-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QFlirosQt8A7ni0GbJSnFbn7wxfjLtWBF/v5X5OHnd2hVATMi1Z68QgcfhKMHN4Z gpBwln99f2ohdxfLoUumQA== 0000902259-01-500053.txt : 20010823 0000902259-01-500053.hdr.sgml : 20010823 ACCESSION NUMBER: 0000902259-01-500053 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010822 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE BALANCED FUND INC CENTRAL INDEX KEY: 0000871839 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521725684 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06275 FILM NUMBER: 1721087 BUSINESS ADDRESS: STREET 1: 100 E PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4103454598 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE BLUE CHIP GROWTH FUND INC CENTRAL INDEX KEY: 0000902259 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07059 FILM NUMBER: 1721088 BUSINESS ADDRESS: STREET 1: C/O T ROWE PRICE ASSOCIATES INC STREET 2: 100 EAST E PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105472000 N-30D 1 bal40860.txt T. ROWE PRICE BALANCED FUND Semiannual Report BALANCED FUND June 30, 2001 T. ROWE PRICE REPORT HIGHLIGHTS - ----------------- BALANCED FUND - ------------- o U.S. equities declined as the economy slowed in the first half of 2001, but small-cap and value stocks fared better than large-cap and growth. Foreign shares fell. o Bond prices generally rose as the Federal Reserve slashed short-term interest rates. o The fund lagged its Lipper peer group in the 6- and 12-month periods ended June 30 but outpaced its other benchmarks. o We added to our positions in international equities and corporate bonds. o Stronger growth next year will be beneficial to domestic and foreign equities. In the meantime, most bonds are likely to perform well. UPDATES AVAILABLE - ----------------- For updates on T. Rowe Price funds following the end of each calendar quarter, please see our Web site at www.troweprice.com. FELLOW SHAREHOLDERS - ------------------- U.S. stocks fell in the first half of 2001, as a sharp first-quarter plunge was partly offset by a substantial second-quarter rebound. Small-cap and value stocks fared much better than large-cap and growth issues, respectively. Bonds rose as the economy slowed and the Federal Reserve aggressively reduced short-term interest rates. International equities declined; returns were exacerbated by the U.S. dollar's strength against other currencies. Your fund returned -2.58% and -2.03% in the 6- and 12-month periods ended June 30, respectively. Returns in both periods reflected weakness in domestic and international equities that was partially offset by strength in bonds. PERFORMANCE COMPARISON ---------------------- Periods Ended 6/30/01 6 Months 12 Months ---------------------------------------------------------- Balanced Fund -2.58% -2.03% .......................................................... Merrill Lynch-Wilshire Capital Market Index -3.00 -8.49 .......................................................... Lipper Balanced Fund Index -1.67 -1.05 .......................................................... Combined Index Portfolio * -3.30 -5.80 .......................................................... * An unmanaged portfolio of 50% domestic stocks (S & P 500), 40% bonds (Lehman Brothers U.S. Aggregate Index), and 10% international stocks (MSCI EAFE Index). The fund fared better than the Merrill Lynch-Wilshire Capital Market Index and our internally generated Combined Index Portfolio, as shown in the table, because our domestic equity portfolio was more value oriented and had a slightly smaller capitalization. By the same token, the fund lagged its Lipper benchmark because many other balanced funds had even greater small-cap and value stock exposure. Our overweighting in international equities relative to other balanced funds also hurt performance against the Lipper peer group. MARKET ENVIRONMENT The U.S. economy was weak in the six-month period ended June 30, 2001. GDP growth was about 1%, industrial production decreased as businesses tried to eliminate excess inventory, and unemployment began to climb. In addition, the number of companies declaring bankruptcy increased, and corporations curtailed spending to improve their financial health. In an attempt to reinvigorate the faltering economy, the Federal Reserve aggressively reduced short-term interest rates starting in early January. Through the end of June, the Fed lowered the fed funds rate from 6.50% to 3.75%--a seven-year low. This was the sharpest six-month decline for short-term rates in nearly two decades. Historically, stocks rise when rates decline as investors anticipate improving business conditions. Unfortunately, strong market rallies in January and April--which followed unexpected rate reductions between the Fed's regularly scheduled monetary policy meetings--were cut short by frequent reminders of the economy's distress. Corporations repeatedly warned that earnings would be weaker than expected, and economic data gave no indications that a rapid upturn was imminent. Although cyclical and industrial stocks and a few large-cap technology issues performed well in the first half of the year, the broad-based Standard & Poor's 500 Stock Index returned -6.70% due to general weakness in the technology, telecommunications, and health care sectors. The following table was depicted as a line graph in the printed material. INTEREST RATE LEVELS -------------------- 30-Year 5-Year 90-Day Treasury Bond Treasury Note Treasury Bill ------------- ------------- ------------- 6/30/00 5.94 6.25 5.84 7/31/00 5.8 6.16 6.2 8/31/00 5.71 6.02 6.31 9/30/00 5.89 5.9 6.21 10/31/00 5.72 5.73 6.36 11/30/00 5.66 5.52 6.26 12/31/00 5.44 4.98 5.84 1/31/01 5.5 4.77 4.99 2/28/01 5.31 4.65 4.85 3/31/01 5.44 4.56 4.28 4/30/01 5.79 4.88 3.88 5/31/01 5.75 4.91 3.61 6/30/01 5.76 4.95 3.65 The weak economic backdrop and the Fed's rate cuts created a favorable environment for most bonds in the last six months. In the Treasury market, short- and intermediate-term yields declined, but long-term rates edged higher. As shown in the graph, 90-day Treasury bill yields tumbled from 5.84% to 3.65%, while five-year Treasury note yields eased from 4.98% to 4.95% since the end of last year. In contrast, the 30-year Treasury bond's yield rose from 5.44% to 5.76% as investors anticipated that lower borrowing costs would stimulate the economy later this year. Mortgage-backed securities performed well as long-term rates edged higher and prepayment activity receded. Corporate bonds, including high-yield issues, fared best as investors sought securities with attractive yields in a falling interest rate environment. Thanks to broad gains across the bond market, the Lehman Brothers U.S. Aggregate Index returned 3.62% in the first half of 2001. International equities declined in the last six months, and returns were made worse by the U.S. dollar's strength against other currencies. Asian markets were dragged lower by Japan's economic sluggishness and continuing global weakness in the technology sector. European markets fared worst, hurt by slowing economies, a weakening euro, and an ineffective monetary response by the European Central Bank. As a result, the MSCI EAFE Index, a broad measure of foreign market performance, dropped 14.75% since the end of last year. ASSET ALLOCATION STRATEGY Our 49% domestic stock allocation was unchanged in the last six months, as shown in the pie chart, but we did make slight changes to other areas. We took advantage of foreign market weakness and increased our international equity allocation from 13% to 14% of assets. This brought our total stock allocation to 63%--slightly higher than the neutral posture of 60%. The following table was depicted as a pie graph in the printed material. SECURITY DIVERSIFICATION ------------------------ Domestic Stocks 49% Corporate Bonds 22% International Stocks 14% Treasury and Agency Bonds 7% Mortgage Backed Securities 7% Reserves 1% Based on net assets as of 6/30/01. In the fixed-income portfolio, we raised our mortgage allocation to 7% from 6% and boosted corporate bond exposure to 22% from 19%, primarily by purchasing high-yield issues. High-yield bond performance is closely tied to the economy's strength; as growth improves, these securities should perform well. To fund these purchases, we reduced our exposure to Treasury and agency bonds--which are very sensitive to interest rate movements--from 12% to 7% in the last six