- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Annual Report
Balanced Fund
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
REPORT HIGHLIGHTS
================================================================================
Balanced Fund
* An excellent economic environment benefited domestic stocks and bonds, but
a currency crisis in Asia depressed international returns.
* Your fund's 7.12% and 18.97% 6- and 12-month gains, respectively, somewhat
trailed benchmark returns due to comparatively high international exposure.
* Falling interest rates made financial and utility stocks top performers,
while technology stocks faltered. Corporate bonds and long-term Treasuries
contributed to performance.
* International equity performance was highly divergent, with Japan and other
Asian markets falling while Europe's markets held steady.
* We are cautious that volatility could increase and returns could be more
modest. We plan to maintain a neutral asset mix.
<PAGE>
Fellow Shareholders
An excellent economic environment helped the domestic stock and bond
markets post strong results for the year ended December 31, 1997. The Standard &
Poor's 500 Stock Index's 33%-plus return capped an unprecedented three-year
string of returns above 20%, while the Lehman Brothers Aggregate Bond Index
finished the year with a near 10% gain. Only an escalating currency crisis in
Southeast Asia, which depressed stock market returns around the globe,
diminished a very bright year.
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 12/31/97 6 Months 12 Months
- --------------------------------------------------------------------------------
Balanced Fund 7.12% 18.97%
Lipper Balanced Fund Index 7.96 20.05
Combined Index Portfolio * 9.19 23.66
* An unmanaged portfolio of 60% stocks (S&P 500) and 40% bonds (Lehman
Brothers Aggregate Index).
================================================================================
Your fund ended the period with a 7.12% six-month gain and an 18.97%
advance for the full year. These results slightly trailed those of the Lipper
Balanced Fund Index for both periods, and also fell behind the gains of the
Combined Index Portfolio, an unmanaged blend of the S&P 500 and the Lehman
Brothers Aggregate Bond Index. The difference was largely due to the fund's 15%
stake in international stocks, which significantly underperformed their domestic
counterparts for the year. While our international holdings performed much
better than the Morgan Stanley Europe, Australasia, Far East Index, they
nonetheless held back the portfolio's relative performance. The Combined Index
Portfolio has no international equity exposure, and the Lipper Balanced Fund
Index in general has a more moderate stake in foreign equities.
Our core strategy is to maintain a well-diversified portfolio with exposure
to a wide range of asset classes, including international equities and
high-yield bonds. While the degree of exposure to these secondary asset classes
will vary, their presence in the portfolio will not. The principle behind our
asset allocation is that holding a variety of asset classes, whose performances
are at least somewhat uncorrelated, will reduce overall volatility. In periods
where the fund's dominant asset classes outperform by a large margin, as the S&P
500 has for the past several years, diversification reduces returns.
Market Environment
The three-year period ended December 31, 1997, was spectacular for U.S.
stocks, with the S&P 500 advancing more than 125%. In the past year alone,
stocks gained 33.36%-the eleventh-best return since 1926. These gains have come
in an era of almost ideal economic conditions, where inflation has remained low
despite strong economic growth and low unemployment. Corporate earnings gains,
particularly among large-cap stocks, have been attractive, and healthy investor
demand for long-term growth has also pushed stocks ahead.
<PAGE>
[Line graph showing yields for the 30-year Treasury bond, the 5-year
Treasury Note, and the 90-day Treasury bill from 12/31/96 to 12/31/97.]
These circumstances have also benefited the domestic bond market. After the
Fed raised interest rates in March 1997, long-term interest rates flattened and
then fell sharply, fueling a strong rally in the bond market in the summer and
fall. The yield on the benchmark 30-year Treasury bond fell nearly 100 basis
points in the second half, and in 1998 fell to its lowest point since the bond
was introduced in 1977.
The stock market rally did not cross the oceans. In the second half, many
foreign markets fell, led by disastrous declines in Southeast Asia. Steep
currency devaluations in Korea, Thailand, and elsewhere in the region sparked an
investor panic (short-lived, in the case of the U.S. and Europe) and
significantly strengthened the U.S. dollar, which reduces the performance of
foreign holdings for domestic investors. Long-term U.S. Treasuries, however,
benefited from global demand for relatively safe, liquid investments denominated
in dollars in the wake of the crisis. The full economic impact in Southeast Asia
is yet to be determined, but the expected bankruptcies, layoffs, and other
restructurings will surely depress these countries and the nations that do
business with them. Fortunately, not all overseas markets were poor performers.
Our U.K. holdings appreciated 20% in the second half, and some other European
markets advanced as well.
Partly in response to Asia and partly to concern over the sustainability
ofcorporate earnings, domestic stock market volatility significantly increased
in 1997, especially in the second half. For the year, the stock market either
gained or lost two percentage points in a single session 15 times-that's about
6% of the trading days. In contrast, this happened only three times in 1996.
History suggests that it is normal to expect such large swings about seven times
a year. One advantage of a balanced fund is that sizable holdings in less
volatile, fixed income securities tend to offset some of the price swings in
equities. Volatility tends to be self-perpetuating-high volatility in one period
tends to lead to high volatility in the next. We believe this portfolio is well
positioned for that future.
Portfolio Highlights
[Security Diversification pie chart with the following slices: Large-Cap
Stocks 47%, International Stocks 13%, Treasury and Agency Bonds 15%,
Mortgaged-Backed Securities 7%, Corporate Bonds 18%. Based on net assets as of
12/31/97.]
Falling interest rates made financial and utility stocks among the best
performers in the second half. In general, declining interest rates help boost
earnings for banks and other intermediaries by reducing costs. In addition,
several of our bank holdings, such as Summit Bancorp and SouthTrust, benefited
from the continuing consolidation trend infinancial services. Although these
companies were not acquired, shares in well-run regional banks advanced as
potential targets became more scarce. Shares of the institutional brokerage firm
Salomon soared over 50% when it was acquired by Travelers Group.
<PAGE>
For the first time in a while, utilities were strong performers. These
stocks typically benefit when rates decline, because their dividend yields
become more competitive with prevailing interest rates. Renewed progress on
industry deregulation and clearer ideas of the potential outcomes removed a
cloud over electric utilities, and our holdings in Unicom advanced. Elsewhere,
telephone utilities improved considerably. Long-distance provider AT&T was one
of the fund's best stocks in the second half, as a new management team
encouraged Wall Street to upgrade its assessments.
==============================
Technology stocks can be
volatile, and it's not
surprising to see them at
either the top or the bottom
of peRformance rankings.
- ------------------------------
Technology was the fund's worst-performing sector. These stocks can be
volatile, and it's not surprising to see them at either the top or the bottom of
performance rankings. The culprits this period included the lack of a
blockbuster new product to drive the PC market, a weak pricing environment, and
the turmoil in the Pacific. While our portfolio suffered, its large-cap
orientation protected it somewhat from the sharper declines seen in smaller
companies. Semiconductor and related stocks, such as Altera and Applied
Materials, were among the sector's worst performers. A difficult future growth
path for the database software giant Oracle led to a significant decline in its
price. Some of our technology holdings did well, however. Intu it, known to many
of you as the developer of Quicken, rose 80%. PC makers COMP AQ Computer and
Dell Computer each rose strongly as they gained market share.
International stock markets mostly fell during the second half of 1997,
although some European markets bucked the trend. The worst news came from
smaller markets in the Pacific Rim. While the currency crisis was the catalyst,
investors soon realized that more significant underlying problems existed. For
some time, capital was obtained too easily (a problem of the past, to be sure),
resulting in extensive over-investment in nonproductive assets-not unlike the
U.S. savings and loan crisis of the late 1980s. The fund's holdings in these
countries were generally limited to leading companies, but they certainly did
not avoid the damage. Japan, whose economy seems to continually disappoint
investors, was also weak, and we expect fallout from Southeast Asia to be felt
strongly there. Nonetheless, Japanese stocks seem to offer some attractive
values, and there is some hope that Japan's government will finally take the
necessary steps to correct the economy.
==============================
The long Treasury bond yield .
. . closed the year yielding
5.92%, just below the
psychologically important
threshold of 6%.
- ------------------------------
<PAGE>
The long Treasury bond yield fell by almost a full percentage point during
the past six months, and closed the year yielding 5.92%, just below the
psychologically important threshold of 6%. In a declining interest rate
environment, longer-duration bonds outperform those with shorter duration, all
else being equal. (Duration is a measure of price sensitivity to interest rate
changes.) Therefore, long-term Treasuries performed extremely well in the year's
second half. For the full year, however, corporate bonds were the top fixed
income performers, while the short-duration mortgage securities sector was the
worst-performing.
About one-fifth of the fund's fixed income portfolio is invested in
high-yield bonds. We restrict our investments to the higher-quality bonds in
this sector, those rated either BB or B. The year's economic health provided a
good environment for the financially weaker companies that issue high-yield
debt, and their bonds significantly outperformed the investment-grade bond
market in 1997.
Outlook
The U.S. has been experiencing superb economic and corporate conditions,
and at this time rising interest rates seem unlikely. However, we do not expect
another year like the past few. Although we see no clear signs of a coming
change of course, a number of minor trends could affect 1998 returns. For
example, a weakened Southeast Asia could dampen our export markets, thus
restraining the growth of domestic corporate profits. In addition, the
valuations of U.S. stocks, and particularly U.S. large-caps, fully reflect the
good economic conditions, leaving them vulnerable to disappointing news.
We closed the year with our asset allocation close to its neutral weight of
60% stocks and 40% bonds, and we retained our exposure to international equities
and high-yield bonds. The fund does not make aggressive changes in asset
allocation, and our view of the markets is such that a neutral weight seems the
best balance of competing risks and returns.
Historically, equities have provided the best returns among all asset
classes, and we expect this to remain true in the future. However, we would not
be surprised if returns were more modest than in the past, and if market
volatility stayed at current levels.
