Item 1. Report to Shareholders
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
December 31, 2003
Certified Annual Report
This report is certified under the Sarbanes-Oxley Act of 2002, which requires
that public companies, including mutual funds, affirm that the information
provided in their annual and semiannual shareholder reports fully and fairly
represents their financial position.
T. Rowe Price Balanced Fund
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Certified Annual Report
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.
[Graphic Omitted]
BALANCED FUND
- --------------------------------------------------------------------------------
As of 12/31/03
Lipper Balanced Funds Index $22,144
Balanced Fund $23,261
Combined Index Portfolio * $23,980
Lipper
Combined Balanced
Index Funds Balanced
Portfolio Index Fund
12/93 10,000 10,000 10,000
12/94 10,035 9,795 9,795
12/95 12,750 12,233 12,232
12/96 14,449 13,830 14,014
12/97 17,401 16,637 16,672
12/98 20,918 19,147 19,335
12/99 23,552 20,866 21,319
12/00 23,193 21,364 21,764
12/01 22,085 20,673 20,898
12/02 20,076 18,463 19,113
12/03 23,980 22,144 23,261
* An unmanaged portfolio of 50% domestic stocks (S&P 500 Stock Index), 40%
bonds (Lehman Brothers U.S. Aggregate Index), and 10% international stocks
(MSCI EAFE Index).
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
Periods Ended 12/31/03 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Balanced Fund 21.71% 3.77% 8.81%
Merrill Lynch-Wilshire Capital Market Index 19.91 2.40 8.96
Lipper Balanced Funds Index 19.94 2.95 8.27
Combined Index Portfolio * 19.44 2.77 9.14
Returns do not reflect taxes that the shareholder may pay on fund distributions
or the redemption of fund shares. Past performance cannot guarantee future
results.
T. Rowe Price Balanced Fund
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Certified Annual Report
Dear Shareholders,
We are pleased to report that your fund returned 21.71% in 2003. The fund fared
better than its benchmarks in 2003, as shown in the table on the preceding page,
because we overweighted international stocks, which performed better than
domestic stocks, and because we benefited from the strong performance of
high-yield bonds.
As you know, the fund seeks to provide capital growth, current income, and
preservation of capital through a portfolio of stocks and fixed-income
securities. We normally invest approximately 60% of total assets in U.S. and
foreign common stocks and 40% in fixed-income securities. We will invest at
least 25% of total assets in senior fixed-income securities.
[Graphic Omitted]
Major Index Returns
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Period Ended 12/31/03
12-Month Return
S&P 500 Stock Index 29%
S&P MidCap 400 Index 36
Russell 2000 Index 47
MSCI EAFE Index 39
Lehman Brothers U.S. Aggregate Index 4
CS First Boston High Yield Index 28
The Major Index Returns chart shows how various stock and bond market indexes
performed over the fund's fiscal year. As you can see, the small-cap Russell
2000 Index and the MSCI EAFE Index, which measures international stock market
performance, generated very strong returns in 2003. In contrast,
investment-grade bonds, as measured by the Lehman Brothers U.S. Aggregate Index,
produced slight gains.
The Portfolio Highlights table, on the next page, shows how the fund's
allocations to different asset classes have changed in 2003. As you can see, our
allocations to domestic and international stocks increased, while our overall
exposure to bonds decreased.
Portfolio Highlights
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Percent of
Net Assets
12/31/02
- --------------------------------------------------------------------------------
U.S. Stocks 47.6%
Non-U.S. Stocks 13.6
Bonds 36.6
Treasuries/Agencies 6.7
Mortgage-Backed 8.9
Domestic Corporate Bonds 20.5
Foreign Corporate Bonds --
Convertible 0.5
Other and Reserves 2.2
Percent of
Net Assets
12/31/03
- --------------------------------------------------------------------------------
U.S. Stocks 51.4%
Non-U.S. Stocks 14.7
Bonds 32.4
Treasuries/Agencies 10.0
Mortgage-Backed 3.3
Domestic Corporate Bonds 16.6
Foreign Corporate Bonds 2.5
Convertible --
Other and Reserves 1.5
Finally, I'm sure you are aware that mutual fund companies have recently come
under scrutiny for their trading policies. The investigations have led to
allegations that executives of several mutual fund companies permitted or
engaged in improper mutual fund trading. In addition, certain intermediaries
that process fund transactions are alleged to have assisted some investors in
executing improper mutual fund trades. I want T. Rowe Price shareholders to know
that we emphatically condemn the abuses that have been revealed or alleged
against other firms in our industry. Our firm has not entered and will not enter
into any agreements with any investors or intermediaries that authorize
after-hours trading or excessive short-term trading in any of our funds. T. Rowe
Price investors can be assured that our firm unequivocally opposes illegal or
inap-propriate trading of any nature and has policies and procedures in place
designed to protect the best interests of our long-term shareholders. No T. Rowe
Price executives or portfolio managers or investment personnel of the T. Rowe
Price mutual funds have
engaged in any inappropriate trading of T. Rowe Price mutual funds. You may find
out more about our trading policies and the steps we take to protect your
interests by visiting our Web site (troweprice.com). These policies are also
spelled out in your fund's prospectus.
Thank you for your continued support.
Respectfully submitted,
James S. Riepe
Chairman
January 22, 2004
T. Rowe Price Balanced Fund
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Certified Annual Report
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Year
Ended
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
NET ASSET VALUE
Beginning of period $ 15.51 $ 17.49 $ 19.17 $ 19.69 $ 18.59
Investment activities
Net investment
income (loss) 0.41* 0.47 0.51 0.54 0.53
Net realized and
unrealized gain (loss) 2.91 (1.95) (1.29) (0.13) 1.34
Total from
investment activities 3.32 (1.48) (0.78) 0.41 1.87
Distributions
Net investment income (0.42) (0.47) (0.52) (0.53) (0.54)
Net realized gain - (0.03) (0.38) (0.40) (0.23)
Total distributions (0.42) (0.50) (0.90) (0.93) (0.77)
NET ASSET VALUE
End of period $ 18.41 $ 15.51 $ 17.49 $ 19.17 $ 19.69
-----------------------------------------------------
Ratios/Supplemental Data
Total return^ 21.71%* (8.54)% (3.98)% 2.09% 10.26%
Ratio of total expenses
to average net assets 0.78%* 0.79% 0.83% 0.79% 0.79%
Ratio of net investment
income (loss) to average
net assets 2.50%* 2.88% 2.84% 2.75% 2.80%
Portfolio turnover rate 38.4% 49.1% 36.0% 16.5% 20.7%
Net assets,
end of period
(in millions) $ 2,048 $ 1,582 $ 1,791 $ 1,896 $ 2,091
^ 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.