months. This reflects our belief that Treasury yields will probably not fall much more and that other fixed-income securities will perform better. PORTFOLIO REVIEW Domestic Stocks --------------- In the U.S. stock market, technology stocks continued to implode as various companies contended with overcapacity and reduced technology spending throughout the economy. High debt burdens exacerbated their problems, and warnings that corporate earnings and revenues would fall below already-low expectations were commonplace. Two of our worst performers in this area were data-storage provider EMC and software developer ORACLE. However, two tech giants bucked the negative trend and rose strongly: IBM, whose transition to a service-oriented company has thus far been well received by customers and investors, and MICROSOFT, which was boosted in part by an important legal victory in its antitrust fight with the U.S. government. In late June, a federal appeals court overturned the ruling that would have forced the company to split apart. During the last six months, we added DST SYSTEMS--a developer of software systems for the financial industry--to the portfolio. We also purchased shares of several contract manufacturers of electronics products, including SCI SYSTEMS. Although SCI was a relatively small investment, it proved to be timely: the company received a takeover offer from SANMINA after the reporting period. Shares of financial services companies--the largest domestic equity sector in the portfolio--performed slightly better than the overall market in the last six months. BANK OF AMERICA was one of our best holdings in this area. The stock rose 30%, driven by an improvement in profit margins in the company's lending operations. In contrast, MORGAN STANLEY DEAN WITTER and other brokerage stocks were hurt by weak equity markets and reduced underwriting activity and investor trading. During the period, we eliminated H&R Block, which had been performing well, and added insurance broker and asset manager MARSH & McLennan to the portfolio. The health care sector fared worst in the last six months. Pharmaceutical stocks were hammered over fears that increased regulations would accompany a Medicare prescription drug benefit. Company-specific issues at PHARMACIA and MERCK added to the negative sentiment. We took advantage of the group's weakness and increased our weighting in JOHNSON & JOHNSON, a well-diversified health care company with an attractive valuation. Foreign stocks -------------- Mirroring their U.S. counterparts, technology and telecommunications stocks in Europe performed poorly. LM ERICSSON, the Swedish telecom equipment supplier, fell sharply amid intense competition in the handset market. One of our new holdings, NOKIA, directly competes with Ericsson and has been the clear technological leader. The U.K. market held up better than euro zone markets because of rel-ative strength in value stocks. In addition, the British pound did not weaken as much as the euro. During the last six months, we increased our position in pharmaceutical giant GLAXOSMITHKLINE and added BANK OF SCOTLAND to the portfolio. In Japan, stocks were volatile but returns were flat for the six-month period. However, the yen's decline versus the dollar produced negative results for U.S. investors. Economic growth remained disappointing, but the new prime minister, Junichiro Koizumi, has generated enthusiasm for much-needed economic reforms. One bright spot was CANON, which produces office automation and photographic equipment and, as an exporter, benefits from a weaker yen. Latin America was the top-performing region; our holdings there produced solid double-digit gains. One of our best and largest positions was Mexican telephone company TELMEX. We increased our Latin American exposure in the last six months by adding retailer WAL-MART DE MEXICO and cement producer CEMEX to the fund. Domestic bonds -------------- Our relatively strong bond holdings helped offset negative returns from equities thus far in 2001. Heavy exposure to corporate bonds, which outperformed other fixed-income sectors, was especially helpful. However, our long duration hurt the bond portfolio's performance because longer-term rates rose in the last six months. (Duration is a measure of interest rate sensitivity.) BOND PORTFOLIO PROFILE ---------------------- Weighted Average Effective Duration (years) 5.90 ........................................................... Weighted Average Maturity (years) 10.24 ........................................................... Weighted Average Quality * AA- ........................................................... * Based on T. Rowe Price research. The high-yield sector rallied sharply in January but struggled for the rest of the period amid continued weakness in the economy, particularly the telecom sector--a major source of high-yield issuance. Our allocation to high-yield securities is focused on the higher credit quality tiers of the high-yield market, which fared better than lower-quality credits and made a solid contribution to fund performance in the last six months. OUTLOOK The economy remains weak but will probably avoid a deep recession, thanks to a recently enacted tax cut and the Federal Reserve's rapid response to the most challenging economic conditions in a decade. Consumers have remained remarkably resilient, but businesses have almost universally trimmed their budgets. Excess inventories are being depleted, but it could take some time for demand to pick up from depressed levels. Until meaningful signs of an economic recovery appear, most bonds are likely to perform well. Stronger economic and corporate earnings growth--possibly later this year but more likely in 2002--will be beneficial to domestic equities. Likewise, foreign markets should perform better when global economies begin to improve. Volatility in the bond and stock markets will continue to manifest itself in the form of occasional rallies and unexpected downdrafts, especially when surprising economic data and corporate earnings reports become available. We believe broad diversification--as offered by the Balanced Fund--can help investors weather these fluctuations and stay focused on their long-term financial goals. Respectfully submitted, /s/ Richard T. Whitney Chairman of the fund's Investment Advisory Committee July 31, 2001 The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the fund's investment program. T. Rowe Price Balanced Fund - -------------------------------------------------------------------------------- PORTFOLIO HIGHLIGHTS LARGEST HOLDINGS Percent of Net Assets Stocks 6/30/01 - -------------------------------------------------- GE 2.1% Pfizer 1.4 Exxon Mobil 1.4 Citigroup 1.3 American International Group 0.9 SBC Communications 0.9 Verizon Communications 0.8 Wal-Mart 0.8 Intel 0.7 GlaxoSmithKline 0.7 .................................................. Total 11.0% Percent of Net Assets Bonds 6/30/01 - -------------------------------------------------- U.S. Treasury 7.0% Ginnie Mae 3.3 Fannie Mae 2.9 Federal Home Loans 1.0 LBS UBS Commercial Mtg Trust 0.4 Time Warner 0.4 Comcast Cable 0.4 Province of Manitoba 0.3 Sears Credit Account Master Trust 0.3 JP Morgan Chase Comm Mtg 0.3 .................................................. Total 16.3% Note: Table excludes reserves 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 benchmarks, which may include a broad-based market index and a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes. The following table was depicted as a line graph in the printed material. Merrill Lynch-Wilshire Combined Capital Market Index Index Portfolio Balanced Fund -------------------- --------------- ------------- 6/30/91 10000 10000 10000 6/30/92 11415 11245 11296 6/30/93 13032 12795 12849 6/30/94 13055 13039 13121 6/30/95 15536 15395 15415 6/30/96 18134 17868 17796 6/30/97 21954 21716 21497 6/30/98 26893 26017 25454 6/30/99 30751 29597 28194 6/30/00 33236 31798 29894 6/30/01 30416 29953 29285 AVERAGE ANNUAL COMPOUND TOTAL RETURN - ------------------------------------ This table shows how the fund would have performed each year if its actual (or cumulative) returns for the periods shown had been earned at a constant rate. Periods Ended 6/30/01 1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------- Balanced Fund -2.03% 4.78% 10.48% 11.34% ............................................................................... Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. T. Rowe Price Balanced Fund - -------------------------------------------------------------------------------- Unaudited For a share outstanding throughout each period FINANCIAL HIGHLIGHTS - -------------------- 6 Months Year Ended Ended 6/30/01 12/31/00 12/31/99 12/31/98 12/31/97 12/31/96 NET ASSET VALUE Beginning of period $ 19.17 $ 19.69 $ 18.59 $16.54 $14.48 $13.22 ................................................................................ Investment activities Net investment income (loss) 0.26 0.54 0.53 0.53 0.53 0.51 Net realized and unrealized gain (loss) (0.77) (0.13) 1.34 2.08 2.18 1.38 ................................................................................ Total from investment activities (0.51) 0.41 1.87 2.61 2.71 1.89 ................................................................................ Distributions Net investment income (0.27) (0.53) (0.54) (0.52) (0.53) (0.50) Net realized gain (0.38) (0.40) (0.23) (0.04) (0.12) (0.13) ................................................................................ Total distributions (0.65) (0.93) (0.77) (0.56) (0.65) (0.63) ................................................................................ NET ASSET VALUE End of period $ 18.01 $ 19.17 $ 19.69 $18.59 $16.54 $14.48 ................................................................................ RATIOS/SUPPLEMENTAL DATA Total return** (2.58)% 2.09% 10.26% 15.97% 18.97% 14.57% ................................................................................ Ratio of total expenses to average net assets 0.86%+ 0.79% 0.79% 0.78% 0.81% 0.87% ................................................................................ Ratio of net investment income (loss) to average net assets 2.88%+ 2.75% 2.80% 3.04% 3.36% 3.70% ................................................................................ Portfolio turnover rate 37.3%+ 16.5% 20.7% 12.5% 15.5% 22.3% Net assets, end of period (in millions) $ 1,801 $ 1,896 $ 2,091 $ 1,650 $ 1,219 $ 876 ................................................................................ ** Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions. + Annualized The accompanying notes are an integral part of these financial statements. T. Rowe Price Balanced Fund - -------------------------------------------------------------------------------- Unaudited June 30, 2001 PORTFOLIO OF INVESTMENTS Shares/Par Value In thousands COMMON STOCKS 62.5% FINANCIAL 11.7% Bank and Trust 5.3% Abbey National (GBP) 124,000 $ 2,174 ABN AMRO Holding (EUR) 35,196 662 Allianz (EUR) 5,955 1,740 Allied Irish Banks (EUR) 63,659 734 Australia & New Zealand Banking Group (AUD) 67,700 584 Australia & New Zealand Banking Group ADR 21,500 915 Banco de Bilbao Vizcaya Argentaria ADRss. 189,400 2,447 Banco Santiago ADR 47,800 1,090 Bank of America 191,637 11,504 Bank of New York 100,000 4,800 Bank One 143,397 5,134 Barclays (GBP) 101,278 3,109 Bayerische Hypo-und Vereinsbank (EUR) 16,747 829 BBVA Banco Frances ADR 19,100 474 BNP Paribas (EUR) 20,788 1,811 Commonwealth Bank of Australia (AUD) 91,583 1,595 Deutsche Bank (EUR) 26,844 1,925 First Union 151,919 5,308 FleetBoston Financial 77,341 3,051 Intesa BCI (EUR) 468,998 1,657 J.P. Morgan Chase 205,120 9,148 KBC Bankerzekeringsholding (EUR) 29,761 1,059 Mediobanca (EUR) 125,100 1,338 Mellon Financial 155,000 7,130 Overseas Chinese Banking (SGD) 238,810 1,560 Royal Bank of Scotland Group (GBP) 93,647 2,067 Societe Generale (EUR) 47,160 2,796 State Street 50,000 2,474 Sumitomo Mitsui Bank (JPY) 188,000 1,553 Svenska Handelsbanken (SEK) 58,607 838 U.S. Bancorp 163,124 3,718 UniCredito Italiano (EUR) 256,118 $ 1,100 Wells Fargo 180,000 8,357 Yasuda Trust & Banking (JPY) * 875,000 667 95,348 Insurance 2.3% American General 96,000 4,459 American International Group 190,734 16,403 Istituto Nazionale delle Assicurazioni (EUR) * 194,486 396 Marsh & McLennan 50,000 5,050 MGIC Investment 23,200 1,685 St. Paul Companies 86,000 4,359 Sumitomo Marine & Fire Insurance (JPY) 115,000 643 Swiss Re (CHF) 724 1,448 Torchmark 78,600 3,160 UNUMProvident 100,000 3,212 40,815 Financial Services 4.1% AMBAC 33,300 1,938 American Express 157,800 6,123 AXA (EUR) 82,400 2,350 Citigroup 452,738 23,923 Countrywide Credit 63,925 2,933 Credit Lyonnais (EUR) 24,392 881 Fannie Mae 78,000 6,642 Freddie Mac 48,600 3,402 Goldman Sachs 25,000 2,145 Household International 72,000 4,802 HSBC Holdings (GBP) 283,372 3,362 ING Groep (EUR) 53,989 3,532 Morgan Stanley Dean Witter 139,600 8,966 Pearson (GBP) 117,374 1,937 Per Se Technologies *ss. 4,866 40 Prudential (GBP) 71,871 871 Waddell & Reed Financial (Class A)ss. 35,581 1,130 74,977 Total Financial 211,140 UTILITIES 5.4% Telephone 3.4% ALLTEL 80,000 $ 4,901 BellSouth 204,000 8,215 British Telecommunications ADR 1,600 103 SBC Communications 386,740 15,493 Sprintss. 101,800 2,174 Sprint PCS * 100,900 2,437 Swisscom (CHF) 1,610 384 Telebras ADR 17,200 804 Telecom Italia (EUR) 118,110 1,061 Telecom Italia Mobile (EUR) 213,882 1,091 Telefonica ADR 32,168 1,198 Telefonos de Mexico (Telmex) (Class L) ADR 45,800 1,607 Telekom Malaysia (MYR) 200 0 Verizon Communications 257,436 13,773 Vodafone ADRss. 164,200 3,670 WorldCom-WorldCom Group * 245,637 3,488 60,399 Electric Utilities 1.9% Duke Energy 140,230 5,470 E.On (EUR) 26,873 1,411 Edison Internationalss. 104,000 1,160 Electrobras 68,000 400 Endesa ADR 48,800 775 Entergy 73,000 2,803 Exelon, (144a) 126,025 8,081 FirstEnergy 75,000 2,412 FPL Group 25,600 1,541 GPU 75,000 2,636 Hong Kong Electric Holdings (HKD) 208,071 800 Iberdrola (EUR) 101,047 1,297 Niagara Mohawk * 102,500 1,813 Scottish & Southern Energy (GBP) 174,979 1,651 Sony (JPY) 25,600 1,683 33,933 Water Utilities 0.1% Suez Lyonnaise des Eaux (EUR) 69,402 $ 2,235 2,235 Total Utilities 96,567 CONSUMER NONDURABLES 10.8% Cosmetics 0.4% Gillette 45,174 1,309 International Flavors & Fragrances 11,700 294 Kao (JPY) 163,000 4,052 L'Oreal (EUR) 22,511 1,455 Revlon (Class A) *ss. 1,800 13 7,123 Beverages 1.0% Allied Domecq (GBP) 122,657 766 Anheuser-Busch 88,000 3,625 Coca-Cola 92,600 4,167 Diageo ADR 43 2 Femsa UBD Units (MXN) 193,300 822 PepsiCo 204,000 9,017 18,399 Food Processing 0.8% Cadbury Schweppes ADRss. 63,172 1,718 Carrefour (EUR) 20,999 1,112 Corn Products International 8,225 263 Earthgrainsss. 5,120 133 G.I.B. Group (EUR) 10,778 436 General Mills 65,000 2,846 McCormick 10,300 433 Nestle (CHF) 8,602 1,829 PepsiAmericas 1,100 15 Quaker Oats 30,000 2,737 Ralston Purina 69,612 2,090 Sensient Technologies 14,200 291 Unilever 22,285 1,328 15,231 Hospital Supplies/Hospital Management 1.3% Abbott Laboratories 127,200 $ 6,107 Baxter 100,000 4,900 Becton, Dickinson 60,000 2,147 Guidant * 42,400 1,526 Health Management (Class A) * 81,252 1,710 Medtronic 126,000 5,797 Millipore 900 56 Pall 8,533 201 Terumo (JPY) 42,500 780 23,224 Pharmaceuticals 5.6% American Home Products 153,200 8,953 Amgen * 51,000 3,095 AstraZeneca Group (GBP) 25,905 1,209 Bristol-Myers Squibb 138,800 7,259 Eli Lilly 100,000 7,400 GlaxoSmithKliness. 216,922 12,191 Johnson & Johnson 153,800 7,690 Merck 175,800 11,235 Novartis (CHF) 111,960 4,054 Pfizer 649,950 26,030 Pharmacia 187,500 8,616 Shire Pharmaceuticals Group (GBP) * 37,242 679 Takeda Chemical Industries (JPY) 33,000 1,535 99,946 Biotechnology 0.0% Covance * 7,500 170 Edwards Lifesciences *ss. 10,000 264 434 Health Care Services 0.5% Aetna * 52,695 1,363 Altana (EUR) 43,200 1,673 Gentiva Health Services * 1,029 19 Synavant * 1,410 10 UnitedHealth 88,200 5,446 8,511 Miscellaneous Consumer Products 1.2% Arctic Cat 2,550 $ 37 Burlington Industries * 17,700 41 Colgate-Palmolive 60,400 3,563 Fortune Brands 40,000 1,534 J. Sainsbury (GBP) 283,223 1,768 Nintendo (JPY) 4,300 783 Pactiv * 200 3 Philip Morris 10,800 548 Philips Electronics ADR 115,271 3,046 Pioneer Electronic (JPY) 64,000 1,945 Procter & Gamble 123,800 7,898 UST 2,000 58 Wacoal (JPY) 72,000 771 21,995 Total Consumer Nondurables 194,863 CONSUMER SERVICES 6.4% Restaurants 0.2% Applebee's 15,900 509 Darden Restaurants 6,300 176 McDonald's 140,000 3,788 4,473 General Merchandisers 2.1% Costco Wholesale * 106,800 4,387 J.C. Penney 44,000 1,160 May Department Stores 77,100 2,642 Pinault Printemps Redoute (EUR) 10,000 1,449 Sears 40,000 1,693 Target 244,400 8,456 Tesco (GBP) 622,048 2,247 TJX 46,000 1,466 Wal-Mart 280,000 13,664 Wal-Mart de Mexico (MXN) + 340,200 924 38,088 Specialty Merchandisers 1.4% Adidas-Salomon (EUR) 5,988 $ 367 Callaway Golf 13,000 205 Christian Dior (EUR) 32,587 1,174 Circuit City Stores 171,800 3,092 CVS 50,000 1,930 Gap 107,300 3,112 Gymboree *ss. 8,400 71 Heilig-Meyers * 4,500 0 Home Depot 90,300 4,204 Kroger 200,000 5,000 Office Depot * 48,000 498 Payless Shoesource * 192 13 Petrie Stores Liquidation Trust 33,500 30 Safeway * 55,200 2,650 Staples * 53,155 850 Toys "R" Us * 64,380 1,593 24,789 Entertainment and Leisure 0.6% Brinker * 13,162 340 Disney 225,417 6,512 Hilton 2,300 27 Hutchison Whampoa (HKD) 237,000 2,393 Park Place Entertainment * 2,300 28 Reader's Digest (Class A) 35,000 1,006 10,306 Media and Communications 2.0% America Movil ADR 45,800 955 AOL Time Warner * 184,050 9,755 AT&T Canada, (144a) * 1,714 46 Beloss. 