Us .......................................... 1,285
16,000 *Viking Office Products ............................... 745
10,893
<PAGE>
ENTERTAINMENT AND LEISURE -- 1.5%
10,600 Applebee's ........................................... 244
8,775 *Brinker .............................................. 133
6,200 *Buffets .............................................. 87
8,600 *Casino America ....................................... 53
6,750 *Checkers Drive-In Restaurants ........................ 7
32,400 Disney .............................................. 1,911
10,800 *HFS .................................................. 883
560,000 Hutchison Whampoa (HKD) .............................. 3,411
9,000 International Game Technology ........................ 98
10,000 McDonald's ........................................... 451
1,080 *National Gaming ...................................... 13
5,000 Reader's Digest (Class A), non-voting ................ 256
37,500shs Sbarro ............................................... $806
36,000 Sharp (JPY) .......................................... 575
4,500 *Viacom (Class A) ..................................... 206
9,134
MEDIA AND COMMUNICATIONS -- 1.7%
6,800 A. H. Belo (Class A) ................................. 236
9,000 Banta ................................................ 399
15,000 Capital Cities/ABC ................................... 1,851
40,000 Comcast (Class A Special) ............................ 728
14,100 Dun & Bradstreet ..................................... 913
50,000 Elsevier (NLG) ....................................... 667
13,800 Gannett .............................................. 847
10,080 Gaylord Entertainment ................................ 280
12,000 *Infinity Broadcasting (Class A) ...................... 447
11,999 *International CableTel ............................... 291
16,100 McGraw-Hill .......................................... 1,403
29,000 Time Warner .......................................... 1,098
20,000 U. S. WEST ........................................... 715
11,850 *Vanguard Cellular .................................... 238
10,113
RESTAURANTS -- 0.0%
6,300 Darden Restaurants ................................... 75
TOTAL CONSUMER SERVICES 39,578
CONSUMER CYCLICALS -- 2.6%
AUTOMOBILES AND RELATED -- 0.8%
5,600 Breed Technologies ................................... 104
9,100 *Gentex ............................................... 201
9,650 Genuine Parts ........................................ 396
30,000 GM ................................................... 1,586
19,800 Honda ADR ............................................ 832
7,100 Pep Boys ............................................. 182
8,000 Superior Industries International .................... 211
76 *Transport Holdings (Class A) ......................... 3
15,000 TRW .................................................. 1,162
4,677
<PAGE>
MISCELLANEOUS CONSUMER DURABLES -- 1.0%
36,000 Black & Decker ....................................... 1,269
30,000 Corning .............................................. 960
21,700 Eastman Kodak ........................................ 1,454
3,800 Harley-Davidson ...................................... 109
100,000 Ricoh (JPY) .......................................... 1,095
10,000 Scotts (Class A) ..................................... 194
20,000 Tandy ................................................ 830
3,000 Valspar .............................................. 134
2,600 York International ................................... 122
6,167
BUILDING AND REAL ESTATE -- 0.8%
600,000 DBS Land (SGD) ....................................... 2,027
948,339 Hopewell Holdings (HKD) .............................. 546
49,900 Masco ................................................ 1,566
4,700 Texas Industries ..................................... 249
14,600 *USG .................................................. 438
4,826
TOTAL CONSUMER CYCLICALS 15,670
TECHNOLOGY -- 4.3%
ELECTRONIC COMPONENTS -- 1.0%
9,000 *Altera ............................................... 447
11,500 *EMC .................................................. 177
34,400 Intel ................................................ 1,954
11,400 Linear Technology .................................... 449
9,400 Micron Technology .................................... 372
9,765 Molex ................................................ 313
20,000 Motorola ............................................. 1,140
6,525 *Thermo Electron ...................................... 339
6,525 *Thermo Instrument Systems ............................ 220
12,000 *Vicor ................................................ 239
12,600 *Xilinx ............................................... 383
6,033
ELECTRONIC SYSTEMS -- 0.5%
10,000 *Applied Materials .................................... 393
20,000 Hewlett-Packard ...................................... 1,675
20,000 Honeywell ............................................ 972
4,800 *Solectron ............................................ 212
3,252
INFORMATION PROCESSING -- 0.8%
7,000 *Adaptec .............................................. 287
50,000 *COMPAQ Computer ...................................... 2,400
18,900 Hitachi ADR .......................................... 1,900
5,000 *Storage Technology ................................... 119
4,706
<PAGE>
TELECOMMUNICATIONS -- 0.6%
7,177 *Bay Networks ......................................... 295
