Semiannual Report
June 30, 2000
Mid-Cap Equity Growth Fund
Invest With Confidence
T.Rowe Price (registered trademark)
Dear Investor
Stocks were extremely volatile in the first half of 2000, and most market
indices declined despite a powerful rebound late in the period. The signal event
was a 37% correction in the tech-heavy Nasdaq Composite in early spring that
resulted in the near destruction of many small- and mid-capitalization Internet
companies. After trailing large-caps for several years, mid-cap stocks were
strong performers during the period, led by the technology and biotechnology
sectors.
Performance Comparison
---------------------------------------------------------------------------
Periods Ended 6/30/00 6 Months 12 Months
---------------------------------------------------------------------------
Mid-Cap Equity Growth Fund 6.28% 18.99%
S&P MidCap Index 8.97 16.98
Russell Midcap Growth Index 12.15 48.59
Lipper Mid-Cap Core Fund Index 10.66 32.06
The Mid-Cap Equity Growth Fund's 6.28% first-half return, while respectable
in absolute terms, lagged its benchmarks for the period. Our gain of 18.99%
in the 12 months ended June 30 exceeded the Standard & Poor's MidCap Index
but trailed the Russell Midcap Growth Index and our Lipper category.
Results in both periods were affected by our lower weighting in technology
stocks compared with the benchmarks as well as our more valuation-sensitive
approach. Since inception on July 31, 1996, the fund has gained 121.94%
(for an average annual gain of 22.58%), compared with 130.55% for the S&P
MidCap and 114.59% for the Lipper category.
MARKET ENVIRONMENT
In the midst of an economic expansion that has shattered all records for
duration, U.S. economic growth actually accelerated in the first quarter of
2000. The Federal Reserve, which had raised short-term rates three times
last year, raised the ante three more times in the first half of 2000,
capped by a half-point move on May 16. Finally, by late May, the economy
began to show signs of responding to the Fed's strong medicine. Retail
sales were sluggish, consumer confidence dipped slightly, and job creation
and industrial demand slowed. Despite anecdotal evidence of wage inflation
and a sharp increase in energy prices, the government's price measures
continued to show only slight increases over 1999. The economy's robust
growth has helped generate increasingly large federal government budget
surpluses, a situation most would have thought impossible just a few years
ago, and some are even predicting that the U.S. government could be
debt-free in a decade. Fixed-income investors nearly panicked at the
prospect of a looming "shortage" of 30-year Treasury bonds resulting from
reduced federal borrowing and the initiation of a Treasury debt buyback.
In the first quarter, the stock market, like the economy, proved amazingly
resilient in the face of generally rising interest rates. Powerful
momentum-and rabid speculation-carried over from late 1999. Valuations of
the favored technology, Internet, biotech, and telecom stocks reached
historically high levels by the time the Nasdaq Composite peaked above 5000
on March 10. However, market volatility was also extreme. During the first
half, the S&P 500 experienced intraday price swings of 2% or more on 40% of
all trading days, and the Nasdaq Composite fluctuated more than 2% intraday
an incredible 84% of the time. The only comparable periods in market
history were the 1930s and the 1970s-and stocks did not fare well overall
in either decade. In our opinion, the high volatility indicates a lack of
conviction on the part of investors.
A sharp correction-some called it a bear market-took hold in March, as
Internet and biotech stocks, in particular, crashed. Many technology stocks
bounced back quickly in June as investors grew more optimistic that the
Fed's rate hikes might be nearing an end. In fact, by mid-July, after the
close of our reporting period, many biotech, telecom, networking, and
semiconductor stocks had pushed back toward their highs. But most of the
dot-coms, particularly those with the slimmest profit prospects, have not
recovered. While many of the biggest winners of 1999 and early 2000 were
companies with no earnings, investors have begun to demand profitability,
though they are once again willing to pay very high price/earnings (P/E)
ratios for stocks with rapid profit growth.
