- --------------------------------------------------------------------------------
T. Rowe Price
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Semiannual Report
Balanced Fund
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June 30, 1998
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REPORT HIGHLIGHTS
================================================================================
Balanced Fund
* Excellent economic conditions helped both the stock and bond markets extend
their rallies while European stocks surged.
* The Balanced Fund finished the six-month period with a double-digit gain
that outpaced its competitors but fell modestly behind its benchmark index.
* Large-cap domestic growth stocks, European stocks, and high-yield b onds
made the largest contributions to fund performance.
* We expect to maintain a neutral investment mix that provides exposure to
many attractive asset classes and a wide degree of diversification against
risk.
<PAGE>
FELLOW SHAREHOLDERS
Continued economic prosperity propelled the stock and bond markets to
excellent gains for the six months ended June 30, 1998. At the same time, a
crisis in Asia affected U.S investors by heightening the value of domestic bonds
while jeopardizing earnings for many domestic companies. Nonetheless, the 17.71%
first half gain for the Standard & Poor's 500 Stock Index was its third-best
six-month performance of this decade.
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 6/30/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Balanced Fund 10.54% 18.41%
Lipper Balanced Fund Index 9.52 18.38
Combined Index Portfolio * 12.11 22.21
* An unmanaged portfolio of 60% stocks (S&P 500) and 40% bonds (Lehman
Brothers Aggregate Bond Index).
================================================================================
In this uncertain but profitable environment, your fund posted total
returns of 10.54% for the six-month period and 18.41% for the full year. These
results placed it somewhat ahead of the Lipper Balanced Fund Index for both
periods. A heavy weighting in leading large-cap stocks, as well as a
considerable stake in European markets, contributed to this outperformance, even
though many competitors held larger stakes in the equity market than we did.
However, both the fund and its peer group fell behind the gains of the Combined
Index Portfolio, an unmanaged blend of the S&P 500 and the Lehman Brothers
Aggregate Bond Index, primarily because of the S&P's remarkable gains.
MARKET ENVIRONMENT
The S&P 500's strong performance was unexpected, especially coming on the
heels of outstanding returns for the three prior years. Since this leg of the
stock market rally began at the end of 1994, the S&P 500 has advanced more than
160%. This performance has been driven by outstanding economic news. Once again
in 1998, we have seen exceptionally strong economic growth; recent quarters have
shown growth rates more typical of the start of an economic expansion rather
than those seen eight years into one.
Continued good news on inflation helped push interest rates down 20 to 30
basis points so far this year (100 basis points equal one percent). The effects
of the collapsing Asian economies contributed to this trend. Late in the period,
long-term Treasuries rallied as the dollar grew in strength and investors sought
greater security in their investments. Mortgages did not benefit from the
decline in rates, however, since low rates often drive up mortgage refinancings.
Corporate bonds gained significant ground during the period. High-yield bonds
performed well for much of the first half, as the burgeoning economy boosted
credit quality, but wilted somewhat toward the end of the period.
<PAGE>
[Chart showing interest rates for 30-Year Treasury Bond, 5-Year Treasury
Note, and 90-day Treasury Bills, 6/30/97 through 6/30/98.]
Several important stock market trends reflected growing concerns about
Asia. As fading Asian economies impinged on the earnings of domestic companies,
investors rushed to highly liquid stocks and companies offering secure earnings.
As a result, large-cap stocks, as represented by the S&P 500, were huge
outperformers. In the first half of 1998, the spread between the S&P 500 and the
small-cap Russell 2000 Index, for example, was 17.7% versus 4.9%. Few actively
managed portfolios (including this one) have the same exposure to large-company
stocks as the S&P 500, and therefore few have been able to keep up with the
index's performance.
Growth-oriented stocks-those with reliable earnings growth, such as health
care and retailers-also led the market. It is often true that in a market where
earnings growth is hard to find stocks that can produce it are the best
performers. Conversely, when corporate earnings are growing rapidly, investors
look for bargains and value stocks outperform. In the first quarter, earnings
estimates were revised downward at a rate not seen for several years, and the
reported earnings for the S&P 500 actually declined modestly from a year ago.
While the outlook improved in the second quarter, 1998 has so far witnessed
growth stocks outdistancing value stocks. In the first half, the S&P/BARRA
Growth Index was up 23.07% compared with a 12.13% rise in the S&P/BARRA Value
Index.
PORTFOLIO HIGHLIGHTS
All four of the major areas of the fund-domestic equity, international
equity, investment-grade fixed income, and high-yield fixed income-contributed
positively to performance. The domestic stock portfolio had several winners from
good-performing sectors of the economy. Health care stocks did very well, for
example, paced by the big drug companies. Investors were willing to pay up for
the consistent, and in some cases accelerating, growth produced by companies
such as PFIZER and WARNER-LAMBERT.
Driven by near-record levels of consumer confidence, many of our retailing
and other consumer-service companies excelled. The stage had been set for a
healthy rally in the retail stocks, which were marked by relatively low
valuations and poor performance in prior periods. Our holdings in THE GAP,
DAYTON HUDSON, and COSTCO COMPANIES were beneficiaries.
==============================
. . . computer software and
service companies benefited
greatly from corporate
America's efforts to improve
productivity.
- ------------------------------
<PAGE>
Technology was a good sector overall, although some areas struggled. The
Asia crisis depressed values for semiconductor firms that compete with the
commodity chip producers located there, and weak demand for U.S.-made chips from
the region's manufacturers and assemblers also hurt. Companies that provide
equipment for semiconductor manufacturers were also poor performers. On the
positive side, computer software and service companies benefited greatly from
corporate America's efforts to improve productivity. Communications equipment
stocks, such as LUCENT TECHNOLOGIES, did well.
Falling oil prices and reduced demand from Asia depressed natural
resource-related stocks, the worst performers for 1998. Oil service companies,
such as SMITH INTERNATIONAL, were hurt because lower oil prices will eventually
reduce demand for exploration. Chemical stocks fell, and gold stocks continued
their multiyear slide, despite a nice rally early in the year. One exception was
MONSANTO, which completed a transition from chemicals to health care and
announced a merger with another portfolio company, AMERICAN HOME PRODUCTS.
[Security Diversification pie chart, based on net assets as of 6/30/98,
with the following segments - Corporate Bonds, 18%; Mortgage-Backed Securities,
6%; Large-Cap Stocks, 47%; International Stocks, 14%; Treasury and Agency Bonds,
13%.]
For the first time in quite a while, the international equity portion of
the fund outperformed domestic equity. Our foreign portfolio is dominated by
European stocks, which on average were exceptionally strong. Our holdings in the
major European markets easily beat the S&P 500, and some of the smaller markets,
such as Italy, Spain, and Belgium, were spectacular. The economies of Europe are
strong and growing, and the companies appear to be getting more shareholder
friendly. Some of our better contributors were NESTLE (the Swiss food company)
and ING GROEP, a Dutch financial conglomerate. Some smaller banks, such as the
Italian stock BCA, also performed well.
Gains in Europe offset the continuing struggles of Japan's market.
Investors are growing increasingly skeptical of government efforts to reverse
the economy's problems. Our holdings in Japan held up better than the Japanese
market, where we are concentrated in export-oriented companies with strong
franchises (such as SONY and CANON). Despite the problems in Japan, these
companies' products still enjoy global demand, and we are maintaining our
positions. Japan's recession set back the recovery of Southeast Asia, and stocks
from these regional markets continued to be weak.
Within the bond portfolio, our high-yield bonds (bonds rated below BBB)
were again the best performers despite fading in May and June. These securities
tend to do well against other fixed income investments in periods of strong
economic growth and relatively stable interest rates. High-yield bonds are more
sensitive to the economic cycle (since default risk falls when the odds of a
recession fall) and don't have as much interest rate sensitivity as other
long-term bonds. We will cut back on this sector if the economy shows sustained
signs of weakness.
<PAGE>
We currently hold about 8.5% of the fund (more than 20% of the overall
fixed income portfolio) in high yield, a modest increase from December 1997. We
concentrate on the top tiers of high yield (BB and B rated bonds) and focus on
fairly liquid issues that trim our risk exposure. Credit research is an
important part of our strategy-we look for securities whose underlying credit
quality is stronger, in our view, than that assigned by the rating agency. The
recent flurry of merger activity benefited your fund, as six of the top 10
high-yield performers had an increase in credit quality as a result of a merger
or acquisition by a higher-rated entity.
Investment-grade corporate bonds also performed well. With the dollar
strengthening and interest rates falling, U.S. Treasuries also notched gains.
Mortgages, on the other hand, can struggle when interest rates decline, and they
lagged other fixed income sectors.
OUTLOOK
Given the painful events in Asia and the unprecedented gains in the U.S.,
we believe it is important to avoid distractions and stay close to the original
goal of the Balanced Fund-to provide a stable vehicle with exposure to many
attractive asset classes and a wide degree of diversification against risk.
While equity valuations are high, interest rates are unlikely to rise
significantly, and there are few signs of weakness in the economy. Under the
current scenario, we have elected to stay close to our long-term neutral
weighting-a 60%/40% stock/bond blend. At this point we do not see a compelling
reason to diverge from this path over the next several months.
Respectfully submitted,
/s/
Richard T. Whitney
Chairman of the Investment Advisory Committee
July 22, 1998
<PAGE>
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
LARGEST HOLDINGS
Percent of
Net Assets
6/30/98
Stocks
- --------------------------------------------------------------------------------
GE .......................................................... 1.0%
American International Group ................................ 0.8
Pfizer ...................................................... 0.7
Merck ....................................................... 0.7
Bristol-Myers Squibb ........................................ 0.7
Procter & Gamble ............................................ 0.6
Warner-Lambert .............................................. 0.6
Intel ....................................................... 0.6
Dayton Hudson ............................................... 0.6
Chase Manhattan ............................................. 0.6
- --------------------------------------------------------------------------------
Total ....................................................... 6.9%
Bonds
- --------------------------------------------------------------------------------
U.S. Treasury ............................................... 10.8%
Ginnie Mae .................................................. 4.7
Fannie Mae .................................................. 3.3
Freddie Mac ................................................. 0.8
Kimberly-Clark .............................................. 0.3
Fairfax Financial Holdings .................................. 0.3
Siebe ....................................................... 0.2
Consumers Energy ............................................ 0.2
Security Benefit Life ....................................... 0.2
Comcast Cable Communications ................................ 0.2
- --------------------------------------------------------------------------------
Total ....................................................... 21.0%
<PAGE>
T. Rowe Price Balanced Fund
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================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or index.
The index return does not reflect expenses, which have been deducted from the
fund's return.
