<PAGE>
Semiannual Report
Small-Cap
Stock Fund
-------------
June 30, 1997
-------------
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price
<PAGE>
Report Highlights
- --------------------------------------------------------------------------------
Small-Cap Stock Fund
. Although small-capitalization stocks performed well in the first half of
1997, they trailed the fast-paced gains of larger-cap stocks, as represented
by the S&P 500.
. The Small-Cap Stock Fund's double-digit six-month gain lagged the S&P 500 but
stayed ahead of the Russell 2000 Index of small-cap stocks.
. Financials, consumer services, and consumer nondurables all performed well
within the small-cap market, but technology stocks struggled and energy
companies weakened.
. We made major purchases in a variety of individual companies, including
Aliant Communications, Strayer Education, and Wild Oats Markets.
. We think small-caps look attractively priced versus large-cap shares. This,
combined with a possible capital gains tax cut, could cause the market to
once again favor small-cap stocks.
<PAGE>
Fellow Shareholders
Small-caps performed well on an absolute basis in the first half of 1997.
Nonetheless, large-caps (as represented by the Standard & Poor's 500 Stock
Index) led the market for both the 6- and 12-month periods, extending a trend
which began last May. Small-cap performance hit a trough in the 12-month period
ended April 30, 1997, when the Russell 2000 finished almost unchanged while the
S&P 500 rose nearly 25%. You would have to go back to the 1930s to find a
similar divergence of returns.
Fortunately, your Small-Cap Stock Fund outperformed the unmanaged Russell 2000
Index of small-cap stocks in both the 6- and 12-month periods, rising 11.40% and
18.45%, respectively. Unfortunately, our portfolio did not buck the strong
headwind that continued to favor large stocks, and we, too, underperformed the
S&P 500. The S&P's performance was aided by strong fundamental earnings growth -
- - a remarkable feat this late in the economic cycle -- and an influx of cash
flow into equity indexing products.
<TABLE>
<CAPTION>
- ----------------------
Performance Comparison
- ----------------------
Periods Ended 6/30/97 6 Months 12 Months
- ----------------------------------------------------
<S> <C> <C>
Small-Cap Stock Fund 11.40% 18.45%
....................................................
Russell 2000 10.20 16.33
....................................................
Lipper Small Cap Fund Index 6.04 6.35
....................................................
S&P 500 20.61 34.70
....................................................
</TABLE>
We see signs that smaller stocks are reviving. In May, attractive valuations
relative to large-caps and the prospects of a capital gains tax cut combined to
spark a solid rally in small-cap stocks. For the month of May alone the Russell
2000 returned over 11%, beating the S&P 500 by more than 500 basis points. June
returns were essentially a draw, with both indices returning just over 4%. In
our view, there are a number of reasons why the attractively priced, smaller
niche businesses we prefer will outperform. More on this in our outlook section.
A WORD ON OUR NAME CHANGE
Effective May 1, the T. Rowe Price OTC Fund changed its name to the T. Rowe
Price Small-Cap Stock Fund. The name change does not alter our
1
<PAGE>
investment objective; the fund will continue to invest in well-positioned small-
to medium-sized stocks using a blend of both growth and value strategies. The
new name was selected to clearly communicate the focus and objective of the
fund's investment approach. In recent years, the Nasdaq ceased referring to
itself as the OTC or over-the-counter market. Indeed, with the success of
Microsoft, Intel, and a handful of other technology names, the Nasdaq now has
investment characteristics similar to those of a mid-cap growth index.
Consequently, we changed the name to better reflect your fund's investment
objective.
Please note that we have replaced the Nasdaq Composite Index in the Performance
Comparison table on page 1 with the Lipper Small Cap Fund Index. The average
market capitalization of the Nasdaq has grown in recent years, and the Lipper
has become a more representative small-cap stock index. (As we transition to
using this new index, you will still find the Nasdaq's long-term performance
listed in the cumulative performance comparison graph on page 8.)
INVESTMENT REVIEW
The biggest contributor to the small-cap stock arena, as measured by the Russell
2000's performance thus far in 1997, were financials, which rose better than 17%
for the first six months. While the consumer nondurable sector returned nearly
19%, its weighting and consequently its contribution to the index's performance
was substantially smaller than the financial sector's. Rounding out the top-
performing sectors list, consumer services also gained better than 14%. As shown
in the Sector Diversification table later in this report, your Small-Cap Stock
portfolio had significant emphases in each of these areas.
The worst-performing sector, technology, finished the quarter in negative
territory, despite a strong rebound in late spring. After a few quarters of
blistering performance, energy stocks also retrenched, rising a mere 2.9% year-
to-date through June. Fortunately, we had taken significant profits in our
energy holdings and are currently underweighted relative to the index. We also
remain underweighted in technology.
