Semiannual Report
Small-Cap
Stock Fund
June 30, 2000
T. Rowe Price
Report Highlights
Small-Cap Stock Fund
o Stocks were volatile in the last six months, but many reasonably priced
small-cap stocks performed strongly.
o Your fund posted a solid gain in the first half of 2000, exceeding the
performance of both small-cap benchmarks. Twelve-month results were also
strong.
o Good stock selection in diverse sectors, including consumer discretionary,
technology, and biotechnology, drove fund performance.
o Investors focused on valuation and fundamentals during the period, and
small-caps outperformed large-caps. We expect these trends to continue.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
Fellow Shareholders
Amid extreme volatility and repeated Federal Reserve rate hikes in the first
half of 2000, the Small-Cap Stock Fund delivered a solid gain. As the year
opened, momentum carried last year's high-flying sectors such as technology,
biotechnology, and telecom to even greater heights. These sectors fell sharply
from mid-March through late May (at one point the Nasdaq Composite suffered a
37% correction) before rallying again in June. With sector and style rotation
coming fast and furiously, our balanced approach served shareholders
exceptionally well.
Performance Comparison
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Periods Ended 6/30/00 6 Months 12 Months
Small-Cap Stock Fund 11.36% 22.16%
Russell 2000 Index 3.04 14.32
Lipper Small-Cap
Core Fund Index 8.55 23.62
S&P 500 Stock Index -0.43 7.24
Absolute and relative performance shone in the first half. As stock picking and
fundamental analysis replaced the market's Internet casino mentality, the
strength of T. Rowe Price's research again gave us an edge. Your fund's 11.36%
advance outstripped the Russell 2000 Index of smaller companies by more than
eight percentage points, and as a result we regained all the ground lost in the
tech- and Internet-crazed market of 1999. Performance also exceeded that of the
Lipper Small-Cap Core Fund Index for the six months, as shown in the table. The
fund's solid 12-month gain of 22.16% again topped the Russell index and was
comparable to the Lipper benchmark.
Small-cap stocks outperformed large-caps by a wide margin, after matching the
large-cap advance last year for the first time in many years. Equally important
for our shareholders, fundamentals such as earnings, cash flow, and financial
viability once again became key determinants of stock market success. Small-cap
valuations became too attractive for investors to ignore. The lack of profits at
many Internet firms also became too glaring for the market to overlook, and the
group remained generally out of favor for much of the period even as other
sectors rebounded. In fact, while Internet stocks drove much of the Russell
2000's performance in 1999, they were a liability in the first half.
INVESTMENT REVIEW
Top sectors in the Russell 2000 Index included energy, which rose 57%, health
care, which rose nearly 38%, and real estate investment trusts (REITs), which
gained almost 11% in the half. Your fund was well cv represented in all three
segments, as well as in the biotech sector. During the period we topped off our
energy exploration and production holdings in time to ride the gusher of higher
oil and gas prices. Our long-held, significant weighting in REITs finally paid
off in 2000.
Poor performing sectors in the index included consumer discretionary, which
declined 17%, utilities, which fell almost 10%, and financials, which slipped
more than 5%. Consumer discretionary stocks were spooked by fears of a
Fed-engineered economic slowdown, and the rate hikes hurt financial and utility
shares. Fortunately, we were significantly underweighted in both utilities and
financials, and good stock selection helped us in the consumer discretionary and
financial sectors.
Advisor Share Class Created
--------------------------------------------------------------------------------
T. Rowe Price has introduced a new class of shares for certain funds, including
this one. The new Advisor Class shares will be sold exclusively by financial
intermediaries, such as brokers and financial advisers, and will enhance our
ability to reach a new group of investors through this expanding channel. Since
the new share class has a modest 12b-1 fee (a distribution fee paid to the sales
intermediary), its performance will likely vary somewhat from your fund shares
even though both invest in the same portfolio.
We want to emphasize that the new class will have no impact whatsoever on your
investment in the fund or on the returns provided to you by the fund. The daily
net asset value and expenses for the existing shares and the Advisor Class
shares are calculated separately. In due course, you will see the Advisor Class
share prices listed in newspapers and other print and electronic media. Certain
expenses associated with the Advisor Class shares will be itemized in financial
statements in your fund's shareholder reports.
Stock selection drove about two-thirds of our performance advantage over the
Russell 2000. Big winners included Inhale Therapeutics, Technitrol, and SCP
Pool. Inhale Therapeutics rose 138% in the first half, adding almost $20 million
to the fund's net asset value (NAV). This promising biotech firm with a unique
pulmonary drug delivery system captured investors' fancy as they began to focus
on its inhaleable diabetes drug currently under development with Pfizer.