[Balanced Fund SEC graph shown here]
================================================================================
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how the fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
================================================================================
Periods Ended 6/30/98 1 Year 3 Years 5 Years 10 Years
Balanced Fund 18.41% 18.20% 14.65% 13.80%
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>
T. Rowe Price Balanced Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Unaudited
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
6 Months Year
Ended Ended
6/30/98 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ..................... $ 16.54 $ 14.48 $ 13.22 $ 11.14 $ 12.02 $ 11.07
Investment activities
Net investment income ............. 0.27 0.53 0.51 0.48 0.43 0.40*
Net realized and
unrealized gain (loss) ............ 1.47 2.18 1.38 2.24 (0.68) 1.05
Total from
investment activities ............. 1.74 2.71 1.89 2.72 (0.25) 1.45
Distributions
Net investment income ............. (0.26) (0.53) (0.50) (0.47) (0.43) (0.39)
Net realized gain ................. (0.01) (0.12) (0.13) (0.17) (0.20) (0.11)
Total distributions ............... (0.27) (0.65) (0.63) (0.64) (0.63) (0.50)
NET ASSET VALUE
End of period ........................... $ 18.01 $ 16.54 $ 14.48 $ 13.22 $ 11.14 $ 12.02
Ratios/Supplemental Data
Total return^ ........................... 10.54% 18.97% 14.57% 24.88% (2.05)% 13.35%*
Ratio of expenses to
average net assets ...................... 0.78%+ 0.81% 0.87% 0.95% 1.00% 1.00%*
Ratio of net investment
income to average
net assets .............................. 3.13%+ 3.36% 3.70% 3.87% 3.72% 3.45%*
Portfolio turnover rate ................. 7.1% 15.5% 22.3% 12.6% 33.3% 8.7%
Net assets, end of period
(in millions) ........................... $ 1,458 $ 1,219 $ 876 $ 608 $ 392 $ 341
<FN>
^ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming
reinvestment of all distributions.
* Excludes expenses in excess of a 1.00% voluntary expense limitation in effect through 12/31/94.
+ Annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1998
================================================================================
Portfolio of Investments
- --------------------------------------------------------------------------------
Shares/Par Value
In thousands
Common Stocks and Warrants 59.6%
FINANCIAL 11.1%
Bank and Trust 5.7%
Abbey National (GBP) ................................ 124,000 $ 2,207
Air Liquide (L) (FRF) ............................... 7,762 1,284
AmSouth Bancorporation .............................. 12,150 478
Australia & New Zealand Banking ADR ................. 21,500 735
BANC ONE ............................................ 56,397 3,148
Banca Commerciale Italiana (ITL) .................... 210,000 1,256
Banco de Bilbao Vizcaya ADR ......................... 60,000 3,060
Banco Frances del Rio ADR ........................... 34,500 791
BankAmerica ......................................... 56,200 4,858
BankBoston .......................................... 15,400 857
Bankgesellschaft Berlin (DEM) ....................... 57,000 1,176
Barclay's (GBP) ..................................... 101,278 2,922
Charter One Financial ............................... 20,108 677
Chase Manhattan ..................................... 110,080 8,311
Citicorp ............................................ 35,000 5,224
Compass Bancshares .................................. 9,300 418
Crestar Financial ................................... 6,400 349
Deutsche Bank (DEM) ................................. 18,700 1,582
Development Bank of Singapore (SGD) ................. 35,200 195
Dresdner Bank (DEM) ................................. 20,200 1,092
First American ...................................... 15,600 751
First Security ...................................... 24,975 535
First Union ......................................... 101,919 5,937
First Virginia Banks ................................ 8,550 437
Fleet Financial Group ............................... 2,200 184
Grupo Financiero Bancomer ADR (144a) ................ 20,000 148
HSBC Holdings (GBP) ................................. 105,745 2,686
J. P. Morgan ........................................ 20,000 2,342
KBC Bancassurance Holding (BEF) ..................... 25,000 2,239
KeyCorp ............................................. 100,000 3,562
<PAGE>
Mediobanca (ITL) .................................... 125,100 1,588
Mellon Bank ......................................... 37,500 2,611
Mercantile Bancorporation ........................... 6,300 317
NationsBank ......................................... 77,242 $ 5,909
Norwest ............................................. 60,000 2,242
Old Kent Financial .................................. 13,125 472
Overseas Chinese Bank (SGD) ......................... 32,200 110
Regions Financial ................................... 18,200 747
RHB Sakura Merchant Bankers (MYR) ................... 9,250 2
Societe Generale (FRF) .............................. 11,790 2,451
SouthTrust .......................................... 14,250 621
Star Banc ........................................... 18,900 1,207
Svenska Handelsbanken (SEK) ......................... 26,000 1,206
U.S. Bancorp ........................................ 46,152 1,985
Washington Federal .................................. 22,493 623
Washington Mutual ................................... 30,000 1,302
Westpac Bank (AUD) .................................. 90,000 550
83,384
Insurance 2.6%
ACE Limited ......................................... 40,000 1,560
American General .................................... 48,000 3,417
American International Group ........................ 81,150 11,848
CIGNA ............................................... 8,700 600
Conseco ............................................. 11,600 542
Equitable Companies ................................. 9,400 705
General Re .......................................... 1,300 330
Hartford Financial Services ......................... 1,400 160
Horace Mann Educators ............................... 20,400 704
John Alden Financial ................................ 8,000 176
Marsh & McLennan .................................... 6,900 417
MBIA ................................................ 6,200 464
Medical Assurance * ................................. 19,116 531
MGIC Investment ..................................... 23,200 1,324
Old Republic International .......................... 10,575 310
Progressive ......................................... 4,200 592
St. Paul Companies .................................. 86,000 3,617
Sumitomo Marine & Fire Insurance (JPY) .............. 175,000 982
Torchmark ........................................... 78,600 3,596
UNUM ................................................ 100,000 5,550
37,425
<PAGE>
Financial Services 2.8%
A.G. Edwards ........................................ 20,212 $ 863
AMBAC ............................................... 22,200 1,299
American Express .................................... 42,600 4,856
Associates First Capital (Class A) .................. 2,969 228
AXA (FRF) ........................................... 20,600 2,317
Countrywide Credit .................................. 113,925 5,782
Fannie Mae .......................................... 78,000 4,739
Green Tree Financial ................................ 21,400 916
Household International ............................. 72,000 3,582
ING Groep (NLG) ..................................... 51,674 3,386
Medaphis * .......................................... 14,600 88
Morgan Stanley Dean Witter Discover ................. 25,600 2,339
Pearson (GBP) ....................................... 150,000 2,750
RHB Capital (MYR) ................................... 185,000 75
Travelers Group ..................................... 90,523 5,488
Unidanmark (Class A) (DKK) .......................... 20,000 1,799
United Asset Management ............................. 16,000 417
40,924
Total Financial ..................................... 161,733
UTILITIES 5.1%
Telephone Services 3.6%
ALLTEL .............................................. 80,000 3,720
Ameritech ........................................... 48,000 2,154
AT&T ................................................ 107,500 6,141
Bell Atlantic ....................................... 36,200 1,652
BellSouth ........................................... 102,000 6,847
British Telecommunications ADR ...................... 21,600 2,668
Compania de Telecomunicaciones de Chile ADR ......... 17,000 345
COMSAT .............................................. 4,900 139
Frontier ............................................ 8,000 252
GTE ................................................. 53,800 2,993
Hong Kong Telecommunications ADR .................... 37,288 704
Nippon Telegraph & Telephone (JPY) .................. 168 1,397
SBC Communications .................................. 180,732 7,229
Southern New England Telecommunications ............. 4,900 321
Sprint .............................................. 50,900 $ 3,588
Telecom Corporation of New Zealand (NZD) ............ 520,000 2,148
Telecom Italia (ITL) ................................ 317,220 2,336
Telecom Italia Mobile (ITL) ......................... 571,000 3,493
Telefonica de Espana ADR ............................ 12,000 1,669
Telefonos de Mexico (Class L) ADR ................... 30,000 1,442
Telekom Malaysia (MYR) .............................. 105,000 177
U.S. West ........................................... 20,546 966
52,381
<PAGE>
Electric Utilities 1.5%
Duke Energy ......................................... 30,115 1,784
Edison International ................................ 104,000 3,075
Electrabel (BEF) .................................... 3,100 879
Empresa Nacional de Electricidad ADR ................ 20,000 285
Endesa ADR .......................................... 48,800 1,055
Entergy ............................................. 53,000 1,524
FirstEnergy ......................................... 75,000 2,306
FPL Group ........................................... 25,600 1,613
Hong Kong Electric (HKD) ............................ 200,000 620
Niagara Mohawk * .................................... 102,500 1,531
Public Service of New Mexico ........................ 50,000 1,134
Texas Utilities ..................................... 39,899 1,661
Unicom .............................................. 68,600 2,405
Veba (DEM) .......................................... 29,700 1,999
21,871
Total Utilities ..................................... 74,252
CONSUMER NONDURABLES 13.8%
Cosmetics 0.3%
Gillette ............................................ 16,274 923
International Flavors & Fragrances .................. 11,700 508
Kao (JPY) ........................................... 161,000 2,492
Revlon (Class A) * .................................. 1,800 92
4,015
Beverages 1.5%
Anheuser-Busch ...................................... 64,000 3,020
Coca-Cola ........................................... 92,600 7,917
Diageo ADR .......................................... 27,043 $ 1,303
LVMH (FRF) .......................................... 9,541 1,910
PepsiCo ............................................. 150,400 6,195
Starbucks * ......................................... 24,400 1,303
21,648
Food Processing 2.3%
Agribrands International * .......................... 2,320 70
Archer Daniels Midland .............................. 67,373 1,305
Bestfoods ........................................... 65,800 3,821
Cadbury Schweppes ADR ............................... 31,586 1,946
ConAgra ............................................. 53,400 1,692
Corn Products International * ....................... 8,225 279
