-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ix6T+FInH9z6+iNuv9FTsP1A+Pe1NmVFFH54AKCMVtSbRUYJ2u0dvF3i+SGvaFX7 xr06k4vScSLGAl2vIcByDQ== 0000075170-02-000002.txt : 20020414 0000075170-02-000002.hdr.sgml : 20020414 ACCESSION NUMBER: 0000075170-02-000002 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE SMALL CAP STOCK FUND INC CENTRAL INDEX KEY: 0000075170 IRS NUMBER: 231622210 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-00696 FILM NUMBER: 02553423 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT ST STREET 2: C/O T ROWE PRICE ASSOCIATES INC CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 2156432510 MAIL ADDRESS: STREET 1: 100 EAST PRATT STRE STREET 2: NULL CITY: BALTIMORE STATE: MD ZIP: 21202 FORMER COMPANY: FORMER CONFORMED NAME: PRICE T ROWE OTC FUND INC DATE OF NAME CHANGE: 19930210 FORMER COMPANY: FORMER CONFORMED NAME: OVER THE COUNTER SECURITIES FUND INC DATE OF NAME CHANGE: 19890108 FORMER COMPANY: FORMER CONFORMED NAME: OVER THE COUNTER SECURITIES GROUP INC DATE OF NAME CHANGE: 19920703 N-30D 1 arscs.txt T. ROWE PRICE SMALL-CAP STOCK FUND 12/31/01 Annual Report Small-Cap Stock Fund December 31, 2001 T. Rowe Price REPORT HIGHLIGHTS - -------------------------------------------------------------------------------- Small-Cap Stock Fund o Small-cap stocks continued to outperform large-caps in the second half of 2001 despite terrorism, war, and recession. o Your fund gained 1.78% in the last six months, ahead of both benchmarks, and returned a solid 6.81% for the year, outperforming the Russell 2000 Index but slightly trailing the Lipper peer group average. o The industrials and business services, financial, and consumer discretionary sectors were our top contributors, while telecom services, technology, and energy were the largest detractors. o We believe the multiyear cycle of small-cap outperformance that began in 1999 will continue. REPORTS ON THE WEB Sign up for our E-mail Program, and you can begin to receive updated fund reports and prospectuses online rather than through the mail. Log on to your account at www.troweprice.com for more information. Fellow Shareholders Despite a powerful late-year rebound, major market averages fell in 2001, marking the first time since 1973-74 that U.S. stocks had declined for two consecutive years. Yet, in a tragic and momentous year, marred by horrific acts of terror, war, recession, a grinding bear market, and a spectacular corporate collapse, America once again proved resilient and dynamic. The Russell 2000 Index of smaller companies advanced 2.49% for the year but was the only major average to rise. The Standard & Poor's 500 Stock Index dropped 11.89%. Performance Comparison - -------------------------------------------------------------------------------- Periods Ended 12/31/01 6 Months 12 Months - -------------------------------------------------------------------------------- Small-Cap Stock Fund 1.78% 6.81% Small-Cap Stock Fund- Advisor Class 1.70 6.60 Russell 2000 Index -4.09 2.49 Lipper Small-Cap Core Fund Index 0.50 7.13 S&P 500 Stock Index -5.56 -11.89 We are pleased to report that despite all the treacherous crosscurrents in 2001, the Small-Cap Stock Fund returned a solid 6.81%, well ahead of the Russell 2000 and just behind the Lipper index of comparable funds. During the second half, your fund advanced 1.78%, as shown in the table, ahead of both benchmarks. Returns in both periods also exceeded those of the S&P 500, a proxy for large-cap performance. Our stable core of value stocks helped us weather the bear market and benefit shareholders. Results versus the Lipper category reflect our weak start for the year. In January 2001, some of our biggest holdings and top contributors for the previous year, especially in the financial sector, declined as investors booked profits and rotated into other sectors. During the five years ended December 31, 2001, the Small-Cap Stock Fund delivered a strong 77.43% return compared with 43.71% for the Russell benchmark and 62.15% for the Lipper peer group index. The big story within the equity markets last year was the extent to which small-caps outperformed large-caps and value outperformed growth. The Russell 2000 outpaced the large-cap-dominated Russell 1000 by nearly 15 percentage points, the largest margin in the 22-year history of the indices. Similarly, the Russell 2000 Value Index gained 14.02% last year compared with the 9.23% loss of the Russell 2000 Growth Index. In fact, over the past two years, small-cap value stocks have outperformed small-cap growth stocks by a stunning 70 percentage points. (The Russell 2000 Value Index gained 40.05% in the two years ended December 31 compared with the 29.59% decline of the Russell 2000 Growth Index.) Since the majority of your fund has traditionally been invested in small-cap value stocks, the resurgence of value in the midst of the worst bear market in 30 years has aided results tremendously and vindicated our investment approach. YEAR-END DISTRIBUTIONS Your fund's Board of Directors declared a year-end income distribution of $0.10 per share and a capital gain distribution of $0.05, of which $0.04 was short term. These were paid on December 13 to shareholders of record on December 11. You should have already received your check or statement