Technitrol rose 118% as Wall Street discovered its strong position in networking
and telecom equipment components, and added $18.7 million to the fund. SCP Pool
is a swimming pool supplies distributor with a deep management team led by Manny
Perez, a seasoned executive well known to us. The stock rose 35% in the first
half, adding $14 million to the fund. SCP Pool has strong fundamentals and is
posting record earnings under Mr. Perez's stewardship. These three stocks
combined added about $53 million to NAV.
We also benefited from strong stock selection in the materials sector. For
example, Trex, a manufacturer of synthetic wood for decking that we purchased at
its initial public offering last year, rose over 86% in the first half on great
results. In technology, our holdings were well diversified, and we made
opportunistic purchases of attractive stocks during the spring correction. This
enabled us to keep up with the rising tide late in the half as market strength
spread beyond last year's favored Internet sector. Stock selection was also
strong in the biotech sector, driven by the excellent fundamental work of our
team member Dr. Kris Jenner, and added greatly to performance.
Sectors Diversification
---------------------------------------------------------------------------
Business Services and Transportation 22
Consumer Services, Cyclicals, and Education 19
Consumer Nondurables 15
Technology 13
Financial 9
Energy and Utilities 8
Capital Equipment, Process Industries, and Basic Materials 6
Reserves 8
Based on net assets as of 6/30/00.
Weaker portfolio holdings in many cases did not suffer from poor fundamentals
but succumbed to gravity after spectacular runs in 1999. Our biggest loser,
Progress Software, which nearly doubled in the fourth quarter, fell back to
earth in the first half as declining European currencies slowed its revenue
growth. Despite a weaker-than-expected top line, Progress Software met earnings
estimates cleanly and we continue to commit to the stock. Progress stock fell
35% in the half, costing the fund $15 million. Iron Mountain declined 13.5% as
investors showed caution following a merger with its largest competitor, Pierce
Leahy. Finally, we suffered a disappointing $12 million loss in insurance broker
E.W. Blanch after the firm badly missed first quarter earnings estimates. We
eliminated the shares.
PORTFOLIO HIGHLIGHTS
Major purchases in the first half included Neiman Marcus Group, Keynote Systems,
and Harsco. We also significantly increased our energy holdings, beginning late
in the first quarter.
Neiman Marcus-well positioned as the dominant high-end retailer with two
principal department stores, Neiman Marcus and Bergdorf Goodman-was the largest
purchase during the period. Excellent same-store sales growth and a
well-thought-out expansion strategy have led to solid double digit earnings
growth. We find the stock very attractive at 9.4 times next year's earnings.
Some investors are concerned that Neiman Marcus' wealthy customer base could be
hurt by a declining stock market. Historically this hasn't been the case, so we
are comfortable owning the shares.
Keynote Systems provides Web site performance measurement services to more than
1,000 customers in the U.S. The company evaluates the quality of service a
consumer receives from the Web site, which is valuable information for the
managers of that site. Following a 75% drop in the stock, we started purchasing
Keynote Systems in early March. Though the company is small, it is growing more
than 400% annually and expects to become profitable in 2001. Keynote quickly
produced a 93% gain for the fund.
Harsco is a small-cap conglomerate that provides industrial services to steel
companies and also manufactures propane tanks, rail equipment, and bridge
decking. The company is recovering along with the steel industry from price
weakness created by a large inflow of cheap imported steel in 1998-99. Harsco is
also benefiting from increased federal spending on transportation projects and
from a large backlog of necessary railroad infrastructure upgrades around the
world. We were able to buy this high-quality company at a low price/earnings
(P/E) ratio of 10. Earnings growth is expected to be 15% this year, and a
recently closed acquisition could boost growth expectations for the next fiscal
year.
We added to our positions in the energy industry to take advantage of rising
commodity prices and improving fundamentals. Two of our new holdings, oil and
gas exploration and production companies Barrett Resources and Noble Affiliates,
gained 16% and 29% for the fund, respectively. Late in the second quarter we
invested in Cross Timbers Oil, another exploration and production company
with-despite its name-a focus on natural gas in Texas and Oklahoma. We purchased
Cross Timbers at under six times cash flow, a sizable discount to its peers.
Companies with exposure to natural gas are performing well due to positive
long-term forecasts for supply-and-demand and gas prices.
On the sell side, we significantly reduced positions in Technitrol and Applied
Micro Circuits, and eliminated U.S. Foodservice. The latter was acquired by
Royal Ahold for $26 per share in April. Other stocks sold due to acquisition
were Wilmar Industries, bought by its management for $18.25 a share, and
Coinmach Laundry, to be acquired by its management team for $14.25 per share.
Applied Micro Circuits and Technitrol are examples of technology stocks with
outstanding performance that we trimmed as they met or exceeded our valuation
targets. We also reduced Trex-the maker of decking boards from recycled
plastics-which rose 31% in the second quarter alone.