CSM (NLG) ........................................... 17,000 817
Danisco (DKK) ....................................... 16,000 1,076
Earthgrains ......................................... 2,560 143
Eridania Beghin-Say (FRF) ........................... 8,100 1,789
<PAGE>
General Mills ....................................... 39,300 2,687
Heinz ............................................... 77,000 4,322
Hershey Foods ....................................... 30,000 2,070
Kellogg ............................................. 6,200 233
McCormick ........................................... 10,300 368
Nestle (CHF) ........................................ 1,724 3,695
Ralston Purina ...................................... 23,204 2,711
Sara Lee ............................................ 82,900 4,637
Universal Foods ..................................... 14,200 315
Whitman ............................................. 1,100 25
34,001
Hospital Supplies/Hospital Management 1.7%
Abbott Laboratories ................................. 127,200 5,199
Allegiance .......................................... 8,000 410
Baxter International ................................ 50,000 2,691
Boston Scientific * ................................. 20,000 1,432
Columbia/HCA Healthcare ............................. 97,900 2,851
First Health Group * ................................ 25,800 739
Guidant ............................................. 21,200 1,512
Health Management (Class A) * ....................... 54,168 1,811
Hillenbrand Industries .............................. 11,600 696
Humana * ............................................ 22,400 699
Medtronic ........................................... 32,000 $ 2,040
Millipore ........................................... 900 25
Smith & Nephew (GBP) ................................ 210,000 524
St. Jude Medical * .................................. 26,000 957
Terumo (JPY) ........................................ 75,000 1,193
United States Surgical .............................. 40,000 1,825
24,604
Pharmaceuticals 5.2%
American Home Products .............................. 113,200 5,858
Amgen * ............................................. 80,700 5,278
Astra (Class B) (SEK) ............................... 80,000 1,595
Bristol-Myers Squibb ................................ 84,400 9,701
Chiron * ............................................ 3,704 58
Eli Lilly ........................................... 40,000 2,642
Gehe (DEM) .......................................... 13,550 727
Glaxo Wellcome ADR .................................. 32,800 1,962
IDEXX Laboratories * ................................ 11,800 294
Johnson & Johnson ................................... 26,900 1,984
Merck ............................................... 75,100 10,045
Novartis (CHF) ...................................... 1,626 2,710
Pfizer .............................................. 98,400 10,695
Pharmacia & Upjohn .................................. 80,000 3,690
Schering-Plough ..................................... 1,800 165
SmithKline Beecham ADR .............................. 124,800 7,550
Takeda Chemical Industries (JPY) .................... 84,000 2,242
Warner-Lambert ...................................... 129,000 8,949
76,145
<PAGE>
Biotechnology 0.0%
Covance * ........................................... 7,500 169
169
Health Care Services 0.3%
Aetna ............................................... 2,695 205
Altana (DEM) ........................................ 12,000 917
Concentra Managed Care * ............................ 30,000 779
Olsten .............................................. 4,118 46
United HealthCare ................................... 37,700 2,394
4,341
Miscellaneous Consumer Products 2.5%
Arctic Cat .......................................... 2,550 $ 25
Benetton Group (ITL) ................................ 446,200 927
Bridgestone (JPY) ................................... 69,000 1,637
Burlington Industries * ............................. 17,700 249
Colgate-Palmolive ................................... 60,200 5,298
Fruit of the Loom (Class A) * ....................... 4,300 143
Hasbro .............................................. 75,000 2,948
Huhtamaki (FIM) ..................................... 10,000 573
Imperial Tobacco Group ADR .......................... 15,750 231
Jones Apparel Group * ............................... 67,200 2,457
Kuraray (JPY) ....................................... 148,000 1,262
Lion Nathan (NZD) ................................... 175,000 390
Liz Claiborne ....................................... 1,700 89
Mattel .............................................. 20,000 846
NIKE (Class B) ...................................... 900 44
Philip Morris ....................................... 10,800 425
Philips N.V. ADR .................................... 31,200 2,652
PPG Industries ...................................... 2,400 167
Procter & Gamble .................................... 98,800 8,997
Service Corp. International ......................... 74,600 3,198
Textron ............................................. 2,000 143
Tomkins (GBP) ....................................... 100,000 543
Tomkins ADR ......................................... 30,000 686
Unilever N.V. ADR ................................... 20,000 1,579
UST ................................................. 2,000 54
Yue Yuen Industrial (HKD) ........................... 127,000 227
35,790
Total Consumer Nondurables .......................... 200,713
CONSUMER SERVICES 6.9%
Restaurants 0.1%
Applebee's .......................................... 10,600 237
Darden Restaurants .................................. 6,300 100
Tricon Global Restaurants * ......................... 15,040 477
814
<PAGE>
General Merchandisers 2.5%
Carrefour (FRF) ..................................... 2,000 $ 1,265
Costco Companies * .................................. 103,400 6,524
Dayton Hudson ....................................... 172,200 8,352
Hussmann ............................................ 550 10
J.C. Penney ......................................... 20,000 1,446
JUSCO (JPY) ......................................... 67,000 1,233
Marui (JPY) ......................................... 53,000 793
May Department Stores ............................... 51,400 3,367
Pinault Printemps (FRF) ............................. 2,000 1,674
Sears ............................................... 40,000 2,443
Tesco (GBP) ......................................... 202,143 1,993
TJX ................................................. 176,000 4,246
Wal-Mart ............................................ 60,000 3,645
Warnaco Group (Class A) ............................. 2,500 106
37,097
Specialty Merchandisers 2.0%
Albertson's ......................................... 1,300 67
Callaway Golf ....................................... 13,000 256
Christian Dior (FRF) ................................ 7,000 881
Circuit City Stores ................................. 85,900 4,027
Federated Department Stores * ....................... 1,800 97
Fingerhut Companies ................................. 8,000 264
Gymboree * .......................................... 8,400 127
Heilig-Meyers ....................................... 4,500 55
Home Depot .......................................... 30,100 2,500
Kohl's * ............................................ 37,200 1,930
Kroger * ............................................ 100,000 4,288
Lowes ............................................... 4,000 162
Omron (JPY) ......................................... 68,000 1,043
Payless Shoesource * ................................ 8,224 606
Petrie Stores Liquidation Trust * ................... 33,500 96
R.P. Scherer * ...................................... 5,600 496
Safeway * ........................................... 25,200 1,025
Staples * ........................................... 35,437 1,027
The Gap ............................................. 118,800 7,321
Toys "R" Us * ....................................... 63,300 1,492
Viking Office Products * ............................ 32,000 1,002
28,762
<PAGE>
Entertainment and Leisure 0.8%
Ascent Entertainment * .............................. 2,395 $ 27
Brinker * ........................................... 8,775 169
Buffets * ........................................... 2,400 38
Disney .............................................. 50,139 5,268
Hilton .............................................. 2,300 65
Hutchison Whampoa (HKD) ............................. 390,000 2,059
International Game Technology ....................... 9,000 218
McDonald's .......................................... 10,000 690
MediaOne Group * .................................... 20,000 879
Reader's Digest (Class A) ........................... 35,000 949
Sbarro .............................................. 37,500 1,017
Sharp (JPY) ......................................... 72,000 585
Viacom (Class A) * .................................. 4,500 263
12,227
Media and Communications 1.5%
A. H. Belo (Class A) ................................ 13,600 332
A.C. Nielson * ...................................... 4,700 119
Asatsu (JPY) ........................................ 54,000 1,103
Banta ............................................... 13,500 414
CBS ................................................. 37,193 1,181
Cognizant ........................................... 14,100 888
Comcast (Class A Special) ........................... 40,000 1,624
Dun & Bradstreet .................................... 14,100 509
Elsevier (NLG) ...................................... 50,000 755
France Telecom ADR .................................. 45,000 3,130
Gannett ............................................. 27,600 1,961
Gaylord Entertainment ............................... 3,528 114
McGraw-Hill ......................................... 32,200 2,626
Metronet Communications, Warrants, 8/15/07 * ........ 500 21
NTL * ............................................... 11,999 642
Time Warner ......................................... 29,000 2,478
Tribune ............................................. 20,000 1,376
Vanguard Cellular (Class A) * ....................... 11,850 224
Vodafone ADR ........................................ 20,000 2,521
22,018
Total Consumer Services ............................. 100,918
<PAGE>
CONSUMER CYCLICALS 2.3%
Automobiles and Related 0.8%
Autoliv ............................................. 21,653 $ 685
Breed Technologies .................................. 5,600 86
Cycle & Carriage (SGD) .............................. 50,000 122
Dana ................................................ 1,300 70
Ford Motor .......................................... 11,330 668
Gentex * ............................................ 36,400 661
Genuine Parts ....................................... 81,975 2,833
GM .................................................. 33,600 2,245
Goodyear Tire & Rubber .............................. 300 19
Honda ADR ........................................... 30,100 2,150
MIDAS ............................................... 183 4
Pep Boys ............................................ 7,100 134
Superior Industries Intl ............................ 8,000 226
TRW ................................................. 30,000 1,639
11,542
Building and Real Estate 0.5%
Cheung Kong Holdings (HKD) .......................... 283,000 1,392
City Developments (SGD) ............................. 50,000 140
DBS Land (SGD) ...................................... 600,000 498
Patriot American Hospitality, REIT .................. 150,001 3,591
Security Capital Group, Warrants, 9/18/98 * ......... 13,427 5
Starwood Hotels & Resorts, REIT ..................... 1,561 75
Texas Industries .................................... 9,400 498
