ANNUAL REPORT
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Balanced Fund
- --------------------------------------------------------------------------------
December 31, 1996
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Report Highlights
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* The stock market provided another 20%-plus gain in 1996, while bond market
returns were modest.
* The Balanced Fund returned 8.77% and 14.57% for the 6- and 12-month periods
ended December 31, respectively, exceeding its peer group but slightly
lagging the unmanaged index portfolio in both periods.
* The stock portion of the portfolio garnered strong performance from
large-company stocks, which led the overall equity market. The bond portion
again got solid results from high-yield (lower-quality) bonds.
* We expect stocks to advance at a much slower pace in 1997, while bond
returns should come mostly from income rather than capital appreciation.
<PAGE>
Fellow Shareholders
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The resilient stock market shrugged off rising interest rates earlier in
1996 and a midyear correction to notch its second consecutive gain of more than
20%. Bonds had a seesaw year, with prices dropping in the first half due to a
surging economy and inflation concerns but recovering some ground over the last
six months as the economy cooled and inflation fears subsided.
The broad stock market, as measured by the Standard & Poor's 500 Stock
Index, gained 11.68% over the last six months to finish with a full-year return
of nearly 23%. After a negative return in the first half, the Lehman Aggregate
Bond Index recovered somewhat in the last six months to post a modest full-year
return of 3.6%.
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Performance Comparison
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Periods Ended 12/31/96 6 Months 12 Months
- --------------------------------------------------------------------------------
Balanced Fund 8.77% 14.57%
Lipper Balanced Fund Index 8.34 13.01
Combined Index Portfolio * 9.02 14.97
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* An unmanaged portfolio of 60% stocks (S&P 500) and 40% bonds (Lehman
Aggregate Bond Index).
================================================================================
Your fund's balanced approach, with 59% of assets in stocks and 41% in
fixed-income securities, paid off with a respectable 14.57% return in 1996.
Large-company stocks and high-yield bonds contributed significantly to
performance. As shown in the table, the fund exceeded the Lipper index of
similar funds for the last six months and the full year but slightly lagged the
unmanaged index portfolio in both periods.
YEAR-END DISTRIBUTIONS
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Your Board of Directors declared a fourth quarter dividend of $0.12 per
share and a long-term capital gain of $0.10, payable on December 30 to
shareholders of record on December 26. You should have received a check or
statement reflecting these distributions as well as your Form 1099-DIV reporting
them for tax purposes.
MARKET ENVIRONMENT
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Market volatility picked up significantly in 1996, returning to normal
levels after several unusually calm years. The economy soared to an annualized
growth rate of 4.7% in the second calendar quarter, fanning fears of inflation.
In response, bond yields moved up sharply, with the benchmark 30-year Treasury
bond yield rising to a high of just over 7% in June. However, after the economy
slowed to a 2.1% growth rate in the third quarter, rates fell back, with the
long bond yield finishing the year at 6.6%.
<PAGE>
Over the last two years, the stock market (as measured by the S&P 500)
returned 69%, one of its best back-to-back advances ever. After enduring a
modest correction in the summer as investors grew concer ned about high
valuations and some earnings disappointments, stocks rallied st rongly over the
second half, buoyed by moderate economic growth, subdued inflation, and strong
cash flows into equity mutual funds. Large companies, which represent 38% of
your fund's assets, overtook their smaller brethren over the last six months and
for the full year as investors sought the relative safety and better earnings
momentum of bigger companies. Natural resources companies also had a good year
due mostly to rising oil and natural gas prices.
While slowing over the last six months, many foreign equity markets posted
decent gains for the year, though not quite as exuberant as the U.S. market.
Individual countries in Europe, Latin America, and Asia surged to double-digit
returns, although Japan was again disappointing. As in the U.S., larger
international companies outperformed their smaller counterparts and companies
based in emerging markets.
The best-performing sector of the bond market for the year was high-yield
bonds, which are more sensitive to the direction of the economy and the stock
market than to interest rates. Since rates ended the year slightly higher, bond
returns came entirely from income rather than capital appreciation. Hence,
higher-yielding corporate and mortgage-backed securities outperformed Treasuries
for the full year.
PORTFOLIO REVIEW
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Over the last six months, the fund inched closer to its long-term target of
60% stocks and 40% bonds. By maintaining an even keel, the fund should provide
attractive returns over the long haul while avoiding the extreme highs and lows
of the stock and bond markets. The past year was a case in point. While not
rising as high as the broad stock market, the fund averted the disappointing
returns of the bond market to post a respectable overall return.
The pie chart shows the fund's security diversification as of year-end.
There were few changes from six months ago. Our biggest exposure continued to be
in large-company stocks, which led the market advance for all of 1996 despite
lagging small companies in the first half. Our international exposure rose
slightly to 15% of assets. Our bond holdings are fairly evenly spread among
mortgage-backed issues, corporates, and government bonds. The fund remains fully
invested, with just 2% of assets in cash reserves.
Overall, the fund remains neutral on stocks and bonds, very close to the
60%/40% mix of the combined index portfolio. While we do not want to be overly
cautious, this is not a time to be aggressive on stocks, given the market's high
valuations. Our biggest deviation from the index is our foreign exposure, since
the index contains only domestic securities.
<PAGE>
Over the last six months, we increased our exposure to high-yielding real
estate investment trusts (REITs), including Security Capital Industrial Trust
and Patriot American Hospitality, which boast good growth prospects and should
perform well if the market slows down or experiences a decline. Other new
holdings include St. Paul Companies, a property and casualty insurer, and
Reynolds Metals, the world's second - largest aluminum producer.
Our best performer was Intel, now our second-largest equity holding. The
stock soared 75% during the second half due to the growing dominance of the
Pentium chip in personal computers, both here and abroad. Compaq Computer also
benefited from the vibrant market for personal computers, rising about 50%.
Our bank holdings also did well. Chase Manhattan (following its merger with
Chemical Banking), KeyCorp, and BankAmerica all posted returns in excess of 30%,
well ahead of the S&P 500 in the second half. Boeing moved steadily higher,
propelled by numerous new orders and its announced acquisition of McDonnell
Douglas, which should firmly cement its position as the world's largest aircraft
manufacturer.
Of course, not all of our holdings did well. The utility sector was weak
again. Rising interest rates were the main culprit, although the nationwide push
for more competition in the consumer power market hurt electric utilities. AT&T,
one of the fund's biggest holdings, fell amid confusion and competition in the
long-distance market. PepsiCo was hurt by earnings disappointments, mostly
related to problems in its South American beverage operations. After a strong
first half, many retailers stumbled over the last six months, particularly Tandy
and The Gap.
==============================
we continue to rely on foreign
stocks for diversification ...
- ------------------------------
While our international holdings performed well in the second half, they
slightly lagged the energetic U.S. market. Nevertheless, we continue to rely on
foreign stocks for diversification away from the domestic equity market, where
valuations have reached high levels. The best major market in the second half
was the U.K., where the combination of stock returns plus the strength in the
pound produced a gain in excess of 20%. Two U.K. banks, Barclay's and HSBC
Holdings (which operates primarily in Hong Kong), were strong performers. The
fund also benefited from robust markets in Hong Kong and the Netherlands, which
account for a significant part of our foreign exposure. Getronics, a Dutch data
processing services concern, and Cheung Kong Holdings, a real estate developer
and investment company, provided solid gains.
<PAGE>
The bond part of your portfolio continued to benefit from its exposure to
high-yield bonds, which outperformed other fixed income securities over the last
six months and for the entire year. We held nearly 7% of fund assets in
high-yield, noninvestment-grade bonds, mainly single-B and double-B rated
issues, the upper echelon of the noninvestment-grade universe. The high-yield
sector returned more than 9% in the second half, bolstered by sustained economic
and corporate earnings growth.
We remained overweighted (as compared with the combined index portfolio) in
investment-grade corporate and mortgage-backed securities. This strategy proved
beneficial because these sectors outperformed Treasuries and other government
obligations over the last six months.
Given mixed signals on the economy and inflation, we maintained a neutral
stance on interest rates by keeping the overall effective duration of our fixed
income portfolio essentially in line with our competitor funds. (Duration is a
measure of a fund's price sensitivity to interest rate changes.) While the
economy appeared strong, portending a rise in rates, inflation remained low,
creating the possibility of lower rates. The drop in interest rates over the
last six months helped your bond portfolio generate reasonable returns.
OUTLOOK
- --------------------------------------------------------------------------------
We expect the conditions underlying the financial markets to stay pretty
much the same in 1997: low unemployment, relatively benign inflation, and
moderate economic growth, on the order of 2.5%. The U.S. stock market should
continue to advance, but at a slower pace than the past two years.
The domestic bond market could also provide moderate returns. Until growth
slows significantly or inflation picks up, we expect long-term Treasury yields
to fluctuate in a range of 6% to 7%. In this environment, bond returns should
come mostly from income rather than capital appreciation.
Foreign equities appear to offer better value right now than their U.S.
counterparts. Many foreign countries are in earlier stages of economic
recoveries and hold the potential for more sustainable growth in corporate
earnings.