* See Note 4. Excludes expenses permanently waived (0.02% of average net
assets) related to investments in TRP mutual funds.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Balanced Fund
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Certified Annual Report December 31, 2003
Portfolio of Investments (ss.) Shares/Par Value
- --------------------------------------------------------------------------------
($ 000s)
COMMON STOCKS 65.8%
CONSUMER DISCRETIONARY 7.6%
Auto Components 0.1%
Denso (JPY) 55,000 1,083
1,083
Automobiles 1.0%
Ford Motor 334,643 5,354
GM 95,700 5,111
Honda Motor ADR 88,400 1,989
Peugeot (EUR) 23,000 1,171
Toyota Motor (JPY) 143,900 4,862
Volkswagen (EUR) 37,037 2,060
20,547
Distributors 0.1%
Genuine Parts 81,975 2,722
2,722
Hotels, Restaurants & Leisure 0.6%
Carnival 100,000 3,973
Compass (GBP) 205,912 1,397
McDonald's 156,200 3,878
Wendy's 30,000 1,177
Whitbread (GBP) 130,000 1,669
12,094
Household Durables 0.4%
Fortune Brands 40,000 2,860
Persimmon (GBP) 93,760 899
Pioneer (JPY) 65,500 1,810
Sony (JPY) 38,500 1,333
Thomson (EUR) 100,939 2,145
9,047
Leisure Equipment & Products 0.1%
Hasbro 80,000 1,702
1,702
Media 3.1%
Astro All Asia, 144A (MYR) * 208,100 242
British Sky Broadcast (GBP) * 167,738 2,105
Clear Channel Communications 100,000 4,683
Comcast, Class A * 342,842 11,269
Cox Communications * 50,000 1,723
Disney 362,617 8,460
Gannett 27,600 2,461
McGraw-Hill 71,800 5,020
New York Times, Class A 80,000 3,823
News Corporation (AUD) 10,804 98
News Corporation ADR 26,200 946
Omnicom 26,800 2,340
Publicis (EUR) 69,495 2,250
Reader's Digest, Class A 35,000 513
Time Warner * 289,550 5,209
Tribune 40,000 2,064
Viacom, Class A 9,000 398
Viacom, Class B 206,895 9,182
WPP Group ADR 9,600 472
63,258
Multiline Retail 0.8%
May Department Stores 77,100 2,241
Sears 40,000 1,820
Target 323,400 12,419
16,480
Specialty Retail 1.3%
CarMax * 53,923 1,668
Circuit City Stores 171,800 1,740
Esprit Holdings (HKD) 214,000 711
GAP 207,300 4,812
Home Depot 311,000 11,037
RadioShack 80,000 2,454
Staples * 53,155 1,451
TJX 92,000 2,029
Toys "R" Us * 64,380 814
26,716
Textiles, Apparel, & Luxury Goods 0.1%
Adidas-Salomon (EUR) 10,368 1,179
Yue Yuen Industrial (HKD) 520,000 1,427
2,606
Total Consumer Discretionary 156,255
CONSUMER STAPLES 5.9%
Beverages 1.3%
Allied Domecq (GBP) 141,175 1,086
Anheuser-Busch 98,100 5,168
Coca-Cola 229,300 11,637
Kirin Brewery (JPY) 118,000 1,007
PepsiCo 174,400 8,130
27,028
Food & Staples Retailing 2.3%
Carrefour (EUR) 36,693 2,012
Casino Guichard-Perrachon (EUR) 7,733 751
Coles Myer (AUD) 273,264 1,556
Costco Wholesale * 119,100 4,428
CVS 50,000 1,806
J Sainsbury (GBP) 395,172 2,206
Kroger * 222,900 4,126
METRO (EUR) 35,000 1,541
Safeway * 55,200 1,209
Sysco 126,000 4,691
Wal-Mart 362,200 19,215
Wal-Mart de Mexico (MXN) 572,500 1,632
Walgreen 50,000 1,819
46,992
Food Products 0.6%
Campbell Soup 81,000 2,171
CSM (EUR) 45,507 994
General Mills 72,500 3,284
Nestle (CHF) 9,582 2,393
Unilever (GBP) 316,748 2,945
11,787
Household Products 1.1%
Colgate-Palmolive 67,300 3,368
Kao (JPY) 56,000 1,140
Kimberly-Clark 75,400 4,455
Procter & Gamble 142,800 14,263
23,226
Personal Products 0.2%
Gillette 95,174 3,496
3,496
Tobacco 0.4%
Altria Group 160,800 8,751
8,751
Total Consumer Staples 121,280
ENERGY 4.8%
Energy Equipment & Services 0.6%
Baker Hughes 30,000 965
BJ Services * 98,400 3,532
FMC Technologies * 72,228 1,683
Halliburton 93,742 2,437
Schlumberger 72,600 3,973
Transocean * 11,654 280
12,870
Oil & Gas 4.2%
Amerada Hess 153,500 8,162
BP (GBP) 441,157 3,567
BP ADR 204,502 10,092
ChevronTexaco 111,159 9,603
Cia Espanola de Petroleos (EUR) 49,713 1,723
Cimarex Energy * 21,258 567
ENI (EUR) 85,784 1,617
ENI ADR 18,800 1,786
Exxon Mobil 685,326 28,098
Marathon Oil 156,100 5,165
Norsk Hydro (NOK) 11,682 720
Petroleo Brasileiro (Petrobras) ADR
(1 ADR represents 1 preferred share) 49,400 1,317
Royal Dutch Petroleum ADS 30,000 1,572
Shell Transport & Trading (GBP) 221,080 1,640
Shell Transport & Trading ADR 89,100 4,012
Statoil ASA (NOK) 164,020 1,839
Total, Series B (EUR) 17,053 3,167
84,647
Total Energy 97,517
FINANCIALS 14.3%
Capital Markets 2.7%
Bank of New York 100,000 3,312
Credit Suisse Group (CHF) 70,786 2,589
Deutsche Bank (EUR) 21,667 1,793
Franklin Resources 98,000 5,102
Goldman Sachs Group 78,700 7,770
J.P. Morgan Chase 293,820 10,792
Macquarie Bank (AUD) 49,463 1,324
Mellon Financial 172,600 5,542
Morgan Stanley 155,700 9,010
Nomura Holdings (JPY) 108,000 1,840
State Street 96,000 5,000
Waddell & Reed Financial, Class A 35,581 835
54,909
Commercial Banks 5.0%
ABN Amro Holdings (EUR) 35,196 823
Alliance & Leicester (GBP) 116,988 1,854
Anglo Irish Bank (EUR) 159,316 2,511
Australia & New Zealand Banking (AUD) 125,238 1,667
Australia & New Zealand Banking ADR 21,500 1,437
Banco Santander ADR 85,251 2,027
Banco Santander Central Hispano (EUR) 197,243 2,334
Bank of America 213,537 17,175
Bank of Yokohama (JPY) 273,000 1,269
Barclays (GBP) 651,582 5,795
BNP Paribas (EUR) 65,007 4,089
FleetBoston Financial 169,841 7,414
Grupo Financiero Banorte (MXN) 343,000 1,190
HBOS (GBP) 224,502 2,899
HSBC (GBP) 123,615 1,937
National Australia Bank (AUD) 140,557 3,170
NORDEA (SEK) 542,684 4,074
Royal Bank of Scotland Group (GBP) 127,965 3,760
SEB, Series A (SEK) 83,294 1,228
Societe Generale (EUR) 47,160 4,159
Sumitomo Mitsui Financial (JPY) 313 1,668
Svenska Handelsbanken, Series A (SEK) 96,877 1,980
U.S. Bancorp 480,424 14,307
UniCredito Italiano (EUR) 251,454 1,356
Wachovia 271,919 12,669
102,792
Consumer Finance 0.5%
AIFUL (JPY) 15,650 1,145
American Express 176,000 8,489
9,634
Diversified Financial Services 1.5%
Citigroup 570,938 27,713
ING Groep (EUR) 66,814 1,557
Moody's 14,100 854
30,124
Insurance 3.1%
Allianz (EUR) 10,585 1,335
Ambac 33,300 2,311