On to specific stocks of note in the portfolio. Four holdings added over $2
million in value each during the first half. Not surprisingly, two of these were
long-time favorites: insurance stocks Selective Insurance and Harleysville
Group, both mid-Atlantic auto insurers. Those of you who live in that area will
undoubtedly recall the especially harsh winter
2
<PAGE>
of 1996. That season's January blizzard crimped auto insurers' quarterly
earnings. Somewhat shortsightedly, the market dumped the two stocks, leaving us
with a great buying opportunity. We aggressively purchased these stocks over the
last several quarters and were well positioned to benefit from what turned out
to be an excellent first quarter of 1997. Given the favorable year-over-year
comparison against the winter of 1996, we felt that a rebound was probable and
that downside risk in the quarter was minimal. Over the 12 months ended
June 30, Selective and Harleysville added over $6.5 million in value to the
portfolio -- with over $4.5 million coming in the first six months of 1997.
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
- ----------------------
Sector Diversification
- ----------------------
<S> <C>
Reserves........................... 10%
Consumer Nondurables............... 15%
Energy, Utilities,
and Misc.......................... 6%
Financial.......................... 15%
Business Services and
Transportation.................... 22%
Capital Equip., Process Ind.,
and Basic Materials............... 8%
Technology......................... 9%
Consumer Services and
Cyclicals......................... 15%
Based on net assets as of 6/30/97.
</TABLE>
Our top contributor for the half year was Inphynet Medical Management, a
physicians' practice management company that agreed to be acquired by
Medpartners in a very lucrative transaction for Inphynet shareholders. Indeed,
your fund gained nearly $2.7 million for the period in this stock. The fund also
benefited from three other mergers consummated in 1997. Petrolite -- a major
fund holding -- agreed to be acquired by Baker Hughes; Collective Bank agreed to
sell to Summit Bank; and life insurer Home Beneficial agreed to merge with
American General. All in all, these stocks added nearly $0.46 to the fund's net
asset value per share during the past year.
Now for the confessional. Our worst three holdings cost us between $1 million
and $1.5 million in losses during the first six months of 1997. The top two
losers, Shiva and Heartland Wireless, first experienced fundamental problems in
late 1996. By the first quarter of 1997 it was clear both stocks had major
operating problems. Shiva, a onetime leader in remote access computing, fell
victim to a heightened competitive environment, poor pricing, and a troubled new
product introduction. Heartland, a wireless cable provider, suffered from
flagging and unprofitable subscriber growth. Both positions have been
eliminated. The third holding, GT Bicycles, declined in value as the
3
<PAGE>
domestic adult mountain bike segment now appears saturated. Its dominant
position in juvenile BMX bikes appears unhindered, and its parts business
remains profitable, but rising mountain bike inventories have hurt sales and
earnings. We continue to monitor GT very closely.
PORTFOLIO HIGHLIGHTS
Major purchases in the quarter included Aliant Communications and Strayer
Education. Another new purchase, Wild Oats Markets, was also an excellent value
in a volatile first quarter.
Aliant is a $700 million market cap, independent telephone company in Lincoln,
Nebraska. It offers service in most of the state except Omaha. Aliant is well
run and well positioned. We believe it can make the most of excellent growth
opportunities, including second phone line penetration, voice mail, and caller
ID services. Moreover, it is arguably one of the finest cellular operators in
the country given its 13% penetration rate in Nebraska. These attributes aside,
its rural location shields it somewhat from the increasing competition in local
exchange services. Early this year you could acquire this fine company at a 20%
discount to the average regional Bell operating company. This discount plus a
hefty 4% yield made the stock too attractive to pass up.
. . . Wild Oats Markets was an excellent value in a volatile first quarter.
We also initiated a major new position in Strayer Education, which operates
Strayer College. With eight campuses in Northern Virginia, Washington, D.C. and
its suburbs, Strayer offers primarily business degrees to its 8,200 full- and
part-time undergraduate and graduate students. This firm is well positioned
geographically and demographically to increase earnings 20% or better over the
next few years through a program of new campus development and strong internal
growth. Priced at 16 times 1998 earnings, it was a compelling value.
We also purchased a nice position in Wild Oats Markets, a Colorado-based
retailer of natural foods. Wild Oats came public last October at $25. Late last
year and into early 1997, emerging growth stocks fell out of favor, and
aggressive small-cap growth funds suffered net redemptions. (Fortunately our
blend of growth and value tends to insulate us from this level of volatility.)
Through no fault of its own,
4
<PAGE>
Wild Oats stock fell from the mid-twenties to the low teens, even though it
continued to post better-than-expected earnings and comparable same store sales
gains. We acquired this company at 14 times 1997 earnings during the first
quarter -- an excellent bargain for a firm growing in excess of 20%.
We made relatively few sales. Three of our four largest included firms involved
in mergers. As already noted, these included Inphynet Medical, Petrolite, and
Home Beneficial. We also began to trim our large position in Selective Insurance
as the market accorded it a full valuation.