Respectfully submitted,
/s/
Richard T. Whitney
President and Chairman of the Investment Advisory Committee
January 29, 1998
<PAGE>
T. Rowe Price Balanced Fund
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
SECTOR Diversification
Percent of Percent of
Net Assets Net Assets
6/30/97 12/31/97
Stocks *
- --------------------------------------------------------------------------------
Financial .......................................... 11.0% 11.8%
Utilities .......................................... 5.0 5.5
Consumer Nondurables ............................... 13.0 13.0
Consumer Services .................................. 5.4 6.4
Consumer Cyclicals ................................. 3.1 2.6
Technology ......................................... 5.6 5.6
Capital Equipment .................................. 3.5 3.4
Business Services .................................. 3.1 3.4
Energy ............................................. 5.4 5.4
Process Industries ................................. 3.3 3.2
Basic Materials 0.9 ................................ 0.7
Conglomerates ...................................... 0.1 0.1
- --------------------------------------------------------------------------------
Total .............................................. 59.4% 61.1%
Bonds and Reserves
- --------------------------------------------------------------------------------
U.S. Government and Agency Bonds
U.S. Treasury Obligations .......................... 12.3% 12.4%
Mortgages .......................................... 7.1 6.0
Other U.S. Government and Agencies ................. 2.3 2.5
Agency-Backed CMOs ................................. 0.2 0.5
Project Loans ...................................... 0.3 0.3
Corporate and Other
Investment Grade ................................... 10.3 10.3
Noninvestment Grade ................................ 6.9 8.1
Reserves ........................................... 1.2 -1.2
- --------------------------------------------------------------------------------
Total .............................................. 40.6% 38.9%
* Includes foreign securities
================================================================================
<PAGE>
T. Rowe Price Balanced Fund
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
LARGEST HOLDINGS
Percent of
Net Assets
12/31/97
Stocks
- --------------------------------------------------------------------------------
GE .......................................................... 1.0%
American International Group ................................ 0.7
Intel ....................................................... 0.7
Bristol-Myers Squibb ........................................ 0.7
Merck ....................................................... 0.7
Procter & Gamble ............................................ 0.6
Pfizer ...................................................... 0.6
COMPAQ Computer 0.6
SBC Communications .......................................... 0.5
AT&T ........................................................ 0.5
- --------------------------------------------------------------------------------
Total ....................................................... 6.6%
Bonds
- --------------------------------------------------------------------------------
U.S. Treasury ............................................... 12.4%
Ginnie Mae .................................................. 6.3
Fannie Mae .................................................. 2.4
Freddie Mac ................................................. 0.5
Fairfax Financial Holding ................................... 0.3
Security Benefit Life ....................................... 0.3
Comcast Cable Communication ................................. 0.3
Airplane Pass Thru .......................................... 0.3
MBNA ........................................................ 0.3
UtiliCorp United ............................................ 0.2
- --------------------------------------------------------------------------------
Total ....................................................... 23.3%
================================================================================
<PAGE>
T. Rowe Price Balanced Fund
================================================================================
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 12/31/97 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Balanced Fund 18.97% 19.40% 13.57% 13.34%
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
====================================================================================================================================
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year
Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ......................... $ 14.48 $ 13.22 $ 11.14 $ 12.02 $ 11.07
Investment activities
Net investment income ............... 0.53 0.51 0.48 0.43 0.40*
Net realized and
unrealized gain (loss) .............. 2.18 1.38 2.24 (0.68) 1.05
Total from
investment activities ............... 2.71 1.89 2.72 (0.25) 1.45
Distributions
Net investment income ............... (0.53) (0.50) (0.47) (0.43) (0.39)
Net realized gain ................... (0.12) (0.13) (0.17) (0.20) (0.11)
Total distributions ................. (0.65) (0.63) (0.64) (0.63) (0.50)
NET ASSET VALUE
End of period ............................... $ 16.54 $ 14.48 $ 13.22 $ 11.14 $ 12.02
Ratios/Supplemental Data
Total return ................................ 18.97% 14.57% 24.88% (2.05)% 13.35%*
Ratio of expenses to
average net assets .......................... 0.81% 0.87% 0.95% 1.00% 1.00%*
Ratio of net investment
income to average
net assets .................................. 3.36% 3.70% 3.87% 3.72% 3.45%*
Portfolio turnover rate ..................... 15.5% 22.3% 12.6% 33.3% 8.7%
Average commission
rate paid ................................... $ 0.0349 $ 0.0438 - - -
Net assets, end of period
(in millions) ............................... $ 1,219 $ 876 $ 608 $ 392 $ 341
====================================================================================================================================
<FN>
* Excludes expenses in excess of a 1.00% voluntary expense limitation in effect through 12/31/94.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Balanced Fund
================================================================================
December 31, 1997
================================================================================
Statement of Net Assets
- --------------------------------------------------------------------------------
Shares/Par Value
In thousands
Common Stocks and Warrants 60.4%
FINANCIAL 11.2%
Bank and Trust 6.1%
Abbey National (GBP) ..................................... 124,000 2,214
Air Liquide (L) (FRF) .................................... 6,900 1,080
AmSouth Bancorporation ................................... 8,100 440
Australia & New Zealand Banking ADR ...................... 21,500 707
BANC ONE ................................................. 10,361 563
Banca Commerciale Italiana (ITL) ......................... 210,000 730
Banco de Bilbao Vizcaya ADR .............................. 60,000 1,939
Banco Frances del Rio de la Plata ADR .................... 34,500 944
BankAmerica .............................................. 56,200 4,103
BankBoston ............................................... 7,700 723
Bankgesellschaft Berlin (DEM) ............................ 57,000 1,255
Barclay's (GBP) .......................................... 101,278 2,692
Barnett Banks ............................................ 1,100 79
Charter One Financial .................................... 10,054 633
Chase Manhattan .......................................... 55,040 6,027
Citicorp ................................................. 35,000 4,425
Compass Bancshares ....................................... 9,300 407
CoreStates Financial ..................................... 6,370 510
Crestar Financial ........................................ 6,400 365
Deutsche Bank (DEM) ...................................... 18,700 1,310
Development Bank of Singapore (SGD) ...................... 32,000 273
First American ........................................... 15,600 777
First Security ........................................... 16,650 698
First Tennessee National ................................. 3,600 241
First Union .............................................. 91,600 4,694
First Virginia Banks ..................................... 8,550 442
Fleet Financial Group .................................... 2,200 165
Grupo Financiero Bancomer (144a) ADR * ................... 20,000 258
HSBC Holdings (GBP) ...................................... 104,000 2,665
J. P. Morgan ............................................. 20,000 2,257
KeyCorp .................................................. 50,000 3,541
Kredietbank (BEF) ........................................ 2,500 1,049
Mellon Bank .............................................. 37,500 2,273
Mercantile Bancorporation ................................ 6,300 $ 387
NationsBank .............................................. 75,936 4,618
Norwest .................................................. 60,000 2,317
Old Kent Financial ....................................... 12,500 497
Overseas Chinese Bank (SGD) .............................. 32,200 187
<PAGE>
Pacific Century Financial ................................ 8,200 203
Regions Financial ........................................ 18,200 768
RHB Sakura Merchant Bankers (MYR) ........................ 9,250 3
Schweizerischer Bankverein (CHF) ......................... 8,440 2,622
Schweizerischer Bankverein, Warrants, 6/30/98 (CHF) * .... 240 17
Societe Generale (FRF) ................................... 10,490 1,429
Societe Generale de Belgique (BEF) ....................... 8,500 778
SouthTrust ............................................... 9,500 602
Star Banc ................................................ 18,900 1,084
Summit Bancorp ........................................... 6,300 335
Svenska Handelsbank (SEK) ................................ 26,000 899
Union Bank of Switzerland (CHF) .......................... 1,400 2,024
US Bancorp ............................................... 15,384 1,722
Wachovia ................................................. 5,953 483
Washington Federal ....................................... 20,449 644
Washington Mutual ........................................ 20,000 1,276
Westpac Bank (AUD) ....................................... 90,000 576
73,950
Insurance 2.6%
American General ......................................... 48,000 2,595
American International Group ............................. 81,150 8,825
AXA Colonia Konzern (DEM) ................................ 6,000 574
CIGNA .................................................... 2,900 502
Conseco .................................................. 11,600 527
Equitable Companies ...................................... 9,400 468
General Re ............................................... 1,300 276
Hartford Financial Services .............................. 1,400 131
Horace Mann Educators .................................... 20,400 580
John Alden Financial ..................................... 8,000 192
Marsh & McLennan ......................................... 4,600 343
MBIA ..................................................... 6,200 414