8,000 Frontier ............................................. 240
48,000 LM Ericsson (Class B) ADR ............................ 936
45,600 *Novell ............................................... 647
8,800 *PictureTel ........................................... 378
11,600 *Tellabs .............................................. 431
18,400 *World Com ............................................ 651
3,578
AEROSPACE AND DEFENSE -- 1.1%
36,000 AlliedSignal ......................................... 1,710
31,000 Boeing ............................................... 2,429
30,000 Northrop ............................................. 1,920
4,700 United Technologies .................................. 446
6,505
SPECIALIZED COMPUTER -- 0.3%
5,700 *Landmark Graphics .................................... 135
14,700 *Silicon Graphics ..................................... 404
30,000 *Sun Microsystems ..................................... 1,371
1,910
TOTAL TECHNOLOGY 25,984
CAPITAL EQUIPMENT -- 3.2%
ELECTRICAL EQUIPMENT -- 2.5%
10,300 *American Power Conversion ............................ 97
775 BBC Brown Boveri (CHF) ............................... 900
28,100 Emerson Electric ..................................... 2,297
75,400 GE ................................................... 5,429
41,611 Getronics (NLG) ...................................... 1,945
4,000 Hubbell (Class A) .................................... 249
40,126 Hubbell (Class B) .................................... 2,638
136,000 Mitsubishi Electric (JPY) ............................ 979
1,300 Siemens (DEM) ........................................ 711
15,245
MACHINERY -- 0.7%
29,900 *Coltec Industries .................................... 348
160 *DOVatron International ............................... 5
12,000 *FMC .................................................. 812
4,600 Foster Wheeler ....................................... 196
2,800 *Imo Industries ....................................... 19
11,400 Kennametal ........................................... 362
2,500 Manitoba Ag (DEM) .................................... 676
520 Sig Schweiz (CHF) .................................... 1,086
6,300 Stewart & Stevenson .................................. 160
5,000 Teleflex ............................................. 205
30,300 TriMas ............................................... 572
4,441
TOTAL CAPITAL EQUIPMENT 19,686
<PAGE>
BUSINESS SERVICES AND TRANSPORTATION -- 3.3%
COMPUTER SERVICE AND SOFTWARE -- 0.9%
3,625 *Amtech ............................................... 19
15,400 Autodesk ............................................. 528
10,000 *BMC Software ......................................... 426
29,550 Computer Associates .................................. 1,681
7,500 *Electronic Arts ...................................... 196
6,600 HBO .................................................. 505
18,400 *Informix ............................................. 553
5,600 *Micro Warehouse ...................................... 244
11,600 *Parametric Technology ................................ 770
13,200 *SunGard Data Systems ................................. 371
7,000 *Sybase ............................................... 251
5,544
MISCELLANEOUS BUSINESS SERVICES -- 1.0%
25,000 Browning-Ferris ...................................... 737
3,600 Cintas ............................................... 161
10,523 Eaux Cie Generale (FRF) .............................. 1,051
17,800 Equifax .............................................. 380
4,500 *GTECH ................................................ 117
12,200 Manpower ............................................. 343
5,000 Merrill .............................................. 81
13,400 Omnicom .............................................. 499
12,450 Paychex .............................................. 619
200,000 Sime Darby (MYR) ..................................... 532
3,150 *U.S. Industries ...................................... 58
47,200 WMX Technologies ..................................... 1,410
5,988
RAILROADS -- 0.6%
15,100 Burlington Northern Santa Fe ......................... 1,178
19,600 CSX .................................................. 894
9,900 Illinois Central, Series A ........................... 380
14,000 Union Pacific ........................................ 924
6,800 *Wisconsin Central Transportation...................... 445
3,821
AIRLINES -- 0.5%
4,200 Atlantic Southeast Airlines .......................... 91
23,000 KLM (NLG) ............................................ 808
17,300 *Mesa Airlines ........................................ 155
269,000 Swire Pacific (Class A) (HKD) ........................ 2,087
3,141
ENVIRONMENTAL -- 0.1%
12,000 *Mid-American Waste Systems ........................... 42
11,900 *Molten Metal Technology .............................. 388
430
DISTRIBUTION SERVICES -- 0.0%
3,625 Cardinal Health ...................................... 199
TRANSPORTATION SERVICES -- 0.2%
137,000 Mitsubishi Heavy Industries (JPY) .................... 1,092
TOTAL BUSINESS SERVICES AND TRANSPORTATION 20,215
<PAGE>
ENERGY -- 4.2%
ENERGY SERVICES -- 0.9%
9,383 El Paso Natural Gas .................................. 266
9,000 *Elf Aquitaine (FRF) .................................. 663
23,000 Halliburton .......................................... 1,164
20,000 Helmerich & Payne .................................... 595