OUTLOOK
The 12 months ended June 30, 1997, while providing strong absolute returns for
small-cap investors, were disappointing when compared with the returns available
from the S&P 500. In retrospect, it now appears that a long period of
outperformance for small-caps may have ended last summer. However, we remain
optimistic that small-caps will do well both on an absolute and a relative basis
in the year ahead. First, the valuations look quite compelling. When measured by
price/book value or price/earnings ratios, small-caps relative to larger
companies look more attractive now than at any time in the past four or five
years. Second, the markets' fascination with large, liquid stocks will fade some
day. Indeed, the rich valuations of large-caps may ultimately lead to their
downfall. Many large blue chips are now trading at 20 to 30 times earnings while
growing a mere 7% to 10% a year, while research indicates that smaller-cap
stocks with earnings growing 20% or better have recently traded in a range of 13
to 15 times earnings.
. . . Small-caps . . . look more attractive now than at any time in the past
four or five years.
In addition, the long-awaited capital gains tax cut may finally be coming to
fruition. Early in May, Congress and the President announced a tentative budget
deal that appears to include a significant reduction in the capital gains tax
rate. A lower capital gains tax tends to favor small-caps, as it encourages
investors to seek capital gains over dividend income. It's little wonder that
May was a solid month for small-cap stocks.
5
<PAGE>
Finally, periods of significant underperformance, such as that experienced by
small-caps in the year ended April 30, 1997, have typically been followed by a
significant snap-back. We could be in the early stages of this recovery.
Whatever the prevailing market backdrop, we continue to find excellent
investment opportunities. Moreover, we are confident that our "all-weather"
blend of growth and value will continue to pay off during periods of rising
market volatility such as that experienced thus far in 1997. Thanks for your
continued support.
Sincerely,
/s/ Greg McCrickard
Greg A. McCrickard
President and Chairman of the Investment Advisory Committee
July 18, 1997
- --------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
MAJOR PORTFOLIO CHANGES
LISTED IN DESCENDING ORDER OF SIZE
<TABLE>
<CAPTION>
6 Months Ended 6/30/97
Ten Largest Purchases Ten Largest Sales
- --------------------------------------------------------------------------------
<S> <C>
Aliant Communications Inphynet Medical Management ***
.................................. ...................................
LaSalle Re Holdings * Selective Insurance
.................................. ...................................
Equity Corp International * Petrolite **
.................................. ...................................
Strayer Education * Home Beneficial **
.................................. ...................................
Tetra Tech * EmCare Holdings **
.................................. ...................................
ProMedCo * Foremost **
.................................. ...................................
SMT Health Services * Prime Retail (Common) **
.................................. ...................................
Coach USA FelCor Suites Hotels
.................................. ...................................
Waterlink * PanAmSat **
.................................. ...................................
COREStaff * Culp
.................................. ...................................
</TABLE>
* Position added
** Position eliminated
*** Acquired by another company
6
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
- --------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/97
- ------------------------------------------------------------------------------
<S> <C>
Harleysville Group 2.1%
..............................................................................
Analogic 1.9
..............................................................................
JP Foodservice 1.6
..............................................................................
Analysts International 1.5
..............................................................................
Aliant Communications 1.5
- ------------------------------------------------------------------------------
Richfood Holdings 1.5
..............................................................................
Selective Insurance 1.4
..............................................................................
PartnerRe Holdings 1.3
..............................................................................
Collective Bancorp 1.3
..............................................................................
W.R. Berkley 1.2
- ------------------------------------------------------------------------------
Matthews International 1.2
..............................................................................
Source Services 1.2
..............................................................................
McGrath RentCorp 1.1
..............................................................................
Holophane 1.1
..............................................................................
Woodward Governor 1.1
- ------------------------------------------------------------------------------
Unitog 1.0
..............................................................................
Tracor 1.0
..............................................................................
Glacier Bancorp 1.0
..............................................................................
Quorum Health Group 1.0
..............................................................................
Poe & Brown 1.0
- ------------------------------------------------------------------------------
Coach USA 1.0
..............................................................................
Electro Rent 1.0
..............................................................................
Renal Care Group 1.0
..............................................................................
UICI 0.9
..............................................................................
Coinmach Laundry 0.9
- ------------------------------------------------------------------------------
Total 30.8%
</TABLE>
7
<PAGE>
T. Rowe Price Small-Cap Stock 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 a broad-based average or index. The index
return does not reflect expenses, which have been deducted from the fund's
return.
[LINE GRAPH APPEARS HERE]
SMALL-CAP STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(blk solid line) (blk dashed line)
Date Nasdaq Composite Russell 2000 Small-Cap Stock Fund
<S> <C> <C> <C>
6/30/87 $ 10,000 $ 10,000 $ 10,000
6/30/88 $ 9,293 $ 9,390 $ 9,371
6/30/89 $ 10,250 $ 10,592 $ 11,034
6/30/90 $ 10,886 $ 10,906 $ 11,174
6/30/91 $ 11,207 $ 11,500 $ 10,828
6/30/92 $ 13,271 $ 12,657 $ 12,241
6/30/93 $ 16,576 $ 15,949 $ 15,083
6/30/94 $ 16,624 $ 16,641 $ 16,171
6/30/95 $ 21,981 $ 19,988 $ 19,320
6/30/96 $ 27,904 $ 24,763 $ 25,681
6/30/97 $ 33,957 $ 28,806 $ 30,419
</TABLE>
- ------------------------------------
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.
