- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
SemiAnnual Report
Balanced Fund
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
Report Highlights
================================================================================
Balanced Fund
* The S&P 500 gained more than 20% in the first half, while the bond market's
returns reflected their coupons.
* The Balanced Fund achieved a double-digit return, in line with the average
gain of its Lipper peer group.
* The stock portfolio's focus on large stocks benefited performance. The bond
portfolio's most significant gains came from its high-yield holdings.
* The fund's international positions made solid gains but did not keep up
with domestic holdings overall. We continue to own international stocks,
however, because we value their diversification benefits.
* We expect to maintain a neutral mix of stocks and bonds to help cushion
against potential declines and still take advantage of investment
opportunities.
Fellow Shareholders
================================================================================
After meandering early in 1997, domestic stocks surged in May and June to
post another double-digit gain for the half. International stock markets also
performed well, although the EAFE Index lagged the Standard & Poor's 500 Stock
Index. The bond market faltered early in the period after the Federal Reserve
tightened monetary policy but staged a comeback in recent weeks as the economy
slowed and inflation remained moderate.
<PAGE>
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 6/30/97 6 Months 12 Months
Balanced Fund 11.06% 20.80%
Lipper Balanced Fund Index 11.19 20.47
Combined Index Portfolio * 13.40 23.63
* An unmanaged portfolio of 60% stocks (S&P 500) and 40% bonds (Lehman
Aggregrate Bond Index).
================================================================================
In this favorable environment, the Balanced Fund posted a strong 11.06%
gain for the six months ended June 30, 1997. As shown in the table, the fund's
6- and 12-month returns have paralleled the returns of the Lipper Balanced Fund
Index. Both the fund and the Lipper index fell modestly behind the gains of a
60%/ 40% blend of the S&P 500 and the Lehman Aggregate Bond indexes.
The large-cap orientation of the domestic equity portion of our portfolio,
which is probably a bit higher than the typical balanced fund, benefited from a
powerful rally among very large-cap companies. Those gains augmented the
moderate returns of most high-quality bonds. As has often been true in recent
periods, the fund's international equity component performed quite well in an
absolute sense (up 15% in the first half) but trailed the domestic market,
hindering performance compared with the unmanaged combined index.
Market Environment
================================================================================
The broad stock market, as measured by the S&P 500, finished the first half
of 1997 with a robust 20.6% gain. About 17% of that return came in a second
quarter that saw a remarkable confluence of encouraging signs for the investment
markets. When economic growth cooled to sustainable levels, for example, equity
investors felt that corporate earnings growth could continue in light of the
diminished threat of rising interest rates. Measures of low inflation, despite
consistent economic strength, also eased the bond market's concerns about the
prospect of higher rates.
This rally reversed what had been, to that point, a volatile period for
both stocks and bonds. A surge in economic growth to an annualized rate of 5.9%
in the first quarter lit inflation fears and caused the Federal Reserve to raise
the key federal funds target by one-quarter point to 5.5%, its first tightening
in two years. The hike helped bring about the stock market's worst correction in
six years, with the S&P 500 declining nearly 10%, and a concurrent weakening of
the Treasury market.
[A 3-line chart showing interest rates on the 30-year Treasury bond, 5-year
Treasury note, and 90-day Treasury bill from 6/30/96 through 6/30/97]
<PAGE>
As shown in the chart, the benchmark 30-year Treasury bond yield approached
the psychologically important 7% barrier by the end of March amid a widespread
consensus that the Fed would raise interest rates again soon. Instead, the U.S.
bond market recovered later in the half when the economy cooled and inflation
slowed. The Lehman Aggregate Bond Index of investment-grade bonds produced a
decent half-year return of 3.09%. Because of their higher yields, corporate and
mortgage-backed bonds outperformed Treasuries. However, high-yield bonds, which
are more sensitive to the direction of the economy and the stock market than to
interest rates, performed best. The First Boston High Yield Index returned a
solid 5.85% for the half.
In the stock market, very large companies continued to dominate the
leaders' charts, even though smaller companies are more commonly the
beneficiaries of strong economic growth and fast-paced rallies. Although small-
and mid-cap stock indexes generally posted double-digit returns in the half,
they still lagged the S&P. The S&P's gains have been extraordinary, returning
over 100% in the past 30 months - its best showing since the mid-1950s. In the
past, similar results have accompanied such unusual periods as the recovery from
the 1929 stock market crash and the euphoria over the end of World War II.
Most equity markets around the world followed the U.S. market up, although
appreciation of the dollar against many European currencies cut into the returns
realized by U.S. investors.
Portfolio Review
================================================================================
Our overall asset allocation remains close to the 60% stock/40% bond blend
we have set as a long-term target for your fund and is little changed from
year-end. This fund never has been oriented toward aggressive asset-allocation
shifts, but current market conditions make it especially difficult to stray far
from this neutral blend. Although equities have already achieved spectacular
gains, we find it difficult to increase our bond positions since overall
economic conditions are good, corporate fundamentals are strong, and bond yields
are not particularly attractive. We prefer to keep our equity exposure close to
the target, but to diversify it with international stocks.
[A pie chart showing security diversification as of 6/30/97, with the
following weightings: Domestic Stocks, 45%. International Stocks, 14%. Treasury
and Agency Bonds, 15%. Mortgage-Backed Securities, 7%. Corporate Bonds, 17%.
Reserves, 2%.]
The chart shows the fund's security diversification as of midyear. (Please
note that, unlike in past reports, the chart now consolidates the fund's large-
and small- cap exposures into a single domestic-stock category. This change
better reflects our decision-making within the fund and simplifies the
presentation of our strategy.) Overall, changes have been moderate. The equity
portfolio retains a distinctly large-cap flavor, with a healthy dose of
international stocks. We somewhat altered our bond portfolio by committing new
cash to the high-yield bond market. Previously, we refrained from purchasing
additional high-yield debt, but our outlook for this sector has improved as the
risk of recession has faded and the economy has remained strong.
<PAGE>
Some of our most successful positions in the domestic equity portfolio were
in the large-cap pharmaceutical sector. BRISTOL-MYERS SQUIBB, PFIZER, and
WARNER-LAMBERT were great performers in the first half (up more than 44% each).
Capital equipment was the second-best sector, led by GE and CATERPILLAR.
Financial stocks also contributed meaningfully to performance. Insurer AMERICAN
INTERNATIONAL GROUP, one of our largest holdings, scored strong gains, as did
TRAVELERS GROUP.
The domestic stock portfolio had its share of losing positions. Basic
materials underperformed, led downward by gold. Smaller-cap gold names, to which
the fund has a minor exposure, were particularly hard on fund returns during the
second quarter. Certain individual positions hampered gains as well. AT&T's
stock, for example, suffered from erosion in the firm's market share. We
responded to this weakness by diversifying our long distance exposure with
SPRINT.
Other new domestic equity purchases during the half included confectioner
HERSHEY FOODS, retailing giant SEARS, and LUCENT TECHNOLOGIES, a leading
manufacturer of telecommunications equipment, which was spun off from AT&T. We
also increased our energy weighting with purchases of ATLANTIC RICHFIELD, EXXON,
and TEXACO.
The outstanding economic and corporate environment in the U.S. in recent
years has made it difficult for foreign stocks to outperform their domestic
counterparts. However, with valuations quite high in the domestic markets, we
continue to view international diversification as a sound approach to managing
overall risk. Foreign stocks represent about 25% of the Balanced Fund's equity
exposure and about 14% of the portfolio as a whole. Many international holdings
performed well over the period. Following an extended hibernation, our Japanese
stocks contributed to the fund's gain: Japan's market rebounded sharply from its
recent woes, with electronics-related issues doing particularly well. Encouraged
by the improving environment for Japanese corporations, we slightly boosted
holdings in such companies as copier-maker CANON and consumer-products firm KAO.
We expect to gradually increase our exposure to this important market in times
of market weakness.
==============================
Performance in less-developed
markets was also robust . . .
- ------------------------------
Performance in less-developed markets was also robust, with significant
contributions made by our holdings in Chile, Brazil, and Mexico. Latin American
markets have benefited from improving investor confidence due to economic
reforms, including the privatization and deregulation of formerly state-owned
industries. Currency devaluation fears hurt our holdings in Malaysia and
Thailand, but our Hong Kong positions surged despite the transition from British
to Chinese rule. HSBC HOLDINGS (Hong Kong Shanghai Bank) rose 44% during the
first half.
<PAGE>
The bond portion of your portfolio continued to benefit from its exposure
to high-yield bonds. It is not uncommon for high-yield bonds to outperform when
corporations are healthy and stock prices are rising. Approximately 7% of fund
assets was in high-yield bonds, most of which carried single- and double-B
ratings (the highest echelons of the noninvestment-grade universe).
The Treasury bond market was virtually flat for the period. Because
high-quality corporate and mortgage-backed securities typically pay higher
coupons than Treasury bonds, they were able to provide investors with somewhat
higher rates of return than equivalent Treasuries. We attempted to take
advantage of this by overweighting corporates and mortgage securities over
Treasuries. We also slightly increased the duration of the portfolio in an
effort to pick up the higher yields available on longer-term bonds. (Duration
measures a fund's price sensitivity to interest rate changes. Longer-duration
bonds often have higher coupons but fluctuate more in price when rates change.)
Outlook
================================================================================
An outstanding climate of steady economic growth, excellent corporate
earnings, and tame inflation has strongly benefited the domestic markets, and we
currently do not foresee drastic changes that could spoil these conditions. With
the U.S. stock market setting records, however, it would not be surprising to
see returns moderate in the future, or even decline.
We expect to maintain a neutral 60%/40% mix of stocks and bonds going
forward, while continuing to include an international equity component for
diversification. Any changes we make in the portfolio are likely to be moderate
and gradual. We believe this blended, deliberate approach is especially
appropriate in an environment of uncertainty: it can help defend against the
most serious losses in the event of a downturn, while offering professionally
managed exposure to a broad range of investing opportunities.
