Semiannual Report
Small-Cap
Stock Fund
June 30, 1999
T. Rowe Price
Report Highlights
- --------------------------------------------------------------------------------
Small-Cap Stock Fund
o Small-cap stocks roared past large-caps in the second quarter, but still
lagged the S&P 500 for the six-month period.
o Fund returns lagged the Russell 2000 Index and the growth-oriented Lipper
Small Cap Fund Index due to our general avoidance of Internet stocks.
o New purchases included bank holding company UST, metals-coating firm
Material Sciences, and software company Progress Software.
o Heavy merger-and-acquisition activity shows that corporate buyers have
discovered the extraordinary value in small-caps. We believe investors will
too.
Fellow Shareholders
Small-cap stocks rebounded dramatically in the second quarter, outpacing
large-caps by the best margin in recent years, but it wasn't enough to push
their first half performance above that of the Standard & Poor's 500 Stock
Index. Growing confidence that the global financial crisis had ended encouraged
investors to begin venturing beyond the multinational growth, technology, and
telecom stocks they had favored overwhelmingly during the previous four years.
Despite a sharp correction in Internet stocks in the spring, the group returned
to favor by the end of the period.
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 6/30/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Small-Cap Stock Fund 4.52% -3.48%
Russell 2000 Index 9.28 1.50
Lipper Small Cap Fund Index 9.43 1.92
S&P 500 12.38 22.76
Your fund's returns of 4.52% and -3.48%, respectively, for the 6- and
12-month periods ended June 30 lagged the unmanaged Russell 2000 Index of
smaller companies and the Lipper Small Cap Fund Index, as shown in the
table. Our general avoidance of the high-flying Internet sector hurt
performance in both periods. Year-to-date, the 52 Internet stocks in the
Russell 2000 contributed almost four percentage points to the index's
performance, which accounts for most of the benchmark's margin over the
fund. (During the past year, many of these stocks outgrew the small-cap
index and were replaced at the end of June when the index was
reconstituted.) In addition, our exposure to small-cap value stocks held
back returns relative to the Lipper index, which is dominated by
emerging-growth funds. Our commitment to a blend of growth and value stocks
has served us well in the past but was a liability over the past year as
small-cap value stocks were among the worst-performing sectors-though they
joined the rally in the second quarter.
At the peak of the frenzy last spring, the Internet stocks in the Russell
2000 accounted for nearly 10% of the index's capitalization and
significantly influenced performance on a daily basis. Without the Internet
stocks, the Russell 2000 would have gained 5.52% in the first half. We have
difficulty throwing valuations and caution to the wind and investing in
what we believe are money-losing business models. The exuberance of the
crowd left us a bit behind in the first half, yet we remain confident
valuation will win out in the end.
SECTOR DIVERSIFICATION
- --------------------------------------------------------------------------------
Business Services and Transportation 24
Capital Equipment, Process Industries,
and Basic Materials 8
Technology 9
Consumer Services, Cyclicals,
and Education 14
Financial 8
Energy and Utilities 5
Consumer Nondurables 13
Reserves 5
Other 14
* Reflects a receivable for fund shares to an institutional client on the
last day of the second quarter and does not represent a defensive posture.
Based on net assets as of 6/30/99.
Overall, the stock market again posted surprisingly strong returns in the
first half of 1999, and the large-cap averages are on track to extend their
record of four consecutive years of double-digit gains set last year. Both
the S&P 500 and the Nasdaq Composite Index finished the period at record
levels. With the memories of financial crises and fears of global recession
receding, investors warmed to assets that were perceived as more risky or
less liquid-small-cap stocks included. In addition, corporate profits are
expected to rise this year after stalling in 1998. Merger-and-acquisition
activity in the small-cap arena accelerated in the first half and is likely
to continue, given the disparity in valuations between potential acquirers
(large companies) and potential targets in our small-company universe. A
pending change in merger accounting rules is also likely to continue
driving deals.
Information on Year-End Distributions
- --------------------------------------------------------------------------------
To help you with tax planning, we try to give you a good idea of the per-share
income and capital gain amounts our funds may distribute near year-end. In late
October, we will provide estimates of these amounts, which will be paid on
December 16, 1999, to shareholders of record on December 14. These preliminary
numbers will be included in The Price Report mailing to shareholders in late
October and will also be available on our Web site-www.troweprice.com.
We hope that these preliminary numbers will be useful to you in approximating
the income and capital gains taxes you may pay on distributions to taxable
accounts.
