<PAGE>
Semiannual Report
DIVERSIFIED
SMALL-CAP
GROWTH FUND
JUNE 30, 2000
[LOGO OF T. ROWE PRICE]
T. ROWE PRICE
<PAGE>
REPORT HIGHLIGHTS
---------------------------------
Diversified Small-Cap Growth Fund
. Small-cap stocks finished with modest gains after a volatile first half of
the year.
. The fund's return exceeded its Russell benchmark and the average small-cap
fund for the six-month period, and 12-month returns were outstanding.
. Our broad diversification and disciplined strategy aided performance.
. Renewed investor focus on company fundamentals should benefit our
relatively conservative approach to a volatile sector.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
<PAGE>
FELLOW SHAREHOLDERS
Building on a powerful fourth-quarter 1999, U.S. markets surged during the first
two and a half months of 2000, fueled by investor enthusiasm for shares of
technology companies--especially Internet and biotechnology. Stocks fell sharply
beginning in mid-March, however, as investors finally reacted to the sky-high
tech valuations and the ongoing series of interest rate hikes by the Federal
Reserve.
Although the tech-heavy Nasdaq Composite posted the largest drop, stocks outside
the sector also suffered. After a period of extreme volatility, technology
stocks and the broader market rallied again in June. Overall, the large-cap S&P
500 finished the first six months of the year with a decline of 0.43%, while the
small-cap Russell 2000 Index gained 3.04%.
----------------------
PERFORMANCE COMPARISON
--------------------------------------------------------------------------------
Periods Ended 6/30/00 6 Months 12 Months
--------------------------------------------------------------------------------
Diversified Small-Cap
Growth Fund 7.87% 34.45%
Russell 2000 Growth Index 1.23 28.39
Lipper Small Cap Fund Index 4.58 35.27
Despite the second-quarter sell-off, your fund posted solid results for the six
months ended June 30, easily outpacing the Russell 2000 Growth Index and its
average peer fund. The fund's excellent 34.45% return for the 12-month period
topped the Russell benchmark as well, and was in line with the Lipper Small Cap
Fund Index. Strength in the biotechnology and semiconductor sectors drove fund
performance, and our broad diversification and relatively conservative approach
to small-cap growth investing were instrumental in navigating the volatility in
the spring.
MARKET ENVIRONMENT
The Fed has raised short-term interest rates three times in 2000 (six times
since June 1999) in an effort to ease inflationary pressures in the economy, the
most recent a half-percentage-point jump in May. Amid concerns about future rate
hikes and a slowing economy, the markets shied away from risk in 2000's second
quarter, driving down the
1
<PAGE>
prices of the most speculative dot-com companies. After months of ignoring
company losses while pursuing these New Economy stocks, investors once again
began to appreciate profitability. Russell 2000 companies that were projected to
lose money over the next year dropped 15% in the quarter. The IPO market also
dried up as investors lost their appetite for risk, leaving many new companies
with dire cash shortages.
The market's new risk aversion benefited companies with strong fundamentals, and
for the first time in several years, small-cap value stocks shone. The wide
disparity between growth and value stocks--a gap that reached unprecedented
levels in 1999--reversed course in the first half of 2000. The Russell 2000
Value Index topped the comparable growth index by 4.6 percentage points over the
past six months, but that small difference masks the extreme volatility
experienced during the first two quarters of the year. Growth stocks
outperformed at the beginning and end of the period, but from the peak in March
to the trough in May, the value index outperformed growth by about 32%.
-----------------------
SMALL-CAP STOCK RETURNS
--------------------------------------------------------------------------------
Periods Ended 6/30/00 6 Months 12 Months
--------------------------------------------------------------------------------
Russell 2000 Index 3.04% 14.32%
Russell 2000 Growth Index 1.23 28.39
Russell 2000 Value Index 5.85 -0.94
Internet stocks weren't the only highfliers that felt the market's wrath.
Biotech stocks drove skyward in January and February--the average biotech in the
Russell 2000 more than doubled during that time--but crashed in April and May,
giving up substantially all their earlier gains. Good news then sparked a
rebound as investors began to get excited about the completion of the human
genome map, the first step in what could be a revolution in the way diseases are
diagnosed and treated.