30,100 Schlumberger ......................................... 2,085
18,300 *Smith International .................................. 430
5,400 Witco ................................................ 158
5,361
EXPLORATION AND PRODUCTION -- 0.0%
6,600 Enron Oil & Gas ...................................... 158
GAS TRANSMISSION -- 0.3%
14,300s ENSERCH .............................................. 232
8,800 MCN .................................................. 205
7,400 Questar .............................................. 248
29,000 Sonat ................................................ 1,033
1,718
INTEGRATED PETROLEUM - DOMESTIC -- 1.1%
27,700 Amerada Hess ......................................... 1,468
8,000 Atlantic Richfield ................................... 886
6,000 British Petroleum ADR ................................ 613
1,700 MAPCO ................................................ 93
30,000 Phillips Petroleum ................................... 1,024
13,900 *Santa Fe Energy Resources ............................ 134
9,100 Ultramar ............................................. 234
100,000 USX-Marathon ......................................... 1,950
6,402
INTEGRATED PETROLEUM -
INTERNATIONAL -- 1.9%
40,600 Exxon ................................................ 3,253
38,900 Mobil ................................................ 4,357
24,000 Repsol ADR ........................................... 789
10,000 Royal Dutch Petroleum ADR ............................ 1,411
8,000 Shell ................................................ 651
16,600 Texaco ............................................... 1,303
11,764
TOTAL ENERGY 25,403
PROCESS INDUSTRIES -- 3.3%
DIVERSIFIED CHEMICALS -- 0.7%
25,300 DuPont ............................................... 1,768
3,675 Eastman Chemical ..................................... 230
18,100 Monsanto ............................................. 2,217
4,215
<PAGE>
SPECIALTY CHEMICALS -- 1.7%
18,000 3M ................................................... 1,193
26,325 A. Schulman .......................................... 589
3,400 Basf Ag (DEM) ........................................ 757
3,000 Bayer (DEM) .......................................... 797
3,500 Crompton & Knowles ................................... 46
25,000 Great Lakes Chemical ................................. 1,800
5,200 IVAX ................................................. 148
7,100 Lyondell Petrochemical ............................... 162
1,500 *McWhorter Technologies ............................... 22
60,000 Morton International ................................. 2,153
8,533 Pall ................................................. 229
28,000 Rohm & Haas .......................................... 1,803
10,000 Technip (FRF) ........................................ 688
10,387
PAPER AND PAPER PRODUCTS -- 0.7%
67,000 Dai Nippon Printing (JPY) ............................ 1,136
10,000 Kimberly-Clark ....................................... 827
53,000 Kimberly-Clark Mexico (Class A) (MXN) ................ 800
15,000 Mead ................................................. 784
1,000 Schweitzer Mauduit ................................... 23
12,705 Sonoco Products ...................................... 333
3,903
FOREST PRODUCTS -- 0.2%
9,000 Georgia-Pacific ...................................... 618
8,200 Pope & Talbot ........................................ 109
12,700 Weyerhaeuser ......................................... 549
1,276
TOTAL PROCESS INDUSTRIES 19,781
BASIC MATERIALS -- 0.7%
METALS -- 0.4%
30,000 Alcoa ................................................ 1,586
5,400 Carpenter Technology ................................. 222
9,600 Freeport-McMoRan Copper & Gold (Class A) ............. 269
2,077
MINING -- 0.2%
200,000 *TVX Gold ............................................. 1,425
MISCELLANEOUS MATERIALS -- 0.1%
250,000 Malayan Cement (MYR) ................................. 476
15,300 *Owens-Illinois ....................................... 222
698
TOTAL BASIC MATERIALS 4,200
<PAGE>
CONGLOMERATES -- 0.3%
250,000 BTR (GBP) ............................................ 1,277
170,000 LONRHO (GBP) ......................................... 465
TOTAL CONGLOMERATES 1,742
TOTAL COMMON STOCKS & WARRANTS (COST $237,859) 322,082
Preferred Stocks -- 0.0%
20 Deutsche Bank, 8.75%, participating
certificates (DEM) ................................ 16
1,600 Teledyne, $15 Cum. .................................. 23
TOTAL PREFERRED STOCKS (COST $35) 39
Convertible Preferred Stocks -- 0.1%
2,000shs Ford Motor, Dep. Shs., $4.20, Cum., Series A ....... 189
3,000 GM, Dep. Shs., Rep. 1/10, Series C .................. 220
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $250) 409
Convertible Bonds -- 0.1%
$2,000,000 U. S. West, LYONS, Zero Coupon, 6/25/11 ............. 700
TOTAL CONVERTIBLE BONDS (COST $626) 700
Corporate Bonds -- 15.7%
1,205,000 Abbey National, 8.20%, 10/15/04 ..................... 1,367
1,000,000 African Development Bank, 7.75%, 12/15/01 ........... 1,087
750,000 Agriculture Minerals, Sr. Notes, 10.75%, 9/30/03 .... 829
725,000 Alabama Power, 7.00%, 1/1/03 ........................ 746
500,000 Alliance Entertainment, Sr.
Sub. Notes, Series B,
11.25%, 7/15/05 ................................... 503
500,000 Alpine Group (144a),
12.25%, 7/15/03 ................................... 490
750,000 American Standard, Sr. Sub.
Deb., 9.875%, 6/1/01 .............................. 808