If your fund distributed any capital gains earlier in 1999, you can find the
amounts on your statements and should include them in your tax planning
calculations. Please keep in mind that the numbers are not final and are likely
to be revised before the December 14 declaration and record date. As the fall
progresses, you may want to check our Web site for revisions. If you would like
information on tax matters relating to mutual funds, please visit our Web site
to download our Insights report, Tax Information for Mutual Fund Investors, or
call 1-800-225-5132 to request a copy.
Though rising interest rates provided some turbulence for stocks in the
first half-particularly among high multiple large-cap growth stocks-the
rising rates reflected growing optimism about the world economy, powered by
the unflagging pace of U.S. growth. Stocks got a bit of good news as the
first half ended, when the Federal Reserve increased the key federal funds
rate by the expected one-quarter point but unexpectedly shifted its policy
bias back to neutral. This latter move suggested that the June 30 rate hike
might not be the first in a series of tightening moves after all.
INVESTMENT REVIEW
The leading sectors for the Russell 2000 Index for the first half included:
technology, up 17.95%; utilities, up 19.95%; and energy, up 34.08%.
Unfortunately, we were underweighted in the energy and utility segments as
neither sector appears attractive under our criteria for identifying strong
franchise values. The utility sector remains volatile due to fundamental
changes occurring in the electric industry, and the energy sector will
remain very volatile based on swings in the commodity markets. The worst
sectors included: consumer staples, down 9.72%; and health care, down about
1%. Here we were aided by an underweighting in health care.
Major contributors for the first half included Applied Micro Circuits,
Holophane, Eagle USA Air Freight, and a host of companies involved in
mergers and acquisitions. Applied Micro Circuits, which designs, develops,
and manufactures high performance, high bandwidth integrated circuits for
the communications infrastructure industry (making it a semiconductor
telecom equipment play), rose more than 144% on the back of very strong
fundamentals. We found this high-quality company a true bargain in last
fall's technology sell-off and first purchased the shares at $13, or 16
times projected earnings for a firm we judged to be growing 30% annually.
The world has now fully discovered the stock, and it rallied from $33.96 in
December to $83 on June 30.
Airfreight forwarder Eagle USA acts essentially as a travel agent for
time-sensitive goods, such as computer components and auto parts. The
company is greatly benefiting from the trend toward just-in-time inventory
management, which describes how manufacturers today increasingly want
production inputs delivered as needed rather than tying up valuable capital
in inventory. This shift creates a heavy reliance on a forwarder like
Eagle, which helps explain the company's extraordinary profitability and
better-than-30% growth over the past few years. When Eagle USA missed Wall
Street earnings estimates by only a penny last September and the stock
traded off 65%, we aggressively began purchasing shares at less than $13,
or 10 times earnings. The company has since met or beaten expectations
every quarter, carrying the stock into the low $40s and adding over $6.5
million to the fund in the first half.
Holophane, which specializes in outdoor lighting for businesses and
municipalities, agreed to be acquired by National Service Industries for
$38.50 per share in cash in the second quarter. The shares gained about 35%
the day the deal was announced, and rose 48% for the first half. Holophane
added 10 cents to the fund's net asset value during the period.
Merger-and-acquisition activity was dramatic in the past six months, with
more than 10 deals involving portfolio holdings announced during the
period. Corporate America and management-led leveraged buyout firms took
advantage of the extraordinary valuations in small-caps to buy excellent
companies at what we believe to be bargain prices. Besides Holophane, our
list of major contributors includes Optek, which agreed to be acquired by
the Dyson Kissler Group at $25.50-a nice premium to its mid-teens trading
price; Coach USA, which agreed to be acquired by the U.K.'s Stagecoach
Holdings Plc for $42-a 47% premium; and SteriGenics, which agreed to be
acquired by IBA, a Belgian firm, for $27-a 54% premium. Fortunately, this
spurt of deals-eight alone in the month of June-brought us a strong finish
to the quarter.
Major decliners in the first half included: MSC Industrial, Romac, and New
England Business Services. MSC declined 54% largely due to fundamental
weakness and a preannounced shortfall in the May quarter. Weak revenue
growth, increased investment spending, and customer service issues have
stung MSC. We believe nothing fundamental is broken at the company. Though
MSC Industrial is currently a victim of sluggish conditions in its end
markets, we view it as a high-quality firm with solid management and a very
reasonable current valuation. The shares' decline cost the fund $2.2
million.
Romac fell 54% in the first half, costing the fund more than $5 million.