As always, the Balanced Fund will remain well diversified in an effort to
capture good long-term returns with less volatility than more concentrated
portfolios. Thanks to all our shareholders for your support.
Respectfully submitted,
[Signature]
Richard T. Whitney
President and Chairman of the Investment Advisory Committee
January 20, 1997
<PAGE>
================================================================================
Sticking To Your Game Plan
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[Chart showing TIME REDUCES VOLATILITY OF MARKET RETURNS]
In our report to you one year ago, we mentioned the possibility of a modest
decline in stock prices. In fact, from May to July 1996, the broad market (as
measured by the Standard & Poor's 500 Stock Index) fell around 7%. However, the
bull market resumed its charge to post a robust 23% gain for the year.
Some believe the market is poised for a significant downturn. We do not
expect a major drop in stock prices in 1997, although another modest pullback is
possible. On balance, we expect stocks to advance at a much slower pace.
How should you prepare for a potential market pullback? As always, our
advice is to diversify your investments and focus on the long term. If you've
implemented a sound investment strategy, stay the course. Stocks have
historically overcome periods of volatility to provide better returns than most
other investments. Market corrections can even have a silver lining because they
result in good buying opportunities.
Furthermore, the volatility of stock market returns has diminished
significantly over longer time frames. The chart shows the best and worst
annualized returns on stocks over various rolling time periods between 1950 and
1996. (For instance, there were 37 rolling 10-year periods: 1950-1960,
1951-1961, etc.) Investors who held stocks for only one year could have had as
much as a 52.6% gain, or as little as a 26.5% loss -- a spread of 79 percentage
points. However, investors who held stocks for 10-year periods or longer always
overcame interim volatility to post gains for the entire period.
In addition, a well-diversified portfolio can weather volatility better than a
more concentrated portfolio over the long term and particularly during market
corrections. For example, during last summer's correction, small-company stocks
fell nearly 16% while large-company issues dropped 7.3%. However, a portfolio
diversified among large U.S. companies (30% of assets), small U.S. companies
(15%), foreign companies (15%), intermediate-term Treasury bonds (30%), and
Treasury bills (10%) would have lost a smaller 5.2% of its value. {1}
Above all, remember that investing is a long-distance race, not a
sprint.
- --------------------------------------------------------------------------------
{1} Ned Davis Research.
================================================================================
<PAGE>
Portfolio Highlights
================================================================================
LARGEST HOLDINGS
Percent of
Net Assets
Stocks 12/31/96
- --------------------------------------------------------------------------------
GE 0.9%
Intel 0.8
American International Group 0.7
British Petroleum 0.6
Procter & Gamble 0.6
Chase Manhattan 0.6
Coca-Cola 0.6
Mobil 0.5
Getronics 0.5
AT&T 0.5
- --------------------------------------------------------------------------------
Total 6.3%
================================================================================
Percent of
Net Assets
Bonds 12/31/96
- --------------------------------------------------------------------------------
U.S. Treasury 9.9%
Ginnie Mae 9.8
Fannie Mae 2.5
Freddie Mac 0.6
Security Benefit Life 0.4
MBNA 0.4
Discover Card 0.4
Santander Financial Issuances 0.3
Fairfax Financial Holdings 0.3
Boeing 0.3
- --------------------------------------------------------------------------------
Total 24.9%
================================================================================
<PAGE>
Portfolio Highlights
================================================================================
SECTOR Diversification
Percent of Percent of
Net Assets Net Assets
6/30/96 12/31/96
================================================================================
Stocks*
- --------------------------------------------------------------------------------
Consumer Nondurables 11.1% 11.7%
Financial 9.3 11.3
Consumer Services 5.9 5.5
Energy 4.5 5.3
Technology 4.8 5.1
Utilities 4.6 5.1
Capital Equipment 3.3 4.1
Process Industries 3.2 3.4
Business Services 3.1 3.3
Consumer Cyclicals 2.6 3.2
Basic Materials 0.6 0.8
Conglomerates 0.3 0.1
Stock Index Futures 3.9 --
- --------------------------------------------------------------------------------
Total 57.2% 58.9%
Bonds and Reserves
U.S. Government and Agency Bonds
U.S. Treasury Obligations 12.8% 9.9%
Mortgage-Backed 10.1 9.5
Other U.S. Gov't. and Agencies 1.4 2.8
Agency-Backed CMOs 0.2 0.5
Project Loans 0.4 0.3
Corporate and Other
Investment Grade 7.8% 9.4%
Noninvestment Grade 7.1 6.7
Reserves 3.0 2.0
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Total 42.8% 41.1%
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* Includes foreign securities
<PAGE>
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Performance Comparison
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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.
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Periods Ended 12/31/96 1 Year 3 Years 5 Years 10 Years
Balanced Fund 14.57% 11.91% 11.34% 11.01%
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>
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights ^
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Two Months Year
Ended Ended Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 10/31/92
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
Beginning of period ............... $ 13.22 $ 11.14 $ 12.02 $ 11.07 $ 10.86 $ 11.43
Investment activities
Net investment income ....... 0.51 0.48 0.43 0.40 * 0.06 * 0.33
Net realized and
unrealized gain (loss) ...... 1.38 2.24 (0.68) 1.05 0.29 0.86
Total from
investment activities ....... 1.89 2.72 (0.25) 1.45 0.35 1.19
Distributions
Net investment income ....... (0.50) (0.47) (0.43) (0.39) (0.09) (0.58)
Net realized gain ........... (0.13) (0.17) (0.20) (0.11) (0.05) (1.18)
Total distributions ......... (0.63) (0.64) (0.63) (0.50) (0.14) (1.76)
NET ASSET VALUE
End of period ..................... $ 14.48 $ 13.22 $ 11.14 $ 12.02 $ 11.07 $ 10.86
Ratios/Supplemental Data
Total return ...................... 14.57% 24.88% (2.05)% 13.35% * 3.32% * 11.20%
Ratio of expenses to
average net assets ................ 0.87% 0.95% 1.00% 1.00% * 1.00% *+ 1.03%
Ratio of net investment
income to average
net assets ........................ 3.70% 3.87% 3.72% 3.45% * 3.85% *+ 4.07%
Portfolio turnover rate ........... 22.3% 12.6% 33.3% 8.7% 58.0% + 207.7%
Average commission
rate paid ......................... $ 0.0405 -- -- -- -- --
Net assets, end of period
(in thousands) .................... $ 875,973 $ 608,088 $ 392,003 $ 340,800 $ 250,035 $ 239,195
- ------------------------------------------------------------------------------------------------------------------------------------
<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>
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</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Net Assets
- --------------------------------------------------------------------------------
Shares/Par Value
In thousands
- --------------------------------------------------------------------------------
Common Stocks & Warrants 58.2%
FINANCIAL 10.6%
Bank and Trust 5.7%
Abbey National (GBP) ..................................... 124,000 $ 1,625
Air Liquide (L) (FRF) .................................... 5,500 859
AmSouth Bancorporation ................................... 5,400 261
Australian & New Zealand Banking ADR ..................... 21,500 669
Banca Commerciale Italiana (ITL) ......................... 210,000 382
Banco de Bilbao Vizcaya ADR .............................. 20,000 1,068
Banco Frances del Rio ADR ................................ 34,500 949
Bancorp Hawaii ........................................... 4,100 172
Bank of Boston ........................................... 7,700 495
BankAmerica .............................................. 27,000 2,693
Bankgesellschaft Berlin (DEM) ............................ 57,000 1,037
Barclay's (GBP) .......................................... 101,278 1,736
Central Fidelity Banks ................................... 9,450 246
Charter One Financial .................................... 9,576 403
Chase Manhattan .......................................... 55,040 4,912
Citicorp ................................................. 35,000 3,605
Compass Bancshares ....................................... 6,200 248
CoreStates Financial ..................................... 6,370 330
Crestar Financial ........................................ 3,200 238
Deutsche Bank (DEM) ...................................... 18,700 877
Deutsche Bank, warrants, 6/30/97 (DEM) * ................. 200 3
Development Bank of Singapore (SGD) ...................... 64,000 864
First American ........................................... 7,800 451
First Security ........................................... 11,100 376
First Tennessee National ................................. 3,600 135
First Union .............................................. 25,000 1,850
First USA ................................................ 7,000 242
