Item 1. Report to Shareholders
November 30, 2004
Personal Strategy Funds
Semiannual Report
T. Rowe Price
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The views and opinions in this report were current as of November 30, 2004. They
are not guarantees of performance or investment results and should not be taken
as investment advice. Investment decisions reflect a variety of factors, and the
managers reserve the right to change their views about individual stocks,
sectors, and the markets at any time. As a result, the views expressed should
not be relied upon as a forecast of the fund's future investment intent. The
report is certified under the Sarbanes-Oxley Act of 2002, which requires mutual
funds and other public companies to affirm that, to the best of their knowledge,
the information in their financial reports is fairly and accurately stated in
all material respects.
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T. Rowe Price Personal Strategy Funds
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Fellow Shareholders
U.S. stocks produced moderate gains in the six-month period ended November 30,
2004, thanks to a late-period rally that lifted some indexes to their highest
levels of the year. Despite rising short-term interest rates, U.S. bonds also
produced favorable returns, as longer-term rates fell to levels not seen since
the spring. Non-U.S. stocks outperformed their domestic counterparts, as the
dollar fell to multiyear lows versus several foreign currencies. The Personal
Strategy Funds recorded solid gains for the period on the back of both their
equity and bond investments.
MARKET ENVIRONMENT
Six months ago, the economy was growing at a steady clip, job growth seemed to
be reviving, and the Federal Reserve was telegraphing its intentions to begin
raising short-term interest rates in the near future. Starting on June 30, the
central bank lifted the federal funds target rate--which had been at a 46-year
low--from 1.00% to 2.00% in four quarter-point increments. (Following the end of
our reporting period, the Federal Reserve raised rates by another quarter point
on December 14.) While the Fed began to unwind the highly accommodative monetary
policy of recent years, longer-term interest rates declined as economic growth
moderated and the pace of job creation lost momentum amid the uncertainty of a
heated presidential race and a surge in oil prices to $55 per barrel by the end
of October.
[GRAPHIC OMITTED]
INTEREST RATE LEVELS
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10-Year Treasury Note
5-Year Treasury Note
90-Day Treasury Bill
10-Year 5-Year 90-Day
Treasury Note Treasury Note Treasury Bill
11/30/03 4.33% 3.35% 0.93%
4.25 3.25 0.92
4.13 3.14 0.91
2/04 3.97 2.94 0.94
3.84 2.78 0.94
4.51 3.62 0.96
5/04 4.65 3.79 1.06
4.58 3.77 1.26
4.48 3.69 1.43
8/04 4.12 3.31 1.58
4.12 3.37 1.70
4.02 3.28 1.89
11/30/04 4.35 3.69 2.22
Major U.S. stock indexes, which had traded in a relatively narrow range, sprang
to life in late October as oil prices backed away from their highest levels and
many investors cheered the clear outcome of the presidential election. Value
stocks surpassed growth across all market capitalizations. Most sectors in the
large-cap universe advanced, especially energy and industrials and business
services
stocks. Information technology, consumer staples, and health care
shares lagged.
The Lehman Brothers U.S. Aggregate Index, a broad measure of the taxable
investment-grade bond market, returned 3.82% over the period. High-yield bonds
posted the strongest returns, but long-term Treasuries and corporate bonds also
generated solid numbers. Shorter-term bonds lagged.
MAJOR INDEX RETURNS
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Periods Ended 11/30/04 6 Months 12 Months
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S&P 500 Stock Index 5.68% 12.86%
Wilshire 4500 Index 10.16 15.98
MSCI EAFE Index 12.72 24.66
Lehman Brothers U.S. Aggregate Index 3.82 4.44
Citigroup 3-Month Treasury Bill Index 0.68 1.15
CS First Boston High Yield Index 9.31 12.85
Note: Unlike stocks and bonds, U.S. Treasuries are guaranteed as to the timely
payment of principal and interest.
Non-U.S. stocks strongly surpassed their domestic counterparts, partially
because a weaker U.S. dollar lifted the dollar value of assets denominated in
non-U.S. currencies. Among developed markets, Asian and European equities rose
strongly, but Japanese shares lagged with more modest gains. The MSCI EAFE
Index, which measures the performance of stocks in Europe, Australasia, and the
Far East, returned 12.72% in the six-month period.
MANAGER COMMENTARY
Over the last six months, the funds' investment committee continued to
overweight stocks relative to bonds. The committee, which meets monthly to
adjust the weightings of stocks, bonds, and money market securities within each
portfolio, began to overweight stocks relative to bonds in mid-2002 based upon
the outlook that an improving economy would increase corporate profits while
also putting upward pressure on interest rates.
Corporate profits and stock prices have indeed rebounded strongly over the past
two years, resulting in strong stock returns. Interest rates, however, have
remained surprisingly low. Indeed, the bond market now appears quite richly
priced. We believe this provides further reason to overweight equities. Although
we do not necessarily suppose that the
equity markets will outperform over the next three to six months, current
valuations and solid corporate earnings lead us to believe that equities should
fare better than bonds over the next couple of years.
We are overweighting non-U.S. equities within the portfolios as relative
valuations, and the prospect for continued weakness in the U.S. dollar, seem to
favor non-U.S. equities. Given strong performance in non-U.S. equities over the
last several years, however, we have been moderating our overweight to the
sector. We are modestly underweighting small-cap stocks, given the extended
outperformance among small-cap stocks that began in March 1999. Valuations are
not as dramatically compelling as at the beginning of the current small-cap
cycle, particularly relative to sectors such as large-cap growth.
The large-cap growth sector has been trailing the other U.S. equity sectors in
recent periods. A potentially less robust pace of economic recovery should favor
quality large-cap growth companies that can maintain steady earnings growth in a
slower economic environment. A weaker U.S. dollar should also benefit large-caps
as many U.S.-based multinational companies could see higher profits associated
with earnings in appreciating foreign currencies.
High-yield borrowers tend to do well when the economy is thriving, reducing the
chance that they will default. As with international and small-cap stocks,
however, strong performance has led to historically rich valuations in this
sector of the bond market. Over the past year, we have gradually moderated our
overweight in high-yield securities.
The funds continue to overweight non-U.S. dollar bonds. The falling U.S. dollar
has increased the appeal of foreign bonds, which pay their dividends and repay
their principal in appreciating foreign currencies. While prices of these bonds
have already risen, we perceive that the structural issues posed by the federal
deficit and trade imbalances will continue to put pressure on the dollar.
A wide variety of our equity holdings performed well in the past six months. As
might be expected, large integrated energy producers, such as BP, thrived as oil
prices reached record highs. A particularly strong performer was energy services
firm Baker Hughes, which benefited from heightened demand for production as well
as the need to repair facilities following hurricanes in the Gulf of Mexico.
Economic growth, especially
in China, fueled demand for a number of other commodities. Nucor benefited from
rising steel prices, a weak U.S. dollar, and steep surcharges passed on to
customers to cover the rising cost of materials. Industrial services firms, such
as Tyco International and GE, hammered out profits as businesses shipped more
goods and added productive capacity. GE's management reiterated its confidence
that the company's growth--considered a bellwether for the economy as a
whole--would remain strong in 2005. (Please refer to our financial statements
for a complete listing of the funds' holdings and the amount each represents in
the portfolios.)
PERSONAL STRATEGY INCOME FUND
The Personal Strategy Income Fund's investment objective is to generate the
highest total return consistent with an emphasis on income first and capital
appreciation second. The typical mix of securities for the fund is 40% stocks,
40% bonds, and 20% money market securities, although allocations can vary by as
much as 10 percentage points above or below these levels.
The Personal Strategy Income Fund posted solid gains for both the six and 12
months ended November 30, 2004, as shown in the table. The fund outpaced its
Combined Index Portfolio benchmark and the Lehman Brothers U.S. Aggregate Index
over both periods. Overweighting stocks helped our relative returns, as stocks
outperformed bonds over both periods. We were also helped by our overweights in
high-yield bonds and international stocks.
PERFORMANCE COMPARISON
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Periods Ended 11/30/04 6 Months 12 Months
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Personal Strategy Income Fund 6.81% 11.41%
Combined Index Portfolio * 4.76 8.03
Lehman Brothers U.S. Aggregate Index 3.82 4.44
* For a definition of the Combined Index Portfolio, please see the glossary
at the end of this report.
Please see the fund's quarter-end returns following this letter.
In line with our view that equity investments hold more promise at this stage of
the expansion, we increased our allocation to equities while reducing our
allocation to bonds. At the end of the period, equities represented
47.9% of the portfolio and bonds represented 37.8%. Our reserves increased to
14.3% of net assets.
PERSONAL STRATEGY BALANCED FUND
The Personal Strategy Balanced Fund's investment objective is to provide the
highest total return consistent with an emphasis on both income and capital
appreciation. The typical asset mix is 60% stocks, 30% bonds, and 10% cash--with
10-percentage-point variations above and below these levels permitted for each
asset class. This asset allocation offers higher risk but also a higher
potential return over the long term than the Income Fund.
The Personal Strategy Balanced Fund handily surpassed its benchmarks and
registered strong returns for the 6- and 12-month periods ended November 30,
2004. Overweighting stocks helped our relative returns, as stocks outperformed
bonds over both time~periods. We were also helped by our overweights in
high-yield bonds and international stocks.
PERFORMANCE COMPARISON
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Periods Ended 11/30/04 6 Months 12 Months
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Personal Strategy Balanced Fund 8.28% 14.56%
Combined Index Portfolio * 5.84 10.52
Merrill Lynch-Wilshire Capital Market Index 5.76 10.06
* For a definition of the Combined Index Portfolio, please see the glossary
at the end of this report.
Please see the fund's quarter-end returns following this letter.
The fund's equity weighting increased over the past six months, ending the
period at 68% of net assets. Meanwhile, reflecting our skepticism about bond
prices and views on the likely direction of interest rates, our bond allocation
fell to 27.1%. Our allocation toward reserves, while still low, increased to
4.9%.
PERSONAL STRATEGY GROWTH FUND
The Personal Strategy Growth Fund's investment objective is to seek capital
appreciation by investing primarily in common stocks. The typical asset mix is
80% stocks and 20% bond and money market securities, with 10-percentage-point
allocation variations from these levels permitted.
The Personal Strategy Growth Fund posted strong results that easily outpaced its
benchmarks for the 6- and 12-month periods ended November 30, 2004.
Overweighting stocks helped our relative returns, as stocks outperformed bonds
over both time periods. We were also helped by our allocations to high-yield
bonds and international stocks.
PERFORMANCE COMPARISON
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Periods Ended 11/30/04 6 Months 12 Months
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Personal Strategy Growth Fund 9.50% 17.41%
Combined Index Portfolio * 6.91 13.02
Merrill Lynch-Wilshire Capital Market Index 5.76 10.06
* For a definition of the Combined Index Portfolio, please see the glossary
at the end of this report.
Please see the fund's quarter-end returns following this letter.
The fund's stock allocation increased to 87.4% of net assets at the end of our
reporting period. Our bond allocation fell near the low end of its permitted
range, at 11.4%, while we maintained only 1.2% in money market securities. This
stance reflected both our optimism about equities and our concerns about the
impact of rising interest rates on bond prices.
OUTLOOK
We continue to believe that based on current valuations, equities should fare
better than bonds over the intermediate and longer terms, and the funds continue
to overweight stocks relative to bonds. At the same time, we believe equity
valuations outside the U.S. remain more attractive than those of domestic firms,
leading us to maintain our overweight in non-U.S. stocks relative to their
neutral weighting.
While overweighting equities, the funds also remain well diversified according
to their varying investment objectives. Fixed-income securities are an important
tool for diversification because they tend to be less
volatile than equities and generate income that can help offset principal
losses. We believe that investors should be well served by the funds'
fundamental commitment to diversification across asset classes.
Respectfully submitted,
Edmund M. Notzon III
Chairman of the funds' Investment Advisory Committee
December 17, 2004
The committee chairman has day-to-day responsibility for managing the portfolios
and works with committee members in developing and executing the funds'
investment programs.
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Risks of Investing
As with all stock and bond mutual funds, each fund's share price can fall
because of weakness in the stock or bond markets, a particular industry, or
specific holdings. Stock markets can decline for many reasons, including adverse
political or economic developments, changes in investor psychology, or heavy
institutional selling. The prospects for an industry or company may deteriorate
because of a variety of factors, including disappointing earnings or changes in
the competitive environment. In addition, the investment manager's assessment of
companies held in a fund may prove incorrect, resulting in losses or poor
performance even in rising markets.