PORTFOLIO STRATEGY AND REVIEW
The fund's investment strategy served us well, especially during the market's
most recent bout of volatility. Our broad diversification--both in the number of
stocks we own and across industries--helped us catch the strength of the
best-performing sectors while reducing the risk that any one company or industry
would unduly hamper returns. Diversification remains paramount, and we raised
the number of stocks in the portfolio to 400 at the end of June. Diversification
within
2
<PAGE>
sectors was also important. Technology, for example, covers a wide range
of industries that included some of our best and worst performers during the
period. At the same time, our bias toward companies with strong fundamentals
such as earnings growth kept us away from some of the more speculative tech
issues that were hardest hit in the spring downturn.
Although there were some shifts among industry groups within the portfolio, our
current allocations are roughly neutral relative to the small-cap growth sector.
Semiconductors and components now rank as the largest industry allocation,
replacing computer software, which dropped to third place. Networking and
telecom equipment doubled as a percentage of fund assets and now is the
second-largest group. Biotech stocks tripled their representation in the
portfolio, although they remain just under 5% of assets. Overall, technology in
all its forms represents just over 40% of fund assets, slightly higher than the
Russell 2000 Growth Index's 37%. In addition to computer software, we cut
allocations to computer services and hardware and e-commerce. Sector
diversification at year-end and midyear is shown in the table following this
letter.
-------------------------
PORTFOLIO CHARACTERISTICS
--------------------------------------------------------------------------------
Diversified
Small-Cap
As of 6/30/00 Growth Fund S&P 500
--------------------------------------------------------------------------------
Market Cap (Investment-
Weighted Median) $1.5 billion $91.3 billion
Earnings Growth Rate
Estimated Next 5 Years* 24.9% 14.7%
P/E Ratio (Based on Next 12
Months' Estimated Earnings) 33.0X 30.0X
*Forecasts are based on T. Rowe Price research and are in no way an
indication of future investment returns.
Individual technology companies generated both the best and the worst returns
for the fund, as semiconductors and biotechs performed spectacularly, while
computer services were clobbered. Although no stock accounts for as much as 1%
of fund assets, some companies produced outsized returns. Top contributors
included semiconductor developer Burr Brown (which agreed to be acquired by
Texas Instruments), biotech firm Techne, and Learning Tree International, which
provides information technology training. Negative contributors included
Harmonic, a promising broadband company, and InterVoice-Brite, which provides
call-center management; both companies reported earnings shortfalls.
Computer-storage company Advanced Digital Information was among the computer
services firms that were hard hit.
3
<PAGE>
OUTLOOK
Small-cap investing involves a higher degree of volatility than investing in
large-caps, but the volatility so far this year is nearly unprecedented.
Small-cap growth companies that perform well, beat expectations, and garner
investor enthusiasm can see their stock price soar. Those that stumble and fail
to meet expectations get punished with stock prices that can fall 50% or more in
a single day. When this occurs, regaining investor confidence and share price
momentum takes a long time, if it ever happens. Indeed, the first bit of bad
news that sends a stock into free-fall is often just the beginning of a string
of disappointing announcements.
This highlights the importance of diversification when investing in this arena.
By holding many small positions in the fund, we reduce the impact of any single
disappointing company. And after a disappointment, if we doubt the business
model or management of a company, we are quick to sell and redeploy the assets
into other more promising investments.
The price we pay for a company also matters. Although the market sometimes
overlooks valuations in the short run, we believe that investors who pay any
price for rapid growth will ultimately be disappointed. We will continue to be
sensitive to valuations and refrain from paying too much for growth, and we
anticipate that over time the market will reward our disciplined strategy.
Respectfully submitted,
/S/ Richard T. Whitney
Richard T. Whitney
President and Chairman of the Investment Advisory Committee
July 20, 2000
4
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
--------------------
PORTFOLIO HIGHLIGHTS
--------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/00
--------------------------------------------------------------------------------
Techne 0.8%
Burr Brown 0.8
Polycom 0.8
Diamond Technology Partners 0.7
NorthEast Optic Network 0.7
--------------------------------------------------------------------------------
Plexus 0.7
Xircom 0.7
Mercury Interactive 0.7
Pericom Semiconductor 0.7
Micromuse 0.7
--------------------------------------------------------------------------------
Semtech 0.6
Learning Tree International 0.6
TranSwitch 0.6
ATMI 0.6
Plantronics 0.6
--------------------------------------------------------------------------------
Actuate 0.6
Lattice Semiconductor 0.6
Remedy 0.6
Micrel 0.6
Proxim 0.6
--------------------------------------------------------------------------------
Anaren Microwave 0.6
Technitrol 0.6
PMC-Sierra 0.6
Mentor 0.6
Natural MicroSystems 0.6
--------------------------------------------------------------------------------
Total 16.3%
Note: Table excludes reserves.
