Semiannual Report
June 30, 1997
Mid-Cap Equity Growth Fund
Dear Investor
After a dull first quarter, stocks surged during the second.
Mid-cap stocks participated in the rebound but lagged behind
their larger brethren by significant margins for the past six
months and since the fund's inception July 31, 1996. Moreover,
mid-cap growth stocks, exemplified by your fund, in turn trailed
mid-cap value stocks for both periods, which was the primary
reason the fund lagged its mid-cap benchmarks in recent months.
In ordinary times, we would be very satisfied with your fund's
return since inception. After all, the Mid-Cap Equity Growth
Fund's absolute gain of 22.91% for just 11 months is well above
the stock market's historical norm for annual periods. However,
the extraordinary advance of the unmanaged Standard & Poor's 500
Stock Index, led primarily by large blue chip companies, makes
us feel as though we were not invited to the party.
Performance Comparison
Since
Inception
Periods Ended 6/30/97 6 Months 7/31/96
_______________________________________________________________
Mid-Cap
Equity Growth Fund 5.87% 22.91%
S&P MidCap Index 12.99 32.28
Lipper Mid Cap
Funds Average 9.09 25.29
S&P 500 Index 20.61 40.93
Market Environment
Stock market investors have been treated to exemplary returns
against the best market backdrop in years. The economic
expansion is in its seventh year and, after growing a little too
fast in the first quarter of 1997, seems to have moderated
recently. Thus, we have an ideal environment where the economy
is growing fast enough to accommodate good corporate earnings
growth, yet slow enough to allay fears of an impending
inflationary surge. The U.S. inflation rate appears benign and
has actually declined slightly in spite of a reasonably tight
job market. In Washington, politicians are still squabbling, but
there appears to be a movement by both parties toward the middle
of the political spectrum, at least on economic issues. Both
parties appear to agree on some measure of capital gains tax
reduction. Meanwhile, the federal budget deficit has declined so
fast that extrapolating budget surpluses in the years ahead may
no longer be a fantastic notion. Globally, we are in the midst
of a relatively peaceful period in which capitalism and
democracy are ascendent. Consumer confidence is at record highs,
and individual investors continue to pour money into equity
mutual funds. Despite vibrant demand for new equity offerings,
corporate stock buybacks and record merger and acquisition
activity are retiring stock as fast as it is issued.
After 1995 and 1996, when the S&P 500 posted a cumulative gain
of 69.7%-its third-best two-year return in six decades-many
observers, ourselves included, believed the market was due for
a pause. While the market did correct almost 10% in March and
April, it raced back to close with a strong gain for the first
half of 1997. Large-cap companies led the way, as investors
continued to be enamored of franchise brands like Coca-Cola,
Procter & Gamble, and GE. Small and mid-cap companies lagged the
rally by a significant margin. In the mid-cap sector, value
performed better than growth, an anomalous situation because the
reverse was true in the large-cap arena.
Portfolio Review
The portfolio had less divergence than usual among industry
groups in the first half, though significant volatility led to
notable contributions and detractions. Three retailers were
among the fund's top 10 contributors in the first half of 1997.
General Nutrition, the nation's largest retailer of vitamin and
other health-related products, was the fund's top performer as
the company rebounded from a temporary sales slowdown in
mid-1996. Costco Companies, the nation's leading warehouse club
operator, and Kohl's, a major discount department store, also
reported strong earnings gains and performed well. For the 11
months since inception, Cooper Cameron, Smith International, and
Camco International were some of our best contributors. These
energy service companies benefited from extremely strong demand
for products and services that assist oil exploration and
production companies in the drilling process.
Unfortunately, gains from these stocks were offset by several
very disappointing stocks. Foremost was Mercury Finance, a
leader in used car automobile lending. Along with other
investors, we were victimized by suspected management fraud and
manipulation of financial statements and are seeking redress
through legal action. The fund was also hurt in the first half
by its position in Boston Chicken, a restaurant operator whose
stock fell when an unanticipated sales slowdown precipitated a
reevaluation by investors of what was, in hindsight, an overly
aggressive expansion plan and a problematic financial structure.
Corporate Express, a distributor of office-related products,
also performed poorly after reporting disappointing earnings in
the first quarter.
The market has not treated the mid-cap growth sector well over
the last year, but it is worth noting that corporate buyers do
appear to recognize value in the sector as takeover activity in
our portfolio is easily at its highest level in five years.