Bonds are subject to interest rate risk, the decline in bond prices that usually
accompanies a rise in interest rates, and credit risk, the chance that any fund
holding could have its credit rating downgraded or that a bond issuer will
default (fail to make timely payments of interest or principal), potentially
reducing the fund's income level and share price. High-yield corporate bonds
could have greater price declines than funds that invest primarily in
high-quality bonds. Companies issuing high-yield bonds are not as strong
financially as those with higher credit ratings, so the bonds are usually
considered speculative investments.
Funds that invest overseas may carry more risk than funds that invest strictly
in U.S. assets. Risks can result from varying stages of economic and political
development, differing regulatory environments, trading days, and accounting
standards, and higher transaction costs of non-U.S. markets. Non-U.S.
investments are also subject to currency risk, or a decline in the value of a
foreign currency versus the U.S. dollar, which reduces the dollar value of
securities denominated in that currency.
Glossary
Citigroup 3-Month Treasury Bill Index: An unmanaged index that tracks short-term
U.S. government debt instruments.
Combined Index Portfolios: Unmanaged portfolios composed of the following
underlying indexes:
Personal Strategy Income--40% stocks (34% Wilshire 5000 Index, 6% MSCI EAFE
Index), 40% bonds (Lehman Brothers U.S. Aggregate Index), and 20% money
market securities (Citigroup 3-Month Treasury Bill Index).
Personal Strategy Balanced--60% stocks (51% Wilshire 5000 Index, 9% MSCI EAFE
Index), 30% bonds (Lehman Brothers U.S. Aggregate Index), and 10% money
market securities (Citigroup 3-Month Treasury Bill Index).
Personal Strategy Growth--80% stocks (68% Wilshire 5000 Index, 12% MSCI EAFE
Index) and 20% bonds (Lehman Brothers U.S. Aggregate Index).
CS First Boston High Yield Index: An unmanaged index constructed to mirror the
high-yield debt market.
Duration: The average time (expressed in years) it takes investors to receive
the present value of the future cash flows on their investment. It is used to
measure the sensitivity of bond prices to interest rate changes (the shorter the
duration, the less the bond's price will rise or fall in value when interest
rates change). Duration is affected by maturity, the coupon, and the time
interval between payments. Other things being equal, a bond with a higher coupon
will have a shorter duration, while zero-coupon bonds have the longest.
Lehman Brothers U.S. Aggregate Index: An unmanaged index that tracks
investment-grade corporate and government bonds.
Merrill Lynch-Wilshire Capital Market Index: A market capitalization-weighted
index including the Wilshire 5000 and Merrill Lynch High Yield II and Domestic
Master indexes.
MSCI EAFE Index: An unmanaged index that tracks the stocks of about 1,000
companies in Europe, Australasia, and the Far East (EAFE).
S&P 500 Stock Index: An unmanaged index that tracks the stocks of 500 primarily
large-cap U.S. companies.
Wilshire 4500 Index: An unmanaged index that tracks the performance of all
stocks in the Wilshire 5000 Equity Index, excluding those found in the S&P 500
Stock Index.
Wilshire 5000 Index: An unmanaged index that tracks the performance of the most
active stocks in the broad U.S. market.
T. Rowe Price Personal Strategy Funds
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PORTFOLIO HIGHLIGHTS
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PORTFOLIO OVERVIEW
Percent of Percent of
Net Assets Net Assets
11/30/04 11/30/04
Personal Strategy Income Fund
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Reserves 14.3% Stocks 47.9%
Bonds 37.8% Five Largest Holdings:
Treasuries/Agencies 9.4 Nucor 0.8
Mortgage-Backed 9.3 Tyco International 0.8
Corporate 17.2 Microsoft 0.8
Municipal Securities 0.5 UnitedHealth Group 0.7
Foreign Government 1.4 Citigroup 0.6
Personal Strategy Balanced Fund
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Reserves 4.9% Stocks 68.0%
Bonds 27.1% Five Largest Holdings:
Treasuries/Agencies 6.8 Nucor 1.2
Mortgage-Backed 6.7 Tyco International 1.2
Corporate 12.0 Microsoft 1.1
Municipal Securities 0.4 UnitedHealth Group 0.9
Foreign Government 1.2 Citigroup 0.9
Personal Strategy Growth Fund
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Reserves 1.2% Stocks 87.4%
Bonds 11.4% Five Largest Holdings:
Treasuries/Agencies 2.8 Nucor 1.5
Mortgage-Backed 3.0 Microsoft 1.5
Corporate 5.0 Tyco International 1.4
Municipal Securities 0.2 UnitedHealth Group 1.2
Foreign Government 0.4 Citigroup 1.2
T. Rowe Price Personal Strategy Funds
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GROWTH OF $10,000
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This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with 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]
PERSONAL STRATEGY INCOME FUND
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As of 11/30/04
Personal Strategy Income Fund $25,345
Combined Index Portfolio* $22,634
Lehman Brothers U.S. Aggregate Index $20,991
Personal Strategy Combined Lehman Brothers
Income Fund Index Portfolio* U.S. Aggregate Index
11/94 $10,000 $10,000 $10,000
11/95 12,414 12,052 11,764
11/96 14,212 13,547 12,478
11/97 15,981 15,342 13,421
11/98 17,739 17,272 14,689
11/99 18,633 18,916 14,683
11/00 19,687 19,377 16,014
11/01 20,421 19,469 17,801
11/02 20,038 18,999 19,108
11/03 22,749 20,851 20,098
11/04 25,345 22,634 20,991
AVERAGE ANNUAL COMPOUND TOTAL RETURN
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This table shows how the fund and its benchmarks would have performed if their
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Periods Ended 11/30/04 1 Year 5 Years 10 Years
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Personal Strategy Income Fund 11.41% 6.35% 9.75%
Lehman Brothers U.S. Aggregate Index 4.44 7.41 7.70
Combined Index Portfolio * 8.03 3.65 8.51
* An unmanaged portfolio composed of 40% stocks (34% Wilshire 5000 Index, 6%
MSCI EAFE Index), 40% bonds (Lehman Brothers U.S. Aggregate Index), and 20%
money market securities (Citigroup 3-Month Treasury Bill Index).
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 Personal Strategy Funds
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GROWTH OF $10,000
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This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with 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]
PERSONAL STRATEGY BALANCED FUND
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As of 11/30/04
Personal Strategy Balanced Fund $27,939
Combined Index Portfolio* $24,800
Merrill Lynch - Wilshire Capital Market Index $25,795
Personal Strategy Combined Merrill Lynch - Wilshire
Balanced Fund Index Portfolio* Capital Market Index
11/94 $10,000 $10,000 $10,000
11/95 12,750 12,455 12,753
11/96 14,950 14,424 14,884
11/97 17,177 16,815 17,845
11/98 19,314 19,299 20,555
11/99 20,904 21,898 23,637
11/00 21,893 21,826 23,167
11/01 21,973 21,051 22,152
11/02 20,911 19,747 20,637
11/03 24,389 22,440 23,436
11/04 27,939 24,800 25,795
AVERAGE ANNUAL COMPOUND TOTAL RETURN
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This table shows how the fund and its benchmarks would have performed if their
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Periods Ended 11/30/04 1 Year 5 Years 10 Years
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Personal Strategy Balanced Fund 14.56% 5.97% 10.82%
Merrill Lynch-Wilshire Capital
Market Index 10.06 1.76 9.94
Combined Index Portfolio * 10.52 2.52 9.51
* An unmanaged portfolio composed of 60% stocks (51% Wilshire 5000 Index, 9%
MSCI EAFE Index), 30% bonds (Lehman Brothers U.S. Aggregate Index), and 10%
money market securities (Citigroup 3-Month Treasury Index).
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 Personal Strategy Funds
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GROWTH OF $10,000
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This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with 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]
PERSONAL STRATEGY GROWTH FUND
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As of 11/30/04
Personal Strategy Growth Fund $30,403
Combined Index Portfolio* $26,905
Merrill Lynch - Wilshire Capital Market Index $25,795
Personal Strategy Combined Merrill Lynch - Wilshire
Growth Fund Index Portfolio* Capital Market Index
11/94 $10,000 $10,000 $10,000
11/95 13,098 12,869 12,753
11/96 15,828 15,348 14,884
11/97 18,580 18,405 17,845
11/98 21,139 21,492 20,555
11/99 23,474 25,251 23,637
11/00 24,448 24,454 23,167
11/01 23,707 22,602 22,152
11/02 21,788 20,344 20,637
11/03 25,894 23,806 23,436
11/04 30,403 26,905 25,795
AVERAGE ANNUAL COMPOUND TOTAL RETURN
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This table shows how the fund and its benchmarks would have performed if their
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Periods Ended 11/30/04 1 Year 5 Years 10 Years
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Personal Strategy Growth Fund 17.41% 5.31% 11.76%
Merrill Lynch-Wilshire Capital
Market Index 10.06 1.76 9.94
Combined Index Portfolio * 13.02 1.28 10.40
* An unmanaged portfolio composed of 80% stocks (68% Wilshire 5000 Index, 12%
MSCI EAFE Index) and 20% bonds (Lehman Brothers U.S. Aggregate Index).
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 Personal Strategy Funds
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FUND EXPENSE EXAMPLE
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As a mutual fund shareholder, you may incur two types of costs: (1) transaction
costs such as redemption fees or sales loads and (2) ongoing costs, including
management fees, distribution and service (12b-1) fees, and other fund expenses.
The following example is intended to help you understand your ongoing costs (in
dollars) of investing in the fund and to compare these costs with the ongoing
costs of investing in other mutual funds. The example is based on an investment
of $1,000 invested at the beginning of the most recent six-month period and held
for the entire period.
Actual Expenses
The first line of the following table ("Actual") provides information about
actual account values and expenses based on the fund's actual returns. You may
use the information in this line, together with your account balance, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
Hypothetical Example for Comparison Purposes
The information on the second line of the table ("Hypothetical") is based on
hypothetical account values and expenses derived from the fund's actual expense
ratio and an assumed 5% per year rate of return before expenses (not the fund's
actual return). You may compare the ongoing costs of investing in the fund with
other funds by contrasting this 5% hypothetical example and the 5% hypothetical
examples that appear in the shareholder reports of the other funds. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period.
Note: T. Rowe Price charges an annual small-account maintenance fee of $10,
generally for accounts with less than $2,000 ($500 for UGMA/UTMA). The fee is
waived for any investor whose T. Rowe Price mutual fund accounts total $25,000
or more, accounts employing automatic investing, and IRAs and other retirement
plan accounts that utilize a prototype plan sponsored by T. Rowe Price (although
a separate custodial or administrative fee may apply to such accounts). This fee
is not included in the accompanying tables. If you are subject to the fee, keep
it in mind when you are estimating the ongoing expenses of investing in the fund
and when comparing the expenses of this fund with other funds.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs, such as redemption
fees or sales loads. Therefore, the second line of the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. To the extent a fund charges transaction costs,
however, the total cost of owning that fund is higher.
T. ROWE PRICE PERSONAL STRATEGY INCOME FUND
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Beginning Ending Expenses Paid
Account Value Account Value During Period*
6/1/04 11/30/04 6/1/04 to 11/30/04
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Actual $1,000 $1,068.10 $3.89
Hypothetical (assumes 5%
return before expenses) 1,000 1,021.31 3.80
* Expenses are equal to the fund's annualized expense ratio for the six-month
period (0.75%), multiplied by the average account value over the period,
multiplied by the number of days in the most recent fiscal half year (183)
divided by the days in the year (365) to reflect the half-year period.
T. ROWE PRICE PERSONAL STRATEGY BALANCED FUND
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Beginning Ending Expenses Paid
Account Value Account Value During Period*
6/1/04 11/30/04 6/1/04 to 11/30/04
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Actual $1,000 $1,082.80 $4.54
Hypothetical (assumes 5%
return before expenses) 1,000 1,020.71 4.41
* Expenses are equal to the fund's annualized expense ratio for the six-month
period (0.87%), multiplied by the average account value over the period,
multiplied by the number of days in the most recent fiscal half year (183)
divided by the days in the year (365) to reflect the half-year period.
T. ROWE PRICE PERSONAL STRATEGY GROWTH FUND
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Beginning Ending Expenses Paid
Account Value Account Value During Period*
6/1/04 11/30/04 6/1/04 to 11/30/04
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Actual $1,000 $1,095.00 $5.20
Hypothetical (assumes 5%
return before expenses) 1,000 1,020.10 5.01
* Expenses are equal to the fund's annualized expense ratio for the six-month
period (0.99%), multiplied by the average account value over the period,
multiplied by the number of days in the most recent fiscal half year (183)
divided by the days in the year (365) to reflect the half-year period.