Respectfully submitted,
/s/
Richard T. Whitney
President and Chairman of the Investment Advisory Committee
July 24, 1997
<PAGE>
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
LARGEST HOLDINGS
Percent of
Net Assets
6/30/97
- --------------------------------------------------------------------------------
Stocks
- --------------------------------------------------------------------------------
GE ......................................................... 0.9%
American International Group ............................... 0.7
Intel ...................................................... 0.7
Procter & Gamble ........................................... 0.6
Bristol-Myers Squibb ....................................... 0.6
Coca-Cola .................................................. 0.6
Exxon ...................................................... 0.6
British Petroleum .......................................... 0.5
Pfizer ..................................................... 0.5
SmithKline Beecham ......................................... 0.5
- --------------------------------------------------------------------------------
Total ...................................................... 6.2%
Bonds
- --------------------------------------------------------------------------------
U.S. Treasury .............................................. 12.3%
Ginnie Mae ................................................. 7.3
Fannie Mae ................................................. 2.0
Freddie Mac ................................................ 0.5
Fairfax Financial .......................................... 0.3
Security Benefit Life ...................................... 0.3
GTE ........................................................ 0.3
Comcast .................................................... 0.3
MBNA ....................................................... 0.3
Discover Card .............................................. 0.3
- --------------------------------------------------------------------------------
Total ...................................................... 23.9%
================================================================================
<PAGE>
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
SECTOR Diversification
Percent of Percent of
Net Assets Net Assets
12/31/96 6/30/97
Stocks *
- --------------------------------------------------------------------------------
Financial .......................................... 11.3% 11.0%
Utilities .......................................... 5.1 5.0
Consumer Nondurables ............................... 11.7 13.0
Consumer Services .................................. 5.5 5.4
Consumer Cyclicals ................................. 3.2 3.1
Technology ......................................... 5.1 5.6
Capital Equipment .................................. 4.1 3.5
Business Services and Transportation ............... 3.3 3.1
Energy ............................................. 5.3 3.3
Basic Materials 0.8 0.9
Conglomerates ...................................... 0.1 0.1
Total .............................................. 58.9% 59.4%
Bonds and Reserves
U.S. Government and Agency Bonds
U.S. Treasury Obligations .......................... 9.9% 12.3%
Mortgages .......................................... 9.5 7.1
Other U.S. Government and Agencies ................. 2.8 2.3
Agency-Backed CMOs ................................. 0.5 0.2
Project Loans ...................................... 0.3 0.3
Corporate and Other
Investment Grade ................................... 9.4 10.3
Noninvestment Grade 6.7 6.9
Reserves ........................................... 2.0 1.2
Total .............................................. 41.1% 40.6%
* Includes foreign securities
================================================================================
<PAGE>
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or index.
The index return does not reflect expenses, which have been deducted from the
fund's return.
[Balanced Fund SEC chart shown here]
================================================================================
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how the fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
================================================================================
Periods Ended 6/30/97 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Balanced Fund 20.80% 17.89% 13.73% 10.76%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
Unaudited For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights ++
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
6 Months Year Two Months Year
Ended Ended Ended Ended
6/30/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 10/31/92
NET ASSET VALUE
Beginning of period ............ $ 14.48 $ 13.22 $ 11.14 $ 12.02 $ 11.07 $ 10.86 $ 11.43
Investment activities
Net investment income ...... 0.26 0.51 0.48 0.43 0.40* 0.06* 0.33
Net realized and
unrealized gain (loss) ..... 1.33 1.38 2.24 (0.68) 1.05 0.29 0.86
Total from
investment activities ...... 1.59 1.89 2.72 (0.25) 1.45 0.35 1.19
Distributions
Net investment income ...... (0.26) (0.50) (0.47) (0.43) (0.39) (0.09) (0.58)
Net realized gain .......... (0.02) (0.13) (0.17) (0.20) (0.11) (0.05) (1.18)
Total distributions ........ (0.28) (0.63) (0.64) (0.63) (0.50) (0.14) (1.76)
NET ASSET VALUE
End of period .................. $ 15.79 $ 14.48 $ 13.22 $ 11.14 $ 12.02 $ 11.07 $ 10.86
Ratios/Supplemental Data
Total return ................... 11.06% 14.57% 24.88% (2.05)% 13.35%* 3.32%* 11.20%
Ratio of expenses to
average net assets ............. 0.83%+ 0.87% 0.95% 1.00% 1.00%* 1.00% *+ 1.03%
Ratio of net investment
income to average
net assets ..................... 3.53%+ 3.70% 3.87% 3.72% 3.45%* 3.85% *+ 4.07%
Portfolio turnover rate ........ 19.5%+ 22.3% 12.6% 33.3% 8.7% 58.0%+ 207.7%
Average commission
rate paid ...................... $ 0.0442 $ 0.0438 -- -- -- -- --
Net assets, end of period
(in millions) .................. $ 1,120 $ 876 $ 608 $ 392 $ 341 $ 250 $ 239
====================================================================================================================================
<FN>
* Excludes expenses in excess of a 1.00% voluntary expense limitation in effect through 12/31/94.
+ Annualized.
++ All share and per share figures have been restated to reflect the reorganization of the fund effective August 31, 1992. The
information provided for the period ended October 31 represents the activities of Axe-Houghton Fund B, as restated.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited June 30, 1997
================================================================================
Statement of Net Assets
Shares/Par Value
In thousands
Common Stocks and Warrants 58.7%
FINANCIAL 10.5%
Bank and Trust 5.5%
Abbey National (GBP) ..................................... 124,000 $ 1,689
Air Liquide (L) (FRF) .................................... 6,900 1,095
AmSouth Bancorporation ................................... 8,100 306
Australia & New Zealand Banking ADR ...................... 21,500 793
BANC ONE ................................................. 10,361 502
Banca Commerciale Italiana (ITL) ......................... 210,000 435
Banco de Bilbao Vizcaya ADR .............................. 20,000 1,618
Banco Frances del Rio de la Plata ADR .................... 34,500 1,121
BankAmerica .............................................. 56,200 3,628
BankBoston ............................................... 7,700 555
Bankgesellschaft Berlin (DEM) ............................ 57,000 1,193
Barclay's (GBP) .......................................... 101,278 2,010
Barnett Banks ............................................ 1,100 58
Central Fidelity Banks ................................... 9,450 336
Charter One Financial .................................... 9,576 517
Chase Manhattan .......................................... 55,040 5,342
Citicorp ................................................. 35,000 4,220
Compass Bancshares ....................................... 9,300 312
CoreStates Financial ..................................... 6,370 342
Crestar Financial ........................................ 6,400 249
Deutsche Bank (DEM) ...................................... 18,700 1,082
Development Bank of Singapore (SGD) ...................... 64,000 806
First American ........................................... 15,600 600
First Bank Systems ....................................... 1,400 120
First Security ........................................... 16,650 455
First Tennessee National ................................. 3,600 173
First Union .............................................. 25,800 2,386
First Virginia Banks ..................................... 5,700 344
Fleet Financial Group .................................... 2,200 139
Grupo Financiero Bancomer (144a) ADR * ................... 20,000 195
HSBC Holdings (GBP) ...................................... 104,000 3,201
J. P. Morgan ............................................. 20,000 2,087
KeyCorp .................................................. 50,000 2,794
Kredietbank (BEF) ........................................ 2,500 $ 1,008
Mellon Bank .............................................. 37,500 1,692
Mercantile Bancorporation ................................ 4,200 255
NationsBank .............................................. 75,936 4,898
Norwest .................................................. 30,000 1,687
Old Kent Financial ....................................... 6,250 337
Overseas Chinese Bank (SGD) .............................. 67,200 696
Pacific Century Financial ................................ 4,100 190
Regions Financial ........................................ 18,200 577
<PAGE>
Schweizerischer Bankverein (CHF) * ....................... 8,440 2,257
Schweizerischer Bankverein, Warrants, 6/30/98 (CHF) * .... 240 11
Societe Generale (FRF) ................................... 10,218 1,141
Societe Generale de Belgique (BEF) ....................... 8,500 794
Societe Generale New (FRF) ............................... 272 30
SouthTrust ............................................... 9,500 394
Star Banc ................................................ 18,900 799
Summit Bancorp ........................................... 4,200 211
U. S. Bancorp ............................................ 18,522 1,188
Union Bank of Switzerland (CHF) .......................... 1,400 1,601
Washington Federal ....................................... 20,449 525
Westpac Bank (AUD) ....................................... 90,000 542
61,536
Insurance 2.6%
Aetna .................................................... 2,695 276
American General ......................................... 48,000 2,292
American International Group ............................. 54,100 8,081
CIGNA .................................................... 2,900 515
CKAG Colonia Konzern (DEM) ............................... 6,000 554
Conseco .................................................. 11,600 429
Equitable Companies ...................................... 9,400 312
General Re ............................................... 1,300 237
Hartford Financial Services .............................. 1,400 116
Horace Mann Educators .................................... 10,200 500
John Alden Financial ..................................... 8,000 167
Marsh & McLennan ......................................... 4,600 328
MBIA ..................................................... 3,100 350
Medical Assurance * ...................................... 9,103 370
MGIC Investment .......................................... 23,200 1,112
Ohio Casualty ............................................ 5,100 $ 224
Old Republic International ............................... 7,050 214
Progressive Corporation .................................. 4,200 365
St. Paul Companies ....................................... 43,000 3,279
Sumitomo Marine & Fire (JPY) ............................. 175,000 1,435
Sunamerica ............................................... 8,100 395
Torchmark ................................................ 39,300 2,800
UNUM ..................................................... 100,000 4,200
28,551
Financial Services 2.4%
A.G. Edwards ............................................. 13,475 576
ADVANTA .................................................. 4,500 165
ADVANTA (Class B) ........................................ 5,550 197
AMBAC .................................................... 11,100 848
American Express ......................................... 42,600 3,174
AXA (FRF) ................................................ 19,600 1,219
Countrywide Credit ....................................... 113,925 3,553
DCB Holdings (MYR) ....................................... 185,000 586
Fannie Mae ............................................... 78,000 3,403
Green Tree Financial ..................................... 21,400 762
<PAGE>