500,000 Ametek, 9.75%, 3/15/04 .............................. 555
750,000 Arcadian, Sr. Notes, Series B, 10.75%, 5/1/05 ....... 829
500,000 Argyle Television, Sr. Sub. Notes, 9.75%, 11/1/05 ... 498
1,300,000 Associates Corporation of North America,
7.50%, 4/15/02 .................................... 1,400
500,000 Asia Pulp & Paper, Sr. Secured Notes,
11.75%, 10/1/05 ................................... 490
500,000 B.F. Saul, REIT, Sr. Secured
Notes, 11.625%, 4/1/02 ........................... 510
500,000 Bally's Park Place, 9.25%, 3/15/04 .................. 509
$1,000,000 Banca Commerziale Italiana, Sr. Sub. Notes,
8.25%, 7/15/07 ................................... 1,104
<PAGE>
1,000,000 Banco Central, Sr. Sub. Notes, 7.50%, 6/15/05 ....... 1,052
2,000,000 Banesto, 8.25%, 7/28/02 ............................. 2,187
125,000 Bankers Trust, Sub. Deb., 8.00%, 3/15/97 ............ 128
1,000,000 Banque Nationale De Paris, 9.875%, 5/25/98 .......... 1,093
1,000,000 Boeing, 8.75%, 8/15/21 .............................. 1,257
250,000 British Columbia Hydro & Power, 12.50%, 9/1/13 ...... 300
1,000,000 British Columbia Hydro & Power, 15.00%, 4/15/11 ..... 1,078
2,125,000 British Columbia Hydro & Power, 15.50%, 11/15/11 .... 2,437
1,000,000 Burlington Industries, 7.25%, 9/15/05 ............... 1,040
500,000 Century Enterprises, 8.25%, 5/1/24 .................. 546
100,000 Citicorp, 8.75%, 11/1/96 ............................ 102
217,896 Citicorp Mortgage, 6.00%, 3/25/22 ................... 216
1,000,000 Coca Cola Enterprises, 8.50%, 2/1/22 ................ 1,197
500,000 Coca-Cola Bottling Group, Sr. Sub. Notes,
9.00%, 11/15/03 ................................... 500
750,000 Coinmachine, Sr. Notes (144a), 11.75%, 11/15/05 ..... 763
650,000 Coleman Holdings, Zero Coupon, 5/27/98 .............. 527
250,000 Coltec Industries, Sr. Notes, 9.75%, 4/1/00 ......... 257
750,000 Coltec Industries, Sr. Sub. Deb., 10.25%, 4/1/02 ... 771
500,000 Communications & Power Industries, Sr. Sub. Notes
(144a), 12.00%, 8/1/05 ............................ 514
600,000 Consolidated Cigar, Sr. Sub. Notes, 10.50%, 3/1/03 .. 615
500,000 Container Corporation of America, Sr. Notes,
9.75%, 4/1/03 ..................................... 488
750,000 Continental Cablevision, Sr. Deb., 9.00%, 9/1/08 .... 787
609,030 Corestates Home Equity Loan, 5.10%, 3/15/09 ........ 590
334,974 Corestates Home Equity Loan, 6.65%, 5/15/09 ......... 338
500,000 Dan River, Sr. Sub. Notes, 10.125%, 12/15/03 ........ 455
700,000 Dr. Pepper Bottling Holdings, Sr. Disc. Notes,
STEP, Zero Coupon, 2/15/03 ........................ 574
500,000 Dr. Pepper Bottling Texas, Sr. Notes,
10.25%, 2/15/00 ................................... 528
1,000,000 Duke Power, 6.75%, 8/1/25 ........................... 981
500,000 Exide, Sr. Notes, 10.75%, 12/15/02 .................. 543
500,000 Exxon Capital, 6.50%, 7/15/99 ....................... 515
800,000 Fairfax Financial, 7.75%, 12/15/03 .................. 841
500,000 Federal Express, MTN, 9.95%, 8/15/06 ................ 598
750,000 Federated Department Stores, Sr. Notes,
8.125%, 10/15/02 .................................. 754
750,000 Ferrellgas, Sr. Notes, 10.00%, 8/1/01 ............... 802
1,500,000 First Fidelity, 8.50%, 4/1/98 ....................... 1,583
500,000 Firstfed Financial, 11.75%, 10/1/04 ................. 490
800,000 Fleet/Norstar Financial Group, 8.625%, 1/15/07 ...... 935
200,000 Fleming Companies, Sr. Notes, 10.625%, 12/15/01 ..... 194
1,000,000 Fletcher Challenge Limited, 9.80%, 6/15/98 .......... 1,087
500,000 Fundy Cable, 11.00%, 11/15/05 ....................... 520
1,500,000 Golden West Financial, 8.625%, 8/30/98 .............. 1,601
500,000 Grand Casino, 1st Mtg. Notes, 10.125%, 12/1/03 ...... 524
750,000 Gulf Canada, Sr. Sub. Deb., 9.625%, 7/1/05 .......... 791
500,000 Gulf States Utilities, 5.375%, 2/1/97 ............... 486
<PAGE>
400,000 Hammons (J.Q.) Hotels, 1st Mtg. Notes,
8.875%, 2/15/04 ................................... 396
750,000 Herff Jones, 11.00%, 8/15/05 ........................ 802
500,000 Heritage Media, 11.00%, 6/15/02 ..................... 531
600,000 HMC Acquisition Properties
(144a), 9.00%, 12/15/07 ........................... 606
750,000 IMC Fertilizer Group, Sr. Notes, 9.45%, 12/15/11 .... 810
500,000 Imo Industries, Sr. Sub. Deb., 12.00%, 11/1/01 ...... 510
250,000 IVAC, Sr. Notes, 9.25%, 12/1/02 ..................... 259
500,000 Jordan Industries, Sr. Notes, 10.375%, 8/1/03 ....... 445
400,000 K & F Industries, Sr. Secured
Notes, 11.875%, 12/1/03 ........................... 430
250,000 KFW International, MTN, 9.14%, 6/4/01 ............... 288
1,000,000 Kingdom of Thailand, 7.07%, 9/30/13 ................. 835
750,000 Kroger, 9.25%, 1/1/05 ............................... 814
250,000 Lear Seating, Sr. Sub. Notes, 11.25%, 7/15/00 ....... 263
500,000 Lear Seating, Sub. Notes, 8.25%, 2/1/02 ............. 490
1,500,000 Lehman Brothers Holdings, 8.875%, 3/1/02 ............ 1,679
500,000 Liberty National Bank & Trust, 6.75%, 6/1/03 ........ 511
500,000 Long Island Lighting, 7.50%, 3/1/07 ................. 468
100,000 Long Island Lighting, General and Refunding
Bonds, 9.75%, 5/1/21 .............................. 103
500,000 MAFCO, Sr. Sub. Notes, 11.875%, 11/15/02 ............ 518
500,000 Maxus Energy, Sr. Notes, 9.375%, 11/1/03 ............ 490
500,000 MAXXAM Group, Sr. Secured Notes, 11.25%, 8/1/03 ..... 475
500,000 McDonnell Douglas, 8.25%, 7/1/00 .................... 545