13,600 256 Clear Channel Communications * 20,000 1,254 Comcast (Class A Special) * 120,000 5,208 Cox Communications (Class A) * 50,000 2,215 Dun & Bradstreet * 7,050 199 Gannett 27,600 1,819 Gaylord Entertainment *ss. 3,528 102 McGraw-Hill 64,400 4,260 Mediaset (EUR) 98,995 $ 834 News Corporation ADR 31,000 1,152 NTL *ss. 18,747 226 Tribune 40,000 1,600 Viacom (Class A) * 9,000 477 Viacom (Class B) * 99,595 5,154 35,512 Printing and Publishing 0.1% Reed International (GBP) 299,230 2,655 2,655 Total Consumer Services 115,823 CONSUMER CYCLICALS 2.9% Automobiles and Related 1.6% Autolivss. 21,653 374 Danass. 1,300 30 Delphi Automotive Systems 59,968 955 Ford Motor 200,043 4,911 Genuine Parts 81,975 2,582 GM 85,800 5,521 Honda Motor ADR 30,100 2,649 ITT Industries 100,000 4,425 MIDAS 183 2 NSK (JPY) 88,000 380 Pep Boys 7,100 80 Superior Industries International 8,000 307 Textron 62,000 3,413 TRW 30,000 1,230 Visteon 14,982 276 Volkswagen (EUR) 37,063 1,743 28,878 Building and Real Estate 0.6% Cemex Participating Certificates (MXN) 178,700 951 Cheung Kong (HKD) 128,000 1,395 Interstate Hotels * 5,000 14 ProLogis Trust, REIT 288,450 6,554 RMC (GBP) 116,847 $ 1,127 Wyndham International (Class A) * 150,001 375 10,416 Miscellaneous Consumer Durables 0.7% B.F. Goodrich 16,744 636 Black & Decker 36,000 1,421 Eastman Kodak 22,600 1,055 Imation * 1,800 45 Masco 99,800 2,491 Radio Shack 80,000 2,440 Ricoh (JPY) 100,000 2,157 Scotts (Class A) * 10,000 414 Valsparss. 36,200 1,285 York International 2,600 91 12,035 Total Consumer Cyclicals 51,329 TECHNOLOGY 7.2% Electronic Components 2.7% Altera * 152,000 4,408 Analog Devices * 133,600 5,778 EMC * 137,200 3,986 Epcos (EUR) 17,140 934 Intel 456,000 13,338 Jabil Circuit *ss. 35,800 1,105 Kyocera (JPY) 12,000 1,058 Linear Technology 103,200 4,564 Maxim Integrated Products * 100,000 4,421 Molexss. 19,071 697 Motorola 120,000 1,987 Sanmina * 25,900 606 Texas Instruments 100,000 3,150 Thermo Electron * 18,452 406 Vicor * 12,000 196 Xilinx * 50,400 2,079 48,713 Electronic Systems 0.9% Agilent Technologies * 48,933 $ 1,590 Applied Materials * 80,000 3,928 Dell Computer * 9,600 251 Hewlett-Packard 176,600 5,051 KLA-Tencor * 60,000 3,508 MIPS Technologies * 2,037 26 Solectron * 68,400 1,252 15,606 Information Processing 1.0% Adaptec * 14,000 139 Adecco 1,460 17 COMPAQ Computer 254,000 3,935 Hitachi ADR 20,800 2,059 IBM 96,800 10,938 SCI Systems * 43,800 1,117 Storage Technology * 10,000 138 18,343 Specialized Computer 0.2% Sun Microsystems * 168,400 2,647 2,647 Telecommunications 1.3% Alcatel (EUR) 60,478 1,266 AT&T Wireless * 352,489 5,763 Avaya * 11,436 157 Cisco Systems * 140,000 2,548 Corning 90,000 1,504 Deutsche Telekom (EUR) 69,891 1,594 Draka Holdings (EUR) 8,919 451 France Telecom ADR 27,800 1,343 Kingston Commerce Hull (GBP) * 177,388 296 LM Ericsson (Class B) ADR 445,100 2,412 Lucent Technologies 137,239 851 McDATA * 5,049 89 Nokia ADR 93,000 2,050 Nortel Networks 17,224 $ 157 NTT DoCoMo (JPY) 81 1,409 PictureTel * 8,800 49 Qwest Communications 35,530 1,132 Singapore Telecommunications (SGD) 377,000 393 Tele Norte Leste Participacoes ADRss. 41 1 Telstra (AUD) 151,570 416 23,881 Aerospace and Defense 1.1% Boeing 86,000 4,782 Honeywell 159,500 5,581 Lockheed Martin 85,811 3,179 Northrop Grumman 30,000 2,403 Raytheon 2,642 70 Trinity Industriesss. 300 6 United Technologies 48,400 3,546 19,567 Total Technology 128,757 CAPITAL EQUIPMENT 4.0% Electrical Equipment 3.2% ABB (CHF) 58,884 892 American Power Conversion * 20,600 324 Canon (JPY) 54,000 2,182 Emerson Electric 56,200 3,400 GE 766,500 37,367 Hubbell (Class A) 8,000 224 Hubbell (Class B) 80,252 2,327 Matsushita Electric Industrial (JPY) 128,000 2,004 Mitsubishi Electric (JPY) 301,000 1,492 Tyco 125,964 6,865 57,077 Machinery 0.8% Alstom (EUR) 33,414 930 Caterpillar 50,000 2,502 Cooper Industries 600 $ 24 Danaher 65,600 3,674 Deere 118,000 4,466 FMC * 42,000 2,879 Foster Wheelerss. 4,600 42 Ingersoll-Rand 1,500 62 Kennametal 11,400 421 Stewart & Stevenson 6,300 208 Teleflex 10,000 440 15,648 Total Capital Equipment 72,725 BUSINESS SERVICES AND TRANSPORTATION 4.5% Computer Service and Software 2.9% Automatic Data Processing 70,000 3,479 BMC Software * 80,000 1,803 Computer Associates 112,587 4,053 DST Systems * 50,000 2,635 Eidos (GBP) * 166,890 581 Electronic Arts * 15,000 869 Electronic Data Systems 44,223 2,764 First Data 80,000 5,140 Intuit * 150,000 5,998 Microsoft * 150,000 10,950 NCR * 6,718 316 Novell * 45,600 259 Oracle * 452,000 8,588 Parametric Technology * 262,000 3,665 Roxio * 2,304 30 SmartForce ADR *ss. 29,400 1,036 Sybase * 7,000 115 Zixit *ss. 3,625 33 52,314 Distribution Services 0.3% Cardinal Health 86,908 $ 5,997 5,997 Environmental 0.1% Allied Waste Industries * 63,000 1,177 1,177 Transportation Services 0.1% Landstar Systems * 40,000 2,721 2,721 Miscellaneous Business Services 0.7% Corio (EUR) 15,627 343 Equifaxss. 17,800 653 General Semiconductor *ss. 350 4 GTECH * 4,500 160 Manpower 12,200 365 Moody's 14,100 472 Omnicom 26,800 2,305 Paychex 94,540 3,781 Sabre Group * 28,906 1,445 Waste Management 78,395 2,416 11,944 Airlines 0.2% AMR * 40,000 1,445 Singapore Airlines (SGD) 91,000 629 UAL 30,000 1,055 3,129 Railroads 0.2% Burlington Northern Santa Fe 75,300 2,272 Norfolk Southern 63,200 1,308 Union Pacific 14,000 769 4,349 Total Business Services and Transportation 81,631 ENERGY 5.0% Energy Services 0.6% BJ Services * 88,400 2,509 Friede Goldman International * 88 0 Halliburton 52,742 $ 1,878 Helmerich & Payne 40,000 1,233 Johnson Electric Holdings (HKD) 488,800 667 Kansai Electric Power (JPY) 77,100 1,307 Schlumberger 45,200 2,380 Transocean Sedco Forex 11,654 481 10,455 Exploration and Production 0.1% Anadarko Petroleum 8,994 486 EEX *ss. 7,147 19 Santos (AUD) 107,783 357 Ultramar Diamond Shamrock 9,100 430 1,292 Gas & Gas Transmission 0.1% El Paso 47,766 2,510 Tenneco Automotive 40 0 2,510 Integrated Petroleum - Domestic 1.1% Amerada Hess 137,700 11,126 Conoco (Class B) 73,705 2,130 Phillips Petroleumss. 48,300 2,753 USX-Marathon 140,000 4,131 20,140 Integrated Petroleum - International 3.1% BP 223,202 11,127 Chevron 41,400 3,747 ENI SPA ADRss. 20,900 1,290 Exxon Mobil 284,963 24,892 Petroleo Brasileiro (Petrobras) ADR 40,100 938 Repsol ADRss. 22,600 376 Royal Dutch Petroleum ADR 79,500 4,632 Shell Transport & Trading ADRss. 72,700 3,660 Texaco 40,727 2,712 TotalFinaElf (EUR) 13,148 1,843 TotalFinaElf ADR 7,100 498 55,715 Total Energy 90,112 PROCESS INDUSTRIES 1.8% Diversified Chemicals 0.5% Dow Chemical 100,000 $ 3,325 DuPont 112,315 5,418 Hercules 1,800 20 8,763 Specialty Chemicals 0.8% 3M 18,600 2,122 A. Schulman 26,325 356 BASF (EUR) 39,765 1,570 Great Lakes Chemicalss. 