H&R Block ................................................ 30,900 997
Household International .................................. 24,000 2,819
ING Groep (NLG) .......................................... 51,674 2,383
Medaphis * ............................................... 14,600 147
Mercury Finance .......................................... 18,600 45
Morgan Stanley Dean Witter Discover ...................... 5,600 241
Pearson (GBP) ............................................ 150,000 1,739
Salomon .................................................. 6,800 378
Travelers Group .......................................... 52,665 3,321
United Asset Management .................................. 16,000 453
27,006
Total Financial .......................................... 117,093
UTILITIES 4.9%
Telephone Services 3.4%
ALLTEL ................................................... 80,000 2,675
Ameritech ................................................ 24,000 1,630
AT&T ..................................................... 107,500 $ 3,769
Bell Atlantic ............................................ 18,100 1,373
BellSouth ................................................ 102,000 4,730
British Telecommunications ADR ........................... 21,600 1,604
Compania de Telecomunicaciones de Chile ADR .............. 17,000 561
COMSAT ................................................... 4,900 117
Frontier ................................................. 8,000 160
GTE ...................................................... 53,800 2,360
Hong Kong Telecommunications ADR ......................... 37,288 872
SBC Communications ....................................... 90,366 5,591
Southern New England Telecomm ............................ 4,900 190
Sprint ................................................... 50,900 2,679
Telecom Corporation of New Zealand (NZD) ................. 520,000 2,649
Telecom Italia (ITL) ..................................... 571,000 1,833
Telecom Italia Mobile (ITL) .............................. 571,000 1,837
Telefonica de Espana ADR ................................. 12,000 1,035
Telekom Malaysia (MYR) ................................... 105,000 491
Telmex ADR ............................................... 30,000 1,433
U S West Media ........................................... 20,000 405
37,994
Electric Utilities 1.5%
Duke Energy .............................................. 30,115 1,444
Edison International ..................................... 104,000 2,587
Electrabel (BEF) ......................................... 2,400 514
Empresa Nacional de Electricidad ADR ..................... 12,200 1,038
Empresa Nacional de Electricidad de Chile ADR ............ 20,000 451
Entergy .................................................. 53,000 1,451
FPL Group ................................................ 25,600 1,179
Hong Kong Electric (HKD) ................................. 200,000 805
Niagara Mohawk * ......................................... 102,500 878
Ohio Edison .............................................. 75,000 1,636
Public Service of New Mexico ............................. 50,000 894
Texas Utilities .......................................... 25,500 878
Unicom ................................................... 68,600 1,526
Veba (DEM) ............................................... 22,100 1,242
16,523
Total Utilities 54,517
<PAGE>
CONSUMER NONDURABLES 13.0%
Cosmetics 0.3%
Gillette ................................................. 8,137 $ 771
International Flavors & Fragrances ....................... 11,700 591
Kao (JPY) ................................................ 161,000 2,234
Revlon (Class A) * ....................................... 1,800 93
3,689
Beverages 1.6%
Anheuser-Busch ........................................... 64,000 2,684
Coca-Cola ................................................ 92,600 6,251
LVMH (FRF) ............................................... 9,541 2,565
PepsiCo .................................................. 150,400 5,649
Starbucks * .............................................. 24,400 952
18,101
Food Processing 2.3%
Archer Daniels Midland ................................... 64,165 1,508
Cadbury Schweppes ADR .................................... 31,586 1,157
ConAgra .................................................. 26,700 1,712
CPC International ........................................ 32,900 3,037
CSM (NLG) ................................................ 17,000 852
Danisco (DKK) ............................................ 16,000 978
Earthgrains .............................................. 1,280 84
Eridania Beghin-Say (FRF) ................................ 8,100 1,213
General Mills ............................................ 29,300 1,908
Heinz .................................................... 77,000 3,552
Hershey Foods ............................................ 30,000 1,659
Kellogg .................................................. 3,100 265
McCormick ................................................ 10,300 261
Nestle (CHF) ............................................. 1,684 2,221
Ralston Purina ........................................... 23,204 1,907
Sara Lee ................................................. 82,900 3,451
Universal Foods .......................................... 7,100 271
Whitman .................................................. 1,100 28
26,064
Hospital Supplies/Hospital Management 1.5%
Abbott Laboratories ...................................... 63,600 4,245
Allegiance ............................................... 8,000 218
Baxter International ..................................... 50,000 $ 2,613
Columbia/HCA Healthcare .................................. 97,900 3,849
Health Management (Class A) * ............................ 36,112 1,029
HealthCare COMPARE * ..................................... 12,900 676
Hillenbrand Industries ................................... 11,600 551
Humana * ................................................. 22,400 518
Medtronic ................................................ 16,000 1,296
Millipore ................................................ 900 40
Quest Diagnostics * ...................................... 3,750 77
St. Jude Medical * ....................................... 26,000 1,014
16,126
<PAGE>
Pharmaceuticals 4.4%
American Home Products ................................... 56,600 4,330
Amgen .................................................... 50,700 2,945
Astra (Series B) (SEK) ................................... 80,000 1,412
Bristol-Myers Squibb ..................................... 84,400 6,837
Chiron * ................................................. 3,704 77
Forest Laboratories * .................................... 4,500 187
Gehe (DEM) ............................................... 13,550 925
Glaxo Wellcome ADR ....................................... 32,800 1,372
IDEXX Laboratories * ..................................... 11,800 146
Johnson & Johnson ........................................ 26,900 1,732
Merck .................................................... 50,100 5,185
Novartis (CHF) ........................................... 1,386 2,216
Perrigo * ................................................ 9,900 124
Pfizer ................................................... 49,200 5,879
Pharmacia & Upjohn ....................................... 80,000 2,780
Schering-Plough .......................................... 1,800 86
SmithKline Beecham ADR ................................... 62,400 5,717
Takeda Chemical Industries (JPY) ......................... 84,000 2,360
Warner-Lambert ........................................... 43,000 5,343
49,653
Health Care Services 0.3%
Altana (DEM) ............................................. 1,200 1,280
Olsten ................................................... 4,118 80
United HealthCare ........................................ 37,700 1,960
3,320
Miscellaneous Consumer Products 2.6%
Arctic Cat ............................................... 2,550 $ 27
Benetton Group (ITL) ..................................... 39,520 631
Bridgestone (JPY) ........................................ 69,000 1,601
Burlington Industries * .................................. 17,700 212
Colgate-Palmolive ........................................ 60,200 3,928
CUC International * ...................................... 23,499 607
Fruit of the Loom (Class A) * ............................ 4,300 133
Grand Metropolitan ADR ................................... 31,300 1,227
Huhtamaki (FIM) .......................................... 10,000 430
Imperial Tobacco Group ADR ............................... 15,750 202
Jones Apparel Group * .................................... 33,600 1,604
Kuraray (JPY) ............................................ 148,000 1,472
Lion Nathan (NZD) ........................................ 175,000 443
Liz Claiborne ............................................ 1,700 79
NIKE ..................................................... 900 53
Philip Morris ............................................ 10,800 479
Philips N.V. ADR ......................................... 31,200 2,243
PPG Industries ........................................... 2,400 140
Procter & Gamble ......................................... 49,400 6,978
Service Corp. International .............................. 74,600 2,452
Springs Industries ....................................... 39,700 2,094
Tambrands ................................................ 9,500 474
Textron .................................................. 2,000 133
Unilever N.V. ADR ........................................ 5,000 1,090
UST ...................................................... 2,000 56
28,788
<PAGE>
Biotechnology 0.0%
Covance * ................................................ 7,500 145
Guidant .................................................. 600 51
196
Total Consumer Nondurables ............................... 145,937
CONSUMER SERVICES 5.4%
Restaurants 0.0%
Darden Restaurants ....................................... 6,300 57
57
General Merchandisers 1.8%
Carrefour (FRF) .......................................... 2,000 $ 1,452
Costco Companies * ....................................... 103,400 3,402
Dayton Hudson ............................................ 86,100 4,579
Marui (JPY) .............................................. 53,000 985
May Department Stores .................................... 51,400 2,429
Sears .................................................... 40,000 2,150
Tesco (GBP) .............................................. 202,143 1,246
TJX ...................................................... 88,000 2,321
Wal-Mart ................................................. 60,000 2,029
Warnaco Group (Class A) .................................. 2,500 80
20,673
Specialty Merchandisers 1.5%
Albertson's .............................................. 1,300 47
Callaway Golf ............................................ 13,000 462
Christian Dior (FRF) ..................................... 7,000 1,155
Circuit City Stores ...................................... 65,900 2,344
Federated Department Stores * ............................ 1,800 63
Fingerhut Companies ...................................... 8,000 140
Gymboree * ............................................... 8,400 201
Heilig-Meyers ............................................ 4,500 88
Home Depot ............................................... 3,400 234
Kohl's * ................................................. 18,600 985
Kroger * ................................................. 100,000 2,900
Lowes .................................................... 2,000 74
Payless Shoesource * ..................................... 8,224 450
Petrie Stores Liquidation Trust * ........................ 33,500 106
R. P. Scherer * .......................................... 5,600 289
Safeway * ................................................ 12,600 581
Staples * ................................................ 23,625 548
The Gap .................................................. 79,200 3,079
Toys "R" Us * ............................................ 63,300 2,215
Viking Office Products * ................................. 32,000 606
16,567
<PAGE>
Entertainment and Leisure 1.2%
Applebee's ............................................... 10,600 284
Ascent Entertainment * ................................... 2,395 22
Brinker * ................................................ 8,775 125
Buffets * ................................................ 6,200 52
Casino America * ......................................... 10,794 24
Chartwell Leisure * ...................................... 1,080 $ 14
Checkers Drive-In Restaurants * .......................... 6,750 9
Disney ................................................... 50,139 4,024
HFS * .................................................... 23,100 1,340
Hilton ................................................... 2,300 61
Hutchison Whampoa (HKD) .................................. 390,000 3,373