Romac is a security we inherited last year when the company acquired our
long-term holding Source Services. Romac folded Source Services' permanent
placement employment service into its own information technology consulting
operation. The theory was that Romac could improve Source's operating
margins and drive internal earnings growth to 30%. However, by the first
half it became apparent that the firm was having difficulty integrating the
acquisition and, in addition, its own IT business was probably suffering
due to the year 2000-related slowdown in IT spending. We are carefully
evaluating this position.
New England Business Services shares declined 21% in the first half after
the firm experienced some difficulty integrating its new Rapid Forms
division. The firm had a slight revenue shortfall in the March quarter, and
consequently, the stock suffered an overreaction from the market. We very
much believe in CEO Bob Murray's strategy and continue to invest money in
the company. The stock cost the fund about $4 million.
PORTFOLIO HIGHLIGHTS
A major new addition was UST, a Massachusetts bank holding company with $4
billion in assets offering a unique franchise in New England. The company
has a growing asset management business and a highly profitable leasing
operation. The shares appeared to represent a great bargain at two times
book value and 13.6 times this year's earnings estimates. Indeed, we were
pleasantly surprised in June when UST agreed to be purchased by Citizen's
Financial Group for $32 per share, or a 33% premium to our average purchase
price. The deal values US Trust at 2.6 times book value and 17 times 2000
earnings-a nice premium.
We'd also like to highlight Material Sciences, a leading company in the
field of coil coating-the process of applying finishes to wide rolls of
metal before the metal is cut into parts. The company also uses its metals
processing knowledge to develop proprietary products that combine different
metal and polymer materials. Material Sciences is a solid turnaround
situation. The company aggressively added to capacity and made a large
acquisition just before the steel market was upended by low-priced imports.
As a consequence, its operating margins were cut in half. The company is
now back on track, and recent results have been encouraging. As Material
Sciences continues to fill up its excess capacity, it should return to its
historical margin level of 9% of sales on earnings before interest and
taxes. This translates to earnings per share of about $1.60 for 2000. We
initiated positions at $11 per share, less than seven times earnings.
Moreover, with $2 per share in depreciation and amortization, our purchase
price translates into just three times cash flow! With this strong cash
flow underpinning, the downside appears quite limited, while the upside is
significant if the company can return to its previous levels of
profitability.
Our major sales included two stocks involved in merger-and-acquisition
activity: Optek (as mentioned above) was purchased by Dyson Kissner; and
Cintas came to the fund by way of its purchase of Unitog. We found Cintas
expensive and sold the shares. Finally, we exited Outback Steakhouse, which
at 21.2 times 2000 estimates appears to more than reflect the company's
outstanding track record and current favorable sales and food cost trends.
Outback still needs a strong second leg of growth (that is, a new
restaurant concept), and future food cost volatility is always a risk.
Consequently, we sold the position.
OUTLOOK
Small-cap stocks recently posted their best quarter of performance relative
to large-caps in recent years. This impressive relative strength may be a
harbinger of better performance in the coming months. Valuations remain
compelling and near 40-year lows. The small-cap advance in the second
quarter was broad-based and included all sectors and both growth and value
stocks. Finally, merger-and-acquisition activity, as we've discussed, is
quite significant. Corporate America sees great value in our universe, and
we believe investors will, too.
We believe our blend of growth and value investing will reassert its
historic edge over the Russell 2000 Index and that investors will, once
again, outperform the S&P 500 by investing in small-cap shares.
Keep the faith. Thanks for your continued support.
Respectfully submitted,
Greg A. McCrickard
President and Chairman of the Investment Advisory Committee
July 16, 1999
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/99
- --------------------------------------------------------------------------------
Aliant Communications 2.0%
Coach USA 1.8
A.O. Smith 1.7
New England Business Service 1.3
Shorewood Packaging 1.2
- --------------------------------------------------------------------------------
Matthews International 1.2
Holophane 1.2
Parkway Properties 1.1
Richfood Holdings 1.1
Methode Electronics 1.0
- --------------------------------------------------------------------------------
PartnerRe Holdings 1.0
Casey's General Stores 1.0
Comfort Systems USA 0.9
SteriGenics International 0.9
Mentor 0.9
- --------------------------------------------------------------------------------
Insituform Technologies 0.9
U.S. Foodservice 0.9
Analogic 0.9
JLG Industries 0.9
Technitrol 0.9
- --------------------------------------------------------------------------------
Applied Micro Circuits 0.8
US Can 0.8
Brown and Brown 0.8
Eagle USA Air Freight 0.8
Glacier Bancorp 0.8
- --------------------------------------------------------------------------------
Total 26.8%
Note: Table excludes reserves.