Medical Assurance * ...................................... 18,206 512
MGIC Investment .......................................... 23,200 1,543
Ohio Casualty ............................................ 5,100 $ 230
Old Republic International ............................... 7,050 262
Progressive .............................................. 4,200 503
St. Paul Companies ....................................... 43,000 3,529
Sumitomo Marine & Fire Insurance (JPY) ................... 175,000 925
Sunamerica ............................................... 12,150 519
Torchmark ................................................ 78,600 3,306
UNUM ..................................................... 100,000 5,437
32,193
<PAGE>
Financial Services 2.5%
A.G. Edwards ............................................. 20,212 804
ADVANTA .................................................. 4,500 118
ADVANTA (Class B) ........................................ 5,550 141
AMBAC .................................................... 22,200 1,021
American Express ......................................... 42,600 3,802
AXA (FRF) ................................................ 19,600 1,517
Countrywide Credit ....................................... 113,925 4,885
Fannie Mae ............................................... 78,000 4,451
Green Tree Financial ..................................... 21,400 560
Household International .................................. 24,000 3,062
ING Groep (NLG) .......................................... 51,674 2,176
Medaphis * ............................................... 14,600 95
Morgan Stanley Dean Witter Discover ...................... 5,600 331
Pearson (GBP) ............................................ 150,000 1,949
RHB Capital Bhd (MYR) .................................... 185,000 89
Travelers Group .......................................... 90,523 4,877
United Asset Management .................................. 16,000 391
30,269
Total Financial .......................................... 136,412
UTILITIES 5.5%
Telephone Services 3.9%
ALLTEL ................................................... 80,000 3,285
Ameritech ................................................ 24,000 1,932
AT&T ..................................................... 107,500 6,584
Bell Atlantic ............................................ 18,100 1,647
BellSouth ................................................ 102,000 5,744
British Telecommunications ADR ........................... 21,600 $ 1,735
Compania de Telecomunicaciones de Chile ADR .............. 17,000 508
COMSAT ................................................... 4,900 119
Frontier ................................................. 8,000 193
GTE ...................................................... 53,800 2,811
Hong Kong Telecommunications ADR ......................... 37,288 769
Nippon Telephone & Telecom (JPY) ......................... 168 1,441
SBC Communications ....................................... 90,366 6,619
Southern New England Telecommunications .................. 4,900 247
Sprint ................................................... 50,900 2,984
Telecom Corporation of New Zealand (NZD) ................. 520,000 2,521
Telecom Italia (ITL) ..................................... 317,220 2,026
Telecom Italia Mobile (ITL) .............................. 571,000 2,635
Telefonica de Espana ADR ................................. 12,000 1,093
Telefonos de Mexico ADR (Class L) ........................ 30,000 1,682
Telekom Malaysia (MYR) ................................... 105,000 310
U S WEST Media * ......................................... 20,000 577
47,462
<PAGE>
Electric Utilities 1.6%
Duke Energy .............................................. 30,115 1,668
Edison International ..................................... 104,000 2,827
Electrabel (BEF) ......................................... 2,400 555
Empresa Nacional de Electricidad ADR ..................... 48,800 888
Empresa Nacional de Electricidad Chile ADR ............... 20,000 354
Entergy Group ............................................ 53,000 1,587
FirstEnergy .............................................. 75,000 2,175
FPL Group ................................................ 25,600 1,515
Hong Kong Electric (HKD) ................................. 200,000 760
Niagara Mohawk * ......................................... 102,500 1,076
Public Service of New Mexico * ........................... 50,000 1,184
Texas Utilities .......................................... 28,717 1,194
Unicom ................................................... 68,600 2,109
Veba (DEM) ............................................... 22,100 1,505
19,397
Total Utilities .......................................... 66,859
CONSUMER NONDURABLES 13.0%
Cosmetics 0.3%
Gillette ................................................. 8,137 $ 817
International Flavors & Fragrances ....................... 11,700 602
Kao (JPY) ................................................ 161,000 2,318
Revlon (Class A) * ....................................... 1,800 64
3,801
Beverages 1.5%
Anheuser-Busch ........................................... 64,000 2,816
Coca-Cola ................................................ 92,600 6,169
Diageo ................................................... 31,300 1,186
LVMH (FRF) ............................................... 9,541 1,584
PepsiCo .................................................. 150,400 5,480
Starbucks * .............................................. 24,400 937
18,172
Food Processing 2.5%
Archer Daniels Midland ................................... 67,373 1,461
Cadbury Schweppes ADR .................................... 31,586 1,307
ConAgra .................................................. 53,400 1,752
CPC International ........................................ 32,900 3,545
CSM (NLG) ................................................ 17,000 755
Danisco (DKK) ............................................ 16,000 887
Earthgrains .............................................. 2,560 120
Eridania Beghin-Say (FRF) ................................ 8,100 1,266
General Mills ............................................ 39,300 2,815
Heinz .................................................... 77,000 3,913
Hershey Foods ............................................ 30,000 1,858
Kellogg .................................................. 6,200 308
McCormick ................................................ 10,300 289
Nestle (CHF) ............................................. 1,724 2,583
Ralston Purina ........................................... 23,204 2,156
Sara Lee ................................................. 82,900 4,668
Universal Foods .......................................... 7,100 300
Whitman .................................................. 1,100 29
30,012
<PAGE>
Hospital Supplies/Hospital Management 1.5%
Abbott Laboratories ...................................... 63,600 $ 4,170
Allegiance ............................................... 8,000 283
Baxter International ..................................... 50,000 2,522
Columbia/HCA Healthcare .................................. 97,900 2,900
Health Management (Class A) * ............................ 54,168 1,368
HealthCare COMPARE * ..................................... 12,900 663
Hillenbrand Industries ................................... 11,600 594
Humana * ................................................. 22,400 465
Medtronic ................................................ 32,000 1,674
Millipore ................................................ 900 31
Quest Diagnostics * ...................................... 3,750 63
Smith & Nephew (GBP) * ................................... 210,000 621
St. Jude Medical * ....................................... 26,000 793
Terumo (JPY) ............................................. 75,000 1,103
United States Surgical ................................... 40,000 1,172
18,422
Pharmaceuticals 4.7%
American Home Products ................................... 56,600 4,330
Amgen .................................................... 80,700 4,368
Astra (Class B) (SEK) .................................... 80,000 1,345
Bristol-Myers Squibb ..................................... 84,400 7,986
Chiron * ................................................. 3,704 63
Forest Laboratories * .................................... 4,500 222
Gehe (DEM) ............................................... 13,550 678
Glaxo Wellcome ADR ....................................... 32,800 1,570
IDEXX Laboratories * ..................................... 11,800 189
Johnson & Johnson ........................................ 26,900 1,772
Merck .................................................... 75,100 7,980
Novartis (CHF) ........................................... 1,626 2,637
Pfizer ................................................... 98,400 7,337
Pharmacia & Upjohn ....................................... 80,000 2,930
Schering-Plough .......................................... 1,800 112
SmithKline Beecham ADR ................................... 124,800 6,420
Takeda Chemical Industries (JPY) ......................... 84,000 2,393
Warner-Lambert ........................................... 43,000 5,332
57,664
Health Care Services 0.2%
Aetna .................................................... 2,695 $ 190
Altana AG (DEM) .......................................... 12,000 824
Olsten ................................................... 4,118 62
United HealthCare ........................................ 37,700 1,873
2,949
<PAGE>
Miscellaneous Consumer Products 2.3%
Arctic Cat ............................................... 2,550 25
Benetton Group (ITL) ..................................... 39,520 647
Bridgestone (JPY) ........................................ 69,000 1,495
Burlington Industries * .................................. 17,700 244
Colgate-Palmolive ........................................ 60,200 4,425
Fruit of the Loom (Class A) * ............................ 4,300 110
Huhtamaki (FIM) * ........................................ 10,000 413
Imperial Tobacco Group ADR ............................... 15,750 195
Jones Apparel Group * .................................... 33,600 1,445
Kuraray (JPY) ............................................ 148,000 1,224
Lion Nathan (NZD) ........................................ 175,000 392
Liz Claiborne ............................................ 1,700 71
Mattel ................................................... 20,000 745
NIKE ..................................................... 900 35
Philip Morris ............................................ 10,800 489
Philips N.V. ADR ......................................... 31,200 1,888
PPG Industries ........................................... 2,400 137
Procter & Gamble ......................................... 98,800 7,885
Service Corp. International .............................. 74,600 2,756
Textron .................................................. 2,000 125
Tomkins (GBP) ............................................ 100,000 473
Tomkins ADR .............................................. 30,000 574
Unilever N.V. ADR ........................................ 20,000 1,249
UST ...................................................... 2,000 74
Yue Yuen Industrial (HKD) ................................ 127,000 269