USG ................................................. 14,600 790
6,989
Miscellaneous Consumer Durables 1.0%
Black & Decker ...................................... 36,000 2,196
Corning ............................................. 30,000 1,042
Eastman Kodak ....................................... 22,600 1,651
Harley-Davidson ..................................... 7,600 295
Imation * ........................................... 1,800 30
Masco ............................................... 49,900 3,019
Ricoh (JPY) ......................................... 100,000 1,057
Scotts (Class A) * .................................. 10,000 373
Sony (JPY) .......................................... 16,000 1,383
Tandy ............................................... 40,000 $ 2,122
Valspar ............................................. 36,200 1,434
York International .................................. 2,600 113
14,715
Total Consumer Cyclicals ............................ 33,246
<PAGE>
TECHNOLOGY 5.6%
Electronic Components 1.2%
Altera * ............................................ 18,000 532
AMP ................................................. 30,000 1,031
EMC * ............................................... 23,000 1,031
Intel ............................................... 114,000 8,447
Linear Technology ................................... 45,800 2,762
Micron Technology * ................................. 9,400 233
Molex ............................................... 15,257 382
Motorola ............................................ 40,000 2,102
Thermo Electron * ................................... 9,787 335
Thermo Instrument Systems * ......................... 10,195 268
Vicor * ............................................. 12,000 167
Xilinx * ............................................ 12,600 429
17,719
Electronic Systems 0.9%
Applied Materials * ................................. 20,000 591
Hewlett-Packard ..................................... 68,300 4,090
Honeywell ........................................... 20,000 1,671
Solectron * ......................................... 9,600 404
UBS (CHF) ........................................... 16,089 5,992
12,748
Information Processing 0.8%
Adaptec * ........................................... 14,000 200
Choicepoint * ....................................... 1,780 90
COMPAQ Computer ..................................... 254,000 7,207
Dell Computer * ..................................... 2,400 223
Hitachi ADR ......................................... 15,200 980
IBM ................................................. 23,400 2,687
Komag * ............................................. 1,200 6
Storage Technology * ................................ 10,000 434
11,827
Office Automation 0.0%
Pitney Bowes ........................................ 5,200 $250
Xerox ............................................... 2,300 234
484
Specialized Computer 0.3%
Silicon Graphics * .................................. 14,700 178
Sun Microsystems * .................................. 108,000 4,695
Western Digital * ................................... 20,000 236
5,109
<PAGE>
Telecommunications Equipment 1.4%
Bay Networks * ...................................... 7,177 231
Cox Communications (Class A) * ...................... 50,000 2,422
LM Ericsson (Class B) ADR ........................... 108,000 3,098
Lucent Technologies ................................. 96,792 8,052
MCI ................................................. 2,700 157
Novell * ............................................ 45,600 583
PictureTel * ........................................ 8,800 81
Telebras ADR ........................................ 20,000 2,184
Tellabs * ........................................... 23,200 1,661
WorldCom * .......................................... 36,800 1,779
20,248
Aerospace and Defense 1.0%
AlliedSignal ........................................ 122,000 5,414
Boeing .............................................. 66,800 2,977
Lockheed Martin ..................................... 10,000 1,059
Northrop ............................................ 30,000 3,094
Raytheon (Class A) .................................. 2,142 123
Raytheon (Class B) .................................. 500 30
Trinity Industries .................................. 300 12
United Technologies ................................. 14,200 1,313
14,022
Total Technology .................................... 82,157
CAPITAL EQUIPMENT 3.0%
Electrical Equipment 2.2%
ABB (CHF) ........................................... 775 1,147
American Power Conversion * ......................... 10,300 308
Canon (JPY) ......................................... 55,000 $ 1,253
Emerson Electric .................................... 56,200 3,393
GE .................................................. 158,400 14,414
Hubbell (Class A) ................................... 8,000 349
Hubbell (Class B) ................................... 80,252 3,341
Matsushita Electric Works (JPY) ..................... 100,000 810
Mitsubishi Electric (JPY) ........................... 190,000 438
Siemens (DEM) ....................................... 16,900 1,032
Tyco International .................................. 100,000 6,300
32,785
<PAGE>
Machinery 0.8%
Caterpillar ......................................... 50,000 2,644
Coltec Industries * ................................. 29,900 594
Cooper Industries ................................... 600 33
Deere ............................................... 18,000 952
Dover ............................................... 2,400 82
FMC * ............................................... 12,000 818
Foster Wheeler ...................................... 4,600 99
GKN (GBP) ........................................... 90,000 1,148
Ingersoll-Rand ...................................... 1,500 66
Kennametal .......................................... 11,400 476
Man (DEM) ........................................... 3,500 1,366
S I G Schweis (CHF) ................................. 2,080 1,696
Stewart & Stevenson ................................. 6,300 113
Teleflex ............................................ 10,000 380
Valmet (FIM) ........................................ 32,000 552
11,019
Total Capital Equipment ............................. 43,804
BUSINESS SERVICES AND
TRANSPORTATION 3.2%
Computer Service and Software 1.5%
Amtech * ............................................ 3,625 17
BMC Software * ...................................... 80,000 4,158
Computer Associates ................................. 68,587 3,811
Electronic Arts * ................................... 7,500 406
Electronic Data Systems ............................. 44,223 1,769
First Data .......................................... 30,000 999
General Instrument * ................................ 1,400 $ 38
HBO ................................................. 52,800 1,863
Intuit * ............................................ 50,000 3,064
Micro Warehouse * ................................... 5,600 87
NCR * ............................................... 6,718 218
Oracle * ............................................ 142,000 3,483
Parametric Technology * ............................. 46,400 1,257
SunGard Data Systems * .............................. 26,400 1,013
Sybase * ............................................ 7,000 49
22,232
Transportation Services 0.1%
Landstar Systems * .................................. 40,000 1,401
Mitsubishi Heavy Industries (JPY) ................... 159,000 603
2,004
<PAGE>
Miscellaneous Business Services 0.8%
British Airport Authorities (GBP) ................... 108,371 1,171
Browning-Ferris ..................................... 25,000 869
Cendant * ........................................... 79,010 1,649
Cintas .............................................. 7,200 366
Equifax ............................................. 17,800 646
General Semiconductor ............................... 350 3
GTECH * ............................................. 4,500 152
H&R Block ........................................... 30,900 1,302
Manpower ............................................ 12,200 350
Merrill ............................................. 10,000 221
Omnicom ............................................. 26,800 1,337
Paychex ............................................. 42,018 1,708
Sime Darby (MYR) .................................... 200,000 138
Waste Management .................................... 39,166 1,371
11,283
Airlines 0.5%
AMR * ............................................... 40,000 3,330
ASA Holdings ........................................ 4,200 209
KLM (NLG) ........................................... 23,000 935
Mesa Air Group * .................................... 17,300 140
Northwest Airlines * ................................ 300 11
Singapore Airlines (SGD) ............................ 40,000 187
UAL * ............................................... 30,000 2,340
7,152
Railroads 0.3%
Burlington Northern Santa Fe ........................ 25,100 $2,464
Canadian National Railway ........................... 163 9
CSX ................................................. 22,500 1,024
Union Pacific ....................................... 14,000 618
Wisconsin Central Transport * ....................... 20,400 447
4,562
Total Business Services and Transportation .......... 47,233
ENERGY 4.6%
Energy Services 0.8%
Baker Hughes ........................................ 800 28
El Paso Natural Gas ................................. 18,766 718
Elf Aquitaine (FRF) ................................. 9,000 1,265
Halliburton ......................................... 52,742 2,350
Helmerich & Payne ................................... 40,000 890
Imperial Oil ........................................ 3,900 68
Johnson Electric Holdings (HKD) ..................... 123,600 458
Schlumberger ........................................ 60,200 4,112
Smith International * ............................... 18,300 637
TOTAL ADR ........................................... 18,000 1,177
Witco ............................................... 5,400 158
11,861
<PAGE>
Exploration and Production 0.1%
Anadarko Petroleum .................................. 1,800 121
EEX * ............................................... 21,442 201
Enron Oil & Gas ..................................... 6,600 134
Santos (AUD) ........................................ 200,000 621
Ultramar Diamond Shamrock ........................... 9,100 287
Union Pacific Resources ............................. 11,857 208
1,572
Gas Transmission 0.3%
Consolidated Natural Gas ............................ 1,200 71
Enron ............................................... 50,000 2,703
MCN ................................................. 8,800 219
Questar ............................................. 14,800 290
Sonat ............................................... 29,000 1,120
Tenneco ............................................. 200 8
4,411
Integrated Petroleum - Domestic 1.5%
Amerada Hess ........................................ 37,700 $ 2,048
Atlantic Richfield .................................. 64,600 5,047
British Petroleum ADR ............................... 78,600 6,936
Kerr-McGee .......................................... 600 35
Phillips Petroleum .................................. 48,300 2,327
Santa Fe Energy Resources ........................... 13,900 149
Unocal .............................................. 4,400 157
USX-Marathon ........................................ 140,000 4,804
21,503
Integrated Petroleum - International 1.9%
Amoco ............................................... 800 33
Chevron ............................................. 41,400 3,439
ENI S.P.A. ADR ...................................... 26,600 1,729
Exxon ............................................... 101,200 7,217