Value-oriented shares, such as those of retailers and industrial companies,
had a brief moment in the sun during the Nasdaq correction, but faded late
in the period on fears of an economic slowdown. A more positive sign,
however, is that market breadth improved in June as investors also began to
embrace more reasonably priced, steady growth stocks. While large-cap
stocks have generally dominated the market since 1994, small- and mid-cap
shares have taken the lead in the past year. The S&P MidCap Index's robust
8.97% first-half gain was nearly three times that of the Russell 2000 Index
of smaller companies, while the Dow Jones Industrial Average, the S&P 500,
and the Nasdaq Composite all fell in the period.
PORTFOLIO REVIEW
Technology, telecom, and health care stocks once again dominated our top
contributors list for the past 6- and 12-month periods. Both PMC-Sierra, a
leader in chips that help speed network communications, and Analog Devices,
which specializes in analog-to-digital processors that are also important
for communications, were among our top three contributors for the two
periods. Xilinx, a leader in programmable logic chips, made it into the top
10 twice.
In health care, we benefited from powerful rallies in Waters Corp.,
Sepracor, Teva Pharmaceutical Industries, and AmeriSource Health over the
past six months. Waters manufactures equipment, including mass
spectrometers, necessary for drug research and development in the biotech
industry. Investors concluded-correctly, in our view-that one way to profit
from the surge of investment in genetic research, especially in the early
stages, is to invest in companies providing "picks and shovels" for the
prospectors engaged in the human genome gold rush. Sepracor, by contrast,
has been mining the biotech field for years and has struck gold in the form
of a strong pipeline of new products that have already begun producing
accelerating revenues for the company. Teva, expanding beyond its roots as
a leading generic-drug maker, is experiencing considerable success with the
introduction of a powerful new multiple sclerosis drug, Copaxone. Fears of
Internet disintermediation weighed heavily on many of the fund's holdings
in late 1999 and early 2000, and none more than AmeriSource, the
fourth-largest drug distributor in the U.S., which was seen to be
particularly vulnerable. The company's stock more than doubled in the first
half as investors concluded that its business would not be imminently
affected by the Internet. To the best of our knowledge, pharmaceuticals
still cannot be downloaded electronically!
Exceptions to this tech and health care hegemony included Waddell & Reed
Financial and BJ Services. Waddell & Reed, a 1998 spin-off from Torchmark,
is a well-run investment manager that is beginning to gain recognition on
Wall Street. BJ Services, which provides oil field equipment and services,
benefited from rising energy prices and an increase in exploration
activity.
The list of our worst performers was dominated by consumer and business
services stocks, such as CIBER, Royal Caribbean Cruises, Hertz, and Circuit
City Stores. CIBER, an information technology firm, experienced problems
transitioning its revenue base from packaged applications and Year 2000
assignments to Internet enablement, the segment now in greatest demand. We
eliminated Royal Caribbean Cruises as industry capacity appears likely to
outstrip demand in the intermediate term. Hertz, the world's largest car
rental firm, continued to grow earnings, but investors sold the stock
anyway, fearing an economic slowdown. We believe that Hertz's stock price
discounts a much more negative scenario than is likely, and we have added
to our position. Circuit City, a category killer well positioned to benefit
from increased consumer spending on all manner of digital devices,
experienced a sales slowdown in May, causing its stock to dive. Two
software companies-Novell and Parametric Technology-disappointed investors
with poor earnings. We eliminated both from the portfolio.
We added marginally to our technology and health care holdings, and their
sector weightings rose due to strong relative performance. Exposure to the
consumer sector fell because of weak performance and sales of stocks such
as Royal Caribbean.
Sector Diversification
---------------------------------------------------------------------------
12/31/99 6/30/00
---------------------------------------------------------------------------
Financial 10% 10%
Health Care 13 16
Consumer 14 9
Technology 19 22
Business Services 33 29
Energy 5 6
Industrial 4 3
Basic Materials -- --
Reserves 2 5
---------------------------------------------------------------------------
Total 100% 100%
INVESTMENT STRATEGY AND OUTLOOK
We are in the midst of a remarkable period of technological change.
Advances in many fields - semiconductors, biotechnology, genomics,
telecommunications, and the Internet, to name just a few - are reported
daily. The changes are so rapid that it is often unclear what is important
or relevant, even to industry participants, until much later. The
technology revolution has coincided with two other phenomena that have led
to a combustible stock market environment. The first is a change in the
structure of markets, which we have discussed at length in earlier letters.