<TABLE>
<CAPTION>
Periods Ended 6/30/97 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small-Cap Stock Fund 18.45% 23.44% 19.97% 11.77%
..........................................................................
</TABLE>
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
8
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
Unaudited
- --------------------
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 Months Year
Ended Ended
6/30/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 18.07 $ 16.32 $ 13.80 $ 15.39 $ 14.37 $ 16.86
......................................................................................
Investment activities
Net investment income 0.03 0.09 0.12 0.04 - 0.02
Net realized and
unrealized gain (loss) 2.03 3.33 4.53 (0.04) 2.60 2.20
......................................................................................
Total from
investment activities 2.06 3.42 4.65 0.00 2.60 2.22
......................................................................................
Distributions
Net investment income - (0.09) (0.12) (0.03) - (0.07)
Net realized gain - (1.58) (2.01) (1.56) (1.58) (4.64)
......................................................................................
Total distributions - (1.67) (2.13) (1.59) (1.58) (4.71)
......................................................................................
NET ASSET VALUE
End of period $ 20.13 $ 18.07 $ 16.32 $ 13.80 $ 15.39 $ 14.37
--------------------------------------------------------------------------------------
Ratios/Supplemental Data
Total return 11.40% 21.05% 33.85% 0.08% 18.40% 13.91%
...............................................................................................................................
Ratio of expenses to
average net assets 1.06%+ 1.07% 1.11% 1.11% 1.20% 1.32%
...............................................................................................................................
Ratio of net investment
income to average
net assets 0.31%+ 0.56% 0.74% 0.24% (0.01)% 0.03%
...............................................................................................................................
Portfolio turnover rate 28.9%+ 31.1% 57.8% 41.9% 40.8% 30.7%
...............................................................................................................................
Average commission
rate paid $ 0.0305 $ 0.0305 - - - -
...............................................................................................................................
Net assets, end of period
(in thousands) $ 547,272 $ 415,604 $ 278,613 $ 196,726 $ 204,609 $186,838
...............................................................................................................................
</TABLE>
+ Annualized.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1997
<TABLE>
<CAPTION>
- -----------------------
Statement of Net Assets Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks and Warrants 88.8%
<S> <C> <C>
FINANCIAL 14.5%
Bank and Trust 5.5%
Albank Financial 65,500 $ 2,604
................................................................................
Collective Bancorp 160,000 7,220
................................................................................
First Bell Bancorp 100,000 1,650
................................................................................
First Mariner Bancorp * 118,000 1,504
................................................................................
First Security 112,500 3,076
................................................................................
Frankfort First 120,000 998
................................................................................
Glacier Bancorp 306,000 5,546
................................................................................
Marshall & Ilsley 30,000 1,220
................................................................................
Mercantile Bancorporation 61,500 3,736
................................................................................
Security First Network Bank * 50,000 341
................................................................................
Westamerica Bancorporation 30,000 2,272
................................................................................
30,167
.............
Insurance 8.7%
Harleysville Group 300,000 11,419
................................................................................
LaSalle Re Holdings 120,000 3,540
................................................................................
PartnerRe Holdings 190,000 7,244
................................................................................
Poe & Brown 150,000 5,456
................................................................................
Selective Insurance 157,500 7,629
................................................................................
UICI * 175,200 5,157
................................................................................
United Dental Care * 60,000 893
................................................................................
W. R. Berkley 110,000 6,435
................................................................................
47,773
.............
Financial Services 0.3%
Delta Financial * 20,700 396
................................................................................
ITLA Capital * 70,000 1,111
................................................................................
1,507
.............
Total Financial 79,447
.............
UTILITIES 2.5%
Telephone Services 2.3%
Aerial Communications * 232,500 2,005
................................................................................
Aliant Communications 420,000 8,216
................................................................................
Western Wireless * 155,000 2,466
................................................................................
12,687
.............
</TABLE>
10
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Electric Utilities 0.0%
Public Service of New Mexico 10,000 $ 179
................................................................................
179
.............
Telecom Services 0.2%
Rural Celluar (Class A) * 99,300 1,030
................................................................................
1,030
.............
Total Utilities 13,896
.............
CONSUMER NONDURABLES 14.9%
Food Processing 0.9%
Makepeace * 164 1,796
................................................................................
Seneca Foods (Class A) * 91,700 1,645
................................................................................
Seneca Foods (Class B) * 74,700 1,335
................................................................................
4,776
.............
Hospital Supplies/Hospital Management 4.8%
Allied Healthcare Products * 163,500 1,104
................................................................................