International Game Technology ............................ 9,000 160
ITT * .................................................... 1,700 104
McDonald's ............................................... 10,000 483
Reader's Digest (Class A) ................................ 35,000 1,004
Sbarro ................................................... 37,500 1,041
Sharp (JPY) .............................................. 72,000 992
Viacom (Class A) * ....................................... 4,500 134
13,246
Media and Communications 0.9%
A. C. Nielson * .......................................... 4,700 92
A. H. Belo (Class A) ..................................... 6,800 283
Banta .................................................... 13,500 368
Cognizant ................................................ 14,100 571
Comcast (Class A Special) ................................ 40,000 854
Dun & Bradstreet ......................................... 14,100 370
Elsevier (NLG) ........................................... 50,000 835
Gannett .................................................. 13,800 1,363
Gaylord Entertainment .................................... 10,584 244
McGraw-Hill .............................................. 32,200 1,894
NTL International * ...................................... 11,999 297
Time Warner .............................................. 29,000 1,399
U S West Communications .................................. 20,000 754
Vanguard Cellular (Class A) * ............................ 11,850 164
Vodafone ADR ............................................. 20,000 969
10,457
Total Consumer Services .................................. 61,000
CONSUMER CYCLICALS 3.1%
Automobiles and Related 1.0%
Autoliv * ................................................ 21,653 847
Breed Technologies ....................................... 5,600 129
Chrysler ................................................. 3,800 125
Cycle & Carriage (SGD) ................................... 50,000 $ 517
Dana ..................................................... 1,300 49
Ford Motor ............................................... 11,330 428
Gentex * ................................................. 18,200 356
Genuine Parts ............................................ 81,975 2,777
GM ....................................................... 33,600 1,871
Goodyear Tire & Rubber ................................... 300 19
Honda ADR ................................................ 30,100 1,812
Pep Boys ................................................. 7,100 242
Superior Industries International ........................ 8,000 212
TRW ...................................................... 30,000 1,704
11,088
<PAGE>
Building and Real Estate 0.9%
Cheung Kong Holdings (HKD) ............................... 283,000 2,794
City Developments (SGD) .................................. 50,000 490
DBS Land (SGD) ........................................... 600,000 1,897
Hopewell Holdings (HKD) .................................. 948,339 600
Patriot American Hospitality, REIT ....................... 150,000 3,825
Texas Industries ......................................... 9,400 250
USG * .................................................... 14,600 533
10,389
Miscellaneous Consumer Durables 1.1%
Black & Decker ........................................... 36,000 1,339
Corning .................................................. 30,000 1,669
Eastman Kodak ............................................ 22,600 1,735
Harley-Davidson .......................................... 3,800 182
Imation * ................................................ 1,800 47
Masco .................................................... 49,900 2,083
Ricoh (JPY) .............................................. 100,000 1,309
Scotts (Class A) * ....................................... 10,000 290
Sony (JPY) ............................................... 16,000 1,394
Tandy .................................................... 20,000 1,120
Valspar .................................................. 36,200 1,072
York International ....................................... 2,600 120
12,360
Transportation Services 0.1%
United Engineers (MYR) ................................... 100,000 721
721
Total Consumer Cyclicals ................................. 34,558
TECHNOLOGY 5.6%
Electronic Components 1.6%
Altera * ................................................. 18,000 $ 910
AMP ...................................................... 30,000 1,252
EMC * .................................................... 11,500 448
Intel .................................................... 57,000 8,071
Linear Technology ........................................ 45,800 2,366
Micron Technology * ...................................... 9,400 375
Molex .................................................... 12,206 446
Motorola ................................................. 40,000 3,040
Thermo Electron * ........................................ 9,787 333
Thermo Instrument Systems * .............................. 8,156 250
Vicor * .................................................. 12,000 267
Xilinx * ................................................. 12,600 618
18,376
Electronic Systems 0.6%
Applied Materials * ...................................... 10,000 708
General Instrument * ..................................... 1,400 35
Hewlett-Packard .......................................... 68,300 3,825
Honeywell ................................................ 20,000 1,517
Solectron * .............................................. 4,800 336
6,421
<PAGE>
Information Processing 0.9%
Adaptec * 14,000 486
COMPAQ Computer * ........................................ 50,800 5,042
Dell Computer * .......................................... 600 70
Hitachi ADR .............................................. 15,200 1,718
IBM ...................................................... 23,400 2,110
Komag * .................................................. 1,200 20
Storage Technology * ..................................... 5,000 223
9,669
Specialized Computer 0.4%
Silicon Graphics * ....................................... 14,700 220
Sun Microsystems * ....................................... 108,000 4,020
4,240
Telecommunications Equipment 1.2%
Bay Networks * ........................................... 7,177 191
Cox Communications (Class A) * ........................... 50,000 1,200
LM Ericsson ADR (Class B) ................................ 54,000 $ 2,128
Lucent Technologies ...................................... 48,396 3,487
MCI ...................................................... 2,700 103
Novell * ................................................. 45,600 316
PictureTel * ............................................. 8,800 84
Telecomunicacoes Brasileiras ADR ......................... 20,000 3,035
Tellabs * ................................................ 23,200 1,295
World Com ................................................ 36,800 1,176
13,015
Aerospace and Defense 0.9%
AlliedSignal ............................................. 36,000 3,024
Boeing ................................................... 66,800 3,545
Northrop ................................................. 30,000 2,634
Raytheon ................................................. 500 25
Trinity Industries ....................................... 300 10
United Technologies ...................................... 14,200 1,179
10,417
Office Automation 0.0%
Pitney Bowes ............................................. 2,600 181
Xerox .................................................... 2,300 181
362
Total Technology ......................................... 62,500
CAPITAL EQUIPMENT 3.5%
Electrical Equipment 2.5%
ABB (CHF) ................................................ 775 1,173
American Power Conversion * .............................. 10,300 195
Canon (JPY) .............................................. 55,000 1,497
Emerson Electric ......................................... 56,200 3,095
GE ....................................................... 158,400 10,355
<PAGE>
Hubbell (Class A) ........................................ 8,000 334
Hubbell (Class B) ........................................ 80,252 3,531
Matsushita Electric Works (JPY) .......................... 100,000 1,134
Mitsubishi Electric (JPY) ................................ 190,000 1,063
Siemens (DEM) ............................................ 13,000 772
Tomkins ADR .............................................. 30,000 536
Tyco International ....................................... 50,000 3,478
Westinghouse ............................................. 30,780 712
27,875
Machinery 1.0%
Caterpillar .............................................. 25,000 $ 2,684
Coltec Industries * ...................................... 29,900 583
Cooper Industries ........................................ 600 30
Deere .................................................... 18,000 988
DII Group * .............................................. 160 7
Dover .................................................... 1,200 74
FMC * .................................................... 12,000 953
Foster Wheeler ........................................... 4,600 186
GKN (GBP) ................................................ 45,000 773
Imo Industries * ......................................... 2,800 17
Ingersoll-Rand ........................................... 1,000 62
Kennametal ............................................... 11,400 490
Man (DEM) ................................................ 3,300 1,016
S I G Schweis (CHF) ...................................... 520 1,576
Stewart & Stevenson ...................................... 6,300 164
Teleflex ................................................. 10,000 313
TriMas ................................................... 30,300 852
Valmet (FIM) ............................................. 32,000 553
11,321
Total Capital Equipment .................................. 39,196
BUSINESS SERVICES AND
TRANSPORTATION 3.0%
Computer Service and Software 1.1%
Amtech * ................................................. 3,625 17
BMC Software * ........................................... 40,000 2,217
Computer Associates ...................................... 45,725 2,546
Electronic Arts * ........................................ 7,500 253
Electronic Data Systems .................................. 44,223 1,813
HBO ...................................................... 13,200 909
Informix * ............................................... 18,400 166
Intuit * ................................................. 50,000 1,145
Micro Warehouse * ........................................ 5,600 96
NCR * .................................................... 6,718 200
Oracle * ................................................. 28,000 1,409
Parametric Technology * .................................. 23,200 987
SunGard Data Systems * ................................... 13,200 614
Sybase * ................................................. 7,000 $ 104
12,476
<PAGE>
Distribution Services 0.0%
Cardinal Health .......................................... 5,437 311
311
Environmental 0.0%
Molten Metal Technology * ................................ 11,900 60
60
Transportation Services 0.2%
Halter Marine Group ...................................... 104 2
Landstar Systems * ....................................... 40,000 1,128
Mitsubishi Heavy Industries (JPY) ........................ 159,000 1,219
2,349
Miscellaneous Business Services 0.7%
BAA (GBP) ................................................ 107,300 986
Browning-Ferris .......................................... 25,000 831
Cintas ................................................... 3,600 248
Equifax .................................................. 17,800 662
GTECH * .................................................. 4,500 145
Manpower ................................................. 12,200 543
Merrill .................................................. 5,000 180
Omnicom .................................................. 13,400 826
Paychex .................................................. 28,012 1,075
Sime Darby (MYR) ......................................... 200,000 666
Waste Management ......................................... 39,166 1,258
7,420
Airlines 0.5%
AMR * .................................................... 20,000 1,850
ASA Holdings ............................................. 4,200 120
KLM (NLG) ................................................ 23,000 709
Mesa Air Group * ......................................... 17,300 94
Northwest Airlines * ..................................... 300 11
Singapore Airlines (SGD) ................................. 80,000 716
UAL * .................................................... 30,000 2,147
5,647
Railroads 0.5%
Burlington Northern Santa Fe ............................. 25,100 2,256
CSX ...................................................... 22,500 1,249