First Virginia Banks ..................................... 5,700 273
Grupo Financiero Bancomer ADR (144a) * ................... 20,000 160
HSBC Holdings (GBP) ...................................... 104,000 2,325
J. P. Morgan ............................................. 20,000 1,953
KeyCorp .................................................. 50,000 2,525
Kredietbank (BEF) ........................................ 2,500 820
Mellon Bank .............................................. 18,750 $ 1,331
Mercantile Bancorporation ................................ 4,200 216
NationsBank .............................................. 35,368 3,457
<PAGE>
Norwest .................................................. 30,000 1,305
Old Kent Financial ....................................... 5,953 284
Overseas Chinese Bank (SGD) .............................. 56,000 696
Regions Financial ........................................ 9,100 470
Union Bank of Switzerland, bearer shares (CHF) ........... 1,400 1,227
Schweizerischer Bankverein (CHF) ......................... 8,440 1,605
Schweizerischer Bankverein, warrants, 6/30/98 (CHF) * .... 240 2
Societe Generale (FRF) ................................... 7,018 759
Societe Generale de Belgique (BEF) ....................... 8,500 667
SouthTrust ............................................... 9,500 331
Star Banc ................................................ 6,300 579
Summit Bancorp ........................................... 4,200 184
U. S. Bancorp ............................................ 18,522 832
Washington Federal ....................................... 18,590 488
Westpac Bank (AUD) ....................................... 90,000 512
49,727
Insurance 2.2%
Aetna .......................................... 2,695 216
American General ............................... 48,000 1,962
American International Group ................... 53,100 5,748
CKAG Colonia Konzern (DEM) ..................... 6,000 495
Conseco ........................................ 5,800 370
Equitable Companies ............................ 9,400 231
Horace Mann Educators .......................... 10,200 412
John Alden Financial ........................... 8,000 148
MAIC Holdings * ................................ 8,588 291
MBIA ........................................... 3,100 314
MGIC Investment ................................ 11,600 882
Ohio Casualty .................................. 5,100 182
Old Republic International ..................... 7,050 189
Progressive Corporation ........................ 4,200 283
St. Paul Companies ............................. 33,000 1,935
Sunamerica ..................................... 8,100 359
Torchmark ...................................... 39,300 1,985
UNUM ........................................... 50,000 3,612
19,614
Financial Services 2.7%
A.G. Edwards .............................. 13,475 $ 453
ADVANTA ................................... 4,500 192
ADVANTA (Class B) ......................... 5,550 226
AMBAC ..................................... 11,100 737
American Express .......................... 40,000 2,260
AXA (FRF) ................................. 15,000 954
Countrywide Credit ........................ 113,925 3,261
DCB Holdings (MYR) ........................ 185,000 634
Fannie Mae ................................ 78,000 2,905
Green Tree Financial ...................... 21,400 827
<PAGE>
H&R Block ................................. 30,900 896
Household International ................... 24,000 2,214
ING Groep (NLG) ........................... 51,674 1,862
Medaphis * ................................ 14,600 163
Mercury Finance ........................... 18,600 228
Pearson (GBP) ............................. 150,000 1,915
Presstek * ................................ 15,000 1,069
Salomon ................................... 6,800 320
Travelers Group ........................... 52,665 2,390
United Asset Management ................... 16,000 426
23,932
Total Financial ........................... 93,273
UTILITIES 5.1%
Telephone 3.3%
Ameritech .............................................. 24,000 1,455
AT&T ................................................... 97,200 4,228
Bell Atlantic .......................................... 18,100 1,172
BellSouth .............................................. 97,000 3,916
British Telecommunications ADR ......................... 20,000 1,373
Compania de Telecomunicaciones de Chile ADR4,000 ....... 405
COMSAT ................................................. 4,900 121
Frontier ............................................... 8,000 181
GTE .................................................... 50,600 2,302
Hong Kong Telecommunications ADR ....................... 37,288 606
Pacific Telesis ........................................ 46,300 1,702
SBC Communications ..................................... 54,400 $ 2,815
Southern New England Telecommunications ................ 4,900 190
Telecom Corporation of New Zealand (NZD) ............... 520,000 2,654
Telecom Italia (ITL) ................................... 571,000 1,483
Telecom Italia Mobile (ITL) ............................ 571,000 1,447
Telefonica de Espana ADR ............................... 12,000 831
Telekom Malaysia (MYR) ................................. 70,000 624
Telmex ADR ............................................. 30,000 990
U S WEST Media * ....................................... 20,000 370
28,865
Electric Utilities 1.8%
Duke Power .......................................... 27,400 1,267
Edison International ................................ 104,000 2,067
Electrabel (BEF) .................................... 2,400 568
Empresa Nacional de Electricidad ADR ................ 12,200 854
Empresa Nacional de Electricidad Chile ADR .......... 20,000 310
Entergy ............................................. 53,000 1,471
FPL Group ........................................... 25,600 1,178
Hong Kong Electric (HKD) ............................ 200,000 665
<PAGE>
Niagara Mohawk * .................................... 102,500 1,012
Ohio Edison ......................................... 75,000 1,706
Public Service of New Mexico * ...................... 50,000 981
Texas Utilities ..................................... 20,000 815
Unicom .............................................. 67,000 1,817
VEBA (DEM) .......................................... 19,000 1,099
15,810
Total Utilities ..................................... 44,675
CONSUMER NONDURABLES 11.7%
Cosmetics 0.2%
International Flavors & Fragrances .............. 11,700 527
Kao (JPY) ....................................... 87,000 1,014
1,541
Beverages 1.6%
Anheuser-Busch .................................. 64,000 2,560
Coca-Cola ....................................... 92,600 4,873
LVMH (FRF) ...................................... 9,541 2,665
PepsiCo ......................................... 100,400 $ 2,937
Starbucks * ..................................... 24,400 698
13,733
Food Processing 2.2%
Archer Daniels Midland .......................... 64,165 1,411
Cadbury Schweppes ADR ........................... 31,586 1,078
ConAgra ......................................... 24,900 1,239
CPC International ............................... 12,900 1,000
CSM (NLG) ....................................... 17,000 945
Danisco (DKK) ................................... 16,000 972
Earthgrains ..................................... 1,280 67
Eridania Beghin-Say (FRF) ....................... 4,000 644
General Mills ................................... 29,300 1,857
Heinz ........................................... 77,000 2,753
Kellogg ......................................... 3,100 203
McCormick ....................................... 10,300 243
Nestle (CHF) .................................... 1,684 1,808
Ralston Purina .................................. 23,204 1,702
Sara Lee ........................................ 80,800 3,010
Universal Foods ................................. 7,100 250
19,182
<PAGE>
Hospital Supplies/Hospital Management 1.3%
Abbott Laboratories ................................ 58,800 2,984
Allegiance ......................................... 8,000 221
Baxter International ............................... 40,000 1,640
Columbia/HCA Healthcare ............................ 55,500 2,262
Health Management (Class A) * ...................... 36,112 813
HealthCare COMPARE * ............................... 12,900 548
Hillenbrand Industries ............................. 11,600 421
Humana * ........................................... 22,400 428
Medtronic .......................................... 16,000 1,088
St. Jude Medical * ................................. 26,000 1,108
11,513
Pharmaceuticals 3.7%
American Home Products ............................. 56,600 3,318
Amgen * ............................................ 49,600 2,700
Astra (SEK) ........................................ 30,000 1,447
Bristol-Myers Squibb ............................... 38,400 4,176
Chiron * ........................................... 3,704 $ 69
Forest Laboratories * .............................. 4,500 147
Gehe (DEM) ......................................... 11,250 720
Glaxo Wellcome ADR ................................. 30,400 965
IDEXX Laboratories * ............................... 11,800 426
Merck .............................................. 35,500 2,813
Novartis (CHF) ..................................... 1,386 1,588
Perrigo * .......................................... 9,900 89
Pfizer ............................................. 48,600 4,028