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 6/30/99
Ten Largest Purchases
- --------------------------------------------------------------------------------
Technitrol
Aviation Sales *
UST *
Material Sciences *
Wind River Systems *
International Multifoods *
Steris *
Serologicals *
Richfood Holdings
Furon
Ten Largest Sales
- --------------------------------------------------------------------------------
Optek Technology **
Outback Steakhouse **
Cintas **
Logans Roadhouse **
Trident International **
The Peterson Companies **
Concentra Managed Care **
Applied Micro Circuits
Millennium Pharmaceuticals
Eagle USA Air Freight
* Position added
** Position eliminated
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. An index return does not reflect expenses, which have been deducted
from the fund's return.
SMALL-CAP STOCK FUND
---------------------------------------------------------------------------
As of 6/30/99
Lipper
Small Cap Russell 2000 Small-Cap
Fund Index Index Stock Fund
6/89 10.000 10.000 10.000
6/90 10.935 10.296 10.126
6/91 11.122 10.433 9.813
6/92 12.517 11.949 11.094
6/93 15.667 15.057 13.669
6/94 16.019 15.711 14.655
6/95 20.180 18.871 17.508
6/96 26.245 23.379 23.273
6/97 27.898 27.195 27.567
6/98 32.227 31.685 33.326
6/99 32.846 32.160 32.166
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.
Periods Ended 6/30/99 1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------
Small-Cap Stock Fund 3.48% 11.39% 17.03% 12.39%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase. Performance prior to 8/31/92 reflects investment managers other
than T. Rowe Price.
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
Unaudited
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
6 Months Year
Ended Ended
6/30/99 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of period $ 20.79 $ 22.20 $ 18.07 $ 16.32 $ 13.80 $ 15.39
Investment activities
Net investment
income 0.03 0.08 0.05 0.09 0.12 0.04
Net realized and
unrealized gain
(loss) 0.91 (0.89) 5.13 3.33 4.53 (0.04)
Total from
investment
activities 0.94 (0.81) 5.18 3.42 4.65 0.00
Distributions
Net investment
income -- (0.10) (0.04) (0.09) (0.12) (0.03)
Net realized
gain -- (0.50) (1.01) (1.58) (2.01) (1.56)
Total
distributions -- (0.60) (1.05) (1.67) (2.13) (1.59)
NET ASSET VALUE
End of period $ 21.73 $ 20.79 $ 22.20 $ 18.07 $ 16.32 $ 13.80
----------------------------------------------------------
Ratios/Supplemental Data
Total return(diamond) 4.52% (3.46)% 28.81% 21.05% 33.85% 0.08%
Ratio of total expenses to
average net assets 0.99%! 1.01% 1.02% 1.07% 1.11% 1.11%
Ratio of net investment
income to average
net assets 0.32%! 0.46% 0.33% 0.56% 0.74% 0.24%
Portfolio
turnover rate 28.1%! 25.9% 22.9% 31.1% 57.8% 41.9%
Net assets,
end of period
(in millions) $ 1,482 $ 1,153 $ 816 $ 416 $ 279 $ 197
(diamond) Total return reflects the rate that an investor would have earned on
an investment in the fund during each period, assuming reinvestment
of all distributions.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1999
Portfolio of Investments Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks 80.8%
FINANCIAL 8.3%
Bank and Trust 5.0%
Charter One Financial 226,800 $ 6,301
Citizens Banking 320,000 9,610
Downey Financial 500,000 10,969
First Bell Bancorp 100,000 1,794
First Mariner Bancorp 47,500 531
First Security 168,750 4,593
Frankfort First Bancorp 75,000 1,118
Glacier Bancorp 471,900 11,119
Marshall & Ilsley 30,000 1,930
Mercantile Bancorporation 92,250 5,270
Summit Bancorp 214,800 8,981
UST 300,000 9,066
WestAmerica 90,000 3,282
74,564
Insurance 2.6%
Brown and Brown 303,000 11,514
Harleysville Group 220,400 4,511
London Pacific Group 9,400 216
PartnerRe Holdings 390,000 14,576
Selective Insurance 155,000 2,950
W. R. Berkley 185,000 4,631
38,398
Financial Services 0.7%
Delta Financial * 300,000 1,912