Portfolio companies acquired in the last several quarters
included ADT, Revco, Eckerd, Oxford Resources, Career Horizons,
Cascade Communications, and Vivra. The acquisition of Palmer
Wireless is pending. We do not actively purchase companies we
believe may be acquired, but we do view this flurry of activity
as a reaffirmation of the current relative attractiveness of the
mid-cap sector.
Your fund remains well diversified across sectors. We have made
only modest changes in the last six months, as shown in the
table.
Sector Diversification
12/31/96 6/30/97
_____________________________________________________________
Financial 10% 10%
Health Care 9 10
Consumer 19 18
Technology 8 7
Business Services 28 28
Energy 6 7
Industrial 8 10
Basic Materials 2 2
Reserves 10 8
______________________________________________________________
Total 100% 100%
Outlook
As mentioned earlier, a combination of factors-moderate domestic
economic growth, low inflation and interest rates, growing
corporate earnings, rapidly declining budget deficits, and a
benign global political environment-present a very favorable
backdrop for the stock market, in our opinion. It is difficult
to envisage a major stock market setback in this context.
However, stock valuations are high by historical standards using
benchmarks such as price/earnings ratios, price/book value
ratios, and dividend yields. The Leuthold Group reports that the
15-year compound annual return for the S&P 500 as of June 30 was
18.8%, the best such period ever recorded, far above the 10.7%
1926-to-date median.
Perhaps we have entered a "new era" of peace and prosperity.
However, students of the stock market know from experience that
the most dangerous phrase in the language is "this time it's
different." After all, the stock market reflects human emotion,
which can vary greatly over long periods.
It is interesting to note that small and mid-cap stocks often
lead in the latter stages of bull markets, yet this has not been
the case recently. Nevertheless, with blue chip stocks trading
at price/earnings ratios well above their growth rates, it is
possible the sector many now consider the "safest"-the large
blue chips-may actually be the riskiest. While we are not sure
what catalyst may come along to change the leadership of the
market, the relative values in the mid-cap sector appear
attractive, though absolute valuations are high by historical
standards.
We remain optimistic about the long-term prospects for mid-cap
companies. The aggregate underlying growth rate of our portfolio
companies is well in excess of the market as a whole, yet the
price/earnings ratio is only modestly higher than the market and
well below many of the blue chip leaders. Over the long run, we
believe your fund is well positioned to achieve attractive
returns.
Respectfully submitted,
Brian W. H. Berghuis
President and
Chairman of the Investment Advisory Committee
July 22, 1997
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of Net Assets
6/30/97
______________________________________________________________
ACE Limited 2.1%
Warnaco Group 2.0
TriMas 1.8
Danaher 1.8
Smith International 1.7
Interim Services 1.7
Franklin Resources 1.6
Camco International 1.6
BE Aerospace 1.6
Gartner Group 1.6
Sybron International 1.5
Great Lakes Chemical 1.5
JP Foodservice 1.5
General Nutrition 1.5
La Quinta Inns 1.4
PartnerRe Holdings 1.4
Cooper Cameron 1.4
Catalina Marketing 1.4
Teleflex 1.4
Ikon Office Solutions 1.3
Circuit City Stores 1.3
Money Store 1.3
Quorum Health Group 1.2
Stewart Enterprises 1.2
360 Communications 1.2
______________________________________________________________
Total 38.0%
Performance Comparison
This chart shows the value of a hypothetical $10,000
investment in the fund over the past 10 fiscal year periods
or since inception (for funds lacking 10-year records). The
result is compared with a broad-based average or index.
The index return does not reflect expenses, which have
been deducted from the fund's return.
Mid-Cap Equity Growth Fund
Performance Comparison
as of 6/30/97
Mid-Cap Equity S&P MidCap Lipper Mid Cap
Growth Fund Index Funds Average
7/31/96 $ 10,000 $ 10,000 $ 10,000
6/97 12,291 13,228 12,529
Total Return
Mid-Cap Equity Growth Fund
Periods Ended 6/30/97
Since Inception
6 Months Inception Date
______________________________________________________________
_______
5.87% 22.91% 7/31/96
Investment return and principal value represent past performance
and will vary. Shares may be worth more or less at redemption
than at original purchase.