American International Group 285,718 18,937
Aviva (GBP) 155,243 1,359
AXA Asia Pacific (AUD) 614,798 1,324
China Life Insurance, H Shares * 45,200 1,490
CNP Assurances (EUR) 54,554 2,837
John Hancock Financial Services 38,000 1,425
Marsh & McLennan 111,500 5,340
Mitsui Sumitomo Insurance (JPY) 183,000 1,503
PICC Property & Casualty, 144A (HKD) * 51,000 23
Prudential 64,000 2,673
QBE Insurance (AUD) 258,807 2,066
RAS (EUR) 114,896 1,954
SAFECO 50,000 1,946
St. Paul Companies 152,300 6,039
Torchmark 87,600 3,989
Travelers Property Casualty, Class A 215,124 3,610
UnumProvident 284,200 4,482
64,643
Real Estate 0.7%
Corio (EUR) 15,627 605
General Property Trust (AUD) 239,438 539
ProLogis Trust, REIT 321,450 10,315
Sun Hung Kai Properties (HKD) 161,000 1,327
Wereldhave (EUR) 7,322 548
Westfield Trust (AUD) 455,899 1,222
14,556
Thrifts & Mortgage Finance 0.8%
Bradford & Bingley (GBP) 247,219 1,346
Countrywide Financial 51,900 3,936
Fannie Mae 86,900 6,523
Freddie Mac 54,200 3,161
MGIC Investment 23,200 1,321
16,287
Total Financials 292,945
HEALTH CARE 7.7%
Biotechnology 0.4%
Amgen * 131,000 8,096
CSL (AUD) 23,296 313
8,409
Health Care Equipment & Supplies 0.7%
Baxter International 111,500 3,403
Becton, Dickinson 60,000 2,468
Guidant 42,400 2,553
Medtronic 140,400 6,825
15,249
Health Care Providers & Services 1.3%
Aetna 52,695 3,561
Cardinal Health 96,908 5,927
Celesio (EUR) 18,000 872
Health Management 81,252 1,950
Medco * 58,637 1,993
UnitedHealth Group 196,600 11,438
25,741
Pharmaceuticals 5.3%
Abbott Laboratories 141,700 6,603
AstraZeneca (GBP) 31,188 1,492
AstraZeneca ADR 67,200 3,251
Aventis (EUR) 8,134 537
Bristol-Myers Squibb 154,700 4,424
Eisai (JPY) 30,000 809
Eli Lilly 100,000 7,033
Forest Laboratories * 50,000 3,090
GlaxoSmithKline (GBP) 73,591 1,681
GlaxoSmithKline ADR 181,522 8,463
Johnson & Johnson 191,500 9,893
Merck 196,000 9,055
Novartis (CHF) 109,809 4,983
Pfizer 916,810 32,391
Sanofi-Synthelabo (EUR) 35,590 2,677
Schwarz Pharma AG (EUR) 47,000 1,274
Takeda Chemical Industries (JPY) 40,000 1,587
Wyeth 210,800 8,949
108,192
Total Health Care 157,591
INDUSTRIALS & BUSINESS SERVICES 7.3%
Aerospace & Defense 1.2%
Boeing 95,900 4,041
European Aeronautic Defense & Space (EUR) 34,616 822
Honeywell International 177,900 5,947
Lockheed Martin 85,811 4,411
Northrop Grumman 49,471 4,730
United Technologies 48,400 4,587
24,538
Air Freight & Logistics 0.2%
UPS, Class B 57,000 4,249
4,249
Airlines 0.1%
Delta 46,000 543
Qantas Airways (AUD) 219,504 544
1,087
Building Products 0.1%
Masco 99,800 2,735
2,735
Commercial Services & Supplies 0.3%
Davis Service Group (GBP) 213,899 1,424
Waste Management 176,295 5,219
6,643
Construction & Engineering 0.1%
Acciona (EUR) 21,772 1,324
1,324
Electrical Equipment 0.3%
Draka (EUR) * 101,872 2,002
Hubbell 80,252 3,539
Sumitomo Electric Industries (JPY) 87,000 778
6,319
Industrial Conglomerates 2.6%
3M 47,200 4,013
General Electric 954,400 29,567
Hutchison Whampoa (HKD) 209,000 1,534
Sembcorp (SGD) 1,620,000 1,202
Siemens (EUR) 60,121 4,810
Textron 62,000 3,538
Tyco International 362,964 9,619
54,283
Machinery 1.6%
Caterpillar 50,000 4,151
Danaher 96,200 8,826
Deere 131,500 8,554
Fanuc (JPY) 19,100 1,145
ITT Industries 100,000 7,421
Mitsubishi Heavy Industries (JPY) 412,000 1,146
Singulus Technology (EUR) * 43,718 920
32,163
Road & Rail 0.5%
Arriva (GBP) 223,412 1,516
Burlington Northern Santa Fe 75,300 2,436
Landstar Systems * 80,000 3,043
Norfolk Southern 93,200 2,204
Union Pacific 29,000 2,015
11,214
Trading Companies & Distributors 0.2%
Mitsubishi (JPY) 194,000 2,057
Sumitomo (JPY) 194,000 1,447
3,504
Transportation Infrastructure 0.1%
Kamigumi (JPY) 174,000 1,231
Macquarie Infrastructure Group (AUD) 147,807 378
1,609
Total Industrials & Business Services 149,668
INFORMATION TECHNOLOGY 9.4%
Communications Equipment 1.0%
Cisco Systems * 423,900 10,296
Motorola 278,600 3,920
Nokia (EUR) 48,095 831
Nokia ADR 68,300 1,161
QUALCOMM 44,000 2,373
Sagem (EUR) 10,902 1,167
19,748
Computer & Peripherals 1.5%
Dell * 201,600 6,847
Hewlett-Packard 345,680 7,940
IBM 144,100 13,355
Lexmark International * 25,000 1,966
NEC Electronics (JPY) * 4,500 329
NEC Electronics (Restricted shares), 144A (JPY) * 5,200 381
30,818
Electronic Equipment & Instruments 0.4%
Flextronics * 180,000 2,671
Jabil Circuit * 121,800 3,447
Kyocera (JPY) 15,500 1,033
TDK (JPY) 28,300 2,039
9,190
Internet Software & Services 0.3%
InterActiveCorp * 118,000 4,004
VeriSign * 130,000 2,119
6,123
IT Services 0.9%
Automatic Data Processing 78,000 3,089
Certegy 8,900 292
DST Systems * 50,000 2,088
Electronic Data Systems 185,723 4,558
First Data 89,100 3,661
Paychex 94,540 3,517
Sabre Holdings 28,906 624
17,829
Office Electronics 0.2%
Canon (JPY) 72,000 3,354
3,354
Semiconductor & Semiconductor Equipment 2.4%
Altera * 152,000 3,450
Analog Devices 149,000 6,802
Applied Materials * 160,000 3,592
Intel 508,400 16,370
Jenoptik (EUR) 56,559 620
KLA-Tencor * 60,000 3,520
Linear Technology 115,000 4,838
Maxim Integrated Products 111,500 5,553
Texas Instruments 100,000 2,938
Xilinx * 50,400 1,953
49,636
Software 2.7%
Adobe Systems 100,000 3,930
Electronic Arts * 30,000 1,433
Intuit * 167,200 8,847
Microsoft 849,800 23,404
NEC Soft (JPY) 15,600 413
Oracle * 727,000 9,596
SAP (EUR) 22,147 3,715
VERITAS Software * 115,000 4,273
55,611
Total Information Technology 192,309
MATERIALS 4.0%
Chemicals 1.2%
BASF (EUR) 43,149 2,424
Degussa (EUR) 54,310 1,897
Dow Chemical 167,200 6,951
DuPont 56,315 2,584
FMC * 42,000 1,433
Great Lakes Chemical 25,000 680
Kaneka (JPY) 222,000 1,658
Potash Corp./Saskatchewan 31,000 2,681
Rohm & Haas 53,417 2,281
Valspar 36,200 1,789
24,378
Construction Materials 0.3%
Boral (AUD) 740,819 2,834
Cemex (MXN) 231,000 1,207
RMC (GBP) 152,080 1,893
5,934
Metals & Mining 2.1%