OUTLOOK
The first half of 2000 was accompanied by record market volatility and
aggressive, seemingly hourly rotation into and out of hot sectors like
technology, biotech, and telecom. Keith Mullins, the well-respected small-cap
strategist at Salomon Smith Barney, recently wrote that year-to-date through
late June, the Nasdaq Composite had posted 13 single-day moves of 5% or more. No
wonder our antacid consumption reached record highs in recent months. However,
volatility provides opportunity. As the market's enthusiasm for the latest hot
sectors waxes and wanes rapidly, we find opportunities to nimbly acquire
excellent companies at bargain prices.
To illustrate the market's skittishness, consider the case of Keynote Systems, a
recent purchase as discussed earlier. Keynote is a well-managed software company
in the hot area of e-commerce. Studies show that if a Web surfer experiences
even a minor delay in site performance, he'll move elsewhere quickly, taking his
business with him. Investors bid Keynote up to a high of $177 early in March
only to cut it down as low as $26.50 in April. We picked up shares in the $30s
at that time, and by the end of the first half the stock traded at $65. Fickle
investors give patient investors great opportunities, but the ride can be rough.
Despite the recent strong performance of small-cap shares, the valuations remain
very attractive compared with large-caps, and we continue to see excellent
long-term value in the sector. These valuations should drive continued
outperformance. Positive earnings surprises could also serve as a catalyst for
the sector. After the past year of robust large-cap earnings growth, investors
now expect large-cap earnings to continue growing at nearly the same rate as
small-cap earnings-a historically unsustainable feat. Merrill Lynch's small-cap
strategist recently published an interesting chart, reproduced here, that
illustrates relative earnings expectations for large-caps versus small-caps. A
rising line indicates investors expect great small-cap earnings. Conversely, a
falling line indicates investors are expecting relatively stronger large-cap
earnings. This chart shows that small-cap earnings growth expectations are at a
record low. Therefore, we have reason to believe that the likelihood of positive
earnings surprises going forward is much greater with small-caps than with large
companies.
Small-Cap Expectations
--------------------------------------------------------------------------------
1984 1.44
1.47
1986 1.47
1.50
1988 1.41
1.44
1990 1.40
1.32
1992 1.33
1.50
1994 1.46
1.50
1.51
1.39
1.41
6/95 1.42
1.40
1.46
1.48
6/96 1.48
1.49
1.53
1.48
6/97 1.46
1.44
1.47
1.42
6/98 1.41
1.39
1.39
1.28
6/99 1.27
1.29
1.41
1.17
6/00 1.14
Source: Merrill Lynch Small Cap Research, I/B/E/S
Chart shows projected five-year earnings per share (EPS) growth for
small-capitalization stocks divided by projected five-year EPS growth for
large-cap stocks at various dates over the past 16 years. The ratio's current
very low level may indicate that investors are overly optimistic about large-cap
earnings growth and unduly pessimistic about small-caps' future growth
potential.
As the market comes back to fundamentals, we expect that our small-cap research
team here at T. Rowe Price can continue to produce the strong relative
performance witnessed in the first half. We believe our blend of growth and
value strategies will continue to serve us well in the future as over the past
nearly eight years. Thank you for your continued support.
Respectfully submitted,
Greg A. McCrickard
President and Chairman of the Investment Advisory Committee
July 17, 2000
T. Rowe Price Small-Cap Stock Fund
Portfolio Highlights
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/00
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Burr Brown 1.7%
Littelfuse 1.6
Technitrol 1.4
Inhale Therapeutic Systems 1.4
Downey Financial 1.4
----------------------------------------------------------------------------
Keynote Systems 1.4
Matthews International 1.3
Cleco 1.2
Methode Electronics 1.2
Mentor 1.2
----------------------------------------------------------------------------
Brown and Brown 1.1
Progress Software 1.1
A.O. Smith 1.1
Chittenden 1.1
Parkway Properties 1.0
----------------------------------------------------------------------------
SCP Pool 1.0
Noble Affiliates 1.0
Southwest Bancorp 1.0
Insituform Technologies 0.9
Arch Chemicals 0.9
----------------------------------------------------------------------------
Barrett Resources 0.9
F.Y.I 0.9
International Multifoods 0.9
Neiman Marcus Group 0.9
Emmis Broadcasting 0.9
----------------------------------------------------------------------------
Total 28.5%
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 6/30/00
Ten Largest Purchases
--------------------------------------------------------------------------------
Barrett Resources*
Noble Affiliates*
Neiman Marcus Group*
Lincare*
Keynote Systems*
Harsco*
WestAmerica
Southwest Bancorp
Cross Timbers Oil*
Papa John's International*
Ten Largest Sales
--------------------------------------------------------------------------------
Shorewood Packaging**
Technitrol
Applied Micro Circuits
U.S. Foodservice**
Inhale Therapeutic Systems
Trex
CORT Business Services**
UST**
Medical Assurance**
Methode Electronics
* 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 benchmarks, which may include
a broad-based market index and a peer group average or index. Market
indexes do not include expenses, which are deducted from fund returns as
well as mutual fund averages and indexes.