reflecting them as well as our Form 1099-DIV summarizing this information for 2001 tax purposes. INVESTMENT REVIEW The industrials and business services, financial, and consumer discretionary sectors were the top contributors to absolute performance for the six months ended December 31, 2001. Telecommunication services, information technology, and energy were the largest detractors. Performance in relation to the benchmark was aided by strong stock selection in the technology, health care, and financial sectors-that is to say, our holdings in those sectors performed well compared with the Russell 2000 Index components. Our top-contributing technology stock and fourth-largest contributor overall in the second half was Internet Security Systems, which surged 64% from our average purchase price last summer. The company is a leading provider of security management systems, including intrusion detection and vulnerability assessment. The stock benefited from the technology rebound as well as an increased focus on security in the wake of the terrorist attacks. Our traditional underweighting of the technology sector, an outgrowth of our valuation discipline, also aided relative performance. Fortunately, no sector detracted significantly from results. Our worst-performing sectors in relation to the benchmark were consumer discretionary, where our holdings underperformed those of the index, and consumer staples, where we were underweight compared with the index. Sector Diversification - -------------------------------------------------------------------------------- Consumer 17 Energy and Utilities 7 Industrials, Business Services, and Materials 22 Financials 19 Health Care 11 Information Technology 15 Reserves and Other 9 Insurance brokerage and agency Brown and Brown was our top individual contributor in the second half. The company will continue to benefit from rising property and casualty insurance premiums in the post-September 11 environment. As a brokerage, Brown and Brown takes a cut of the premiums but bears none of the underwriting risk. In a world where insurance companies are refusing to insure certain customers and can dictate policy terms, customers need Brown and Brown more than ever. This was not lost on investors and the shares rose more than 30% in the period. We took profits, though Brown and Brown remains a core holding. Another beneficiary of the security theme was Armor Holdings, our second-largest contributor and a stock we have owned since September 1999. Armor Holdings provides corporate security consulting, sells security products such as bulletproof vests and riot gear, and, through a recent acquisition, supplies armor for military vehicles. A sea change has taken place in the security industry, and Armor's prospects have brightened measurably. The shares rose almost 80% in the half. Consumer electronics manufacturer Harman International rose more than 18% for the six months and was our third-largest contributor. Investors finally began to appreciate the opportunity created by the convergence of broadband multimedia devices and the automotive dashboard. Harman has gotten in front of this trend and positioned itself extraordinarily well, though it is best known to consumers as a manufacturer of high-end stereo components and speakers under the brand names Harman Kardon, JBL, and Infinity. A large contract win with Mercedes during the period appears to have validated Harman's strategy and execution. The company's sophisticated infotainment systems are also available in BMW, Audi, and Lexus models. We believe Harman can deliver 20% annual earnings growth in the years ahead as car buyers migrate from ordinary car stereos to far more expensive multimedia systems. Unfortunately, in a year like 2001, there are bound to be losers, and we certainly had our share. The largest detractor from performance was Stratos Lightwave, the optical networking component supplier spun out of Methode Electronics, which fell more than 52% in the second half as the telecom equipment market dried up. Water and sewer pipe rehabilitation contractor Insituform Technologies, which we believe has excellent long-term prospects, fell nearly 30% as it experienced a revenue shortfall in the second half. The stock was our second-largest detractor. Insituform, which pioneered a method to repair aging pipes without digging them out and replacing them, still has a growing backlog of work orders. However, municipalities facing declining tax receipts held back on new contracts. We believe this issue is temporary because Insituform's process helps local governments save money. Our third-largest detractor was Pixelworks, which designs semiconductors for the burgeoning flat panel display market. The company was beaten to the punch in low-end chips by a competitor, causing it to miss revenue and earnings expectations. The stock fell 55% in the second half. We still expect Pixelworks to be a major player in the flat panel market, where the growth opportunity is huge. PORTFOLIO HIGHLIGHTS Our largest purchases in the second half were Belden, Horace Mann Educators, Central Parking, and Plexus. We discussed Horace Mann, a marketer of insurance products to educators and school system employees, in our June letter and we continued to accumulate