Alcoa 167,860 6,379
Anglo American (GBP) 40,341 869
Bluescope Steel (AUD) 565,172 2,383
Gerdau ADR 132,600 2,681
Inco * 200,000 7,964
Newmont Mining 60,000 2,917
Nippon Steel (JPY) 864,000 1,855
Nucor 132,000 7,392
Phelps Dodge 119,300 9,077
SSAB Svenskt Stal, Series A (SEK) 92,157 1,646
43,163
Paper & Forest Products 0.4%
Georgia-Pacific 61,135 1,875
International Paper 100,000 4,311
MeadWestvaco 30,000 892
Weyerhaeuser 12,700 813
7,891
Total Materials 81,366
TELECOMMUNICATION SERVICES 2.7%
Diversified Telecommunication Services 1.9%
Alltel 89,100 4,150
AT&T 129,300 2,625
BellSouth 121,500 3,438
Carso Global Telecom (MXN) * 919,200 1,287
Royal KPN (EUR) * 325,988 2,514
SBC Communications 252,540 6,584
Sprint 101,800 1,672
Tele2 AB, Series B (SEK) * 42,524 2,270
Telecom Italia (EUR) * 507,954 1,504
Telmex ADR, Series L 34,400 1,136
Verizon Communications 356,730 12,514
39,694
Wireless Telecommunication Services 0.8%
America Movil ADR, Series L 45,800 1,252
China Unicom (HKD) 552,000 516
KDDI (JPY) 341 1,954
mm02 (GBP) * 1,318,438 1,812
Nextel Communications, Class A * 100,000 2,806
SK Telecom ADR 43,110 804
Telecom Italia Mobile (EUR) 399,749 2,171
Vodafone (GBP) 294,558 728
Vodafone ADR 177,300 4,440
16,483
Total Telecommunication Services 56,177
UTILITIES 2.1%
Electric Utilities 1.7%
E.On (EUR) 46,323 3,020
El Paso Electric * 100,000 1,335
Endesa ADR 48,800 932
Entergy 81,400 4,651
Exelon 126,025 8,363
FirstEnergy 139,054 4,895
Hong Kong Electric (HKD) 182,571 722
Iberdrola (EUR) 107,290 2,118
Pinnacle West Capital 50,000 2,001
Tohoku Electric Power (JPY) 136,300 2,261
TXU 216,500 5,135
35,433
Gas Utilities 0.2%
Australian Gas Light (AUD) 87,000 736
Centrica (GBP) 661,251 2,490
3,226
Multi-Utilities & Unregulated Power 0.2%
Duke Energy 156,230 3,195
El Paso Energy 47,766 391
3,586
Total Utilities 42,245
Total Common Stocks (Cost $888,985) 1,347,353
PREFERRED STOCKS 0.1%
Porsche (EUR) 2,600 1,541
Total Preferred Stocks (Cost $800) 1,541
CONVERTIBLE PREFERRED STOCKS 0.2%
Reckson Associates Realty, REIT 200,000 5,050
Total Convertible Preferred Stocks (Cost $4,793) 5,050
CORPORATE BONDS 10.9%
Abbey National First Capital, 8.20%, 10/15/04 1,205,000 1,268
AIG SunAmerica Global Financing,
144A, 7.60%, 6/15/05 !! 2,600,000 2,806
Alcan Aluminum, 4.875%, 9/15/12 700,000 697
American Electric Power, Series C, 5.375%, 3/15/10 180,000 188
Anheuser-Busch, 5.75%, 4/1/10 5,000,000 5,418
AOL Time Warner, 7.625%, 4/15/31 1,625,000 1,868
Asian Development Bank, 4.875%, 2/5/07 200,000 213
AT&T, 8.75%, 11/15/31 1,025,000 1,192
AT&T Wireless Services
7.35%, 3/1/06 450,000 487
7.875%, 3/1/11 1,000,000 1,152
AutoZone, 4.75%, 11/15/10 810,000 812
Bank of America, 4.875%, 9/15/12 500,000 503
Bank One, 5.50%, 3/26/07 2,000,000 2,162
BankAmerica, 6.625%, 8/1/07 3,000,000 3,334
BB&T
4.75%, 10/1/12 935,000 934
6.375%, 6/30/25 3,000,000 3,186
Bear Stearns, 4.00%, 1/31/08 1,250,000 1,272
BHP Finance
4.80%, 4/15/13 255,000 256
6.69%, 3/1/06 2,000,000 2,179
Boeing, 8.75%, 8/15/21 2,000,000 2,559
Bottling Group, 4.625%, 11/15/12 450,000 447
BP Capital Markets, 2.35%, 6/15/06 500,000 503
Bristol-Myers Squibb, 5.75%, 10/1/11 2,000,000 2,155
British Telecommunications, VR, 8.375%, 12/15/10 1,000,000 1,217
Burlington Northern Santa Fe, ETC, 7.33%, 6/23/10 534,682 549
Canadian Natural Resources, 6.45%, 6/30/33 500,000 520
Capital One Bank
4.25%, 12/1/08 400,000 401
4.875%, 5/15/08 1,000,000 1,036
Cardinal Health, 4.00%, 6/15/15 425,000 388
Celulosa Arauco Y Constitucion, 8.625%, 8/15/10 800,000 954
Century Telephone Enterprises, 8.25%, 5/1/24 500,000 526
Chevron Phillips Chemical, 5.375%, 6/15/07 560,000 593
CIT Group, 7.75%, 4/2/12 1,960,000 2,312
Citigroup, 7.25%, 10/1/10 1,300,000 1,510
Clear Channel Communications, 6.00%, 11/1/06 1,000,000 1,082
Coca-Cola Bottling, 7.20%, 7/1/09 5,000,000 5,656
Comcast Cable Communications, 6.75%, 1/30/11 1,750,000 1,945
Consolidated Natural Gas, 5.00%, 3/1/14 1,500,000 1,484
Countrywide Funding, 6.875%, 9/15/05 860,000 924
Cox Communications, 7.125%, 10/1/12 300,000 345
Credit Suisse First Boston (USA), 6.50%, 1/15/12 1,175,000 1,301
CSX, 7.45%, 5/1/07 1,000,000 1,132
Dayton Power & Light, 144A, 5.125%, 10/1/13 1,000,000 1,008
Delta, ETC, 8.95%, 1/12/12 1,227,833 976
Deutsche Telekom Finance Group, 8.50%, 6/15/10 1,150,000 1,390
Dillards, 6.43%, 8/1/04 2,000,000 2,025
Duke Capital, 7.50%, 10/1/09 1,000,000 1,141
DuPont, 6.875%, 10/15/09 660,000 758
Energy East, 6.75%, 9/15/33 1,000,000 1,049
Enron Oil & Gas, 6.50%, 12/1/07 4,000,000 4,401
EOP Operating, 6.80%, 1/15/09 1,250,000 1,392
Equitable Resources, 7.75%, 7/15/26 2,000,000 2,351
Erac USA Finance, 144A, 8.00%, 1/15/11 2,500,000 2,945
ERP Operating, 6.95%, 3/2/11 710,000 794
European Investment Bank, 4.00%, 8/30/05 850,000 880
Exelon Generation, 6.95%, 6/15/11 375,000 421
Federal Express, 9.95%, 8/15/06 500,000 574
First Data, 4.70%, 8/1/13 800,000 788
First Union, 7.55%, 8/18/05 3,000,000 3,269
Florida Power & Light, 5.95%, 10/1/33 400,000 408
Food Lion, 8.05%, 4/15/27 1,900,000 2,051
Ford Capital, 9.50%, 6/1/10 4,000,000 4,540
Ford Motor Credit, 6.50%, 1/25/07 1,600,000 1,704
France Telecom, 9.00%, 3/1/11 1,590,000 1,907
General Electric Capital
4.25%, 1/15/08 1,000,000 1,030
7.25%, 5/3/04 2,000,000 2,039
General Mills, 6.00%, 2/15/12 1,750,000 1,874
GM, 8.25%, 7/15/23 2,750,000 3,106
Goldman Sachs Group, 6.60%, 1/15/12 2,500,000 2,781
GTE Florida, 7.41%, 12/15/23 1,000,000 1,040
Household Finance, 6.375%, 10/15/11 3,200,000 3,520
Hydro-Quebec, 7.50%, 4/1/16 1,000,000 1,223
IBM, 6.45%, 8/1/07 1,000,000 1,117
Int'l Bank for Recon. & Development
5.00%, 3/28/06 1,350,000 1,434
7.625%, 1/19/23 1,800,000 2,292
INTELSAT, 144A, 5.25%, 11/1/08 255,000 263
Inter-American Development Bank, 6.375%, 10/22/07 1,100,000 1,232