The dramatic reduction in trading commissions, driven by huge advances in
processing and communications technology, has made the individual investor
a greater force in the market. Even as individuals have greatly accelerated
their trading activity, intermediaries such as brokers and dealers have
reacted to lower commission structures by reducing the capital devoted to
their own market-making activities. The net result is that stock price
movements are exaggerated in both directions. Finally, it is worth noting
that these changes in technology and market structure have coincided with
the longest economic expansion ever, dulling our collective memories of the
risks inherent in the market.
Momentum investing is again ascendant. In spite of the spring correction,
technology stocks dominated first-half performance in the mid-cap sector,
contributing a significant amount of the indices' return. Virtually all of
this came from stocks with very high valuations, or without any earnings at
all. Many investors are buying stocks based on accelerating earnings per
share, accelerating revenues, or even accelerating increases in stock
prices. This can lead to very high valuations that are hard to justify by
traditional measures. While bulls rationalize high stock prices by noting
the boundless opportunities of many of these companies, the recent
experience of many dot-com companies should be instructive. Price movements
can suddenly reverse, and if fundamental problems develop, stocks can fall
dramatically before they find strong valuation support.
We have always prided ourselves on being able to achieve market-beating
returns while taking below-average risk for a mid-cap growth fund. Risk
reduction is achieved through individual security and sector
diversification as well as a strong bias toward buying growth at reasonable
valuations. Over the long run this has held us in good stead, but in the
last few quarters, our valuation bias strongly hindered returns. One of our
benchmarks, the Russell Midcap Growth Index, is composed of 52% technology
stocks, and 26% of the index's stocks are Internet-related, according to
Prudential Securities. We have not been able to keep pace with this index
while maintaining our valuation discipline (even though our loss in the
second quarter was only about half that of the index). We do not feel it is
appropriate to concentrate more than half of our holdings in a particular
sector like technology.
Some of the many newly minted companies will become the blue chips of the
next decade. We realize that fundamentals in the technology sector are
terrific. But from a stock standpoint, many technology companies have been
driven by price-momentum strategies, and valuations have become divorced
from the fundamentals. Finding good companies at reasonable prices-which is
our philosophy-has not been a market-beating strategy.
New Economy wisdom holds that technology is not cyclical given the
megatrends in global commerce. However, history tells us that in general,
technology, as a capital good, is indeed cyclical. Furthermore, in
fast-evolving areas where product cycles are short, the propensity for
technology firms to remain growth companies over an extended period is
lower than average. This would argue for lower-than-average P/Es, not
higher, relative to underlying growth rates.
In the last few months, a refreshing reality has returned to the high
growth marketplace. In fact, it almost seems that investors' valuation
methodology has come full circle. A year or so ago, in an attempt to
rationalize bringing unprofitable dot-com companies with unproven business
models public, investors moved from analyzing price-to-earnings ratios to
gauging price-to-sales ratios. By the beginning of this year, as valuations
continued to climb and underwriting standards fell further, investors
collectively migrated from price-to-sales ratios to a true
back-of-the-envelope construct, price-to-market opportunity. In this
surreal environment, dreams seemed reality, and economic reason was
ignored. But in the span of six short months, we have returned to analyzing
earnings again. Eventually, we are confident, investors will rediscover
that P can get too high compared with E.
Although highly valued stocks have driven investment performance in the
last year, a large part of the market remains untouched by the excitement.
Valuations remain well above historical averages in sectors such as
semiconductors, communications equipment, and biotechnology, but many other
segments, such as business services and telecom services, appear reasonably
priced. We have even added some new holdings in the Internet sector in the
last few months. Mid-caps remain a segment of the market where, on balance,
prices are reasonable compared with earnings, and valuations are especially
attractive compared with large-caps. We believe that the Mid-Cap Equity
Growth Fund remains an excellent vehicle for capitalizing on the exciting
opportunities available in mid-cap stocks today.