1,500,000 Methanex, Sr. Notes, 7.75%, 8/15/05 ................. 1,591
1,310,960 NYNEX, 9.55%, 5/1/10 ................................ 1,539
600,000 Occidental Petroleum, 11.75%, 3/15/11 ............... 635
500,000 Ornda Healthcorp, 11.375%, 8/15/04 .................. 563
375,000 Overhead Door, Sr. Notes, 12.25%, 2/1/00 ............ 369
750,000 Owens-Illinois, Sr. Deb., 11.00%, 12/1/03 ........... 847
1,000,000 Pacific Bell, 7.375%, 7/15/43 ....................... 1,058
750,000 Paging Network, Sr. Sub. Notes, 8.875%, 2/1/06 ...... 769
875,000 Pathmark Stores, Jr. Sub. Def. Notes, STEP,
Zero Coupon, 11/1/03 .............................. 536
500,000 Penn Traffic, Sr. Notes, 8.625%, 12/15/03 ........... 445
500,000 Petroleum Heat & Power,
10.125%, 4/1/03 ................................... 490
$1,500,000 Philip Morris, 6.00%, 11/15/99 ...................... 1,500
700,000 Plastic Containers, Sr. Secured
Notes, 10.75%, 4/1/01 ............................. 721
500,000 Players International, 10.875%, 4/15/05 ............. 470
500,000 Portola Packaging, Sr. Notes, 10.75%, 10/1/05 ....... 518
575,000 Pricellular, Sr. Sub. Notes, Zero Coupon, 10/1/03 ... 444
1,000,000 Province of Alberta, 9.25%, 4/1/00 .................. 1,132
1,500,000 Province of Newfoundland, 8.50%, 10/15/96 ........... 1,530
500,000 Prudential Home, 6.90%, 3/25/23 ..................... 499
1,000,000 Quantas Airways (144a), 6.625%, 6/30/98 ............. 1,014
500,000 Quorum Health Group, 11.875%, 12/15/02 .............. 560
<PAGE>
240,000 Ralphs Grocery New, Sr. Notes, 10.45%, 6/15/04 ....... 244
500,000 Repap Wisconsin, 9.25%, 2/1/02 ....................... 475
750,000 Riverwood International, Sr. Sub. Notes,
10.375%, 6/30/04 ................................... 834
750,000 Rogers Cablesystem, Sr. Secured Notes,
10.00%, 3/15/05 .................................... 806
1,000,000 Rouse, Sr. Notes, 8.50%, 1/15/03 ..................... 1,092
500,000 Safeway, 9.875%, 3/15/07 ............................. 580
615,618 SASCO, 6.87%, 8/25/26 ................................ 618
500,000 SD Warren, Sr. Sub. Notes, Series B,
12.00%, 12/15/04 ................................... 551
500,000 Sea Containers Ltd., Sr. Sub.
Deb., 12.50%, 12/1/04 .............................. 540
1,550,000 Sea Land Services, 10.60%, 1/2/11 .................... 1,648
375,000 Silgan, Sr. Disc. Deb., STEP, Zero Coupon, 12/15/02 .. 355
375,000 Silgan, Sr. Sub. Notes, 11.75%, 6/15/02 .............. 401
750,000 Southland Corporation, 5.00%, 12/15/03 ............... 624
1,650,000 Southwest Airlines, 9.25%, 2/15/98 ................... 1,761
750,000 Stone Container, 10.75%, 10/1/02 ..................... 774
250,000 Stratosphere, 14.25%, 5/15/02 ........................ 283
500,000 Tenet Healthcare, Sr. Sub. Notes, 10.125%, 3/1/05 .... 556
1,000,000 Tenneco, 6.50%, 12/15/05 ............................ 1,005
1,400,000 Texaco Capital, 8.65%, 1/30/98 ....................... 1,485
500,000 Texas Bottling Group, Sr. Sub.
Notes, 9.00%, 11/15/03 ............................. 495
600,000 Time Warner Entertainment, 7.25%, 9/1/08 ............. 608
250,000 Trump Taj Mahal, 1st Mtg. Bonds, PIK,
11.35%, 11/15/99 ................................... 241
500,000 United Artists, 9.30%, 7/1/15 ........................ 501
1,000,000 Wal Mart, 6.75%, 5/15/02 ............................. 1,047
1,500,000 Westamerica Bank California, 6.99%, 9/30/03 .......... 1,522
1,000,000 Weyerhaeuser, 7.95%, 3/15/25 ......................... 1,162
500,000 Young Broadcasting, Gtd. Sr. Sub. Notes,
11.75%, 11/15/04 ................................... 560
TOTAL CORPORATE BONDS (COST $92,920) 95,576
<PAGE>
U.S. Government Mortgage-Backed Securities -- 9.3%
U.S. GOVERNMENT GUARANTEED MORTGAGE OBLIGATIONS -- 8.8%
Government National Mortgage Assn. I
4,865,756 6.50%, 9/15/23-5/15/24 ............................. 4,829
3,898,435 7.00%, 10/15/22-1/15/24 ............................ 3,947
5,783,416 7.50%, 9/15/22-12/15/23 ............................ 5,969
8,067,508 8.00%, 6/15/17-11/15/25 ............................ 8,444
12,992,635 8.50%, 3/15/05-1/15/27 ............................ 13,699
685,007 8.87%, 2/15/30 ..................................... 709
2,307,607 8.95%, 5/15/35 ..................................... 2,399
3,080,905 9.00%, 5/15/16-6/15/25 ............................. 3,287
2,797,401 9.50%, 8/15/09-9/15/21 ............................. 3,039
67,139 10.00%, 11/15/09-5/15/13 ........................... 74
22,961 10.50%, 5/15/15 .................................... 26
277,049 10.75%, 1/15/16-12/15/17 ........................... 308
1,468,254 11.00%, 3/15/10-1/15/20 ............................ 1,661
2,448,254 11.50%, 3/15/10-3/15/16 ............................ 2,804
Government National Mortgage Assn. II
298,368 6.00%, 8/20/23 ..................................... 304
1,080,274 9.00%, 7/20/16-6/20/20 ............................. 1,137
344,513 9.50%, 8/20/22 ..................................... 367
276,361 10.00%, 10/20/16-1/20/22 ........................... 299
53,302
U.S. GOVERNMENT AGENCY MORTGAGE OBLIGATIONS -- 0.5%
Federal Home Loan Mortgage
700,000 6.00%, 6/15/05 ..................................... 697
60,297 8.00%, 3/1/17 ...................................... 63
127,651 10.00%, 10/1/10 .................................... 139
16,606 10.50%, 9/1/15 ..................................... 18
Federal National Mortgage Assn.