Medical Alliance * 113,600 561
................................................................................
Mentor 40,500 1,201
................................................................................
OccuSystems * 170,000 4,935
................................................................................
Quorum Health Group * 155,000 5,522
................................................................................
Renal Care Group * 125,000 5,219
................................................................................
SMT Health Services * + 295,000 3,420
................................................................................
Specialty Care Network * 150,000 1,800
................................................................................
St. Jude Medical * 40,000 1,560
................................................................................
Tecnol Medical Products * 41,000 907
................................................................................
26,229
.............
Pharmaceuticals 0.5%
Perrigo * 200,000 2,513
................................................................................
2,513
.............
Biotechnology 0.1%
Cell Genesys * 150,000 731
................................................................................
731
.............
Health Care Services 3.3%
Apria Healthcare * 140,000 2,485
................................................................................
Coast Dental Services * 135,000 2,093
................................................................................
Medpartners* 41,300 893
................................................................................
NeoPath * 125,000 2,367
................................................................................
</TABLE>
11
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Northfield Laboratories * 220,000 $ 2,255
................................................................................
Orthodontic Centers of America * 250,000 4,555
................................................................................
Raytel Medical * 310,000 3,584
.............
18,232
.............
Miscellaneous Consumer Products 5.3%
Boston Acoustics 120,000 2,865
................................................................................
Coinmach Laundry * 210,000 5,040
................................................................................
Crown City Plating + 34,500 358
................................................................................
Culp 155,200 2,813
................................................................................
Equity Corp International * 140,900 3,408
................................................................................
QuikSilver * 44,600 1,421
................................................................................
Richfood Holdings 315,000 8,190
................................................................................
WestPoint Stevens * 126,000 4,922
................................................................................
29,017
.............
Total Consumer Nondurables 81,498
.............
CONSUMER SERVICES 10.4%
General Merchandisers 1.6%
Carson Pirie Scott * 130,000 4,127
................................................................................
Caseys General Stores 220,000 4,737
................................................................................
8,864
.............
Specialty Merchandisers 2.1%
CSS Industries * 88,200 2,789
................................................................................
GT Bicycles * 131,500 1,052
................................................................................
Norton McNaughton * 9,900 50
................................................................................
Performance Food Group * 70,000 1,488
................................................................................
Urban Outfitters * 150,000 2,072
................................................................................
Wild Oats Markets * 150,000 3,834
................................................................................
11,285
.............
Entertainment and Leisure 2.4%
FelCor Suites Hotels, REIT 65,000 2,421
................................................................................
North Face * 250,000 4,531
................................................................................
Outback Steakhouse * 175,000 4,228
................................................................................
Seattle Filmworks * 150,000 1,772
................................................................................
12,952
.............
Media and Communications 4.3%
American Radio Systems (Class A) * 60,000 2,393
................................................................................
</TABLE>
12
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Centennial Cellular (Class A) * 150,000 $ 2,353
...............................................................................
Commnet Cellular * 100,000 3,487
...............................................................................
Cowles Media 110,578 2,986
...............................................................................
Jacor Communications * 90,000 3,451
...............................................................................
Pegasus Communications * 89,400 967
...............................................................................
Scholastic * 100,000 3,497
...............................................................................
Sinclair Broadcast Group (Class A) * 110,000 3,382
...............................................................................
Vanguard Cellular (Class A) * 78,000 1,077
...............................................................................
23,593
............
Total Consumer Services 56,694
............
CONSUMER CYCLICALS 4.3%
Automobiles and Related 1.5%
Adrian Steel 7,756 1,637
...............................................................................
Littelfuse * 150,000 4,200
...............................................................................
TBC * 255,000 2,167
...............................................................................
8,004
............
Building and Real Estate 2.1%
Apartment Investment & Management (Class A), REIT 140,000 3,955
...............................................................................
Arden Realty Group, REIT 50,000 1,300
...............................................................................
Starwood Lodging, REIT 111,500 4,760
...............................................................................
Storage Trust Realty, REIT 50,000 1,325
...............................................................................
11,340
............
Miscellaneous Consumer Durables 0.7%
Craftmatic Contour, warrants, 12/31/02 * 20,970 0
...............................................................................
Ellett Brothers 200,000 1,037
...............................................................................
Juno Lighting 55,000 887
...............................................................................
York Group 112,000 2,100
...............................................................................
4,024
............
Total Consumer Cyclicals 23,368
............
TECHNOLOGY 8.5%
Electronic Components 4.0%
American Superconductor * 25,000 303
...............................................................................
Analogic 301,300 10,339
...............................................................................
Burr Brown * 40,000 1,376
...............................................................................
Linear Technology 35,000 1,808
...............................................................................
</TABLE>
13
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Maxim Integrated Products * 60,000 $ 3,409
...............................................................................
Optek Technology * 122,200 1,787
...............................................................................
Planar Systems * 260,000 2,665
...............................................................................
21,687
............