Respectfully submitted,
Brian W.H. Berghuis
President and Chairman of the Investment Advisory Committee
John F. Wakeman
Executive Vice President
July 17, 2000
Portfolio Highlights
Twenty-Five Largest Holdings
--------------------------------------------------------------------------------
Percent of
Net Assets
6/30/00
---------------------------------------------------------------------------
Waddell & Reed Financial 2.6%
Western Wireless 2.0
Analog Devices 2.0
Waters Corporation 1.7
AmeriSource Health 1.7
Devon Energy 1.6
Sepracor 1.6
Xilinx 1.6
VoiceStream Wireless 1.6
Robert Half International 1.5
Federated Investors 1.5
MedImmune 1.5
Teva Pharmaceutical Industries 1.4
NOVA Corporation 1.4
Circuit City Stores 1.3
Gilead Sciences 1.3
Shire Pharmaceuticals 1.3
Concord EFS 1.3
Maxim Integrated Products 1.3
Intuit 1.2
Republic Services 1.2
BJ Services 1.2
PMC-Sierra 1.2
Family Dollar Stores 1.1
Viad 1.1
---------------------------------------------------------------------------
Total 37.2%
Note: Table excludes reserves.
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 market
index does not reflect expenses, which have been deducted from the fund's
return.
Mid-Cap Equity Growth Fund
--------------------------------------------------------------------------------
As of 6/30/00
Mid-Cap S&P Lipper
Equity MidCap Mid-Cap
Growth Index Core Fund Index
7/31/96 10.000 10.000 10.000
6/97 12.291 13.228 12.630
6/98 16.124 16.819 15.228
6/99 18.652 19.709 16.249
6/00 22.194 23.055 21.459
Average Annual Compound Total Return
--------------------------------------------------------------------------------
This table shows how the fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Mid-Cap Equity Growth Fund
Periods Ended 6/30/00
Since Inception
1 Year 3 Years Inception Date
---------------------------------------------------------
18.99% 21.77% 22.58% 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.
Portfolio Highlights
Contributions to the Change in Net Asset Value Per Share
--------------------------------------------------------------------------------
6 Months Ended 6/30/00
TEN BEST CONTRIBUTORS
--------------------------------------------------------------------------------
Waddell & Reed Financial 25(cents)
PMC-Sierra 22
Analog Devices 22
Sepracor 20
Waters Corporation 20
AmeriSource Health 19
Robert Half International 18
BJ Services 17
Xilinx 16
Teva Pharmaceutical Industries 16
--------------------------------------------------------------------------------
Total 195(cents)
TEN WORST CONTRIBUTORS
--------------------------------------------------------------------------------
CIBER -13(cents)
Novell ** 13
Royal Caribbean Cruises ** 11
Hertz 10
Circuit City Stores 10
Synopsys ** 9
Parametric Technology ** 9
VoiceStream Wireless 9
Rhythms NetConnections * 9
Affiliated Computer Services 9
--------------------------------------------------------------------------------
Total -102(cents)
12 Months Ended 6/30/00
TEN BEST CONTRIBUTORS
--------------------------------------------------------------------------------
VoiceStream Wireless 76(cents)
PMC-Sierra 44
Analog Devices 43
Western Wireless 35
Xilinx 29
MedImmune 28
BJ Services 28
Teva Pharmaceutical Industries 25
Waddell & Reed Financial 24
Sepracor 24
--------------------------------------------------------------------------------
Total 356(cents)
TEN WORST CONTRIBUTORS
--------------------------------------------------------------------------------
Galileo International -19(cents)
Warnaco Group ** 17
Shopko Stores 12
Affiliated Computer Services 12
Circuit City Stores 12
Republic Services 10
Ingram Micro ** 9
Premier Parks 9
Royal Caribbean Cruises ** 9
Covance ** 9
--------------------------------------------------------------------------------
Total -118(cents)
* Position added
** Position eliminated
Financial Highlights
Mid-Cap Equity Growth Fund
(Unaudited)
For a share outstanding throughout each period
---------------------------------------------------------
6 Months Year 7/31/96
Ended Ended Through
6/30/00 12/31/99 12/31/98 12/31/97 12/31/96
NET ASSET VALUE
Beginning of period $ 20.07 $ 16.28 $ 13.69 $ 11.59 $ 10.00
Investment activities
Net investment income
(loss) (0.02) (0.02) (0.04) (0.01)* 0.02*
Net realized and
unrealized gain (loss) 1.28 4.08 2.94 2.14 1.59
Total from
investment activities 1.26 4.06 2.90 2.13 1.61
Distributions
Net investment income -- -- -- -- (0.02)
Net realized gain -- (0.27) (0.31) (0.03) --
Total distributions -- (0.27) (0.31) (0.03) (0.02)
NET ASSET VALUE
End of period $ 21.33 $ 20.07 $ 16.28 $ 13.69 $ 11.59
----------------------------------------------------
Ratios/Supplemental Data
Total
return(diamond) 6.28% 25.10% 21.45% 18.39%* 16.10%*
Ratio of total
expenses to average
net assets 0.66%! 0.70% 0.85% 0.85%* 0.85%*!