5
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
--------------------
PORTFOLIO HIGHLIGHTS
--------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
Twenty-Five Largest Industries
Percent of Percent of
Net Assets Net Assets
12/31/99 6/30/00
--------------------------------------------------------------------------------
Semiconductors and Components 11.2% 13.6%
Networking and Telecom Equipment 5.5 11.1
Computer Software 12.3 9.1
Miscellaneous Business Services 6.9 5.9
Media and Advertising 5.5 4.6
--------------------------------------------------------------------------------
Biotechnology 1.6 4.5
Telecom Services 3.2 3.8
Computer Hardware/Peripherals 5.1 3.8
Medical Instruments and Devices 2.2 3.0
E-Commerce 4.3 2.6
--------------------------------------------------------------------------------
Exploration and Production 0.6 2.6
Financial Services 2.2 2.6
Consumer Nondurables 2.2 2.4
Hard Goods Retailers 3.6 2.3
Health Care Services 2.5 2.3
--------------------------------------------------------------------------------
Bank and Trust 1.0 1.9
Transportation 1.1 1.8
Pharmaceuticals 2.2 1.8
Soft Goods Retailers 1.6 1.6
Machinery 1.3 1.5
--------------------------------------------------------------------------------
Distribution 1.6 1.4
Computer Services 4.1 1.4
Consumer Services 2.0 1.3
Entertainment 1.8 1.3
Energy Services 1.1 1.2
--------------------------------------------------------------------------------
Total 86.7% 89.4%
6
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
----------------------
PERFORMANCE COMPARISON
--------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
[GRAPH]
------------------------------------
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.
Since Inception
Periods Ended 6/30/00 1 Year 3 Years Inception Date
--------------------------------------------------------------------------------
Diversified Small-Cap Growth Fund 34.45% 15.18% 15.18% 6/30/97
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
7
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Unaudited
--------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 Months Year 6/30/97
Ended Ended Through
6/30/00 12/31/99 12/31/98 12/31/97
<S> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 14.11 $ 11.05 $ 10.70 $ 10.00
Investment activities
Net investment income (loss) (0.06)* (0.11)* (0.09)* (0.03)*
Net realized and unrealized
gain (loss) 1.17 3.17 0.46 0.74++
Total from investment activities 1.11 3.06 0.37 0.71
Distributions
Net realized gain - - (0.03) (0.01)
Redemption fees added to
paid-in-capital - - 0.01 -
NET ASSET VALUE
End of period $ 15.22 $ 14.11 $ 11.05 $ 10.70
-----------------------------------------------------
Ratios/Supplemental Data
Total return 7.87%* 27.69%* 3.58%* 7.10%*
Ratio of total expenses to
average net assets 1.25%+* 1.25%* 1.25%* 1.25%+*
Ratio of net investment income
(loss) to average net assets (0.88)%+* (0.99)%* (0.83)%* (0.67)%+*
Portfolio turnover rate 73.1%+ 49.4% 39.8% 13.4%
Net assets, end of period
(in thousands) $100,240 $ 74,804 $ 70,444 $ 72,071
</TABLE>
. 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 and payment of no redemption or account fees.
* Excludes expenses in excess of a 1.25% voluntary expense limitation in
effect through 12/31/00.