T. Rowe Price Personal Strategy Funds
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QUARTER-END RETURNS
- --------------------------------------------------------------------------------
Periods Ended 12/31/04 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Personal Strategy Income Fund 9.95% 6.27% 9.81%
Combined Index Portfolio * 7.49 3.43 8.62
Lehman Brothers U.S. Aggregate Index 4.34 7.71 7.72
- --------------------------------------------------------------------------------
Personal Strategy Balanced Fund 12.55 5.87 10.92
Combined Index Portfolio * 9.70 2.12 9.67
Merrill Lynch-Wilshire Capital
Market Index 9.54 1.23 10.11
- --------------------------------------------------------------------------------
Personal Strategy Growth Fund 14.99 5.09 11.89
Combined Index Portfolio * 11.92 0.70 10.63
Merrill Lynch-Wilshire Capital
Market Index 9.54 1.23 10.11
- --------------------------------------------------------------------------------
* For definitions of the Combined Index Portfolios, please see the glossary
on page 8 of this report.
Current performance may be lower or higher than the quoted past performance,
which cannot guarantee future results. Share price, principal value, and return
will vary, and you may have a gain or loss when you sell your shares. For the
most recent month-end performance information, please visit our Web site
(troweprice.com) or contact a T. Rowe Price representative at 1-800-225-5132.
This table provides returns through the most recent calendar quarter-end rather
than through the end of the funds' fiscal period. It shows how the funds would
have performed each year if their actual (or cumulative) returns for the periods
shown had been earned at a constant rate. Average annual total return figures
include changes in principal value, reinvested dividends, and capital gain
distributions. Returns do not reflect taxes that the shareholder may pay on fund
distributions or the redemption of fund shares. When assessing performance,
investors should consider both short- and long-term returns.
November 30, 2004
Personal Strategy Balanced Fund
Semiannual Report - Financial Statements
T. Rowe Price
T. Rowe Price Personal Strategy Balanced Fund
- --------------------------------------------------------------------------------
Unaudited
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
6 Months Year
Ended Ended
11/30/04 5/31/04 5/31/03 5/31/02 5/31/01 5/31/00
NET ASSET VALUE
Beginning
of period $ 16.68 $ 14.74 $ 15.11 $ 15.73 $ 16.20 $ 16.20
Investment
activities
Net investment
income (loss) 0.18*++ 0.31*++ 0.33*++ 0.38 0.48 0.50
Net realized
and unrealized
gain (loss) 1.19 1.95 (0.36) (0.60) 0.25 0.39
Total from
investment
activities 1.37 2.26 (0.03) (0.22) 0.73 0.89
Distributions
Net investment
income (0.17) (0.31) (0.34) (0.39) (0.49) (0.49)
Net realized
gain -- (0.01) -- (0.01) (0.71) (0.40)
Total
distributions (0.17) (0.32) (0.34) (0.40) (1.20) (0.89)
NET ASSET VALUE
End of
period $ 17.88 $ 16.68 $ 14.74 $ 15.11 $ 15.73 $ 16.20
----------------------------------------------------------------
Ratios/
Supplemental Data
Total
return^ 8.28%*++ 15.49%*++ 0.01%*++ (1.32)% 4.60% 5.68%
Ratio of
total expenses
to average
net assets 0.87%*++! 0.86%*++ 0.90%*++ 1.02% 1.02% 0.98%
Ratio of
net investment
income (loss)
to average
net assets 2.04%*++! 1.96%*++ 2.41%*++ 2.54% 3.00% 3.05%
Portfolio
turnover rate 74.3%! 72.9% 87.8% 97.2% 61.5% 48.2%
Net assets,
end of period
(in thousands) $1,033,148 $968,498 $701,802 $693,599 $671,329 $611,856
^ Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
* See Note 4. Excludes expenses in excess of a 0.90% contractual expense
limitation in effect through 9/30/06.
++ See Note 4. Excludes expenses permanently waived of 0.03%, 0.04% and 0.00%
of average net assets for the six months ended 11/30/04 and the years ended
5/31/04 and 5/31/03, respectively, related to investments in T. Rowe Price
Mutual Funds.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Personal Strategy Balanced Fund
- --------------------------------------------------------------------------------
Unaudited November 30, 2004
PORTFOLIO OF INVESTMENTS (1) Shares/$ Par Value
- --------------------------------------------------------------------------------
(Cost and value in $ 000s)
COMMON STOCKS 67.9%
CONSUMER DISCRETIONARY 9.9%
Auto Components 0.2%
Autoliv GDR (SEK) 17,500 819
Keystone Automotive * 6,700 157
Koito Manufacturing (JPY)(ss.) 41,000 338
Strattec Security *(ss.) 2,200 139
TRW *(ss.) 5,900 125
1,578
Automobiles 0.9%
Ford Motor 223,800 3,174
Fuji Heavy Industries (JPY)(ss.) 47,000 217
Harley-Davidson 37,500 2,168
Honda (JPY) 9,400 450
Peugeot (EUR)(ss.) 7,056 430
Renault (EUR)(ss.) 6,982 570
Toyota Motor (JPY) 53,100 1,989
Winnebago (ss.) 900 34
9,032
Distributors 0.0%
Cycle & Carriage (SGD) 11,755 71
71
Hotels, Restaurants & Leisure 1.5%
Applebee's 7,237 186
BJ's Restaurants * 2,700 40
Carnival 69,800 3,700
CEC Entertainment * 4,200 171
Compass (GBP) 22,995 100
Hilton Group (GBP) 42,312 208
International Game Technology 102,100 3,609
Marriott, Class A 15,800 898
McDonald's 30,700 944
Mitchells & Butlers (GBP) 58,069 335
Panera Bread, Class A *(ss.) 3,900 156
PF Chang's China Bistro *(ss.) 4,100 231
Red Robin Gourmet Burgers *(ss.) 2,700 139
Ruby Tuesday(ss.) 4,000 110
Sonic *(ss.) 12,950 378
Starbucks * 26,100 1,468
Starwood Hotels & Resorts Worldwide 48,400 2,531
Texas Roadhouse, Class A * 900 23
The Cheesecake Factory *(ss.) 8,500 416
Whitbread (GBP) 24,230 369
16,012
Household Durables 1.0%
Fortune Brands 13,600 1,067
Goldcrest (JPY) 6,680 456
Jarden *(ss.) 10,400 399
Newell Rubbermaid 222,900 5,146
Persimmon (GBP) 31,224 368
Philips Electronics (EUR) 14,683 378
Pioneer (JPY) 21,100 396
SEB (EUR) 1,331 134
Sony (JPY) 24,000 873
Thomson (EUR)(ss.) 35,789 858
10,075
Internet & Catalog Retail 0.4%
Amazon.com * 3,600 143
eBay * 32,400 3,643
J. Jill Group * 7,600 131
priceline.com *(ss.) 7,100 170
4,087
Leisure Equipment & Products 0.4%
Brunswick 12,000 586
Eastman Kodak 80,500 2,633
Heiwa (JPY) 9,200 138
MarineMax * 6,600 194
Noritsu Koki (JPY) 9,300 192
Polaris Industries(ss.) 3,300 217
SCP Pool 7,637 241
4,201
Media 2.9%
Aegis (GBP) 205,204 402
Astro All Asia, 144A (MYR) * 54,000 79
British Sky Broadcasting (GBP) 31,512 335
Clear Channel Communications 30,173 1,016
Comcast
Class A * 133,748 4,018
Special Class A * 50,000 1,482
Disney 115,600 3,107
EchoStar Communications, Class A * 61,200 2,007
Emmis Communications *(ss.) 5,200 96
Entercom Communications * 4,600 166
Gestevision Telecino (EUR) * 1,600 30
Getty Images * 1,400 82
Liberty Media, Class A * 23,200 240
McGraw-Hill 1,700 149
New York Times, Class A 79,300 3,251
News Corp
Class A *(ss.) 130,800 2,314
Class B *(ss.) 5,200 94
News Corp GDR, Class B (AUD) * 17,068 306
Omnicom 9,200 745
Publicis (EUR) 15,055 496
Scholastic * 13,100 431
Scripps, Class A 39,600 1,851
Singapore Press (SGD) 54,100 156
Time Warner * 144,700 2,563
Viacom, Class B 89,943 3,121
Washington Post, Class B 749 703
WPP Group (GBP) 36,615 404
WPP Group ADR 6,300 346
Young Broadcasting, Class A *(ss.) 4,200 41
30,031
Multiline Retail 0.8%
Big Lots *(ss.) 5,500 64
Kohl's * 19,700 909
Neiman Marcus, Class A 1,100 72
Nordstrom 60,300 2,638
Target 94,400 4,835
8,518
Specialty Retail 1.7%
AC Moore Arts & Crafts *(ss.) 3,300 95
AnnTaylor Stores * 18,800 413
Best Buy 60,550 3,414
Charles Voegele (CHF) 4,278 191
Christopher & Banks(ss.) 7,900 156
Dixons (GBP) 107,239 298
Esprit Holdings (HKD) 51,000 279
Home Depot 165,350 6,903
Hot Topic *(ss.) 8,800 144
Kesa Electricals (GBP) 14,086 73
Linens 'n Things * 6,900 172
Monro Muffler Brake * 7,200 177
Nobia (SEK) 25,590 387
The Finish Line, Class A(ss.) 3,600 66
Toys "R" Us * 260,200 5,032
Ultimate Electronics *(ss.) 4,300 13
17,813
Textiles, Apparel, & Luxury Goods 0.1%
Adidas-Salomon (EUR) 2,190 343
Culp *(ss.) 2,600 16
Unifi *(ss.) 6,000 22
World Company (JPY) 7,000 247
Yue Yuen Industrial (HKD) 114,000 295
923
Total Consumer Discretionary 102,341
CONSUMER STAPLES 4.6%
Beverages 0.4%
Allied Domecq (GBP) 58,476 577
Asahi Breweries (JPY) 20,000 236
Coca-Cola 13,800 542
Kirin Brewery (JPY) 54,000 517
Lion Nathan (NZD) 78,461 482
PepsiCo 42,410 2,117
4,471
Food & Staples Retailing 1.7%
Casey's General Stores 23,700 459
Casino Guichard-Perrachon (EUR)(ss.) 8,383 642
Coles Myer (AUD) 50,339 388
CVS 133,800 6,070
J Sainsbury (GBP) 58,353 291
Matsumotokiyoshi (JPY)(ss.) 10,000 278
METRO (EUR) 24,933 1,251
Performance Food Group * 13,900 365
Sysco 24,600 855
Tesco (GBP) 107,170 616
Wal-Mart 96,000 4,998
Wal-Mart de Mexico, Series V (MXN) 184,100 630
Wild Oats Markets *(ss.) 5,300 38
York-Benimaru (JPY) 8,300 229
17,110
Food Products 1.0%
American Italian Pasta, Class A(ss.) 3,100 60
Associated British Foods (GBP) 37,695 538