Mobil ............................................... 78,600 6,023
Repsol ADR .......................................... 24,000 1,320
Royal Dutch Petroleum ADR ........................... 40,000 2,193
Shell Transport & Trading ADR ....................... 36,300 1,538
Texaco .............................................. 80,727 4,818
28,310
Total Energy ........................................ 67,657
PROCESS INDUSTRIES 3.0%
Diversified Chemicals 1.0%
Dow Chemical ........................................ 30,000 2,900
DuPont .............................................. 77,800 5,806
Eastman Chemical .................................... 3,675 229
Hercules ............................................ 1,800 74
Monsanto ............................................ 92,300 5,157
14,166
<PAGE>
Specialty Chemicals 1.1%
3M .................................................. 18,600 1,529
A. Schulman ......................................... 26,325 513
Akzo Nobel (NLG) .................................... 7,000 1,557
Avery Dennison ...................................... 1,800 97
BASF (DEM) .......................................... 36,200 1,721
Bayer (DEM) ......................................... 34,600 $ 1,792
Crompton & Knowles .................................. 3,500 88
Great Lakes Chemical ................................ 25,000 986
Lyondell Petrochemical .............................. 7,100 216
McWhorter Technologies * ............................ 1,500 40
Morton International ................................ 63,500 1,587
Octel * ............................................. 6,250 124
Pall ................................................ 8,533 175
Raychem ............................................. 1,800 53
Rohm & Haas ......................................... 28,000 2,910
Solutia ............................................. 18,460 530
Sumitomo Chemicals (JPY) ............................ 175,000 542
Technip (FRF) ....................................... 15,000 1,834
16,294
Paper and Paper Products 0.4%
Dai Nippon Printing (JPY) ........................... 67,000 1,073
Kimberly-Clark ...................................... 34,400 1,578
Kimberly-Clark Mexico (Class A) (MXN) ............... 265,000 936
Mead ................................................ 30,000 953
Schweitzer Mauduit .................................. 1,000 29
Sonoco Products ..................................... 13,975 423
Willamette Industries ............................... 24,000 768
5,760
Forest Products 0.3%
Georgia-Pacific ..................................... 19,000 1,120
International Paper ................................. 46,000 1,978
Pope & Talbot ....................................... 8,200 96
Weyerhaeuser ........................................ 12,700 586
3,780
Building & Construction 0.2%
Blue Circle Industries (GBP) ........................ 136,612 772
Del E. Webb ......................................... 100 3
Georgia-Pacific Timber .............................. 19,000 438
Hanson ADR .......................................... 7,875 239
Holderbank Financiere Glarus (CHF) .................. 1,210 1,542
2,994
Total Process Industries ............................ 42,994
<PAGE>
BASIC MATERIALS 0.7%
Metals 0.5%
Alcoa ............................................... 30,000 $1,978
Anglo American Platinum (ZAR) ....................... 85,000 925
Carpenter Technology ................................ 5,400 271
Freeport-McMoRan Copper & Gold (Class A) ............ 9,600 137
Inco ................................................ 200,000 2,725
Reynolds Metals ..................................... 38,000 2,126
8,162
Mining 0.1%
Lonrho (GBP) ........................................ 101,111 474
Lonrho Africa (GBP) * ............................... 67,411 83
Rio Tinto (AUD) ..................................... 40,000 477
TVX Gold * .......................................... 200,000 612
1,646
Miscellaneous Materials 0.1%
Crown Cork & Seal ................................... 1,400 66
Malayan Cement (MYR) ................................ 312,500 102
Owens-Illinois * .................................... 15,300 685
Williams Companies .................................. 5,661 191
1,044
Total Basic Materials ............................... 10,852
MISCELLANEOUS 0.1%
Conglomerates 0.1%
Orkla (NOK) ......................................... 30,000 701
701
Other Miscellaneous Securities 0.0%
Halter Marine Group ................................. 156 2
2
Total Miscellaneous ................................. 703
FOREIGN 0.2%
Europe 0.1%
AXA Colonia Konzern (DEM) ........................... 6,000 745
745
Other Foreign 0.1%
Bobst (CHF) ......................................... 740 $ 1,364
1,364
Total Foreign ....................................... 2,109
Total Common Stocks and Warrants (Cost $467,469) .... 868,371
Preferred Stocks 0.1%
CSC Holdings, (Series M), 11.125% ................... 9,771 1,119
Primedia, (144a), 8.625% ............................ 10,000 975
Total Preferred Stocks (Cost $ 2,036) .............. 2,094
<PAGE>
Convertible Preferred Stocks 0.8%
Aetna, 6.25% ........................................ 898 68
Reckson Associates Realty, (Series A), 7.625% * ..... 200,000 4,750
Security Capital Industrial Trust, (Series B) ....... 225,000 7,059
Total Convertible Preferred Stocks (Cost $10,116) ... 11,877
Corporate Bonds 18.7%
Abbey National First Capital, Sub. Notes
8.20%, 10/15/04 ......................... $1,205,000 1,327
AEI Holding, Sr. Notes, (144a), 10.00%, 11/15/07 ......... 1,000,000 997
African Development Bank, Sub. Notes, 7.75%, 12/15/01 .... 1,000,000 1,053
Agricultural Minerals, Sr. Notes, 10.75%, 9/30/03 ........ 1,000,000 1,065
Airplane Pass Thru
8.15 - 10.875%, 3/15/19 .................. 2,936,611 3,193
Alabama Power, 1st Mtg. Notes, 7.00%, 1/1/03 ............. 725,000 737
Alliance Imaging, Sr. Sub. Notes, 9.625%, 12/15/05 ....... 950,000 978
Allied Holdings, Gtd. Sr. Sub. Notes, 8.625%, 10/1/07 .... 1,000,000 1,005
Allied Waste, Sr. Sub. Notes, 10.25%, 12/1/06 ............ 500,000 549
AMC Entertainment, Sr. Sub. Notes, 9.50%, 3/15/09 ........ 1,000,000 1,010
AMERCO, Sr. Notes, 7.85%, 5/15/03 ........................ 1,000,000 1,039
American Builders & Contractors Supply, Sr. Sub. Notes
10.625%, 5/15/07 ........................ 750,000 750
American Business Information, 9.50%, 6/15/08 ............ 400,000 402
American Lawyers Media Holdings, Sr. Sub. Notes
(144a), 9.75%, 12/15/07 ................. 850,000 882
American Portable Telecom, Gtd. Notes, (144a)
0%, 11/1/06 ............................. $3,615,000 $1,980
American Safety Razor, Sr. Notes, 9.875%, 8/1/05 ......... 1,000,000 1,070
Ameriserve Food Distribution
Gtd. Sr. Sub. Notes
8.875%, 10/15/06 ......................... 325,000 327
Sr. Sub. Notes
10.125%, 7/15/07 ......................... 500,000 517
Ameritech Capital Funding, 6.15%, 1/15/08 ................ 2,000,000 1,990
Ametek, Sr. Notes, 9.75%, 3/15/04 ........................ 500,000 536
AMTROL, Sr. Sub. Notes, 10.625%, 12/31/06 ................ 200,000 194
Anheuser-Busch, 6.90%, 10/1/02 ........................... 2,000,000 2,026
APCOA, Sr. Sub. Notes, (144a), 9.25%, 3/15/08 ............ 1,000,000 995
Archibald Candy, Sr. Secured Notes, 10.25%, 7/1/04 ....... 500,000 530
Associated Materials, 9.25%, 3/1/08 ...................... 1,000,000 1,025
Associates, Sr. Notes, 7.50%, 4/15/02 .................... 1,300,000 1,361
Atlantic Richfield, Deb. Notes, 8.75%, 3/1/32 ............ 1,570,000 2,038
Aurora Foods, Sr. Sub. Notes, 9.875%, 2/15/07 ............ 750,000 799
<PAGE>
B&G Foods, Sr. Sub. Notes, 9.625%, 8/1/07 ................ 500,000 505
Ballys Health & Tennis, Sr. Sub. Notes, 9.875%, 10/15/07 . 1,050,000 1,081
Banesto Delaware, Sub. Notes, 8.25%, 7/28/02 ............. 2,000,000 2,127
Bank United, Trust Pfd. Securities, 10.25%, 12/31/26 ..... 1,000,000 1,075
BankAmerica, Sub. Notes, 6.625%, 8/1/07 .................. 3,000,000 3,067
Baxter International, 7.125%, 2/1/07 ..................... 1,500,000 1,594
Bay View Capital, Sub. Notes, 9.125%, 8/15/07 ............ 625,000 641
BB & T, 6.375%, 6/30/05 .................................. 3,000,000 3,002
BCH Cayman Islands, Sub. Notes, 7.50%, 6/15/05 ........... 1,000,000 1,057
BHP Finance, Gtd. Notes, 6.69%, 3/1/06 ................... 2,000,000 2,017
Boeing, 8.75%, 8/15/21 ................................... 2,000,000 2,541
Boyd Gaming, Sr. Sub. Notes, 9.50%, 7/15/07 .............. 500,000 520
British Columbia Hydro & Power, 12.50%, 9/1/13 ........... 250,000 262
Burlington Northern, PTC, 7.33%, 6/23/10 ................. 925,197 981
BWAY, Sr. Sub. Notes, 10.25%, 4/15/07 .................... 550,000 599
Casino America, Sr. Notes, 12.50%, 8/1/03 ................ 500,000 565
Celestica International, Gtd. Sr. Sub. Notes
10.50%, 12/31/06 ........................ 575,000 634
Century Telephone Enterprises, Sr. Notes, 8.25%, 5/1/24 .. 500,000 528
Chancellor Media, Sr. Sub. Notes
8.125%, 12/15/07 ........................ 1,000,000 1,014
Chattem, Sr. Sub. Notes, 12.75%, 6/15/04 ................. $1,000,000 $1,125
Chemical Master Credit Card Trust I
5.55%, 9/15/03 ........................... 100,000 99
6.23%, 4/15/05 ........................... 110,000 111
Chrysler Financial, 5.875%, 2/7/01 ....................... 2,000,000 1,998
Citibank Credit Card Master Trust I, 0%, 2/7/03 .......... 170,000 146
Citicorp Mortgage, 6.00%, 3/25/22 ........................ 82,202 82
Citizens Utilities, Deb. Notes, 7.00%, 11/1/25 ........... 1,500,000 1,531
Coach USA, Gtd. Sr. Sub. Notes, 9.375%, 7/1/07 ........... 750,000 780
Coinmach, Sr. Sub. Notes, 11.75%, 11/15/05 ............... 500,000 558
Coltec Industries, Sr. Notes, (144a), 7.50%, 4/15/08 ..... 850,000 856
Columbus McKinnon, Sr. Sub. Notes, (144a)
8.50%, 4/1/08 ............................ 525,000 516
Comcast Cable Communications
8.125%, 5/1/04 ........................... 1,500,000 1,625
8.375%, 5/1/07 ........................... 1,500,000 1,678
Communications & Power Industries, Sr. Sub. Notes
12.00%, 8/1/05 ........................... 1,000,000 1,120
Community Distributors, Sr. Notes, 10.25%, 10/15/04 ...... 475,000 480
Consumers Energy, 1st Mtg., 7.375%, 9/15/23 .............. 3,500,000 3,460
Container Corporation of America, Sr. Notes
9.75%, 4/1/03 ............................ 1,000,000 1,075
Continental Airlines, PTC, 7.206%, 6/30/04 ............... 477,929 492
Corestates Home Equity Loan
5.10%, 3/15/09 ........................... 239,547 237
6.65%, 5/15/09 ........................... 210,010 212
<PAGE>
Corporacion Andina De Fomento, 6.75%, 3/15/05 ............ 2,500,000 2,467
Countrywide Funding, MTN, 6.875%, 9/15/05 ................ 860,000 886
Courtyard by Marriott II, Sr. Secured Notes
10.75%, 2/1/08 ........................... 500,000 549
Cox Communications, Deb. Notes, 6.375%, 6/15/00 .......... 1,500,000 1,511
Credit Suisse First Boston Mortgage, 6.59%, 6/17/08 ...... 2,000,000 2,034
CSC Holdings, Sr. Notes, 7.875%, 12/15/07 ................ 600,000 631
CSX, 7.45%, 5/1/07 ....................................... 1,000,000 1,063
DecisionOne, Sr. Sub. Notes, 9.75%, 8/1/07 ............... 250,000 241
Delta Airlines, Deb. Notes, 8.95%, 1/12/12 ............... 1,532,689 1,764
Delta Mills, Sr. Notes, 9.625%, 9/1/07 ................... 1,000,000 985
Deutsche Financial Capital, 6.75%, 9/15/27 ............... 2,000,000 2,030
Diamond Triumph Auto Glass, Sr. Notes, (144a)
9.25%, 4/1/08 ............................ $ 475,000 $ 485
DII Group, Sr. Sub. Notes, 8.50%, 9/15/07 ................ 325,000 319
Discover Credit Card, 7.85%, 11/21/00 .................... 3,000,000 3,009
Doane Products, Sr. Notes, 10.625%, 3/1/06 ............... 1,000,000 1,090
Duke Energy, 1st Ref. Mtg ................................