+ Annualized
++ The amount presented is calculated pursuant to a methodology prescribed by
the Securities and Exchanges Commission for a share outstanding throughout
the period. This amount is inconsistent with the fund's aggregate gains and
losses because of the timing of sales and redemptions of the fund's shares
in relation to fluctuating market values for the investment portfolio.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Unaudited June 30, 2000
-----------------------
STATEMENT OF NET ASSETS Shares Value
--------------------------------------------------------------------------------
In thousands
COMMON STOCKS 97.1%
FINANCIAL 5.6%
Bank and Trust 1.9%
Bank United 10,000 $ 354
City National 9,100 316
Commerce Bancorp 8,011 369
Community First Bankshares 17,800 291
National Commerce Bancorporation 11,800 190
Southwest Bancorporation * 9,000 187
Sterling Bancshares 17,100 185
--------
1,892
--------
Insurance 1.1%
Advance Paradiam * 9,100 184
Brown and Brown 1,000 52
Medical Assurance 2,100 24
PMI Group 4,500 214
Protective Life 4,900 130
Radian Group 8,399 435
Stancorp Financial Group 3,700 119
--------
1,158
--------
Financial Services 2.6%
Affiliated Managers Group * 9,000 409
AmeriCredit * 11,900 202
Annuity and Life Reassurance * 7,100 172
Heller Financial 2,061 42
Investment Technology Group * 11,900 506
Investors Financial Services 6,700 266
Legg Mason 5,332 267
Nationwide Financial Services (Class A) 4,800 158
S1 * 2,000 47
Waddell & Reed Financial (Class A) 15,650 514
--------
2,583
--------
Total Financial 5,633
--------
9
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
HEALTH CARE 12.2%
Pharmaceuticals 1.8%
Andrx * 4,000 $ 256
Forest Laboratories * 1,000 101
Jones Pharma 5,250 209
K-V Pharmaceutical * 5,500 146
King Pharmaceuticals * 9,900 434
Shire Pharmaceuticals ADR * 7,662 398
Theragenics * 16,600 142
Watson Pharmaceuticals * 2,100 113
--------
1,799
--------
Biotechnology 4.5%
Aurora Biosciences * 5,500 374
Cell Genesys * 3,000 84
Cephalon * 3,000 183
Collateral Therapeutics * 6,000 152
Enzo Biochem * 3,500 242
Enzon * 8,200 348
Imclone Systems * 600 46
Incyte Genomics * 2,000 164
Inhale Therapeutic Systems * 5,000 507
Invitrogen * 4,500 339
Lynx Therapeutics * 3,000 143
Protein Design Labs * 1,500 247
Serologicals * 18,000 91
Techne * 6,000 786
Transkaryotic Therapies * 2,000 73
Triangle Pharmaceuticals * 18,100 166
Trimeris * 4,500 315
Vical * 7,000 134
Viropharma * 4,300 68
--------
4,462
--------
Health Care Services 2.3%
Express Scripts (Class A) * 2,400 148
First Health Group * 6,500 214
Hooper Holmes 19,000 152
LifePoint Hospitals * 12,000 268
10
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
Lincare * 10,000 $ 246
Medquist * 1,904 65
Omnicare 22,600 205
Province Healthcare * 6,000 217
Renal Care Group * 15,500 379
Universal Health Services * 6,100 400
--------
2,294
--------
Medical Equipment 0.6%
APA Optics * 9,000 129
Dentsply International 4,600 141
PolyMedica * 5,800 251
Zoll Medical * 1,500 74
--------
595
--------
Medical Instruments and Devices 3.0%
CONMED * 15,900 409
Cytyc * 4,800 256
Datascope * 11,800 425
ICU Medical * 7,500 200
Mentor 20,800 565
Mettler Toledo International * 6,200 248
Molecular Devices * 2,100 145
Priority Healthcare (Class B) * 4,000 297
ResMed * 14,000 375
Sybron International * 3,500 69
Xceed * 7,000 64
--------
3,053
--------
Total Health Care 12,203
--------
CONSUMER 10.3%
Restaurants 0.7%
Applebee's 1,000 30
Buca * 3,000 47
CEC Entertainment * 5,900 151
PF Chang's China Bistro * 3,100 99
Papa John's * 4,600 113
Rare Hospitality International * 3,000 85
Sonic * 5,700 168
--------
693
--------
11
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
Entertainment 1.3%
Imax * 18,200 $ 413
International Speedway (Class A) 5,500 229
JAKKS Pacific * 17,000 250
Lodgenet Entertainment * 7,900 193
Premier Parks * 7,000 159
Youthstream Media Networks * 8,400 49
--------
1,293
--------
Food and Beverages 0.5%
Hain Celestial Group * 10,400 382
Smithfield Foods * 2,000 56
--------
438
--------
Consumer Durables 0.2%
Ethan Allen Interiors 4,100 98
Furniture Brands International * 4,100 62
--------
160
--------
Consumer Services 1.3%
Avis Group Holdings * 9,000 169
Bright Horizons Family Solution * 8,900 190
Devry * 6,100 161
Learning Tree International * 10,400 640
Metris 7,050 177
--------
1,337
--------
Consumer Nondurables 2.4%
Fossil * 15,000 284