International Lease Finance, 3.75%, 8/1/07 400,000 406
Jefferson Pilot, 144A, 8.14%, 1/15/46 1,500,000 1,657
Kimberly-Clark, 6.375%, 1/1/28 5,000,000 5,348
Kraft Foods, 5.625%, 11/1/11 1,000,000 1,053
Kroger, 8.05%, 2/1/10 2,500,000 2,957
Lehman Brothers, 6.625%, 1/18/12 1,325,000 1,485
Liberty Media, 3.50%, 9/25/06 480,000 482
Malaysia, 7.50%, 7/15/11 420,000 497
Manufacturers & Traders Trust, 8.00%, 10/1/10 1,625,000 1,945
Marsh & McLennan, 3.625%, 2/15/08 50,000 50
MBNA America Bank, 6.50%, 6/20/06 1,500,000 1,630
Morgan Stanley, 6.875%, 3/1/07 4,000,000 4,457
New Jersey Bell Telephone, 6.80%, 12/15/24 2,500,000 2,561
News America Holdings, 9.25%, 2/1/13 3,090,000 3,981
Niagara Mohawk Power, 7.625%, 10/1/05 1,512,195 1,656
Noram Energy, 6.50%, 2/1/08 521,000 559
Norfolk Southern, 7.80%, 5/15/27 4,000,000 4,766
Northrop Grumman, 7.875%, 3/1/26 2,000,000 2,427
NYNEX, 9.55%, 5/1/10 621,216 724
Ontario Province, 6.00%, 2/21/06 2,650,000 2,853
Oracle, 6.91%, 2/15/07 3,000,000 3,257
Panhandle Eastern Pipe Line, 144A, 4.80%, 8/15/08 335,000 343
Pemex Project Funding Master Trust,
7.375%, 12/15/14 2,500,000 2,681
Petrobras International, 9.875%, 5/9/08 1,340,000 1,568
Phillips Petroleum, 7.00%, 3/30/29 4,000,000 4,476
PNC Funding, 5.25%, 11/15/15 1,000,000 991
PPL Energy, 6.40%, 11/1/11 940,000 1,008
Procter & Gamble, 4.85%, 12/15/15 500,000 496
Province of Manitoba, 7.50%, 2/22/10 5,600,000 6,712
Public Service Company of Colorado, 7.875%, 10/1/12 940,000 1,132
Pulte Homes, 7.875%, 8/1/11 750,000 881
Quebec Province, 7.00%, 1/30/07 1,000,000 1,123
Republic of Chile, 5.50%, 1/15/13 115,000 119
Republic of Italy
2.50%, 3/31/06 1,000,000 1,007
4.375%, 6/15/13 330,000 328
5.375%, 6/15/33 330,000 326
Republic of Korea, 8.875%, 4/15/08 424,000 511
Royal Bank of Scotland Group, 5.00%, 10/1/14 1,000,000 998
SBC Communications, 6.25%, 3/15/11 1,100,000 1,202
Sempra Energy, 6.00%, 2/1/13 790,000 832
Sovereign Bank, 5.125%, 3/15/13 355,000 352
Sprint Capital, 6.875%, 11/15/28 600,000 579
St. Paul Companies, 5.75%, 3/15/07 1,525,000 1,642
State Street, 7.65%, 6/15/10 2,225,000 2,637
Suntrust Bank, 2.50%, 5/4/06 1,000,000 995
Synovus Financial, 4.875%, 2/15/13 390,000 384
Telefonica Europe, 7.35%, 9/15/05 1,660,000 1,805
Telmex, 144A, 4.50%, 11/19/08 270,000 271
Telus, 7.50%, 6/1/07 400,000 444
Tenneco Packaging, 7.20%, 12/15/05 1,000,000 1,078
Time Warner, 7.48%, 1/15/08 1,400,000 1,590
Transocean, 9.50%, 12/15/08 425,000 528
Travelers Property Casualty, 6.75%, 11/15/06 1,500,000 1,640
TXU Energy, 7.00%, 3/15/13 250,000 275
Unilever Capital, 7.125%, 11/1/10 430,000 501
Union Bank Switzerland, 7.25%, 7/15/06 1,000,000 1,123
Union Pacific, 6.50%, 4/15/12 2,000,000 2,217
United Mexican States, 7.50%, 1/14/12 2,000,000 2,258
UST, 6.625%, 7/15/12 1,200,000 1,325
Verizon Virginia, 4.625%, 3/15/13 130,000 125
Viacom, 6.625%, 5/15/11 2,500,000 2,833
Vodafone, 5.375%, 1/30/15 600,000 605
Washington Mutual, 4.375%, 1/15/08 1,250,000 1,287
Wells Fargo Financial, 5.50%, 8/1/12 2,000,000 2,137
Weyerhaeuser, 5.95%, 11/1/08 750,000 807
Willamette Industries, 7.85%, 7/1/26 1,000,000 1,117
XL Capital Finance, 6.50%, 1/15/12 1,250,000 1,360
Total Corporate Bonds (Cost $206,761) 222,589
ASSET-BACKED SECURITIES 0.6%
American Express, Series 2000-1, Class A,
7.20%, 9/17/07 1,135,000 1,203
Citibank Credit Card Issuance Trust,
Series 2000-A1, 6.90%, 10/17/07 2,800,000 3,028
GMAC Commercial Mortgage Securities,
Series 2001-C2, Class A2, CMO, 6.70%, 4/15/34 4,200,000 4,755
Hyundai Auto Receivables Trust,
Series 2003-A, Class A4, 3.02%, 10/15/10 325,000 325
J.P. Morgan Chase, Series 1999-C7,
Class A2, CMO, 6.507%, 10/15/35 140,000 155
Morgan Stanley Dean Witter Capital,
Series 2002, Class A2, CMO, 5.98%, 1/15/39 2,800,000 3,053
Rail Car Trust, Series 1992-1,
Class A, 7.75%, 6/1/04 9,565 10
Total Asset-Backed Securities (Cost $12,118) 12,529
NON-U.S. GOVERNMENT MORTGAGE-
BACKED SECURITIES 0.5%
DLJ Commercial Mortgage, Series 1999-CG2,
Class A1B, CMO, 7.30%, 6/10/32 2,850,000 3,286
J.P. Morgan Chase, Series 2001-CIBC,
Class A3, CMO, 6.26%, 3/15/33 5,450,000 5,999
Total Non-U.S. Government Mortgage-
Backed Securities (Cost $8,915) 9,285
U.S. GOVERNMENT & AGENCY MORTGAGE-
BACKED SECURITIES 3.3%
U.S. Government Agency Obligations (+/-) 1.5%
Federal Home Loan Mortgage
6.50%, 6/1/32 889,802 933
7.00%, 6/1/32 1,835,944 1,944
TBA, 6.00%, 1/1/34 3,725,000 3,848
Federal National Mortgage Assn.
4.50%, 5/1/18 6,000,000 6,015
5.50%, 5/1 - 10/1/17 5,107,938 5,313
6.50%, 3/1/16 - 12/1/32 2,412,993 2,546
7.00%, 4/1/26 - 4/1/32 1,264,612 1,340
CMO, 6.00%, 10/25/08 3,835,000 4,106
TBA, 6.00%, 1/1/33 4,861,000 5,024
U.S. Department of Veteran Affairs,
CMO, VR, 3/15/25 222,174 251
U.S. Government Obligations 1.8%
Government National Mortgage Assn.
5.00%, 9/20/33 2,951,797 2,919
6.00%, 2/15 - 6/15/14 502,089 534
6.50%, 9/15/25 - 4/15/29 2,402,240 2,549
7.00%, 12/15/23 - 3/15/31 1,910,999 2,045
7.50%, 9/15/22 - 5/15/26 1,206,447 1,303
8.00%, 6/15/17 - 11/15/25 935,148 1,025
8.50%, 3/15/05 - 6/20/26 782,056 857
9.00%, 2/15 - 6/20/20 93,882 104
9.50%, 8/15/09 - 8/20/22 108,921 121
10.00%, 11/15/09 - 1/20/22 14,118 16
10.50%, 5/15/15 4,263 5
11.00%, 3/15/10 - 1/15/20 174,528 195
11.50%, 3/15/10 - 3/15/16 272,825 308
ARM, 5.75%, 8/20/23 22,114 23
TBA
5.50%, 1/1/33 16,000,000 16,240
6.00%, 1/1/33 7,262,804 7,533
Total U.S. Government & Agency Mortgage-
Backed Securities (Cost $65,557) 67,097
U.S. GOVERNMENT AGENCY OBLIGATIONS
(EXCLUDING MORTGAGE-BACKED) 10.0%
U.S. Government Agency Obligations (+/-) 2.8%
Federal Home Loan Bank
5.75%, 5/15/12 6,375,000 6,936
6.34%, 10/19/05 4,875,000 5,257
Federal Home Loan Mortgage
1.875%, 1/15/05 15,000,000 15,076
5.125%, 7/15/12 582,000 607
7.00%, 7/15/05 11,280,000 12,178
Federal National Mortgage Assn.