6.75 - 7.50%, 8/1/25 ..................... 2,000,000 2,040
Dyersburg, Sr. Sub. Notes, 9.75%, 9/1/07 ................. 850,000 829
Dyncorp, Sr. Sub. Notes, 9.50%, 3/1/07 ................... 900,000 918
Embotelladora Andina, 7.625%, 10/1/27 .................... 2,000,000 1,899
Empress Entertainment, 8.125%, 7/1/06 .................... 1,000,000 1,002
Energy Corporation of America, Sr. Sub. Notes
9.50%, 5/15/07 ........................... 1,000,000 977
Equitable Resources, Deb. Notes, 7.75%, 7/15/26 .......... 2,000,000 2,328
Exxon Capital, Gtd. Notes, 6.50%, 7/15/99 ................ 500,000 503
Eye Care Centers of America, 9.125%, 5/1/08 .............. 1,000,000 992
Fairchild Semiconductor, Sr. Sub. Notes
10.125%, 3/15/07 ......................... 425,000 438
Fairfax Financial Holdings
7.75%, 12/15/03 .......................... 800,000 847
8.30%, 4/15/26 ........................... 2,500,000 2,837
Falcon Holding Group, Sr. Disc. Deb., (144a)
STEP, 0%, 4/15/10 ....................... 675,000 427
Federal Express, 9.95%, 8/15/06 .......................... 500,000 612
Federal Mogul, 7.75%, 7/1/06 ............................. 700,000 701
Ferrellgas, Sr. Notes, 10.00%, 8/1/01 .................... 750,000 789
Finlay Fine Jewelry, Sr. Notes, 8.375%, 5/1/08 ........... 1,000,000 1,005
First Federal Financial, 11.75%, 10/1/04 ................. 750,000 840
Flag Limited, Sr. Notes, (144a), 8.25%, 1/30/08 ......... 750,000 756
Fleet Financial Group, Sub. Notes
7.625%, 12/1/99 .......................... 1,100,000 1,124
8.625%, 1/15/07 .......................... 800,000 920
Fletcher Challenge, 9.00%, 9/15/99 ....................... 270,000 278
Flores & Rucks, Sr. Sub. Notes, 9.75%, 10/1/06 ........... 275,000 299
Food Lion, 8.05%, 4/15/27 ................................ 1,900,000 2,213
Ford Motor, Deb. Notes, 7.50%, 8/1/26 .................... 2,500,000 2,781
Ford Motor Credit, 8.20%, 2/15/02 ........................ 170,000 181
Fred Meyer, 7.45%, 3/1/08 ................................ 1,000,000 1,007
<PAGE>
Freeport McMoRan Resources, Sr. Notes, 7.00%, 2/15/08 .... 900,000 916
Frontiervision, Sr. Sub. Notes, 11.00%, 10/15/06 ......... $1,000,000 $1,110
Fundy Cable, Sr. Secured 2nd Priority Notes
11.00%, 11/15/05 ........................ 500,000 555
Furon, Sr. Sub. Notes, (144a), 8.125%, 3/1/08 ........... 600,000 599
General Motors, Deb. Notes, 9.625%, 12/1/00 .............. 140,000 151
General Motors Acceptance, MTN, 6.75%, 6/17/02 ........... 80,000 82
Genesis Health Ventures, Sr. Sub. Notes, 9.25%, 10/1/06 .. 500,000 505
Glenoit, Sr. Sub. Notes, 11.00%, 4/15/07 ................. 250,000 268
Golden West Financial, Sub. Notes, 8.625%, 8/30/98 ....... 1,500,000 1,508
Grand Casinos, Sr. Notes, 9.00%, 10/15/04 ................ 500,000 543
Green Tree Financial, 5.75%, 10/15/18 .................... 90,000 90
GTE Florida, Deb. Notes, 7.41%, 12/15/23 ................. 1,000,000 1,042
Hadco, Sr. Sub. Notes, 9.50%, 6/15/08 .................... 750,000 750
Harcourt General, 6.70%, 8/1/07 .......................... 1,000,000 1,014
Hard Rock Hotel, Sr. Sub. Notes, (144a), 9.25%, 4/1/05 .. 1,000,000 1,020
Hawk, Sr. Notes, 10.25%, 12/1/03 ......................... 750,000 814
HCC Industries, Sr. Sub. Notes, 10.75%, 5/15/07 .......... 1,000,000 1,060
Herff Jones, Sr. Sub. Notes, 11.00%, 8/15/05 ............. 1,125,000 1,226
HMC Acquisition Properties, Sr. Notes, 9.00%, 12/15/07 ... 1,000,000 1,085
Holmes Products, Gtd. Notes, 9.875%, 11/15/07 ............ 500,000 518
Horseshoe Gaming, Sr. Sub. Notes, 9.375%, 6/15/07 ........ 1,000,000 1,059
Host Marriott Travel, Sr. Notes, 9.50%, 5/15/05 .......... 1,000,000 1,066
Houston Lighting & Power, 7.50%, 7/1/23 .................. 3,000,000 3,113
Hudson Respiratory Care, Sr. Sub. Notes, (144a)
9.125%, 4/15/08 ......................... 1,000,000 975
IBM, 6.45%, 8/1/07 ....................................... 1,000,000 1,029
ICG Services, Sr. Disc. Notes, STEP, 0%, 9/15/05 ......... 1,000,000 855
Intermedia Communications, Sr. Notes, 8.50%, 1/15/08 ..... 500,000 501
International Bank For Reconstruction & Development
7.625%, 1/19/23 ......................... 1,800,000 2,216
International Shipholding, Sr. Notes, 7.75%, 10/15/07 .... 750,000 733
International Wire, Sr. Sub. Notes, 11.75%, 6/1/05 ....... 1,500,000 1,650
Intertek Finance, Sr. Sub. Notes, 10.25%, 11/1/06 ........ 800,000 836
Iron Mountain, Sr. Sub. Notes, 8.75%, 9/30/09 ............ 500,000 510
ISP Holdings, Sr. Notes, 9.75%, 2/15/02 .................. 1,000,000 1,060
IXC Communications, Sr. Sub. Notes, (144a)
9.00%, 4/15/08 .......................... 500,000 503
Jefferson Pilot Capital Trust, (144a), 8.14%, 1/15/46 ... $1,500,000 $1,657
Jitney-Jungle Stores, Sr. Sub. Notes, 10.375%, 9/15/07 ... 500,000 534
John Q. Hammons Hotels, 1st Mtg. Notes
8.875%, 2/15/04 ......................... 1,000,000 1,007
Keebler, Sr. Sub. Notes, 10.75%, 7/1/06 .................. 1,000,000 1,135
Kelley Oil & Gas, Sr. Sub. Notes, 10.375%, 10/15/06 ...... 750,000 746
KFW International Finance, MTN, 9.14%, 6/4/01 ............ 250,000 272
Kimberly-Clark, 6.375%, 1/1/28 ........................... 5,000,000 5,031
Koppers Industry, Sr. Sub. Notes, 9.875%, 12/1/07 ........ 1,050,000 1,071
<PAGE>
L 3 Communications, Sr. Sub. Notes, 10.375%, 5/1/07 ...... 725,000 800
Lehman Brothers, Sr. Sub. Notes, 6.625%, 2/15/08 ......... 1,500,000 1,514
Lehman Brothers Holdings, 8.875%, 3/1/02 ................. 1,500,000 1,629
LES, Sr. Sub. Notes, 9.25%, 6/1/08 ....................... 500,000 513
Liberty National Bank & Trust, Sub. Notes, 6.75%, 6/1/03 . 500,000 514
Long Island Lighting, Deb. Notes, 7.50%, 3/1/07 .......... 500,000 518
Loral, Sr. Notes, 7.625%, 6/15/04 ........................ 1,500,000 1,598
Marcus Cable, Gtd. Sr. Disc. Notes, STEP, 0%, 8/1/04 ..... 1,250,000 1,212
Mastec, Sr. Sub. Notes, (144a), 7.75%, 2/1/08 ............ 1,000,000 952
McDonnell Douglas, 8.25%, 7/1/00 ......................... 500,000 521
MCMS, Sr. Sub. Notes, (144a), 9.75%, 3/1/08 ............. 1,000,000 920
Metronet Communications
Sr. Disc. Notes, STEP, 0%, 11/1/07 ....... 500,000 332
Sr. Notes, 12.00%, 8/15/07 ............... 500,000 575
Microcell Telecommunications, Sr. Disc. Notes
STEP, 0%, 6/1/06 .......................... 500,000 374
ML Capital Trust, Gtd. Notes, 9.875%, 3/1/27 .............. 500,000 594
Mrs. Fields Original Cookies, Sr. Gtd. Notes
10.125%, 12/1/04 .......................... 750,000 727
MTS, Sr. Sub. Notes, (144a), 9.375%, 5/1/05 ............... 300,000 296
Muzak, Gtd. Sr. Notes, 10.00%, 10/1/03 .................... 1,000,000 1,035
Nationsbank Credit Card Master Trust (Class A)
6.00%, 12/15/05 ........................... 140,000 140
New Jersey Bell Telephone, Deb. Notes, 6.80%, 12/15/24 .... 2,500,000 2,523
News America Holdings, Gtd. Sr. Deb. Notes
9.25%, 2/1/13 ............................ 90,000 109
Nextel Communications, Sr. Disc. Notes
STEP, 0%, 10/31/07 ....................... 2,000,000 1,305
Nextlink Communications, Sr. Notes, 12.50%, 4/15/06 ....... $ 500,000 $ 563
NGC, Sr. Notes, 6.75%, 12/15/05 ........................... 1,000,000 1,008
Niagara Mohawk
STEP, 0%, 7/1/10 .......................... 1,000,000 691
1st Mtg., 7.75%, 5/15/06 .................. 2,000,000 2,140
Sr. Notes, 7.75%, 10/1/08 ................. 450,000 461
Nine West Group, Sr. Notes, (144a), 8.375%, 8/15/05 ....... 1,000,000 985
Northland Cable Television, Sr. Sub. Notes
10.25%, 11/15/07 .......................... 1,000,000 1,070
Northrop Grumman, 7.875%, 3/1/26 .......................... 2,000,000 2,259
NYNEX, Deb. Notes, 9.55%, 5/1/10 .......................... 1,083,968 1,251
Octel Developments, Sr. Notes, (144a), 10.00%, 5/1/06 ..... 650,000 664
Ocwen Capital Trust I, 10.875%, 8/1/27 .................... 500,000 545
Ocwen Financial, Sr. Notes, 11.875%, 10/1/03 .............. 1,000,000 1,120
Oracle, 6.91%, 2/15/07 .................................... 3,000,000 3,071
Orange & Rockland Utilities, Deb. Notes