27,385
Biotechnology 0.0%
Covance * ................................................ 7,500 149
Guidant .................................................. 1,200 75
224
Total Consumer Nondurables ............................... 158,629
CONSUMER SERVICES 6.3%
Restaurants 0.1%
Darden Restaurants ....................................... 6,300 $ 79
Tricon Global Restaurants * .............................. 15,040 437
516
General Merchandisers 2.1%
Carrefour (FRF) .......................................... 2,000 1,044
Costco Companies * ....................................... 103,400 4,611
Dayton Hudson ............................................ 86,100 5,812
J.C. Penney .............................................. 20,000 1,206
JUSCO (JPY) .............................................. 67,000 944
Marui (JPY) .............................................. 53,000 824
May Department Stores .................................... 51,400 2,708
Sears .................................................... 40,000 1,810
Tesco (GBP) .............................................. 202,143 1,667
TJX ...................................................... 88,000 3,025
Wal-Mart ................................................. 60,000 2,366
Warnaco Group (Class A) .................................. 2,500 78
26,095
<PAGE>
Specialty Merchandisers 1.8%
Albertson's .............................................. 1,300 62
Callaway Golf ............................................ 13,000 371
Christian Dior (FRF) * ................................... 7,000 718
Circuit City Stores ...................................... 85,900 3,055
Federated Department Stores * ............................ 1,800 78
Fingerhut Companies ...................................... 8,000 171
Gymboree * ............................................... 8,400 230
Heilig-Meyers ............................................ 4,500 54
Home Depot ............................................... 30,100 1,772
Kohl's * ................................................. 18,600 1,267
Kroger * ................................................. 100,000 3,694
Lowes .................................................... 2,000 95
Omron (JPY) .............................................. 68,000 1,062
Payless Shoesource * ..................................... 8,224 552
Petrie Stores Liquidation Trust * ........................ 33,500 102
R.P. Scherer * ........................................... 5,600 342
Safeway * ................................................ 12,600 797
Staples * ................................................ 23,625 657
The Gap .................................................. 118,800 4,210
Toys "R" Us * ............................................ 63,300 1,990
Viking Office Products * ................................. 32,000 703
21,982
Entertainment and Leisure 0.9%
Applebee's ............................................... 10,600 191
Ascent Entertainment * ................................... 2,395 25
Brinker * ................................................ 8,775 140
Buffets * ................................................ 2,400 23
Chartwell Leisure * ...................................... 1,080 18
Disney ................................................... 50,139 4,967
Hilton ................................................... 2,300 68
Hutchison Whampoa (HKD) .................................. 390,000 2,446
International Game Technology ............................ 9,000 227
ITT * .................................................... 1,700 141
McDonald's ............................................... 10,000 478
Reader's Digest (Class A) ................................ 35,000 827
Sbarro ................................................... 37,500 987
Sharp (JPY) .............................................. 72,000 495
Viacom (Class A) * ....................................... 4,500 184
11,217
<PAGE>
Media and Communications 1.4%
A. H. Belo (Class A) ..................................... 6,800 382
A.C. Nielson * ........................................... 4,700 115
Asatsu (JPY) ............................................. 54,000 777
Banta .................................................... 13,500 369
Cognizant ................................................ 14,100 628
Comcast (Class A Special) ................................ 40,000 1,261
Dun & Bradstreet ......................................... 14,100 436
Elsevier (NLG) ........................................... 50,000 809
France Telecom ADR * ..................................... 45,000 1,620
Gannett .................................................. 27,600 1,706
Gaylord Entertainment Company ............................ 3,528 113
McGraw-Hill .............................................. 32,200 2,383
NTL * .................................................... 11,999 334
Primus Telecommunications Group, Warrants, 8/1/04 * ...... 400 4
Time Warner .............................................. 29,000 1,798
Tribune .................................................. 20,000 1,245
U S West Communications .................................. 20,000 902
Vanguard Cellular (Class A) * ............................ 11,850 $ 151
Vodafone ADR ............................................. 20,000 1,450
16,483
Total Consumer Services .................................. 76,293
CONSUMER CYCLICALS 2.6%
Automobiles and Related 0.9%
Autoliv * ................................................ 21,653 709
Breed Technologies ....................................... 5,600 102
Cycle & Carriage (SGD) ................................... 50,000 206
Dana ..................................................... 1,300 62
Ford Motor ............................................... 11,330 552
Gentex * ................................................. 18,200 490
Genuine Parts ............................................ 81,975 2,782
GM ....................................................... 33,600 2,037
Goodyear Tire & Rubber ................................... 300 19
Honda ADR ................................................ 30,100 2,224
Pep Boys ................................................. 7,100 170
Superior Industries Intl ................................. 8,000 214
TRW ...................................................... 30,000 1,601
11,168
Building and Real Estate 0.7%
Cheung Kong Holdings (HKD) ............................... 283,000 1,854
City Developments (SGD) .................................. 50,000 231
DBS Land (SGD) ........................................... 600,000 918
Patriot American Hospitality, REIT ....................... 150,001 4,322
Security Capital Group ................................... 13,427 71
Texas Industries ......................................... 9,400 423
USG * .................................................... 14,600 715
8,534
<PAGE>
Miscellaneous Consumer Durables 1.0%
Black & Decker ........................................... 36,000 1,406
Corning .................................................. 30,000 1,114
Eastman Kodak ............................................ 22,600 1,374
Harley-Davidson .......................................... 7,600 208
Imation * ................................................ 1,800 29
Masco .................................................... 49,900 2,539
Ricoh (JPY) .............................................. 100,000 1,241
Scotts (Class A) * ....................................... 10,000 303
Sony (JPY) ............................................... 16,000 1,421
Tandy .................................................... 40,000 1,542
Valspar .................................................. 36,200 1,154
York International ....................................... 2,600 103
12,434
Total Consumer Cyclicals ................................. 32,136
TECHNOLOGY 5.6%
Electronic Components 1.5%
Altera * ................................................. 18,000 597
AMP ...................................................... 30,000 1,260
EMC * .................................................... 23,000 631
Intel .................................................... 114,000 8,005
Linear Technology ........................................ 45,800 2,636
Micron Technology * ...................................... 9,400 244
Molex .................................................... 15,257 489
Motorola ................................................. 40,000 2,282
Thermo Electron * ........................................ 9,787 436
Thermo Instrument Systems * .............................. 10,195 351
Vicor * .................................................. 12,000 329
Xilinx * ................................................. 12,600 441
17,701
Electronic Systems 0.5%
Applied Materials * ...................................... 20,000 602
Hewlett-Packard .......................................... 68,300 4,269
Honeywell ................................................ 20,000 1,370
Solectron * .............................................. 9,600 399
6,640
Information Processing 1.0%
Adaptec * ................................................ 14,000 520
Choicepoint .............................................. 1,780 85
COMPAQ Computer .......................................... 127,000 7,167
Dell Computer * .......................................... 1,200 101
Hitachi ADR .............................................. 15,200 1,052
IBM ...................................................... 23,400 2,447
Komag * .................................................. 1,200 18
Storage Technology * ..................................... 5,000 $ 310
11,700
<PAGE>
Office Automation 0.0%
Pitney Bowes ............................................. 2,600 234
Xerox .................................................... 2,300 170
404
Specialized Computer 0.4%
Silicon Graphics * ....................................... 14,700 183
Sun Microsystems * ....................................... 108,000 4,313
Western Digital * ........................................ 20,000 321
4,817
Telecommunications Equipment 1.1%
Bay Networks * ........................................... 7,177 183
Cox Communications (Class A) * ........................... 50,000 2,003
LM Ericsson ADR (Class B) ................................ 54,000 2,016
Lucent Technologies ...................................... 48,396 3,866
MCI ...................................................... 2,700 116
Metronet Communications (144a), Warrants, 8/15/07 ........ 500 15
Novell * ................................................. 45,600 341
PictureTel * ............................................. 8,800 58
Telecomunicacoes Brasileiras ADR ......................... 20,000 2,329
Tellabs * ................................................ 23,200 1,224
WorldCom ................................................. 36,800 1,114
13,265
Aerospace and Defense 1.1%
AlliedSignal ............................................. 122,000 4,750
Boeing ................................................... 66,800 3,269
Lockheed Martin .......................................... 10,000 985
Northrop ................................................. 30,000 3,450
Raytheon Company (Class A) ............................... 2,142 106
Raytheon Company (Class B) ............................... 500 25