Contributions to the Change in Net Asset Value Per Share
Six Months Ended 6/30/97
TEN BEST CONTRIBUTORS
_____________________________________________
General Nutrition 8(cents)
Gartner Group * 8
Franklin Resources 8
ADT ** 6
Oxford Resources *** 6
Smith International 5
ACE Limited 5
Interim Services 4
Kohl's 4
Costco Companies 4
_____________________________________________
Total 58(cents)
_____________________________________________
* Position added
** Position eliminated
*** Acquired by another company
TEN WORST CONTRIBUTORS
_____________________________________________
Mercury Finance - 14(cents)
Boston Chicken 10
Ikon Office Solutions 6
Network General 5
360 Communications 5
Scholastic ** 5
Tupperware ** 5
Corporate Express 4
TVX Gold 4
American Pad & Paper 4
_____________________________________________
Total - 62(cents)
_____________________________________________
Financial Highlights
T. Rowe Price Mid-Cap Equity Growth Fund
(Unaudited)
For a share outstanding
throughout each period
6 Months 7/31/96
Ended Through
6/30/97 12/31/96
NET ASSET VALUE
Beginning of period $ 11.59 $ 10.00
Investment activities
Net investment income - 0.02*
Net realized and
unrealized gain (loss) 0.68 1.59
Total from
investment activities 0.68 1.61
Distributions
Net investment income - (0.02)
NET ASSET VALUE
End of period $ 12.27 $ 11.59
________________________
Ratios/Supplemental Data
Total return 5.87%* 16.10%*
Ratio of expenses to
average net assets 0.85%*! 0.85%*!
Ratio of net investment
income to average
net assets 0.02%*! 0.43%*!
Portfolio turnover rate 44.4%! 31.3%!
Average commission rate paid $ 0.0470 $ 0.0402
Net assets, end of period
(in thousands) $ 29,957 $ 14,367
* Excludes expenses in excess of a 0.85% voluntary expense limitation in
effect through 12/31/97.
! Annualized.
The accompanying notes are an integral part of these financial statements.
Statement of Net Assets
T. Rowe Price Mid-Cap Equity Growth Fund
June 30, 1997 (Unaudited)
Shares/Par Value
In thousands
Common Stocks 92.0%
FINANCIAL 9.6%
Insurance 4.5%
ACE Limited 8,500 $ 628
PartnerRe Holdings ADR 11,300 431
PMI Group 4,500 280
1,339
Financial Services 5.1%
Fairfax Financial (CAD) * 1,100 319
Franklin Resources 6,800 494
Mercury Finance 11,200 27
Money Store 13,500 386
Nationwide Financial
Services (Class A) 11,600 308
1,534
Total Financial 2,873
HEALTH CARE 10.0%
Biotechnology 2.1%
Biogen * 8,900 302
Gilead Sciences * 11,300 313
615
Medical Instruments and
Devices 3.2%
St. Jude Medical * 8,500 331
Sybron International * 11,500 459
United States Surgical 4,900 182
972
Health Care Services 4.7%
Apria Healthcare * 3,100 55
Cardinal Health 4,800 275
Covance * 18,400 355
Quest Diagnostics * 16,900 348
Quorum Health Group * 10,500 374
1,407
Total Health Care 2,994
CONSUMER 16.9%
Soft Goods Retailers 2.2%
Gymboree * 14,700 353
Kohl's * 5,900 312
665
Hard Goods Retailers 5.0%
Circuit City Stores 10,900 $ 387
Costco Companies * 9,600 316
General Nutrition * 15,600 436
Waban * 11,300 364
1,503
Consumer Non-Durables 3.2%
American Pad & Paper * 13,400 226
Consolidated Cigar
Holdings * 700 20
Culligan Water
Technologies * 3,000 134
Warnaco Group
(Class A) 18,600 593
973
Restaurants 1.5%
Boston Chicken * 11,700 163
Outback Steakhouse * 11,300 273
436
Entertainment 1.2%
Royal Caribbean Cruises 10,200 356
356
Consumer Services 3.8%
CUC International * 12,700 328
La Quinta Inns 19,700 431
Stewart Enterprises
(Class A) 8,900 373
1,132
Total Consumer 5,065
TECHNOLOGY 7.2%
Computer Software 3.0%
BMC Software * 6,200 344
Intuit * 5,300 121
PLATINUM Technology * 10,200 136
Synopsys * 7,900 292
893
Networking and Telecom Equipment 1.6%
Anixter International * 8,400 144
Cascade Communications * 5,600 155
Network General * 11,800 175
474
Semiconductors 2.6%
Analog Devices * 9,200 244
Maxim Integrated Products * 5,100 290
Xilinx * 5,100 $ 250
784
Total Technology 2,151
BUSINESS SERVICES 27.5%
Telecom Services 5.1%
360 Communications * 21,400 366
Aerial Communications * 8,200 71
Comcast (Class A Special) 14,700 314
Cox Communications
(Class A) * 12,100 290
Omnipoint * 9,700 161
Palmer Wireless * 12,000 203
Vanguard Cellular
(Class A) * 9,600 133
1,538
Computer Services 6.6%
Affiliated Computer
Services (Class A) * 11,800 330
BDM International * 12,400 284
Checkfree * 10,200 180
DST Systems * 10,200 340
National Data 7,300 316
Sterling Commerce * 5,600 184