shares. Belden manufactures wire, cable, and fiber-optic products, focusing on high-performance copper cables for use inside buildings for networks, telephone, and Internet connections. Management is impressive and the company is gaining market share despite a difficult environment. We may have to wait for a recovery in the communications market for Belden shares to appreciate significantly, but the company is taking the right steps. While competitors experience financial difficulties, Belden's strong balance sheet and healthy cash flow will help it weather the industry downturn. Central Parking is the nation's largest operator of parking garages. The combination of merger indigestion and a slowing economy brought the shares down to a level we found very attractive-about 10 times potential earnings in a recovery. Plexus is a contract manufacturer for the electronics industry. Thissector has excellent long-term growth prospects as technology firms continue to outsource their manufacturing. We consider Plexus the best-positioned small-cap company in its industry, and executives at larger contract manufacturers agree. The firm has strong management and attractive, diversified lines of business, including telecommunications, medical, industrial, and computing equipment. The decline in technology stocks gave us an opportunity to purchase the stock. Largest sales Our top three sales were Houghton Mifflin, Brown and Brown, and Mentor. Publisher Houghton Mifflin was acquired by French media conglomerate Vivendi. We sold Mentor, a maker of medical implants, after a strong recovery in the stock and deployed proceeds to more attractive ideas. OUTLOOK The outlook for small-cap stocks remains bright. Over the long term, small-caps tend to deliver greater returns than large-caps, though with greater volatility. Cycles of small-cap outperformance and underperformance tend to last years, and we think a new cycle of small-cap outperformance began in mid-1999 and still has years to run. Growth vs. Value - -------------------------------------------------------------------------------- Periods Ended 12/31/01 6 Months 12 Months - -------------------------------------------------------------------------------- Russell 2000 Growth Index -9.26% -9.23% Russell 2000 Value Index 1.15 14.02 One factor in our favor in 2002 is that small-cap shares tend to lead the market out of a recession. Given their domestic focus, they tend to do well as the U.S. market anticipates an economic recovery. Further, small-cap valuations usually get compressed on the way into recessions, so the subsequent snapback in price/earnings multiples can be powerful. Small-caps typically bounce back about midway through a recession. Thus, if we are having a garden-variety economic downturn, with a typical duration of 11 months, our market low might easily have been made in late September. Finally, valuations and earnings growth trends remain favorable for small-caps. While small-cap value stocks performed best in 2001, we anticipate that small-cap growth stocks will outperform as the economy gradually recovers. It has been gratifying to see small-caps perform well in a difficult market. In general, the sector falls hardest during times of greater uncertainty, but small-caps had their own mini-bear market in the late 1990s and have been supported over the last two years by low valuations. Small-cap investors who stayed the course through 1997 and 1998 are now enjoying the rewards. We remain confident that our approach to small-cap investing-a blend of both growth and value-will continue to serve us well in volatile markets. Rest assured we will strive to continue our record of beating the Russell 2000 Index with less volatility and risk. Thank you for your continued support, and have a happy and healthy 2002. Respectfully submitted, Greg A. McCrickard President of the fund and chairman of its Investment Advisory Committee January 23, 2002 The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the fund's investment program. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Portfolio Highlights - -------------------------------------------------------------------------------- TWENTY-FIVE LARGEST HOLDINGS Percent of Net Assets 12/31/01 Harman International 2.1% Cleco 1.5 Chittenden 1.4 Matthews International 1.4 WestAmerica 1.2 - -------------------------------------------------------------------------------- Horace Mann Educators 1.2 Brown and Brown 1.2 Casey's General Stores 1.1 SCP Pool 1.1 PartnerRe 1.1 - -------------------------------------------------------------------------------- Citizens Banking 1.1 Belden 1.1 Valley National Bancorp 1.1 Maximus 1.0 Iron Mountain 1.0 - -------------------------------------------------------------------------------- W. R. Berkley 0.9 BISYS 0.8 Harsco 0.8 XTO Energy 0.8 Littelfuse 0.8 - -------------------------------------------------------------------------------- Cephalon 0.8 United Stationers 0.8 Southwest Bancorp 0.8 Black Box 0.8 Noble Affiliates 0.8 - -------------------------------------------------------------------------------- Total 26.7% 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 12/31/01 Ten Largest Purchases - -------------------------------------------------------------------------------- Belden