9.375%, 3/15/00 ........................... 1,500,000 1,580
Owens & Minor, Sr. Sub. Notes, 10.875%, 6/1/06 ............ 500,000 545
P&L Coal Holdings, Sr. Notes, (144a), 8.875%, 5/15/08 ..... 450,000 463
Pacific Bell, Deb. Notes
7.375%, 7/15/43 ........................... 1,000,000 1,077
7.50%, 2/1/33 ............................. 1,000,000 1,046
Paragon Corporate Holdings, Sr. Notes, (144a)
9.625%, 4/1/08 ........................... 1,000,000 900
<PAGE>
PDVSA Finance, (144a), 7.40%, 8/15/16 ..................... 2,000,000 2,000
Pegasus Communications, Sr. Notes, 9.625%, 10/15/05 ....... 1,000,000 1,030
Philadelphia Electric, 1st Ref. Mtg., 5.625%, 11/1/01 ..... 3,000,000 2,957
Plains Resources, Sr. Sub. Notes, 10.25%, 3/15/06 ......... 500,000 534
Plastic Containers, Sr. Secured Notes, 10.00%, 12/15/06 ... 1,000,000 1,075
Premier Parks, Sr. Disc. Notes, STEP, 0%, 4/1/08 .......... 300,000 199
Price Communications Wireless, 9.125%, 12/15/06 ........... 650,000 650
Pride Petroleum Services, Sr. Notes, 9.375%, 5/1/07 ....... 1,000,000 1,065
Prime Credit Card Master Trust, 6.70%, 7/15/04 ............ 140,000 143
Province of Alberta, 9.25%, 4/1/00 ........................ 1,000,000 1,054
PSINET, Sr. Notes, 10.00%, 2/15/05 ........................ 600,000 612
Purina Mills, Sr. Sub. Notes, (144a), 9.00%, 3/15/10 ...... 825,000 846
Quantas Airways, Sr. Notes, 7.50%, 6/30/03 ................ 1,000,000 1,046
Quest Diagnostics, Gtd. Sr. Sub. Notes, 10.75%, 12/15/06 .. 500,000 559
Qwest Communications, Sr. Disc. Notes
STEP, 0%, 10/15/07 ....................... $1,675,000 $1,256
R & B Falcon, 6.75%, 4/15/05 .............................. 3,000,000 2,993
Rail Car Trust, 7.75%, 6/1/04 ............................. 89,787 94
Repap New Brunswick, Sr. Secured 1st Priority Notes, (144a)
9.00%, 6/1/04 ............................ 1,000,000 1,010
Rio Hotel & Casino
Gtd. Sr. Sub. Notes
9.50%, 4/15/07 ............................ 500,000 530
Sr. Sub. Notes
10.625%, 7/15/05 .......................... 1,000,000 1,075
Riverwood International, Sr. Notes, 10.625%, 8/1/07 ....... 1,000,000 1,040
Rogers Cablesystems, Sr. Sec. 2nd Priority Notes
10.00%, 3/15/05 .......................... 500,000 555
RSL Communications, 9.125%, 3/1/08 ........................ 1,000,000 974
Rural/Metro, Sr. Notes, (144a), 7.875%, 3/15/08 ........... 650,000 622
Santander Financial, Gtd. Sub. Notes, 6.375%, 2/15/11 ..... 3,000,000 2,931
Satelites Mexicanos, Sr. Notes, (144a), 10.125%, 11/1/04 .. 500,000 485
Sears Credit Account Master Trust (Class A)
6.05%, 1/16/08 ............................ 80,000 80
6.45%, 10/16/06 .......................... 70,000 71
Security Benefit Life, (144a), 8.75%, 5/15/16 ............. 3,000,000 3,455
Shoppers Food Warehouse, Sr. Notes, 9.75%, 6/15/04 ........ 1,000,000 1,107
Siebe
(144a), 6.50%, 1/15/10 .................... 2,000,000 2,005
(144a), 7.125%, 1/15/07 ................... 1,500,000 1,609
Sinclair Broadcast Group, Sr. Sub. Notes
8.75%, 12/15/07 ........................... 750,000 769
10.00%, 9/30/05 ........................... 300,000 323
Sitel, Sr. Sub. Notes, (144a), 9.25%, 3/15/06 ............. 350,000 350
Six Flags Entertainment, Sr. Notes, 8.875%, 4/1/06 ........ 350,000 354
Six Flags Theme Parks, Sr. Sub. Disc. Notes, STEP
12.25%, 6/15/05 ........................... 1,000,000 1,137
Smithfield Foods, Sr. Sub. Notes, (144a), 7.625%, 2/15/08 . 500,000 495
Southern Foods Group, Sr. Sub. Notes, (144a)
9.875%, 9/1/07 ............................ 800,000 834
Sovereign Speciality Chemicals, 9.50%, 8/1/07 ............. 750,000 769
Specialty Retailers, Sr. Notes, 8.50%, 7/15/05 ............ $1,000,000 $1,025
<PAGE>
Speedway Motorsports, Gtd. Sr. Sub. Notes
8.50%, 8/15/07 ............................ 1,000,000 1,035
Stena AB, Sr. Notes, 10.50%, 12/15/05 ..................... 1,000,000 1,090
Sun Media, Sr. Sub. Notes
9.50%, 2/15/07 ............................ 650,000 686
9.50%, 5/15/07 ............................ 650,000 687
Synthetic Industries, Sr. Sub. Notes, 9.25%, 2/15/07 ...... 400,000 414
Tenet Healthcare, Sr. Sub. Notes, 8.625%, 1/15/07 ....... 1,000,000 1,025
Tenneco, 6.70%, 12/15/05 ................................ 1,000,000 1,021
Time Warner, Deb. Notes, 7.48%, 1/15/08 ................. 1,400,000 1,494
Tracor, Sr. Sub. Notes, 8.50%, 3/1/07 ................... 750,000 812
Transwestern Holdings, Sr. Disc. Notes,
STEP, 0%, 11/15/08 ..................... 500,000 330
Transwestern Publishing, Sr. Sub. Notes
9.625%, 11/15/07 ........................ 750,000 765
TravelCenters of America, Sr. Sub. Notes, 10.25%, 4/1/07 900,000 940
Travelers Property Casualty, Sr. Notes, 6.75%, 11/15/06 . 1,500,000 1,556
Trident Automotive, Sr. Sub. Notes, (144a)
10.00%, 12/15/05 ........................ 750,000 810
TRW, MTN, 7.37%, 4/18/07 ................................ 2,000,000 2,172
TV Azteca, Gtd. Sr. Notes, 10.50%, 2/15/07 .............. 1,000,000 1,000
Union Bank Switzerland, Sub. Notes, 7.25%, 7/15/06 ...... 1,000,000 1,059
United International Holdings, Sr. Disc. Notes
STEP, 10.75%, 2/15/08 .................. 1,000,000 617
Universal Compression, Sr. Disc. Notes, (144a)
STEP, 0%, 2/15/08 ...................... 1,000,000 630
US Can, Sr. Gtd. Notes, 10.125%, 10/15/06 ............... 475,000 500
UtiliCorp United, Sr. Notes, 6.875%, 10/1/04 ............ 3,000,000 3,052
Viasystems, Sr. Sub. Notes, 9.75%, 6/1/07 ............... 500,000 520
Wal-Mart Stores, 6.75%, 5/15/02 ......................... 1,000,000 1,027
Westamerica Bank, Sub. Notes, 6.99%, 9/30/03 ............ 1,500,000 1,511
Westpoint Stevens, 7.875%, 6/15/08 ...................... 1,000,000 1,004
Willamette Industries, MTN, 7.85%, 7/1/26 ............... 1,000,000 1,128
Windy Hill Pet Food, Sr. Sub. Notes, 9.75%, 5/15/07 ..... 1,000,000 1,045
Total Corporate Bonds (Cost $ 265,762) .................. 273,176
U.S. Government Mortgage-
Backed Securities 5.7%
Federal Home Loan Mortgage Assn
8.00%, 3/1/17 ...................... $ 19,047 $ 20
10.00%, 10/1/10 .................... 67,853 72
10.50%, 9/1/15 ..................... 15,927 18
Federal National Mortgage Assn
6.00%, 10/25/08 .................... 3,835,000 3,811
6.50%, 7/25/08 - 5/1/11 ............ 1,372,829 1,373
7.00%, 8/17/10 - 4/1/26 ............ 8,081,047 8,522
<PAGE>
Government National Mortgage Assn
I
6.00%, 1/15 - 5/15/24 .............. 2,456,862 2,415
6.50%, 9/15/23 - 3/15/26 ........... 7,710,613 7,710
7.00%, 10/15/22 - 3/15/28 .......... 14,030,334 14,254
7.50%, 9/15/22 - 6/15/27 ........... 13,236,089 13,600
8.00%, 6/15/17 - 11/15/25 .......... 10,608,856 11,073
8.50%, 3/15/05 - 2/15/25 ........... 3,585,856 3,803
9.00%, 5/15/16 - 6/15/21 ........... 780,599 841
9.50%, 8/15/16 - 9/15/21 ........... 877,705 957
10.00%, 11/15/09 - 5/15/13 ......... 34,331 38
10.50%, 5/15/15 .................... 11,671 13
11.00%, 3/15/10 - 1/15/20 .......... 824,484 931
11.50%, 3/15/10 - 3/15/16 .......... 1,406,340 1,610
II
8.50%, 6/20/25 - 6/20/26 ........... 5,271,261 5,525
9.00%, 7/20/16 - 6/20/20 ........... 672,921 718
9.50%, 8/20/22 ..................... 157,230 170
10.00%, 10/20/16 - 1/20/22 ......... 120,629 132
GPM, I
9.50%, 8/15 - 9/15/09 .............. 461,492 501
10.75%, 1/15/16 - 12/15/17 ......... 123,861 137
ARM, I
7.00%, 8/20/23 ..................... 174,031 178
Project Loan
8.50%, 1/15/27 ..................... 294,131 310
8.875%, 2/15/30 .................... 676,812 705
8.95%, 5/15/35 ..................... 2,292,249 2,388
U. S. Department of Veteran Affairs, VR
9.54%, 3/15/25 ..................... $ 838,673 $ 942
Total U.S. Government Mortgage-Backed
Securities (Cost $80,806) ......................... 82,767
U.S. Government Obligations/
Agencies 14.1%
Federal Home Loan Banks
6.34%, 10/19/05 ..................... 4,875,000 5,026
6.425%, 8/14/02 ..................... 6,450,000 6,514
Federal Home Loan Mortgage Assn .....................
6.00%, 6/15/05 ...................... 515,156 514
Federal National Mortgage Assn ......................