SunGard Data Systems * 7,300 339
1,973
Distribution 6.0%
Corporate Express * 21,900 315
Ikon Office Solutions 15,900 397
JP Foodservice * 15,200 436
MSC * 8,000 321
Richfood Holdings 13,200 343
1,812
Media and Advertising 3.4%
ADVO * 5,100 83
Catalina Marketing * 8,700 418
Jacor Communications * 5,000 192
Outdoor Systems * 8,400 320
1,013
Environmental 1.7%
Republic Industries * 7,000 174
USA Waste Services * 8,400 325
499
Miscellaneous Business Services 4.7%
Fastenal 3,900 $ 191
Gartner Group (Class A) * 13,000 467
HFS * 4,300 249
Interim Services * 11,300 503
1,410
Total Business Services 8,245
ENERGY 6.8%
Exploration and Production 0.9%
United Meridian * 9,000 270
270
Energy Services 5.9%
Camco International 9,000 493
Cooper Cameron * 9,000 421
Smith International * 8,500 516
Weatherford Enterra * 8,800 339
1,769
Total Energy 2,039
INDUSTRIAL 9.7%
Defense & Aerospace 1.6%
BE Aerospace * 14,800 467
467
Auto Related 1.2%
OEA 9,000 355
355
Specialty Chemicals 1.9%
Great Lakes Chemical 8,700 456
Polymer Group * 6,700 108
564
Machinery 5.0%
Danaher 10,700 544
Teleflex 13,000 406
TriMas 19,700 554
1,504
Total Industrial 2,890
BASIC MATERIALS 2.5%
Mining 2.5%
Battle Mountain Gold
(Class A) 46,500 265
Cambior 22,400 $ 253
TVX Gold * 45,800 243
Total Basic Materials 761
Miscellaneous Common Stocks 1.8% 550
Total Common Stocks (Cost $25,203) 27,568
Short-Term Investments 8.7%
Repurchase Agreements** 4.7%
Investments in Repurchase
Agreements through a Joint
Account, Dated 6/30/97, 5.80%
Delivery Value $1,386,263
on 7/1/97 $1,386,040 1,386
1,386
U.S. Government Obligations 4.0%
U.S. Treasury Bills,
4.70%, 7/10/97 1,200,000 1,198
1,198
Total Short-Term
Investments
(Cost $2,584) 2,584
Total Investments in Securities
100.7% of Net Assets (Cost $27,787) $ 30,152
Other Assets Less Liabilities (195)
NET ASSETS $ 29,957
___________
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 3
Accumulated net realized gain/loss -
net of distributions (1)
Net unrealized gain (loss) 2,365
Paid-in-capital applicable to
2,442,033 shares of $0.0001 par
value capital stock outstanding;
1,000,000,000 shares of the
corporation authorized 27,590
NET ASSETS $ 29,957
___________
NET ASSET VALUE PER SHARE $ 12.27
___________
* Non-income producing
** Fully collateralized by U.S. government securities
CAD Canadian dollar
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Mid-Cap Equity Growth Fund
(Unaudited)
In thousands
6 Months
Ended
6/30/97
Investment Income
Income
Interest $ 70
Dividend 31
Total income 101
Expenses
Custody and accounting 55
Investment management 24
Legal and audit 5
Registration 4
Shareholder servicing 4
Directors 3
Prospectus and shareholder reports 2
Miscellaneous 1
Total expenses 98
Net investment income 3
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (59)
Change in net unrealized gain or loss on securities 1,833
Net realized and unrealized gain (loss) 1,774
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 1,777
___________
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Mid-Cap Equity Growth Fund
(Unaudited)
In thousands
6 Months 7/31/96
Ended Through
6/30/97 12/31/96
Increase (Decrease) in Net Assets
Operations
Net investment income $ 3 $ 10
Net realized gain (loss) (59) 72
Change in net unrealized gain or loss 1,833 532
Increase (decrease) in net assets from
operations 1,777 614
Distributions to shareholders
Net investment income - (24)
Capital share transactions*
Shares sold 14,045 13,650
Distributions reinvested - 16
Shares redeemed (232) -
Increase (decrease) in net assets
from capital share transactions 13,813 13,666
Net equalization - 11
Net Assets
Increase (decrease) during period 15,590 14,267
Beginning of period 14,367 100
End of period $ 29,957 $ 14,367
________________________
*Share information
Shares sold 1,222 1,228
Distributions reinvested - 2
Shares redeemed (20) -
Increase (decrease) in shares outstanding1,202 1,230
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Mid-Cap Equity Growth Fund
June 30, 1997 (Unaudited)
Note 1 - Significant Accounting Policies
Institutional Equity Funds, Inc. (the corporation) is registered under the
Investment Company Act of 1940. The Mid-Cap Equity Growth Fund (the fund),
a diversified open-end management investment company, is one of the
portfolios established by the corporation and commenced operations on July
31, 1996.