Small-Cap Stock Fund
---------------------------------------------------------------------------
As of 6/30/00
Russell 2000 Small-Cap
Index Stock Fund
9/30/90 10,000 10,000
6/91 10,133 9,691
6/92 11,606 10,955
6/93 14,624 13,499
6/94 15,259 14,473
6/95 18,328 17,290
6/96 22,706 22,984
6/97 26,413 27,224
6/98 30,773 32,911
6/99 31,235 31,766
6/00 35,709 38,806
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 6/30/00 1 Year 3 Years 5 Years 10 Years
Small-Cap Stock Fund 22.16% 12.54% 17.55% 14.52%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
T. Rowe Price Small-Cap Stock Fund
Unaudited
Financial Highlights For a share outstanding throughout each period
--------------------------------------------------------------------------------
Small-Cap Stock shares
6 Months Year
Ended Ended
6/30/00 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
NET ASSET VALUE
Beginning of period $ 22.80 $ 20.79 $ 22.20 $ 18.07 $ 16.32 $ 13.80
Investment activities
Net investment
income (loss) 0.07 0.09 0.08 0.05 0.09 0.12
Net realized and
unrealized gain
(loss) 2.52 2.89 (0.89) 5.13 3.33 4.53
Total from
investment
activities 2.59 2.98 (0.81) 5.18 3.42 4.65
Distributions
Net investment
income -- (0.08) (0.10) (0.04) (0.09) (0.12)
Net realized gain -- (0.89) (0.50) (1.01) (1.58) (2.01)
Total distributions -- (0.97) (0.60) (1.05) (1.67) (2.13)
NET ASSET VALUE
End of period $ 25.39 $ 22.80 $ 20.79 $ 22.20 $ 18.07 $ 16.32
----------------------------------------------------------
Ratios/Supplemental Data
Total
return (diamond) 11.36% 14.66% (3.46)% 28.81% 21.05% 33.85%
Ratio of total
expenses to average
net assets 0.95%! 0.96% 1.01% 1.02% 1.07% 1.11%
Ratio of net
investment income
(loss) to average
net assets 0.57%! 0.47% 0.46% 0.33% 0.56% 0.74%
Portfolio
turnover rate 39.6%! 42.3% 25.9% 22.9% 31.1% 57.8%
Net assets,
end of period
(in millions) $ 2,046 $ 1,740 $ 1,153 $ 816 $ 416 $ 279
(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
Financial Highlights For a share outstanding throughout each period
--------------------------------------------------------------------------------
Small-Cap Stock Advisor Class shares
3/31/00
Through
6/30/00
NET ASSET VALUE
Beginning of period $24.93
Investment activities
Net investment income (loss) 0.01*
Net realized and
unrealized gain (loss) 0.46
Total from
investment activities 0.47
NET ASSET VALUE
End of period $25.40
------
Ratios/Supplemental Data
Total return(diamond) 1.89%
Ratio of total expenses
to average net assets 0.81%!
Ratio of net investment
income (loss) to average
net assets 1.20%!
Portfolio turnover rate 39.6%!