Kenneth Cole Productions (Class A) * 10,050 402
Linens `n Things * 7,400 201
Mohawk Industries * 7,700 167
Quicksilver * 21,450 334
Rayovac * 8,500 190
Spartech 10,000 270
Timberland * 2,000 142
Topps * 20,000 228
Wesley Jessen VisionCare * 5,500 207
--------
2,425
--------
Hard Goods Retailers 2.3%
CDW Computer Centers * 1,000 63
Cost Plus * 6,550 189
12
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
Dollar Tree Stores * 5,837 $ 231
Duane Reade * 8,700 224
Family Dollar Stores 6,200 121
Insight Enterprises * 2,450 145
Netegrity * 2,500 188
O'Reilly Automotive * 13,200 182
Tweeter Home Entertainment Group * 7,400 222
Whitehall Jewellers * 16,800 313
Wild Oats Markets * 3,100 39
Williams-Sonoma * 7,600 247
Zales * 5,000 182
--------
2,346
--------
Soft Goods Retailers 1.6%
AnnTaylor Stores * 6,300 208
Men's Wearhouse * 17,400 388
Neiman Marcus Group * 8,100 244
Pacific Sunwear * 9,150 172
Ross Stores 11,400 194
Talbots 4,000 220
Vans * 10,900 159
--------
1,585
--------
Total Consumer 10,277
--------
TECHNOLOGY 40.2%
Semiconductors and Components 13.6%
Advanced Energy Industries * 6,100 360
American Xtal Technology * 2,900 125
Amphenol * 7,000 463
ANADIGICS * 4,000 136
Applied Materials * 1,745 158
Applied Micro Circuits * 1,000 99
Artesyn Technologies 15,200 424
ATMI * 13,700 637
Benchmark Electronics * 5,000 183
Burr Brown * 9,025 782
Cognex * 6,300 326
Cohu 9,900 267
13
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
CTS 6,300 $ 283
Cymer * 9,000 429
Dallas Semiconductor 8,000 326
Dionex * 10,200 277
Exar * 4,200 367
Globespan Semiconductor 4,100 500
International Rectifier * 5,400 302
Lattice Semiconductor * 9,100 629
LTX * 7,800 273
Maxim Integrated Products * 1,500 102
Micrel * 14,000 609
Microchip Technology * 4,650 271
MTI Technology * 11,000 88
Novellus Systems * 6,500 368
Pericom Semiconductor * 9,700 665
Plexus * 6,200 701
PMC-Sierra * 3,200 568
QLogic * 2,000 132
S3 * 19,500 286
Semtech * 8,600 651
Spectra Physics Lasers * 1,500 104
Supertex * 2,000 101
Three-Five Systems * 4,500 266
Transwitch * 8,250 637
TriQuint Semiconductor * 4,800 459
Varian Semiconductor Equipment * 3,500 220
Vitesse Semiconductor * 1,200 88
--------
13,662
--------
Computer Software 9.1%
Actuate * 11,900 635
Advent Software * 5,000 324
Aspen Technology * 5,000 193
AVT * 6,500 48
Brio Technology * 6,400 136
Dendrite International * 7,550 252
Echelon * 200 12
Electronic Arts * 1,600 117
Exchange Applications Software * 4,700 125
14
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
Factset Research Systems * 14,000 $ 395
Firepond * 5,000 180
Hyperion Solutions * 10,400 338
Informix * 3,000 22
ISS Group * 5,000 493
Macromedia * 5,700 551
Manugistics Group * 6,000 281
Mercator Software * 4,000 275
Mercury Interactive * 7,000 677
Micromuse * 4,000 662
National Instruments * 6,550 286
NetIQ * 4,006 239
Network Associates * 5,400 110
Peregrine Systems * 11,000 383
Pixar * 3,400 120
Remedy * 11,000 613
RSA * 6,000 417
Seachange International 2,000 58
Serena Software 4,000 181
Sybase * 11,500 265
Symantec * 3,200 173
THQ * 15,500 187
Verity * 8,200 312
Wind River Systems * 1,000 38
--------
9,098
--------
Networking and Telecom Equipment 11.1%
Adaptive Broadband * 4,000 147
Advanced Fibre Communications * 5,000 226
Alpha Industries * 12,700 560
Anaren Microwave * 4,500 590
Ancor Communications * 9,300 333
Andrew * 6,900 232
AudioCodes * 2,700 326
Black Box * 600 48
C-Cor.net * 7,500 202
Carrier Access * 4,300 228
Checkpoint Systems * 2,000 15
Com21 * 12,200 305
15
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
Comverse Technology * 2,600 $ 242
Concord Communications * 5,400 221
Emulux * 3,200 210
F5 Networks * 1,600 87
Harmonic Lightwaves * 16,682 414
Inter-Tel 12,700 204
JDS Uniphase * 2,800 336
MMC Networks * 6,000 321
Natural MicroSystems * 5,000 562
Network Peripherals * 2,900 49
Nortel Networks 3,000 205
Optical Cable * 5,000 150
Osicom Technologies * 2,900 245
Plantronics * 5,500 635
Polycom * 8,000 753
Powerwave Technologies * 12,000 528
Proxim * 6,000 595
Spectrian * 13,000 218
Technitrol 6,000 581
Time Warner Telecom (Class A) * 7,200 464
Vari-L * 4,500 52
Viasat * 3,000 162
Xircom * 14,500 689
--------
11,135
--------
E-Commerce 2.6%
Akamai Technologies * 1,191 141
Allaire * 12,400 455
BackWeb Technologies * 8,100 186
Cybersource * 13,300 184
Go2Net * 4,200 211
GoTo.com 6,600 101