Illinois Central (Series A) .............................. 14,850 519
Union Pacific ............................................ 14,000 987
Wisconsin Central Transport * ............................ 20,400 $ 759
5,770
Total Business Services and Transportation ............... 34,033
<PAGE>
ENERGY 5.4%
Energy Services 0.9%
Baker Hughes ............................................. 800 31
El Paso Natural Gas ...................................... 9,383 516
Elf Aquitaine (FRF) ...................................... 9,000 971
Energy Group PLC ADR ..................................... 7,875 334
Halliburton .............................................. 26,371 2,090
Helmerich & Payne ........................................ 20,000 1,152
Highlands Insurance Group * .............................. 2,300 46
Imperial Oil ............................................. 1,300 67
Schlumberger ............................................. 30,100 3,762
Smith International * .................................... 18,300 1,112
Witco .................................................... 5,400 205
10,286
Exploration and Production 0.1%
Anadarko Petroleum ...................................... 1,800 108
Enron Oil & Gas ......................................... 6,600 119
Santos (AUD) ............................................200,000 842
Ultramar Diamond Shamrock ............................... 9,100 297
Union Pacific Resources ................................. 11,857 295
1,661
Gas Transmission 0.4%
Consolidated Natural Gas ................................. 1,200 65
Enron .................................................... 50,000 2,041
ENSERCH .................................................. 14,300 318
MCN ...................................................... 8,800 269
Questar .................................................. 7,400 299
Sonat .................................................... 29,000 1,486
Tenneco .................................................. 200 9
4,487
Integrated Petroleum - Domestic 1.7%
Amerada Hess ............................................. 37,700 2,095
Atlantic Richfield ....................................... 64,600 4,554
British Petroleum ADR .................................... 78,600 $ 5,885
Kerr-McGee ............................................... 600 38
MAPCO .................................................... 3,400 107
Phillips Petroleum ....................................... 48,300 2,113
Santa Fe Energy Resources * .............................. 13,900 204
Unocal ................................................... 4,400 171
USX-Marathon ............................................. 140,000 4,043
19,210
Integrated Petroleum - International 2.3%
Amoco .................................................... 400 35
Chevron .................................................. 41,400 3,061
ENI S.P.A. ADR ........................................... 26,600 1,513
Exxon .................................................... 101,200 6,224
<PAGE>
Mobil .................................................... 78,600 5,492
Repsol ADR ............................................... 24,000 1,018
Royal Dutch Petroleum ADR ................................ 40,000 2,175
Shell Transport & Trading ADR ............................ 12,100 1,522
Texaco ................................................... 39,300 4,274
25,314
Total Energy ............................................. 60,958
PROCESS INDUSTRIES 3.4%
Building & Construction 0.1%
Blue Circle Industries (GBP) ............................. 135,000 964
Del E. Webb .............................................. 100 2
Hanson PLC ADR ........................................... 7,875 197
1,163
Diversified Chemicals 1.0%
Dow Chemical ............................................. 30,000 2,614
DuPont ................................................... 57,800 3,634
Eastman Chemical ......................................... 3,675 233
Hercules ................................................. 1,800 86
Monsanto ................................................. 92,300 3,975
10,542
Specialty Chemicals 1.3%
3M ....................................................... 18,600 1,897
A. Schulman .............................................. 26,325 651
Akzo Nobel (NLG) ......................................... 7,000 $ 959
Avery Dennison ........................................... 1,800 72
BASF (DEM) ............................................... 34,000 1,257
Bayer (DEM) .............................................. 30,000 1,161
Crompton & Knowles ....................................... 3,500 78
Great Lakes Chemical ..................................... 25,000 1,309
IVAX ..................................................... 5,200 58
Lyondell Petrochemical ................................... 7,100 155
McWhorter Technologies * ................................. 1,500 36
Millennium Chemicals ..................................... 4,499 102
Morton International ..................................... 63,500 1,917
Pall ..................................................... 8,533 198
Raychem .................................................. 900 67
Rohm & Haas .............................................. 28,000 2,522
Sumitomo Chemical (JPY) .................................. 175,000 793
Technip (FRF) ............................................ 12,900 1,497
14,729
Paper and Paper Products 0.6%
Dai Nippon Printing (JPY) ................................ 67,000 1,514
Kimberly-Clark ........................................... 34,400 1,711
Kimberly-Clark Mexico (Class A) (MXN) .................... 265,000 1,057
Mead ..................................................... 15,000 934
Schweitzer Mauduit ....................................... 1,000 37
Sonoco Products .......................................... 12,705 387
Willamette Industries .................................... 12,000 840
6,480
<PAGE>
Forest Products 0.4%
Georgia-Pacific .......................................... 19,000 1,622
International Paper ...................................... 46,000 2,234
Pope & Talbot ............................................ 8,200 135
Weyerhaeuser ............................................. 12,700 660
4,651
Total Process Industries ................................. 37,565
BASIC MATERIALS 0.9%
Metals 0.6%
Alcoa 30,000 2,261
Carpenter Technology ..................................... 5,400 247
Freeport-McMoRan Copper & Gold (Class A) ................. 9,600 $ 281
Reynolds Metals .......................................... 28,000 1,995
Rustenburg Platinum (ZAR) ................................ 85,000 1,555
6,339
Mining 0.2%
LONRHO (GBP) ............................................. 404,445 855
Rio Tinto (AUD) .......................................... 40,000 683
TVX Gold * ............................................... 200,000 1,062
2,600
Miscellaneous Materials 0.1%
Crown Cork & Seal 1,400 75
Malayan Cement (MYR) ..................................... 312,500 523
Owens-Illinois * ......................................... 15,300 474
1,072
Total Basic Materials .................................... 10,011
CONGLOMERATES 0.0%
Orkla (Class A) (NOK) .................................... 7,500 554
Total Conglomerates 554
Total Common Stocks and Warrants (Cost $410,831) ......... 657,922
Convertible Preferred Stocks 0.6%
Aetna, 6.25%, (Class C) .................................. 898 84
Security Capital Industrial Trust (Class B) .............. 225,000 6,216
Total Convertible Preferred Stocks (Cost $ 5,116) ....... 6,300
Convertible Bonds 0.1%
U S WEST LYONs, Sub. Notes, Zero Coupon, 6/25/11 ......... $2,000,000 771
Total Convertible Bonds (Cost $ 689) .................... 771
Corporate Bonds 17.2%
Abbey National First Capital, Sub. Notes
8.20%, 10/15/04 .................................. 1,205,000 1,284
African Development Bank, Sub. Notes, 7.75%, 12/15/01 .... 1,000,000 1,041
Agricultural Minerals and Chemicals, Sr. Notes
10.75%, 9/30/03 ................................. $1,000,000 $ 1,082
<PAGE>
Airplane Pass Through Trust
10.875%, 3/15/19 ................................. 490,000 568
8.15%, 3/15/19 ................................... 1,956,000 2,036
Alabama Power, 1st Mtg. Notes, 7.00%, 1/1/03 ............. 725,000 724
Allied Waste North America, Sr. Sub. Notes, (144a)
10.25%, 12/1/06 .................................. 875,000 932
AMC Entertainment, Sr. Sub. Notes, (144a)
9.50%, 3/15/09 ................................... 1,000,000 1,040
AMERCO, Sr. Notes, 7.85%, 5/15/03 ........................ 1,000,000 1,007
American Builders & Contractors Supply, Sr. Sub. Notes
(144a) 10.625%, 5/15/07 .......................... 1,000,000 1,035
American Portable Telecom, Gtd. Notes, (144a)
Zero Coupon, 11/1/06 ............................. 3,615,000 1,674
American Safety Razor, Sr. Notes, 9.875%, 8/1/05 ......... 1,000,000 1,067
American Standard, Sr. Sub. Notes, 9.875%, 6/1/01 ........ 750,000 795
Ametek, Sr. Notes, 9.75%, 3/15/04 ........................ 500,000 531
Anheuser-Busch, 6.90%, 10/1/02 ........................... 2,000,000 1,997
Archibald Candy, Gtd. Notes, (144a) 10.25%, 7/1/04 ....... 800,000 814
Associates, Sr. Notes, 7.50%, 4/15/02 .................... 1,300,000 1,338
Atlantic Richfield, Deb. Notes, 8.75%, 3/1/32 ............ 1,570,000 1,814
Banco Central, Sub. Notes, 7.50%, 6/15/05 ................ 1,000,000 1,013
Banesto Delaware, Sub. Notes, 8.25%, 7/28/02 ............. 2,000,000 2,110
Banque Nationale de Paris, Deb. Notes, 9.875%, 5/25/98 ... 1,000,000 1,032
Baxter International, 7.125%, 2/1/07 ..................... 1,500,000 1,507
BE Aerospace, Sr. Sub. Notes, 9.875%, 2/1/06 ............. 250,000 263
BF Saul REIT, Sr. Secured Notes, 11.625%, 4/1/02 ......... 750,000 799
BHP Finance USA Limited, Gtd. Notes, 6.69%, 3/1/06 ....... 2,000,000 1,940
Boeing, 8.75%, 8/15/21 ................................... 2,000,000 2,308
British Columbia Hydro & Power, 12.50%, 9/1/13 ........... 250,000 277
Brooks Fiber Properties, Sr. Notes, (144a) 10.00%, 6/1/07 400,000 404
Burlington Northern, PTC, 7.33%, 6/23/10 ................. 981,034 995
BWAY, Sr. Sub. Notes, (144a) 10.25%, 4/15/07 ............. 550,000 589
Celestica International, Sr. Sub. Notes, 10.50%, 12/31/06 1,000,000 1,075
Century Telephone Enterprises, Sr. Notes, 8.25%, 5/1/24 .. 500,000 513
Chancellor Radio Broadcasting, Sr. Sub. Notes
9.375%, 10/1/04 .................................. 750,000 769
Chattem, Sr. Sub. Notes, 12.75%, 6/15/04 ................. 1,000,000 1,100
Chemical Master Credit Card Trust I
5.55%, 9/15/03 ................................... $100,000 $ 97
6.23%, 4/15/05 ................................... 110,000 108
Chief Auto Parts, Sr. Notes, 10.50%, 5/15/05 ............. 600,000 600
Chrysler Financial, 5.875%, 2/7/01 ....................... 2,000,000 1,950
Citibank Credit Card Master Trust I, 5.79%, 2/7/03 ....... 170,000 134
Citicorp Mortgage, 6.00%, 3/25/22 ........................ 151,118 148
Citizens Utilities, Deb. Notes, 7.00%, 11/1/25 ........... 1,500,000 1,426
Coach USA, Gtd. Sr. Sub. Notes, 9.375%, 7/1/07 ........... 500,000 495
Coca-Cola Bottling, Sr. Sub. Notes, 9.00%, 11/15/03 ...... 500,000 516
Coinmach, Sr. Notes, 11.75%, 11/15/05 .................... 750,000 831
Comcast Cable Communications, (144a) 8.125%, 5/1/04 ...... 3,000,000 3,123
Communications & Power Industries, Sr. Sub. Notes
12.00%, 8/1/05 ................................... 1,000,000 1,110
<PAGE>
Conseco Financing Trust II, Gtd. Notes, 8.70%, 11/15/26 .. 2,000,000 2,047
Consolidated Cigar, Sr. Sub. Notes, 10.50%, 3/1/03 ....... 1,000,000 1,052
Container Corporation of America, Sr. Notes
9.75%, 4/1/03 .................................... 1,000,000 1,050
ContiFinancial, Sr. Notes, 8.375%, 8/15/03 ............... 1,000,000 1,028
Continental Airlines, PTC, (144a) 7.206%, 6/30/04 ........ 500,000 498
Corestates Home Equity Loan
5.10%, 3/15/09 ................................... 360,559 351
6.65%, 5/15/09 ................................... 260,793 258
Countrywide Funding, MTN, 6.875%, 9/15/05 ................ 860,000 837
Courtyard by Marriott, Sr. Notes, 10.75%, 2/1/08 ......... 500,000 541
Cox Communications, 6.375%, 6/15/00 ...................... 1,500,000 1,488
CSX, Deb. Notes, (144a) 7.45%, 5/1/07 .................... 1,000,000 1,017
Dan River, Sr. Sub. Notes, 10.125%, 12/15/03 ............. 750,000 795
Delta Airlines, Deb. Notes, 8.95%, 1/12/12 ............... 1,558,773 1,719
Deutsche Financial Capital, 6.75%, 9/15/27 ............... 2,000,000 1,990
Discover Credit Card, 7.85%, 11/21/00 .................... 3,000,000 3,052
Doane Products, Sr. Notes, 10.625%, 3/1/06 ............... 1,000,000 1,065
Dr Pepper Bottling Holdings, Sr. Disc. Notes, STEP
Zero Coupon, 2/15/03 ............................. 1,250,000 1,247
Dr Pepper Bottling Texas, Sr. Notes, 10.25%, 2/15/00 ..... 500,000 516
Dual Drilling, Sr. Sub. Notes, 9.875%, 1/15/04 ........... 500,000 534
Duke Energy, 1st Ref. Mtg ................................