Horace Mann Educators Central Parking* Plexus* MatrixOne* Henry Schein* Brunswick* Linens 'n Things* Internet Security Systems* Factset Research Systems* Ten Largest Sales - -------------------------------------------------------------------------------- Houghton Mifflin** Brown and Brown Mentor Downey Financial Chieftain International** Strayer Education** Armor Holdings Lincare Holdings Charter One Financial** Benchmark 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. Lipper Small-Cap Russell Core Small-Cap 2000 Fund Stock Index Index Fund 12/31/91 10,000 10,000 10,000 12/31/92 11,841 11,503 11,391 12/31/93 14,076 13,014 13,487 12/31/94 13,820 13,035 13,498 12/31/95 17,752 17,042 18,067 12/31/96 20,680 20,230 21,870 12/31/97 25,304 24,728 28,171 12/31/98 24,660 23,829 27,198 12/31/99 29,902 28,636 31,186 12/31/00 28,999 30,622 36,329 12/31/01 29,719 32,804 38,804 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 Since Inception 12/31/01 1 Year 5 Years 10 Years Inception Date Small-Cap Stock Fund 6.81% 12.15% 14.52% -- -- Small-Cap Stock Fund- Advisor Class 6.60 -- -- 7.67% 3/31/00 Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Financial Highlights For a share outstanding throughout each period - -------------------------------------------------------------------------------- Small-Cap Stock shares Year Ended 12/31/01 12/31/00 12/31/99 12/31/98 12/31/97 NET ASSET VALUE Beginning of period $ 23.87 $ 22.80 $ 20.79 $ 22.20 $ 18.07 Investment activities Net investment income (loss) 0.10 0.15 0.09 0.08 0.05 Net realized and unrealized gain (loss) 1.52 3.52 2.89 (0.89) 5.13 Total from investment activities 1.62 3.67 2.98 (0.81) 5.18 Distributions Net investment income (0.10) (0.14) (0.08) (0.10) (0.04) Net realized gain (0.05) (2.46) (0.89) (0.50) (1.01) Total distributions (0.15) (2.60) (0.97) (0.60) (1.05) NET ASSET VALUE End of period $ 25.34 $ 23.87 $ 22.80 $ 20.79 $ 22.20 ----------------------------------------------------------------- Ratios/Supplemental Data Total return (diamond) 6.81% 16.49% 14.66% (3.46)% 28.81% Ratio of total expenses to average net assets 0.98% 0.94% 0.96% 1.01% 1.02% Ratio of net investment income (loss) to average net assets 0.45% 0.63% 0.47% 0.46% 0.33% Portfolio turnover rate 16.5% 32.8% 42.3% 25.9% 22.9% Net assets, end of period (in millions) $ 3,158 $ 2,255 $ 1,740 $ 1,153 $ 816 (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. The accompanying notes are an integral part of these financial statements. Small-Cap Stock Advisor Class shares Year 3/31/00 Ended Through 12/31/01 12/31/00 NET ASSET VALUE Beginning of period $ 23.89 $ 24.93 Investment activities Net investment income (loss) 0.04 0.07 Net realized and unrealized gain (loss) 1.53 1.53 Total from investment activities 1.57 1.60 Distributions Net investment income (0.09) (0.18) Net realized gain (0.05) (2.46) Total distributions (0.14) (2.64) NET ASSET VALUE End of period $ 25.32 $ 23.89 ------------------------------------- Ratios/Supplemental Data Total return(diamond) 6.60% 6.79% Ratio of total expenses to average net assets 1.16% 0.82%! Ratio of net investment income (loss) to average net assets 0.26% 0.85%! Portfolio turnover rate 16.5% 32.8%! Net assets, end of period (in thousands) $ 38,632 $ 7,479 (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 - -------------------------------------------------------------------------------- December 31, 2001 Portfolio of Investments Shares Value - -------------------------------------------------------------------------------- In thousands Common Stocks 91.0% CONSUMER DISCRETIONARY 14.0% Auto Components 0.6% Keystone Automotive* 640,300 $ 10,869 Strattec Security* 190,600 6,794 17,663 Hotels, Restaurants & Leisure 2.8% Applebee's 414,450 14,184 BUCA* 734,300 11,940 CEC Entertainment* 164,300 7,129 O' Charley's*! 1,112,500 20,665 Ruby Tuesday 981,400 20,246 Sonic* 419,000 15,053 89,217 Household Durables 3.5% Harman International 1,473,900 66,473 Matthews International (Class A)! 1,814,600 44,076 110,549 Leisure Equipment & Products 1.7% Brunswick 663,700 14,442 Midway Games* 406,000 6,094 SCP Pool*! 1,288,550 35,377 55,913 Media 1.9% Emmis Communications (Class A)* 594,300 14,016 Entercom Communications* 230,500 11,525 Pegasus Communications (Class A)* 220,200 2,286 Scholastic* 289,800 14,567 Sinclair Broadcast (Class A)* 1,295,700 12,251 Young Broadcasting (Class A)* 380,700 6,908 61,553 Multiline Retail 0.8% Bon-Ton Stores* 16,800 46 Neiman Marcus (Class A)* 720,800 22,395 Stein Mart* 439,100 3,669 26,110 Specialty Retail 1.4% Christopher & Banks* 398,900 $ 13,664 Linens 'n Things* 578,900 14,762 Ultimate Electronics* 222,800 6,602 Urban Outfitters* 469,600 11,296 46,324 Textiles & Apparel 1.3% Columbia Sportswear* 384,450 12,793 Culp* 262,400 997 Dan River (Class A)* 962,400 529 QuikSilver* 368,900 6,345 Reebok* 186,000 4,929 Stride Rite 1,481,800 9,706 Unifi* 753,400 5,462 40,761 Total Consumer Discretionary 448,090 CONSUMER STAPLES 2.8% Food & Drug Retailing 1.4% Casey's General Stores 2,393,800 35,680 Performance Food* 52,100 1,832 Seneca Foods (Class A)* 187,600 2,598 Seneca Foods* 72,000 1,003 Wild Oats Markets* 349,100 3,484 44,597 Food Products 1.1% ADM Cranberry*+ 164 4 American Italian Pasta (Class A)* 204,000 8,574 International Multifoods*! 