1,000,000 7.50%, 10/25/19 .................................... 1,030
1,210,015 8.75%, 12/25/04 .................................... 1,233
3,180
<PAGE>
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES (COST $58,992) 56,482
U.S. Government Obligations/Agencies -- 12.0%
Federal National Mortgage Assn.
4,000,000 5.80%, 12/10/03 .................................... 3,974
Tennessee Valley Authority
400,000 8.625%, 11/15/29 ................................... 454
U.S. Treasury Bonds
6,000,000 7.125%, 2/15/23 .................................... 6,861
2,500,000 7.50%, 11/15/24 .................................... 3,005
2,400,000 8.125%, 8/15/19 - 8/15/21 .......................... 3,035
6,600,000 8.75%, 11/15/08 - 8/15/20 .......................... 8,551
2,000,000 9.375%, 2/15/06 .................................... 2,570
1,490,000 10.375%, 11/15/12 .................................. 2,060
200,000 10.625%, 8/15/15 ................................... 306
1,200,000 11.75%, 2/15/01 - 11/15/14 ......................... 1,809
200,000 13.125%, 5/15/01 ................................... 272
600,000 13.25%, 5/15/14 .................................... 1,005
U.S. Treasury Notes
4,000,000 5.125%, 2/28/98 .................................... 3,993
8,000,000 6.375%, 1/15/99 - 1/15/00 .......................... 8,277
5,200,000 7.00%, 4/15/99 ..................................... 5,463
2,000,000 7.25%, 8/15/04 ..................................... 2,224
3,500,000 7.50%, 5/15/02 ..................................... 3,881
4,000,000 7.75%, 1/31/00 - 2/15/01 ........................... 4,390
4,000,000 8.00%, 5/15/01 ..................................... 4,477
2,800,000 8.25%, 7/15/98 ..................................... 2,997
2,000,000 8.75%, 8/15/00 ..................................... 2,272
900,000 8.875%, 2/15/99 .................................... 992
TOTAL U.S. GOVERNMENT OBLIGATIONS/AGENCIES (COST $63,947) 72,868
Short-Term Investments -- 10.5%
COMMERCIAL PAPER -- 10.5%
$5,000,000 Barnett Banks,
5.70%, 1/25/96 ..................................... 4,972
5,000,000 Bell Atlantic Network Funding, 5.50%, 2/23/96 ........ 4,957
5,000,000 Chase Manhattan, 5.67%, 2/13/96 ...................... 4,929
5,000,000 Chemical Banking, 5.72%, 1/31/96 ..................... 4,927
5,000,000 Ford Motor Credit, 5.76%, 1/25/96 .................... 4,965
5,000,000 General Electric Capital, 5.66%, 2/9/96 .............. 4,932
6,616,780 Investments in Commercial Paper through a joint
account, 5.90-6.05%, 1/2/96 ........................ 6,612
5,000,000 Metlife Funding, 5.66%, 2/7/96 ....................... 4,950
5,000,000 Morgan Stanley Group, VR 6.138%, 1/20/97 ............. 5,006
5,000,000 New Center Asset Trust, 5.77%, 1/25/96 ............... 4,965
5,000,000 Preferred Receivables Funding, 5.73%, 1/22/96 ........ 4,950
5,000,000 Southern New England Telecommunications,
5.70%, 2/2/96 ...................................... 4,948
<PAGE>
3,000,000 U.S. Bancorp, 5.55%, 2/23/96 ......................... 2,974
TOTAL SHORT-TERM INVESTMENTS (COST $64,087) 64,087
TOTAL INVESTMENTS IN SECURITIES -- 100.7% OF
NET ASSETS (COST $518,716) 612,243
OTHER ASSETS LESS LIABILITIES (4,155)
---------
NET ASSETS CONSIST OF: Value
--------
Accumulated net investment
income - net of distributions .......... $75
Accumulated net realized
gain/loss - net of distributions ....... 1,484
Net unrealized gain (loss) ............... 93,519
Paid-in-capital applicable to
45,992,433 shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares
authorized ............................. 513,010
--------
NET ASSETS ......................................................... $608,088
=========
NET ASSET VALUE PER SHARE .......................................... $13.22
======
* Non-income producing
MTN Medium term note
PIK Paid in kind
REIT Real Estate Investment Trust
VR Variable rate
144a Security was purchased pursuant to Rule 144a under the Securities
Act of 1933 and may not be resold subject to that rule except to
qualified institutional buyers -- total of such securities at
year-end amounts to 0.57% of net assets.