6.75%, 8/1/25 .................................... 1,000,000 879
7.50%, 8/1/25 .................................... 1,000,000 972
Dyncorp, Sr. Sub. Notes, (144a) 9.50%, 3/1/07 ............ $ 900,000 $909
Echo Bay Mines, Jr. Sub. Deb., 11.00%, 4/1/27 ............ 875,000 879
El Paso Electric, 1st Mtg. Notes, 8.90%, 2/1/06 .......... 125,000 133
Energy Corporation of America, Sr. Sub. Notes, (144a)
9.50%, 5/15/07 ................................... 1,000,000 1,010
Equimar Shipholdings Limited, Gtd. Notes, (144a)
9.875%, 7/1/07 ................................... 1,000,000 980
Equitable Resources, Deb. Notes, 7.75%, 7/15/26 .......... 2,000,000 2,056
Exxon Capital, Gtd. Notes, 6.50%, 7/15/99 ................ 500,000 503
Fairchild Semiconductor, Sr. Sub. Notes, (144a)
10.125%, 3/15/07 ................................. 425,000 451
Fairfax Financial Holdings
7.75%, 12/15/03 .................................. 800,000 815
8.30%, 4/15/26 ................................... 2,500,000 2,595
Falcon Building Products, 9.50%, 6/15/07 ................. 850,000 846
Federal Express, 9.95%, 8/15/06 .......................... 500,000 583
Ferrellgas, Sr. Notes, 10.00%, 8/1/01 .................... 750,000 797
First Federal Financial, 11.75%, 10/1/04 ................. 750,000 817
First Fidelity Bancorp, Deb. Notes, 8.50%, 4/1/98 ........ 1,500,000 1,524
Fleet Mortgage Group, 6.125%, 8/15/97 .................... 50,000 50
Fleet/Norstar Financial Group, Sub. Notes
8.625%, 1/15/07 .................................. 800,000 871
Fletcher Challenge, 9.00%, 9/15/99 ....................... 270,000 283
Flores & Rucks, Sr. Sub. Notes, 9.75%, 10/1/06 ........... 275,000 287
<PAGE>
Foamex, Sr. Sub. Notes, (144a) 9.875%, 6/15/07 ........... 325,000 336
Ford Motor Company, Deb. Notes, 7.50%, 8/1/26 ............ 2,500,000 2,485
Ford Motor Credit, 8.20%, 2/15/02 ........................ 170,000 179
Freeport McMoRan Resources, Sr. Notes, 7.00%, 2/15/08 .... 900,000 872
Frontiervision Operating Partners, Sr. Sub. Notes
11.00%, 10/15/06 ................................. 500,000 524
Fundy Cable, Sr. Notes, 11.00%, 11/15/05 ................. 500,000 540
Gaylord Container, Sr. Notes, (144a) 9.75%, 6/15/07 ...... 1,000,000 998
General Motors, Deb. Notes, 9.625%, 12/1/00 .............. 140,000 152
General Motors Acceptance Corporation, MTN
6.75%, 6/17/02 ................................... 80,000 80
Golden West Financial, Sub. Notes, 8.625%, 8/30/98 ....... 1,500,000 1,537
Green Tree Financial, 5.75%, 10/15/18 .................... 90,000 88
Greenpoint Capital Trust I, 9.10%, 6/1/27 ................ 1,000,000 1,009
GTE
7.51%, 4/1/09 .................................... $1,500,000 $1,539
Deb. Notes, 9.375%, 12/1/00 ...................... 1,500,000 1,622
GTE Florida, Deb. Notes, 7.41%, 12/15/23 ................. 1,000,000 971
Hawk, Sr. Notes, 10.25%, 12/1/03 ......................... 350,000 361
HCC Industries, Sr. Sub. Notes, (144a) 10.75%, 5/15/07 ... 475,000 499
Herff Jones, Sr. Sub. Notes, 11.00%, 8/15/05 ............. 1,125,000 1,215
HMC Acquisition Properties, Sr. Notes, 9.00%, 12/15/07 ... 1,000,000 1,016
Host Marriott Travel Plazas, Sr. Notes, 9.50%, 5/15/05 ... 1,000,000 1,047
International Bank For Reconstruction & Development
7.625%, 1/19/23 .................................. 1,800,000 1,912
International Wire Group, Sr. Sub. Notes, (144a)
11.75%, 6/1/05 ................................... 1,000,000 1,085
Intertek Finance PLC, Sr. Sub. Notes, 10.25%, 11/1/06 .... 800,000 828
Jefferson Pilot Capital Trust, 8.14%, 1/15/46 ............ 1,500,000 1,495
John Q. Hammons Hotels, 1st Mtg. Notes
8.875%, 2/15/04 .................................. 1,000,000 1,010
Jordan Industries, Sr. Notes, 10.375%, 8/1/03 ............ 750,000 795
K & F Industries, Sr. Secured Notes, 11.875%, 12/1/03 .... 280,000 296
Keebler, Sr. Sub. Notes, 10.75%, 7/1/06 .................. 1,000,000 1,120
KFW International, MTN, 9.14%, 6/4/01 .................... 250,000 271
L-3 Communications, Sr. Sub. Notes, (144a)
10.375%, 5/1/07 .................................. 725,000 767
Lear Seating, Sr. Sub. Notes, 11.25%, 7/15/00 ............ 250,000 250
Lehman Brothers Holdings, 8.875%, 3/1/02 ................. 1,500,000 1,598
Liberty National Bank & Trust, Sub. Notes, 6.75%, 6/1/03 . 500,000 492
Long Island Lighting
Deb. Notes, 7.50%, 3/1/07 ........................ 500,000 498
Gen. Ref. Bonds, 9.75%, 5/1/21 ................... 1,100,000 1,115
Loral, Sr. Notes, 7.625%, 6/15/04 ........................ 1,500,000 1,544
MAFCO, Sr. Sub. Notes, 11.875%, 11/15/02 ................. 1,000,000 1,075
Marcus Cable, Sr. Disc. Notes, STEP
Zero Coupon, 8/1/04 .............................. 1,250,000 1,087
MAXXAM Group Holdings, Sr. Notes, 11.25%, 8/1/03 ......... 600,000 622
MBNA, Sr. Notes, 7.49%, 9/14/99 .......................... 3,000,000 3,059
<PAGE>
MBW Foods, Sr. Sub. Notes, (144a) 9.875%, 2/15/07 ........ 625,000 633
McDonnell Douglas, 8.25%, 7/1/00 ......................... 500,000 522
Methanex, 7.75%, 8/15/05 ................................. 1,500,000 1,543
ML Capital Trust, Gtd. Notes, (144a) 9.875%, 3/1/27 ...... 500,000 500
Muzak Limited Partnership, Gtd. Notes, 10.00%, 10/1/03 ... 1,000,000 1,045
Nationsbank Credit Card Master Trust, 6.00%, 12/15/05 .... 140,000 134
News America Holdings, Gtd. Sr. Deb. Notes
9.25%, 2/1/13 .................................... 90,000 100
NGC, Sr. Notes, 6.75%, 12/15/05 .......................... 1,000,000 981
Northrop Grumman, Deb. Notes, 7.875%, 3/1/26 ............. 2,000,000 2,025
NYNEX, Deb. Notes, 9.55%, 5/1/10 ......................... 1,163,808 1,323
Ocwen Financial, 11.875%, 10/1/03 ........................ 1,000,000 1,080
Owens & Minor, Sub. Notes, 10.875%, 6/1/06 ............... 500,000 558
Pacific Bell, Deb. Notes
7.375%, 7/15/43 .................................. 1,000,000 965
7.50%, 2/1/33 .................................... 1,000,000 964
Pen-Tab Industries, Sr. Sub. Notes, (144a)
10.875%, 2/1/07 .................................. 350,000 354
Pillowtex, Gtd. Sr. Sub. Notes, 10.00%, 11/15/06 ......... 475,000 499
Plains Resources, Sr. Sub. Notes, 10.25%, 3/15/06 ........ 200,000 212
Plastic Containers, Sr. Notes, (144a) 10.00%, 12/15/06 ... 800,000 832
Plitt Theatres, Sr. Sub. Notes, 10.875%, 6/15/04 ......... 500,000 530
PM Holdings, Sub. Disc. Notes, STEP
Zero Coupon, 9/1/05 .............................. 500,000 383
Pricellular Wireless, Sr. Notes, 10.75%, 11/1/04 ......... 500,000 521
Pride Petroleum Services, Sr. Notes, 9.375%, 5/1/07 ...... 1,000,000 1,045
Prime Credit Card Master Trust, 6.70%, 7/15/04 ........... 140,000 140
Prime Hospitality, Sr. Sub. Notes, 9.75%, 4/1/07 ......... 400,000 418