Net assets, end of period
(in thousands) $695
(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, 2000
Portfolio of Investments Shares/Par Value
--------------------------------------------------------------------------------
In thousands
Common Stocks 92.1%
FINANCIAL 9.3%
Bank and Trust 5.8%
Charter One Financial 238,140 $ 5,477
Chittenden 900,000 21,994
Citizens Banking 595,000 9,669
Downey Financial 970,000 28,130
First Bell Bancorp 100,000 1,513
First Mariner Bancorp 47,500 270
First Security 168,750 2,294
Frankfort First Bancorp ! 75,000 923
Glacier Bancorp ! 520,190 6,811
Marshall & Ilsley 30,000 1,245
Southwest Bancorporation * 962,300 20,028
Summit Bancorp 214,800 5,289
WestAmerica 543,100 14,206
117,849
Insurance 3.0%
Brown and Brown 447,700 23,280
Harleysville Group 218,100 3,626
London Pacific Group ADR 660,000 8,580
PartnerRe Holdings 483,200 17,123
Selective Insurance 155,000 2,921
W. R. Berkley 298,100 5,580
61,110
Financial Services 0.5%
Delta Financial * 300,000 488
Financial Federal * 350,000 6,081
ITLA Capital * 279,900 3,936
10,505
Total Financial 189,464
UTILITIES 2.3%
Electric Utilities 1.3%
Cleco 760,000 $ 25,460
Unisource Energy 100,000 1,500
26,960
Water Utilities 0.2%
United Water Resources 110,600 3,857
3,857
Telephone 0.8%
Rural Cellular (Class A) * 112,800 8,640
Western Wireless * 155,000 8,443
17,083
Total Utilities 47,900
CONSUMER NONDURABLES 14.7%
Food Processing 1.5%
American Italian Pasta (Class A) * 334,100 6,912
International Multifoods ! 1,050,000 18,178
Makepeace * 164 1,558
Seneca Foods (Class A) * 174,900 2,044
Seneca Foods (Class B) * 74,700 892
29,584
Hospital Supplies/Hospital Management 4.0%
Airgas * 714,000 4,061
Cephalon * 178,100 10,831
Lincare * 550,000 13,527
Mentor 881,700 23,944
Molecular Devices * 150,000 10,373
Quorum Health Group* 123,800 1,280
Renal Care Group * 574,250 14,051
Steris * 525,600 4,665
82,732
Pharmaceuticals 1.6%
Aurora Biosciences * 161,000 10,943
Boron Lepore & Associates * 112,000 1,029
Imclone Systems * 30,000 2,294
Immunomedics * 30,000 729
Incyte Genomics * 60,000 $ 4,930
Noven Pharmaceuticals * 100,000 3,006
NPS Pharmaceuticals * 196,500 5,281
Triangle Pharmaceuticals * 550,000 5,053
33,265
Biotechnology 3.5%
Abegenix * 42,400 5,081
Alkermes * 220,000 10,361
Anesta * 185,000 4,596
COR Therapeutics * 115,000 9,807
Cubist Pharmaceuticals * 70,000 3,450
Gilead Sciences * 30,000 2,135
Inhale Therapeutic Systems * 280,000 28,411
Neurocrine Biosciences * 106,300 3,764
Serologicals * 420,000 2,113
Viropharma * 75,000 1,176
70,894
Health Care Services 0.8%
AmeriPath * 675,000 5,906
Orthodontic Centers of America * 300,000 6,788
Packard BioScience * 270,800 4,595
17,289
Miscellaneous Consumer Products 3.1%
Cone Mills * 774,400 4,792
Culp 275,300 1,411
Dan River * ! 1,010,000 4,797
Polymer Group 353,700 3,272
Quicksilver * 263,000 4,093
Reebok * 289,500 4,614
Sola * 1,009,200 4,920
Stride Rite 900,000 5,512
Unifi * 582,700 7,211
US Can * ! 1,035,000 17,983
WestPoint Stevens 350,000 3,894
62,499
Cosmetics 0.2%
Chattem * 342,400 4,697
4,697
Total Consumer Nondurables 300,960
CONSUMER SERVICES 8.6%
Restaurants 1.5%
Applebee's 137,000 $ 4,157
Buca * ! 795,000 12,422
PJ America * ! 290,600 2,869
Ruby Tuesday 629,400 7,907
Uno Restaurant 400,000 4,275
31,630
General Merchandisers 2.3%
Bon-Ton Stores * ! 740,700 1,690
Casey's General Stores 1,656,100 17,234
Columbia Sportswear * 400,000 10,725
Neiman Marcus Group * 600,000 18,112
47,761
Specialty Merchandisers 1.4%
CompuCom Systems * 1,261,200 2,109
O'Charley's * ! 785,700 10,681
PurchasePro.com * 169,800 6,967
Urban Outfitters * 440,000 3,891
Wild Oats Markets * 350,000 4,375
28,023
Entertainment and Leisure 0.9%
Houghton Mifflin 62,400 2,913
Papa John's * 400,000 9,813
Sonic * 207,000 6,087
18,813
Media and Communications 2.5%
American Tower Systems (Class A) * 60,000 2,501
Classic Communications * 293,000 2,646
Emmis Broadcasting (Class A) * 435,800 18,045
Pegasus Communications * 178,800 8,756
Sinclair Broadcast Group (Class A) * 1,086,400 11,916
Young Broadcasting (Class A) * 259,400 6,639
50,503
Total Consumer Services 176,730
CONSUMER CYCLICALS 10.1%
Automobiles and Related 3.4%
A.O. Smith (Class B) 1,055,000 $ 22,089
Adrian Steel ! 13,000 4,810
Keystone Automotive * 259,100 1,806
Littelfuse * 680,000 33,617
Strattec Security * 199,600 6,587
68,909
Building and Real Estate 4.9%
Apartment Investment & Management, REIT 149,400 6,462
Arden Realty, REIT 610,000 14,335
EastGroup Properties, REIT 758,500 15,976
First Washington Realty Trust, REIT 325,000 7,170
Glenborough Realty Trust, REIT 500,000 8,719
JP Realty, REIT 565,300 10,069