Trinity Industries ....................................... 300 14
United Technologies ...................................... 14,200 1,034
13,633
Total Technology ......................................... 68,160
CAPITAL EQUIPMENT 3.4%
Electrical Equipment 2.4%
ABB (CHF) ................................................ 775 973
American Power Conversion * .............................. 10,300 244
Canon (JPY) .............................................. 55,000 1,281
CBS ...................................................... 37,193 1,095
Emerson Electric ......................................... 56,200 3,172
GE ....................................................... 158,400 11,623
Hubbell (Class A) ........................................ 8,000 377
Hubbell (Class B) ........................................ 80,252 3,957
Matsushita Electric Works (JPY) .......................... 100,000 865
Mitsubishi Electric (JPY) ................................ 190,000 486
Siemens (DEM) ............................................ 13,000 770
Tyco International ....................................... 100,000 4,506
29,349
<PAGE>
Machinery 1.0%
Bobst AG (CHF) ........................................... 740 1,089
Caterpillar .............................................. 50,000 2,428
Coltec Industries * ...................................... 29,900 693
Cooper Industries ........................................ 600 29
Deere .................................................... 18,000 1,050
DII Group * .............................................. 320 9
Dover .................................................... 2,400 87
FMC * .................................................... 12,000 808
Foster Wheeler ........................................... 4,600 124
GKN (GBP) ................................................ 45,000 922
Ingersoll-Rand ........................................... 1,500 61
Kennametal ............................................... 11,400 591
Man (DEM) ................................................ 3,300 956
S I G Schweis (CHF) ...................................... 520 1,423
Stewart & Stevenson ...................................... 6,300 161
Teleflex ................................................. 10,000 377
TriMas ................................................... 30,300 1,042
Valmet (FIM) ............................................. 32,000 441
12,291
Total Capital Equipment .................................. 41,640
BUSINESS SERVICES AND
TRANSPORTATION 3.4%
Computer Service and Software 1.3%
Amtech * ................................................. 3,625 15
BMC Software * ........................................... 40,000 2,622
Computer Associates ...................................... 68,587 3,627
Electronic Arts * ........................................ 7,500 284
Electronic Data Systems .................................. 44,223 1,943
First Data ............................................... 30,000 877
HBO ...................................................... 26,400 1,266
Intuit * ................................................. 50,000 2,066
Micro Warehouse * ........................................ 5,600 78
NCR * .................................................... 6,718 187
NextLevel Systems * ...................................... 1,400 25
Oracle * ................................................. 42,000 936
Parametric Technology * .................................. 23,200 1,098
SunGard Data Systems * ................................... 26,400 818
Sybase * ................................................. 7,000 93
15,935
Distribution Services 0.0%
Cardinal Health .......................................... 5,437 409
409
Transportation Services 0.2%
Halter Marine Group ...................................... 156 5
Landstar Systems * ....................................... 40,000 1,055
Mitsubishi Heavy Industries (JPY) ........................ 159,000 662
United Engineers (MYR) ................................... 100,000 84
1,806
<PAGE>
Miscellaneous Business Services 0.9%
British Airport Authorities (GBP) ........................ 108,371 886
Browning-Ferris .......................................... 25,000 925
Cendant * ................................................ 79,010 2,716
Cintas ................................................... 7,200 281
Equifax .................................................. 17,800 631
General Semiconductor .................................... 350 4
GTECH * .................................................. 4,500 144
H&R Block ................................................ 30,900 1,385
Manpower ................................................. 12,200 430
Merrill .................................................. 10,000 230
Omnicom .................................................. 26,800 $ 1,136
Paychex .................................................. 28,012 1,423
Sime Darby (MYR) ......................................... 200,000 192
Waste Management ......................................... 39,166 1,077
11,460
Airlines 0.6%
AMR * .................................................... 20,000 2,570
ASA Holdings ............................................. 4,200 120
KLM (NLG) ................................................ 23,000 851
Mesa Air Group * ......................................... 17,300 86
Northwest Airlines * ..................................... 300 14
Singapore Airlines (SGD) ................................. 40,000 261
UAL * .................................................... 30,000 2,775
6,677
Railroads 0.4%
Burlington Northern Santa Fe ............................. 25,100 2,333
CSX ...................................................... 22,500 1,215
Illinois Central (Series A) .............................. 14,850 506
Union Pacific ............................................ 14,000 874
Wisconsin Central Transport * ............................ 20,400 478
5,406
Total Business Services and Transportation ............... 41,693
ENERGY 5.4%
Energy Services 1.1%
Baker Hughes ............................................. 800 35
El Paso Natural Gas ...................................... 9,383 624
Elf Aquitaine (FRF) ...................................... 9,000 1,047
Energy Group ADR ......................................... 7,875 352
Halliburton .............................................. 52,742 2,739
Helmerich & Payne ........................................ 20,000 1,358
Highlands Insurance Group * .............................. 2,300 65
Imperial Oil ............................................. 1,300 83
Johnson Electric Holdings (HKD) .......................... 123,600 356
Schlumberger ............................................. 60,200 4,846
Smith International * .................................... 18,300 1,123
Witco .................................................... 5,400 220
12,848
<PAGE>
Exploration and Production 0.2%
Anadarko Petroleum ....................................... 1,800 $ 109
Enron Oil & Gas .......................................... 6,600 140
Enserch Exploration ...................................... 21,442 194
Santos (AUD) ............................................. 200,000 824
Ultramar Diamond Shamrock ................................ 9,100 290
Union Pacific Resources .................................. 11,857 288
1,845
Gas Transmission 0.3%
Consolidated Natural Gas ................................. 1,200 73
Enron .................................................... 50,000 2,078
MCN ...................................................... 8,800 355
Questar .................................................. 7,400 330
Sonat .................................................... 29,000 1,327
Tenneco .................................................. 200 8
4,171
Integrated Petroleum - Domestic 1.7%
Amerada Hess ............................................. 37,700 2,069
Atlantic Richfield ....................................... 64,600 5,176
British Petroleum ADR .................................... 78,600 6,263
Kerr-McGee ............................................... 600 38
MAPCO .................................................... 3,400 157
Phillips Petroleum ....................................... 48,300 2,349
Santa Fe Energy Resources * .............................. 13,900 156
Unocal ................................................... 4,400 171
USX-Marathon ............................................. 140,000 4,725
21,104
Integrated Petroleum - International 2.1%
Amoco .................................................... 400 34
Chevron .................................................. 41,400 3,188
ENI S.P.A. ADR ........................................... 26,600 1,518
Exxon .................................................... 101,200 6,192
Mobil .................................................... 78,600 5,674
Repsol ADR ............................................... 24,000 1,021
Royal Dutch Pete Co ...................................... 40,000 2,167
Shell Transport & Trading ADR ............................ 36,300 1,588
Texaco ................................................... 80,727 4,390
25,772
Total Energy ............................................. 65,740
PROCESS INDUSTRIES 3.2%
Diversified Chemicals 1.0%
Dow Chemical ............................................. 30,000 3,045
DuPont ................................................... 77,800 4,673
Eastman Chemical ......................................... 3,675 219
Hercules ................................................. 1,800 90
Monsanto ................................................. 92,300 3,876
11,903
<PAGE>
Specialty Chemicals 1.2%
3M ....................................................... 18,600 1,526
A. Schulman .............................................. 26,325 665
Akzo Nobel (NLG) ......................................... 7,000 1,207
Avery Dennison ........................................... 1,800 80
BASF AG (DEM) ............................................ 34,000 1,205
Bayer (DEM) .............................................. 30,000 1,111
Crompton & Knowles ....................................... 3,500 93
Great Lakes Chemical ..................................... 25,000 1,122
Lyondell Petrochemical ................................... 7,100 188
McWhorter Technologies * ................................. 1,500 39
Morton International ..................................... 63,500 2,183
Pall ..................................................... 8,533 176
Raychem .................................................. 1,800 77
Rohm & Haas .............................................. 28,000 2,681
Solutia .................................................. 18,460 493
Sumitomo Chemicals (JPY) ................................. 175,000 402
Technip (FRF) ............................................ 12,900 1,361
14,609
Paper and Paper Products 0.5%
Dai Nippon Printing (JPY) ................................ 67,000 1,257
Kimberly-Clark ........................................... 34,400 1,696
Kimberly-Clark Mexico (Class A) (MXN) .................... 265,000 1,297
Mead ..................................................... 30,000 840
Schweitzer Mauduit ....................................... 1,000 37
Sonoco Products .......................................... 12,705 441
Willamette Industries .................................... 24,000 773
6,341