Pharmacia & Upjohn ................................. 60,000 2,378
SmithKline Beecham ADR ............................. 61,200 4,162
Takeda Chemical Industries (JPY) ................... 72,000 1,511
Warner-Lambert ..................................... 27,000 2,025
32,562
Health Care Services 0.3%
Altana AG (DEM) * ............................. 1,000 779
Olsten ........................................ 4,118 62
United HealthCare ............................. 37,700 1,696
2,537
Miscellaneous Consumer Products 2.4%
Arctic Cat .................................... 2,550 25
Benetton Group (ITL) .......................... 38,000 481
Bridgestone (JPY) ............................. 69,000 1,311
Burlington Industries * ....................... 17,700 195
Colgate-Palmolive ............................. 30,100 2,777
CUC International * ........................... 23,499 558
Duracell International ........................ 6,900 482
<PAGE>
Fruit of the Loom (Class A) * ................. 3,300 125
Grand Metropolitan ADR ........................ 16,000 506
Hanson ADR .................................... 63,000 425
Huhtamaki (FIM) ............................... 10,000 467
Imperial Tobacco Group ADR * .................. 15,750 201
Jones Apparel Group * ......................... 33,600 1,256
Kuraray (JPY) ................................. 127,000 1,173
Lion Nathan (NZD) ............................. 175,000 419
Philip Morris ................................. 2,500 282
Philips N.V. ADR .............................. 31,200 1,248
Procter & Gamble .............................. 49,400 5,311
Service Corp. ................................. 74,600 $ 2,089
Springs Industries ............................ 39,700 1,707
Tambrands ..................................... 9,500 388
21,426
Total Consumer Nondurables .................... 102,494
CONSUMER SERVICES 5.5%
Restaurants 0.0%
Darden Restaurants ......................... 6,300 55
55
General Merchandisers 1.7%
Carrefour (FRF) ............................ 2,000 1,301
Dayton Hudson .............................. 86,100 3,379
Marui (JPY) ................................ 53,000 957
May Department Stores ...................... 51,400 2,403
PriceCostco * .............................. 100,000 2,519
Tesco (GBP) ................................ 202,143 1,229
TJX ........................................ 44,000 2,085
Wal-Mart ................................... 51,400 1,176
15,049
Specialty Merchandisers 1.4%
Callaway Golf ..................................... 13,000 374
Circuit City Stores ............................... 65,900 1,985
Fingerhut Companies ............................... 8,000 98
Gymboree * ........................................ 8,400 191
Heilig-Meyers ..................................... 4,500 73
Kohl's * .......................................... 18,600 730
Kroger * .......................................... 50,000 2,325
Payless Shoesource * .............................. 8,224 309
Petrie Stores Liquidation Trust * ................. 33,500 90
R. P. Scherer * ................................... 5,600 281
<PAGE>
Safeway * ......................................... 12,600 539
Staples * ......................................... 18,225 329
The Gap ........................................... 79,200 2,386
Toys "R" Us * ..................................... 59,100 1,773
Viking Office Products * .......................... 32,000 854
12,337
Entertainment and Leisure 1.4%
Applebee's ........................................ 10,600 $ 290
Brinker * ......................................... 8,775 140
Buffets * ......................................... 6,200 56
Casino America * .................................. 10,794 34
Chartwell Leisure * ............................... 1,080 14
Checkers Drive-In Restaurants * ................... 6,750 12
Disney ............................................ 48,139 3,352
HFS * ............................................. 21,600 1,291
Hutchison Whampoa (HKD) ........................... 390,000 3,063
International Game Technology ..................... 9,000 164
McDonald's ........................................ 10,000 453
Reader's Digest (Class A), non-voting ............. 35,000 1,409
Sbarro ............................................ 37,500 956
Sharp (JPY) ....................................... 72,000 1,026
Viacom (Class A) * ................................ 4,500 155
12,415
Media and Communications 1.0%
A. H. Belo (Class A) ............................. 6,800 237
A.C. Nielson * ................................... 4,700 71
Banta ............................................ 13,500 306
Cognizant ........................................ 14,100 465
Comcast (Class A Special) ........................ 40,000 713
Dun & Bradstreet ................................. 14,100 335
Elsevier (NLG) ................................... 50,000 846
Gannett .......................................... 13,800 1,033
Gaylord Entertainment ............................ 10,584 242
International CableTel * ......................... 11,999 301
McGraw-Hill ...................................... 32,200 1,485
Time Warner ...................................... 29,000 1,087
U S WEST Communications .......................... 20,000 645
Vanguard Cellular * .............................. 11,850 185
Vodafone ADR ..................................... 20,000 828
8,779
Total Consumer Services .......................... 48,635
<PAGE>
CONSUMER CYCLICALS 3.2%
Automobiles and Related 1.0%
Breed Technologies ............................... 5,600 $ 146
Cycle & Carriage (SGD) ........................... 50,000 611
Ford Motor ....................................... 6,530 208
Gentex * ......................................... 18,200 366
Genuine Parts .................................... 54,650 2,432
GM ............................................... 30,000 1,673
Honda ADR ........................................ 19,800 1,121
Pep Boys ......................................... 7,100 218
Superior Industries International ................ 8,000 185
TRW .............................................. 30,000 1,485
8,445
Building and Real Estate 1.0%
Cheung Kong Holdings (HKD) ....................... 283,000 2,516
City Developments (SGD) .......................... 50,000 450
DBS Land (SGD) ................................... 600,000 2,208
Hopewell Holdings (HKD) .......................... 948,339 613
Patriot American Hospitality, REIT ............... 50,000 2,156
Texas Industries ................................. 4,700 238
USG * ............................................ 14,600 495
8,676
Miscellaneous Consumer Durables 1.2%
Black & Decker .............................. 36,000 1,085
Corning ..................................... 30,000 1,388
Eastman Kodak ............................... 21,700 1,741
Harley-Davidson ............................. 3,800 179
Masco ....................................... 49,900 1,796
Ricoh (JPY) ................................. 100,000 1,148
Roussel UCLAF (FRF) ......................... 2,900 853
Scotts (Class A) * .......................... 10,000 199
Tandy ....................................... 20,000 880
Valspar ..................................... 18,100 1,025
York International .......................... 2,600 145
10,439
Total Consumer Cyclicals .................... 27,560
TECHNOLOGY 5.1%
Electronic Components 1.4%
Altera * .................................... 9,000 $ 654
EMC * ....................................... 11,500 381
Intel ....................................... 54,400 7,123
Linear Technology ........................... 35,800 1,571
Micron Technology ........................... 9,400 274
Molex ....................................... 9,765 382
<PAGE>
Motorola .................................... 20,000 1,227
Thermo Electron ............................. 9,787 404
Vicor * ..................................... 12,000 200
Xilinx * .................................... 12,600 464
12,680
Electronic Systems 0.6%
Applied Materials * ......................... 10,000 359
Hewlett-Packard ............................. 67,000 3,367
Honeywell ................................... 20,000 1,315
Solectron * ................................. 4,800 256
5,297
Information Processing 0.8%
Adaptec * ...................................... 14,000 561
COMPAQ Computer * .............................. 50,000 3,712
Hitachi ADR .................................... 11,900 1,101
IBM ............................................ 10,000 1,510
Imation ........................................ 1,800 50
Storage Technology * ........................... 5,000 238
7,172
Specialized Computer 0.4%
Silicon Graphics * ............................. 14,700 375
Sun Microsystems * ............................. 108,000 2,774
3,149
Telecommunications Equipment 0.9%
Bay Networks * ................................. 7,177 150
Cox Communications (Class A) * ................. 50,000 1,156
LM Ericsson (Class B) ADR ...................... 54,000 1,630
Lucent Technologies ............................ 15,296 708
Novell * ....................................... 45,600 432
PictureTel * ................................... 8,800 $ 228
Telecomunicacoes Brasileiras ADR ............... 20,000 1,530
Tellabs * ...................................... 23,200 874
World Com * .................................... 36,800 959
7,667
Aerospace and Defense 1.0%
AlliedSignal ................................... 36,000 2,412
Boeing ......................................... 31,000 3,298
Northrop ....................................... 30,000 2,483