Electronic Systems 0.8%
ITI Technologies * 50,000 1,147
...............................................................................
Lifeline Systems * 117,000 2,223
...............................................................................
Lo-Jack * 73,200 1,057
...............................................................................
4,427
............
Aerospace and Defense 2.1%
Tracor * 222,000 5,550
...............................................................................
Woodward Governor 160,000 5,780
...............................................................................
11,330
............
Telecommunications Equipment 1.6%
California Microwave * 130,000 1,836
...............................................................................
Corecomm * 55,000 942
...............................................................................
Glenayre Technologies * 100,000 1,640
...............................................................................
Interlink Computer Science * 110,000 832
...............................................................................
Network General * 100,000 1,484
...............................................................................
SITEL * 66,900 1,380
...............................................................................
TriQuint Semiconductor * 20,000 684
...............................................................................
8,798
............
Total Technology 46,242
............
CAPITAL EQUIPMENT 3.1%
Electrical Equipment 1.5%
Advanced Lighting * 40,000 1,020
...............................................................................
ANADIGICS * 35,000 1,089
...............................................................................
Holophane * 300,000 5,888
...............................................................................
7,997
............
Machinery 1.6%
Greenfield Industries 130,000 3,542
...............................................................................
Key Technology * 4,400 72
...............................................................................
Laser Alignment * 16,450 99
...............................................................................
MSC * 50,000 2,006
...............................................................................
Toolex Alpha * 275,000 2,939
...............................................................................
8,658
............
Total Capital Equipment 16,655
............
</TABLE>
14
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------
In thousands
<S> <C> <C>
BUSINESS SERVICES AND
TRANSPORTATION 21.9%
Computer Service and Software 4.5%
Analysts International 250,000 $ 8,375
...............................................................................
ARIS * 5,000 108
...............................................................................
Clarify * 30,000 339
...............................................................................
Cybermedia * 30,000 479
...............................................................................
Documentum * 10,000 249
...............................................................................
Electronic Arts * 50,000 1,684
...............................................................................
Expert Software * 45,000 181
...............................................................................
Macromedia * 30,000 260
...............................................................................
Medic Computer Systems * 125,000 2,785
...............................................................................
PLATINUM Technology * 50,000 669
...............................................................................
Premenos Technology * 30,000 259
...............................................................................
Red Brick Systems * 20,000 145
...............................................................................
Remedy * 25,000 996
...............................................................................
Rogue Wave Software * 6,000 76
...............................................................................
SunGard Data Systems * 30,000 1,395
...............................................................................
Sync Research * 20,000 72
...............................................................................
Synopsys * 50,000 1,845
...............................................................................
VERITAS Software * 44,220 2,217
...............................................................................
Verity * 46,100 249
...............................................................................
Visio * 30,000 2,114
...............................................................................
24,497
............
Distribution Services 1.8%
JP Foodservice * 300,000 8,606
...............................................................................
Primesource 189,000 1,465
...............................................................................
10,071
............
Environmental 0.7%
TRC * 200,000 800
...............................................................................
Waterlink * 214,300 2,786
...............................................................................
3,586
............
Transportation Services 3.0%
Coach USA * 200,000 5,312
...............................................................................
Comfort Systems USA * 25,000 391
...............................................................................
Expeditors International of Washington 120,000 3,413
...............................................................................
Frozen Food Express 150,000 1,303
...............................................................................
Heartland Express * 80,827 1,894
...............................................................................
</TABLE>
15
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------
In thousands
<S> <C> <C>
International Shipholding 101,562 $ 1,733
...............................................................................
M.S. Carriers * 70,000 1,750
...............................................................................
Midwest Express Holdings * 30,000 821
...............................................................................
16,617
............
Miscellaneous Business Services 11.6%
Alternative Resources * 189,600 3,857
...............................................................................
Billing Information Concepts * 117,600 4,094
...............................................................................
BISYS Group * 70,000 2,938
...............................................................................
Copart * 135,000 2,257
...............................................................................
COREStaff * 120,000 3,247
...............................................................................
Electro Rent * 211,500 5,261
...............................................................................
Insituform Technologies (Class A) * 500,000 3,094
...............................................................................
International Imaging Materials * 160,000 2,570
...............................................................................
Leasing Solutions * 45,000 681
...............................................................................
Maximus * 25,000 447
...............................................................................
McGrath RentCorp 300,000 6,000
...............................................................................
Nobel Education Dynamics * 96,100 805
...............................................................................
ProMedCo * 320,000 2,760
...............................................................................
Shorewood Packaging * 200,000 4,562
...............................................................................
Source Services * 237,200 6,330
...............................................................................
Strayer Education 125,000 4,844
...............................................................................
Tetra Tech * 150,000 3,628
...............................................................................
Unitog 210,000 5,644
...............................................................................
Walsh International * 80,000 680
...............................................................................
63,699
............
Railroads 0.3%
North Carolina Railroad * 24,900 1,513
...............................................................................