Ratio of net
investment income
(loss) to average
net assets (0.20)%! (0.13)% (0.35)% (0.12)%* 0.43%*!
Portfolio
turnover rate 63.9%! 55.4% 52.8% 41.0% 31.3%!
Net assets,
end of period
(in thousands) $326,886 $265,724 $131,575 $ 57,974 $ 14,367
(diamond) 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.
* 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
Mid-Cap Equity Growth Fund
June 30, 2000 (Unaudited)
Shares Value
--------------------------------------------------------------------------------
In thousands
COMMON STOCKS 95.5%
FINANCIAL 10.0%
Bank and Trust 0.4%
North Fork Bancorporation 90,000 $ 1,361
1,361
Insurance 3.1%
ACE Limited 103,500 2,898
MGIC Investment 56,500 2,571
Protective Life 72,500 1,930
Radian Group 53,000 2,743
10,142
Financial Services 6.5%
Capital One Financial 55,000 2,454
E*TRADE * 119,000 1,960
eSpeed (Class A) * 7,900 343
Federated Investors (Class B) 138,500 4,856
Heller Financial 147,500 3,024
NextCard * 25,000 212
Waddell & Reed Financial (Class A) 187,500 6,152
Waddell & Reed Financial (Class B) 75,750 2,202
21,203
Total Financial 32,706
HEALTH CARE 16.3%
Pharmaceuticals 3.3%
ALZA * 6,100 361
Shire Pharmaceuticals ADR * 82,500 4,285
Teva Pharmaceutical Industries ADR 83,000 4,604
Watson Pharmaceuticals * 29,500 1,585
10,835
Biotechnology 7.3%
Abegenix * 11,200 1,342
Affymetrix * 11,200 1,849
Gilead Sciences * 60,500 4,305
IDEC Pharmaceuticals * 22,500 2,639
Incyte Genomics * 15,600 1,282
MedImmune * 65,100 4,815
QLT * 30,000 2,330
Sepracor * 43,000 5,187
23,749
Medical Instruments and Devices 3.1%
Millipore 22,000 1,658
Sybron International * 150,500 $ 2,982
Waters Corporation * 44,000 5,492
10,132
Health Care Services 2.6%
Lincare * 111,000 2,730
Omnicare 264,000 2,392
Wellpoint Health Networks * 48,300 3,499
8,621
Total Health Care 53,337
CONSUMER 8.9%
Soft Goods Retailers 1.0%
TJX 175,000 3,281
3,281
Hard Goods Retailers 5.7%
BJ's Wholesale Club * 101,000 3,333
Borders Group * 70,500 1,097
Circuit City Stores 132,500 4,398
Consolidated Stores * 118,000 1,416
Family Dollar Stores 189,000 3,697
HomeGrocer.com * 78,000 472
O'Reilly Automotive * 115,000 1,585
Shopko Stores * 55,300 850
Whole Foods Market * 48,500 2,005
18,853
Consumer Non-Durables 0.6%
Jones Apparel Group * 83,000 1,951
1,951
Restaurants 0.9%
Outback Steakhouse * 100,000 2,925
2,925
Entertainment 0.7%
Premier Parks * 97,500 2,218
2,218
Total Consumer 29,228
TECHNOLOGY 21.3%
Computer Software 6.0%
Electronic Arts * 32,500 2,371
Informatica * 24,600 2,014
Intuit * 98,000 4,049
ISS Group * 20,400 2,014
Macromedia * 16,500 1,595
Mercury Interactive * 14,000 1,355
NetIQ * 28,000 1,670
Peregrine Systems * 82,500 2,872
Vitria Technology * 27,900 $ 1,706
19,646
Semiconductors and Components 8.5%
Analog Devices * 86,000 6,536
CTS 8,800 396
KLA-Tencor * 44,500 2,607
Lattice Semiconductor * 44,500 3,078
Maxim Integrated Products * 62,000 4,210
Molex (Class A) 56,250 1,971
PMC-Sierra * 21,200 3,766
Xilinx * 62,000 5,121
27,685
Networking and Telecom Equipment 0.2%
Efficient Networks* 9,100 670
670
E-Commerce 3.7%
CNET Networks * 55,000 1,349
Commerce One * 12,900 586
Digex * 25,200 1,713
DoubleClick * 50,000 1,906
HomeStore.com * 61,000 1,788
Internet Capital Group * 55,000 2,032
Priceline.com * 44,000 1,669