Parkway Properties, REIT ! 702,700 21,432
Reckson Associates Realty (Class B), REIT 228,150 5,804
Woodhead Industries ! 600,000 10,950
100,917
Miscellaneous Consumer Durables 1.8%
CompX (Class A) ! 485,000 9,852
Harman International 290,000 17,690
Intranet Solutions * 255,200 9,801
37,343
Total Consumer Cyclicals 207,169
TECHNOLOGY 13.3%
Electronic Components 6.5%
American Superconductor * 167,400 8,072
Analogic 419,600 16,640
Benchmark Electronics * 429,200 15,693
Burr Brown * 412,500 35,759
Exar * 150,000 13,092
Manufacturers Services Limited * 236,800 4,869
Methode Electronics (Class A) 644,400 24,910
QuickLogic * 177,000 3,977
SIPEX * 350,000 9,701
132,713
Electronic Systems 1.4%
Applied Micro Circuits * 60,000 $ 5,925
Armor Holdings * 1,000,000 13,000
Lifeline Systems * ! 350,000 4,900
Lo-Jack * 631,100 4,398
28,223
Telecommunications 1.7%
Aether Systems * 12,400 2,542
Airgate PCS * 80,300 4,223
Airnet Commerce * 23,000 602
Avant * 274,500 5,130
Ditech Communications * 120,000 11,370
Vyyo* 97,400 2,633
West TeleServices * 299,800 7,598
34,098
Aerospace and Defense 0.8%
DONCASTERS ADR * 100,000 1,088
Harsco 442,600 11,286
Woodward Governor 160,000 4,465
16,839
Information Processing 1.3%
Cybersource * 85,700 1,186
F. Y. I. * 541,000 18,191
Source Information Management * 415,200 6,319
25,696
Specialized Computer 0.2%
Virata * 80,100 4,786
4,786
Office Automation 1.4%
Technitrol 300,000 29,062
29,062
Total Technology 271,417
CAPITAL EQUIPMENT 1.3%
Electrical Equipment 0.8%
hi/fn * 205,000 9,103
LSI Industries 455,900 6,924
16,027
Machinery 0.5%
Kennametal 300,000 $ 6,431
NN 350,000 3,544
9,975
Total Capital Equipment 26,002
BUSINESS SERVICES AND
TRANSPORTATION 21.5%
Computer Service and Software 8.2%
724 Solutions * 12,000 524
Actuate * 93,800 5,004
Analysts International 580,000 5,365
Bisys Group * 155,000 9,581
Cambridge Technology Partners * 300,000 2,620
Concord Communications * 180,000 7,374
Digital Impact * 175,800 2,461
Electronic Arts * 50,000 3,648
Great Plains Software * 123,500 2,420
iGATE Capital * 400,000 5,513
Interact Commerce * 215,600 2,540
Jack Henry & Associates 50,000 2,509
Keynote Systems * 400,000 27,913
Loislaw * 100,000 838
Net.Genesis * 250,000 4,523
NetIQ * 200,000 11,925
Netsolve * 54,000 1,409
Peerless Systems * 398,000 746
Progress Software * 1,232,500 22,570
PSINet * 382,000 9,586
Quest Software * 58,000 3,219
Sonicwall * 17,400 1,532
SPSS * 260,000 7,556
SunGard Data Systems * 38,400 1,190
Synopsys * 11,200 387
USInternetworking * 250,000 5,102
Verity * 83,500 3,173
Websense * 58,000 1,454
WebTrends * 267,600 $ 10,311
Zebra Technologies (Class A) * 105,700 4,664
167,657
Distribution Services 3.0%
MSC (Class A) * 421,800 8,831
Performance Food Group * 150,000 4,791
Primesource 191,500 979
SCP Pool * ! 882,500 20,629
SunSource * 215,000 1,088
United Stationers * 500,000 16,203
Watsco (Class A) 748,500 9,356
61,877
Environmental 0.6%
CUNO * 378,300 8,760
IT Group * 495,000 2,413
Waterlink * 467,000 1,167
12,340
Transportation Services 2.4%
C.H. Robinson Worldwide 299,900 14,836
Comfort Systems USA * 775,000 3,100
EGL * 330,300 10,136
Expeditors International of Washington 301,300 14,246
Frozen Food Express 3,400 10
Heartland Express * 80,827 1,333
Hub Group (Class A) * 98,000 1,467
International Shipholding 141,562 1,239
Seacor Smit * 59,200 2,290
48,657
Miscellaneous Business Services 6.8%
AnswerThink * 256,800 4,237
Consolidated Graphics * 176,900 1,658
Electro Rent * 592,000 7,030
G&K Services 275,400 6,894
Herman Miller 150,000 3,877
Insituform Technologies (Class A) * 700,300 19,149
Iron Mountain * 492,150 16,733
Ivex Packaging * 849,900 9,455
kforce.com * 403,868 2,789
Maximus * 712,000 $ 15,753
McGrath RentCorp 304,000 5,073
MPW Industrial Services Group * ! 575,000 4,420
New England Business Service ! 871,000 14,154
Strayer Education 391,400 9,357
Tetra Tech * 704,750 16,143
Visual Networks * 103,300 2,941
139,663
Airlines 0.5%
Midwest Express Holdings * 464,500 9,987
9,987
Total Business Services and Transportation 440,181
ENERGY 5.7%
Energy Services 1.1%
Cooper Cameron * 93,100 6,145
Grant Prideco * 137,850 3,446
Smith International * 100,000 7,281
Weatherford International * 137,850 5,488
22,360
Exploration and Production 4.6%
Barrett Resources * 604,000 18,384
Chieftain International * 600,000 11,438
Cross Timbers Oil 500,000 11,063
Forest Oil * 672,500 10,718
Key Energy * 1,100,000 10,588
National Oilwell * 331,300 10,891
Noble Affiliates 550,000 20,487
93,569
Total Energy 115,929
PROCESS INDUSTRIES 2.9%
Specialty Chemicals 0.2%
A. Schulman 202,900 2,441
Hauser * 90,000 152
MacDermid 100,000 2,350
4,943