United Technologies ............................ 9,400 620
8,813
Total Technology ............................... 44,778
<PAGE>
CAPITAL EQUIPMENT 4.1%
Electrical Equipment 3.1%
ABB AG (CHF) ...................................... 775 964
American Power Conversion * ....................... 10,300 281
Canon (JPY) ....................................... 40,000 884
Emerson Electric .................................. 28,100 2,719
GE ................................................ 75,400 7,455
Getronics (NLG) ................................... 166,444 4,521
Hubbell (Class A) ................................. 8,000 304
Hubbell (Class B) ................................. 80,252 3,471
Matsushita Electric Works (JPY) ................... 100,000 861
Mitsubishi Electric (JPY) ......................... 136,000 810
Siemens (DEM) ..................................... 13,000 613
Thermo Instrument Systems * ....................... 8,156 270
Tomkins ADR ....................................... 30,000 555
Tyco International ................................ 50,000 2,644
Westinghouse ...................................... 30,780 612
26,964
Machinery 1.0%
Caterpillar ....................................... 25,000 1,881
Coltec Industries * ............................... 29,900 564
Deere ............................................. 18,000 731
DII Group * ....................................... 160 4
FMC * ............................................. 12,000 842
Foster Wheeler .................................... 4,600 $ 171
GKN (GBP) ......................................... 45,000 772
Imo Industries * .................................. 2,800 9
Kennametal ........................................ 11,400 443
Man (DEM) ......................................... 2,500 606
SIG Schweis (CHF) ................................. 520 1,317
Stewart & Stevenson ............................... 6,300 183
Teleflex .......................................... 5,000 261
TriMas ............................................ 30,300 723
Valmet (FIM) ...................................... 32,000 563
9,070
Total Capital Equipment ........................... 36,034
BUSINESS SERVICES AND TRANSPORTATION 3.3%
Computer Service and Software 1.1%
Amtech * .......................................... 3,625 24
BMC Software * .................................... 20,000 831
Computer Associates ............................... 44,325 2,205
Electronic Arts * ................................. 7,500 225
Electronic Data Systems ........................... 44,223 1,913
HBO ............................................... 13,200 784
Informix * ........................................ 18,400 376
<PAGE>
Micro Warehouse * ................................. 5,600 65
Oracle * .......................................... 28,000 1,167
Parametric Technology * ........................... 23,200 1,193
SunGard Data Systems * ............................ 13,200 526
Sybase * .......................................... 7,000 117
9,426
Distribution Services 0.0%
Cardinal Health ................................... 5,437 317
317
Environmental 0.0%
Mid-American Waste Systems * ...................... 12,000 5
Molten Metal Technology * ......................... 11,900 141
146
Transportation Services 0.3%
Landstar Systems * ................................ 40,000 920
Mitsubishi Heavy Industries (JPY) ................. 137,000 1,088
United Engineers Berhad (MYR) * ................... 100,000 $ 903
2,911
Miscellaneous Business Services 0.8%
BAA (GBP) .......................................... 85,000 705
Browning-Ferris .................................... 25,000 656
Cintas ............................................. 3,600 212
Equifax ............................................ 17,800 545
GTECH * ............................................ 4,500 144
Manpower ........................................... 12,200 397
Merrill ............................................ 5,000 116
Omnicom ............................................ 13,400 613
Paychex ............................................ 18,675 961
Sime Darby Berhad (MYR) ............................ 200,000 788
WMX Technologies ................................... 47,200 1,540
6,677
Airlines 0.6%
AMR * .............................................. 20,000 1,763
Atlantic Southeast Airlines ........................ 4,200 92
KLM (NLG) .......................................... 23,000 647
Mesa Air Group * ................................... 17,300 119
Singapore Airlines (SGD) ........................... 80,000 726
UAL ................................................ 30,000 1,875
5,222
<PAGE>
Railroads 0.5%
Burlington Northern Santa Fe ....................... 15,100 1,304
CSX ................................................ 19,600 828
Illinois Central, Series A ......................... 14,850 475
Union Pacific ...................................... 14,000 842
Wisconsin Central Transportation * ................. 20,400 809
4,258
Total Business Services and Transportation ......... 28,957
ENERGY 5.3%
Energy Services 0.9%
El Paso Natural Gas ................................ 9,383 474
Elf Aquitaine (FRF) ................................ 9,000 819
Halliburton ........................................ 26,271 1,583
Helmerich & Payne .................................. 20,000 1,042
Highlands Insurance Group * ........................ 2,300 $ 47
Schlumberger ....................................... 30,100 3,006
Smith International * .............................. 18,300 821
Witco .............................................. 5,400 165
7,957
Exploration and Production 0.1%
Enron Oil & Gas ................................... 6,600 166
Ultramar Diamond Shamrock ......................... 9,100 288
Union Pacific Resources ........................... 11,857 347
801
Gas Transmission 0.5%
Enron ............................................. 50,000 2,156
ENSERCH ........................................... 14,300 329
MCN ............................................... 8,800 254
Questar ........................................... 7,400 272
Sonat ............................................. 29,000 1,494
4,505
Integrated Petroleum - Domestic1.6%
Amerada Hess ...................................... 37,700 2,182
Atlantic Richfield ................................ 10,900 1,444
British Petroleum ADR ............................. 38,000 5,372
MAPCO ............................................. 3,400 116
Phillips Petroleum ................................ 42,000 1,859
Santa Fe Energy Resources * ....................... 13,900 193
USX-Marathon ...................................... 140,000 3,342
14,508
<PAGE>
Integrated Petroleum - International 2.2%
Chevron ........................................... 39,600 2,574
ENI S.P.A. ADR .................................... 26,600 1,373
Exxon ............................................. 40,600 3,979
Mobil ............................................. 38,900 4,756
Repsol ADR ........................................ 24,000 915
Royal Dutch Petroleum ADR ......................... 10,000 1,707
Shell Transport & Trading ADR ..................... 11,000 1,126
Texaco ............................................ 26,600 2,610
19,040
Total Energy ...................................... 46,811
PROCESS INDUSTRIES 3.4%
Diversified Chemicals 0.7%
DuPont ............................................ 25,300 $ 2,388
Eastman Chemical .................................. 3,675 203
Monsanto .......................................... 90,500 3,518
6,109
Specialty Chemicals 1.6%
3M ................................................ 18,000 1,492
A. Schulman ....................................... 26,325 648
AKZO Nobel (NLG) .................................. 7,000 957
BASF (DEM) ........................................ 34,000 1,310
Bayer AG (DEM) .................................... 30,000 1,228
Crompton & Knowles ................................ 3,500 67
Great Lakes Chemical .............................. 25,000 1,169
IVAX .............................................. 5,200 53
Lyondell Petrochemical ............................ 7,100 156
McWhorter Technologies * .......................... 1,500 34
Millennium Chemicals * ............................ 4,499 80
Morton International .............................. 60,000 2,445
Pall .............................................. 8,533 218
Rohm & Haas ....................................... 28,000 2,285
Sumitomo Chemical (JPY) ........................... 175,000 694
Technip (FRF) ..................................... 10,000 939
13,775
Paper and Paper Products 0.9%
Dai Nippon Printing (JPY) .......................... 67,000 1,174
International Paper ................................ 46,000 1,857
Kimberly-Clark ..................................... 15,000 1,429
Kimberly-Clark Mexico (Class A) (MXN) .............. 53,000 1,030
Mead ............................................... 15,000 872
Schweitzer Mauduit ................................. 1,000 32
Sonoco Products .................................... 12,705 329
Willamette Industries .............................. 12,000 835
7,558
<PAGE>
Forest Products 0.2%
Georgia-Pacific .................................... 19,000 1,368
Pope & Talbot ...................................... 8,200 130
Weyerhaeuser ....................................... 12,700 $ 602
2,100
Total Process Industries ........................... 29,542
BASIC MATERIALS 0.8%
Metals 0.4%
Alcoa .............................................. 30,000 1,912