Financial Federal * 350,000 7,700
ITLA Capital * 70,000 1,085
10,697
Total Financial 123,659
UTILITIES 3.7%
Electric Utilities 0.6%
Cleco * 300,000 9,113
9,113
Telephone 3.1%
Aliant Communications 650,000 $ 30,063
Commnet Cellular * 119,550 3,164
Rural Cellular (Class A) * 331,700 6,634
Western Wireless 200,000 5,406
45,267
Total Utilities 54,380
CONSUMER NONDURABLES 13.1%
Food Processing 2.0%
American Italian Pasta * 122,200 3,712
Imperial Sugar 619,900 4,301
International Multifoods 251,300 5,670
Makepeace * 164 1,935
Seneca Foods (Class A) * 174,900 2,361
Seneca Foods (Class B) * 74,700 1,023
United Natural Foods * 425,000 10,545
29,547
Hospital Supplies/Hospital Management 2.2%
Mentor 709,000 13,294
Pediatrix Medical Group * 20,000 425
Quorum Health Group * 360,000 4,534
Renal Care Group * 356,250 9,207
Steris * 300,000 5,812
33,272
Pharmaceuticals 0.6%
Boron Lepore & Associates * 112,000 945
Incyte Pharmaceuticals * 104,000 2,746
Triangle Pharmaceuticals * 258,900 4,644
8,335
Biotechnology 2.3%
Abegenix * 100,000 1,981
Alkermes * 210,400 4,839
Anesta * 50,000 1,017
COR Therapeutics * 102,476 1,505
Coulter Pharmaceutical * 115,000 2,591
Gilead Sciences * 50,000 2,609
Inhale Therapeutic Systems * 335,000 $ 8,009
Millennium Pharmaceuticals * 100,000 3,597
Neurocrine Biosciences * 100,000 525
Northfield Laboratories * 220,000 2,688
PharmaPrint * 299,800 1,490
Serologicals * 330,000 2,702
Zonagen * 74,700 696
34,249
Health Care Services 2.3%
AmeriPath * 675,000 5,801
Monarch Dental * 269,000 862
Orthodontic Centers of America * 300,000 4,237
ProMedCo * 400,000 1,537
SteriGenics International * ! 513,300 13,554
US Oncology 630,000 7,580
33,571
Miscellaneous Consumer Products 3.7%
Coinmach Laundry * 200,300 2,529
Cone Mills * 574,400 3,446
Culp 150,500 1,580
Dan River * 1,010,000 7,449
Reebok * 200,000 3,725
Sola * 510,000 9,913
Stride Rite 270,000 2,784
Unifi 375,000 7,969
US Can * 529,100 11,773
WestPoint Stevens 150,000 4,472
55,640
Total Consumer Nondurables 194,614
CONSUMER SERVICES 5.8%
Restaurants 0.2%
Buca * 49,100 813
PJ America * 96,900 2,056
2,869
General Merchandisers 1.9%
Bon-Ton Stores * ! 740,700 4,838
Casey's General Stores 970,000 $ 14,520
Columbia Sportswear * 348,200 5,321
Saks * 100,000 2,887
27,566
Specialty Merchandisers 1.8%
CompuCom Systems * 850,000 3,493
Goody's Family Clothing * 450,000 5,133
O'Charley's * 192,700 3,089
Performance Food Group * 157,200 4,298
St. John Knits 210,000 6,143
Urban Outfitters * 192,300 4,796
26,952
Media and Communications 1.9%
American Tower Systems
(Class A) * 60,000 1,440
Clear Channel Communications * 34,719 2,393
Emmis Broadcasting (Class A) * 140,000 6,891
Pegasus Communications * 89,400 3,523
Sinclair Broadcast Group
(Class A) * 280,000 4,567
Young Broadcasting (Class A) * 220,000 9,357
28,171
Total Consumer Services 85,558
CONSUMER CYCLICALS 8.5%
Automobiles and Related 2.7%
A.O. Smith (Class B) 900,300 25,208
Adrian Steel ! 13,000 5,850
Keystone Automotive * 165,000 2,857
Littelfuse * 275,000 5,216
Strattec Security * 41,600 1,422
40,553
Building and Real Estate 4.8%
Apartment Investment
& Management, REIT 149,400 6,387
Arden Realty, REIT 325,000 8,003
EastGroup Properties, REIT 530,000 10,633
First Washington Realty
Trust, REIT 325,000 7,597
Glenborough Realty
Trust, REIT 155,000 2,712
JP Realty, REIT 250,000 5,141
Parkway Properties, REIT 495,000 $ 16,397
Reckson Associates Realty
(Class B), REIT 228,150 5,447
Starwood Hotels & Resorts, REIT 35,000 1,070
Woodhead Industries ! 600,000 7,387
70,774
Miscellaneous Consumer Durables 1.0%
CompX * ! 485,000 8,670
Harman International 115,000 5,060
Juno Lighting * 8,325 204
13,934
Total Consumer Cyclicals 125,261
TECHNOLOGY 8.7%
Electronic Components 4.7%
American Superconductor * 50,000 748
Analogic 416,600 12,954
ATMI * 400 12
Benchmark Electronics * 150,000 5,390