5.25%, 8/1/12 3,310,000 3,393
6.47%, 9/25/12 3,000,000 3,412
7.125%, 2/15/05 10,000,000 10,632
U.S. Treasury Obligations 7.2%
U.S. Treasury Bonds
5.375%, 2/15/31 13,995,000 14,594
6.25%, 8/15/23 - 5/15/30 2,675,000 3,060
6.50%, 11/15/26 21,000,000 24,721
7.125%, 2/15/23 300,000 375
7.25%, 5/15/16 13,500,000 16,850
8.125%, 8/15/19 300,000 405
8.75%, 5/15/20 1,000,000 1,428
9.25%, 2/15/16 3,000,000 4,308
11.625%, 11/15/04 20,000 22
13.875%, 5/15/11 190,000 241
U.S. Treasury Notes
1.625%, 4/30/05 4,750,000 4,765
2.00%, 5/15/06 11,000,000 11,002
3.00%, 11/15/07 5,700,000 5,751
3.25%, 8/15/07 11,000,000 11,220
4.375%, 5/15/07 - 8/15/12 10,945,000 11,489
4.625%, 5/15/06 19,000,000 20,140
4.75%, 11/15/08 14,019,000 15,013
7.875%, 11/15/04 2,650,000 2,802
Total U.S. Government Agency Obligations
(excluding Mortgage-Backed) (Cost $200,013) 205,677
DOMESTIC BOND MUTUAL FUNDS 7.1%
T. Rowe Price Institutional High Yield Fund, 7.92% p! 13,319,475 145,848
Total Domestic Bond Mutual Funds (Cost $139,761) 145,848
SHORT-TERM INVESTMENTS 2.7%
Money Market Fund 2.7%
T. Rowe Price Reserve Investment Fund, 1.13% # 56,297,261 56,297
Total Short-Term Investments (Cost $56,297) 56,297
SECURITIES LENDING COLLATERAL 10.5%
Money Market Pooled Account 1.6%
Investment in money market pooled account managed
by JP Morgan Chase Bank, London, 1.05% # 31,272,257 31,272
Money Market Trust 8.9%
State Street Bank and Trust Company of New Hampshire
N.A. Securities Lending Quality Trust units, 1.20% # 182,767,295 182,768
Total Securities Lending Collateral (Cost $214,040) 214,040
Total Investments in Securities
111.7% of Net Assets (Cost $1,798,040) $2,287,306
----------
(ss.) Denominated in USD unless otherwise noted
# Seven-day yield
* Non-income producing
(+/-) The issuer is a publicly-traded company that operates under a
congressional charter; its are neither issued nor guaranteed by the U.S.
government.
! Affiliated company--See Note 2.
!! Security contains restrictions as to public resale pursuant to the
Securities Act of 1933 and related rules--total of such securities at
period-end amounts to $2,806,000 and represents 0.1% of net assets
144A Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration only to
qualified institutional buyers--total of such securities at period-end
amounts to $9,939,000 and represents 0.5% of net assets
P SEC yield
ADR American Depository Receipts
ADS American Depository Shares
ARM Adjustable Rate Mortgage
AUD Australian dollar
CHF Swiss franc
CMO Collateralized Mortgage Obligation
ETC Equipment Trust Certificate
EUR Euro
GBP British pound
HKD Hong Kong dollar
JPY Japanese yen
MXN Mexican peso
MYR Malaysian ringgit
NOK Norwegian krone
REIT Real Estate Investment Trust
SEK Swedish krona
SGD Singapore dollar
TBA To Be Announced security was purchased on a forward commitment basis
VR Variable Rate
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
Certified Annual Report December 31, 2003
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
($ 000s)
Assets
Investments in securities, at value
Affiliated companies (cost $139,761) $ 145,848
Other companies (cost $1,658,279) 2,141,458
Total investments in securities 2,287,306
Other assets 11,388
Total assets 2,298,694
Liabilities
Obligation to return securities lending collateral 214,040
Other liabilities 37,008
Total liabilities 251,048
NET ASSETS $ 2,047,646
------------
Net Assets Consist of:
Undistributed net realized gain (loss) $ (10,123)
Net unrealized gain (loss) 489,275
Paid-in-capital applicable to 111,224,179 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares authorized 1,568,494
NET ASSETS $ 2,047,646
------------
NET ASSET VALUE PER SHARE $ 18.41
------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
Certified Annual Report
Statement of Operations
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
12/31/03
Investment Income (Loss)
Income
Dividend $ 30,756
Interest 27,280
Securities lending 629
Total income 58,665
Expenses
Investment management 7,983
Shareholder servicing 5,412
Custody and accounting 314
Prospectus and shareholder reports 137
Registration 44
Legal and audit 18
Directors 11
Miscellaneous 15
Total expenses 13,934
Expenses paid indirectly (1)
Net expenses 13,933
Net investment income (loss) 44,732
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 15,122
Capital gain distributions from mutual funds 266
Foreign currency transactions (18)
Net realized gain (loss) 15,370
Change in net unrealized gain (loss)
Securities 302,204
denominated in foreign currencies (43)
Change in net unrealized gain (loss) 302,161
Net realized and unrealized gain (loss) 317,531
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 362,263
-----------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
Certified Annual Report
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
12/31/03 12/31/02
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 44,732 $ 47,570
Net realized gain (loss) 15,370 (24,786)
Change in net unrealized gain (loss) 302,161 (172,199)
Increase (decrease) in net assets from operations 362,263 (149,415)
Distributions to shareholders
Net investment income (45,522) (47,248)
Net realized gain - (3,035)
Decrease in net assets from distributions (45,522) (50,283)
Capital share transactions *
Shares sold 402,481 340,868
Distributions reinvested 43,840 48,241
Shares redeemed (297,199) (398,810)
Increase (decrease) in net assets from capital
share transactions 149,122 (9,701)
Net Assets
Increase (decrease) during period 465,863 (209,399)
Beginning of period 1,581,783 1,791,182
End of period $ 2,047,646 $ 1,581,783
----------- -----------
*Share information
Shares sold 24,597 20,730
Distributions reinvested 2,618 2,986
Shares redeemed (18,004) (24,095)
Increase (decrease) in shares outstanding 9,211 (379)
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
Certified Annual Report December 31, 2003
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 (the 1940 Act) 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
accounting principles generally accepted in the United States of America, which
require the use of estimates made by fund management.
Valuation
The fund values its investments and computes its net asset value per share at
the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day
that the NYSE is open for business. Equity securities listed or regularly traded
on a securities exchange or in the over-the-counter market are valued at the
last quoted sale price, or official closing price for certain markets, 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 are valued at the mean of the latest bid and ask prices for domestic
securities and the last quoted sale price for international securities.
Debt securities are generally traded in the over-the-counter market. Securities
with original maturities of one year or more are valued at prices furnished by
dealers who make markets in such securities or by an independent pricing
service, which considers yield or price of bonds of comparable quality, coupon,
maturity, and type, as well as prices quoted by dealers who make markets in such
securities. Securities with original maturities of less than one year are valued
at amortized cost in local currency, which approximates fair value when combined
with accrued interest.
Investments in mutual funds are valued at the mutual fund's closing net asset
value per share on the day of valuation.
Other investments and those 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 the T. Rowe Price Valuation Committee,
established by the fund's Board of Directors.
Most foreign markets close before the NYSE. Normally, developments that could
affect the values of securities that occur between the close of a foreign
market and the close of the NYSE will not be reflected in security valuations
used by the fund to compute its share price. However, if developments are so
significant that they will, in the judgment of the fund, clearly and materially
affect security values, such valuations may be adjusted to reflect the estimated
fair value of the securities as of the close of the NYSE, as determined in good
faith by the T. Rowe Price Valuation Committee, established by the fund's Board
of Directors.
Currency Translation
Assets, including investments, 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 ask prices of such currencies against U.S. dollars
as quoted by a major bank. Purchases and sales of securities, income, and
expenses are translated into U.S. dollars at the prevailing exchange rate on the
date of the transaction. The effect of changes in foreign currency exchange
rates on realized and unrealized security gains and losses is reflected as a
component of security gains and losses.
Rebates and Credits
Subject to best execution, the fund may direct certain security trades to
brokers who have agreed to rebate a portion of the related brokerage commission
to the fund in cash. Commission rebates are included in realized gain on
securities in the accompanying financial statements and totaled $13,000 for the
year ended December 31, 2003. Additionally, the fund earns credits on
temporarily uninvested cash balances at the custodian that reduce the fund's
custody charges. Custody expense in the accompanying financial statements is
presented before reduction for credits, which are reflected as expenses paid
indirectly.