Campbell Soup 73,900 2,108
General Mills 65,220 2,967
Koninklijke Wessanen GDS (EUR)(ss.) 24,398 308
Nestle (CHF) 5,134 1,314
Seneca Foods
Class A *(ss.) 3,000 56
Class B * 600 11
Unilever N.V. (GBP) 107,325 981
Unilever N.V. ADS 31,800 2,003
10,346
Household Products 0.5%
Colgate-Palmolive 59,600 2,741
Kimberly-Clark 26,700 1,698
Procter & Gamble 17,800 952
5,391
Personal Products 0.1%
Chattem *(ss.) 2,400 87
Gillette 11,100 483
L'Oreal (EUR)(ss.) 2,846 205
775
Tobacco 0.9%
Altria Group 120,600 6,933
UST 46,100 2,030
8,963
Total Consumer Staples 47,056
ENERGY 5.0%
Energy Equipment & Services 1.9%
Atwood Oceanics * 5,700 299
Baker Hughes 171,900 7,620
BJ Services 31,500 1,596
FMC Technologies * 17,200 565
Grant Prideco * 30,900 666
Hanover Compressor *(ss.) 16,000 234
Hydril * 3,700 173
Key Energy Services * 5,600 70
Lone Star Technologies *(ss.) 4,000 126
National Oilwell *(ss.) 20,600 746
Schlumberger 56,000 3,675
Seacor Holdings * 8,900 494
Smith International * 47,800 2,895
Technip (EUR)(ss.) 1,170 196
Transocean * 6,500 262
W-H Energy Services *(ss.) 3,800 87
19,704
Oil & Gas 3.1%
BP (GBP) 92,745 944
BP ADR 98,596 6,049
ChevronTexaco 89,700 4,898
Eni SPA (EUR) 70,315 1,722
ExxonMobil 75,582 3,874
Forest Oil * 15,550 529
INPEX (JPY) * 18 90
Marathon Oil 54,100 2,134
Murphy Oil 7,000 597
Noble Energy 7,900 504
Norsk Hydro (NOK) 5,755 470
OMV (EUR) 348 92
Petroleo Brasileiro (Petrobras) ADR(ss.) 31,800 1,096
Shell Transport & Trading (GBP) 114,240 959
Shell Transport & Trading ADR(ss.) 18,200 921
Statoil ASA (NOK) 67,361 1,065
Tonen General Sekiyu (JPY)(ss.) 23,000 213
Total (EUR)(ss.) 8,768 1,915
Unocal 63,200 2,910
Woodside Petroleum (AUD) 26,200 422
31,404
Total Energy 51,108
FINANCIALS 14.2%
Capital Markets 3.0%
Affiliated Managers Group *(ss.) 5,400 342
AmeriTrade * 122,300 1,704
Babcock & Brown (AUD) * 18,274 134
Bank of New York 39,500 1,300
Charles Schwab 71,650 772
Credit Suisse Group (CHF) * 25,843 1,005
Franklin Resources 44,200 2,901
Goldman Sachs 26,700 2,797
Investors Financial Services(ss.) 7,400 324
Legg Mason 35,600 2,426
Macquarie Bank (AUD) 23,105 785
Mellon Financial 191,600 5,599
Merrill Lynch 46,000 2,563
Morgan Stanley 25,300 1,284
National Financial Partners 3,600 125
Northern Trust 48,500 2,281
Piper Jaffray Cos * 9,800 451
State Street 95,500 4,255
31,048
Commercial Banks 3.9%
ABN Amro Holdings (EUR) 30,897 757
Alliance & Leicester (GBP) 34,390 558
Australia & New Zealand Banking (AUD) 88,209 1,366
Banca Intesa (EUR) 131,251 580
Banco Santander Central Hispano (EUR) 76,026 911
Banco Santander Chile ADR(ss.) 15,013 447
Bank Austria Creditanstalt (EUR) 10,596 899
Bank of America 147,300 6,816
Bank of Ireland (Dublin Listing) (EUR) 41,670 634
Bank of Yokohama (JPY) 88,800 560
Barclays (GBP) 196,382 2,023
BNP Paribas (EUR)(ss.) 20,207 1,401
Boston Private Financial(ss.) 5,700 154
Chittenden 19,793 584
Citizens Banking(ss.) 14,800 519
DBS Group (SGD) 81,028 781
Dexia (EUR) 20,091 428
Glacier Bancorp 4,921 170
Grupo Financiero Banorte (MXN) 234,962 1,317
HBOS (GBP) 64,823 906
HSBC (GBP) 46,715 794
Joyo Bank (JPY) 77,000 360
Mitsubishi Tokyo Financial (JPY) 46 435
National Australia Bank (AUD)(ss.) 47,847 1,037
NORDEA (SEK) 142,569 1,396
Pinnacle Financial Partners *(ss.) 400 10
Provident Bankshares(ss.) 9,400 345
Royal Bank of Scotland (GBP) 63,893 1,959
Sandy Spring Bancorp(ss.) 6,100 222
SEB, Series A (SEK) 41,957 797
Signature Bank *(ss.) 1,000 31
Southwest Bancorp of Texas 20,200 494
Sumitomo Mitsui Financial (JPY)(ss.) 103 715
Svenska Handelsbanken, Series A (SEK) 38,403 935
Texas Capital Bancshares *(ss.) 8,900 184
The 77 Bank (JPY) 46,000 299
U.S. Bancorp 140,700 4,169
UniCredito Italiano (EUR)(ss.) 102,675 565
Valley National Bancorp(ss.) 14,216 398
Wells Fargo 41,000 2,533
WestAmerica(ss.) 11,200 651
40,140
Consumer Finance 1.0%
AIFUL (JPY) 4,700 534
American Express 136,000 7,577
SLM Corporation 47,300 2,420
10,531
Diversified Financial Services 1.3%
Assured Guaranty 18,800 346
Citigroup 210,077 9,401
ING Groep GDS (EUR) 27,444 753
J.P. Morgan Chase 69,960 2,634
13,134
Insurance 3.1%
Aioi Insurance (JPY) 96,000 424
American International Group 143,922 9,118
Aspen Insurance Holdings 8,900 220
Aviva (GBP) 38,854 429
AXA (EUR) 48,908 1,143
Bristol West Holdings(ss.) 10,100 204
Brown & Brown(ss.) 2,800 114
CNP Assurances (EUR) 11,755 795
Genworth Financial, Class A 96,600 2,541
Hannover Rueckversicherung (EUR) 7,937 286
Harleysville Group 3,500 84
Hartford Financial Services 39,100 2,502
Horace Mann Educators 17,000 323
Infinity Property & Casualty 8,900 329
Insurance Australia Group (AUD) 74,347 335
Markel *(ss.) 1,100 354
Marsh & McLennan 37,100 1,061
Mitsui Sumitomo Insurance (JPY) 47,000 414
Ohio Casualty *(ss.) 24,600 528
PartnerRe 6,900 422
QBE Insurance (AUD)(ss.) 43,517 469
Royal & Sun Alliance (GBP) 239,424 337
SAFECO(ss.) 75,800 3,674
Selective Insurance(ss.) 5,900 264
St. Paul Companies 66,712 2,434
Unipol (EUR)(ss.) 120,954 534
UnumProvident(ss.) 77,200 1,202
W. R. Berkley 5,800 263
XL Capital 23,300 1,756
32,559
Real Estate 1.2%
Arden Realty, REIT 7,300 263
China Overseas Land (HKD) 1,178,000 279
Corio (EUR) 6,935 379
EastGroup Properties, REIT 8,700 327
Equity Lifestyle Properties, REIT 2,500 91
Essex Property Trust, REIT 1,000 81
Federal Realty Investment Trust, REIT 54,400 2,728
Gables Residential Trust, REIT(ss.) 7,800 278
General Property Trust, Equity Units (AUD)(ss.) 213,842 601
LaSalle Hotel Properties, REIT(ss.) 4,800 147
Mirvac (AUD)(ss.) 64,105 234
Parkway Properties, REIT 3,900 196
Reckson Associates Realty, REIT 62,734 2,031
Simon Property Group, REIT 49,372 3,065
Sun Hung Kai Properties (HKD) 49,000 487
Washington SBI, REIT(ss.) 9,600 316
Westfield Group (AUD) 21,287 259
Wheelock (HKD) 147,000 241
12,003
Thrifts & Mortgage Finance 0.7%
Bradford & Bingley (GBP) 96,971 508
Fannie Mae 51,500 3,538
Frankfort First 500 12
Freddie Mac 25,500 1,741
Hypo Real Estate (EUR) * 20,656 798
Triad Guaranty *(ss.) 2,800 168
6,765
Total Financials 146,180
HEALTH CARE 7.4%
Biotechnology 1.0%
Abgenix *(ss.) 1,500 15
Alexion Pharmaceutical *(ss.) 3,400 70
Alkermes *(ss.) 9,700 134
Amgen * 69,100 4,149
Amylin Pharmaceuticals *(ss.) 4,400 90
Anadys Pharmaceuticals *(ss.) 5,200 34
Biogen Idec * 18,600 1,091
Cephalon *(ss.) 3,424 163
CSL Limited (AUD) 5,855 120
Cubist Pharmaceuticals *(ss.) 10,100 121
CV Therapeutics *(ss.) 1,000 22
Cytogen *(ss.) 3,700 36
Cytokinetics *(ss.) 600 5
deCODE GENETICS *(ss.) 4,300 28
Dynavax Technologies *(ss.) 3,700 26
Exelixis *(ss.) 5,600 50
Genentech * 16,200 782
Gilead Sciences * 60,600 2,088
Martek Biosciences *(ss.) 3,000 117
Memory Pharmaceuticals *(ss.) 3,500 22
Myriad Genetics *(ss.) 9,900 190
Neurocrine Biosciences *(ss.) 4,300 198
NPS Pharmaceuticals *(ss.) 2,500 45
ONYX Pharmaceuticals *(ss.) 5,200 163
OSI Pharmaceuticals * 600 29
Rigel Pharmaceuticals *(ss.) 3,700 93
Trimeris *(ss.) 3,900 48
Vertex Pharmaceuticals *(ss.) 14,436 153
10,082
Health Care Equipment & Supplies 1.2%
Advanced Neuromodulation Systems *(ss.) 5,500 199
Analogic(ss.) 4,100 186
Baxter International 92,700 2,934
Biomet 17,600 843
Boston Scientific * 41,100 1,431
DJ Orthopedics * 7,800 157
Edwards Lifesciences *(ss.) 5,800 218
Elekta, Series B (SEK) * 11,884 324
EPIX Pharmaceuticals * 2,300 40
Guidant 7,700 499
Integra LifeSciences *(ss.) 8,400 286
Matthews International, Class A 12,800 472
Medtronic 59,300 2,849
NuVasive *(ss.) 5,800 55
ResMed *(ss.) 10,100 506
St. Jude Medical * 14,400 549
Steris * 9,700 222
Stryker 18,200 801
Thoratec *(ss.) 5,700 57
Wilson Greatbatch Technologies *(ss.) 4,800 96
12,724
Health Care Providers & Services 2.1%
Accredo Health * 11,000 298
Alliance UniChem (GBP) 19,914 273
AmerisourceBergen 44,500 2,623
Anthem *(ss.) 11,000 1,115
Celesio (EUR) 7,204 552
Henry Schein * 8,300 541
LabOne * 3,400 102
Lifeline Systems * 6,600 179
LifePoint Hospitals *(ss.) 1,100 40
Sunrise Senior Living *(ss.) 13,200 567
Suzuken (JPY) 5,800 136
Symbion *(ss.) 6,700 128
United Surgical Partners International *(ss.) 10,700 422
UnitedHealth Group 115,800 9,594
WellChoice * 4,200 206
WellPoint Health Networks * 36,700 4,591
21,367
Pharmaceuticals 3.1%
Abbott Laboratories 24,900 1,045
Able Laboratories *(ss.) 2,700 59
AstraZeneca ADR 15,500 611
Atherogenics *(ss.) 7,700 183
Eisai (JPY) 11,700 349
Elan ADR *(ss.) 25,400 671
Eli Lilly 12,100 645
Eon Labs *(ss.) 3,300 89
Forest Laboratories * 31,400 1,224
GlaxoSmithKline (GBP) 60,072 1,261
GlaxoSmithKline ADR 14,400 613
Hisamitsu Pharmaceutical (JPY) 14,000 255
Inspire Pharmaceuticals *(ss.) 10,900 195
Johnson & Johnson 57,000 3,438
Kobayashi Pharmaceutical (JPY)(ss.) 9,300 246
Medicines Company *(ss.) 3,700 92
Merck 53,300 1,493
Nektar Therapeutics * 2,000 37
Novartis (CHF) 41,011 1,960
Noven Pharmaceuticals *(ss.) 9,700 177