25,000 771 Hoechst (EUR) 14,035 660 Mitsubishi (JPY) 227,000 1,829 Norsk Hydro (NOK) 26,591 1,127 Octel * 6,250 102 Rohm & Haas 107,417 3,534 Sumitomo Chemicals (JPY) 180,000 813 Technip (EUR) 15,000 1,926 14,810 Paper and Paper Products 0.3% International Paper 46,000 1,642 Kimberly-Clark 34,400 1,923 Kimberly-Clark de Mexico (Class A) (MXN) 290,000 859 Mead 30,000 814 Sonoco Products 13,975 348 5,586 Forest Products 0.2% Georgia-Pacific 61,135 2,070 Georgia-Pacific (Timber Group) 19,000 679 Weyerhaeuser 12,700 698 3,447 Building & Construction 0.0% Del Webb * 100 4 4 Total Process Industries 32,610 BASIC MATERIALS 1.1% Metals 0.9% Alcoa 150,560 $ 5,932 Anglo American Platinum (ZAR) 85,000 3,790 Inco * 200,000 3,452 Nucor 52,000 2,543 Pechiney (EUR) 13,943 709 16,426 Mining 0.2% Newmont Mining 60,000 1,117 Rio Tinto (AUD) 69,722 1,214 Union Miniere (EUR) 12,462 495 2,826 Miscellaneous Materials 0.0% Crown Cork & Seal 1,400 5 Malayan Cement (MYR) 200 0 5 Total Basic Materials 19,257 MISCELLANEOUS 0.0% Miscellaneous 0.0% Safelite Glass (Class A), Warrants * 7,906 0 Safelite Glass (Class B), Warrants * 5,270 0 Safelite Glass Class B * 3,226 0 Safelite Reality * 218 0 TravelCenters of America 3,000 30 WorldCom-MCI Group * 9,825 158 Total Miscellaneous 188 FOREIGN 1.7% Europe 0.8% Aventis (EUR) 29,792 2,381 Bank of Scotland (GBP) 317,455 3,590 Cookson Group (GBP) 620,324 $ 1,123 Credit Suisse Group (CHF) * 10,441 1,717 CSM (EUR) 19,644 410 DBV- Winterthur Holding (EUR) 13,714 500 Deutz (EUR) * 80,501 186 EMAP (GBP) 76,405 753 EMI (GBP) 126,130 714 Enterprise Oil (GBP) 78,513 655 Nordic Baltic Holding (SEK) 154,042 885 Prosegur Seguridad (EUR) 28,630 370 Publicis Groupe (EUR) 30,010 727 Sandvik (SEK) 29,763 599 Svenska Cellulosa (SEK) 20,546 436 15,046 Far East 0.6% Citizen Watch (JPY) 98,000 597 Fujikura (JPY) 249,000 1,517 Mizuho Holdings (JPY) 487 2,265 Nippon Yusen (JPY) 132,000 523 Nissan Motor (JPY) 230,000 1,588 Singapore Press (SGD) 45,000 494 Sumitomo Trust and Banking (JPY) 119,000 749 Takashimaya (JPY) 85,000 593 Teijin (JPY) 253,000 1,422 Yakult Honsha (JPY) 77,000 831 10,579 Other Foreign 0.3% Companhia Vale do Rio Doce ADR 26,900 624 Siemens (EUR) 25,979 1,596 Unibanco GDR 49,800 1,267 Woolworths (AUD) 135,000 758 4,245 Total Foreign 29,870 Total Common Stocks (Cost $711,572) 1,124,872 Preferred Stocks 0.1% CSC Holdings (Series M), 11.125% 17,801 $ 1,900 TNP Enterprises (Series D), 14.50% * 600 654 Total Preferred Stocks (Cost $2,628) 2,554 Convertible Preferred Stocks 0.3% Nextel Communications (Series E), 11.125% * 513 308 Reckson Associates Realty (Series A), REIT, 7.625% 200,000 4,700 Total Convertible Preferred Stocks (Cost $5,444) 5,008 Corporate Bonds 21.6% Abbey National First Capital, Sub. Notes 8.20%, 10/15/04 $ 1,205,000 1,287 Adelphia Communications, Sr. Notes, 9.375%, 11/15/09 1,000,000 956 Adelphia Communications, Sr. Notes, 10.875%, 10/1/10 125,000 127 AES, Sr. Notes, 8.50%, 11/1/07 500,000 475 AES, Sr. Sub. Notes, 10.25%, 7/15/06 500,000 502 AFC Enterprises, Sr. Sub. Notes, 10.25%, 5/15/07 500,000 520 African Development Bank, Sub. Notes, 7.75%,12/15/01 1,000,000 1,014 AGCO, Sr. Notes, (144a), 9.50%, 5/1/08 600,000 582 Agrosy Gaming, Sr. Sub. Notes, 10.75%, 6/1/09 500,000 538 AIG SunAmerica Global Financing, Sr. Notes, (144a) 7.60%, 6/15/05 2,600,000 2,772 Air Canada, Sr. Notes, (144a), 10.25%, 3/15/11 625,000 572 Alaska Communications Systems Group, Sr. Sub. Notes 9.375%, 5/15/09 1,100,000 902 Alaska Steel, Sr. Notes, 9.125%, 12/15/06 750,000 774 Alcoa, Sr. Notes, 7.375%, 8/1/10 1,200,000 1,263 Allegiance Telecom, Sr. Notes, Zero Coupon, 2/15/08 600,000 342 Alliance Imaging, Sr. Sub. Notes, (144a) 10.375%, 4/15/11 400,000 408 Alliant Techsystems, Sr. Sub. Notes, (144a) 8.50%, 5/15/11 750,000 757 Allied Holdings, Sr. Notes, 8.625%, 10/1/07 500,000 335 AMERCO, Sr. Notes, 7.85%, 5/15/03 1,000,000 987 American Builders & Contractors Supply,Sr.Sub.Notes 10.625%, 5/15/07 500,000 460 American Cellular, Sr. Sub. Notes, (144a) 9.50%, 10/15/09 1,000,000 930 American Electric Power, Sr. Notes, 6.125%, 5/15/06 $ 1,335,000 $ 1,318 American Standard, Sr. Notes, 7.625%, 2/15/10 500,000 494 Amerigas, Sr. Notes, (144a), 10.00%, 4/15/06 1,000,000 1,010 Ameristar Casinos, Sr. Sub. Notes, (144a) 10.75%, 2/15/09 1,000,000 1,045 Amkor Technology, Sr. Notes, (144a), 9.25%, 2/15/08 750,000 705 Anheuser-Busch, 5.75%, 4/1/10 5,000,000 4,816 Anteon, Sr. Sub. Notes, 12.00%, 5/15/09 250,000 243 Anvil Knitwear, Sr. Notes, 10.875%, 3/15/07 350,000 333 AOL Time Warner, Sr. Notes, 7.625%, 4/15/31 1,625,000 1,625 Applied Extrusion Technologies, Sr. Notes, (144a) 10.75%, 7/1/11 650,000 660 Arvin Industries, 7.125%, 3/15/09 150,000 133 Asat Finance, Sr. Notes, 12.50%, 11/1/06 390,000 367 Associated Materials, Sr. Sub. Notes, 9.25%, 3/1/08 1,250,000 1,225 Associates, Sr. Notes, 7.50%, 4/15/02 1,300,000 1,331 AT&T, Sr. Notes, 6.50%, 3/15/29 4,000,000 3,400 Atlantic Richfield, Sr. Notes, 8.50%, 4/1/12 4,000,000 4,637 Atlas Air, 7.63%, 1/2/15 3,136,859 3,137 Avis Group, Sr. Sub. Notes, 11.00%, 5/1/09 750,000 836 Ball, Sr. Notes, 7.75%, 8/1/06 500,000 510 Bally Total Fitness, Sr. Sub. Notes, 9.875%,10/15/07 500,000 494 Banesto, Sub. Notes, 8.25%, 7/28/02 2,000,000 2,062 Bank Hawaii, 6.875%, 3/1/09 500,000 465 BankAmerica, Sub. Notes, 6.625%, 8/1/07 3,000,000 3,067 BankUnited Capital Trust, Sr. Sub. Notes 10.25%, 12/31/26 1,000,000 890 BB & T, 6.375%, 6/30/05 3,000,000 3,017 BCH Cayman Islands, Sub. Notes, 7.50%, 6/15/05 1,000,000 1,039 BHP Finance, Gtd. Notes, 6.69%, 3/1/06 2,000,000 2,044 Boeing, 8.75%, 8/15/21 2,000,000 2,396 Briggs & Stratton, Sr. Notes,(144a), 8.875%, 3/15/11 500,000 498 British Telecommunications Sr. Notes, Zero Coupon, 12/15/10ss. 1,110,000 1,173 Burlington Northern Santa Fe, Sr. Notes 7.00%, 12/15/25 2,000,000 1,875 Burlington Northern Santa Fe, PTC, 7.33%, 6/23/10 731,409 763 BWAY, Sr. Sub. Notes, 10.25%, 4/15/07 750,000 712 Capital One Financial, Sr. Notes, 8.25%, 6/15/05 2,500,000 2,588 Century Telephone Enterprises, Sr. Notes 8.25%, 5/1/24 500,000 472 CenturyTel, Sr. Notes, 8.375%, 10/15/10 2,500,000 2,601 Charter Communications, Sr. Notes, (144a) 10.00%, 5/15/11 $ 800,000 $ 812 Charter Communications, Sr. Notes, 11.125%, 1/15/11 1,250,000 1,319 Chase Manahattan Auto Owner Trust, 5.85%, 5/15/03 2,921,556 2,949 Chemical Master Credit Card Trust I, 6.23%, 4/15/05 110,000 112 Cinemark USA, Sr. Sub. Notes, 8.50%, 8/1/08 300,000 246 Citibank Credit Card Issuance Trust, 6.90%, 10/17/07 3,000,000 3,121 Citigroup, Sr. Sub. Notes, 7.25%, 10/1/10 2,600,000 2,699 CMS Energy, Sr. Notes, 9.875%, 10/15/07 650,000 681 Coca Cola Bottling, 7.20%, 7/1/09 5,000,000 5,024 Coinmach, Sr. Notes, 11.75%, 11/15/05 500,000 515 Colt Telecom, Sr. Disc. Notes, STEP, 0%, 12/15/06 750,000 675 Comcast Cable Communications, 8.125%, 5/1/04 1,500,000 1,584 Comcast Cable Communications, 8.375%, 5/1/07 4,500,000 4,926 Comstock Resources, Sr. Notes, 11.25%, 5/1/07 450,000 481 Conoco, 6.95%, 4/15/29 4,000,000 3,855 Consumers Energy, 1st Mtg., 7.375%, 9/15/23 3,500,000 3,252 Continental Airlines, PTC, 7.206%, 6/30/04 376,840 382 Corestates Home Equity Loan, 5.10%, 3/15/09 23,368 24 Corestates Home Equity Loan, 6.65%, 5/15/09 80,108 81 Corporacion Andina De Fomento, 6.75%, 3/15/05 2,500,000 2,540 Cott, Sr. Notes, 8.50%, 5/1/07 125,000 125 Cott, Sr. Notes, 9.375%, 7/1/05 875,000 889 Countrywide Funding, MTN, 6.875%, 9/15/05 860,000 880 Courtyard by Marriott II, Sr. Notes, 10.75%, 2/1/08 1,000,000 1,040 Cox Communications, 7.875%, 8/15/09ss. 3,200,000 3,360 Cross Timbers Oil, Sr. Sub Notes, 8.75%, 11/1/09 1,000,000 1,000 CSX, Sr. Notes, 7.45%, 5/1/07 1,000,000 1,046 Dan River, Sr. Sub. Notes, 10.125%, 12/15/03 600,000 360 Davita, Sr. Sub. Notes, (144a), 9.25%, 4/15/11 500,000 512 Delhaize America, (144a), 8.125%, 4/15/11 210,000 219 Delta Airlines, Deb. Notes, 8.95%, 1/12/12 1,405,920 1,441 Delta Mills, Sr. Notes, 9.625%, 9/1/07 470,000 357 Deutsche Financial Capital, 6.75%, 9/15/27 1,713,501 1,740 Dillards, Sr. Notes, 6.43%, 8/1/04 2,000,000 1,865 Dobson Communications, Sr. Notes, 10.875%, 7/1/10 1,000,000 1,010 DTE Energy, Sr. Notes, 7.05%, 6/1/11 1,625,000 1,630 Duke Energy, 1st Ref. Mtg., 6.75%, 8/1/25 1,000,000 905 Duke Energy, 1st Ref. Mtg., 7.50%, 8/1/25ss. $ 1,000,000 $ 977 Dyersburg, Sr. Sub Notes, 9.75%, 9/1/07 500,000 30 Dyncorp, Sr. Sub Notes, 9.50%, 3/1/07 575,000 540 Eastman Kodak, MTN 6.375%, 6/15/06 1,200,000 1,193 El Paso Energy Partners, Sr. Sub. Notes, (144a) 8.50%, 6/1/11 775,000 779 Eldorado Resorts, Sr. Sub. Notes, 10.50%, 8/15/06ss. 1,000,000 1,030 Enron Oil & Gas, Sr. Notes, 6.50%, 12/1/07 4,000,000 3,914 Equitable Resources, 7.75%, 7/15/26 2,000,000 1,975 Erac USA Finance, Sr. Notes, (144a), 8.00%, 1/15/11 5,000,000 5,099 Exelon, Sr. Notes, 6.95%, 6/15/11 650,000 646 Fairchild Semiconductor, Sr. Sub. Notes 10.50%, 2/1/09 1,000,000 967 Fairfax Financial Holdings, 7.75%, 12/15/03 800,000 764 Fairfax Financial Holdings, 8.30%, 4/15/26 2,500,000 1,800 Federal Express, MTN, 9.95%, 8/15/06 500,000 564 First Union, Sr. Notes, 7.55%, 8/18/05 3,000,000 3,166 Fleet Financial Group, Sub. Notes, 8.625%, 1/15/07 800,000 893 Fleming Companies, Sr. Notes,(144a), 10.125%, 4/1/08 1,000,000 1,025 Flextronics International, Sr. Sub. Notes 9.875%, 7/1/10ss. 1,050,000 1,050 Food Lion, Sr. Notes, 8.05%, 4/15/27 1,900,000 1,822 Ford Capital, 9.50%, 6/1/10 4,000,000 4,554 Ford Motor, Sr. Notes, 7.50%, 8/1/26 2,500,000 2,411 Ford Motor Credit, Sr. Notes, 