Carpenter Technology ............................... 5,400 198
Freeport-McMoRan Copper & Gold (Class A) ........... 9,600 270
Reynolds Metals .................................... 18,000 1,015
3,395
Mining 0.3%
CRA Limited (AUD) .................................. 40,000 628
LONRHO (GBP) ....................................... 170,000 364
TVX Gold * ......................................... 200,000 1,550
2,542
Miscellaneous Materials 0.1%
Malayan Cement (MYR) ............................... 250,000 574
Owens-Illinois * ................................... 15,300 348
922
Total Basic Materials .............................. 6,859
CONGLOMERATES 0.1%
ORKLA (NOK) ........................................ 7,500 521
Total Conglomerates ................................ 521
Total Common Stocks & Warrants (Cost $ 349,859) ...... 510,139
Preferred Stocks 0.0%
Deutsche Bank, 8.75%, participating certificates (DEM) . 20 15
Total Preferred Stocks (Cost $ 11)...................... 15
Convertible Preferred Stocks 0.7%
Aetna .................................................. 898 71
Security Capital Industrial Trust, REIT ................ 225,000 6,188
Total Convertible Preferred Stocks (Cost $5,116)........ 6,259
Convertible Bonds 0.1%
U S West LYONS, Zero Coupon, 6/25/11 ................... $2,000,000 $ 729
Total Convertible Bonds (Cost $667)..................... 729
<PAGE>
Corporate Bonds 16.1%
Aames Financial, Sr. Notes, 9.125%, 11/1/03............. 400,000 407
Abbey National First, 8.20%, 10/15/04 .................. 1,205,000 1,292
African Development Bank
7.75%, 12/15/01 ..... 1,000,000 1,049
Agricultural Minerals and Chemicals, Sr. Notes
10.75%, 9/30/03 ..... 1,000,000 1,087
Airplane Pass Through Trust, 10.875%, 3/15/19 .......... 490,000 548
Alabama Power, 1st Mtg. Notes, 7.00%, 1/1/03 ........... 725,000 726
Allied Waste North America, Sr. Sub. Notes, (144a)
10.25%, 12/1/06 ..... 650,000 683
Alpine Group, Sr. Secured Notes, 12.25%, 7/15/03 ....... 249,000 269
AMERCO, Sr. Notes, 7.85%, 5/15/03 ...................... 1,000,000 1,015
American Home Products, Notes, 7.90%, 2/15/05 .......... 1,500,000 1,598
American Portable Telecom, (144a)
Zero Coupon, 11/1/06 ...... 3,615,000 1,633
American Safety Razor, Sr. Notes, 9.875%, 8/1/05 ....... 1,000,000 1,062
American Standard, Sr. Deb., 9.875%, 6/1/01750,000 ..... 795
Ametek, Sr. Notes, 9.75%, 3/15/04 ...................... 500,000 533
Anheuser-Busch, Notes, 6.90%, 10/1/02 .................. 2,000,000 2,006
Associates Corporation, Sr. Notes, 7.50%, 4/15/02 ...... 1,300,000 1,347
Banca Commerciale Italiana, Sr. Sub. Notes
8.25%, 7/15/07 ..... 1,000,000 1,066
Banco Central, Sub. Notes, 7.50%, 6/15/05 .............. 1,000,000 1,019
Banesto (Delaware), Sub. Notes, 8.25%, 7/28/02 ......... 2,000,000 2,120
Bankers Trust, Sub. Deb., 8.00%, 3/15/97 ............... 125,000 125
Banque Nationale De Paris, Sub. Notes, 9.875%, 5/25/98 . 1,000,000 1,049
BE Aerospace, Sr. Sub. Notes, 9.875%, 2/1/06 ........... 250,000 263
BF Saul REIT, Sr. Secured Notes, 11.625%, 4/1/02 ....... 600,000 648
Boeing, Deb., 8.75%, 8/15/21 ........................... 2,000,000 2,354
British Columbia Hydro & Power, 12.50%, 9/1/13 ......... 250,000 283
Brunos, Sr. Notes, 10.50%, 8/1/05 ...................... 500,000 530
Burlington Industries, Notes, 7.25%, 9/15/05 ........... $1,000,000 $ 986
Burlington Northern Santa Fe, PTC, 7.33%, 6/23/10 ...... 1,000,000 1,027
Celestica International, Gtd. Sr. Sub. Notes, (144a)
10.50%, 12/31/06 ..... 750,000 788
Century Telephone Enterprises, Sr. Notes, 8.25%, 5/1/24 500,000 522
Chancellor Broadcasting, Sr. Sub. Notes, 9.375%, 10/1/04 750,000 758
Chrysler Financial, Notes, 5.875%, 2/7/01 .............. 2,000,000 1,952
Citicorp Mortgage, 6.00%, 3/25/22 ...................... 171,069 168
Coca-Cola Bottling Group, Sr. Sub. Notes
9.00%, 11/15/03 ..... 500,000 509
Coda Energy, Sr. Sub. Notes, (144a) 10.50%, 4/1/06 ..... 250,000 263
Coin Machine, Sr. Notes, 11.75%, 11/15/05 .............. 1,000,000 1,082
Commercial & Power Industries, Sr. Sub. Notes
12.00%, 8/1/05 .......... 1,000,000 1,112
<PAGE>
Consolidated Cigar, Sr. Sub. Notes, 10.50%, 3/1/03 .......... 1,000,000 1,045
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 1,030
Corestates Home Equity Loan
5.10%, 3/15/09 .......... 416,183 405
6.65%, 5/15/09 .......... 282,046 282
Countrywide Funding, MTN, 6.875%, 9/15/05 ................... 860,000 841
Courtyard by Marriott II, Sr. Secured Notes
10.75%, 2/1/08 .......... 500,000 529
Cox Communication, Notes, 6.375%, 6/15/00 ................... 1,500,000 1,491
Dade International, 11.125%, 5/1/06 ......................... 500,000 543
Dan River, Sr. Sub. Notes, 10.125%, 12/15/03 ................ 750,000 758
Discover Credit Card, 7.85%, 11/21/00 ....................... 3,000,000 3,079
Dr Pepper Bottling, Sr. Disc. Notes, STEP
Zero Coupon, 2/15/98; 11.625%,
2/15/98-2/15/03 ........... 1,250,000 1,175
Dr Pepper Bottling Texas, Sr. Notes, 10.25%, 2/15/00 ........ 500,000 523
Dual Drilling, Sr. Sub. Notes, 9.875%, 1/15/04 .............. 500,000 540
Duke Power, 1st Mtg. Notes, 6.75%, 8/1/25 ................... 1,000,000 892
El Paso Electric, 1st Mtg. Notes, 8.90%, 2/1/06 ............. 125,000 130
Equitable Resource, Deb., 7.75%, 7/15/26 .................... 2,000,000 2,067
Exxon Capital, 6.50%, 7/15/99 ............................... 500,000 503
Fairfax Financial, Notes, 7.75%, 12/15/03 ................... 800,000 822
Fairfax Financial Holdings, Notes, 8.30%, 4/15/26 ...........$1,500,000 $1,565
Federal Express, MTN, 9.95%, 8/15/06 ........................ 500,000 587
Ferrellgas, Sr. Notes, 10.00%, 8/1/01 ....................... 750,000 784
First Federal Financial, Notes, 11.75%, 10/1/04 ............. 750,000 810
First Fidelity Bancorp, Deb., 8.50%, 4/1/98.................. 1,500,000 1,541
First Nationwide, Sr. Sub. Notes, (144a) 10.625%, 10/1/03.... 500,000 540
Fleet/Norstar Financial Group, Sub. Notes
8.625%, 1/15/07 ........... 800,000 883
Flores & Rucks, Sr. Sub. Notes, 9.75%, 10/1/06 .............. 275,000 292
Freeport-McMoRan Resource, Sr. Notes, 7.00%, 2/15/08 ........ 900,000 858
Frontier Vision, Sr. Sub. Notes, 11.00%, 10/15/06 ........... 500,000 501
Fundy Cable, Sr. Secured 2nd Priority Notes
11.00%, 11/15/05 .......... 500,000 530
Golden West Financial, Sub. Notes, 8.625%, 8/30/98 .......... 1,500,000 1,554
Grand Union, Sr. Notes, 12.00%, 9/1/04 ...................... 1,000,000 1,055
GTE Corporation, Deb., 9.375%, 12/1/00 ...................... 1,500,000 1,648
Gulf States Utilities, 5.375%, 2/1/97 ....................... 500,000 500
Hawk, Sr. Notes, (144a), 10.25%, 12/1/03 .................... 350,000 357
Hayes Wheels, Sr. Sub. Notes, 11.00%, 7/15/06 ............... 750,000 818
Herff Jones, Sr. Sub. Notes, 11.00%, 8/15/05 ................ 1,125,000 1,209
<PAGE>
Heritage Media, Sr. Sub. Notes, 11.00%, 6/15/02 ............. 1,000,000 1,062
HMC Acquisition Property, 9.00%, 12/15/07 ................... 1,000,000 1,015
Host Marriott Travel, Sr. Notes, 9.50%, 5/15/05 ............. 1,000,000 1,044
Imed, Sr. Sub. Notes, (144a), 9.75%, 12/1/06 ................ 1,075,000 1,094
Int'l Bank for Reconstruction & Development
7.625%, 1/19/23 ........... 1,800,000 1,927
Intertek Finance, Sr. Sub. Notes, (144a), 10.25%, 11/1/06.... 800,000 832
J. Q. Hammons Hotels, 1st Mtg. Notes, 8.875%, 2/15/04 ....... 1,000,000 988
Jordan Industries, Sr. Notes, 10.375%, 8/1/03 ............... 750,000 739
K & F Industries, Sr. Secured Notes, 11.875%, 12/1/03 ....... 400,000 431
Keebler, Sr. Sub. Notes, 10.75%, 7/1/06 ..................... 650,000 709
Kelley Oil & Gas, Sr. Sub. Notes, (144a)
10.375%, 10/15/06 825,000 860
KFW International, MTN, 9.14%, 6/4/01 ....................... 250,000 274
Kingdom of Thailand, 7.07%, 9/30/13 ......................... 1,000,000 942
Lear Seating
Sub. Notes, 8.25%, 2/1/02 ................................. 500,000 504
Sr. Sub. Notes, 11.25%, 7/15/00 ........................... 250,000 256
Lehman Brothers, Notes, 8.875%, 3/1/02 ......................$1,500,000 $1,615
Liberty National Bank & Trust, Sub. Notes, 6.75%, 6/1/03 .... 500,000 488
Loehmann Holdings, Sr. Notes, 11.875%, 5/15/03 .............. 700,000 754
Long Island Lighting
Deb., 7.50%, 3/1/07 ....................................... 500,000 465
Gen. & Ref. Bonds, 9.75%, 5/1/21 .......................... 1,100,000 1,175
Loral, Sr. Notes, 7.625%, 6/15/04 ....................... 1,500,000 1,559
MAFCO, Sr. Sub. Notes, 11.875%, 11/15/02 ................ 500,000 528
Maxus Energy, Sr. Notes, 9.375%, 11/1/03 ................ 500,000 508
MAXXAM Group, Sr. Secured Notes, 11.25%, 8/1/03 ......... 600,000 612
MBNA, MTN, 7.49%, 9/14/99 ............................... 3,000,000 3,081
McDonnell Douglas, Notes, 8.25%, 7/1/00 ................. 500,000 524
Mesa Operating, 10.625%, 7/1/06 ......................... 500,000 543
Methanex, Sr. Notes, 7.75%, 8/15/05 ..................... 1,500,000 1,541
NGC, Sr. Notes, 6.75%, 12/15/05 ......................... 1,000,000 984
Northrop-Grumman, Deb., 7.875%, 3/1/26 .................. 1,000,000 1,002
NYNEX, Deb., 9.55%, 5/1/10 .............................. 1,239,488 1,398
Ocwen Financial, Sr. Notes, 11.875%, 10/1/03 ............ 1,000,000 1,092
Ornda Healthcorp, Sr. Sub. Notes, 11.375%, 8/15/04 ...... 500,000 578
Outdoor Systems, Sr. Sub. Notes, 9.375%, 10/15/06 ....... 750,000 773
Owens & Minor, Sr. Sub. Notes, 10.875%, 6/1/06 .......... 1,000,000 1,072
Owens-Illinois, Sr. Deb., 11.00%, 12/1/03 ............... 1,750,000 1,947
Pacific Bell, Deb .......................................