USInternetworking * 61,000 1,245
12,288
Computer Hardware/Peripherals 2.9%
Flextronics International * 29,500 2,027
Jabil Circuit * 33,000 1,638
Sanmina * 35,000 2,991
SCI Systems * 72,600 2,845
9,501
Total Technology 69,790
BUSINESS SERVICES 28.8%
Telecom Services 8.1%
Allegiance Telecom * 17,000 1,088
AT&T Canada (Class B) * 47,000 1,557
Charter Communications (Class A) * 87,000 1,433
Covad Communications Group * 32,250 519
Crown Castle International * 85,500 3,118
McLeod USA * 65,500 1,357
Pinnacle Holdings * 51,500 2,762
Rhythms NetConnections * 59,000 $ 741
Rogers Communications * 74,000 2,109
VoiceStream Wireless * 44,000 5,118
Western Wireless * 121,500 6,618
26,420
Computer Services 6.6%
Affiliated Computer Services
(Class A) * 101,700 3,362
BISYS Group * 14,000 865
Ceridian * 113,200 2,724
Concord EFS * 164,000 4,264
Fiserv * 20,500 887
Galileo International 111,600 2,330
NOVA Corporation* 159,400 4,453
SunGard Data Systems * 82,500 2,558
21,443
Distribution 3.3%
AmeriSource Health * 177,000 5,487
MSC * 76,500 1,602
Tech Data * 82,500 3,591
10,680
Media and Advertising 2.6%
Catalina Marketing * 33,500 3,417
Lamar Advertising * 28,700 1,244
TMP Worldwide * 26,000 1,918
Univision Communications * 19,000 1,967
8,546
Environmental 1.2%
Republic Services (Class A) * 247,000 3,952
3,952
Miscellaneous Business Services 5.8%
CIBER * 130,400 1,728
eLoyalty * 27,500 349
Hertz 74,500 2,090
Keane * 116,500 2,519
Manpower 99,500 3,184
Robert Half International * 175,000 4,987
Viad 135,000 3,679
Xpedior * 24,800 342
18,878
Transportation 0.7%
C.H. Robinson Worldwide 24,900 1,232
Expeditors International of Washington 23,500 1,111
2,343
Engineering and Construction 0.5%
Martin Marietta Materials 43,800 $ 1,771
1,771
Total Business Services 94,033
ENERGY 6.3%
Exploration and Production 3.2%
Devon Energy 94,500 5,309
Diamond Offshore Drilling 54,000 1,897
Ocean Energy * 222,500 3,157
10,363
Energy Services 3.1%
BJ Services * 61,500 3,844
Smith International * 39,500 2,876
Tidewater 95,000 3,420
10,140
Total Energy 20,503
INDUSTRIAL 3.4%
Automobiles and Related 0.5%
ITT Industries 50,000 1,519
1,519
Machinery 2.9%
Danaher 47,000 2,323
Pentair 95,500 3,390
Teleflex 59,000 2,187
United Rentals * 100,500 1,721
9,621
Total Industrial 11,140
BASIC MATERIALS 0.3%
Mining 0.3%
Allegheny Technologies 53,500 963
Total Basic Materials 963
Miscellaneous Common Stocks 0.2% 506
Total Common Stocks (Cost $246,091) 312,206
SHORT-TERM INVESTMENTS 2.4%
Money Market Funds 2.4%
Government Reserve Investment
Fund, 6.27% 7,669,528 $ 7,670
Total Short-Term Investments (Cost $7,670) 7,670
Total Investments in Securities
97.9% of Net Assets (Cost $253,760) $ 319,876
Other Assets Less Liabilities 7,010
NET ASSETS $ 326,886
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ (296)
Accumulated net realized gain/loss -
net of distributions 22,747
Net unrealized gain (loss) 66,116
Paid-in-capital applicable to 15,326,846
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares of the
Corporation authorized 238,319
NET ASSETS $ 326,886
----------
NET ASSET VALUE PER SHARE $ 21.33
----------
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
The accompanying notes are an integral part of these financial statements.