CHF Swiss franc
DEM German deutschemark
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
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Operations
T. Rowe Price Balanced Fund / Year Ended December 31, 1995
================================================================================
(IN THOUSANDS)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Income
Interest ................................................ $18,536
Dividend ................................................ 6,106
--------
Total income ............................................ 24,642
--------
Expenses
Investment management ................................... 2,778
Shareholder servicing ................................... 1,624
Custody and accounting .................................. 232
Prospectus and shareholder reports ...................... 95
Registration ............................................ 78
Legal and audit ......................................... 24
Directors ............................................... 16
Miscellaneous ........................................... 25
--------
Total expenses .......................................... 4,872
--------
Net investment income ..................................... 19,770
--------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Securities. ............................................. 5,887
Foreign currency transactions ........................... (78)
--------
Net realized gain (loss) ................................ 5,809
--------
Change in net unrealized gain or loss on:
Securities .............................................. 86,457
Other assets and liabilities denominated in
foreign currencies .................................... (12)
--------
Change in net unrealized gain or loss ................... 86,445
--------
Net realized and unrealized gain (loss) ................... 92,254
--------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ......... $112,024
========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Statement of Changes in Net Assets
T. Rowe Price Balanced Fund
================================================================================
(IN THOUSANDS)
- --------------------------------------------------------------------------------
Year Ended December 31,
1995 1994
-------- --------
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income .............................. $19,770 $13,752
Net realized gain (loss) ........................... 5,809 9,883
Change in net unrealized gain or loss .............. 86,445 (30,377)
-------- --------
Increase (decrease) in net assets from operations .. 112,024 (6,742)
-------- --------
Distributions to shareholders
Net investment income .............................. (19,706) (13,663)
Net realized gain .................................. (7,187) (7,078)
-------- --------
Decrease in net assets from distributions .......... (26,893) (20,741)
-------- --------
Capital share transactions*
Shares sold ........................................ 176,699 121,258
Distributions reinvested ........................... 23,920 17,963
Shares redeemed .................................... (69,962) (60,775)
-------- --------
Increase (decrease) in net assets from capital
share transactions ............................... 130,657 78,446
-------- --------
Net equalization ..................................... 297 240
-------- --------
Increase (decrease) in net assets .................... 216,085 51,203
NET ASSETS
Beginning of period .................................. 392,003 340,800
-------- --------
End of period ........................................ $608,088 $392,003
======== ========
*Share information
Shares sold ........................................ 14,638 10,472
Distributions reinvested ........................... 1,911 1,592
Shares redeemed .................................... (5,735) (5,248)
-------- --------
Increase (decrease) in shares outstanding .......... 10,814 6,816
======== ========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Notes To Financial Statements
T. Rowe Price Balanced Fund / December 31, 1995
================================================================================
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Balanced Fund (the fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
A) Valuation - Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price at the time 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 that are not traded on a particular day and
securities that are 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 their cost which, when combined with
accrued interest, approximates fair value.
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.
B) 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.
C) Other - Income and expenses are recorded on the accrual basis.
Investment transactions are accounted for on the trade date. Realized gains and
losses are reported on 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. The fund follows the practice of
equalization under which undistributed net investment income per share is
unaffected by fund shares sold or redeemed.
<PAGE>
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks and 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.
A) Commercial Paper Joint Account - The 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 the fund's criteria as to
quality, yield, and liquidity.
B) Securities Lending - To earn additional income, the fund lends its
securities to approved brokers. At December 31, 1995, the market value of
securities on loan was $39,631,000, which was fully collateralized with cash.
Although the risk is mitigated by the collateral, the fund could experience a
delay in recovering its securities and a possible loss of income or value if the
borrower fails to return them.
C) Other - Purchases and sales of portfolio securities, other than
short-term and U.S. government securities, aggregated $102,096,000 and
$41,667,000, respectively, for the year ended December 31, 1995. Purchases and
sales of U.S. government securities aggregated $55,903,000 and $13,696,000,
respectively, for the year ended December 31, 1995.
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 ncome.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, $286,000 of undistributed
net investment income was reclassified as an increase to paid-in-capital during
the year ended December 31, 1995. The results of operations and net assets were
not affected by the reclassifications.
At December 31, 1995, the aggregate cost of investments for federal income
tax and financial reporting purposes was $518,716,000 and net unrealized gain
aggregated $93,527,000, of which $102,641,000 related to appreciated investments
and $9,114,000 to depreciated investments.
<PAGE>
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 $248,000 was payable at December 31, 1995. 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 -Fleming
International, Inc. (the Group). The Group Fee rate ranges from 0.48% for the
first $1 billion of assets to 0.31% for assets in excess of $34 billion. At
December 31, 1995, and for the year then ended, the effective annual Group Fee
rate was 0.34%. 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 a previous investment management agreement, the fund is
required to reimburse the Manager for unaccrued fees and 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 1.00%. Pursuant to this agreement, $280,000 of unaccrued 1993
management fees were repaid during the year ended December 31, 1995.
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. (TRPS), 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 $1,527,000 for the year ended
December 31, 1995, of which $153,000 was payable at period-end. #
<PAGE>
================================================================================
Financial Highlights++
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
For a share outstanding throughout each period
Two Months
Year Ended December 31, Ended Year Ended October 31,
1995 1994 1993 Dec. 31, 1992 1992 1991
NET ASSET VALUE, BEGINNING OF PERIOD............. $11.14 $12.02 $11.07 $10.86 $11.43 $ 9.81
------ ------ ------ ------ ------ ------
Investment activities
Net investment income.,........................ 0.48 0.43 0.40* 0.06* 0.33* 0.62
Net realized and unrealized gain (loss)........ 2.24 (0.68) 1.05 0.29 0.86 1.51
------ ------ ------ ------ ------ ------
Total from investment activities............... 2.72 (0.25) 1.45 0.35 1.19 2.13
------ ------ ------ ------ ------ ------
Distributions
Net investment income.......................... (0.47) (0.43) (0.39) (0.09) (0.58) (0.51)
Net realized gain.............................. (0.17) (0.20) (0.11) (0.05) (1.18) --
------ ------ ------ ------ ------ ------
Total distributions............................ (0.64) (0.63) (0.50) (0.14) (1.76) (0.51)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD................... $13.22 $11.14 $12.02 $11.07 $10.86 $11.43
====== ====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA
Total return..................................... 24.9% (2.1)% 13.4%* 3.3%* 7.7% 22.0%
Ratio of expenses to average net assets.......... 0.95% 1.00% 1.00%* 1.00%+* 1.03% 1.10%
Ratio of net investment income
to average net assets.......................... 3.87% 3.72% 3.45%* 3.85%+* 4.07% 5.61%
Portfolio turnover rate.......................... 12.6% 33.3% 8.7% 58.0%+ 207.7% 239.9%
Net assets, end of period (in thousands)......... $608,088 $392,003 $340,800 $250,035 $239,195 $175,093
- --------------------------------------------------------------------------------
<FN>
*Excludes expenses in excess of a 1.00% voluntary expense limitation in effect
from the reorganization date through December 31, 1994.