Forest Products 0.3%
Georgia-Pacific .......................................... 19,000 1,154
International Paper ...................................... 46,000 1,984
Pope & Talbot ............................................ 8,200 124
Weyerhaeuser ............................................. 12,700 623
3,885
Building & Construction 0.2%
Blue Circle Industries (GBP) ............................. 136,612 766
Del E. Webb .............................................. 100 3
Georgia-Pacific .......................................... 19,000 431
Hanson PLC ADR ........................................... 7,875 182
Holderbank Financiere Glarus AG (CHF) .................... 1,210 996
2,378
Total Process Industries ................................. 39,116
<PAGE>
BASIC MATERIALS 0.7%
Metals 0.5%
Alcoa .................................................... 30,000 2,111
Anglo American Platinum (ZAR) * .......................... 85,000 1,135
Carpenter Technology ..................................... 5,400 260
Freeport-McMoRan Copper & Gold (Class A) ................. 9,600 147
Reynolds Metals .......................................... 38,000 2,280
5,933
Mining 0.1%
LONRHO (GBP) ............................................. 404,445 624
Rio Tinto (AUD) .......................................... 40,000 467
TVX Gold * ............................................... 200,000 675
1,766
Miscellaneous Materials 0.1%
Crown Cork & Seal ........................................ 1,400 70
Malayan Cement (MYR) ..................................... 312,500 213
Owens-Illinois * ......................................... 15,300 581
864
Total Basic Materials .................................... 8,563
Conglomerates 0.1%
Orkla (Class A) (NOK) .................................... 7,500 647
Total Conglomerates ...................................... 647
Total Common Stocks and Warrants (Cost $443,752) ......... 735,888
Preferred Stocks 0.1%
Cablevision Systems (Series M) ........................... 9,250 $1,068
Superior National Insurance Group ........................ 500,000 513
Total Preferred Stocks (Cost $1,513) ..................... 1,581
Convertible Preferred Stocks 0.6%
Aetna, 6.25%, (Class C) .................................. 898 64
Security Capital Industrial Trust (Class B) .............. 225,000 7,200
Total Convertible Preferred Stocks (Cost $5,116) ......... 7,264
Corporate Bonds 19.0%
Abbey National First Capital, Sub. Notes
8.20%, 10/15/04 ......................... $1,205,000 1,318
AEI Holding, Sr. Notes, (144a), 10.00%, 11/15/07 ......... 1,000,000 1,030
African Development Bank, Sub. Notes, 7.75%, 12/15/01 .... 1,000,000 1,054
Agricultural Minerals, Sr. Notes, 10.75%, 9/30/03 ........ 1,000,000 1,077
Airplane Pass Thru
8.15%, 3/15/19 ........................... 1,956,000 2,073
10.875%, 3/15/19 ......................... 990,000 1,109
Alabama Power, 1st Mtg. Notes, 7.00%, 1/1/03 ............. 725,000 737
Alliance Imaging, Sr. Sub. Notes, 9.625%, 12/15/05 ....... 950,000 961
Allied Holdings, Gtd. Sr. Sub. Notes, 8.625%, 10/1/07 .... 1,000,000 1,015
Allied Waste, Sr. Sub. Notes, (144a), 10.25%, 12/1/06 .... 500,000 549
Allied Waste Industries, Sr. Disc. Notes, STEP
Zero Coupon, 6/1/07 ..................... 500,000 351
<PAGE>
AMC Entertainment, Sr. Sub. Notes, 9.50%, 3/15/09 ........ 1,000,000 1,025
AMERCO, Sr. Notes, 7.85%, 5/15/03 ........................ 1,000,000 1,036
American Builders & Contractors Supply, Sr. Sub. Notes
10.625%, 5/15/07 ........................ 1,000,000 1,037
American Lawyer Media, Sr. Notes
(144a), 9.75%, 12/15/07 ................. 850,000 863
American Portable Telecom, Gtd. Notes, (144a)
Zero Coupon, 11/1/06 .................... 3,615,000 1,869
American Safety Razor, Sr. Notes, 9.875%, 8/1/05 ......... 1,000,000 1,074
Ameriserve Food
Sr. Notes, (144a)
8.875%, 10/15/06 ........................ $ 325,000 $ 326
Sr. Sub. Notes, (144a)
10.125%, 7/15/07 ........................ 675,000 709
Ametek, Sr. Notes, 9.75%, 3/15/04 ........................ 500,000 535
AMTROL, Sr. Sub. Notes, 10.625%, 12/31/06 ................ 500,000 511
Anheuser Busch, 6.90%, 10/1/02 ........................... 2,000,000 2,012
Archibald Candy, Sr. Sec. Notes, 10.25%, 7/1/04 .......... 800,000 834
Associates, Sr. Notes, 7.50%, 4/15/02 .................... 1,300,000 1,359
Atlantic Richfield, Deb. Notes, 8.75%, 3/1/32 ............ 1,570,000 1,988
Aurora Foods, Sr. Sub. Notes, 9.875%, 2/15/07 ............ 625,000 659
Axiohm, Sr. Sub. Notes, (144a), 9.75%, 10/1/07 ........... 500,000 508
B E Aerospace, Sr. Sub. Notes, 9.875%, 2/1/06 ............ 250,000 264
B.F. Saul, REIT, Sr. Sec. Notes, 11.625%, 4/1/02 ......... 750,000 799
Banco Santiago, 7.00%, 7/18/07 ........................... 2,000,000 2,024
Banesto Delaware, Sub. Notes, 8.25%, 7/28/02 ............. 2,000,000 2,137
Bank United, Trust Pfd. Sec., 10.25%, 12/31/26 ........... 1,000,000 1,030
Bankamerica, Sub. Notes, 6.625%, 8/1/07 .................. 3,000,000 3,019
Banque Nationale De Paris, Deb. Notes, 9.875%, 5/25/98 ... 1,000,000 1,015
Baxter International, 7.125%, 2/1/07 ..................... 1,500,000 1,569
Bay View Capital, Sub. Notes, 9.125%, 8/15/07 ............ 625,000 644
BCH Cayman Islands, Sub. Notes, 7.50%, 6/15/05 ........... 1,000,000 1,044
BHP Finance, Gtd. Notes, 6.69%, 3/1/06 ................... 2,000,000 2,002
Boeing, 8.75%, 8/15/21 ................................... 2,000,000 2,506
British Columbia Hydro & Power, 12.50%, 9/1/13 ........... 250,000 270
Burlington Northern, PTC, 7.33%, 6/23/10 ................. 953,618 1,004
BWAY, Sr. Sub. Notes, (144a), 10.25%, 4/15/07 ............ 550,000 597
Cablevision Systems, Sr. Notes, 7.875%, 12/15/07 ......... 600,000 612
Casino America, Sr. Notes, 12.50%, 8/1/03 ................ 500,000 543
Celestica International, Gtd. Sr. Sub. Notes
10.50%, 12/31/06 ........................ 575,000 607
Century Telephone Enterprises, Sr. Notes, 8.25%, 5/1/24 .. 500,000 528
Chattem, Sr. Sub. Notes, 12.75%, 6/15/04 ................. 1,000,000 1,130
Chemical Master Credit Card Trust I
5.55%, 9/15/03 ........................... 100,000 99
6.23%, 4/15/05 ........................... 110,000 110
Chief Auto Parts, Sr. Notes, 10.50%, 5/15/05 ............. 300,000 297
Chrysler Financial, 5.875%, 2/7/01 ....................... $2,000,000 $1,980
Citibank Credit Card Master Trust I, Zero Coupon, 2/7/03 . 170,000 141
Citicorp Mortgage, 6.00%, 3/25/22 ........................ 123,583 122
<PAGE>
Citizens Utilities, Deb. Notes, 7.00%, 11/1/25 ........... 1,500,000 1,542
Coach USA, Gtd. Sr. Sub. Notes, 9.375%, 7/1/07 ........... 750,000 767
Coinmach, Sr. Sub. Notes, 11.75%, 11/15/05 ............... 1,000,000 1,110
Comcast Cable Communications, 8.125%, 5/1/04 ............. 3,000,000 3,237
Communications & Power Industries, Sr. Sub. Notes
12.00%, 8/1/05 .......................... 1,000,000 1,120
Community Distributors, Sr. Notes, (144a), 10.25%
10/15/04 ................................ 475,000 487
Concentric Network, Units, (Each unit consists of a
$1,000 par Sr. Note, 12.75%
12/15/07, and 1 Warrant) ................. 350,000 360
Conseco Financing Trust II, Gtd. Notes, 8.70%, 11/15/26 .. 2,000,000 2,236
Consolidated Cigar, Sr. Sub. Notes, 10.50%, 3/1/03 ....... 1,000,000 1,042
Container Corporation of America, Sr. Notes
9.75%, 4/1/03 ........................... 1,000,000 1,075
Continental Airlines, PTC, (144a), 7.206%, 6/30/04 ....... 500,000 512
Corestates Home Equity Loan
5.10%, 3/15/09 ........................... 301,548 296
6.65%, 5/15/09 ........................... 240,028 242
Countrywide Funding, MTN, 6.875%, 9/15/05 ................ 860,000 874
Courtyard by Marriott II, Sr. Sec. Notes
10.75%, 2/1/08 .......................... 500,000 550
Cox Communications, Deb. Notes, 6.375%, 6/15/00 .......... 1,500,000 1,503
CSX, 7.45%, 5/1/07 ....................................... 1,000,000 1,067
Decision Holdings, Units, (Each Unit consists of a
$1,000 par Sr. Disc. Deb
STEP, Zero Coupon, 8/1/08
and 1 Warrant) .......................... 225,000 144
DecisionOne, Sr. Sub. Notes, 9.75%, 8/1/07 ............... 600,000 615
Delta Airlines, Deb. Notes, 8.95%, 1/12/12 ............... 1,532,689 1,769
Delta Mills, Sr. Notes, (144a), 9.625%, 9/1/07 ........... 500,000 510
Details, Sr. Sub. Notes, (144a), 10.00%, 11/15/05 ........ 500,000 514
Deutsche Financial Capital, 6.75%, 9/15/27 ............... 2,000,000 2,020
DII Group, Sr. Sub Notes, (144a), 8.50%, 9/15/07 ......... 575,000 564
Discover Credit Card, 7.85%, 11/21/00 .................... 3,000,000 3,030
Doane Products, Sr. Notes, 10.625%, 3/1/06 ............... 1,000,000 1,080
Duke Energy, 1st Ref. Mtg
6.75%, 8/1/25 ............................ $1,000,000 $ 949
7.50%, 8/1/25 ............................ 1,000,000 1,073
Dyersburg, Sr. Sub. Notes, 9.75%, 9/1/07 ................. 350,000 366
Dyncorp, Sr. Sub. Notes, 9.50%, 3/1/07 ................... 900,000 918
Embotelladora Andina, 7.625%, 10/1/27 .................... 2,000,000 1,877
Energy Corporation of America, Sr. Sub. Notes
9.50%, 5/15/07 .......................... 1,000,000 1,000
Equitable Resources, Deb. Notes, 7.75%, 7/15/26 .......... 2,000,000 2,231
Exxon Capital, Gtd. Notes, 6.50%, 7/15/99 ................ 500,000 504
Fairchild Semiconductor, Sr. Sub. Notes
10.125%, 3/15/07 ........................ 425,000 446
Fairfax Financial Holdings
7.75%, 12/15/03 .......................... 800,000 841
8.30%, 4/15/26 ........................... 2,500,000 2,772
<PAGE>
Falcon Building Products, Gtd. Sr. Sub. Notes
9.50%, 6/15/07 .......................... 850,000 869
Federal Express, 9.95%, 8/15/06 .......................... 500,000 607
Ferrellgas, Sr. Notes, 10.00%, 8/1/01 .................... 750,000 795
First Federal Financial, 11.75%, 10/1/04 ................. 750,000 840
First Fidelity Bancorp, Deb. Notes, 8.50%, 4/1/98 ........ 1,500,000 1,508
Fleet Financial Group, Sub. Notes
7.625%, 12/1/99 .......................... 1,100,000 1,127
8.625%, 1/15/07 .......................... 800,000 910
Fletcher Challenge, 9.00%, 9/15/99 ....................... 270,000 282
Flores & Rucks, Sr. Sub. Notes, 9.75%, 10/1/06 ........... 275,000 302
Food Lion, 8.05%, 4/15/27 ................................ 1,900,000 2,119
Ford Motor, Deb. Notes, 7.50%, 8/1/26 .................... 2,500,000 2,700
Ford Motor Credit, 8.20%, 2/15/02 ........................ 170,000 182
Freeport-McMoRan Resources, Sr. Notes, 7.00%, 2/15/08 .... 900,000 923
Frontiervision, Sr. Sub. Notes, 11.00%, 10/15/06 ......... 1,000,000 1,110
Fundy Cable, Sr. Sec. 2nd Priority Notes
11.00%, 11/15/05 ........................ 500,000 535
General Motors, Deb. Notes, 9.625%, 12/1/00 .............. 140,000 152
General Motors Acceptance Corporation, MTN
6.75%, 6/17/02 .......................... 80,000 81
Glenoit, Sr. Sub. Notes, (144a), 11.00%, 4/15/07 ......... 250,000 269
Global Ocean Carriers, Sr. Notes, (144a), 10.25%, 7/15/07 900,000 855
Golden West Financial, Sub. Notes, 8.625%, 8/30/98 ....... $1,500,000 $1,521
Green Tree Financial, 5.75%, 10/15/18 .................... 90,000 89
GTE Florida, Deb. Notes, 7.41%, 12/15/23 ................. 1,000,000 998
Hawk, Sr. Notes, 10.25%, 12/1/03 ......................... 850,000 907
HCC Industries, Sr. Sub. Notes, 10.75%, 5/15/07 .......... 1,000,000 1,037
Herff Jones, Sr. Sub. Notes, 11.00%, 8/15/05 ............. 1,125,000 1,235