Province of Alberta, 9.25%, 4/1/00 ....................... 1,000,000 1,069
Prudential Home, 6.90%, 3/25/23 .......................... 163,281 163
Quantas Airways, Sr. Notes, 7.50%, 6/30/03 ............... 1,000,000 1,022
Quest Diagnostic, Gtd. Sr. Sub. Notes, 10.75%, 12/15/06 .. 750,000 816
Rail Car Trust, 7.75%, 6/1/04 ............................ 98,983 103
Red Roof Inns, Sr. Notes, 9.625%, 12/15/03 ............... 1,000,000 1,035
Revlon Consumer Products, Sr. Sub. Notes
10.50%, 2/15/03 .................................. 500,000 533
Rio Hotel & Casino
Gtd. Sr. Sub. Notes, (144a)
9.50%, 4/15/07 ................................... 500,000 515
Sr. Sub. Notes, 10.625%, 7/15/05 ................. 500,000 540
RJR Nabisco, 8.75%, 8/15/05 .............................. 2,000,000 2,030
Rogers Cablesystems, Sr. Secured 2nd Priority Notes
10.00%, 3/15/05 $ ................................ 750,000 $ 810
S. D. Warren, Sr. Sub. Notes, 12.00%, 12/15/04 ........... 500,000 555
Santander Financial, Gtd. Notes, 6.375%, 2/15/11 ......... 3,000,000 2,742
Sea Containers Ltd., Sr. Sub. Deb., 12.50%, 12/1/04 ...... 270,000 305
Sea-Land Service, Deb. Notes, 10.60%, 1/2/11 ............. 1,550,000 1,641
Sears Credit Account Master Trust II
6.05%, 1/16/08 ................................... 80,000 77
6.45%, 10/16/06 .................................. 70,000 70
<PAGE>
Security Benefit Life, (144a) 8.75%, 5/15/16 ............. 3,000,000 3,177
Shoppers Food Warehouse, Sr. Notes, (144a)
9.75%, 6/15/04 ................................... 750,000 752
Siebe PLC, (144a) 7.125%, 1/15/07 ........................ 1,500,000 1,504
Silgan
Sr. Sub. Deb. Notes, (144a)
9.00%, 6/1/09 .................................... 750,000 757
Sr. Sub. Notes, 11.75%, 6/15/02 .................. 1,000,000 1,065
Six Flags Theme Parks, Sr. Sub. Disc. Notes, STEP
Zero Coupon, 6/15/05 ............................. 1,000,000 1,029
Southwest Airlines, Deb. Notes, 9.25%, 2/15/98 ........... 1,650,000 1,681
Specialty Retailers, Gtd. Sr. Notes, (144a) 8.50%, 7/15/05 1,000,000 1,000
Sterling Chemicals, Sr. Sub. Notes, 11.25%, 4/1/07 ....... 500,000 536
Sun Media, Sr. Sub. Notes, (144a) 9.50%, 2/15/07 ......... 1,000,000 1,010
Synthetic Industries, Sr. Sub. Notes, (144a)
9.25%, 2/15/07 ................................... 400,000 406
System Energy Resources, 1st Mtg. Notes, 7.625%, 4/1/99 .. 1,000,000 1,015
Tenet Healthcare, Sr. Sub. Notes, 8.625%, 1/15/07 ........ 1,000,000 1,020
Tenneco, 6.70%, 12/15/05 ................................. 1,000,000 972
Texaco Capital, Deb. Notes, 8.65%, 1/30/98 ............... 1,400,000 1,421
Texas Bottling Group, Sr. Sub. Notes, 9.00%, 11/15/03 .... 500,000 509
Time Warner, Deb. Notes, 7.48%, 1/15/08 .................. 1,400,000 1,392
TLC Beatrice International Holdings, Sr. Notes
11.50%, 10/1/05 .................................. 775,000 876
Tokheim, Sr. Sub. Notes, 11.50%, 8/1/06 .................. 250,000 273
Tracor, Sr. Sub. Notes, (144a) 8.50%, 3/1/07 ............. 1,000,000 1,000
TravelCenters of America, Sr. Sub. Notes, (144a)
10.25%, 4/1/07 ................................... 900,000 925
Travelers Property Casualty, Sr. Notes, 6.75%, 11/15/06 .. 1,500,000 1,464
Trump Atlantic City Associates, 1st Mtg. Notes
11.25%, 5/1/06 ................................... 450,000 $ 440
TRW, MTN, 7.37%, 4/18/07 ................................. 2,000,000 2,036
Tultex, Sr. Notes, (144a) 9.625%, 4/15/07 ................ 250,000 264
Union Bank Switzerland, Sub. Notes
7.25%, 7/15/06 ................................... 1,000,000 1,011
United Artists Theatre Circuit, PTC, (144a) 9.30%, 7/1/15 1,081,464 1,049
US Can, Sr. Gtd. Notes, 10.125%, 10/15/06 ................ 475,000 505
Vesta Insurance Group, Deb. Notes, 8.75%, 7/15/25 ........ 1,000,000 1,081
Viasystems, Sr. Sub. Notes, (144a) 9.75%, 6/1/07 ......... 1,000,000 1,013
Wal-Mart Stores, 6.75%, 5/15/02 .......................... 1,000,000 1,001
Westamerica Banc, Sub. Notes, 6.99%, 9/30/03 ............. 1,500,000 1,468
Willamette Industries, MTN, 7.85%, 7/1/26 ................ 1,000,000 1,026
Windy Hill Pet Food, Sr. Sub. Notes, (144a)
9.75%, 5/15/07 ................................... 1,000,000 1,003
Total Corporate Bonds (Cost $ 189,752) .................. 192,339
<PAGE>
U.S. Government Mortgage-
Backed Securities 7.6%
Federal Home Loan Mortgage Assn
8.00%, 3/1/17 .................................... 23,330 24
10.00%, 10/1/10 .................................. 82,109 88
10.50%, 9/1/15 ................................... 16,221 18
Federal National Mortgage Assn
6.50%, 7/25/08 - 5/1/11 .......................... 1,433,875 1,384
7.00%, 4/1/26 .................................... 92,073 90
REMIC, 8.75%, 12/25/04 ........................... 156,741 156
Government National Mortgage Assn
I
6.00%, 1/15 - 5/15/24 ............................ 2,728,481 2,562
6.50%, 9/15/23 - 3/15/26 ......................... 8,305,643 8,007
7.00%, 10/15/22 - 11/15/26 ....................... 11,471,529 11,316
7.50%, 9/15/22 - 5/15/26 ......................... 14,577,489 14,696
8.00%, 6/15/17 - 11/15/25 ........................ 13,153,284 13,613
8.50%, 3/15/05 - 2/15/25 ......................... 9,327,033 9,801
9.00%, 5/15/16 - 6/15/25 ......................... 2,034,597 2,174
9.50%, 8/15/09 - 9/15/21 ......................... 1,859,576 2,014
10.00%, 11/15/09 - 5/15/13 ....................... 39,124 43
Government National Mortgage Assn
I
10.50%, 5/15/15 .................................. 11,899 $ 13
11.00%, 3/15/10 - 1/15/20 ........................ 1,121,454 1,263
11.50%, 3/15/10 - 3/15/16 ........................ 1,743,913 1,987
II
8.50%, 6/20/25 - 6/20/26 ......................... 9,035,010 9,375
9.00%, 7/20/16 - 6/20/20 ......................... 893,403 950
9.50%, 8/20/22 ................................... 255,711 274
10.00%, 10/20/16 - 1/20/22 ....................... 175,267 191
ARM, II
7.125%, 8/20/23 .................................. 223,566 230
GPM, I
10.75%, 1/15/16 - 12/15/17 ....................... 192,270 211
Project Loan, I
8.50%, 1/15/27 ................................... 296,259 308
8.875%, 2/15/30 .................................. 680,315 700
8.95%, 5/15/35 ................................... 2,298,829 2,364
U. S. Department of Veteran Affairs, VR
9.55%, 3/15/25 ................................... 925,270 1,003
Total U.S. Government Mortgage-Backed
Securities (Cost $84,220) ................................ 84,855
U.S. Government Obligations/
Agencies 14.6%
Federal Home Loan Mortgage Assn ..........................
6.00%, 6/15/05 ................................... 700,000 694
<PAGE>
Federal National Mortgage Assn ...........................