Investment Transactions, Investment Income, and Distributions
Income and expenses are recorded on the accrual basis. Premiums and discounts on
debt securities are amortized for financial reporting purposes. Dividends
received from mutual fund investments are reflected as dividend income; capital
gain distributions are reflected as realized gain/loss. Dividend income and
capital gain distributions are recorded on the ex-dividend date. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Distributions to shareholders are
recorded on the ex-dividend date. Income distributions are declared and paid on
a quarterly basis. Capital gain distributions, if any, are typically declared
and paid on an annual basis.
Other
In the normal course of business, the fund enters into contracts that provide
general indemnifications. The fund's maximum exposure under these
arrangements is dependent on claims that may be made against the fund in the
future and, therefore, cannot be estimated; however, based on experience, the
risk of material loss from such claims is considered remote.
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% to
105% of the value of the securities on loan. Cash collateral is invested in
money market pooled accounts managed by the fund's lending agents in accordance
with investment guidelines approved by fund management. 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. Securities
lending revenue recognized by the fund consists of earnings on invested
collateral and borrowing fees, net of any rebates to the borrower and
compensation to the lending agent. At December 31, 2003, the value of loaned
securities was $243,271,000; aggregate collateral consisted of $214,040,000 in
money market pooled accounts and U.S. government securities valued at
$36,911,000.
Affiliated Companies
The fund may invest in certain securities that are considered affiliated
companies. As defined by the 1940 Act, an affiliated company is one in which the
fund owns 5% or more of the outstanding voting securities. At December 31, 2003,
the value of affiliated companies totaled $145,848,000, representing 6.4% of the
value of the fund's investments in securities. For the year then ended,
$7,089,000 (23.1%) of dividend income and $266,000 (1.7%) of net realized gain
reflected in the accompanying financial statements resulted from the fund's
transactions with affiliated companies.
Other
Purchases and sales of portfolio securities, other than short-term and U.S.
government securities, aggregated $309,109,000 and $185,214,000, respectively,
for the year ended December 31, 2003. Purchases and sales of U.S. government
securities aggregated $510,527,000 and $481,662,000, respectively, for the year
ended December 31, 2003.
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 under Subchapter M of the
Internal Revenue Code and distribute to shareholders all of its taxable income
and gains. Federal income tax regulations differ from generally accepted
accounting principles; therefore, distributions determined in accordance with
tax regulations may differ significantly in amount or character from net
investment income and realized gains for financial reporting purposes. Financial
reporting records are adjusted for permanent book/tax differences to reflect tax
character. Financial records are not adjusted for temporary differences.
Distributions during the year ended December 31, 2003 totaled $45,522,000 and
were characterized as ordinary income for tax purposes. At December 31, 2003,
the tax-basis components of net assets were as follows:
- --------------------------------------------------------------------------------
Unrealized appreciation $ 521,941,000
Unrealized depreciation (33,567,000)
Net unrealized appreciation (depreciation) 488,374,000
Undistributed ordinary income 571,000
Capital loss carryforwards (9,793,000)
Paid-in capital 1,568,494,000
Net assets $ 2,047,646,000
----------------
The fund intends to retain realized gains to the extent of available capital
loss carryforwards for federal income tax purposes. In 2003, the fund utilized
$4,568,000 of capital loss carryforwards. As of December 31, 2003, the fund had
$9,793,000 of capital loss carryforwards that expire in 2010.
For the year ended December 31, 2003, the fund recorded the following permanent
reclassifications to reflect tax character. Results of operations and net assets
were not affected by these reclassifications.
- --------------------------------------------------------------------------------
Undistributed net investment income $ 583,000
Undistributed net realized gain (583,000)
At December 31, 2003, the cost of investments for federal income tax purposes
was $1,799,012,000.
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, Inc. The
investment management agreement between the fund and the manager provides for an
annual investment management fee, which is computed daily and paid monthly. The
fee consists of an individual fund fee, equal to 0.15% of the fund's average
daily net assets, and the fund's pro-rata share of a group fee. The group fee is
calculated based on the combined net assets of certain mutual funds sponsored by
Price Associates (the group) applied to a graduated fee schedule, with rates
ranging from 0.48% for the first $1 billion of assets to 0.295% for assets in
excess of $120 billion. The fund's portion of the group fee is determined by the
ratio of its average daily net assets to those of the group. At December 31,
2003, the effective annual group fee rate was 0.32%, and investment management
fee payable totaled $731,000.
In addition, the fund has entered into service agreements with Price Associates
and two wholly owned subsidiaries of Price Associates (collectively, Price).
Price Associates computes the daily share price and maintains the financial
records of the fund. T. Rowe Price Services, Inc., provides shareholder and
administrative services in its capacity as the fund's transfer and dividend
disbursing agent. T. Rowe Price Retirement Plan Services, Inc., provides
subaccounting and recordkeeping services for certain retirement accounts
invested in the fund. Expenses incurred pursuant to these service agreements
totaled $4,357,000 for the year ended December 31, 2003, of which $363,000 was
payable at period-end.
The fund may invest in the T. Rowe Price Reserve Investment Fund and the 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, trusts, and other accounts managed by Price Associates and/or
its affiliates, and are not available to the public. The Reserve Funds pay no
investment management fees. During the year ended December 31, 2003, dividend
income from the Reserve Funds totaled $990,000.
The fund may invest in the T. Rowe Price Institutional High Yield Fund, Inc.
(High Yield Fund), an open-end management investment company managed by Price
Associates, as a means of gaining efficient and cost-effective exposure to the
high-yield bond markets. On May 20, 2003, the fund purchased 11,098,000 shares
of the High Yield Fund, at the net asset value per share on that date, by
transferring portfolio securities valued at $116,413,000 to the High Yield Fund.
For financial reporting and tax purposes, the fund realized a net gain of
$5,149,000 on the transfer, reflecting the amount that fair value of the
transferred securities on the date of transfer exceeded cost. At December 31,
2003, the fund held approximately 20.4% of the High Yield Fund's outstanding
shares and, during the year then ended, recorded dividend income from the High
Yield Fund in the amount of $7,089,000 and capital gain distributions of
$266,000.
The High Yield Fund pays an annual all-inclusive management and administrative
fee to Price Associates equal to 0.50% of average daily net assets. Because the
Balanced Fund indirectly bears its proportionate share of this fee, Price
Associates has agreed to permanently reduce the investment management fee
charged to the fund by the amount of expense incurred by the High Yield Fund as
a result of the fund's investment therein. Pursuant to this agreement, the
fund's management fee was reduced by $424,000 during the year ended December 31,
2003.
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
Certified Annual Report
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Balanced Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of T. Rowe Price Balanced Fund, Inc.
(the "Fund") at December 31, 2003, and the results of its operations, the
changes in its net assets and the financial highlights for each of the fiscal
periods presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2003 by correspondence with custodians and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 26, 2004
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
Certified Annual Report
Tax Information (Unaudited) for the Tax Year Ended 12/31/03
- --------------------------------------------------------------------------------
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 $248,000 from short-term
capital gains.
For taxable non-corporate shareholders, $28,064,000 of the fund's income and
short-term capital gains represents qualified dividend income subject to the 15%
rate category.
For corporate shareholders, $22,005,000 of the fund's income and short-term
capital gains qualified for the dividends-received deduction.
Information on Proxy Voting
- --------------------------------------------------------------------------------
A description of the policies and procedures that the T. Rowe Price Balanced
Fund uses to determine how to vote proxies relating to portfolio securities is
available, without charge, upon request by calling 1-800-225-5132. It also
appears in the fund's Statement of Additional Information (Form 485B), which can
be found on the SEC's Web site, www.sec.gov.
T. Rowe Price Balanced Fund
- --------------------------------------------------------------------------------
Certified Annual Report
About the Fund's Directors and Officers
- --------------------------------------------------------------------------------
Your fund is governed by a Board of Directors that meets regularly to review
investments, performance, expenses, and other business matters, and is
responsible for protecting the interests of shareholders. The majority of the
fund's directors are independent of T. Rowe Price Associates, Inc. (T. Rowe
Price); "inside" directors are officers of T. Rowe Price. The Board of Directors
elects the fund's officers, who are listed in the final table. The business
address of each director and officer is 100 East Pratt Street, Baltimore, MD
21202. The Statement of Additional Information includes additional information
about the fund directors and is available without charge by calling a T. Rowe
Price representative at 1-800-225-5132.