5.80%, 12/10/03 ..................... 13,000,000 13,018
6.25%, 8/12/03 ...................... 3,000,000 2,981
6.47%, 9/25/12 ...................... 3,000,000 3,147
8.45%, 7/12/99 ...................... 4,000,000 4,109
REMIC
7.50%, 10/25/19 ..................... 974,015 980
Federal National Mortgage Assn., MTN
6.34%, 2/4/08 ....................... 10,000,000 10,040
6.36%, 8/16/00 ...................... 270,000 274
<PAGE>
Tennessee Valley Authority
8.25%, 9/15/34 ...................... 435,000 455
U.S. Treasury Bonds
6.00%, 2/15/26 ...................... 9,365,000 9,743
6.50%, 11/15/26 ..................... 9,000,000 9,994
6.75%, 8/15/26 ...................... 7,000,000 8,014
7.125%, 2/15/23 ..................... 12,500,000 14,787
7.25%, 5/15/16 ...................... 4,000,000 4,686
8.125%, 8/15/19 - 8/15/21 ........... 3,650,000 4,754
8.75%, 5/15/20 ...................... 1,000,000 1,373
11.25%, 2/15/15 ..................... 500,000 801
11.625%, 11/15/04 ................... 20,000 27
11.75%, 2/15/01 ..................... 200,000 230
13.125%, 5/15/01 .................... 200,000 240
13.875%, 5/15/11 .................... 190,000 288
U.S. Treasury Notes
5.25%, 1/31/01 ...................... $ 5,000,000 $ 4,969
6.00%, 8/15/99 ...................... 11,300,000 11,358
6.125%, 9/30/00 ..................... 790,000 800
6.25%, 2/15/03 - 2/15/07 ............ 13,000,000 13,586
6.50%, 4/30/99 - 8/15/05 ............ 11,500,000 11,757
6.875%, 5/15/06 ..................... 8,000,000 8,663
7.50%, 11/15/01 - 2/15/05 ........... 7,485,000 8,223
7.75%, 1/31/00 - 2/15/01 ............ 16,800,000 17,408
7.875%, 11/15/04 .................... 150,000 168
8.00%, 5/15/01 ...................... 12,000,000 12,776
8.75%, 8/15/00 ...................... 12,500,000 13,297
Total U.S. Government Obligations/Agencies (Cost $ 196,073) 205,000
Short-Term Investments 0.6%
Money Market Funds 0.6%
Reserve Investment Fund, 5.69% # .................... 8,346,162 8,346
Total Short-Term Investments (Cost $8,346) .......... 8,346
Total Investments in Securities
99.6% of Net Assets (Cost $1,030,608) ............... $ 1,451,631
Other Assets Less Liabilities ....................... 6,111
NET ASSETS .......................................... $ 1,457,742
<PAGE>
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
ARM Adjustable rate mortgage
GPM Graduated payment mortgage
MTN Medium term note
PTC Pass-through Certificate
REIT Real Estate Investment Trust
STEP Stepped coupon note for which the interest rate will adjust on specified
future date(s)
VR Variable rate
144a Security was purchased pursuant to Rule 144a under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers - total of such securities at period-end amounts to
2.33% 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
ZAR South African rand
L Local registered shares
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1998
================================================================================
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value (cost $1,030,608) ........... $1,451,631
Securities Lending Collateral Pool .............................. 104,964
Other assets .................................................... 14,710
Total assets .................................................... 1,571,305
Liabilities
Securities Lending Collateral ................................... 104,964
Other liabilities ............................................... 8,599
Total liabilities ............................................... 113,563
NET ASSETS ...................................................... $1,457,742
Net Assets Consist of:
Accumulated net investment income - net of distributions ........ $ 733
Accumulated net realized gain/loss - net of distributions ....... 4,836
Net unrealized gain (loss) ...................................... 421,022
Paid-in-capital applicable to 80,920,008 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares authorized ................................. 1,031,151
NET ASSETS ...................................................... $1,457,742
NET ASSET VALUE PER SHARE ....................................... $ 18.01
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
Unaudited
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
6/30/98
Investment Income
Income
Interest .............................................. $ 19,745
Dividend .............................................. 7,059
Total income .......................................... 26,804
Expenses
Investment management ................................. 3,233
Shareholder servicing ................................. 1,857
Custody and accounting ................................ 108
Prospectus and shareholder reports .................... 101
Registration .......................................... 46
Legal and audit ....................................... 8
Directors ............................................. 5
Miscellaneous ......................................... 4
Total expenses ........................................ 5,362
Net investment income ......................................... 21,442
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities ............................................ 4,455
Foreign currency transactions ......................... 11
Net realized gain (loss) .............................. 4,466
Change in net unrealized gain or loss
Securities ............................................ 110,278
Other assets and liabilities
denominated in foreign currencies ..................... 4
Change in net unrealized gain or loss ................. 110,282
Net realized and unrealized gain (loss) ....................... 114,748
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ........................................ $136,190
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
T. Rowe Price Balanced Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Unaudited
====================================================================================================================================
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
In thousands
<CAPTION>
6 Months Year
Ended Ended
6/30/98 12/31/97
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income .................................................... $ 21,442 $ 37,576
Net realized gain (loss) ................................................. 4,466 9,027
Change in net unrealized gain or loss .................................... 110,282 145,478
Increase (decrease) in net assets from operations ........................ 136,190 192,081
Distributions to shareholders
Net investment income .................................................... (20,710) (38,055)
Net realized gain ........................................................ (786) (8,859)
Decrease in net assets from distributions ................................ (21,496) (46,914)
Capital share transactions *
Shares sold .............................................................. 247,272 425,797
Distributions reinvested ................................................. 20,278 44,064
Shares redeemed .......................................................... (143,726) (271,777)
Increase (decrease) in net assets from capital
share transactions ....................................................... 123,824 198,084
Net Assets
Increase (decrease) during period ................................................ 238,518 343,251
Beginning of period .............................................................. 1,219,224 875,973
End of period .................................................................... $ 1,457,742 $ 1,219,224
*Share information
Shares sold .............................................................. 14,248 27,623
Distributions reinvested ................................................. 1,134 2,767
Shares redeemed .......................................................... (8,182) (17,176)
Increase (decrease) in shares outstanding ................................ 7,200 13,214
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1998
================================================================================
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.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company industry;
these principles may require the use of estimates by fund management.
VALUATION Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price on the day the valuations are
made. A security which is listed or traded on more than one exchange is valued
at the quotation on the exchange determined to be the primary market for such
security. Listed securities not traded on a particular day and securities
regularly traded in the over-the-counter market are valued at the mean of the
latest bid and asked prices. Other equity securities are valued at a price
within the limits of the latest bid and asked prices deemed by the Board of
Directors, or by persons delegated by the Board, best to reflect fair value.
Debt securities are generally traded in the over-the-counter market and
are valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the
U.S. dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
<PAGE>
CURRENCY TRANSLATION Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing exchange rate on the dates of such transactions.
The effect of changes in foreign exchange rates on realized and unrealized
security gains and losses is reflected as a component of such gains and losses.
PREMIUMS AND DISCOUNTS Premiums and discounts on debt securities, other
than mortgage-backed securities, are amortized for both financial reporting and
tax purposes. Premiums and discounts on mortgage-backed securities are
recognized upon principal repayment as gain or loss for financial reporting
purposes and as ordinary income for tax purposes.
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.
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.
SECURITIES LENDING The fund lends its securities to approved brokers to
earn additional income and receives cash and U.S. Treasury securities as
collateral against the loans. Cash collateral received is invested in a money
market pooled account by the fund's lending agent. Collateral is maintained over
the life of the loan in an amount not less than 100% of the value of loaned
securities. Although risk is mitigated by the collateral, the fund could
experience a delay in recovering its securities and a possible loss of income or
value if the borrower fails to return them. At June 30, 1998, the value of
loaned securities was $104,389,000; aggregate collateral consisted of
$104,964,000 in the securities lending collateral pool.
OTHER Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $129,244,000 and $62,052,000,
respectively, for the six months ended June 30, 1998. Purchases and sales of
U.S. government securities aggregated $55,579,000 and $34,753,000, respectively,
for the six months ended June 30, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends
to continue to qualify as a regulated investment company and distribute all of
its taxable income.
<PAGE>
At June 30, 1998, the aggregate cost of investments for federal income
tax and financial reporting purposes was $1,030,608,000, and net unrealized gain
aggregated $421,023,000, of which $443,525,000 related to appreciated
investments and $22,502,000 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 $560,000 was payable at June 30, 1998. The fee is computed daily and
paid monthly, and consists an individual fund fee equal to 0.15% of average
daily net assets and a group fee. The group fee is based on the combined assets
of certain mutual funds sponsored by the manager or Rowe Price-Fleming
International, Inc. (the group). The group fee rate ranges from 0.48% for the
first $1 billion of assets to 0.30% for assets in excess of $80 billion. At June
30, 1998, and for the six months then ended, the effective annual group fee rate
was 0.32%. The fund pays a pro-rata share of the group fee based on the ratio of
its net assets to those of the group.
In addition, the fund has entered into agreements with the manager and
two wholly owned subsidiaries of the manager, pursuant to which the fund
receives certain other services. The manager computes the daily share price and
maintains the financial records of the fund. T. Rowe Price Services, Inc., is
the fund's transfer and dividend disbursing agent and provides shareholder and
administrative services to the fund. T. Rowe Price Retirement Plan Services,
Inc., provides subaccounting and recordkeeping services for certain retirement
accounts invested in the fund. The fund incurred expenses pursuant to these
related party agreements totaling approximately $1,675,000 for the six months
ended June 30, 1998, of which $285,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not available to the public.
The Reserve Funds pay no investment management fees. Distributions from the
Reserve Funds to the fund for the six months ended June 30, 1998, totaled
$544,000 and are reflected as interest income in the accompanying Statement of
Operations.
During the six months ended June 30, 1998, the fund, in the ordinary
course of business, placed security purchase and sale orders aggregating $44,000
with certain affiliates of the manager and paid commissions of $1,000 related
thereto.
<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.
INTERNET. T. Rowe Price Web site: www.troweprice.com All the
information and services available on Tele*Access are available on our
Web site, including transactions in your fund and Discount Brokerage
accounts (with preauthorized access).
ACCOUNT SERVICES
CHECKING Write checks for $500 or more on any money market and most
bond fund accounts (except the High Yield and Emerging Markets Bond
Funds).
AUTOMATIC INVESTING Build your account over time by investing directly
from your bank account or paycheck with Automatic Asset Builder.
Additionally, Automatic Exchange enables you to set up systematic
investments from one fund account into another, such as from a money
fund into a stock fund. A $50 minimum makes it easy to get started.
AUTOMATIC WITHDRAWAL If you need money from your fund account on a
regular basis, you can establish scheduled, automatic redemptions.
DIVIDEND AND CAPITAL GAINS PAYMENT OPTIONS Reinvest all or some of
your distributions, or take them in cash. We give you maximum
flexibility and convenience.
<PAGE>
DISCOUNT BROKERAGE*
INVESTMENTS AVAILABLE You can trade stocks, bonds, options, precious
metals, mutual funds, and other securities at a savings over regular
commission rates.
TO OPEN AN ACCOUNT Call a shareholder service representative for more
information.
Investment Information
COMBINED STATEMENT A comprehensive overview of your T. Rowe Price
accounts is provided. The summary page gives you earnings by tax
category, provides total portfolio value, and lists your investments
by type. Detail pages itemize account transactions.
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.
INSIGHTS This library of information includes reports on mutual fund
tax issues, investment strategies, and financial markets.
DETAILED INVESTMENT GUIDES Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Diversifying Overseas: A Guide to International
Investing, Retirees Financial Guide, and Retirement Planning Kit (also
available on disk or CD-ROM for PC use) can help you determine and
reach your investment goals.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
<PAGE>
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
STOCK FUNDS
- --------------------------------------------------------------------------------
DOMESTIC
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500*
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications**
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era New Horizons***
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value***
Spectrum Growth
Total Equity Market Index
Value
INTERNATIONAL/GLOBAL
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
<PAGE>
BOND FUNDS
- --------------------------------------------------------------------------------
DOMESTIC TAXABLE
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
DOMESTIC TAX-FREE
California Tax-Free Bond
Florida Insured Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
Virginia Tax-Free Bond
INTERNATIONAL/GLOBAL
Emerging Markets Bond
Global Bond +
International Bond
MONEY MARKET FUNDS ++
- --------------------------------------------------------------------------------
TAXABLE
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
TAX-FREE
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
<PAGE>
BLENDED ASSET FUNDS
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD VARIABLE ANNUITY
- --------------------------------------------------------------------------------
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Formerly named Equity Index.
** Formerly the closed-end New Age Media Fund. Converted to open-end status on
7/28/97.
*** Closed to new investors.
+ Formerly named Global Government Bond.
++ Neither the funds nor their share prices are insured or guaranteed by the
U.S. government.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued
by First Security Benefit Life Insurance Company of New York, White Plains,
NY. T. Rowe Price refers to the underlying portfolios' investment managers
and the distributors, T. Rowe Price Investment Services, Inc.; T. Rowe
Price Insurance Agency, Inc.; and T. Rowe Price Insurance Agency of Texas,
Inc. The Security Benefit Group of Companies and the T. Rowe Price
companies are not affiliated. The variable annuity may not be available in
all states. The contract has limitations. Call a representative for costs
and complete details of the coverage.
<PAGE>
FOR YIELD, PRICE, LAST TRANSACTION,
CURRENT BALANCE, OR TO CONDUCT
TRANSACTIONS, 24 HOURS, 7 DAYS
A WEEK, CALL TELE*ACCESS [REGISTRATION MARK]:
1-800-638-2587 toll free
FOR ASSISTANCE
WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
TO OPEN A DISCOUNT BROKERAGE
ACCOUNT OR OBTAIN INFORMATION,
CALL: 1-800-638-5660 toll free
INTERNET ADDRESS:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Balanced Fund.
INVESTOR CENTERS:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor. F68-051 6/30/98