5.80%, 12/10/03 .................................. 13,000,000 12,447
6.25%, 8/12/03 ................................... 3,000,000 2,904
MTN, 6.36%, 8/16/00 .............................. 270,000 270
REMIC, 7.50%, 10/25/19 ........................... 1,000,000 1,007
8.45%, 7/12/99 ................................... 4,000,000 4,167
FHLB, 6.34%, 10/19/05 .................................... 4,875,000 4,736
Tennessee Valley Authority, 8.25%, 9/15/34 ............... 435,000 444
U.S. Treasury Bonds
6.00%, 2/15/26 ................................... 4,865,000 4,354
6.50%, 11/15/26 .................................. 6,000,000 5,754
6.75%, 8/15/26 ................................... 6,000,000 5,938
U.S. Treasury Bonds
7.125%, 2/15/23 $ ................................ 12,500,000 $12,875
8.125%, 8/15/19 - 8/15/21 ........................ 3,650,000 4,179
8.75%, 5/15/20 ................................... 1,000,000 1,214
10.625%, 8/15/15 ................................. 200,000 278
11.25%, 2/15/15 .................................. 1,500,000 2,178
11.625%, 11/15/04 ................................ 20,000 26
11.75%, 2/15/01 .................................. 200,000 235
13.125%, 5/15/01 ................................. 200,000 246
13.875%, 5/15/11 ................................. 190,000 281
U.S. Treasury Notes
5.625%, 11/30/98 ................................. 6,800,000 6,769
6.00%, 8/15/99 ................................... 9,300,000 9,277
6.125%, 9/30/00 .................................. 790,000 787
6.25%, 2/15/03 - 2/15/07 ......................... 21,500,000 21,057
6.50%, 4/30/99 ................................... 12,000,000 12,090
7.00%, 4/15/99 ................................... 5,200,000 5,282
7.50%, 11/15/01 - 2/15/05 ........................ 2,485,000 2,608
7.75%, 1/31/00 - 2/15/01 ......................... 22,800,000 23,654
7.875%, 11/15/04 ................................. 150,000 162
8.00%, 5/15/01 ................................... 12,000,000 12,675
8.25%, 7/15/98 ................................... 3,300,000 3,378
8.75%, 8/15/00 ................................... 2,000,000 2,139
Total U.S. Government Obligations/Agencies (Cost $163,854) 164,105
Short-Term Investments 1.0%
Certificates of Deposit 0.9%
Union Bank of California, 5.55%, 7/11/97 ................. 5,000,000 5,000
World Savings Bank, 5.57%, 7/8/97 ........................ 5,000,000 5,000
10,000
Commercial Paper 0.1%
Investments in Commercial Paper through a Joint Account
6.05 - 6.20%, 7/1/97 ............................. 1,496,051 1,496
1,496
Total Short-Term Investments (Cost $ 11,496) ............. 11,496
<PAGE>
Total Investments in Securities
99.8% of Net Assets (Cost $865,958) ...................... $ 1,117,788
Other Assets Less Liabilities ............................ 2,370
NET ASSETS .............................................. $ 1,120,158
Net Assets Consist of:
Accumulated net investment income -
net of distributions .................................... $ 407
Accumulated net realized gain/loss -
net of distributions ..................................... 5,034
Net unrealized gain (loss) ............................... 251,824
Paid-in-capital applicable to 70,959,136
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares authorized ............. 862,893
NET ASSETS ............................................... $ 1,120,158
NET ASSET VALUE PER SHARE ................................ $ 15.79
* Non-income producing
ARM Adjustable rate mortgage
GPM Graduated payment mortgage
LYONs Liquid Yield Option Notes
MTN Medium term note
PTC Pass-through Certificate
REIT Real Estate Investment Trust
REMIC Real Estate Mortgage Investment Conduit
STEP Stepped Coupon Bond
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 period-end amounts to
3.13% of net assets.
AUD Australian dollar
BEF Belgian franc
CHF Swiss franc
DEM German deutschemark
DKK Danish krone
FIM Finnish mark
FRF French franc
GBP British sterling
HKD Hong Kong dollar
ITL Italian lira
JPY Japanese yen
MXN Mexican peso
<PAGE>
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.
Unaudited
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
6/30/97
Investment Income
Income
Interest ................................................ $ 16,180
Dividend ................................................ 6,011
Total income ............................................ 22,191
Expenses
Investment management ................................... 2,424
Shareholder servicing ................................... 1,582
Custody and accounting .................................. 115
Registration ............................................ 64
Prospectus and shareholder reports ...................... 28
Legal and audit ......................................... 8
Directors ............................................... 6
Miscellaneous ........................................... 10
Total expenses .......................................... 4,237
Net investment income ....................................... 17,954
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities .............................................. 5,436
Foreign currency transactions ........................... (31)
Net realized gain (loss) ................................ 5,405
Change in net unrealized gain or loss
Securities .............................................. 86,565
Other assets and liabilities
denominated in foreign currencies ....................... (3)
Change in net unrealized gain or loss ................... 86,562
Net realized and unrealized gain (loss) ..................... 91,967
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ...................................... $ 109,921
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited
================================================================================
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/97 12/31/96
Increase (Decrease) in Net Assets
Operations
Net investment income ........................... $ 17,954 $ 28,942
Net realized gain (loss) ........................ 5,405 7,050
Change in net unrealized gain or loss ........... 86,562 71,743
Increase (decrease) in net assets from operations 109,921 107,735
Distributions to shareholders
Net investment income ........................... (18,027) (28,540)
Net realized gain ............................... (1,359) (7,546)
Decrease in net assets from distributions ....... (19,386) (36,086)
Capital share transactions *
Shares sold ..................................... 242,393 351,508
Distributions reinvested ........................ 18,134 33,200
Shares redeemed ................................. (106,877) (188,611)
Increase (decrease) in net assets from capital
share transactions .............................. 153,650 196,097
Net equalization .................................... - 139
Net Assets
Increase (decrease) during period ................... 244,185 267,885
Beginning of period ................................. 875,973 608,088
End of period ....................................... $ 1,120,158 $ 875,973
*Share information
Shares sold ..................................... 16,409 25,935
Distributions reinvested ........................ 1,189 2,382
Shares redeemed ................................. (7,145) (13,802)
Increase (decrease) in shares outstanding ....... 10,453 14,515
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited June 30, 1997
================================================================================
Notes to Financial Statements
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
================================================================================
T. Rowe Price Balanced Fund, Inc. (the fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company.
VALUATION Equity securities are valued at the last quoted sales price on
the day the valuations are made. A security which is listed or traded on more
than one exchange is valued at the quotation on the exchange determined to be
the primary market for such security. Listed securities not traded on a
particular day and securities regularly traded in the over-the-counter market
are valued at the mean of the latest bid and asked prices.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service.
Short-term debt securities are valued at amortized cost which, when combined
with accrued interest, approximates fair value.
For purposes of determining 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 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 for financial reporting
purposes and as ordinary income for tax purposes.
<PAGE>
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 January 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.
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.
SECURITIES LENDING The fund lends its securities to approved brokers to
earn additional income and takes cash and U.S. Treasury securities as collateral
to secure the loans. Collateral is maintained at not less than 100% of the value
of loaned securities. At June 30, 1997, the value of securities on loan was
$141,741,000. 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.
OTHER Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $152,321,000 and $44,934,000,
respectively, for the six months ended June 30, 1997. Purchases and sales of
U.S. government securities aggregated $99,704,000 and $51,490,000, respectively,
for the six months ended June 30, 1997.
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 June 30, 1997, the aggregate cost of investments for federal income tax
and financial reporting purposes was $865,958,000, and net unrealized gain
aggregated $251,830,000, of which $263,129,000 related to appreciated
investments and $11,299,000 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 $434,000 was payable at June 30, 1997. 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 0.30% for assets in excess of $80 billion. At June
30, 1997, and for the six months then ended, the effective annual group fee rate
was 0.33%. The fund pays a pro-rata share of the group fee based on the ratio of
its net assets to those of the group.
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 sub accounting and recordkeeping services for certain retirement
accounts invested in the fund. The fund incurred expenses pursuant to these
related party agreements totaling approximately $1,447,000 for the six months
ended June 30, 1997, of which $234,000 was payable at period-end.
T. Rowe Price Shareholder Services
================================================================================
INVESTMENT SERVICES AND INFORMATION
- --------------------------------------------------------------------------------
KNOWLEDGEABLE SERVICE REPRESENTATIVES
================================================================================
BY PHONE Shareholder service representatives are available from 8 a.m. to
10 p.m. ET Monday through Friday and from 8:30 a.m. to 5 p.m. ET on weekends.
Call 1-800-225-5132 to speak directly with a representative who will be able to
assist you with your accounts.
IN PERSON Visit one of our investor center locations to meet with a
representative who will be able to assist you with your accounts. You can also
drop off applications or obtain prospectuses and other literature at these
centers.
Automated 24-Hour Services
================================================================================
<PAGE>
TELE*ACCESS [REGISTRATION MARK] Call 1-800-638-2587 to obtain information
such as account balance, date and amount of your last transaction, latest
dividend payment, fund prices, and yields. Additionally, you have the ability to
request prospectuses, statements, and account and tax forms; to reorder checks;
and to initiate purchase, redemption, and exchange orders for identically
registered accounts.
T.ROWE PRICE ONLINE Through a personal computer via dial-up modem, you can
replicate all the services available on Tele*Access plus conduct transactions in
your Discount Brokerage and Variable Annuity accounts.
Account Services
================================================================================
CHECKING Write checks for $500 or more on any money market and most bond
fund accounts (except the High Yield and Emerging Markets Bond Funds).
AUTOMATIC INVESTING Build your account over time by investing directly from
your bank account or paycheck with Automatic Asset Builder. Additionally,
Automatic Exchange enables you to set up systematic investments from one fund
account into another, such as from a money fund into a stock fund. A $50 minimum
makes it easy to get started.
AUTOMATIC WITHDRAWAL If you need money from your fund account on a regular
basis, you can establish scheduled, automatic redemptions.
DIVIDEND AND CAPITAL GAINS PAYMENT OPTIONS Reinvest all or some of your
distributions, or take them in cash. We give you maximum flexibility and
convenience.
DISCOUNT BROKERAGE*
================================================================================
INVESTMENTS AVAILABLE You can trade stocks, bonds, options, precious
metals, and other securities at a savings over regular commission rates.
TO OPEN AN ACCOUNT Call a shareholder service representative for more
information.
Investment Information
================================================================================
COMBINED STATEMENT A comprehensive overview of your T. Rowe Price accounts
is provided. The summary page gives you earnings by tax category, provides total
portfolio value, and lists your investments by type-stock, bond, and money
market. Detail pages itemize account transactions by fund.
SHAREHOLDER REPORTS Portfolio managers review the performance of the funds
in plain language and discuss T. Rowe Price's economic outlook.
<PAGE>
T. ROWE PRICE REPORT This is a quarterly newsletter with relevant articles
on market trends, personal financial planning, and T. Rowe Price's economic
perspective.
PERFORMANCE UPDATE This quarterly report reviews recent market developments
and provides comprehensive performance information for every T. Rowe Price fund.
INSIGHTS This library of information includes reports on mutual fund tax
issues, investment strategies, and financial markets.
DETAILED INVESTMENT GUIDES Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Diversifying Overseas: A Guide to International Investing,
Retirees Financial Guide, and Retirement Planning Kit (also available on disk
for PC use) can help you determine and reach your investment goals.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
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
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Science & Technology
Small-Cap Stock**
Small-Cap Value*
Spectrum Growth
Value
INTERNATIONAL/GLOBAL
<PAGE>
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
Global Government Bond
Emerging Markets Bond
International Bond
<PAGE>
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 Income
Personal Strategy Balanced
Personal Strategy Growth
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
* Closed to new investors.
** Formerly the OTC Fund.
Please call for a prospectus. Read it carefully before you invest or send money.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access [Registration Mark]:
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
<PAGE>
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 Balanced Fund.
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
T. Rowe Price Investment Services, Inc., Distributor. F68-051 6/30/97