Novo Nordisk, Series B (DKK) 4,302 228
Pfizer 207,087 5,751
Sanofi-Aventis (EUR)(ss.) 19,947 1,498
Schering-Plough 174,200 3,109
Takeda Chemical Industries (JPY) 10,800 530
Teva Pharmaceutical ADR(ss.) 47,000 1,282
Theravance *(ss.) 1,500 26
Wyeth 141,160 5,628
32,695
Total Health Care 76,868
INDUSTRIALS & BUSINESS SERVICES 8.8%
Aerospace & Defense 1.3%
Armor Holdings * 14,800 639
British Aerospace (GBP) 108,620 508
European Aeronautic Defense & Space (EUR)(ss.) 22,707 685
General Dynamics 10,700 1,159
Honeywell International 42,500 1,502
Lockheed Martin 131,900 8,025
Mercury Computer Systems *(ss.) 6,600 208
MTC Technologies *(ss.) 500 15
Rockwell Collins 6,500 259
13,000
Air Freight & Logistics 0.5%
EGL *(ss.) 12,600 425
Expeditors International of Washington 600 32
Pacer International *(ss.) 8,200 160
Ryder System 2,700 145
TPG (EUR) 13,009 340
UPS, Class B 47,400 3,989
UTi Worldwide(ss.) 4,200 290
5,381
Airlines 0.0%
Frontier Airlines *(ss.) 8,200 96
Midwest Express Holdings *(ss.) 6,500 20
Qantas Airways (AUD) 60,144 166
282
Building Products 0.1%
Kaba Holding (CHF) 782 217
Pilkington (GBP) 198,298 406
Quixote(ss.) 2,100 44
Trex *(ss.) 5,200 244
911
Commercial Services & Supplies 1.7%
Apollo Group, Class A * 27,000 2,152
Cendant 54,000 1,224
Central Parking(ss.) 16,700 254
ChoicePoint * 10,800 474
Consolidated Graphics *(ss.) 9,900 468
Education Management * 2,600 86
Electro Rent 5,700 81
First Advantage, Class A *(ss.) 2,300 43
G & K Services, Class A(ss.) 8,800 362
Glory (JPY) 11,300 177
H&R Block 31,700 1,512
Herman Miller(ss.) 14,700 361
Intersections *(ss.) 800 14
Ionics *(ss.) 11,300 488
KForce *(ss.) 13,100 157
Layne Christensen *(ss.) 1,600 31
LECG *(ss.) 9,200 180
R.R. Donnelley 117,700 4,084
Resources Connection *(ss.) 10,700 485
SOURCECORP * 7,000 116
Tetra Tech *(ss.) 15,620 238
Waste Management 146,926 4,380
West Corporation *(ss.) 3,800 132
17,499
Construction & Engineering 0.2%
Acciona (EUR)(ss.) 7,961 623
Balfour Beatty (GBP) 76,638 440
Downer EDI (AUD)(ss.) 61,565 213
Insituform Technologies *(ss.) 6,900 161
JGC (JPY)(ss.) 29,000 249
NCC AB, Series B (SEK) 39,263 494
2,180
Electrical Equipment 0.1%
A.O. Smith(ss.) 17,200 517
American Superconductor *(ss.) 2,600 36
Artesyn Technologies *(ss.) 11,800 112
Sumitomo Electric Industries (JPY) 29,000 304
Woodward Governor 700 51
1,020
Industrial Conglomerates 2.4%
3M 19,400 1,544
DCC (EUR) 21,900 457
GE 240,200 8,493
Hutchison Whampoa (HKD) 52,500 471
Sembcorp (SGD) 600,000 531
Siemens (EUR) 14,842 1,186
Tyco International 352,142 11,962
24,644
Machinery 1.5%
Actuant, Class A *(ss.) 9,040 425
Cascade 3,400 109
Danaher 109,400 6,223
Deere 59,000 4,232
Fanuc (JPY) 8,500 530
Graco 9,900 362
Guinness Peat Group (NZD) 190,787 294
Harsco 11,400 606
IDEX 4,200 168
Lindsay Manufacturing(ss.) 10,500 295
Mitsubishi Heavy Industries (JPY) 126,000 361
NSK (JPY) 38,000 177
Pall 56,500 1,531
SKF, Series B (SEK) 6,708 285
Toro(ss.) 4,400 319
15,917
Marine 0.1%
Nippon Yusen (JPY) 121,000 643
643
Road & Rail 0.8%
Arriva (GBP) 58,386 546
Burlington Northern Santa Fe 76,200 3,432
Genesee & Wyoming, Class A * 2,200 61
Heartland Express(ss.) 7,925 174
Knight Transportation *(ss.) 16,950 408
Nippon Express (JPY) 46,000 217
Norfolk Southern 110,100 3,780
Overnite(ss.) 5,800 205
8,823
Trading Companies & Distributors 0.1%
Mitsubishi (JPY) 56,000 708
Sumitomo (JPY) 34,000 287
995
Total Industrials & Business Services 91,295
INFORMATION TECHNOLOGY 8.8%
Communications Equipment 1.9%
Belden CDT(ss.) 18,900 438
Black Box(ss.) 6,500 277
Cisco Systems * 242,300 4,533
Corning * 455,100 5,725
F5 Networks * 4,100 177
Ixia *(ss.) 5,200 73
Juniper Networks *(ss.) 63,400 1,745
Lucent Technologies *(ss.) 652,100 2,563
Nokia (EUR) 26,097 424
Nokia ADR 27,200 440
Packeteer * 4,800 62
QUALCOMM 48,700 2,027
Riverstone Networks * 17,200 20
Sagem (EUR)(ss.) 3,906 358
Sirf Technology Holdings *(ss.) 10,800 137
Tekelec *(ss.) 3,200 75
Uniden (JPY) 9,000 189
19,263
Computers & Peripherals 0.9%
Applied Films *(ss.) 800 18
Creative Technology (SGD) 14,900 186
Dell * 135,400 5,486
Emulex *(ss.) 12,200 173
Gateway * 36,300 247
IBM 7,900 744
Lexmark International * 9,800 832
Logitech International (CHF) * 5,338 312
NEC (JPY) 30,000 166
QLogic * 22,500 774
Synaptics *(ss.) 5,500 211
Toshiba (JPY) 79,000 335
9,484
Electronic Equipment & Instruments 0.2%
Cogent *(ss.) 2,200 74
Digital Theater Systems *(ss.) 6,200 130
Global Imaging Systems *(ss.) 7,100 266
KEMET *(ss.) 19,100 169
Kyocera (JPY) 2,700 190
Littelfuse * 5,800 226
Methode Electronics 11,000 145
Newport *(ss.) 8,100 100
Plexus *(ss.) 17,000 234
Shimadzu (JPY) 87,000 488
TDK (JPY) 4,800 344
Technitrol * 3,700 64
Woodhead Industries 10,300 155
2,585
Internet Software & Services 0.6%
Digital Insight *(ss.) 10,800 177
Google, Class A * 2,700 494
IAC/InterActiveCorp *(ss.) 51,200 1,264
MatrixOne *(ss.) 15,400 102
WebSideStory * 1,900 24
Yahoo! * 97,400 3,664
5,725
IT Services 0.9%
Accenture, Class A * 32,600 846
Affiliated Computer Services, Class A *(ss.) 27,800 1,645
Automatic Data Processing 18,500 842
BISYS Group * 8,800 141
CACI International, Class A * 7,200 447
First Data 37,268 1,531
Fiserv * 34,400 1,325
Global Payments(ss.) 8,000 441
Indra Sistemas (EUR) 30,662 480
Iron Mountain * 16,286 491
Logica CMG (GBP) 51,808 182
Maximus *(ss.) 10,200 320
MPS Group *(ss.) 26,100 294
RightNow Technologies *(ss.) 6,200 113
Trans Cosmos (JPY)(ss.) 10,000 343
9,441
Office Electronics 0.1%
Canon (JPY) 13,000 651
Neopost (EUR) 5,158 370
1,021
Semiconductor & Semiconductor Equipment 1.5%
AMIS Holdings *(ss.) 5,200 79
Analog Devices 56,900 2,103
Artisan Components * 3,200 110
Atheros Communications *(ss.) 4,200 47
ATMI *(ss.) 7,400 170
Brooks-Pri Automation * 6,600 101
Cabot Microelectronics *(ss.) 4,900 181
Credence Systems *(ss.) 11,900 91
Cymer *(ss.) 900 27
Entegris *(ss.) 11,600 114
Exar *(ss.) 9,400 131
Intel 126,100 2,818
Jenoptik (EUR) * 23,306 249
KLA-Tencor * 8,900 401
Lattice Semiconductor * 18,000 96
Maxim Integrated Products 79,500 3,256
Microchip Technology 14,700 414
Microsemi *(ss.) 8,100 144
MKS Instruments *(ss.) 13,600 231
Mykrolis *(ss.) 15,300 188
PDF Solutions *(ss.) 10,700 138
Power Integrations *(ss.) 4,400 87
Rohm (JPY) 700 67
Semiconductor Manufacturing International ADR *(ss.) 12,000 144
Semtech *(ss.) 17,400 356
Silicon Laboratories *(ss.) 6,000 181
Tessera Technologies *(ss.) 6,800 242
Texas Instruments 61,300 1,482
Xilinx 71,300 2,226
15,874
Software 2.7%
Actuate * 7,600 18
Adobe Systems 44,900 2,719
Altiris *(ss.) 6,400 179
Blackbaud * 1,200 15
Catapult Communications * 3,200 87
Concord Communications *(ss.) 4,800 45
FactSet Research Systems(ss.) 8,400 434
FileNet *(ss.) 14,900 400
Hyperion Solutions * 3,400 152
Internet Security Systems * 7,700 186
Intuit * 47,200 1,975
Jack Henry & Associates 23,900 461
Kronos * 12,449 629
Magma Design Automation *(ss.) 5,000 68
Mercury Interactive * 2,900 132
Microsoft 434,400 11,646
Motive *(ss.) 6,600 84
NEC Soft (JPY) 9,100 232
NetIQ * 14,052 172
Open Solutions * 3,500 93
Oracle * 124,700 1,579
PortalPlayer *(ss.) 400 12
Progress Software * 8,700 198
Quest Software *(ss.) 12,700 197
Red Hat * 7,000 101
RSA Security *(ss.) 11,400 241
SAP (EUR) 5,690 1,014
SAP ADR 50,000 2,225
SPSS *(ss.) 5,200 83
Symantec * 17,800 1,136
Trend Micro (JPY) 5,500 288
Verisity *(ss.) 3,700 31
VERITAS Software * 36,150 792
Verity * 10,800 148
27,772
Total Information Technology 91,165
MATERIALS 5.6%
Chemicals 2.2%
Agrium 134,700 2,503
Airgas(ss.) 26,800 712
Arch Chemicals 11,800 345
BASF (EUR) 15,994 1,074
Degussa (EUR)(ss.) 21,427 926
Dow Chemical 87,400 4,411
DuPont 68,673 3,112
Ferro 17,300 396
Hercules * 108,400 1,615
International Flavors & Fragrances 51,500 2,086
Kaneka (JPY) 43,000 471
MacDermid 2,900 107
Material Sciences * 6,900 115
Minerals Technologies(ss.) 9,300 617
Mitsubishi Gas Chemical (JPY) 103,000 488
Mosaic * 23,100 401
Potash Corp./Saskatchewan 43,300 3,316
Symyx Technologies *(ss.) 5,800 183
Yara International (NOK) *(ss.) 7,149 92
22,970
Construction Materials 0.3%
Aggregate (GBP) 228,655 428
Boral (AUD) 202,511 1,079
Cemex (MXN) 111,583 719
Lafarge (EUR) 2,846 267
RMC (GBP) 28,247 454
2,947
Containers & Packaging 0.0%
Chesapeake Corp. 7,000 189
Smurfit-Stone Container * 1,700 30
219
Metals & Mining 2.6%
Alcoa 56,516 1,920
Anglo American (GBP) 18,710 453
BHP Billiton (AUD) 107,300 1,281
Bluescope Steel (AUD) 184,761 1,203
Gibraltar Industries(ss.) 4,500 108
Lihir Gold (AUD) *(ss.) 137,620 136
Meridian Gold *(ss.) 16,800 329
Nippon Steel (JPY) 363,000 895
NN 2,000 26
Nucor 234,400 12,400
Phelps Dodge 72,000 6,993
SSAB Svenskt Stal, Series A (SEK) 30,924 743
Steel Dynamics(ss.) 6,500 264
Voestalpine (EUR)(ss.) 5,787 413
27,164
Paper & Forest Products 0.5%
Buckeye Technologies *(ss.) 15,500 192
MeadWestvaco 60,000 2,019