Statement of Operations
Mid-Cap Equity Growth Fund
(Unaudited)
In thousands
6 Months
Ended
6/30/00
Investment Income (Loss)
Income
Dividend $ 455
Interest 226
Total income 681
Expenses
Investment management 893
Custody and accounting 62
Legal and audit 7
Shareholder servicing 5
Registration 4
Directors 4
Prospectus and shareholder reports 2
Miscellaneous 2
Total expenses 979
Expenses paid indirectly (2)
Net expenses 977
Net investment income (loss) (296)
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 17,183
Change in net unrealized gain or loss 398
Net realized and unrealized gain (loss) 17,581
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 17,285
----------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
Mid-Cap Equity Growth Fund
(Unaudited)
In thousands
6 Months Year
Ended Ended
6/30/00 12/31/99
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ (296) $ (257)
Net realized gain (loss) 17,183 9,423
Change in net unrealized
gain or loss 398 42,471
Increase (decrease) in net
assets from operations 17,285 51,637
Distributions to shareholders
Net realized gain -- (3,557)
Capital share transactions *
Shares sold 58,846 106,463
Distributions reinvested -- 3,226
Shares redeemed (14,969) (23,620)
Increase (decrease) in net
assets from capital
share transactions 43,877 86,069
Net Assets
Increase (decrease) during period 61,162 134,149
Beginning of period 265,724 131,575
End of period $ 326,886 $ 265,724
-----------------------
*Share information
Shares sold 2,826 6,333
Distributions reinvested -- 176
Shares redeemed (736) (1,355)
Increase (decrease) in
shares outstanding 2,090 5,154
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
Mid-Cap Equity Growth Fund
June 30, 2000 (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 the sole
portfolio established by the corporation and commenced operations on July
31, 1996. The fund seeks long-term capital appreciation by investing in the
common stocks of mid-cap companies whose earnings are expected to grow at a
faster-than-average rate.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
Valuation - Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price on the day the
valuations are made. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the
primary market for such security. Listed securities not traded on a
particular day and securities regularly traded in the over-the-counter
market are valued at the mean of the latest bid and asked prices. Other
equity securities are valued at a price within the limits of the latest bid
and asked prices deemed by the Board of Directors, or by persons delegated
by the Board, best to reflect fair value.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the
officers of the fund, as authorized by the Board of Directors.
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. Expenses paid
indirectly reflect credits earned on daily uninvested cash balances at the
custodian and are used to reduce the fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $128,096,000 and $93,165,000, respectively, for the
six months ended June 30, 2000.
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, 2000, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$253,760,000. Net unrealized gain aggregated $66,116,000 at period-end, of
which $89,135,000 related to appreciated investments and $23,019,000 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 $161,000 was payable at June 30, 2000. The fee is computed
daily and paid monthly, and consists of an individual fund fee equal to
0.60% of average daily net assets.
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 $37,000 for the six months ended June 30, 2000, of which
$7,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve
Funds are offered as cash management options only to mutual funds and other
accounts managed by T. Rowe Price and its affiliates and are not available
to the public. The Reserve Funds pay no investment management fees.
Distributions from the Reserve Funds to the fund for the six months ended
June 30, 2000, totaled $226,000 and are reflected as interest income in the
accompanying Statement of Operations.