8.20%, 2/15/02 170,000 173 Ford Motor Credit, Sr. Notes, 7.875%, 6/15/10 2,000,000 2,100 Four M, Sr. Notes, 12.00%, 6/1/06 750,000 735 Freeport McMoRan Resources,Sr. Notes, 7.00%, 2/15/08 900,000 540 Fresenius, Sr. Notes, 7.875%, 2/1/08 1,100,000 1,092 Frontier Oil, Sr. Notes, 11.75%, 11/15/09 500,000 537 Frontiervision Holdings, Sr. Disc. Notes Zero Coupon, 9/15/07 250,000 259 General Electric Capital, MTN, 7.25%, 5/3/04 2,000,000 2,098 General Motors Acceptance Corporation, MTN, 6.75%, 6/17/02 80,000 81 Geophysique, Sr. Notes, 10.625%, 11/15/07 500,000 522 Global Imaging Systems, Sr. Sub. Notes 10.75%, 2/15/07ss. 450,000 414 GMAC Commercial Mortgage Security, 6.42%, 8/15/08 3,000,000 3,038 Golden State Holdings, Sr. Notes, 7.125%, 8/1/05 1,000,000 970 Goldman Sachs Group, Sr. Notes, 6.875%, 1/15/11 4,000,000 3,976 GTE Florida, 7.41%, 12/15/23 1,000,000 963 Halliburton, Sr. Notes, 5.625%, 12/1/08ss. $ 3,000,000 $ 2,804 Harnischfeger Industries, Sr. Notes, 10.75%, 3/31/06 500,000 515 Harrah's Entertainment, Sr. Sub Notes 7.875%, 12/15/05 300,000 305 Hasbro, 6.60%, 7/15/28 150,000 104 Hawk, Sr. Notes, 10.25%, 12/1/03 550,000 531 HCA Healthcare, 8.75%, 9/1/10 1,000,000 1,065 HCC Industries, Sr. Sub. Notes, 10.75%, 5/15/07 675,000 473 Hercules, Sr. Notes, (144a), 11.125%, 11/15/07 500,000 500 Hexcel, Sr. Sub. Notes, 9.75%, 1/15/09ss. 325,000 320 HMH Properties, Sr. Notes, 7.875%, 8/1/08 500,000 473 Hollinger International, Sr. Sub. Notes 9.25%, 2/1/06 1,000,000 1,010 Holmes Products, Sr. Sub. Notes, 9.875%, 11/15/07 200,000 74 Horseshoe Gaming, Sr. Sub. Notes, 9.375%, 6/15/07 525,000 543 Household Finance, Sr. Notes, 6.00%, 5/1/04 2,300,000 2,318 Household Finance, Sr. Notes, 8.00%, 5/9/05 2,100,000 2,239 Houston Lighting & Power, 7.50%, 7/1/23 3,000,000 2,827 IBM, Sr. Notes, 6.45%, 8/1/07ss. 1,000,000 1,019 Insight Communications, Sr. Disc. Notes, (144a) Zero Coupon, 2/15/11 500,000 285 Insight Midwest, Sr. Notes, (144a), 10.50%, 11/1/10 500,000 525 Interface, Sr. Sub Notes, 7.30%, 4/1/08 500,000 468 International Bank for Reconstruction & Development 7.625%, 1/19/23 1,800,000 2,030 International Game Technology, Sr. Notes 8.375%, 5/15/09 750,000 769 International Wire, Sr. Sub. Notes, 11.75%, 6/1/05 1,000,000 1,020 Intertek Finance, Sr. Notes, 10.25%, 11/1/06 300,000 237 Iron Mountain, Sr. Notes, 8.25%, 7/1/11 500,000 495 Iron Mountain, Sr. Notes, 8.625%, 4/1/13 250,000 253 ISG Resources, Sr. Sub. Notes, 10.00%, 4/15/08 500,000 265 Isle of Capris Casinos, Sr. Sub. Notes 8.75%, 4/15/09 750,000 682 Jack in the Box, Sr. Secured Notes, 9.75%, 11/1/03 1,000,000 1,016 Jefferson Pilot Capital Trust A, (144a) 8.14%, 1/15/46 1,500,000 1,483 John Q Hammons Hotels, 1st Mtg., 9.75%, 10/1/05 750,000 746 Jostens, Sr. Sub. Notes, 12.75%, 5/1/10ss. 350,000 354 JP Morgan Chase, 6.26%, 3/15/33 5,450,000 5,280 Kimberly-Clark, Sr. Notes, 6.375%, 1/1/28 5,000,000 4,629 King Pharmaceuticals, Sr. Sub. Notes,10.75%, 2/15/09 220,000 240 Koppers, Sr. Sub. Notes, 9.875%, 12/1/07 1,000,000 985 KPN, Sr. Notes, 8.00%, 10/1/10 $ 2,500,000 $ 2,397 Kroger, 8.05%, 2/1/10 * 2,500,000 2,670 L-3 Communications, Sr. Sub. Notes, 10.375%, 5/1/07 300,000 317 LB-UBS Commercial Mortgage Trust Zero Coupon, 1/15/10 7,000,000 7,516 Lear, Sr. Notes, 8.11%, 5/15/09 500,000 497 Lehman Brothers, Sr. Notes, 8.875%, 3/1/02 1,500,000 1,539 Lennar, Sr. Notes, 9.95%, 5/1/10 1,000,000 1,080 Levi Strauss, Sr. Notes, 11.625%, 1/15/08ss. 200,000 181 Liberty National Bank & Trust, Sub. Notes 6.75%, 6/1/03 500,000 515 LifePoint Hospitals, Sr. Sub. Notes, 10.75%, 5/15/09 400,000 436 Lin Television, Sr. Notes, (144a), 8.00%, 1/15/08 750,000 724 Luigino's, Sr. Sub. Notes, 10.00%, 2/1/06 500,000 415 Lyondell Chemical, Sr.Sub. Notes, 10.875%, 5/1/09ss. 750,000 748 MacDermid, Sr. Sub. Notes, (144a), 9.125%, 7/15/11 1,000,000 990 Manufacturers & Traders Trust Company 8.00%, 10/1/10 1,625,000 1,725 Mastec, Sr. Sub. Notes, 7.75%, 2/1/08 275,000 234 MBNA, (144a), 6.45%, 2/15/08 4,000,000 3,971 MBNA America Bank National Association, Sr. Notes 6.50%, 6/20/06 1,500,000 1,481 Meritage, Sr. Notes, (144a), 9.75%, 6/1/11 550,000 539 Metromedia Fiber Network, Sr. Notes 10.00%, 11/15/08 375,000 154 Morgan Stanley Group, 6.875%, 3/1/07 4,000,000 4,081 Motors & Gears, Sr. Notes, 10.75%, 11/15/06 500,000 499 National Australia Bank Limited, Sub. Notes 8.60%, 5/19/10 3,200,000 3,594 Nationsbank Credit Card Master Trust 6.00%, 12/15/05 140,000 142 New Jersey Bell Telephone, Sr. Notes 6.80%, 12/15/24 2,500,000 2,205 News America Holdings, Gtd. Sr. Notes 9.25%, 2/1/13 3,090,000 3,465 Nextel Communications (Class A), Sr. Disc Notes Zero Coupon, 10/31/07 1,000,000 650 Nextel Partners, Sr. Disc. Notes,Zero Coupon, 2/1/09 750,000 443 NGC, Sr. Notes, 6.75%, 12/15/05 1,000,000 1,010 Niagara Mohawk Power, Sr. Notes, 7.625%, 10/1/05 1,512,195 1,560 Norfolk Southern, Sr. Notes, 7.80%, 5/15/27 4,000,000 4,115 Nortek, (144a), 9.875%, 6/15/11 500,000 480 Northrop Grumman, Sr. Notes, 7.875%, 3/1/26 2,000,000 1,991 NTL, Sr. Notes, 11.875%, 10/1/10ss. 1,000,000 670 Nuevo Energy, Sr. Sub. Notes, 9.50%, 6/1/08 500,000 502 NYNEX, 9.55%, 5/1/10 $ 819,456 $ 936 Ocean Energy, Sr. Sub Notes, 8.375%, 7/1/08 600,000 639 Octel, Sr. Notes, 10.00%, 5/1/06 800,000 816 Omnicare, Sr. Sub. Notes, (144a), 8.125%, 3/15/11 500,000 515 Ontario Province of Canada, 6.00%, 2/21/06 2,650,000 2,667 Oracle, Sr. Notes, 6.91%, 2/15/07 3,000,000 3,035 Orange, Sr. Notes, 9.00%, 6/1/09 1,100,000 1,142 Orion Power Holdings, Sr. Notes, (144a) 12.00%, 5/1/10 650,000 721 Owens & Minor, Sr. Sub. Notes, 10.875%, 6/1/06 1,850,000 1,954 P&L Coal Holdings, Sr. Notes, 8.875%, 5/15/08 221,000 230 Pacific Bell, 7.375%, 7/15/43 4,000,000 3,832 Packaged Ice, Sr. Notes, 9.75%, 2/1/05ss. 750,000 615 Packaging Corp. of America Sr. Sub. Notes, 9.625%, 4/1/09 1,000,000 1,062 Paxson Communications, Sr. Sub. Notes, (144a) 10.75%, 7/15/08 650,000 652 PDVSA Finance Limited, Sr. Notes, 7.40%, 8/15/16 2,000,000 1,656 Pegasus Satellite Common, Sr. Notes, 12.375%, 8/1/06 1,000,000 970 Petro Stopping, Sr. Notes, 10.50%, 2/1/07 500,000 405 PG&E National Energy, Sr. Notes, (144a) 10.375%, 5/16/11 1,650,000 1,647 Phelps Dodge, Sr. Notes, 8.75%, 6/1/11 2,125,000 2,097 Philadelphia Electric, 1st Ref. Mtg. 5.625%, 11/1/01 3,000,000 3,007 Plains Resources, Sr. Sub. Notes, 10.25%, 3/15/06 500,000 515 Playtex Products, Sr. Sub. Notes,(144a) 9.375%, 6/1/11 1,000,000 1,020 Premier Parks, Sr. Notes, Zero Coupon, 4/1/08 1,000,000 820 Premier Parks, Sr. Notes, 9.75%, 6/15/07 500,000 505 Pride Petroleum Services, Sr. Notes 9.375%, 5/1/07ss. 300,000 318 Province of Manitoba, Sr. Notes, 7.50%, 2/22/10 5,600,000 6,080 PSEG Energy, Sr. Notes, (144a), 8.50%, 6/15/11 2,500,000 2,484 Quantas Airways, Sr. Notes, 7.50%, 6/30/03 1,000,000 1,027 Radio One, Sr. Sub Notes, (144a), 8.875%, 7/1/11 1,000,000 1,000 Rail Car Trust, 7.75%, 6/1/04 52,013 54 Residential Accredit Loans, 6.75%, 7/25/28 2,974,857 2,993 Riverwood International, Sr. Notes, 10.25%, 4/1/06 500,000 509 Rogers Wireless, Sr. Notes, (144a), 9.625%, 5/1/11 1,000,000 1,000 Ryland, Sr. Sub. Notes, 9.125%, 6/15/11 500,000 495 Salem Communications, Sr. Sub. Notes, (144a) 9.00%, 7/1/11 500,000 495 Salomon Brothers Mortgage Securities VII 7.455%, 4/18/10 3,500,000 3,657 Santander Financial, Gtd. Sub. Notes 6.375%, 2/15/11 $ 3,000,000 $ 2,830 SBC Communications, Sr. Notes, 6.25%, 3/15/11 1,100,000 1,064 Schuff Steel, Sr. Notes, 10.50%, 6/1/08 450,000 423 Sealy Mattress, Sr. Sub. Notes, (144a) 9.875%, 12/15/07 500,000 492 Sears Credit Account Master Trust, 6.05%, 1/15/08 5,455,000 5,551 Sears Credit Account Master Trust, 6.45%, 10/16/06 46,667 47 Security Benefit Life, (144a), 8.75%, 5/15/16 3,000,000 2,907 Sempra Energy, Sr. Notes, 6.80%, 7/1/04 2,500,000 2,481 Siebe, Sr. Notes, (144a), 6.50%, 1/15/10 2,000,000 1,918 Siebe, Sr. Notes, (144a), 7.125%, 1/15/07 1,500,000 1,502 Sinclair Broadcast Group, Sr. Sub Notes 8.75%, 12/15/07 1,250,000 1,200 SITEL, Sr. Sub. Notes, 9.25%, 3/15/06 550,000 479 Speedway Motorsports, Sr. Sub. Notes, 8.50%, 8/15/07 1,000,000 1,015 State Street, Sr. Sub. Notes, 7.65%, 6/15/10 2,225,000 2,367 Sun Media, Sr. Sub. Notes, 9.50%, 2/15/07 550,000 545 Sun Media, Sr. Sub. Notes, 9.50%, 5/15/07ss. 650,000 643 Swift Energy, Sr. Sub. Notes, 10.25%, 8/1/09 500,000 540 TeleCorp PCS, Sr. Sub. Notes, Zero Coupon, 4/15/09 800,000 500 Telefonica Europe, Sr. Notes, 7.35%, 9/15/05 1,660,000 1,721 TeleWest Communications, Sr. Disc. Notes 