Paper and Paper Products 0.4%
Buckeye Technologies * 300,000 $ 6,581
Smurfit-Stone Container * 200,000 2,569
9,150
Building and Construction 0.9%
Layne Christensen * 360,000 1,665
Simpson Manufacturing * 137,300 6,565
Trex * 62,100 3,105
U.S. Aggregates 385,300 6,983
18,318
Diversified Chemicals 1.4%
Arch Chemicals 854,300 18,688
Cabot Microelectronics * 195,000 8,958
27,646
Total Process Industries 60,057
BASIC MATERIALS 2.2%
Metals 1.8%
Gibraltar Steel 198,800 2,839
Material Sciences * 725,300 7,253
Matthews International (Class A) ! 908,000 26,446
36,538
Mining 0.4%
Battle Mountain Gold * 2,285,700 5,000
Coal Creek ! 9,295 706
Lihir Gold * 8,355,900 3,298
9,004
Total Basic Materials 45,542
EDUCATION 0.2%
Education 0.2%
ITT Educational Service * 200,000 3,513
Total Education 3,513
Total Common Stocks (Cost $1,578,430) 1,884,864
Convertible Bonds 0.1%
Vantive, 4.75%, 9/1/02 $3,000,000 $ 2,520
Total Convertible Bonds (Cost $2,405) 2,520
Short-Term Investments 8.9%
Money Market Funds 8.9%
Reserve Investment Fund, 6.68% # ! 181,960,707 181,961
Total Short-Term Investments (Cost $181,961) 181,961
Total Investments in Securities
101.1% of Net Assets (Cost $1,762,796) $2,069,345
Other Assets Less Liabilities (22,314)
NET ASSETS $2,047,031
----------
# Seven day yield
! Affiliated company
* Non-income producing
ADR American Depository Receipt
REIT Real Estate Investment Trust
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Small-Cap Stock Fund
--------------------------------------------------------------------------------
Unaudited June 30, 2000
Statement of Assets and Liabilities
--------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value
Affiliated companies (cost $390,807) $ 366,225
Other companies (cost $1,371,989) 1,703,120
Total investments in securities 2,069,345
Other assets 8,771
Total assets 2,078,116
Liabilities
Total liabilities 31,085
NET ASSETS $ 2,047,031
-----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 5,622
Accumulated net realized gain/loss -
net of distributions 182,539
Net unrealized gain (loss) 306,549
Paid-in-capital applicable to 80,634,159 shares of
$0.50 par value capital stock outstanding;
200,000,000 shares authorized 1,552,321
NET ASSETS $ 2,047,031
-----------
NET ASSET VALUE PER SHARE
Small-Cap Stock shares
($2,046,335,999/80,606,805 shares outstanding) $ 25.39
-----------
Small-Cap Stock Advisor Class shares
($694,811/27,354 shares outstanding) $ 25.40
-----------
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
6/30/00
Investment Income (Loss)
Income
Dividend (including $2,028
from affiliated companies) $ 8,542
Interest (including $5,280
from affiliated companies) 5,607
Total income 14,149
Expenses
Investment management 7,179
Shareholder servicing
Small-Cap Stock shares 1,453
Small-Cap Stock Advisor Class shares --
Custody and accounting 95
Prospectus and shareholder reports
Small-Cap Stock shares 64
Small-Cap Stock Advisor Class shares --
Registration 42
Legal and audit 14
Directors 5
Miscellaneous 8
Total expenses 8,860
Expenses paid indirectly (23)
Net expenses 8,837
Net investment income (loss) 5,312
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (including $15,111
from affiliated companies) 108,508
Foreign currency transactions 2
Net realized gain (loss) 108,510
Change in net unrealized gain or loss on securities
(including ($14,749) from affiliated companies) 90,794
Net realized and unrealized gain (loss) 199,304
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 204,616
-----------
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
6/30/00 12/31/99
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 5,312 $ 6,337
Net realized gain (loss) 108,510 131,905
Change in net unrealized
gain or loss 90,794 77,185
Increase (decrease) in net
assets from operations 204,616 215,427
Distributions to shareholders
Net investment income
Small-Cap Stock shares -- (5,845)
Net realized gain
Small-Cap Stock shares -- (65,022)
Decrease in net assets
from distributions -- (70,867)
Capital share transactions *
Shares sold
Small-Cap Stock shares 445,392 918,700
Small-Cap Stock Advisor
Class shares 683 --
Increase in net assets
from shares sold 446,075 918,700
Distributions reinvested
Small-Cap Stock shares -- 66,463
Shares redeemed
Small-Cap Stock shares (343,986) (541,991)
Increase (decrease) in net assets
from capital share transactions 102,089 443,172
Net Assets
Increase (decrease) during period 306,705 587,732
Beginning of period 1,740,326 1,152,594
End of period $2,047,031 $1,740,326
---------- ----------
*Share information
Shares sold
Small-Cap Stock shares 18,596 44,046