UPM-Kymmene (EUR) 10,091 227
Weyerhaeuser 38,400 2,534
4,972
Total Materials 58,272
TELECOMMUNICATION SERVICES 1.9%
Diversified Telecommunication Services 0.8%
Cable & Wireless (GBP) 69,571 150
China Telecom (H shares) (HKD) 1,285,000 475
Royal KPN (EUR) 77,914 674
SBC Communications 46,200 1,163
Sprint 133,000 3,034
TDC (DKK) 11,762 481
Tele Norte Leste ADR(ss.) 29,600 453
Tele2, Series B (SEK)(ss.) 11,006 431
Telenor (NOK) 87,032 766
Telmex ADR(ss.) 11,900 417
Telus 3,300 84
8,128
Wireless Telecommunication Services 1.1%
America Movil ADR, Series L 16,800 785
Bouygues (EUR) 17,228 739
China Unicom (HKD) 194,000 150
KDDI (JPY) 159 784
mmO2 (GBP) * 546,497 1,191
Nextel Communications, Class A * 123,700 3,520
Spectrasite * 8,300 481
Telecom Italia Mobile (EUR) 159,696 1,057
Vodafone ADR(ss.) 108,850 2,968
Western Wireless, Class A * 3,200 86
11,761
Total Telecommunication Services 19,889
UTILITIES 1.7%
Electric Utilities 1.3%
Black Hills(ss.) 3,300 101
Cleco 7,400 147
E.On (EUR) 20,239 1,699
El Paso Electric * 7,100 128
Electric Power, 144A (JPY) * 2,500 69
Exelon 54,300 2,265
FirstEnergy 56,856 2,401
Hong Kong Electric (HKD) 51,000 229
Iberdrola (EUR)(ss.) 30,854 723
Tohoku Electric Power (JPY) 30,400 539
TXU(ss.) 81,900 5,145
13,446
Gas Utilities 0.2%
Australian Gas Light (AUD) 28,759 288
Centrica (GBP) 195,273 923
Toho Gas (JPY) 169,000 544
1,755
Multi-Utilities & Unregulated Power 0.2%
Constellation Energy Group 39,500 1,726
RWE (EUR) 6,517 346
United Utilities (GBP) 38,217 410
2,482
Total Utilities 17,683
Total Common Stocks (Cost $515,302) 701,857
PREFERRED STOCKS 0.1%
Fresenius (EUR) 3,823 354
Porsche (EUR) 856 544
Total Preferred Stocks (Cost $525) 898
CORPORATE BONDS 4.8%
ABN Amro Bank (Chicago), 7.125%, 6/18/07 300,000 325
Ace Ina Holdings, 5.875%, 6/15/14 330,000 333
AIG Sunamerica Global Financing XII,
144A, 5.30%, 5/30/07 575,000 598
Alabama Power, Series B, VR, 2.571%, 8/25/09 295,000 295
Alcan, 6.125%, 12/15/33 345,000 354
Allstate Financial Global Funding,
144A, 5.25%, 2/1/07 285,000 296
Amerada Hess, 7.875%, 10/1/29 260,000 298
America Movil, 5.50%, 3/1/14 245,000 239
Amgen, 144A, 4.00%, 11/18/09 235,000 233
AOL Time Warner, 7.625%, 4/15/31 325,000 381
Appalachian Power, 4.80%, 6/15/05 355,000 359
AT&T Broadband, 8.375%, 3/15/13 440,000 533
Baker Hughes, 6.875%, 1/15/29 450,000 508
Bank of America, 4.875%, 9/15/12 530,000 533
Bank One, 5.25%, 1/30/13 550,000 559
BB&T, 6.50%, 8/1/11 145,000 160
Black Hills, 6.50%, 5/15/13 320,000 328
Boeing, 8.75%, 8/15/21 465,000 615
Buckeye Partners
5.30%, 10/15/14 110,000 110
6.75%, 8/15/33 155,000 167
Bunge Limited Finance, 4.375%, 12/15/08 405,000 406
Canadian National Railway, 6.25%, 8/1/34 435,000 457
Canadian Natural Resources, 7.20%, 1/15/32 560,000 646
CE Electric UK Funding, 144A, 6.995%, 12/30/07 310,000 329
Celulosa Arauco y Constitucion, 5.125%, 7/9/13 330,000 322
Centerpoint Energy, 5.875%, 6/1/08 300,000 314
Centex, 4.55%, 11/1/10 325,000 321
Chancellor Media, 8.00%, 11/1/08 195,000 218
CIT Group, 2.875%, 9/29/06 185,000 183
CIT Group Holdings, 7.75%, 4/2/12 360,000 423
Cleveland Electric Illuminating, 5.65%, 12/15/13 315,000 321
ConocoPhillips, 5.90%, 10/15/32 500,000 507
Countrywide Home Loans, 4.125%, 9/15/09 410,000 405
Cox Communications, 7.875%, 8/15/09 400,000 449
CVS, 144A, 4.00%, 9/15/09 225,000 222
DaimlerChrysler
6.50%, 11/15/13 425,000 453
VR, 2.343%, 9/10/07 325,000 326
Deutsche Telekom International Finance, STEP,
8.75%, 6/15/30 290,000 372
Developers Diversified Realty, 3.875%, 1/30/09 285,000 277
Devon Financing, 7.875%, 9/30/31 280,000 345
Diamond Offshore Drilling, 144A, 5.15%, 9/1/14 260,000 261
Dominion Resources, 5.00%, 3/15/13 270,000 267
Dow Chemical, 6.125%, 2/1/11 245,000 265
Duke Capital
4.302%, 5/18/06 195,000 197
6.25%, 2/15/13 340,000 364
Encana Holdings Finance, 5.80%, 5/1/14 425,000 446
Entergy Gulf States, 5.20%, 12/3/07 325,000 325
EOP Operating, 4.65%, 10/1/10 290,000 289
Exelon Generation, 5.35%, 1/15/14 310,000 314
Federated Department Stores, 6.625%, 4/1/11 325,000 361
First Union, 6.40%, 4/1/08 150,000 162
FirstEnergy, 7.375%, 11/15/31 210,000 233
Ford Motor Credit
5.625%, 10/1/08 950,000 965
VR, 3.24%, 11/16/06 215,000 215
France Telecom, STEP, 8.50%, 3/1/11 310,000 368
Franklin Resources, 3.70%, 4/15/08 110,000 109
Fund American Companies, 5.875%, 5/15/13 385,000 386
General Electric Capital, 6.00%, 6/15/12 370,000 400
Genworth Financial, 5.75%, 6/15/14 390,000 405
GlaxoSmithKline, 5.375%, 4/15/34 265,000 254
GM, 8.375%, 7/15/33 690,000 701
GMAC, 7.25%, 3/2/11 460,000 477
Goldman Sachs Capital I, 6.345%, 2/15/34 815,000 828
GTECH, 144A, 4.50%, 12/1/09 235,000 233
Halliburton, 144A, VR, 2.86%, 1/26/07 410,000 410
Harrah's Operating, 5.50%, 7/1/10 205,000 211
HBOS, 144A, 6.00%, 11/1/33 345,000 351
Hearst-Argyle, 7.00%, 1/15/18 255,000 281
Highmark, 144A, 6.80%, 8/15/13 320,000 344
Hospira, 4.95%, 6/15/09 400,000 406
Household Finance, 6.375%, 11/27/12 240,000 263
Hutchison Whampoa, 144A, 5.45%, 11/24/10 250,000 256
IBM, 4.25%, 9/15/09 390,000 394
International Lease Finance, 6.375%, 3/15/09 380,000 410
International Speedway, 4.20%, 4/15/09 185,000 183
John Deere Capital, 7.00%, 3/15/12 370,000 423
Kaneb Pipe Line Operations, 7.75%, 2/15/12 190,000 218
Kinder Morgan, 6.50%, 9/1/12 365,000 396
Kraft Foods, 5.625%, 11/1/11 375,000 393
Kroger, 8.05%, 2/1/10 410,000 473
Lear, 144A, 5.75%, 8/1/14 180,000 181
Lennar, 144A, 5.50%, 9/1/14 310,000 310
Masco, 5.875%, 7/15/12 500,000 532
May Department Stores, 144A, 3.95%, 7/15/07 130,000 130
MBNA America Bank, 4.625%, 8/3/09 430,000 435
McCormick, 6.40%, 2/1/06 775,000 805
MetLife, 6.125%, 12/1/11 485,000 524
Miller Brewing, 144A, 5.50%, 8/15/13 505,000 518
Morgan Stanley, 3.625%, 4/1/08 585,000 581
Motorola, 7.625%, 11/15/10 215,000 249
Nationwide Financial Services, 5.90%, 7/1/12 435,000 458
Nationwide Mutual Insurance, 144A, 6.60%, 4/15/34 220,000 213
News America, 144A, 6.20%, 12/15/34 230,000 228
NLV Financial, 144A, 7.50%, 8/15/33 245,000 259
Northern Trust, 4.60%, 2/1/13 215,000 211
NVR, 5.00%, 6/15/10 300,000 297
Panhandle Eastern Pipeline, 4.80%, 8/15/08 155,000 157
Pemex Project Funding Master Trust
7.375%, 12/15/14 265,000 290
144A, VR, 3.18%, 6/15/10 400,000 409
PG&E
6.05%, 3/1/34 320,000 322
VR, 2.72%, 4/3/06 127,000 127
Pinnacle West Capital, 6.40%, 4/1/06 300,000 311
Pioneer Natural Resource, 5.875%, 7/15/16 220,000 227
Plains All American Pipeline, 7.75%, 10/15/12 190,000 220
PPL Capital Funding, 4.33%, 3/1/09 415,000 413
Praxair, 2.75%, 6/15/08 345,000 331
Principal Life Global Funding, 144A,
5.125%, 10/15/13 375,000 376
Progress Energy, 6.75%, 3/1/06 245,000 255
Prudential Financial, 3.75%, 5/1/08 300,000 297
PSEG Power, 8.625%, 4/15/31 220,000 280
Public Service of New Mexico, 4.40%, 9/15/08 325,000 327
Puget Sound Energy, VR, 2.681%, 7/14/06 425,000 425
Pulte Homes, 7.875%, 8/1/11 300,000 346
Reckson Operating Partnership, 5.15%, 1/15/11 350,000 346
Rogers Cable, 5.50%, 3/15/14 330,000 309
SCA Coordination Center, 144A, 4.50%, 7/15/15 245,000 230
Sealed Air, 144A, 5.375%, 4/15/08 315,000 324
Security Benefit Life Insurance, 144A,
7.45%, 10/1/33 165,000 173
Sempra Energy, 6.00%, 2/1/13 340,000 358
Simon Property Group, 3.75%, 1/30/09 370,000 361
SLM Corporation
VR, 2.30%, 1/26/09 435,000 436
VR, 3.66%, 4/1/09 310,000 311
Sprint Capital, 6.90%, 5/1/19 460,000 503
SunGard Data Systems, 3.75%, 1/15/09 215,000 208
Telefonos De Mexico, 4.50%, 11/19/08 190,000 191
Telus, 8.00%, 6/1/11 265,000 308
Transocean, 7.50%, 4/15/31 230,000 272
TXU Energy, VR, 2.838%, 1/17/06 190,000 190
Tyco International, 6.375%, 10/15/11 445,000 488
U.S. Bank, 2.87%, 2/1/07 355,000 350
U.S. Cellular, 6.70%, 12/15/33 210,000 211
Union Pacific, 6.50%, 4/15/12 380,000 419
United Air Lines, ETC, 9.20%, 3/22/08 ** 169,007 59
UST, 6.625%, 7/15/12 470,000 518
Verizon Global Funding, 7.75%, 12/1/30 320,000 383
Webster Financial, 5.125%, 4/15/14 395,000 394
Wells Fargo, VR, 1.99%, 3/23/07 475,000 475
Western Power Distribution Holdings, 144A,
6.875%, 12/15/07 215,000 222
Weyerhaeuser
6.75%, 3/15/12 185,000 207
7.375%, 3/15/32 80,000 92
Wyeth, 6.50%, 2/1/34 235,000 243
XL Capital, 6.50%, 1/15/12 335,000 362
XTO Energy, 6.25%, 4/15/13 260,000 281
Yum! Brands, 7.70%, 7/1/12 400,000 471
Total Corporate Bonds (Cost $48,598) 49,496
ASSET-BACKED SECURITIES 0.7%
Capital Auto Receivables Asset Trust,
Series 2002-2, Class CERT, 4.18%, 10/15/07 308,869 311
Chase Manhattan Auto Owner Trust
Series 2001-B, Class CTFS, 3.75%, 5/15/08 144,254 145
Series 2003-A, Class A4, 2.06%, 12/15/09 610,000 594
CIT RV Trust, Series 1998-A, Class A4,
6.09%, 2/15/12 210,312 211
Citibank Credit Card Issuance Trust
Series 2001-C1, Class C1, VR, 2.68%, 1/15/10 460,000 467
Series 2004-C1, Class C1, VR, 2.75%, 7/15/13 1,025,000 1,027