HMC Acquisition Properties, Sr. Notes, 9.00%, 12/15/07 ... 1,000,000 1,045
Host Marriott Travel Plazas, Sr. Notes, 9.50%, 5/15/05 ... 1,000,000 1,065
IBM, 6.45%, 8/1/07 ....................................... 1,000,000 1,013
International Bank For Reconstruction & Development
7.625%, 1/19/23 ......................... 1,800,000 2,102
International Wire, Sr. Sub. Notes, (144a), 11.75%, 6/1/05 1,500,000 1,646
Intertek Finance, Sr. Sub. Notes, 10.25%, 11/1/06 ........ 800,000 840
Iron Mountain, Sr. Sub. Notes, (144a), 8.75%, 9/30/09 .... 500,000 513
ISP Holdings, Sr. Notes, 9.75%, 2/15/02 .................. 1,000,000 1,055
ITT Publimedia B.V., Sr. Sub. Notes, (144a)
9.375%, 9/15/07 ......................... 750,000 791
Jefferson Pilot Capital Trust, (144a), 8.14%, 1/15/46 .... 1,500,000 1,566
John Q. Hammons Hotels, 1st Mtg. Notes
8.875%, 2/15/04 ......................... 1,000,000 1,022
Keebler, Sr. Sub. Notes, 10.75%, 7/1/06 .................. 1,000,000 1,127
Kelley Oil & Gas, Sr. Sub. Notes, 10.375%, 10/15/06 ...... 500,000 534
KFW International Finance, MTN, 9.14%, 6/4/01 ............ 250,000 274
Koppers Industry, Sr. Sub. Notes, (144a), 9.875%, 12/1/07 250,000 258
L 3 Communications, Sr. Sub. Notes, 10.375%, 5/1/07 ...... 725,000 787
Lehman Brothers Holdings, 8.875%, 3/1/02 ................. 1,500,000 1,625
Liberty National Bank & Trust, Sub. Notes, 6.75%, 6/1/03 . 500,000 510
<PAGE>
Long Island Lighting
Deb. Notes, 7.50%, 3/1/07 ................ 500,000 518
Gen. Ref. Bonds, 9.75%, 5/1/21 ........... 1,100,000 1,117
Loral, Sr. Notes, 7.625%, 6/15/04 ........................ 1,500,000 1,593
Majestic Star Casino, Sr. Sec. Notes, 12.75%, 5/15/03 .... 1,000,000 1,072
Marcus Cable, Gtd. Sr. Disc. Notes, STEP
Zero Coupon, 8/1/04 ..................... 1,250,000 1,156
MAXXAM Group Holdings, Sr. Notes, 11.25%, 8/1/03 ......... 600,000 634
MBNA, Sr. Notes, 7.49%, 9/14/99 .......................... 3,000,000 3,072
McDonnell Douglas, 8.25%, 7/1/00 ......................... 500,000 524
Methanex, 7.75%, 8/15/05 ................................. 1,500,000 1,589
Metronet Communications
Sr. Disc. Notes, (144a)
STEP, Zero Coupon, 11/1/07 ............... 500,000 305
Units, (Each Unit consists of a
$1,000 par Sr. Note, 12.00%
8/15/07, (144a), and 1 Warrant) .......... 500,000 560
ML Capital Trust, Gtd. Notes, 9.875%, 3/1/27 ............. 500,000 571
Mrs Fields Original, Gtd. Sr. Notes, (144a), 10.125%
12/1/04 ................................. 750,000 756
Muzak, Gtd. Sr. Notes, 10.00%, 10/1/03 ................... 1,000,000 1,060
Nationsbank Credit Card Master Trust (Class A)
6.00%, 12/15/05 ......................... 140,000 139
News America Holdings, Gtd. Sr. Deb. Notes
9.25%, 2/1/13 ........................... 90,000 107
Nextlink Communications, Gtd. Sr. Deb. Notes
9.625%, 10/1/07 ......................... 500,000 516
NGC, Sr. Notes, 6.75%, 12/15/05 .......................... 1,000,000 1,016
Northland Cable Television, Sr. Sub. Notes, (144a)
10.25%, 11/15/07 ........................ 1,000,000 1,054
Northrop Grumman, 7.875%, 3/1/26 ......................... 2,000,000 2,225
NYNEX, Deb. Notes, 9.55%, 5/1/10 ......................... 1,163,808 1,353
Ocwen Capital Trust I, 10.875%, 8/1/27 ................... 500,000 545
Ocwen Financial, Sr. Notes, 11.875%, 10/1/03 ............. 1,000,000 1,122
Orange & Rockland Utilities, Deb. Notes
9.375%, 3/15/00 ......................... 1,500,000 1,598
Owens & Minor, Sr. Sub. Notes, 10.875%, 6/1/06 ........... 500,000 555
Pacific Bell, Deb. Notes
7.375%, 7/15/43 .......................... 1,000,000 1,049
7.50%, 2/1/33 ............................ 1,000,000 1,028
Pegasus Communications, Sr. Notes, (144a)
9.625%, 10/15/05 ........................ 1,000,000 1,020
Philadelphia Electric, 1st Ref. Mtg., 5.625%, 11/1/01 .... 3,000,000 2,935
Pillowtex, Sr. Sub. Notes, (144a), 9.00%, 12/15/07 ....... 300,000 308
Plains Resources, Sr. Sub. Notes, 10.25%, 3/15/06 ........ 500,000 539
Plastic Containers, Sr. Sec. Notes, 10.00%, 12/15/06 ..... 1,000,000 1,075
PM Holdings, Sub. Disc. Notes, STEP
Zero Coupon, 9/1/05 ..................... 500,000 403
Pricellular Wireless, Sr. Notes, 10.75%, 11/1/04 ......... $ 500,000 $ 548
Pride Petroleum Services, Sr. Notes, 9.375%, 5/1/07 ...... 1,000,000 1,075
Prime Credit Card Master Trust, 6.70%, 7/15/04 ........... 140,000 142
<PAGE>
Province of Alberta, 9.25%, 4/1/00 ....................... 1,000,000 1,064
Quantas Airways, Sr. Notes, (144a), 7.50%, 6/30/03 ....... 1,000,000 1,047
Quest Diagnostics, Gtd. Sr. Sub. Notes, 10.75%, 12/15/06 . 375,000 409
Qwest Communications International
Sr. Disc. Notes, (144a), STEP
Zero Coupon, 10/15/07 ................... 1,675,000 1,143
Rail Car Trust, 7.75%, 6/1/04 ............................ 95,619 101
RCN, Sr. Notes, (144a), 10.00%, 10/15/07 ................. 275,000 285
Revlon Consumer Products, Sr. Sub. Notes
10.50%, 2/15/03 ......................... 500,000 533
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 1,082
RJR Nabisco, 8.75%, 8/15/05 .............................. 2,000,000 2,158
Rogers Cablesystems, Sr. Sec. 2nd Priority Notes
10.00%, 3/15/05 ......................... 500,000 550
RSL Communications, Gtd. Sr. Notes, 12.25%, 11/15/06 ..... 500,000 550
Santander Financial, Gtd. Sub. Notes, 6.375%, 2/15/11 .... 3,000,000 2,905
SD Warren, Sr. Sub. Notes, 12.00%, 12/15/04 .............. 500,000 559
Sea Containers Ltd., Sr. Sub. Deb., 12.50%, 12/1/04 ...... 270,000 306
Sea-Land Service, Gtd. Deb. Notes, 10.60%, 1/2/11 ........ 1,550,000 1,632
Sears Credit Account Master Trust (Class A)
6.05%, 1/16/08 ........................... 80,000 79
6.45%, 10/16/06 .......................... 70,000 71
Security Benefit Life, (144a), 8.75%, 5/15/16 ............ 3,000,000 3,367
Showboat, 1st Mtg. Bonds, 9.25%, 5/1/08 .................. 500,000 535
Siebe, (144a), 7.125%, 1/15/07 ........................... 1,500,000 1,582
Sinclair Broadcast Group, Sr. Sub. Notes, 8.75%, 12/15/07 750,000 748
Six Flags Theme Parks, Sr. Sub. Disc. Notes, STEP
Zero Coupon, 6/15/05 .................... 1,000,000 1,065
Southern Foods Group, Sr. Sub. Notes, (144a)
9.875%, 9/1/07 .......................... 800,000 836
Southwest Air, Deb. Notes, 9.25%, 2/15/98 ................ 1,650,000 1,655
Southwestern Bell Telephone, 7.00%, 11/15/27 ............. $2,000,000 $ 1,993
Sovereign Specialty Chemicals, Sr. Sub. Notes, (144a)
9.50%, 8/1/07 ........................... 800,000 822
Specialty Retailers, Sr. Notes, 8.50%, 7/15/05 ........... 1,000,000 1,015
Speedway Motorsports, Gtd. Sr. Sub. Notes
8.50%, 8/15/07 .......................... 1,000,000 1,020
Stellex Industries, Sr. Sub. Notes, (144a), 9.50%, 11/1/07 500,000 504
Stena AB, Sr. Notes, 8.75%, 6/15/07 ...................... 1,000,000 1,010
Sterling Chemicals, Sr. Sub. Notes, 11.25%, 4/1/07 ....... 500,000 500
Sun Media, Sr. Sub. Notes
9.50%, 2/15/07 .......................... 2,000,000 2,155
Synthetic Industries, Sr. Sub. Notes, 9.25%, 2/15/07 ..... 400,000 420
Tenet Healthcare, Sr. Sub. Notes, 8.625%, 1/15/07 ........ 1,000,000 1,032
Tenneco, 6.70%, 12/15/05 ................................. 1,000,000 1,008
Texaco Capital, Deb. Notes, 8.65%, 1/30/98 ............... 1,400,000 1,403
Time Warner, Deb. Notes, 7.48%, 1/15/08 .................. 1,400,000 1,454
<PAGE>
Town Sports International, Sr. Notes, (144a)
9.75%, 10/15/04 ......................... 300,000 294
Tracor, Sr. Sub. Notes, 8.50%, 3/1/07 .................... 750,000 757
Transwestern Holdings, Sr. Disc. Notes, (144a)
STEP, Zero Coupon, 11/15/08 ............. 500,000 300
Transwestern Publishing, Sr. Sub. Notes, (144a)
9.625%, 11/15/07 ........................ 750,000 780
TravelCenters of America, Sr. Sub. Notes, 10.25%, 4/1/07 . 900,000 945
Travelers Property Casualty, Sr. Notes, 6.75%, 11/15/06 .. 1,500,000 1,530
Trident Automotive, Sr. Sub. Notes, (144a)
10.00%, 12/15/05 ........................ 500,000 511
TRW, MTN, 7.37%, 4/18/07 ................................. 2,000,000 2,141
TV Azteca, Gtd. Sr. Notes, 10.50%, 2/15/07 ............... 1,000,000 1,030
Union Bank Switzerland, Sub. Notes, 7.25%, 7/15/06 ....... 1,000,000 1,050
United Artists Theatre Circuit, PTC, 9.30%, 7/1/15 ....... 1,071,540 1,082
United Defense, Sr. Sub. Notes, (144a), 8.75%, 11/15/07 .. 250,000 251
US Can, Sr. Gtd. Notes, 10.125%, 10/15/06 ................ 475,000 502
UtiliCorp United, Sr. Notes, 6.875%, 10/1/04 ............. 3,000,000 3,042
Vencor, Sr. Sub Notes, 8.625%, 7/15/07 ................... 1,000,000 997
Venture Holdings Trust, Sr. Notes, 9.50%, 7/1/05 ......... 750,000 761
Vesta Insurance Group, Deb. Notes, 8.75%, 7/15/25 ........ 1,000,000 1,174
Viasystems, Sr. Sub. Notes, (144a), 9.75%, 6/1/07 ........ 1,000,000 1,032
Wal-Mart Stores, 6.75%, 5/15/02 .......................... 1,000,000 1,024
Westamerica Bank, Sub. Notes,(144a), 6.99%, 9/30/03 ...... $1,500,000 $ 1,519
Willamette Industries, MTN, 7.85%, 7/1/26 ................ 1,000,000 1,121
Windy Hill Pet Food, Sr. Sub. Notes, 9.75%, 5/15/07 ...... 1,000,000 1,040
Total Corporate Bonds (Cost $ 224,149) .................. 231,571
U.S. Government Mortgage-
Backed Securities 6.8%
Federal Home Loan Mortgage Assn ..........................
8.00%, 3/1/17 ............................ 19,506 21
10.00%, 10/1/10 .......................... 77,816 83
10.50%, 9/1/15 ........................... 16,078 18
Federal National Mortgage Assn ...........................
6.00%, 10/25/08 .......................... 3,835,000 3,743
6.50%, 7/25/08 - 5/1/11 .................. 1,393,487 1,383
7.00%, 4/1/26 ............................ 91,528 92
Government National Mortgage Assn ........................
I
6.00%, 1/15 - 5/15/24 .................... 2,565,192 2,497
6.50%, 9/15/23 - 3/15/26 ................. 7,950,229 7,900
7.00%, 10/15/22 - 11/15/26 ............... 11,044,481 11,173
7.50%, 9/15/22 - 5/15/26 ................. 13,735,466 14,133
8.00%, 6/15/17 - 11/15/25 ................ 12,205,679 12,792
8.50%, 3/15/05 - 2/15/25 ................. 8,354,288 8,879
9.00%, 5/15/16 - 6/15/25 ................. 1,737,855 1,884
9.50%, 8/15/09 - 9/15/21 ................. 1,659,007 1,806
10.00%, 11/15/09 - 5/15/13 ............... 36,179 40
10.50%, 5/15/15 .......................... 11,788 13
<PAGE>
GPM, I
10.75%, 1/15/16 - 12/15/17 ............... 145,782 162
11.00%, 3/15/10 - 1/15/20 ................ 863,756 982
11.50%, 3/15/10 - 3/15/16 ................ 1,573,042 1,809
ARM, I
7.00%, 8/20/23 ........................... 201,259 206
II
8.50%, 6/20/25 - 6/20/26 ................. 7,463,819 7,837
9.00%, 7/20/16 - 6/20/20 ................. 876,710 946
9.50%, 8/20/22 ........................... 224,823 242
10.00%, 10/20/16 - 1/20/22 ............... 146,945 162
Project Loan
8.50%, 1/15/27 ........................... 295,219 310
8.875%, 2/15/30 .......................... 678,604 706
8.95%, 5/15/35 ........................... 2,295,617 2,388
U. S. Department of Veteran Affairs, VR
9.54%, 3/15/25 ........................... 881,967 982
Total U.S. Government Mortgage-Backed
Securities (Cost $ 81,124) ............................ 83,189
U.S. Government Obligations/
Agencies 14.9%
Federal Home Loan Banks, 6.34%, 10/19/05 ................. 4,875,000 4,963
Federal Home Loan Mortgage Assn ..........................
6.00%, 6/15/05 .......................... 700,000 698
Federal National Mortgage Assn ...........................