Liberate Technologies * 5,400 159
Loislaw * 2,500 21
Media Metrix * 4,000 102
Mypoints * 2,500 48
Netopia * 5,800 233
Pegasus Solutions * 4,800 52
PSINet * 4,600 115
16
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
USInternetworking * 13,275 $ 271
WebTrends * 8,200 316
--------
2,595
--------
Computer Hardware/Peripherals 3.8%
American Power Conversion * 2,900 118
Concurrent Computer * 3,000 39
Cybex Computer Products 8,075 341
Electronics For Imaging * 3,100 78
Jabil Circuit * 1,000 50
KEMET * 12,200 306
Kopin * 7,000 485
Mercury Computer Systems 8,900 288
MIPS Technologies * 3,600 153
Optimal Robotics * 3,500 134
Pinnacle Systems * 9,600 217
Sandisk * 6,500 398
Sanmina * 1,600 137
Symbol Technologies 5,987 323
Teradyne * 1,500 110
Titan * 2,900 130
Varian * 11,000 507
--------
3,814
--------
Total Technology 40,304
--------
BUSINESS SERVICES 20.8%
Environmental 0.2%
Casella Waste Systems (Class A) * 6,900 74
Catalytica * 11,300 124
--------
198
--------
Miscellaneous Business Services 5.9%
Choicepoint * 4,300 191
CIBER * 3,300 44
Cobalt Group * 4,000 28
Commscope * 9,000 369
Consolidated Graphics * 2,500 23
Cree * 3,500 468
Diamond Technology Partner * 8,300 730
17
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
eLoyalty * 16,100 $ 204
F. Y. I. * 9,500 319
Fair, Issac and Company 4,800 211
G&K Services * 3,100 78
Global Imaging Systems * 1,800 19
Heidrick & Struggles International * 7,200 454
iGATE Capital * 1,500 21
infoUSA * 11,200 73
Interim Services * 2,000 35
Keane * 12,800 277
kforce.com * 7,700 53
META Group * 9,800 192
Modis Professional Services * 17,200 153
National Computer Systems 6,400 315
NCO Group * 9,800 227
Primus Knowledge Solutions * 2,000 90
Professional Staff ADR * 12,000 55
Profit Recovery Group International * 7,000 116
Quanta Services * 5,850 322
Rent Way * 6,300 184
Software.com * 1,100 143
U.S. Interactive * 14,700 191
Zebra Technologies (Class A) * 7,200 318
--------
5,903
--------
Utilities 0.2%
Calpine * 4,000 263
--------
263
--------
Distribution 1.4%
Jack Henry & Associates 7,000 351
MSC * 6,300 132
Patterson Dental * 5,950 303
SCP Pool * 12,150 284
Tech Data * 2,600 113
Watsco (Class A) 17,750 222
--------
1,405
--------
Transportation 1.8%
Alaska Air Group * 700 19
C.H. Robinson Worldwide 8,800 435
18
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
EGL * 11,000 $ 338
Forward Air * 13,000 518
Mesaba Holdings * 15,700 148
Skywest 1,500 56
Swift Transportation * 12,075 169
USFreightways 6,500 159
--------
1,842
--------
Telecom Services 3.8%
AT&T Canada (Class B) * 3,300 109
Caprock Communications * 9,800 194
Crown Castle International * 5,800 211
ICG Communications * 11,200 248
Insight Communications * 10,000 157
Intermedia Communications * 9,000 267
InterVoice-Brite * 19,700 130
ITC Deltacom * 15,700 350
MGC Communications * 5,700 342
Millicom International Cellular * 4,200 147
Northeast Optic Network * 11,700 725
Pinnacle Holdings * 7,300 391
Radiant Systems 7,750 185
Rhythms NetConnections * 6,000 75
USA Networks * 3,320 72
Western Wireless * 4,000 218
--------
3,821
--------
Computer Services 1.4%
Advanced Digital Info * 16,200 258
Affiliated Computer Services (Class A) * 3,500 116
American Management Systems * 5,700 187
BISYS Group * 3,000 185
Cognizant Technology Solutions * 3,500 116
Digital River * 2,800 21
Extended Systems * 1,500 144
National Data 4,500 104
NOVA * 7,796 218
Red Hat * 2,000 54
--------
1,403
--------
19
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
Media and Advertising 4.6%
24/7 Media * 3,200 $ 50
A.C. Nielson * 6,200 136
American Tower Systems (Class A) * 3,000 125
Catalina Marketing * 2,800 286
Cox Radio (Class A) * 15,000 420
Emmis Broadcasting (Class A) * 13,000 538
Entercom Communications * 5,000 244
Getty Images * 7,800 289
Harte-Hanks 5,800 145
Hispanic Broadcasting * 2,000 66
L90 * 6,700 70
Lamar Advertising * 1,800 78
Macrovision * 5,700 364
Pegasus Communications * 7,400 362
Price Communications * 13,000 306
Primus Telecomm Group * 6,600 165
Radio One (Class A) 4,200 125
Radio One (Class D) * 2,000 44
Regent Communications * 9,500 81
Scholastic * 2,700 165
Valassis Communications * 4,000 153
Westwood One * 4,000 137
Zomax * 16,000 209
--------
4,558
--------
Real Estate Services 0.3%
Apartment Investment & Management, REIT 3,512 152
Catellus Development * 10,800 162
--------
314
--------
Engineering and Construction 1.2%