1,016,200 24,287 Makepeace* 164 765 33,630 Personal Products 0.3% Chattem*! 536,500 10,446 10,446 Total Consumer Staples 88,673 ENERGY 5.0% Energy Equipment & Services 2.7% Atwood Oceanics* 462,000 $ 16,101 Cooper Cameron* 93,300 3,766 FMC Technologies* 54,200 892 Grant Prideco* 131,450 1,512 Hydril* 238,300 4,219 Key Energy Services* 768,100 7,066 Lone Star Technologies* 260,700 4,588 National Oilwell* 330,700 6,816 Seacor Smit* 539,000 25,010 Smith International* 95,100 5,099 W-H Energy Services* 363,900 6,894 Weatherford* 131,650 4,905 86,868 Oil & Gas 2.3% Forest Oil* 631,100 17,803 Noble Affiliates 709,400 25,035 Ultra Petroleum* 498,500 3,036 XTO Energy 1,545,275 27,042 72,916 Total Energy 159,784 FINANCIALS 18.6% Banks 7.4% Chittenden! 1,623,150 44,799 Citizens Banking 1,055,800 34,704 Downey Financial 388,800 16,038 First Bell Bancorp 95,100 1,325 Frankfort First Bancorp! 71,400 1,255 Glacier Bancorp 515,990 10,758 ITLA Capital*! 367,000 7,795 Provident Bankshares 809,500 19,796 Southwest Bancorp* 858,500 26,034 Valley National Bancorp 1,039,975 34,267 WestAmerica 970,600 38,412 235,183 Diversified Financials 0.2% Alliance Data Systems* 390,200 $ 7,472 7,472 Insurance 5.9% Brown and Brown 1,375,700 37,557 Harleysville 447,100 10,601 Horace Mann Educators 1,799,100 38,177 London Pacific ADR 689,700 2,731 Markel* 96,900 17,408 Ohio Casualty* 777,600 12,465 PartnerRe 643,600 34,754 Selective Insurance 253,400 5,513 W. R. Berkley 546,300 29,336 188,542 Real Estate 5.1% Apartment Investment & Management (Class A), REIT 202,900 9,279 Arden Realty, REIT 729,200 19,324 EastGroup Properties, REIT! 887,600 20,477 Gables Residential Trust, REIT 792,600 23,461 Glenborough Realty Trust, REIT 775,000 15,035 JP Realty, REIT! 834,300 19,848 Lasalle Hotel Properties, REIT 495,400 5,816 Parkway Properties, REIT! 669,700 22,234 Reckson Associates Realty (Class B), REIT 265,900 6,783 Washington, REIT 881,300 21,935 164,192 Total Financials 595,389 HEALTH CARE 11.4% Biotechnology 4.0% Abgenix* 96,000 3,230 Alkermes* 582,000 15,347 Cephalon* 353,517 26,721 COR Therapeutics* 227,500 5,453 Cubist Pharmaceuticals* 132,300 4,741 CV Therapeutics* 104,300 5,426 Deltagen* 260,700 2,392 Exelixis* 90,200 $ 1,487 Gilead Sciences* 67,500 4,437 Incyte Genomics* 171,800 3,339 Neose Technologies* 28,900 1,055 Neurocrine Biosciences* 255,100 13,088 NPS Pharmaceuticals* 264,000 10,115 OSI Pharmaceuticals* 119,500 5,465 Regeneron Pharmaceuticals* 119,700 3,363 Telik* 104,300 1,417 Triangle Pharmaceuticals* 684,800 2,828 Trimeris* 127,700 5,745 Versicor* 271,200 5,520 Vertex Pharmaceuticals* 149,620 3,669 ViroPharma* 163,200 3,745 128,583 Health Care Equipment & Supplies 2.3% Edwards Lifesciences* 559,900 15,470 Inhale Therapeutic Systems* 350,100 6,487 Mentor 17,100 488 Serologicals* 400,900 8,599 Sola* 763,400 14,810 Steris* 607,100 11,092 Wilson Greatbatch Technologies* 485,700 17,534 74,480 Health Care Providers & Services 4.6% AmeriPath* 688,300 22,194 AMN Healthcare Services* 52,100 1,427 Cross Country* 285,800 7,568 Henry Schein* 395,900 14,660 Hooper Holmes 1,442,400 12,909 Lifeline Systems*! 333,600 7,778 Lincare Holdings* 652,700 18,703 Maximus* 783,300 32,946 Orthodontic Centers of America* 299,400 9,132 Renal Care* 391,650 12,572 Unilab* 234,700 5,890 145,779 Pharmaceuticals 0.5% Guilford Pharmaceuticals* 52,100 $ 623 Medicines* 234,700 2,726 Noven Pharmaceuticals* 751,600 13,360 16,709 Total Health Care 365,551 INDUSTRIALS & BUSINESS SERVICES 18.5% Aerospace & Defense 0.8% Armor Holdings* 902,300 24,353 24,353 Air Freight & Couriers 1.9% C.H. Robinson Worldwide 277,400 8,029 EGL* 265,500 3,705 Expeditors International of Washington 366,800 20,891 Forward Air* 499,005 16,884 UTi Worldwide 638,300 12,377 61,886 Airlines 0.3% Frontier Airlines* 159,600 2,714 Midwest Express* 555,600 8,112 10,826 Building Products 1.4% Dal-Tile* 887,200 20,627 Simpson Manufacturing* 244,900 14,033 Trex* 59,500 1,130 Watsco (Class A) 713,800 10,136 45,926 Commercial Services & Supplies 8.5% BISYS* 424,500 27,166 Central Parking 903,100 17,737 CompX (Class A)! 461,800 5,990 Electro Rent* 564,300 7,277 F. Y. I.* 695,900 23,333 Factset Research Systems 384,900 13,452 G&K Services 508,700 16,454 Global Payments 537,800 18,500 Herman Miller 255,100 $ 6,037 Iron Mountain* 750,550 32,874 IT Group* 472,000 14 kforce.com* 95,312 593 Layne Christensen* 343,700 2,739 McGrath RentCorp 289,700 10,875 Modis Professional Services* 1,256,800 8,974 New England Business Service! 911,000 17,446 Spherion* 225,900 2,205 Tetra Tech* 1,182,262 23,562 United Stationers* 783,400 26,479 Waterlink* 445,400 69 West Corporation* 367,008 9,183 270,959 Construction & Engineering 0.6% Insituform Technologies (Class A)* 698,100 17,864 17,864 Electrical Equipment 2.5% A.O. Smith (Class B) 1,006,500 19,627 American Superconductor* 219,000 2,684 Artesyn Technologies* 974,200 9,065 Belden! 