5.80%, 12/10/03 .......................... 13,000,000 12,896
6.25%, 8/12/03 ........................... 3,000,000 2,964
6.47%, 9/25/12 ........................... 3,000,000 3,093
REMIC
7.50%, 10/25/19 .......................... 1,000,000 1,014
8.45%, 7/12/99 ........................... 4,000,000 4,137
Federal National Mortgage Assn., MTN
6.36%, 8/16/00 ........................... 270,000 274
Tennessee Valley Authority
8.25%, 9/15/34 ........................... 435,000 445
U.S. Treasury Bonds
6.00%, 2/15/26 ........................... 7,365,000 7,356
6.50%, 11/15/26 .......................... 6,000,000 6,405
6.75%, 8/15/26 ........................... 12,000,000 13,211
7.125%, 2/15/23 .......................... 12,500,000 14,270
7.25%, 5/15/16 ........................... 4,000,000 4,556
8.125%, 8/15/19 - 8/15/21 ................ 3,650,000 4,601
8.75%, 5/15/20 ........................... 1,000,000 1,332
11.25%, 2/15/15 .......................... 500,000 784
11.625%, 11/15/04 ........................ 20,000 27
11.75%, 2/15/01 .......................... 200,000 234
13.125%, 5/15/01 ......................... 200,000 245
13.875%, 5/15/11 ......................... 190,000 289
<PAGE>
U.S. Treasury Notes
5.25%, 1/31/01 ...........................$ 5,000,000 $ 4,939
6.00%, 8/15/99 ........................... 11,300,000 11,355
6.125%, 9/30/00 .......................... 790,000 798
6.25%, 2/15/03 - 2/15/07 ................. 18,500,000 19,076
6.50%, 4/30/99 ........................... 12,000,000 12,129
7.00%, 4/15/99 ........................... 3,200,000 3,253
7.50%, 11/15/01 - 2/15/05 ................ 2,485,000 2,680
7.75%, 1/31/00 - 2/15/01 ................. 16,800,000 17,515
7.875%, 11/15/04 ......................... 150,000 168
8.00%, 5/15/01 ........................... 12,000,000 12,819
8.75%, 8/15/00 ........................... 12,000,000 12,878
Total U.S. Government Obligations/Agencies (Cost $174,498) 181,404
Short-Term Investments 0.7%
Money Market Funds 0.7%
Reserve Investment Fund, 5.84% # ......................... 8,866,218 8,866
Total Short-Term Investments (Cost $8,866) ............... 8,866
Total Investments in Securities
102.5% of Net Assets (Cost $939,018) ..................... $ 1,249,763
Other Assets Less Liabilities ............................ (30,539)
NET ASSETS ............................................... $ 1,219,224
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 1
Accumulated net realized gain/loss -
net of distributions 1,156
Net unrealized gain (loss) 310,740
Paid-in-capital applicable to 73,720,130
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares authorized 907,327
NET ASSETS ............................................... $ 1,219,224
NET ASSET VALUE PER SHARE ................................ $ 16.54
<PAGE>
* Non-income producing
# Seven-day yield
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
REMIC Real Estate Mortgage Investment Conduit
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 year-end amounts to
2.7 % 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
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/97
Investment Income
Income
Interest ............................................. $ 34,152
Dividend ............................................. 12,097
Other ................................................ 381
Total income ......................................... 46,630
Expenses
Investment management ................................ 5,317
Shareholder servicing ................................ 3,217
Custody and accounting ............................... 234
Registration ......................................... 131
Prospectus and shareholder reports ................... 108
Legal and audit ...................................... 16
Directors ............................................ 11
Miscellaneous ........................................ 20
Total expenses ....................................... 9,054
Net investment income ........................................ 37,576
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities ........................................... 9,086
Foreign currency transactions ........................ (59)
Net realized gain (loss) ............................. 9,027
Change in net unrealized gain or loss
Securities ........................................... 145,480
Other assets and liabilities
denominated in foreign currencies .................... (2)
Change in net unrealized gain or loss ................ 145,478
Net realized and unrealized gain (loss) ...................... 154,505
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ....................................... $ 192,081
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
T. Rowe Price Balanced Fund
================================================================================
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
<CAPTION>
Year
Ended
12/31/97 12/31/96
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income ...................................................... $ 37,576 $ 28,942
Net realized gain (loss) ................................................... 9,027 7,050
Change in net unrealized gain or loss ...................................... 145,478 71,743
Increase (decrease) in net assets from operations .......................... 192,081 107,735
Distributions to shareholders
Net investment income ...................................................... (38,055) (28,540)
Net realized gain .......................................................... (8,859) (7,546)
Decrease in net assets from distributions .................................. (46,914) (36,086)
Capital share transactions *
Shares sold ................................................................ 425,797 351,508
Distributions reinvested ................................................... 44,064 33,200
Shares redeemed ............................................................ (271,777) (188,611)
Increase (decrease) in net assets from capital
share transactions ......................................................... 198,084 196,097
Net equalization ................................................................... -- 139
Net Assets
Increase (decrease) during period .................................................. 343,251 267,885
Beginning of period ................................................................ 875,973 608,088
End of period ...................................................................... $ 1,219,224 $ 875,973
*Share information
Shares sold ................................................................ 27,623 25,935
Distributions reinvested ................................................... 2,767 2,382
Shares redeemed ............................................................ (17,176) (13,802)
Increase (decrease) in shares outstanding .................................. 13,214 14,515
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Balanced Fund
================================================================================
December 31, 1997
================================================================================
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Balanced Fund, Inc. (the fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company.
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.
Short-term debt securities are valued at amortized cost which, when combined
with accrued interest, approximates fair value.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
CURRENCY TRANSLATION Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing exchange rate on the dates of such transactions.
The effect of changes in foreign exchange rates on realized and unrealized
security gains and losses is reflected as a component of such gains and losses.
<PAGE>
PREMIUMS AND DISCOUNTS Premiums and discounts on debt securities, other
than mortgage-backed securities, are amortized for both financial reporting and
tax purposes. Premiums and discounts on mortgage-backed securities are
recognized upon principal repayment as gain or loss for financial reporting
purposes and as ordinary income for tax purposes.
OTHER Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles. Effective January 1, 1997, the fund discontinued
its practice of equalization. The results of operations and net assets were not
affected by this change.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
SECURITIES LENDING The fund lends its securities to approved brokers to
earn additional income and takes cash and U.S. Treasury securities as collateral
to secure the loans. Collateral is maintained at not less than 100% of the value
of loaned securities. At December 31, 1997, the value of securities on loan was
$164,385,000. Although the risk is mitigated by the collateral, the fund could
experience a delay in recovering its securities and a possible loss of income or
value if the borrower fails to return them.
OTHER Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $264,246,000 and $85,911,000,
respectively, for the year ended December 31, 1997. Purchases and sales of U.S.
government securities aggregated $130,720,000 and $81,387,000, respectively, for
the year ended December 31, 1997.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of its
taxable income.
At December 31, 1997, the aggregate cost of investments for federal income
tax and financial reporting purposes was $939,018,000, and net unrealized gain
aggregated $310,745,000, of which $331,856,000 related to appreciated
investments and $21,111,000 to depreciated investments.
<PAGE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management fee,
of which $499,000 was payable at December 31, 1997. The fee is computed daily
and paid monthly, and consists of an individual fund fee equal to 0.15% of
average daily net assets and a group fee. The group fee is based on the combined
assets of certain mutual funds sponsored by the manager or Rowe Price-Fleming
International, Inc. (the group). The group fee rate ranges from 0.48% for the
first $1 billion of assets to 0.30% for assets in excess of $80 billion. The
effective annual group fee rate was 0.32% at December 31, 1997, and 0.33% for
the year then ended. 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 $2,927,000 for the year ended
December 31, 1997, of which $249,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not available to the public.
The Reserve Funds pay no investment management fees. Distributions from the
Reserve Funds to the fund for the year ended December 31, 1997, totaled $268,000
and are reflected as interest income in the accompanying Statement of
Operations.
During the year ended December 31, 1997, the fund, in the ordinary course
of business, placed security purchase and sale orders aggregating $10,249,000
with certain affiliates of the manager and paid commissions of $34,000 related
thereto.
================================================================================
Tax Information (Unaudited) for the Tax Year Ended 12/31/97
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements. The fund's
distributions to shareholders included:
* $8,859,000 from long-term capital gains; of which $7,037,000 was subject
to the 20% rate gains category.
For corporate shareholders, 22% of the fund's distributed income and short-term
capital gains qualified for the dividends-received deduction.
================================================================================
<PAGE>
T. Rowe Price Balanced Fund
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF
DIRECTORS OF T. ROWE PRICE
BALANCED FUND, INC.
We have audited the accompanying statement of net assets of T. Rowe Price
Balance Fund, Inc., as of December 31, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of T.
Rowe Price Balanced Fund, Inc. as of December 31, 1997, the results of its
operations, the changes in its net assets and financial highlights for each of
the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 21, 1998
<PAGE>
T. Rowe Price Shareholder Services
================================================================================
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
BY PHONE Shareholder service representatives are available from 8
a.m. to 10 p.m. ET Monday through Friday and from 8:30 a.m. to 5
p.m. ET on weekends. Call 1-800-225-5132 to speak directly with a
representative who will be able to assist you with your accounts.
IN PERSON Visit one of our investor center locations to meet with
a representative who will be able to assist you with your
accounts. You can also drop off applications or obtain
prospectuses and other literature at these centers.
AUTOMATED 24-HOUR SERVICES
TELE*ACCESS [Registration Mark] Call 1-800-638-2587 to obtain
information such as account balance, date and amount of your last
transaction, latest dividend payment, fund prices, and yields.
Additionally, you have the ability to request prospectuses,
statements, and account and tax forms; to reorder checks; and to
initiate purchase, redemption, and exchange orders for
identically registered accounts.
T.ROWE PRICE ONLINE Through a personal computer via dial-up
modem, you can replicate all the services available on
Tele*Access plus conduct transactions in your Discount Brokerage
and Variable Annuity accounts.
ACCOUNT SERVICES
CHECKING Write checks for $500 or more on any money market and
most bond fund accounts (except the High Yield and Emerging
Markets Bond Funds).
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.
<PAGE>
DIVIDEND AND CAPITAL GAINS PAYMENT OPTIONS Reinvest all or some
of your distributions, or take them in cash. We give you maximum
flexibility and convenience.
DISCOUNT BROKERAGE*
INVESTMENTS AVAILABLE You can trade stocks, bonds, options,
precious metals, and other securities at a savings over regular
commission rates.
TO OPEN AN ACCOUNT Call a shareholder service representative for
more information.
INVESTMENT INFORMATION
COMBINED STATEMENT A comprehensive overview of your T. Rowe Price
accounts is provided. The summary page gives you earnings by tax
category, provides total portfolio value, and lists your
investments by type-stock, bond, and money market. Detail pages
itemize account transactions by fund.
SHAREHOLDER REPORTS Portfolio managers review the performance of
the funds in plain language and discuss T. Rowe Price's economic
outlook.
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
develop- ments and provides comprehensive performance information
for every T. Rowe Price fund.
INSIGHTS This library of information includes reports on mutual
fund tax issues, investment strategies, and financial markets.
DETAILED INVESTMENT GUIDES Our widely acclaimed Asset Mix
Worksheet, College Planning Kit, Diversifying Overseas: A Guide
to International Investing, Retirees Financial Guide, and
Retirement Planning Kit (also available on disk for PC use) can
help you determine and reach your investment goals.
* A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
<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 Government Bond
International Bond
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
TAXABLE
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
<PAGE>
TAX-FREE
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
- --------------------------------------------------------------------------------
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD VARIABLE ANNUITY
- --------------------------------------------------------------------------------
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Formerly the closed-end New Age Media Fund. Converted to open-end status on
7/28/97.
** Closed to new investors.
Please call for a prospectus. Read it carefully before you invest or send money.
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>
T. Rowe Price Discount Brokerage
================================================================================
DISCOUNT BROKERAGE
A Division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC
This low-cost service gives you the opportunity to easily consolidate all
your investments with one company. Through T. Rowe Price Discount Brokerage, you
can buy and sell individual securities-stocks, bonds, options, and others-at
considerable commission savings over full-service brokers.* We also provide a
wide range of services, including:
AUTOMATED TELEPHONE AND COMPUTER SERVICES You can enter trades, access
quotes, and review account information 24 hours a day, seven days a week. Any
trades executed through these programs save you an additional 10% on
commissions.**
INVESTOR INFORMATION A variety of informative reports, such as our
Brokerage Insights series, S&P Market Month newsletter, and select stock
reports, can help you better evaluate economic trends and investment
opportunities.
DIVIDEND REINVESTMENT SERVICE Virtually all stocks held in customer
accounts are eligible for this service, free of charge.
* Based on a February 1997 telephone survey that compared our commission
rates on stock transactions of various sizes with those of other
full-service and discount brokerages. Commission rates will vary based on
size and nature of trades. Services vary by firm. For additional
information concerning our commission rates and services, call
1-800-638-5660.
** Discount applies to our current commission schedule; subject to our $35
minimum commission.
<PAGE>
FOR YIELD, PRICE, LAST TRANSACTION,
CURRENT BALANCE, OR TO CONDUCT
TRANSACTIONS, 24 HOURS, 7 DAYS
A WEEK, CALL TELE*ACCESS [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. F68-050 12/31/97