Hyundai Auto Receivables Trust
Series 2003-A, Class A4, 3.02%, 10/15/10 360,000 356
Series 2003-A, Class D, 4.06%, 10/15/10 160,000 161
MBNA Master Credit Card Trust II, Series 2000-D,
Class C 144A, 8.40%, 9/15/09 850,000 937
Morgan Stanley Auto Loan Trust, Series 2004-HB1,
Class C VR, 2.88%, 10/15/11 303,031 302
Peco Energy Transition Trust, Series 2001-A,
Class A 6.52%, 12/31/10 925,000 1,028
Reliant Energy Transition Bond, Series 2001-1,
Class A4 5.63%, 9/15/15 775,000 819
World Financial Network, Series 2003-A, Class A2
VR, 2.47%, 5/15/12 800,000 803
Total Asset-Backed Securities (Cost $7,086) 7,161
NON-U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES 1.4%
Banc of America Commercial Mortgage, Series 2003-1,
Class A2, CMO, 4.648%, 9/11/36 700,000 697
Bank of America Mortgage Securities
Series 2003-L, Class 2A2, CMO, 4.32%,
1/25/34 1,285,744 1,275
Series 2004-1, Class 3A2, CMO, VR, 5.008%,
10/25/34 484,662 488
Series 2004-A, Class 2A2, CMO, 4.152%,
2/25/34 717,129 708
Series 2004-D, Class 2A2, CMO, VR, 4.225%,
5/25/34 483,973 479
Series 2004-H, Class 2A2, CMO, 4.821%,
9/25/34 438,322 443
BankBoston Home Equity Loan Trust, Series 1998-1,
Class A6 6.35%, 2/25/13 784,219 792
Bear Stearns Commercial Mortgage Securities,
Series 2004-T14 Class A2, CMO, 4.17%, 1/12/41 1,700,000 1,700
Chase Funding Mortgage Loan, Series 2002-2,
Class 1M1 5.599%, 9/25/31 150,000 152
Countrywide Asset-Backed Certificates, Series 2003-5
Class AF3, 3.613%, 4/25/30 620,000 619
Countrywide Home Loans, Series 2003-60, Class 2A1
CMO, VR, 5.017%, 2/25/34 188,980 189
DLJ Commercial Mortgage, Series 1999-CG2, Class A1B
CMO, 7.30%, 6/10/32 150,000 167
GE Capital Commercial Mortgage, Series 2001-1,
Class A2 CMO, 6.531%, 3/15/11 815,000 896
GMAC Commercial Mortgage Securities, Series 2001-C2
Class A2, CMO, 6.70%, 4/15/34 1,125,000 1,248
Greenwich Capital Commercial Funding,
Series 2004-GG1A Class A2, CMO, 3.835%, 10/8/08 725,000 725
J.P. Morgan Chase Commercial Mortgage
Series 2001-CIB2, Class A2, CMO, 6.244%,
4/15/35 750,000 799
Series 2001-CIBC, Class A3, CMO, 6.26%,
3/15/33 885,000 967
LB-UBS Commercial Mortgage Trust
Series 2004-C2, Class A2, CMO, 3.246%,
3/15/29 1,000,000 966
Series 2004-C4, Class A2, CMO, VR, 4.567%,
5/15/29 950,000 965
Washington Mutual, Series 2004-AR1, Class A,
CMO, VR, 4.229%, 3/25/34 408,522 403
Total Non-U.S. Government Mortgage-Backed Securities
(Cost $14,728) 14,678
FOREIGN GOVERNMENT OBLIGATIONS & MUNICIPALITIES 1.2%
Asian Development Bank, 6.25%, 6/15/11 (AUD) 2,145,000 1,728
European Investment Bank, 5.75%, 9/15/09 (AUD) 1,440,000 1,131
Federal Republic of Germany
5.00%, 5/20/05 (EUR) 525,000 764
5.00%, 1/4/12 (EUR) 3,305,000 4,437
Government of Canada, 5.25%, 6/1/12 (CAD) 2,935,000 2,622
Republic of Chile, 5.50%, 1/15/13 315,000 326
Republic of Italy, 5.875%, 8/14/08 (AUD) 325,000 254
Republic of South Africa, 6.50%, 6/2/14 210,000 228
United Mexican States
6.375%, 1/16/13 390,000 409
VR, 2.29%, 1/13/09 290,000 294
Total Foreign Government Obligations & Municipalities
(Cost $10,456) 12,193
U.S. GOVERNMENT & AGENCY MORTGAGE-BACKED SECURITIES 6.7%
U.S. Government Agency Obligations+/- 5.5%
Federal Home Loan Mortgage
4.50%, 11/1/18 - 5/1/19 923,923 920
5.00%, 12/1/08 - 11/1/33 3,239,095 3,251
5.50%, 10/1 - 12/1/33 1,417,811 1,436
6.00%, 5/1/17 - 3/1/33 4,858,335 5,021
6.50%, 10/1 - 12/1/08 22,328 24
7.00%, 10/1/08 - 6/1/32 467,264 496
ARM, 4.577%, 9/1/32 278,640 280
CMO
4.50%, 3/15/16 1,950,000 1,942
5.50%, 4/15/28 1,625,000 1,676
6.50%, 3/15/11 3,271,000 3,454
CMO, IO
4.50%, 6/15/11 - 4/15/18 2,098,956 208
TBA, 6.00%, 1/1/18 291,000 305
Federal National Mortgage Assn.
4.50%, 5/1/18 - 1/1/19 7,163,772 7,131
5.00%, 10/1/18 - 6/1/34 5,964,264 5,947
5.50%, 1/1/17 - 10/1/34 12,942,687 13,233
6.00%, 10/1/13 - 11/1/34 5,274,241 5,457
6.50%, 8/1/08 - 12/1/32 1,164,617 1,228
7.00%, 2/1/30 - 4/1/32 210,408 223
8.00%, 5/1/07 - 6/1/10 6,560 7
8.50%, 8/1/06 - 11/1/21 3,388 4
CMO
2.91%, 11/25/33 475,000 473
3.50%, 4/25/13 600,000 600
5.00%, 3/25/15 1,175,000 1,192
7.25%, 5/25/20 368,321 389
CMO, IO
5.50%, 11/25/28 483,171 32
6.50%, 2/1/32 219,731 44
TBA, 6.50%, 1/1/33 1,920,000 2,014
56,987
U.S. Government Obligations 1.2%
Government National Mortgage Assn.
5.00%, 7/15 - 9/15/33 6,035,399 6,012
5.50%, 1/20 - 5/20/34 3,811,460 3,872
6.00%, 5/15/17 - 2/20/34 340,829 353
6.50%, 1/15/26 - 2/15/29 240,960 255
7.00%, 3/15/13 - 9/20/27 414,357 441
7.50%, 2/15/16 - 1/15/30 130,517 140
8.00%, 9/15/22 - 10/20/25 71,870 79
CMO, VR, 2.946%, 3/16/19 510,000 493
TBA, 5.50%, 1/1/32 950,000 963
12,608
Total U.S. Government & Agency Mortgage-Backed
Securities (Cost $69,049) 69,595
U.S. GOVERNMENT AGENCY OBLIGATIONS
(EXCLUDING MORTGAGE-BACKED) 6.8%
U.S. Government Agency Obligations+/- 1.3%
Federal Home Loan Bank, 5.75%, 5/15/12(ss.) 1,500,000 1,616
Federal Home Loan Mortgage
2.75%, 3/15/08(ss.) 1,725,000 1,680
4.625%, 2/15/07 (EUR) 1,210,000 1,673
5.125%, 7/15/12 705,000 734
Federal National Mortgage Assn.
3.25%, 8/15/08(ss.) 330,000 325
3.375%, 12/15/08(ss.) 3,065,000 3,016
4.375%, 9/15/12(ss.) 860,000 851
6.00%, 5/15/11 1,685,000 1,842
7.125%, 1/15/30 1,270,000 1,552
Resolution Funding, 8.125%, 10/15/19 210,000 274
13,563
U.S. Treasury Obligations 5.5%
U.S. Treasury Bonds
5.375%, 2/15/31(ss.) 590,000 620
6.00%, 2/15/26(ss.) 1,360,000 1,525
6.125%, 8/15/29(ss.) 165,000 189
6.25%, 8/15/23 - 5/15/30(ss.) 2,970,000 3,454
6.375%, 8/15/27(ss.) 965,000 1,132
7.50%, 11/15/16(ss.) 2,160,000 2,727
8.50%, 2/15/20(ss.) 240,000 334
U.S. Treasury Inflation-Indexed Bonds,
2.375%, 1/15/25(ss.) 2,090,293 2,164
U.S. Treasury Notes
1.50%, 3/31/06(ss.) 65,000 64
2.375%, 8/31/06(ss.) 17,100,000 16,932
3.25%, 8/15/07(ss.)++ 2,600,000 2,603
3.375%, 12/15/08(ss.) 1,330,000 1,322
3.50%, 11/15/06(ss.) 9,035,000 9,120
4.00%, 6/15/09(ss.) 10,105,000 10,250
4.25%, 11/15/13(ss.) 310,000 308
4.75%, 11/15/08(ss.) 2,595,000 2,715
5.00%, 8/15/11(ss.)++ 1,465,000 1,549
57,008
Total U.S. Government Agency Obligations
(excluding Mortgage-Backed) (Cost $69,319) 70,571
MUNICIPAL BONDS 0.4%
California
Economic Recovery
5.00%, 7/1/23 (Tender 7/1/07) 190,000 202
5.00%, 7/1/23 (Tender 7/1/08) 205,000 221
California, GO, 5.25%, 4/1/34 205,000 210
Kansas Dev. Fin. Auth., Public Employee Retirement
5.501%, 5/1/34 (FSA Insured) 240,000 239
Massachusetts, GO, 5.25%, 8/1/15 (MBIA Insured) 800,000 887
New York State Urban Dev. Corp., Corrections &
Youth Fac. 5.25%, 1/1/21 (Tender 1/1/09) 455,000 492
North Carolina, GO, 5.25%, 3/1/13 1,245,000 1,398
Oregon, Taxable Pension, GO, 5.892%, 6/1/27 130,000 137
Total Municipal Bonds (Cost $3,794) 3,786
DOMESTIC BOND MUTUAL FUNDS 5.1%
T. Rowe Price Institutional High Yield Fund,
6.92% p+ 4,783,784 53,100
Total Domestic Bond Mutual Funds (Cost $50,155) 53,100
SHORT-TERM INVESTMENTS 5.8%
Money Market Fund 5.8%
T. Rowe Price Reserve Investment Fund, 2.00% #+ 59,650,493 59,650
Total Short-Term Investments (Cost $59,650) 59,650
SECURITIES LENDING COLLATERAL 12.3%
Money Market Pooled Account 1.5%
Investment in money market pooled account managed
by JP Morgan Chase Bank, London, 1.984% # 15,011,106 15,011
15,011
Money Market Trust 10.8%
State Street Bank and Trust Company of
New Hampshire N.A. Securities Lending Quality
Trust units, 1.998% # 111,766,022 111,766
111,766
Total Securities Lending Collateral
(Cost $126,777) 126,777
Futures Contracts 0.0%
Variation margin receivable (payable) on open
future contracts (2) (8)
Total Futures Contracts (8)
Total Investments in Securities
113.2% of Net Assets (Cost $975,439) $1,169,754
----------
(1) Denominated in U.S. dollars unless otherwise noted
# Seven-day yield
* Non-income producing
(ss.) All or a portion of this security is on loan at November 30, 2004 - See
Note 2
+/- The issuer is a publicly-traded company that operates under a
congressional charter; its securities are neither issued nor guaranteed
by the U.S. government.
++ All or a portion of this security is pledged to cover margin requirements
on futures contracts at November 30, 2004.
+ Affiliated company - See Note 4
p SEC yield
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 value of such securities at
period-end amounts to $8,191 and represents 0.8% of net assets
** In default with respect to payment of principal and interest.
ADR American Depository Receipts
ADS American Depository Shares
ARM Adjustable Rate Mortgage
AUD Australian dollar
CAD Canadian dollar
CHF Swiss franc
CMO Collateralized Mortgage Obligation
DKK Danish krone
ETC Equipment Trust Certificate
EUR Euro
FSA Financial Security Assurance Inc.
GBP British pound
GDR Global Depository Receipts
GDS Global Depository Shares
GO General Obligation
HKD Hong Kong dollar
IO Interest Only security for which the fund receives interest on notional
principal (par)
JPY Japanese yen
MBIA MBIA Insurance Corp.