1,513
............
Total Business Services and Transportation 119,983
............
ENERGY 3.1%
Energy Services 1.5%
Carbo Ceramics 125,700 3,457
...............................................................................
Cooper Cameron * 60,000 2,805
...............................................................................
Petroleum Helicopters (non-voting) 10,000 163
...............................................................................
Smith International * 30,000 1,822
...............................................................................
8,247
............
</TABLE>
16
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Exploration and Production 1.6%
Rutherford-Moran Oil * 170,000 $ 4,005
...............................................................................
Weatherford Enterra * 124,000 4,774
...............................................................................
8,779
............
Total Energy 17,026
............
PROCESS INDUSTRIES 2.2%
Specialty Chemicals 1.6%
A. Schulman 110,000 2,719
...............................................................................
CFC International * 110,000 1,127
...............................................................................
Furon 27,300 857
...............................................................................
Hauser * 360,000 1,980
...............................................................................
Sybron Chemical * 100,000 1,950
...............................................................................
8,633
............
Paper and Paper Products 0.6%
Jefferson Smurfit * 220,000 3,548
...............................................................................
3,548
............
Total Process Industries 12,181
............
BASIC MATERIALS 2.9%
Metals 2.0%
Cambior 94,000 1,063
...............................................................................
Free State Consolidated Gold Mines ADR 250,000 1,250
...............................................................................
Gibraltar Steel * 110,000 2,502
...............................................................................
Matthews International 175,000 6,344
...............................................................................
11,159
............
Mining 0.9%
Coal Creek + 9,295 1,078
...............................................................................
Prime Resources Group (CAD) 250,000 1,811
...............................................................................
Rochester & Pittsburgh 15,728 680
...............................................................................
TVX Gold * 250,000 1,328
...............................................................................
4,897
............
Total Basic Materials 16,056
............
MISCELLANEOUS COMMON STOCKS 0.5%
Western Water 40000 540
...............................................................................
</TABLE>
17
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- -------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Other Miscellaneous Common Stocks $ 2,161
...............................................................................
Total Miscellaneous Common Stocks 2,701
...............................................................................
Total Common Stocks and Warrants (Cost $356,562) 485,747
............
Preferred Stocks 0.2%
Prime Retail, Cum., 10.50%, Series A, REIT 30,000 765
...............................................................................
Total Preferred Stocks (Cost $570) 765
............
Convertible Preferred Stocks 0.1%
Prime Retail, 8.50%, Series B, REIT 25,000 606
...............................................................................
Total Convertible Preferred Stocks (Cost $471) 606
............
Convertible Bonds 0.5%
Arch Communications (144a) 6.75%, 12/1/03 1,000,000 725
...............................................................................
Offshore Logistics, Sub. Notes, (144a) 6.00%,
12/15/03 2,000,000 2,171
...............................................................................
Total Convertible Bonds (Cost $3,115) 2,896
............
Short-Term Investments 10.9%
Certificates of Deposit 2.2%
Caisse National De Credit Agricole, 5.63%, 8/11/97 5,000,000 5,000
...............................................................................
Svenska Handelsbanken, 5.705%, 7/7/97 5,000,000 5,000
...............................................................................
World Savings Bank, 5.57%, 7/8/97 2,000,000 2,000
...............................................................................
12,000
............
Commercial Paper 8.7%
AC Acquisition Holding, 4(2), 5.56%, 8/11/97 5,000,000 4,968
...............................................................................
Asset Securitization Cooperative, 4(2), 5.55%,
7/22/97 5,000,000 4,984
...............................................................................
Cregem, 5.60%, 9/3/97 3,000,000 2,970
...............................................................................
Den Danske, 5.58%, 7/23/97 5,000,000 4,983
...............................................................................
Dover Funding, 4(2), 5.55%, 7/21/97 3,000,000 2,991
...............................................................................
GMAC, 5.58%, 7/9/97 3,000,000 2,996
...............................................................................
Golden Managers Acceptance, 5.56%, 7/10/97 5,000,000 4,993
...............................................................................
Island Finance of Puerto Rico, 5.55%, 7/28/97 5,500,000 5,477
...............................................................................
Metlife Funding, 5.55%, 8/4/97 5,000,000 4,974
...............................................................................
Preferred Receivables Funding, 5.55%, 7/29/97 3,300,000 3,286
...............................................................................
</TABLE>
18
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- -------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Investments in Commercial Paper through a Joint
Account 6.05 - 6.20%, 7/1/97 5,266,996 5,267
...............................................................................
47,889
............
Total Short-Term Investments (Cost $59,889) 59,889
............
Total Investments in Securities
100.5% of Net Assets (Cost $420,607) $ 549,903
Other Assets Less Liabilities (2,631)
............
NET ASSETS $ 547,272
------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 697
Accumulated net realized gain/loss - net of distributions 27,966
Net unrealized gain (loss) 129,296
Paid-in-capital applicable to 27,183,293 shares of $0.50 par
value capital stock outstanding; 200,000,000 shares authorized 389,313
............