Burr Brown * 275,000 10,158
Exar * 100,000 2,506
Maxim Integrated Products * 120,000 7,980
Methode Electronics (Class A) 650,000 14,869
Planar Systems * 350,000 2,691
PMC-Sierra * 150,000 8,845
SIPEX * 150,000 3,066
69,219
Electronic Systems 1.7%
Applied Micro Circuits * 150,000 12,460
EMS Technologies * 316,600 4,541
Lifeline Systems * 200,000 3,875
Lo-Jack * 475,000 4,008
24,884
Telecommunications 1.1%
Avant * 343,500 4,326
Ditech Communications * 185,000 3,711
Premisys Communications * 125,000 906
Voicestream Wireless * 200,000 5,694
West TeleServices * 109,500 $ 1,027
15,664
Aerospace and Defense 0.4%
DONCASTERS ADR * 100,000 1,750
Woodward Governor 160,000 4,195
5,945
Office Automation 0.8%
Technitrol 391,200 12,616
12,616
Total Technology 128,328
EDUCATION 0.6%
ITT Educational Service * 340,000 8,861
Total Education 8,861
CAPITAL EQUIPMENT 2.7%
Electrical Equipment 1.3%
Holophane * 450,000 17,156
LSI Industries 110,900 2,689
19,845
Capital Equipment 0.3%
Omniquip International 450,000 3,572
3,572
Machinery 1.1%
JLG Industries 625,000 12,735
NN Ball & Roller 350,000 2,034
Toolex Alpha * 149,800 2,008
16,777
Total Capital Equipment 40,194
BUSINESS SERVICES AND
TRANSPORTATION 23.2%
Computer Service and Software 5.0%
Analysts International 230,000 3,299
BISYS Group * 90,000 5,268
Concur Technologies * 42,800 1,209
Electronic Arts * 50,000 $ 2,706
Great Plains Software * 140,000 6,554
HCIA * 330,000 2,887
Peerless Systems * 400,000 4,175
Phoenix Technologies * 150,000 2,672
Progress Software * 141,700 4,030
PSINet * 110,000 4,806
SalesLoggix * 106,000 1,583
Saville Systems ADR * 532,300 7,735
Summit Design * 300,000 905
SunGard Data Systems 38,400 1,325
Synopsys * 30,000 1,655
Vantive * 75,000 853
Viasoft * 550,000 1,942
Visio * 285,000 10,839
WebTrends * 60,000 2,766
Wind River Systems * 273,000 4,376
Zebra Technologies (Class A) * 58,900 2,258
73,843
Distribution Services 3.9%
Aviation Sales * 200,000 7,900
Jack Henry & Associates 100,000 3,912
MSC * 321,800 3,298
Primesource 191,500 1,221
Richfood Holdings 913,300 16,097
SunSource 215,000 2,782
U.S. Foodservice * 306,300 13,056
Watsco (Class A) 505,699 8,281
Wilmar Industries * 138,500 1,818
58,365
Environmental 0.7%
CUNO * 285,000 5,486
IT Group * 200,000 3,213
Waterlink * 467,000 1,343
10,042
Transportation Services 4.9%
C.H. Robinson Worldwide 271,300 9,936
Coach USA * 636,000 26,672
Comfort Systems USA 775,000 $ 13,950
Eagle USA Air Freight * 265,000 11,221
Expeditors International
of Washington 240,000 6,548
Frozen Food Express 150,000 1,148
Heartland Express * 80,827 1,319
Hub Group (Class A) * 26,900 605
International Shipholding 141,562 2,035
73,434
Miscellaneous Business Services 8.6%
Billing Information Concepts * 454,400 5,069
CORT Business Services * 330,400 7,909
Electro Rent * 480,000 5,220
Insituform Technologies
(Class A) * 609,300 13,119
Iron Mountain * 215,950 6,182
Ivex Packaging * 150,000 3,300
Maximus * 125,000 3,594
McGrath Rent 300,000 5,887
Metamor Worldwide * 202,500 4,860
MPW Industrial
Services Group * 496,800 5,030
New England
Business Service 614,900 18,985
Paxar * 48,400 436
Renaissance Worldwide * 587,600 4,664
Romac International * 403,868 3,572
Shorewood Packaging * 1,000,000 18,437
Strayer Education 340,000 10,423
Tetra Tech * 623,750 10,370
127,057
Airlines 0.1%
Midwest Express Holdings * 45,000 1,530
1,530
Total Business Services and Transportation 344,271
ENERGY 0.9%
Energy Services 0.6%
Cooper Cameron * 50,000 1,853
Smith International 100,000 4,344
Weatherford International 94,050 3,444
9,641
Exploration and Production 0.3%
Key Energy * 376,600 $ 1,342
National Oilwell * 200,000 2,800
4,142
Total Energy 13,783
PROCESS INDUSTRIES 1.8%
Specialty Chemicals 0.5%
A. Schulman 110,000 1,880
Furon 304,600 5,787
Hauser * 90,000 501
8,168
Paper and Paper Products 0.3%