+Annualized.
++All share and per share figures have been restated to reflect the reorganiza-
tion of the fund effective August 31,1992. The information provided for each
of the three years in the period ended October 31 represents the activities of
Axe-Houghton Fund B, as restated.
</FN>
</TABLE>
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of
T. Rowe Price Balanced Fund, Inc.
We have audited the accompanying statement of net assets of T. Rowe Price
Balanced Fund, Inc., as of December 31, 1995, 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
each of the three years in the period then ended, and for the period November 1,
1992 to December 31, 1992 and for the year ended October 31, 1992. 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 did not
audit the financial highlights for the year ended October 31, 1991. Those
statements were derived from the financial statements which were audited by
other independent accountants whose report expressed unqualified opinions
thereon.
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
December 31, 1995, by correspondence with the custodia n and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of T.
Rowe Price Balanced Fund, Inc., the results of its operations, changes in its
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
January 18, 1996
<PAGE>
================================================================================
Shareholder Services
- --------------------------------------------------------------------------------
To help shareholders monitor their current investments and make decisions
that accurately reflect their financial goals, T. Rowe Price offers a wide
variety of information and services--at no extra cost.
KNOWLEDGEABLE SERVICE REPRESENTATIVES BY PHONE--Shareholder service
representatives are available from 8 a.m. to 10 p.m., Monday - Friday, and
weekends from 8:30 a.m. to 5 p.m E.T. Call 1-800-22 5-5132 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. While there,
you can drop off applications or obtain prospectuses and other literature.
AUTOMATED 24-HOUR SERVICES TELE*ACCESSRegistration Mark (1-800-638-2587)
provides information such as account balance, date and amount of your last
transaction, latest dividend payment, and fund prices and yields. Addition-
ally, you have the ability to request prospectuses, statements, account and tax
forms; reorder checks; and initiate purchase, redemption, and exchange orders
for identically registered accounts.
PC*ACCESS [Registration Mark] provides the same information as Tele*Acces
s, but on a personal computer via dial-up modem. ACCOUNT SERVICES
CHECKING--Write checks for $500 or more on any money market and most bond
fund accounts (except the High Yield Fund and Emerging Markets Bond Fund.)
AUTOMATIC INVESTINGBuild 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 low, $50
minimum makes it easy to get started.
AUTOMATIC WITHDRAWAL--If you need money from your fund account on a regular
basis, you can establish scheduled, automatic redemptions.
DIVIDEND AND CAPITAL GAINS PAYMENT OPTIONS--Reinvest all or some of your
distributions, or take them in cash. We give you maximum flexibility and
convenience.
INVESTMENT INFORMATION
COMBINED STATEMENT--A comprehensive overview of your T. Rowe Price
accounts. The summary page gives your earnings by tax category, provides total
portfolio value, and lists your investments by type--tock, bond, and money
market. Detail pages itemize account transactions by fund.
<PAGE>
SHAREHOLDER REPORTS--Portfolio managers review the performance of the funds
in plain language and discuss T. Rowe Price's economic outlook.
THE T. ROWE PRICE REPORT--A quarterly newsletter with relevant articles on
market trends, personal financial planning, and T. Rowe Price's economic
perspective.
PERFORMANCE UPDATE--A quarterly report reviewing recent market developments
and providing comprehensive performance information for every T. Rowe Price
fund.
INSIGHTS--A library of information that includes reports on mutual fund tax
issues, investment strategies, and financial markets.
DETAILED INVESTMENT GUIDES--Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Retirees Financial Guide, Retirement Planning Kit (also
available on disk for PC use), and Guide to Risk-Adjusted Performance can help
you determine and reach your investment goals.
DISCOUNT BROKERAGE
You can trade stocks, bonds, options, precious metals, and other securities
at a substantial savings over regular commission rates. Call a shareholder
service representative for more information.
================================================================================
T. Rowe Price No-Load Mutual Funds
- --------------------------------------------------------------------------------
STABILITY
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money
Market
Tax-Exempt Money
<PAGE>
CONSERVATIVE INCOME
Short-Term Bond
Short-Term Global Income
Short-Term U.S. Government
Summit Limited-Term Bond
U.S. Treasury Intermediate
Florida Insured Intermediate
Tax-Free
Maryland Short-Term
Tax-Free Bond
Summit Municipal
Intermediate
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
INCOME
Global Government Bond
GNMA
New Income
Spectrum Income
Summit GNMA
U.S. Treasury Long-Term
California Tax-Free Bond
Georgia Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Tax-Free Income
Virginia Tax-Free Bond
AGGRESSIVE INCOME
Corporate Income
Emerging Markets Bond
High Yield
International Bond
Tax-Free High Yield
CONSERVATIVE
GROWTH
Balanced
Capital Appreciation
Dividend Growth
Equity Income
Equity Index
Global Stock
Growth & Income
Spectrum Growth
Value
<PAGE>
GROWTH
Blue Chip Growth
European Stock
Growth Stock
International Stock
Japan
Mid-Cap Growth
New Era
OTC
Small-Cap Value
AGGRESSIVE GROWTH
Capital Opportunity
Health Sciences
Emerging Markets Stock
International Discovery
Latin America
New America Growth
New Asia
New Horizons
Science & Technology
PERSONAL STRATEGY FUNDS
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
Call if you want to know about any T. Rowe Price fund. We'll send you a
prospectus with more complete information,
including management fees and other expenses. Read it carefully before you
invest or send money.
T. Rowe Price Investment Services, Inc., Distributor.
================================================================================