Small-Cap Stock Advisor Class shares 27 --
Distributions reinvested
Small-Cap Stock shares -- 3,120
Shares redeemed
Small-Cap Stock shares (14,308) (26,285)
Increase (decrease) in shares outstanding 4,315 20,881
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Small-Cap Stock Fund
--------------------------------------------------------------------------------
Unaudited June 30, 2000
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. The fund seeks long-term capital growth by investing
primarily in stocks and equity-related securities of small to medium-sized
companies. The fund has two classes of shares-Small-Cap Stock, offered
since June 1, 1956, and Small-Cap Stock Advisor Class, first offered on
March 31, 2000. Small-Cap Stock Advisor Class sells its shares only through
financial intermediaries, which it compensates for distribution and certain
administrative services under a Board-approved Rule 12b-1 plan. Each class
has exclusive voting rights on matters related solely to that class,
separate voting rights on matters that relate to both classes, and, in all
other respects, the same rights and obligations as the other class. 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.
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 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.
Premiums and Discounts Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
Class Accounting The Small-Cap Stock Advisor Class pays distribution and
administrative expenses, in the form of Rule 12b-1 fees, in an amount not
exceeding 0.25% of the class's average net assets. Shareholder servicing,
prospectus, and shareholder report expenses are charged directly to the
class to which they relate. Expenses common to both classes, investment
income, and realized and unrealized gains and losses are allocated to the
classes based upon the relative daily net assets of each class. Income
distributions are declared and paid by each class on an annual basis.
Capital gain distributions are declared and paid by the fund on an annual
basis.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Dividend income and
distributions to shareholders are recorded by the fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with federal income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles. Expenses paid
indirectly reflect credits earned on daily uninvested cash balances at the
custodian and are used to reduce the fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $418,652,000 and $340,566,000, respectively, for the
six months ended June 30, 2000.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
At June 30, 2000, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$1,762,796,000. Net unrealized gain aggregated $306,549,000 at period-end,
of which $534,359,000 related to appreciated investments and $227,810,000
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 $1,250,000 was payable at June 30, 2000. The fee is computed
daily and paid monthly, and consists of an individual fund fee equal to
0.45% 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 0.295% for assets
in excess of $120 billion. At June 30, 2000, and for the six months then
ended, the effective annual group fee rate was 0.32%. The fund pays a
pro-rata share of the group fee based on the ratio of its net assets to
those of the group.
The manager has agreed to bear any expenses through December 31, 2001,
which would cause Small-Cap Stock Advisor Class's ratio of total expenses
to average net assets to exceed 1.20%. Thereafter, through December 31,
2003, Small-Cap Stock Advisor Class is required to reimburse the manager
for these expenses, provided that its average net assets have grown or
expenses have declined sufficiently to allow reimbursement without causing
its ratio of total expenses to average net assets to exceed 1.20%.
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 $1,066,000 for the six months ended June 30, 2000, of which
$195,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve
Funds are offered as cash management options only to mutual funds and other
accounts managed by T. Rowe Price and its affiliates and are not available
to the public. The Reserve Funds pay no investment management fees.
Distributions from the Reserve Funds to the fund for the six months ended
June 30, 2000, totaled $5,280,000 and are reflected as interest income in
the accompanying Statement of Operations.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site.
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
T. Rowe Price, Invest With Confidence (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F65-051 6/30/00