NET ASSETS $ 547,272
------------
NET ASSET VALUE PER SHARE $ 20.13
------------
</TABLE>
+ Affiliated company
* Non-income producing
REIT Real Estate Investment Trust
4(2) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under section 4.2 of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "accredited investors."
144a Security was purchased pursuant to Rule 144a under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers -- total of such securities at period-end amounts
to 0.53% of net assets.
CAD Canadian Dollar
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- -------------------------------------------------------------------------------
Unaudited
<TABLE>
<CAPTION>
- ------------------------
Statements of Operations
- -------------------------------------------------------------------------------
In thousands
6 Months
Ended
6/30/97
<S> <C>
Investment Income
Income
Dividend $ 1,658
Interest 1,353
............
Total income 3,011
............
Expenses
Investment management 1,711
Shareholder servicing 447
Custody and accounting 69
Prospectus and shareholder reports 47
Registration 45
Legal and audit 8
Directors 4
Miscellaneous 6
............
Total expenses 2,337
............
Net investment income 674
............
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 18,318
Change in net unrealized gain or loss on securities 34,482
............
Net realized and unrealized gain (loss) 52,800
............
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 53,474
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- ------------------------------------------------------------------------------
Unaudited
<TABLE>
<CAPTION>
- -----------------------------------
Statements of Changes in Net Assets
- ------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/97 12/31/96
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ 674 $ 1,871
Net realized gain (loss) 18,318 36,943
Change in net unrealized gain or loss 34,482 23,595
........................
Increase (decrease) in net assets from operations 53,474 62,409
........................
Distributions to shareholders
Net investment income - (1,898)
Net realized gain - (33,112)
........................
Decrease in net assets from distributions - (35,010)
........................
Capital share transactions *
Shares sold 165,511 175,932
Distributions reinvested - 33,047
Shares redeemed (87,317) (99,387)
........................
Increase (decrease) in net assets from capital
share transactions 78,194 109,592
........................
Net Assets
Increase (decrease) during period 131,668 136,991
Beginning of period 415,604 278,613
........................
End of period $ 547,272 $ 415,604
------------------------
* Share information
Shares sold 9,003 9,548
Distributions reinvested - 1,846
Shares redeemed (4,823) (5,466)
........................
Increase (decrease) in shares outstanding 4,180 5,928
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1997
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Small-Cap Stock 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 1, 1956. Prior to May 1, 1997, the name
of the fund was the T. Rowe Price OTC Fund, Inc.
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.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service. 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.
Affiliated Companies Investments in companies 5% or more of whose outstanding
voting securities are held by the fund are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940.
Currency Translation Assets and liabilities are translated 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.
22
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
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.
NOTE 2 - INVESTMENT TRANSACTIONS
Commercial Paper Joint Account The fund, and other affiliated funds, may
transfer uninvested cash into a commercial paper joint account, the daily
aggregate balance of which is invested in high-grade commercial paper. All
securities purchased by the joint account satisfy the fund's criteria as to
quality, yield, and liquidity.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $113,595,000 and $58,119,000, 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 $420,607,000, and net unrealized gain
aggregated $129,296,000, of which $151,388,000 related to appreciated
investments and $22,092,000 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 $331,000 was payable at June 30, 1997. The fee is computed
23
<PAGE>
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
daily and paid monthly, and consists of an individual fund fee equal to 0.45% 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 0.30% for assets in excess of $80 billion. At June
30, 1997, and for the six months then ended, the effective annual group fee rate
was 0.33%. The fund pays a pro-rata share of the group fee based on the ratio of
its net assets to those of the group.
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 $397,000 for the six months
ended June 30, 1997, of which $77,000 was payable at period-end.
24
<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
T. Rowe Price OnLine.
DISCOUNT BROKERAGE*
Individual Investments Stocks, bonds, options, precious metals,
and other securities at a savings over regular commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of your T. Rowe Price accounts.
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.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
25
<PAGE>
For yield, price, last transaction, Investor Centers:
current balance, or to conduct 101 East Lombard St.
transactions, 24 hours, 7 days Baltimore, MD 21202
a week, call Tele*Access/(R)/:
1-800-638-2587 toll free T. Rowe Price
Financial Center
For assistance 10090 Red Run Blvd.
with your existing Owings Mills, MD 21117
fund account, call:
Shareholder Service Center Farragut Square
1-800-225-5132 toll free 900 17th Street, N.W.
410-625-6500 Baltimore area Washington, D.C. 20006
To open a Discount Brokerage ARCO Tower
account or obtain information, 31st Floor
call: 1-800-638-5660 toll free 515 South Flower St.
Los Angeles, CA 90071
Internet address:
www.troweprice.com 4200 West Cypress St.
10th Floor
T. Rowe Price Associates Tampa, FL 33607
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 of the
T. Rowe Price Small-Cap Stock Fund.
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor.