MXN Mexican peso
MYR Malaysian ringgit
NOK Norwegian krone
NZD New Zealand dollar
REIT Real Estate Investment Trust
SEK Swedish krona
SGD Singapore dollar
STEP Stepped coupon bond for which the coupon rate of interest will adjust on
specified future date(s)
TBA To Be Announced security was purchased on a forward commitment basis
VR Variable Rate
T. Rowe Price Personal Strategy Balanced Fund
- --------------------------------------------------------------------------------
Shares/$ Par Value
- --------------------------------------------------------------------------------
(Cost and value in $ 000s)
(2) Open Futures Contracts at November 30, 2004 were as follows:
($ 000s)
Contract Unrealized
Expiration Value Gain (Loss)
---------- -------- -----------
Short, 97 U.S. Treasury five year
contracts, $130 par of 3.25%
U.S. Treasury Notes pledged as
initial margin 3/05 $ (10,556) $ 10
Short, 14 U.S. Treasury ten year
contracts, $60 par of 5.00%
U.S. Treasury Notes pledged as
initial margin 3/05 (1,550) 12
Net payments (receipts) of
variation margin to date (30)
Variation margin receivable
(payable) on open futures contracts $ (8)
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Personal Strategy Balanced Fund
- --------------------------------------------------------------------------------
Unaudited November 30, 2004
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
(In thousands except shares and per share amounts)
Assets
Investments in securities, at value
Affiliated companies (cost $109,805) $ 112,750
Non-affiliated companies (cost $865,634) 1,057,004
Total investments in securities 1,169,754
Other assets 6,322
Total assets 1,176,076
Liabilities
Obligation to return securities lending collateral 126,777
Other liabilities 16,151
Total liabilities 142,928
NET ASSETS $ 1,033,148
--------------
Net Assets Consist of:
Undistributed net investment income (loss) $ 4,273
Undistributed net realized gain (loss) (28,330)
Net unrealized gain (loss) 194,380
Paid-in-capital applicable to 57,778,206 shares of
$0.0001 par value capital stock outstanding;
1,000,000,000 shares of the Corporation authorized 862,825
NET ASSETS $ 1,033,148
--------------
NET ASSET VALUE PER SHARE $ 17.88
--------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Personal Strategy Balanced Fund
- --------------------------------------------------------------------------------
Unaudited
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
($ 000s)
6 Months
Ended
11/30/04
Investment Income (Loss)
Income
Dividend $ 9,298
Interest 4,787
Securities lending 108
Total income 14,193
Expenses
Investment management 2,751
Shareholder servicing 1,427
Custody and accounting 164
Prospectus and shareholder reports 42
Registration 18
Legal and audit 9
Directors 3
Miscellaneous 8
Reductions/repayments of fees and expenses
Investment management fees (waived) repaid (192)
Total expenses 4,230
Net investment income (loss) 9,963
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 12,912
Futures (620)
Foreign currency transactions (13)
Net realized gain (loss) 12,279
Change in net unrealized gain (loss)
Securities 56,022
Futures 104
Other assets and liabilities
denominated in foreign currencies 38
Change in net unrealized gain (loss) 56,164
Net realized and unrealized gain (loss) 68,443
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 78,406
---------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Personal Strategy Balanced Fund
- --------------------------------------------------------------------------------
Unaudited
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
($ 000s)
6 Months Year
Ended Ended
11/30/04 5/31/04
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 9,963 $ 16,294
Net realized gain (loss) 12,279 4,016
Change in net unrealized gain (loss) 56,164 91,101
Increase (decrease) in net assets from operations 78,406 111,411
Distributions to shareholders
Net investment income (9,686) (15,646)
Net realized gain - (501)
Decrease in net assets from distributions (9,686) (16,147)
Capital share transactions *
Shares sold 183,574 338,784
Distributions reinvested 9,632 16,071
Shares redeemed (197,276) (183,423)
Increase (decrease) in net assets from capital
share transactions (4,070) 171,432
Net Assets
Increase (decrease) during period 64,650 266,696
Beginning of period 968,498 701,802
End of period $1,033,148 $ 968,498
---------- ----------
(Including undistributed net investment income of
$4,273 at 11/30/04 and $3,996 at 5/31/04)
*Share information
Shares sold 10,845 20,823
Distributions reinvested 571 1,024
Shares redeemed (11,707) (11,390)
Increase (decrease) in shares outstanding (291) 10,457
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Personal Strategy Balanced Fund
- --------------------------------------------------------------------------------
Unaudited November 30, 2004
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Personal Strategy Funds, Inc. (the corporation) is registered
under the Investment Company Act of 1940 (the 1940 Act). The Personal Strategy
Balanced Fund (the fund), a diversified, open-end management investment company,
is one portfolio established by the corporation. The fund commenced operations
on July 29, 1994. The fund seeks the highest total return over time consistent
with an emphasis on both capital growth and income. The fund pursues this
objective by investing in a diversified portfolio typically consisting of about
60% stocks, 30% bonds, and 10% money market 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, for certain markets, the official closing price at
the time the valuations are made, except for OTC Bulletin Board securities,
which are valued at the mean of the latest bid and asked prices. 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 asked 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. Financial futures contracts are valued
at closing settlement prices.
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. In the course of making a good faith
determination of a security's fair value, the fund reviews a variety of factors,
including market and trading trends and the value of comparable securities, such
as unrestricted securities of the same issuer.
Most foreign markets close before the close of trading on the NYSE. If the fund
determines that developments between the close of a foreign market and the close
of the NYSE will, in its judgment, materially affect the value of some or all of
its portfolio securities, which in turn will affect the fund's share price, the
fund will adjust the previous closing prices to reflect the 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. A
fund may also fair value securities in other situations, such as when a
particular foreign market is closed but the fund is open. In deciding whether to
make fair value adjustments, the fund reviews a variety of factors, including
developments in foreign markets, the performance of U.S. securities markets, and
the performance of instruments trading in U. S. markets that represent foreign
securities and baskets of foreign securities. The fund uses outside pricing
services to provide it with closing market prices and information used for
adjusting those prices. The fund cannot predict how often it will use closing
prices and how often it will adjust those prices. As a means of evaluating its
fair value process, the fund routinely compares closing market prices, the next
day's opening prices in the same markets, and adjusted prices.
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 asked 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 $2,000 for the
six months ended November 30, 2004. 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.
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. Inflation
adjustments to the principal amount of inflation-indexed bonds are included in
interest income. 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. Payments
("variation margin") made or received to settle the daily fluctuations in the
value of futures contracts are recorded as unrealized gains or losses until the
contracts are closed. Unsettled variation margin on futures contracts is
included in investments in securities, and unrealized gains and losses on
futures contracts are included in the change in net unrealized gain or loss in
the accompanying financial statements. 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 declared and paid by
the fund, typically on an annual basis. During the six months ended November 30,
2004, the fund received a one-time special dividend on a security held in its
portfolio (Microsoft Corp.). The dividend, which totaled $1,338,000, represents
14.4% of dividend income reflected in the accompanying financial statements and
is not expected to recur.
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.
Restricted Securities
The fund may invest in securities that are subject to legal or contractual
restrictions on resale. Although certain of these securities may be readily
sold, for example, under Rule 144A, others may be illiquid, and their sale may
involve substantial delays and additional costs, and prompt sale at an
acceptable price may be difficult.
Futures Contracts
During the six months ended November 30, 2004, the fund was a party to futures
contracts, which provide for the future sale by one party and purchase by
another of a specified amount of a specific financial instrument at an agreed
upon price, date, time, and place. Risks arise from possible illiquidity of the
futures market and from movements in security values and interest rates.
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 November 30, 2004, the value of loaned
securities was $123,261,000; aggregate collateral consisted of $126,777,000 in
money market pooled accounts and U.S. government securities valued at $907,000.
Other
Purchases and sales of portfolio securities, other than short-term and U.S.
government securities, aggregated $187,126,000 and $232,987,000, respectively,
for the six months ended November 30, 2004. Purchases and sales of U.S.
government securities aggregated $156,386,000 and $124,880,000, respectively,
for the six months ended November 30, 2004.
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 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. The amount and character of
tax-basis
distributions and composition of net assets are finalized at fiscal
year-end; accordingly, tax-basis balances have not been determined as of
November 30, 2004.
The fund intends to retain realized gains to the extent of available capital
loss carryforwards. As of May 31, 2004, the fund had $39,749,000 of unused
capital loss carryforwards, of which $2,633,000 expire in fiscal 2010,
$23,159,000 expire in fiscal 2011, and $13,957,000 expire in fiscal 2012.
At November 30, 2004, the cost of investments for federal income tax purposes
was $975,439,000. Net unrealized gain aggregated $194,380,000 at period-end, of
which $204,340,000 related to appreciated investments and $9,960,000 related 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, 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 0.25% 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 November 30,
2004, the effective annual group fee rate was 0.31%, and investment management
fee payable totaled $469,000.
The fund is also subject to a contractual expense limitation through September
30, 2006. During the limitation period, the manager is required to waive its
management fee and reimburse the fund for any expenses, excluding interest,
taxes, brokerage commissions, and extraordinary expenses, that would otherwise
cause the fund's ratio of total expenses to average net assets (expense ratio)
to exceed its expense limitation of 0.90%. Through September 30, 2008, the fund
is required to repay the manager for expenses previously reimbursed and
management fees waived to the extent its net assets have grown or expenses have
declined sufficiently to allow repayment without causing the fund's expense
ratio to exceed its expense limitation. Pursuant to this agreement, at November
30, 2004, management fees waived in the amount of $1,017,000 remain subject to
repayment by the fund through September 30, 2006.
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. For the six months ended November 30, 2004, expenses
incurred pursuant to these service agreements were $62,000 for Price Associates,
$120,000 for T. Rowe Price Services, Inc., and $1,009,000 for T. Rowe Price
Retirement Plan Services, Inc. At period-end, a total of $211,000 of these
expenses was payable.
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 and
affiliates of the fund. The Reserve Funds are offered as cash management options
to mutual funds, trusts, and other accounts managed by Price Associates and/or
its affiliates, and are not available for direct purchase by members of the
public. The Reserve Funds pay no investment management fees. During the six
months ended November 30, 2004, dividend income from the Reserve Funds totaled
$407,000, and the value of shares of the Reserve Funds held at November 30, 2004
and May 31. 2004 was $59,650,000 and $39,900,000, respectively.
The fund may invest in the T. Rowe Price Institutional High Yield Fund, Inc.
(High Yield Fund) as a means of gaining efficient and cost-effective exposure to
the high-yield bond markets. The High Yield Fund is an open-end management
investment company managed by Price Associates, and an affiliate of the fund.
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. To ensure
that the Personal Strategy Balanced Fund does not incur duplicate fees for its
assets invested in High Yield Fund, Price Associates has agreed to reduce its
management fee to the fund. Accordingly, the management fee waiver reflected on
the accompanying Statement of Operations includes $159,000 of management fees
permanently waived pursuant to this agreement. During the six months ended
November 30, 2004, purchases and sales of High Yield Fund were $4,664,000 and
$25,287,000, respectively. Realized losses during the period were $165,000 and
investment income during the period was $2,500,000. At November 30, 2004 and May
31, 2004, the value of shares of High Yield Fund held were $53,100,000 and
$70,911,000, respectively.
T. Rowe Price Personal Strategy Balanced Fund
- --------------------------------------------------------------------------------
INFORMATION ON PROXY VOTING POLICIES, PROCEDURES, AND RECORDS
- --------------------------------------------------------------------------------
A description of the policies and procedures used by T. Rowe Price funds and
portfolios to determine how to vote proxies relating to portfolio securities is
available in each fund's Statement of Additional Information, which you may
request by calling 1-800-225-5132 or by accessing the SEC's Web site,
www.sec.gov. The description of our proxy voting policies and procedures is also
available on our Web site, www.troweprice.com. To access it, click on the words
"Company Info" at the top of our homepage for individual investors. Then, in the
window that appears, click on the "Proxy Voting Policy" navigation button in the
top left corner.
Each fund's most recent annual proxy voting record is available on our Web site
and through the SEC's Web site. To access it through our Web site, follow the
directions above, then click on the words "Proxy Voting Record" at the bottom of
the Proxy Voting Policy page.
HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
The fund files a complete schedule of portfolio holdings with the Securities and
Exchange Commission for the first and third quarters of each fiscal year on Form
N-Q. The fund's Form N-Q is available electronically on the SEC's Web site
(www.sec.gov); hard copies may be reviewed and copied at the SEC's Public
Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information
on the Public Reference Room, call 1-800-SEC-0330.
Item 2. Code of Ethics.
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 is filed as an
exhibit to the registrant's annual Form N-CSR. No substantive amendments were
approved or waivers were granted to this code of ethics during the registrant's
most recent fiscal half-year.
Item 3. Audit Committee Financial Expert.
Disclosure required in registrant's annual Form N-CSR.
Item 4. Principal Accountant Fees and Services.
Disclosure required in registrant's annual Form N-CSR.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Not applicable. The complete schedule of investments is included in Item 1 of
this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. 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 change in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal quarter covered by
this report that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is filed
with the registrant's annual Form N-CSR.
(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.
(3) Written solicitation to repurchase securities issued by closed-end
companies: not applicable.
(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 Personal Strategy Funds, Inc.
By /s/ James S. Riepe
-----------------------------------
James S. Riepe
Principal Executive Officer
Date January 14, 2005
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 January 14, 2005
By /s/ Joseph A. Carrier
-----------------------------------
Joseph A. Carrier
Principal Financial Officer
Date January 14, 2005