11.00%, 10/1/07 1,000,000 855 Tenet Healthcare, Sr. Notes, 8.00%, 1/15/05 1,000,000 1,030 Tenneco Packaging, Sr. Notes, 7.20%, 12/15/05 1,000,000 987 Terex, Sr. Sub. Notes, (144a), 10.375%, 4/1/11 500,000 510 Time Warner, Sr. Notes, 7.48%, 1/15/08 1,400,000 1,452 Time Warner, 9.15%, 2/1/23 5,000,000 5,760 Time Warner Telecom, Sr. Notes, 10.125%, 2/1/11 250,000 228 Transwestern Publishing, Sr. Sub. Notes 9.625%, 11/15/07 750,000 754 TravelCenters of America, Sr. Sub. Notes 12.75%, 5/1/09 1,000,000 1,050 Travelers Property Casualty, Sr. Notes 6.75%, 11/15/06 1,500,000 1,538 Triad Hospitals, Sr. Notes, (144a), 8.75%, 5/1/09 400,000 406 Triad Hospitals, Sr. Sub. Notes, 11.00%, 5/15/09 550,000 594 Triton PCS, Sr. Sub. Notes, 9.375%, 2/1/11 725,000 703 Triton PCS, Sr. Sub. Disc. Notes Zero Coupon, 5/1/08 775,000 620 TRW, MTN, 7.37%, 4/18/07 2,000,000 2,013 Tyco, Sr. Notes, 6.25%, 6/15/03 2,750,000 2,775 U.S. Can Corp, Sr. Sub. Notes, 12.375%, 10/1/10 250,000 254 Union Bank Switzerland, Sr. Sub. Notes 7.25%, 7/15/06 1,000,000 1,049 Universal Compression, Sr. Disc. Notes Zero Coupon, 2/15/08 $ 1,250,000 $ 1,125 UtiliCorp United, Sr. Notes, 6.875%, 10/1/04 3,000,000 3,001 Venture Holdings, Sr. Notes, 11.00%, 6/1/07 650,000 520 Viacom, Sr. Notes, (144a), 6.625%, 5/15/11 2,500,000 2,453 VoiceStream Wireless, Sr. Notes, 10.375%, 11/15/09 800,000 913 Wal-Mart Stores, Sr. Notes, 6.75%, 5/15/02 1,000,000 1,021 WCI Communities, Sr. Sub. Notes, (144a) 10.625%, 2/15/11 500,000 520 WestAmerica Bank, Sub. Notes, 6.99%, 9/30/03 1,500,000 1,506 Western Wireless, Sr. Sub Notes, 10.50%, 2/1/07 375,000 386 Westinghouse Air Brake, Sr. Notes, 9.375%, 6/15/05 750,000 746 Willamette Industries, MTN, 7.85%, 7/1/26 1,000,000 964 Williams Scotsman, Sr. Notes, 9.875%, 6/1/07 375,000 354 Worldcom, Sr. Notes, 7.50%, 5/15/11 3,355,000 3,264 Young Broadcasting, Sr. Sub. Notes, (144a) 10.00%, 3/1/11 1,000,000 965 Total Corporate Bonds (Cost $393,820) 389,367 Convertible Bonds 0.1% Liberty Media/Sprint PCS, 4.00%, 11/15/29 700,000 523 LSI Logic, Sr. Sub. Notes, 4.00%, 2/15/05 600,000 496 Omnicare, Sr. Sub. Notes, 5.00%, 12/1/07 300,000 263 Total Convertible Bonds (Cost $1,229) 1,282 U.S. Government Mortgage- Backed Securities 5.4% Federal Home Loan Mortgage Assn. 7.00%, 3/15/10 - 11/1/30 7,827,737 7,898 8.00%, 3/1/17 10,008 10 10.00%, 10/1/10 7,428 8 Federal Home Loan Mortgage Corporation 6.50%, 5/1/31 3,753,173 3,696 Federal National Mortgage Assn. 5.75%, 4/15/03 - 6/15/05ss. 17,665,000 17,959 6.00%, 10/25/08 - 3/1/29 7,440,870 7,277 REMIC, 6.50%, 7/25/08 440,453 449 7.00%, 4/1/26 22,056 22 Government National Mortgage Assn. I 6.00%, 2/15/14 - 6/15/14 $ 1,226,378 $ 1,219 6.50%, 9/15/25 - 4/15/29 16,069,268 15,942 7.00%, 12/15/23 - 5/15/29 18,317,378 18,528 7.50%, 9/15/22 - 11/15/28 5,734,058 5,903 8.00%, 6/15/17 - 11/15/25 3,667,998 3,848 8.50%, 3/15/05 - 2/15/25 1,492,095 1,584 9.00%, 6/15/19 - 2/15/20 40,759 44 9.50%, 8/15/09 - 9/15/21 318,795 348 10.00%, 11/15/09 - 5/15/13 19,361 21 10.50%, 5/15/15 10,795 12 11.00%, 3/15/10 - 1/15/20 438,026 492 11.50%, 3/15/10 - 3/15/16 643,741 730 PL, 8.875%, 2/15/30 664,174 666 II 6.00%, 6/20/31 8,004,000 7,731 8.50%, 6/20/25 - 6/20/26 1,660,992 1,738 9.00%, 10/20/16 - 6/20/20 175,598 189 9.50%, 8/20/22 26,941 29 10.00%, 10/20/16 - 1/20/22 44,322 49 ARM, 6.75%, 8/20/23 74,373 76 Total U.S. Government Mortgage-Backed Securities (Cost $94,862) 96,468 U.S. Government Obligations/ Agencies 8.9% Federal Home Loan Banks 6.34%, 10/19/05 4,875,000 5,031 Federal Home Loan Mortgage 6.45%, 4/29/09 2,000,000 1,984 Federal National Mortgage Assn. 5.80%, 12/10/03 $ 13,000,000 $ 13,363 6.47%, 9/25/12 3,000,000 2,999 7.125%, 2/15/05ss. 10,000,000 10,596 U.S. Department of Veteran Affairs 9.54%, 3/15/25 438,775 480 U.S. Treasury Bonds 6.25%, 5/15/30ss. 2,280,000 2,418 6.50%, 11/15/26ss. 41,750,000 44,999 7.125%, 2/15/23ss. 15,500,000 17,772 7.25%, 5/15/16ss. 12,000,000 13,682 8.125%, 8/15/19ss. 300,000 374 8.75%, 5/15/20ss. 1,000,000 1,323 9.25%, 2/15/16ss. 3,000,000 4,011 11.625%, 11/15/04ss. 20,000 24 13.875%, 5/15/11 190,000 261 U.S. Treasury Inflation-Indexed Notes 3.375%, 1/15/07ss. 5,578,050 5,650 U.S. Treasury Notes 5.875%, 11/15/04ss. 16,750,000 17,325 6.00%, 9/30/02ss. 2,000,000 2,047 6.25%, 2/15/03ss. 5,850,000 6,035 7.50%, 11/15/01ss. 1,310,000 1,328 7.875%, 11/15/04ss. 8,150,000 8,925 Total U.S. Government Obligations/ Agencies (Cost $157,614) 160,627 Short-Term Investments 0.0% Money Market Funds 0.0% T. Rowe Price Reserve Investment Fund, 4.34% # 671,074 671 Total Short-Term Investments (Cost $671) 671 Total Investments in Securities 98.9% of Net Assets (Cost $1,367,840) $1,780,849 Other Assets Less Liabilities 19,799 NET ASSETS $1,800,648 # Seven-day yield + Affiliated company * Non-income producing ss. All or portion of this security is on loan at June 30, 2001. See Note 2. ADR American Depository Receipt ARM Adjustable rate mortgage GDR Global Depository Receipt MTN Medium term note PL Project Loan 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) 144a Security was purchased pursuant to Rule 144a under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers -- total of such securities at period-end amounts to 3.2% of net assets. AUD Australian dollar CHF Swiss franc EUR Euro GBP British sterling HKD Hong Kong dollar JPY Japanese yen MXN Mexican peso MYR Malaysian ringgit NOK Norwegian krone SEK Swedish krona SGD Singapore dollar ZAR South African rand The accompanying notes are an integral part of these financial statements. T. Rowe Price Balanced Fund - -------------------------------------------------------------------------------- Unaudited June 30, 2001 STATEMENT OF ASSETS AND LIABILITIES In thousands ASSETS Investments in securities, at value Affiliated companies (cost $872) $ 924 Other companies (cost $1,366,968) 1,779,925 Total investments in securities 1,780,849 Securities lending collateral 186,961 Other assets 53,214 Total assets 2,021,024 LIABILITIES Obligation to return securities lending collateral 186,961 Other liabilities 33,415 Total liabilities 220,376 NET ASSETS $ 1,800,648 Net Assets Consist of: Accumulated net investment income - net of distributions $ 146 Accumulated net realized gain/loss - net of distributions 3,755 Net unrealized gain (loss) 412,972 Paid-in-capital applicable to 99,952,816 shares of $0.01 par value capital stock outstanding; 1,000,000,000 shares authorized 1,383,775 NET ASSETS $ 1,800,648 NET ASSET VALUE PER SHARE $ 18.01 The accompanying notes are an integral part of these financial statements. T. Rowe Price Balanced Fund - -------------------------------------------------------------------------------- Unaudited STATEMENT OF OPERATIONS In thousands 6 Months Ended 6/30/01 Investment Income (Loss) Income Interest $ 25,155 Dividend 8,945 Securities lending 341 Other 72 Total income 34,513 Expenses Investment management 4,338 Shareholder servicing 3,387 Custody and accounting 128 Prospectus and shareholder reports 54 Registration 31 Legal and audit 9 Directors 7 Miscellaneous 1 Total expenses 7,955 Expenses paid indirectly (15) Net expenses 7,940 Net investment income (loss) 26,573 Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities 4,971 Foreign currency transactions (59) Net realized gain (loss) 4,912 Change in net unrealized gain or loss Securities (80,616) Other assets and liabilities denominated in foreign currencies (6) Change in net unrealized gain or loss (80,622) Net realized and unrealized gain (loss) (75,710) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (49,137) The accompanying notes are an integral part of these financial statements. T. Rowe Price Balanced Fund - -------------------------------------------------------------------------------- Unaudited STATEMENT OF CHANGES IN NET ASSETS In thousands 6 Months Year Ended Ended 6/30/01 12/31/00 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 26,573 $ 56,968 Net realized gain (loss) 4,912 85,287 Change in net unrealized gain or loss (80,622) (99,266) Increase (decrease) in net assets from operations (49,137) 42,989 Distributions to shareholders Net investment income (26,932) (55,873) Net realized gain (37,632) (42,320) Decrease in net assets from distributions (64,564) (98,193) Capital share transactions * Shares sold 244,470 508,002 Distributions reinvested 62,103 94,553 Shares redeemed (287,944) (742,345) Increase (decrease) in net assets from capital share transactions 18,629 (139,790) Net Assets Increase (decrease) during period (95,072) (194,994) Beginning of period 1,895,720 2,090,714 End of period $ 1,800,648 $1,895,720 *Share information Shares sold 13,040 25,894 Distributions reinvested 3,509 4,864 Shares redeemed (15,461) (38,077) Increase (decrease) in shares outstanding 1,088 (7,319) The accompanying notes are an integral part of these financial statements. T. Rowe Price Balanced Fund - -------------------------------------------------------------------------------- Unaudited June 30, 2001 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 and commenced operations on December 31, 1939. The fund seeks to provide capital growth, current income, and preservation of capital through a portfolio of stocks and fixed-income securities. The accompanying financial statements were prepared in accordance with generally accepted accounting principles, which require the use of estimates made by fund management. Valuation Equity securities listed or regularly traded on a securities exchange are valued at the last quoted sales price at the time the valuations are made. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day and securities regularly traded in the over-the-counter market are valued at the mean of the latest bid and asked prices. Other equity securities are valued at a price within the limits of the latest bid and asked prices deemed by the Board of Directors, or by persons delegated by the Board, best to reflect fair value. Debt securities are generally traded in the over-the-counter market and are valued at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities or by an independent pricing service. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. 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 denominated in foreign currencies are translated into U.S. dollar values each day at the prevailing exchange rate, using the mean of the bid and offer prices of such currencies against U.S. dollars quoted by a major bank. 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. Affiliated Companies As defined by the Investment Company Act of 1940, an affiliated company is one in which the fund owns at least 5% of the outstanding voting securities. Premiums and Discounts Premiums and discounts on debt securities are amortized for financial reporting purposes. On January 1, 2001, the fund adopted the provisions of the American Institute of Certified Public Accountants' revised Audit and Accounting Guide - Audits of Investment Companies (the guide). The guide requires all premiums and discounts on debt securities to be amortized, and gain/loss on paydowns of mortgage- and asset-backed securities to be accounted for as interest income. Prior to January 1, 2001, the fund recognized premiums and discounts on mortgage- and asset-backed securities at time of disposition or principal repayment as gain or loss. Upon adoption, the fund adjusted the cost of its debt securities, and corresponding unrealized gain/loss thereon, in the amount of $590,000, reflecting the cumulative amortization that would have been recognized had amortization been in effect from the purchase date of each holding. For the six months ended June 30, 2001, the effect of this change was to decrease net investment income by $215,000 ($0.002 per share), increase net realized gain/loss on securities by $150,000 ($0.002 per share), and increase net unrealized gain/loss on securities by $65,000 ($0.001 per share). This change had no effect on the fund's net assets or total return. 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 net investment income and realized gains determined in accordance with generally accepted accounting principles. Expenses paid indirectly reflect credits earned on daily uninvested cash balances at the custodian and are used to reduce the fund's custody charges. 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. It receives as collateral cash and U.S. government securities valued at 102%-105% of the value of the securities on loan. Cash collateral is invested in a money market pooled account by the fund's lending agent. Collateral is maintained over the life of the loan in an amount not less than the value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the fund the next business day. Although risk is mitigated by the collateral, the fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities. At June 30, 2001, the value of loaned securities was $180,104,000; aggregate collateral consisted of $186,961,000 in the securities lending collateral pool. Other Purchases and sales of portfolio securities, other than short-term and U.S. government securities, aggregated $266,675,000 and $201,411,000, respectively, for the six months ended June 30, 2001. Purchases and sales of U.S. government securities aggregated $73,372,000 and $155,103,000, respectively, for the six months ended June 30, 2001. NOTE 3- FEDERAL INCOME TAXES No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. At June 30, 2001, the cost of investments for federal income tax purposes was substantially the same as for financial reporting and totaled $1,368,496,000. Net unrealized gain aggregated $412,353,000 at period-end, of which $472,260,000 related to appreciated investments and $59,907,000 to depreciated investments. NOTE 4- RELATED PARTY TRANSACTIONS The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price Associates), a wholly owned subsidiary of T. Rowe Price Group. The invest-ment management agreement between the fund and the manager provides for an annual investment management fee, of which $711,000 was payable at June 30, 2001. 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 Price Associates (the group). The group fee rate ranges from 0.48% for the first $1 billion of assets to 0.295% for assets in excess of $120 billion. At June 30, 2001, and for the six months then ended, the effec-tive annual group fee rate was 0.32%. The fund pays a pro-rata share of the group fee based on the ratio of its net assets to those of the group. In addition, the fund has entered into agreements with Price Associates and two wholly owned subsidiaries of Price Associates, pursuant to which the fund receives certain other services. Price Associates 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 $3,022,000 for the six months ended June 30, 2001, of which $536,000 was payable at period end. The fund may invest in the T. Rowe Price Reserve Investment Fund and T. Rowe Price Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by Price Associates. The Reserve Funds are offered as cash management options only to mutual funds and other accounts sponsored by Price Associates, and are not available to the public. The Reserve Funds pay no investment management fees. Distributions from the Reserve Funds to the fund for the six months ended June 30, 2001, totaled $877,000 and are reflected as interest income in the accompanying Statement of Operations. FOR FUND AND ACCOUNT INFORMATION OR TO CONDUCT TRANSACTIONS, 24 HOURS, 7 DAYS A WEEK By touch-tone telephone TELE*ACCESS 1-800-638-2587 By Account Access on the Internet WWW.TROWEPRICE.COM/ACCESS FOR ASSISTANCE WITH YOUR EXISTING FUND ACCOUNT, CALL: Shareholder Service Center 1-800-225-5132 TO OPEN A BROKERAGE ACCOUNT OR OBTAIN INFORMATION, CALL: 1-800-638-5660 FOR THE HEARING IMPAIRED, CALL: 1-800-367-0763 INTERNET ADDRESS: www.troweprice.com PLAN ACCOUNT LINES FOR RETIREMENT PLAN PARTICIPANTS: The appropriate 800 number appears on your retirement account statement. 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 appropriate to the fund or funds covered in this report. INVESTOR CENTERS: For directions, call 1-800-225-5132 or visit our Web site at www.troweprice.com/investorcenters BALTIMORE AREA Downtown 105 East Lombard Street OWINGS MILLS Three Financial Center 4515 Painters Mill Road BOSTON AREA 386 Washington Street Wellesley CHICAGO AREA 1900 Spring Road, Suite 104 Oak Brook COLORADO SPRINGS 2260 Briargate Parkway LOS ANGELES AREA Warner Center 21800 Oxnard Street, Suite 270 Woodland Hills NEW JERSEY/NEW YORK AREA 51 JFK Parkway, 1st Floor Short Hills, New Jersey SAN FRANCISCO AREA 1990 North California Boulevard, Suite 100 Walnut Creek TAMPA 4200 West Cypress Street 10th Floor WASHINGTON, D.C., AREA Downtown 900 17th Street N.W. Farragut Square TYSONS CORNER 1600 Tysons Boulevard Suite 150 T. Rowe Price Investment Services, Inc., Distributor. F68-051 6/30/01 -----END PRIVACY-ENHANCED MESSAGE-----