7.375%, 7/15/43 ...... 1,000,000 966
7.50%, 2/1/33 ...... 1,000,000 962
Petroleum Heat & Power, Sub. Notes, 10.125%, 4/1/03 ..... 500,000 488
Pillowtex, Sr. Sub. Notes, (144a), 10.00%, 11/15/06 ..... 475,000 489
Plains Resources, Sr. Sub. Notes, (144a), 10.25%, 3/15/06 200,000 214
Plastic Containers, 10.00%, 12/15/06 .................... 750,000 772
<PAGE>
Players International, Sr. Notes, 10.875%, 4/15/05 ...... 250,000 248
Portola Packaging, Sr. Notes, 10.75%, 10/1/05 ........... 1,000,000 1,043
Pricellular Wireless, Sr. Notes, (144a), 10.75%, 11/1/04 500,000 520
Province of Alberta, 9.25%, 4/1/00 ...................... 1,000,000 1,085
Prudential Home, 6.90%, 3/25/23 ......................... 293,923 293
Qantas Airways, Sr. Notes, 6.625%, 6/30/98 .............. 1,000,000 1,001
Quorum Health Group, Sr. Sub. Notes, 11.875%, 12/15/02 .. 500,000 550
Rayovac, Sr. Sub. Notes, 10.25%, 11/1/06 ................ 750,000 769
Revlon Worldwide, Sr. Secured Disc. Notes
Zero Coupon, 3/15/98 ...... 500,000 430
Rio Hotel & Casino, Sr. Sub. Notes, 10.625%, 7/15/05 .... $ 500,000 $ 534
Rogers Cablesystem, Sr. Secured 2nd Priority Notes
10.00%, 3/15/05 ...... 750,000 799
Santander Financial, Sub. Notes, 6.375%, 2/15/11 ........ 3,000,000 2,760
SD Warren, Sr. Sub. Notes, 12.00%, 12/15/04500,000 ...... 540
Sea Containers Ltd., Sr. Sub. Deb., 12.50%, 12/1/04 ..... 270,000 297
Sea-Land Services, Deb., 10.60%, 1/2/11 ................. 1,550,000 1,640
Security Benefit Life, Notes, (144a), 8.75%, 5/15/16 .... 3,000,000 3,152
Silgan, Sr. Sub. Notes, 11.75%, 6/15/02 ................. 1,000,000 1,065
Silgan Holdings, Sr. Disc. Deb., 13.25%, 12/15/02 ....... 104,000 105
Southwest Airlines, Deb., 9.25%, 2/15/98 ................ 1,650,000 1,702
Synthetic Industries, Sr. Sub. Deb., 12.75%, 12/1/02 .... 750,000 827
Tenneco, 6.70%, 12/15/05 ................................ 1,000,000 958
Texaco Capital, Deb., 8.65%, 1/30/98 .................... 1,400,000 1,438
Texas Bottling Group, Sr. Sub. Notes, 9.00%, 11/15/03 ... 500,000 506
Time Warner Entertainment, Deb., 7.25%, 9/1/08 .......... 600,000 584
Travelers Aetna Property Casualty, 6.75%, 11/15/06 ...... 1,500,000 1,477
Trump Atlantic City, 1st Mtg. Notes, 11.25%, 5/1/06 ..... 900,000 891
U. S. Department of Veteran Affairs
Zero Coupon, 3/15/25 ...... 968,509 1,062
UNC, Sr. Sub. Notes, 11.00%, 6/1/06 ..................... 1,000,000 1,070
Union Bank Switzerland, Sub. Notes, 7.25%, 7/15/06 ...... 1,000,000 1,019
United Artists, PTC, (144a), 9.30%, 7/1/15 .............. 843,001 786
United States Can, Sr. Sub. Notes, (144a)
10.125%, 10/15/06 ...... 475,000 499
Universal Outdoor, 9.75%, 10/15/06 ...................... 300,000 310
Wal-Mart, Notes, 6.75%, 5/15/02 ......................... 1,000,000 1,008
Westamerica Bank, Sub. Notes, 6.99%, 9/30/03 ............ 1,500,000 1,483
Willamette Industries, MTN, 7.85%, 7/1/26 ............... 1,000,000 1,045
Total Corporate Bonds (Cost $ 138,045)
140,714
<PAGE>
U.S. Government Mortgage-
Backed Securities 10.2%
Government National Mortgage Assn.
I
6.00%, 1/15 - 5/15/24 ............ 2,803,705 2,624
6.50%, 9/15/23 - 3/15/26 ............ 8,490,254 8,150
7.00%, 10/15/22 - 11/15/26 ............ $11,593,005 $11,375
7.50%, 9/15/22 - 5/15/26 ............ 14,897,944 14,968
8.00%, 6/15/17 - 11/15/25 ............ 13,814,065 14,152
8.50%, 3/15/05 - 2/15/25 ............ 10,049,501 10,511
9.00%, 5/15/16 - 6/15/25 ............ 2,374,480 2,522
9.50%, 8/15/16 - 9/15/21 ............ 1,520,834 1,650
10.00%, 11/15/09 - 5/15/13 ............ 41,537 46
10.50%, 5/15/15 ............ 16,608 18
11.00%, 3/15/10 - 1/15/20 ............ 1,167,166 1,312
11.50%, 3/15/10 - 3/15/16 ............ 1,928,067 2,191
II
8.50%, 6/20/25 - 6/20/26 ............ 10,027,773 10,355
9.00%, 7/20/16 - 6/20/20 ............ 1,006,951 1,067
9.50%, 8/20/22 ............ 280,571 301
10.00%, 10/20/16 - 1/20/22 ............ 203,289 221
Project Loan, I
8.50%, 1/15/27 ............ 297,254 308
8.872%, 2/15/30 ............ 681,951 699
8.95%, 5/15/35 ............ 2,301,894 2,360
GPM, I
9.50%, 8/15 - 9/15/09 ............ 665,039 719
10.75%, 1/15/16 - 12/15/17 ............ 235,979 261
ARM, II, 7.125%, 8/20/23 .......................... 242,759 248
Federal Home Loan Mortgage Assn ......................
8.00%, 3/1/17 ............ 24,222 25
10.00%, 10/1/10 ............ 86,038 93
10.50%, 9/1/15 ............ 16,357 18
CMO, 6.00%, 6/15/05 ................................ 700,000 696
Federal National Mortgage Assn .......................
REMIC
6.50%, 7/25/08 ............ 957,878 913
7.50%, 10/25/19 ............ 1,000,000 1,006
8.75%, 12/25/04 ............ 435,352 437
Total U.S. Government Mortgage-Backed Securities (Cost$89,047)
89,246
<PAGE>
U.S. Government Obligations/
Agencies 12.7%
Federal Home Loan Banks, 6.34%, 10/19/05 ............ $ 4,875,000 $ 4,767
Federal National Mortgage Assn
5.80%, 12/10/03 ... 13,000,000 12,470
6.25%, 8/12/03 ... 3,000,000 2,907
8.45%, 7/12/99 ... 4,000,000 4,217
Tennessee Valley Authority
8.25%, 9/15/34 ... 435,000 450
U.S. Treasury Bonds
6.00%, 2/15/26 ... 3,865,000 3,518
6.50%, 11/15/26 ... 7,000,000 6,870
7.125%, 2/15/23 ... 12,500,000 13,051
8.125%, 8/15/19 - 8/15/21 ... 3,300,000 3,830
8.75%, 5/15/20 ... 2,100,000 2,585
10.625%, 8/15/15 ... 200,000 283
11.25%, 2/15/15 ... 1,500,000 2,215
11.75%, 2/15/01 ... 200,000 240
13.125%, 5/15/01 ... 200,000 252
U.S. Treasury Notes
6.375%, 1/15/00 ... 11,800,000 11,903
6.50%, 4/30/99 ... 5,000,000 5,061
7.00%, 4/15/99 - 7/15/06 ... 5,700,000 5,836
7.50%, 5/15/02 ... 3,250,000 3,436
7.75%, 1/31/00 - 2/15/01 ... 11,000,000 11,536
8.00%, 5/15/01 ... 12,000,000 12,823
8.25%, 7/15/98 ... 1,300,000 1,346
8.75%, 8/15/00 ... 2,000,000 2,168
Total U.S. Government Obligations/Agencies (Cost $ 110,856)
111,764
Short-Term Investments 1.3%
Commercial Paper 1.3%
Investments in Commercial Paper
through a joint account
6.75 - 7.10%, 1/2/97 6,104,241 6,103
Morgan Stanley Group, VR, 5.75%, 1/20/97 ........ 5,000,000 5,006
Total Short-Term Investments (Cost $ 11,109)
11,109
Total Investments in Securities
99.3% of Net Assets (Cost $704,710) ............. $ 869,975
Other Assets Less Liabilities ................... 5,998
NET ASSETS ...................................... $ 875,973
<PAGE>
Net Assets Consist of:
Accumulated net investment income -
net of distributions ............................ $ 480
Accumulated net realized gain/loss -
net of distributions ............................ 988
Net unrealized gain (loss) ...................... 165,262
Paid-in-capital applicable to 60,506,582
shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares authorized ................. 709,243
NET ASSETS ...................................... $ 875,973
NET ASSET VALUE PER SHARE ....................... $14.48
* Non-income producing
ARM Adjustable rate mortgage
CMO Collateralized Mortgage Obligation
GPM Graduated payment mortgage
MTN Medium term note
PTC Pass-through certificate
REMIC Real Estate Mortgage Investment Conduit
REIT Real Estate Investment Trust
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 N total of such securities at year-end amounts to
1.47% 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
MYR Malaysian ringgit
NLG Dutch guilder
NOK Norwegian krone
NZD New Zealand dollar
SEK Swedish krona
SGD Singapore dollar
L Local registered shares
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/96
- --------------------------------------------------------------------------------
Investment Income
Income
Interest .............................................. $ 27,376
Dividend .............................................. 8,358
Total income .......................................... 35,734
Expenses
Investment management ................................. 3,765
Shareholder servicing ................................. 2,507
Custody and accounting ................................ 269
Registration .......................................... 113
Prospectus and shareholder reports .................... 94
Legal and audit ....................................... 18
Directors ............................................. 14
Miscellaneous ......................................... 12
Total expenses ........................................ 6,792
Net investment income ....................................... 28,942
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on
Securities ............................................ 1,514
Futures ............................................... 5,563
Foreign currency transactions ......................... (27)
Net realized gain (loss) .............................. 7,050
Change in net unrealized gain or loss on
Securities ............................................ 71,738
Other assets and liabilities
denominated in foreign currencies ..................... 5
Change in net unrealized gain or loss ................. 71,743
Net realized and unrealized gain (loss) ..................... 78,793
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ...................................... $ 107,735
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/96 12/31/95
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations
Net investment income ........................... $ 28,942 $ 19,770
Net realized gain (loss) ........................ 7,050 5,809
Change in net unrealized gain or loss ........... 71,743 86,445
Increase (decrease) in net assets from operations 107,735 112,024
Distributions to shareholders
Net investment income ........................... (28,540) (19,706)
Net realized gain ............................... (7,546) (7,187)
Decrease in net assets from distributions ....... (36,086) (26,893)
Capital share transactions *
Shares sold ..................................... 351,508 176,699
Distributions reinvested ........................ 33,200 23,920
Shares redeemed ................................. (188,611) (69,962)
Increase (decrease) in net assets from capital
share transactions .............................. 196,097 130,657
Net equalization ...................................... 139 297
Net Assets
Increase (decrease) during period ..................... 267,885 216,085
Beginning of period ................................... 608,088 392,003