Smurfit-Stone Container * 200,000 4,106
4,106
Building and Construction 1.0%
Layne Christensen * 360,000 2,340
Simpson Manufacturing * 94,500 4,489
Trex * 324,800 8,242
15,071
Total Process Industries 27,345
BASIC MATERIALS 3.3%
Metals 2.3%
AngloGold ADR 81,130 1,744
Cambior 900,000 2,925
Gibraltar Steel * 110,000 2,709
Material Sciences * 599,800 8,997
Matthews International
(Class A) 605,000 17,999
34,374
Mining 0.5%
Battle Mountain Gold 1,612,000 3,929
Coal Creek ! 9,295 883
Lihir Gold (AUD) * 1,930,000 1,455
TVX Gold ADR 585,000 585
6,852
Miscellaneous Materials 0.5%
Synthetic Industries * 261,900 $ 7,791
7,791
Total Basic Materials 49,017
Total Miscellaneous Common Stocks 0.2% 2,594
Total Common Stocks (Cost $1,017,840) 1,197,865
Convertible Bonds 0.1%
Vantive, 4.75%, 9/1/02 $3,000,000 2,266
Total Convertible Bonds (Cost $2,191) 2,266
Short-Term Investments 5.5%
Money Market Funds 5.5%
Reserve Investment Fund,
5.05% # 80,855,626 80,856
Total Short-Term Investments (Cost $80,856) 80,856
Total Investments in Securities
86.4% of Net Assets (Cost $1,100,887) $1,280,987
Other Assets Less Liabilities 201,497
NET ASSETS $1,482,484
----------
# Seven-day yield
! Affiliated company
* Non-income producing
ADR American Depository Receipt
REIT Real Estate Investment Trust
AUD Australian dollar
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1999
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value
Affiliated companies (cost $45,836) $ 41,182
Other companies (cost $1,055,051) 1,239,805
Total investments in securities 1,280,987
Receivable for fund shares sold 206,418
Other assets 8,676
Total assets 1,496,081
Liabilities
Total liabilities 13,597
NET ASSETS $ 1,482,484
------------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 1,639
Accumulated net realized gain/loss -
net of distributions 23,236
Net unrealized gain (loss) 180,100
Paid-in-capital applicable to 68,232,491
shares of $0.50 par value capital stock
outstanding; 200,000,000 shares authorized 1,277,509
NET ASSETS $ 1,482,484
------------
NET ASSET VALUE PER SHARE $ 21.73
------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
6/30/99
Investment Income
Income
Dividend $ 4,706
Interest 2,690
Total income 7,396
Expenses
Investment management 4,318
Shareholder servicing 1,034
Prospectus and shareholder reports 111
Custody and accounting 80
Registration 20
Legal and audit 7
Directors 5
Miscellaneous 6
Total expenses 5,581
Expenses paid indirectly (6)
Net expenses 5,575
Net investment income 1,821
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 16,088
Foreign currency transactions 2
Net realized gain (loss) 16,090
Change in net unrealized gain
or loss on securities 41,530
Net realized and unrealized gain (loss) 57,620
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 59,441
---------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 1,821 $ 4,641
Net realized gain (loss) 16,090 26,975
Change in net unrealized
gain or loss 41,530 (67,486)
Increase (decrease) in net
assets from operations 59,441 (35,870)
Distributions to shareholders
Net investment income -- (5,359)
Net realized gain -- (26,791)
Decrease in net assets
from distributions -- (32,150)
Capital share transactions*
Shares sold 562,312 789,814
Distributions reinvested -- 28,541
Shares redeemed (291,863) (414,115)
Increase (decrease) in net
assets from capital
share transactions 270,449 404,240
Net Assets
Increase (decrease)
during period 329,890 336,220
Beginning of period 1,152,594 816,374
End of period $1,482,484 $1,152,594
-----------------------
*Share information
Shares sold 27,475 36,695
Distributions reinvested -- 1,472
Shares redeemed (14,681) (19,500)
Increase (decrease) in
shares outstanding 12,794 18,667
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1999
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 T. Rowe Price OTC Fund, Inc.