Dycom Industries * 9,425 434
Insituform Technologies (Class A) * 13,500 369
Kaufman & Broad 4,100 81
Tetra Tech * 13,406 307
--------
1,191
--------
Total Business Services 20,898
--------
20
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
ENERGY 3.8%
Energy Services 1.2%
BJ Services * 2,500 $ 156
Maverick Tube * 9,600 279
Oceaneering International * 9,300 177
Smith International * 2,500 182
UTI Energy * 11,000 441
--------
1,235
--------
Exploration and Production 2.6%
Barrett Resources * 15,500 472
Cabot Oil & Gas 16,600 352
Cal Dive International * 4,600 249
Marine Drilling * 16,000 448
Noble Affiliates 7,100 264
Patterson Energy * 13,100 373
Tom Brown * 18,400 425
---------
2,583
---------
Total Energy 3,818
---------
INDUSTRIAL 3.9%
Automobiles and Related 0.5%
Gentex * 12,900 323
Group 1 Automotive * 13,000 156
---------
479
---------
Machinery 1.5%
Applied Science & Technology * 7,300 188
Asyst Technologies * 9,400 320
Mechanical Technology * 4,100 61
Pentair 11,000 391
Power-One * 3,150 359
SBS Technologies * 2,200 81
Terex * 7,500 106
---------
1,506
---------
Specialty Chemicals 0.8%
Cabot 10,200 278
Cambrex 6,800 306
21
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Shares Value
--------------------------------------------------------------------------------
In thousands
Om Group 5,100 $ 224
--------
808
--------
Defense and Aerospace 0.7%
L 3 Communications * 9,500 542
Triumph Group * 4,300 120
--------
662
--------
Building Materials 0.4%
Carlisle Companies 3,600 162
Elcor 2,600 60
Simpson Manufacturing * 4,000 191
--------
413
--------
Total Industrial 3,868
--------
BASIC MATERIALS 0.3%
Mining 0.1%
Stillwater Mining * 2,900 81
--------
81
--------
Miscellaneous Materials 0.2%
Gilat Satellite Networks * 3,200 222
--------
222
--------
Total Basic Materials 303
--------
Total Common Stocks (Cost $79,149) 97,304
--------
SHORT-TERM INVESTMENTS 3.2%
Money Market Funds 3.2%
Reserve Investment Fund, 6.68% # 3,282,542 3,283
---------
Total Short-Term Investments (Cost $3,283) 3,283
---------
22
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Value
--------------------------------------------------------------------------------
In thousands
Total Investments in Securities
100.3% of Net Assets (Cost $82,432) $ 100,587
Other Assets Less Liabilities (347)
---------
NET ASSETS $ 100,240
=========
Net Assets Consist of:
Accumulated net investment income - net of distributions $ (396)
Accumulated net realized gain/loss - net of distributions 5,473
Net unrealized gain (loss) 18,155
Paid-in-capital applicable to 6,584,564 shares of $0.0001 par
value capital stock outstanding; 1,000,000,000 shares authorized 77,008
---------
NET ASSETS $ 100,240
=========
NET ASSET VALUE PER SHARE $ 15.22
=========
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
REIT Real Estate Investment Trust
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Unaudited
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
In thousands
6 Months
Ended
6/30/00
Investment Income (Loss)
Income
Interest $ 115
Dividend 51
------------
Total income 166
------------
Expenses
Investment management 321
Shareholder servicing 142
Custody and accounting 60
Prospectus and shareholder reports 14
Registration 12
Legal and audit 7
Directors 4
Miscellaneous 2
------------
Total expenses 562
------------
Net investment income (loss) (396)
------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 7,696
Futures 209
------------
Net realized gain (loss) 7,905
------------
Change in net unrealized gain or loss
Securities (2,521)
Futures (27)
------------
Change in net unrealized gain or loss (2,548)
------------
Net realized and unrealized gain (loss) 5,357
------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 4,961
============
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Unaudited
----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/00 12/31/99
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ (396) $ (598)
Net realized gain (loss) 7,905 4,762
Change in net unrealized gain or loss (2,548) 10,772
----------------------
Increase (decrease) in net assets from operations 4,961 14,936
----------------------
Capital share transactions *
Shares sold 33,238 16,751
Shares redeemed (12,797) (27,343)
Redemption fees received 34 16
----------------------
Increase (decrease) in net assets from capital
share transactions 20,475 (10,576)