Valuation Equity securities are valued at the last quoted sales price on the
day the valuations are made. A security which is listed or traded on more
than one exchange is valued at the quotation on the exchange determined to
be the primary market for such security. Listed securities not traded on a
particular day and securities regularly traded in the over-the-counter market
are valued at the mean of the latest bid and asked prices.
Short-term debt securities are valued at amortized cost which, when combined
with accrued interest, approximates fair value.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of
such currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the officers
of the fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are trans-lated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing exchange rate on the dates of such
transactions. The effect of changes in foreign exchange rates on realized and
unrealized security gains and losses is reflected as a component of such
gains and losses.
Premiums and Discounts Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Dividend income and distributions
to shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income
tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. Effective January 1, 1997, the fund
discontinued its practice of equalization. The results of operations and net
assets were not affected by this change.
Note 2 - Investment Transactions
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Repurchase Agreements The fund, and other affiliated funds, may transfer
uninvested cash into a joint account, the daily aggregate balance of which
is invested in one or more overnight repurchase agreements. All repurchase
agreements purchased by the joint account satisfy the fund's criteria as to
quality, yield, and liquidity and are fully collaterallized by U.S.
government securities. Collateral is in the possession of the fund's
custodian and is evaluated daily to ensure that its market value exceeds the
delivery value of the repurchase agreements at maturity. Although risk is
mitigated by the collateral, the fund could experience a delay in recovering
its value and a possible loss of income or value if the counter-party fails
to perform in accordance with the terms of the agreement.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $17,483,000 and $4,618,000, respectively, for the six
months ended June 30, 1997.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
At June 30, 1997, the aggregate cost of investments for federal income tax
and financial reporting purposes was $27,787,000, and net unrealized gain
aggregated $2,365,000, of which $3,588,000 related to appreciated investments
and $1,223,000 to depreciated investments.
Note 4 - Related Party Transactions
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management
fee, of which $8,000 was payable at June 30, 1997. The fee is computed daily
and paid monthly, and is equal to 0.60% of average daily net assets.
Under the terms of the investment management agreement, the manager is
required to bear any expenses through December 31, 1997, which would cause
the fund's ratio of expenses to average net assets to exceed 0.85%.
Thereafter, through December 31, 1999, the fund is required to reimburse the
manager for these expenses, provided that average net assets have grown or
expenses have declined sufficiently to allow reimbursement without causing
the fund's ratio of expenses to average net assets to exceed 0.85%. Pursuant
to this agreement, $45,000 of management fees were not accrued by the fund
for the six months ended June 30, 1997. Additionally, $48,000 of unaccrued
1996 management fees and expenses are subject to reimbursement through
December 31, 1999.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund receives
certain other services. The manager computes the daily share price and
maintains the financial records of the fund. T. Rowe Price Services, Inc.,
is the fund's transfer and dividend disbursing agent and provides shareholder
and administrative services to the fund. T. Rowe Price Retirement Plan
Services, Inc., provides subaccounting and recordkeeping services for certain
retirement accounts invested in the fund. The fund incurred expenses pursuant
to these related party agreements totaling approximately $34,000 for the six
months ended June 30, 1997, of which $7,000 was payable at period-end.
T. Rowe Price Mid-Cap Equity Growth Fund