Independent Directors
Name
(Date of Birth) Principal Occupation(s) During Past 5 Years
Year Elected * and Directorships of Other Public Companies
Anthony W. Deering Director, Chairman of the Board, President, and
(1/28/45) Chief Executive Officer, The Rouse Company,
2001 real estate developers; Director, Mercantile Bank
(4/03 to present)
Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an
(1/27/43) acquisition and management advisory firm
1991
David K. Fagin Director, Golden Star Resources Ltd., Canyon
(4/9/38) Resources Corp. (5/00 to present), and Pacific
1991 Rim Mining Corp. (2/02 to present); Chairman and
President, Nye Corp.
Karen N. Horn Managing Director and President, Global Private
(9/21/43) Client Services, Marsh Inc.; Managing Director
2003 and Head of International Private Banking,
Bankers Trust; Director, Eli Lilly and Company
F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates,
(8/22/34) Inc., consulting environmental and civil engineers
2001
John G. Schreiber Owner/President, Centaur Capital Partners, Inc.,
(10/21/46) a real estate investment company; Senior Advisor
2001 and Partner, Blackstone Real Estate Advisors,
L.P.; Director, AMLI Residential Properties Trust,
Host Marriott Corp., and The Rouse Company
Hubert D. Vos ** Owner/President, Stonington Capital Corp., a
(8/2/33) private investment company
1991
Paul M. Wythes ** Founding Partner, Sutter Hill Ventures, a venture
(6/23/33) capital limited partnership, providing equity
1992 capital to young high-technology companies
throughout the United States; Director,
Teltone Corp.
* Each independent director oversees 107 T. Rowe Price portfolios and serves
until retirement, resignation, or election of a successor.
** Retired from Board of Directors effective December 31, 2003.
Inside Directors
Name
(Date of Birth)
Year Elected *
[Number of T. Rowe Price Principal Occupation(s) During Past 5 Years and
Portfolios Overseen] Directorships of Other Public Companies
James A.C. Kennedy, CFA Director and Vice President, T. Rowe Price
(8/15/53) and T. Rowe Price Group, Inc.
1997
[39]
James S. Riepe Director and Vice President, T. Rowe Price;
(6/25/43) Vice Chairman of the Board, Director, and Vice
1991 President, T. Rowe Price Group, Inc.; Chairman
[107] of the Board and Director, T. Rowe Price Global
Asset Management Limited, T. Rowe Price Global
Investment Services Limited, T. Rowe Price
Investment Services, Inc., T. Rowe Price
Retirement Plan Services, Inc., and T. Rowe Price
Services, Inc.; Chairman of the Board, Director,
President, and Trust Officer, T. Rowe Price Trust
Company; Director, T. Rowe Price International,
Inc.; Chairman of the Board, Balanced Fund
M. David Testa, CFA, CIC Chief Investment Officer, Director, and Vice
(4/22/44) President, T. Rowe Price; Vice Chairman of the
1991 Board, Chief Investment Officer, Director, and
[107] Vice President, T. Rowe Price Group, Inc.;
Chairman of the Board and Director, T. Rowe Price
International, Inc.; Director, T. Rowe Price
Global Asset Management Limited and T. Rowe Price
Global Investment Services Limited; Director and
Vice President, T. Rowe Price Trust Company; Vice
President, Balanced Fund
* Each inside director serves until retirement, resignation, or election of
a successor.
Officers
Name (Date of Birth)
Title and Fund(s) Served Principal Occupation(s)
Stephen W. Boesel (12/28/44) Vice President, T. Rowe Price, T. Rowe
Vice President, Balanced Fund Price Group, Inc., and T. Rowe Price
Trust Company
Stephen V. Booth (6/21/61) Vice President, T. Rowe Price, T. Rowe
Vice President, Balanced Fund Price Group, Inc., and T. Rowe Price
Trust Company
Joseph A. Carrier (12/30/60) Vice President, T. Rowe Price, T. Rowe
Treasurer, Balanced Fund Price Group, Inc., and T. Rowe Price
Investment Services, Inc.
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Officers (continued)
Name (Date of Birth)
Title and Fund(s) Served Principal Occupation(s)
Wendy R. Diffenbaugh (10/2/53) Assistant Vice President, T. Rowe Price
Vice President, Balanced Fund
Henry H. Hopkins (12/23/42) Director and Vice President, T. Rowe
Vice President, Balanced Fund Price Group, Inc., T. Rowe Price
Investment Services, Inc., T. Rowe
Price Services, Inc., and T. Rowe Price
Trust Company; Vice President, T. Rowe
Price, T. Rowe Price International,
Inc., and T. Rowe Price Retirement
Plan Services, Inc.
Patricia B. Lippert (1/12/53) Assistant Vice President, T. Rowe Price
Secretary, Balanced Fund and T. Rowe Price Investment Services,
Inc.
Raymond A. Mills, PhD (12/3/60) Vice President, T. Rowe Price, T. Rowe
Vice President, Balanced Fund Price Group, Inc., and T. Rowe Price
International, Inc.
Edmund M. Notzon III, CFA (10/1/45) Vice President, T. Rowe Price, T. Rowe
Vice President, Balanced Fund Price Group, Inc., T. Rowe Price
Investment Services, Inc., and T. Rowe
Price Trust Company
Mark J. Vaselkiv (7/22/58) Vice President, T. Rowe Price and
Vice President, Balanced Fund T. Rowe Price Group, Inc.
Julie L. Waples (5/12/70) Vice President, T. Rowe Price
Vice President, Balanced Fund
Richard T. Whitney, CFA (5/7/58) Vice President, T. Rowe Price, T. Rowe
President, Balanced Fund Price Group, Inc., T. Rowe Price
International, Inc., and T. Rowe Price
Trust Company
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Item 2. Code of Ethics.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. A copy of this code of
ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were
approved or waivers were granted to this code of ethics during the period
covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Directors/Trustees has determined that Mr. David
K. Fagin qualifies as an audit committee financial expert, as defined in
Item 3 of Form N-CSR. Mr. Fagin is considered independent for purposes of
Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal accountant were
as follows:
2003 2002
Audit Fees $11,236 $10,511
Audit-Related Fees 668 --
Tax Fees 2,918 2,545
All Other Fees 124 178
Audit fees include amounts related to the audit of the registrant's annual
financial statements and services normally provided by the accountant in
connection with statutory and regulatory filings. Audit-related fees include
amounts reasonably related to the performance of the audit of the registrant's
financial statements, specifically the issuance of a report on internal
controls. Tax fees include amounts related to tax compliance, tax planning, and
tax advice. Other fees include the registrant's pro-rata share of amounts for
agreed-upon procedures in conjunction with service contract approvals by the
registrant's Board of Directors/Trustees.
(e)(1) The registrant's audit committee has adopted a policy whereby audit and
non-audit services performed by the registrant's principal accountant for the
registrant, its investment adviser, and any entity controlling, controlled by,
or under common control with the investment adviser that provides ongoing
services to the registrant require pre-approval in advance at regularly
scheduled audit committee meetings. If such a service is required between
regularly scheduled audit committee meetings, pre-approval may be authorized by
one audit committee member with ratification at the next scheduled audit
committee meeting. Waiver of pre-approval for audit or non-audit services
requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) - (d) above were approved pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) The aggregate fees billed for the most recent fiscal year and the preceding
fiscal year by the registrant's principal accountant for non-audit services
rendered to the registrant, its investment adviser, and any entity controlling,
controlled by, or under common control with the investment adviser that provides
ongoing services to the registrant were $719,000 and $671,000, respectively, and
were less than the aggregate fees billed for those same periods by the
registrant's principal accountant for audit services rendered to the T. Rowe
Price Funds.
(h) All non-audit services rendered in (g) above were pre-approved by the
registrant's audit committee. Accordingly, these services were considered by the
registrant's audit committee in maintaining the principal accountant's
independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 9. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The registrant's principal executive officer and principal financial officer
are aware of no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is
attached.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b) A certification by the registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940,
is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Balanced Fund, Inc.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date February 20, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date February 20, 2004
By /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date February 20, 2004