End of period ......................................... $ 875,973 $ 608,088
*Share information
Shares sold ...................................... 25,935 14,638
Distributions reinvested ......................... 2,382 1,911
Shares redeemed .................................. (13,802) (5,735)
Increase (decrease) in shares outstanding ........ 14,515 10,814
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
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 listed or regularly traded on a securities exchange are
valued at the last quoted sales price at the time the valuations are made. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such security.
Listed securities not traded on a particular day and securities regularly traded
in the over-the-counter market are valued at the mean of the latest bid and
asked prices. Other equity securities are valued at a price within the limits of
the latest bid and asked prices deemed by the Board of Directors, or by persons
delegated by the Board, best to reflect fair value.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service.
Short-term debt securities are valued at their 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.
<PAGE>
Premiums and Discounts
Premiums and discounts on debt securities, other than mortgage-backed
securities, are amortized for both financial reporting and tax purposes.
Premiums and discounts on mortgage-backed securities are recognized upon
principal repayment as gain or loss for financial reporting purposes and as
ordinary income for tax purposes.
Other
Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles. The fund follows the practice of equalization
under which undistributed net investment income per share is unaffected by fund
shares sold or redeemed.
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
To earn additional income, the fund lends its securities to approved
brokers. At December 31, 1996, the market value of securities on loan was
$83,128,000, which was fully collateralized with cash. Although the risk is
mitigated by the collateral, the fund could experience a delay in recovering its
securities and a possible loss of income or value if the borrower fails to
return them.
<PAGE>
Other
Purchases and sales of portfolio securities, other than short-term and U.S.
government securities, aggregated $234,966,000 and $71,259,000, respectively,
for the year ended December 31, 1996. Purchases and sales of U.S. government
securities aggregated $163,585,000 and $88,284,000, respectively, for the year
ended December 31, 1996.
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.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended December 31, 1996. The results
of operations and net assets were not affected by the reclassifications.
================================================================================
Undistributed net investment income $(136,000)
Paid-in-capital 136,000
- --------------------------------------------------------------------------------
At December 31, 1996, the aggregate cost of investments for federal income
tax and financial reporting purposes was $704,710,000, and net unrealized gain
aggregated $165,265,000, of which $177,306,000 related to appreciated
investments and $12,041,000 to depreciated investments.
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 $355,000 was payable at December 31, 1996. 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 0.305% for assets in excess of $50 billion. At
December 31, 1996, 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
<PAGE>
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 $2,312,000 for the year ended
December 31, 1996, of which $205,000 was payable at period-end.
During the year ended December 31, 1996, the fund, in the ordinary course
of business, paid commissions of $18,000 to, and placed security purchase and
sale orders aggregating $4,003,000 with, certain affiliates of the manager in
connection with the execution of various portfolio transactions.
================================================================================
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
T. Rowe Price Balanced Fund, Inc.
We have audited the accompanying statement of net assets of T. Rowe Price
Balanced Fund, Inc., as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the four years in the period then ended for the period November 1, 1992
to December 31, 1992 and for the year ended October 31, 1992. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of T.
Rowe Price Balanced Fund, Inc., as of December 31, 1996, the results of its
operations, the changes in its net assets and financial highlights for each of
the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 20, 1997
<PAGE>
================================================================================
T. Rowe Price Shareholder Services
================================================================================
================================================================================
Investment Services And Information
- --------------------------------------------------------------------------------
Knowledgeable Service Representatives
- --------------------------------------------------------------------------------
By Phone
Shareholder service representatives are available from 8 a.m. to 10 p.m. ET
Monday through Friday and from 8:30 a.m. to 5 p.m. ET on weekends. Call
1-800-225-5132 to speak directly with a representative who will be able to
assist you with your accounts.
In Person
Visit one of our investor center locations to meet with a representative
who will be able to assist you with your accounts. You can also drop off
applications or obtain prospectuses and other literature at these centers.
Automated 24-Hour Services
- --------------------------------------------------------------------------------
Tele*Access [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).
<PAGE>
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 typeNstock, bond, and money market. Detail pages
itemize account transactions by fund.
Shareholder Reports
Portfolio managers review the performance of the funds in plain language
and discuss T. Rowe Price's economic outlook.
T. Rowe Price Report
This is a quarterly newsletter with relevant articles on market trends,
personal financial planning, and T. Rowe Price's economic perspective.
Performance Update
This quarterly report reviews recent market developments and provides
comprehensive performance information for every T. Rowe Price fund.
<PAGE>
Insights
This library of information includes reports on mutual fund tax issues,
investment strategies, and financial markets.
Detailed Investment Guides
Our widely acclaimed Asset Mix Worksheet, College Planning Kit, Retirees
Financial Guide, and Retirement Planning Kit (also available on disk for PC use)
can help you determine and reach your investment goals.
* A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
================================================================================
T. Rowe Price Mutual Funds
================================================================================
================================================================================
Mutual Funds
- --------------------------------------------------------------------------------
Stock Funds
================================================================================
Domestic
- --------------------------------------------------------------------------------
Balanced
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Dividend Growth
Equity Income
Equity Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
OTC
Science & Technology
Small-Cap Value*
Spectrum Growth
Value
<PAGE>
International/Global
- --------------------------------------------------------------------------------
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
<PAGE>
International/Global
- --------------------------------------------------------------------------------
Global Government Bond
Emerging Markets Bond
International Bond
Money Market
================================================================================
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
================================================================================
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
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.
Please call for a prospectus. Read it carefully before you invest or send
money.
<PAGE>
================================================================================
T. Rowe Price Discount Brokerage
================================================================================
================================================================================
Discount Brokerage
A Division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC
- --------------------------------------------------------------------------------
This low-cost service gives you the opportunity to easily consolidate all
your investments with one company. Through T. Rowe Price Discount Brokerage, you
can buy and sell individual securities-stocks, bonds, options, and others-at
considerable commission savings. We also provide a wide range of services,
including:
Automated Telephone and Computer Services
You can enter trades, access quotes, and review account information 24
hours a day, seven days a week. Any trades executed through these programs save
you an additional 10% on commissions.*
Investor Information
A variety of informative reports, such as our Brokerage Insights series,
S&P Market Month newsletter, and optional S&P Stock Reports, can help you better
evaluate economic trends and investment opportunities.
Dividend Reinvestment
Service Virtually all stocks held in customer accounts are eligible for
this service, free of charge.
* Discount applies to our current commission schedule; subject to our $35
minimum commission.
<PAGE>
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(R):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
http://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
<PAGE>
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.
RPRTBAL 12/31/96