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.
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.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
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 As defined by the Investment Company Act of 1940, an
affiliated company is one in which the fund owns at least 5% of the
outstanding voting securities.
Currency Translation Asset 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.
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. Expenses paid
indirectly reflect credits earned on daily, uninvested cash balances at the
custodian, used to reduce the fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $241,951,000 and $148,285,000, respectively, for the
six months ended June 30, 1999.
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, 1999, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$1,100,887,000. Net unrealized gain aggregated $180,100,000 at period-end,
of which $299,779,000 related to appreciated investments and $119,679,000
to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and the manager
provides for an annual investment management fee, of which $780,000 was
payable at June 30, 1999. The fee is computed 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 Price Associates (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, 1999, 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.
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 $833,000 for the six months ended June 30, 1999, of which
$196,000 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, 1999, totaled $2,503,000 and are reflected as interest income in
the accompanying Statement of Operations.
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(registered trademark) 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 January 1999 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary depending on
size of order.
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
STOCK FUNDS
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Intermediate Tax-Free**
Georgia Tax-Free Bond
Maryland Short-Term Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond***
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond
International Bond
MONEY MARKET FUNDS!
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Closed to new investors.
** Formerly named Florida Insured Intermediate Tax-Free.
*** Formerly named Tax-Free Insured Intermediate Bond.
! Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the funds.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY.
T. Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
T. Rowe Price Retirement Plans and Resources
- --------------------------------------------------------------------------------
Retirement Plans and Resources
We recognize that saving for retirement is the number one investment goal
for most Americans. We can help you meet your retirement needs, whether you
are starting an IRA or designing a retirement program for your employees.
T. Rowe Price offers an assortment of retirement plans for individuals, the
self-employed, small businesses, corporations, and nonprofit organizations.
We provide recordkeeping, communications, and investment management
services, as well as a variety of educational materials, self-help planning
guides, and software tools to help you choose and implement a retirement
plan appropriate for you. For information or to request literature, call us
at 1-800-638-5660.
IRAs AND QUALIFIED PLANS
Traditional IRA
Roth IRA
Rollover IRA
SEP-IRA
SIMPLE IRA
Profit Sharing
Money Purchase Pension
"Paired" Plans (Money Purchase Pension and Profit Sharing Plans)
401(k)
403(b)
457 Deferred Compensation
RETIREMENT RESOURCES AT T. ROWE PRICE
Planning and Informational Guides
Minimum Required Distributions Guide
Retirement Planning Kit
Retirees Financial Guide
Tax Considerations for Investors
Investment Kits
The IRA Investing Kit
Roth IRA Conversion Kit
Rollover IRA Kit
The T. Rowe Price SIMPLE IRA Plan Kit
The T. Rowe Price SEP-IRA Plan
The Simplified Keogh Plan(registered trademark) From T. Rowe Price
The T. Rowe Price 401(k) Century Plan(registered trademark) (for small
businesses)
Money Purchase Pension/Profit Sharing Plan Kit
Investing for Retirement in Your 403(b) Account
The T. Rowe Price No-Load Variable Annuity Information Kit
Insights Reports
The Challenge of Preparing for Retirement
Financial Planning After Retirement
The Roth IRA: A Review
Software Packages
T. Rowe Price Retirement Planning Analyzer(registered trademark) CD-ROM or
diskette $19.95. To order, please call 1-800-541-5760. Also available on
the Internet for $9.95.
T. Rowe Price Variable Annuity Analyzer(registered trademark) CD-ROM or
diskette, free. To order, please call 1-800-469-5304.
Many of these resources are also available for viewing or ordering on the
Internet at www.troweprice.com.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance with your existing fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a brokerage account
or obtain information, call:
1-800-638-5660 toll free
Internet address:
www.troweprice.com
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.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
4200 West Cypress St.
10th Floor
Tampa, FL 33607
4410 ArrowsWest Drive
Colorado Springs, CO 80907
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills, CA 91367
Invest With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor. F65-051 6/30/99