----------------------
Net Assets
Increase (decrease) during period 25,436 4,360
Beginning of period 74,804 70,444
----------------------
End of period $ 100,240 $ 74,804
======================
* Share information
Shares sold 2,158 1,477
Shares redeemed (874) (2,553)
----------------------
Increase (decrease) in shares outstanding 1,284 (1,076)
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
Unaudited June 30, 2000
----------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Diversified Small-Cap Growth Fund, Inc. (the fund) is registered
under the Investment Company Act of 1940 as a diversified, open-end management
investment company and commenced operations on June 30, 1997. The fund seeks
long-term growth of capital by investing principally in common stocks of
small-cap growth companies.
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. Credits earned on daily uninvested cash balances
at the custodian are used to reduce the fund's custody charges.
26
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $52,687,000 and $31,677,000, 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. As of December 31, 1999, the fund had capital loss carryforwards
for federal income tax purposes of $2,345,000, all of which expires in 2006. The
fund intends to retain gains realized in future periods that may be offset by
available capital loss carryforwards.
At June 30, 2000, the cost of investments for federal income tax purposes was
substantially the same as for financial reporting and totaled $82,432,000. Net
unrealized gain aggregated $18,155,000 at period-end, of which $27,480,000
related to appreciated investments and $9,325,000 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 $50,000 was payable at June 30, 2000. The fee is computed daily and
paid monthly, and consists of an individual fund fee equal to 0.35% of average
daily net assets and a group fee. The group fee is based on the combined assets
of certain mutual funds sponsored by the manager or Rowe Price-Fleming
International, Inc. (the group). The group fee rate ranges from 0.48% for the
first $1 billion of assets to 0.295% for assets in excess of $120 billion. At
June 30, 2000, and for the six months then ended, the effective annual group fee
rate was 0.32%. The fund pays a pro-rata share of the group fee based on the
ratio of its net assets to those of the group.
Under the terms of the investment management agreement, the manager is required
to bear any expenses through December 31, 2000, which would cause the fund's
ratio of total expenses to average net assets to exceed 1.25%. Thereafter,
through December 31, 2002, the fund is required to reimburse the manager for
these expenses, provided that average net assets have grown or
27
<PAGE>
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND
--------------------------------------------------------------------------------
expenses have declined sufficiently to allow reimbursement without causing the
fund's ratio of total expenses to average net assets to exceed 1.25%. Pursuant
to this agreement, $3,000 of management fees were not accrued by the fund for
the six months ended June 30, 2000, and $114,000 remains subject to
reimbursement from a prior period. Pursuant to a previous agreement, $25,000 of
unaccrued fees were repaid during the six months ended June 30, 2000, and
$215,000 remains subject to reimbursement through December 31, 2000.
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 $152,000 for the six months
ended June 30, 2000, of which $32,000 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
$115,000 and are reflected as interest income in the accompanying Statement of
Operations.
28
<PAGE>
T. ROWE PRICE SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10 p.m.
ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed-income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(R) and the T. Rowe Price Web
site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates. **
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services,
Inc., Member NASD/SIPC.
** Based on a July 2000 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary depending on size of order.
29
<PAGE>
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site.
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
[LOGO OF T. ROWE PRICE]
T. Rowe Price Investment Services, Inc., Distributor. F20-051 6/30/00