1,460,200 34,387 Global Power Equipment* 19,800 298 PECO II* 260,200 1,543 Woodward Governor 211,400 12,369 79,973 Machinery 2.0% Actuant (Class A)* 315,280 10,593 CUNO* 511,000 15,642 Harsco 789,600 27,083 IDEX 151,300 5,220 Reliance Steel & Aluminum 198,100 5,200 63,738 Marine 0.0% International Shipholding 135,062 863 863 Road & Rail 0.2% Heartland Express* 148,008 4,108 Hub (Class A)* 93,000 963 5,071 Trading Companies & Distributors 0.3% MSC Industrial Direct (Class A)* 421,400 $ 8,323 8,323 Total Industrials & Business Services 589,782 INFORMATION TECHNOLOGY 15.3% Communications Equipment 1.4% Black Box* 474,078 25,072 Ditech Communications* 146,300 875 Harmonic* 484,900 5,831 Packeteer* 527,500 3,880 Stratos Lightwave* 733,160 4,512 Tekelec* 286,700 5,201 45,371 Electronic Equipment & Instruments 4.0% Analogic 484,500 18,716 Benchmark Electronics* 154,500 2,929 KEMET* 475,000 8,431 Littelfuse*! 1,020,500 26,783 Lo-Jack* 510,900 2,772 LSI Industries 651,400 11,393 Methode Electronics (Class A) 1,219,700 9,764 Newport 144,600 2,789 Plexus* 583,600 15,503 Technitrol 686,500 18,961 Woodhead Industries! 655,500 10,400 128,441 Internet Software & Services 2.2% Digital Impact* 407,600 593 Internet Security Systems* 648,000 20,788 Keynote Systems* 308,000 2,857 MatrixOne* 1,303,700 16,928 Netegrity* 600,000 11,619 Register.com* 214,900 2,466 Sonicwall* 140,200 2,725 Stellent* 390,600 11,652 69,628 IT Consulting & Services 0.6% Analysts 578,200 $ 2,391 AnswerThink* 299,500 1,957 CACl (Class A)* 219,300 8,665 Renaissance Learning* 204,400 6,226 19,239 Office Electronics 0.2% Zebra Technologies (Class A)* 130,200 7,225 7,225 Semiconductor Equipment & Products 2.9% Applied Micro Circuits* 23,700 268 ATMI* 538,400 12,854 Brooks Automation* 349,200 14,158 Cabot Microelectronics* 288,000 22,821 Exar* 448,000 9,379 hi/fn* 205,200 2,968 MKS Instruments* 629,600 17,025 Pixelworks* 420,500 6,730 QuickLogic* 485,900 2,376 Sipex* 383,800 4,980 93,559 Software 4.0% Activision* 286,500 7,460 Actuate* 545,500 2,888 Concord Communications* 206,300 4,261 Jack Henry & Associates 556,000 12,126 Magma Design Automation* 81,400 2,464 Mercury Interactive* 224,300 7,623 NetIQ* 392,600 13,841 Novell* 190,381 875 Progress Software* 1,316,000 22,912 Quest Software* 374,400 8,276 SPSS* 389,300 6,928 Verisity*+ 208,600 3,979 Verity* 832,200 16,856 Wind River Systems* 870,900 15,594 126,083 Total Information Technology 489,546 MATERIALS 3.2% Chemicals 1.4% Airgas* 1,017,800 $ 15,389 Arch Chemicals 853,100 19,792 Ferro 69,800 1,801 MacDermid 110,000 1,864 Material Sciences* 691,100 6,994 45,840 Construction Materials 0.0% U.S. Aggregates* 84,600 4 4 Containers & Packaging 0.7% Ivex Packaging* 941,100 17,881 Smurfit-Stone Container* 191,100 3,051 20,932 Metals & Mining 0.7% Adrian Steel! 13,000 4,355 Coal Creek! 9,295 1,208 Gibraltar Steel 209,800 3,726 Lihir Gold (AUD)* 7,971,900 4,815 Newmont Mining 228,856 4,374 NN Ball & Roller 349,100 3,805 22,283 Paper & Forest Products 0.4% Buckeye Technologies* 1,132,900 13,028 Potlatch 12,100 355 13,383 Total Materials 102,442 TELECOMMUNICATION SERVICES 0.5% Wireless Telecommunication Services 0.5% AirGate PCS* 137,000 6,212 American Tower Systems (Class A)* 57,400 544 Rural Cellular (Class A)* 107,700 2,421 Western Wireless (Class A)* 222,200 6,278 Total Telecommunication Services 15,455 UTILITIES 1.7% Electric Utilities 1.7% Cleco 2,197,000 $ 48,268 Unisource Energy 344,500 6,266 Total Utilities 54,534 Total Common Stocks (Cost $ 2,407,222) 2,909,246 Short-Term Investments 8.0% Money Market Fund 8.0% T. Rowe Price Reserve Investment Fund, 2.43%, #! 256,652,315 256,652 Total Short-Term Investments (Cost $ 256,652) 256,652 Total Investments in Securities 99.0% of Net Assets (Cost $2,663,874) $3,165,898 Other Assets Less Liabilities 30,937 NET ASSETS $3,196,835 ---------- # Seven-day yield * Non-income producing ! Affiliated company + Securities contains restrictions as to public resale pursuant to the Securities Act of 1933 and related rules-total of such securities at year-end amounts to $3,983 and represents 0.1% of net assets ADR American Depository Receipts 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 - -------------------------------------------------------------------------------- December 31, 2001 Statement of Assets and Liabilities - -------------------------------------------------------------------------------- In thousands Assets Investments in securities, at value Affiliated companies (cost $554,487) $ 616,258 Other companies (cost $2,109,387) 2,549,640 Total investments in securities 3,165,898 Other assets 63,870 Total assets 3,229,768 Liabilities Total liabilities 32,933 NET ASSETS $3,196,835 ---------- Net Assets Consist of: Undistributed net realized gain (loss) $ 3,915 Net unrealized gain (loss) 502,024 Paid-in-capital applicable to 126,154,669 shares of $0.50 par value capital stock outstanding; 200,000,000 shares authorized 2,690,896 NET ASSETS $3,196,835 ---------- NET ASSET VALUE PER SHARE Small-Cap Stock shares ($3,158,203,668/124,628,675 shares outstanding) $ 25.34 ---------- Small-Cap Stock Advisor Class shares ($38,631,784/1,525,994 shares outstanding) $ 25.32 ---------- The accompanying notes are an integral part of these financial statements. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Statement of Operations - -------------------------------------------------------------------------------- In thousands Year Ended 12/31/01 Investment Income (Loss) Income Interest (including $11,645 from affiliated companies) $ 11,668 Dividend (including $7,669 from affiliated companies) 25,859 Other 155 Total income 37,682 Expenses Investment management 20,306 Shareholder servicing Small-Cap Stock shares 4,784 Small-Cap Stock Advisor Class shares 19 Prospectus and shareholder reports Small-Cap Stock shares 239 Small-Cap Stock Advisor Class shares 3 Registration 242 Custody and accounting 213 Distribution - Small-Cap Stock Advisor Class shares 51 Legal and audit 18 Directors 17 Proxy and annual meeting 11 Miscellaneous 17 Total expenses 25,920 Expenses paid indirectly (32) Net expenses 25,888 Net investment income (loss) 11,794 Realized and Unrealized Gain (Loss) Net realized gain (loss) on securities (including $10,857 from affiliated companies) 14,725 Change in net unrealized gain (loss) on securities (including $66,429 from affiliated companies) 188,684 Net realized and unrealized gain (loss) 203,409 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 215,203 ---------- The accompanying notes are an integral part of these financial statements. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Statement of Changes in Net Assets - -------------------------------------------------------------------------------- In thousands Year Ended 12/31/01 12/31/00 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 11,794 $ 12,834 Net realized gain (loss) 14,725 187,800 Change in net unrealized gain (loss) 188,684 97,585 Increase (decrease) in net assets from operations 215,203 298,219 Distributions to shareholders Net investment income Small-Cap Stock shares (12,048) (12,079) Small-Cap Stock Advisor Class shares (120) (49) Net realized gain Small-Cap Stock shares (6,014) (212,307) Small-Cap Stock Advisor Class shares (67) (673) Decrease in net assets from distributions (18,249) (225,108) Capital share transactions * Shares sold Small-Cap Stock shares 1,287,637 912,777 Small-Cap Stock Advisor Class shares 36,319 8,702 Distributions reinvested Small-Cap Stock shares 17,051 212,796 Small-Cap Stock Advisor Class shares 184 426 Shares redeemed Small-Cap Stock shares (596,594) (684,077) Small-Cap Stock Advisor Class shares (7,578) (1,199) Increase (decrease) in net assets from capital share transactions 737,019 449,425 Net Assets Increase (decrease) during period 933,973 522,536 Beginning of period 2,262,862 1,740,326 End of period $ 3,196,835 $ 2,262,862 ------------------------------------- Year Ended 12/31/01 12/31/00 *Share information Shares sold Small-Cap Stock shares 54,909 36,839 Small-Cap Stock Advisor Class shares 1,533 345 Distributions reinvested Small-Cap Stock shares 701 9,224 Small-Cap Stock Advisor Class shares 7 18 Shares redeemed Small-Cap Stock shares (25,459) (27,904) Small-Cap Stock Advisor Class shares (327) (50) Increase (decrease) in shares outstanding 31,364 18,472 The accompanying notes are an integral part of these financial statements. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- December 31, 2001 Notes to Financial Statements - -------------------------------------------------------------------------------- NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price Small-Cap Stock, Inc. (the fund) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The fund seeks to provide long-term capital growth by investing primarily in stocks of small 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. The accompanying financial statements were prepared in accordance with generally accepted accounting principles, which require the use of estimates made by fund management. Valuation Equity securities listed or regularly traded on a securities exchange are valued at the last quoted sales price at the time the valuations are made. A security that 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. Currency Translation Assets and liabilities denominated in foreign currencies are translated into U.S. dollar values each day at the prevailing exchange rate, using the mean of the bid and offer prices of such currencies against U.S. dollars quoted by a major bank. 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. 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. 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 net investment income and realized gains 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 $995,311,000 and $396,476,000, respectively, for the year ended December 31, 2001. 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 to shareholders all of its taxable income and capital gains. Because federal income tax regulations differ from generally accepted accounting principles, income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes differ from those reflected in the accompanying financial statements. Distributions during the year ended December 31, 2001 were characterized as follows for tax purposes: - -------------------------------------------------------------------------------- Ordinary income $17,033,000 Long-term capital gain 1,216,000 Total distributions $18,249,000 ----------- The tax-basis components of net assets at December 31, 2001 were as follows: - -------------------------------------------------------------------------------- Unrealized appreciation $686,800,000 Unrealized depreciation (184,776,000) Net unrealized appreciation (depreciation) 502,024,000 Undistributed ordinary income 1,833,000 Undistributed long-term capital gains 2,082,000 Distributable earnings 505,939,000 Paid-in capital 2,690,896,000 Net assets $3,196,835,000 -------------- For financial reporting purposes, capital accounts and distributions to shareholders are adjusted to reflect the tax character of permanent book/tax differences. For the year ended December 31, 2001, the fund recorded the following permanent reclassifications, which relate primarily to redemptions in-kind and a tax practice that treats a portion of the proceeds from each redemption of capital shares as a distribution of taxable net investment income and/or realized capital gain. Results of operations and net assets were not affected by these reclassifications. - -------------------------------------------------------------------------------- Undistributed net investment income $ 374,000 Undistributed net realized gain (7,314,000) Paid-in capital 6,940,000 At December 31, 2001, the cost of investments for federal income tax purposes was $2,663,874,000. NOTE 4 - RELATED PARTY TRANSACTIONS The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price Associates), a wholly owned subsidiary of T. Rowe Price Group. The investment management agreement between the fund and the manager provides for an annual investment management fee, of which $1,973,000 was payable at December 31, 2001. 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 Price Associates (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 December 31, 2001, and for the year 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, 2003, 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, 2005, 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 Price Associates and two wholly owned subsidiaries of Price Associates, pursuant to which the fund receives certain other services. Price Associates 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 $3,705,000 for the year ended December 31, 2001, of which $337,000 was payable at year end. The fund is one of several mutual funds in which certain college savings plans managed by Price Associates may invest. Price Associates provides program management, investment advisory, and administrative services to various state-sponsored college savings plans, which offer portfolios that invest in registered mutual funds (underlying funds) as investment options. These college savings plans do not invest in the underlying funds for the purpose of exercising management or control. As approved by the fund's Board of Directors, the fund bears the cost of shareholder servicing associated with each college savings plan in proportion to the average daily value of its shares owned by the college savings plan. For the year ended December 31, 2001, the fund was charged $16,000 for shareholder servicing costs related to the college savings plans, $4,000 of which was payable at period-end. At December 31, 2001, approximately 0.09% of the outstanding shares of the fund were held by college savings plans. The fund may invest in the T. Rowe Price Reserve Investment Fund and T. Rowe Price Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by Price Associates. The Reserve Funds are offered as cash management options only to mutual funds and other accounts managed by Price Associates and/or 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 year ended December 31, 2001, totaled $11,645,000 and are reflected as interest income in the accompanying Statement of Operations. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Report of Independent Accountants - -------------------------------------------------------------------------------- To the Board of Directors and Shareholders of T. Rowe Price Small-Cap Stock Fund, Inc. In our opinion, the accompanying statement of assets and liablilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Small-Cap Stock Fund, Inc. (the "Fund") at December 31, 2001, and the results of its operations, the changes in its net assets and the financial highlights for each of the fiscal periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2001 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Baltimore, Maryland January 18, 2002 T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Tax Information (Unaudited) for the Tax Year Ended 12/31/01 - -------------------------------------------------------------------------------- We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements. The fund's distributions to shareholders included: o $7,189,000 from short-term capital gains, o $1,439,000 from long-term capital gains, subject to the 20% rate gains category. For corporate shareholders, $15,310,000 of the fund's distributed income and short-term capital gains qualified for the dividends-received deduction. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Annual Meeting Results - -------------------------------------------------------------------------------- The T. Rowe Price Small-Cap Stock Fund held an annual meeting on October 23, 2001, to elect an expanded slate of directors to increase the number of independent directors serving the fund. The results of voting were as follows (by number of shares): M. David Testa Affirmative: 58,273,054.786 Withhold: 547,435.351 Total: 58,820,490.137 John H. Laporte Affirmative: 58,284,959.168 Withhold: 535,530.969 Total: 58,820,490.137 Calvin W. Burnett Affirmative: 58,165,506.188 Withhold: 654,983.949 Total: 58,820,490.137 Anthony W. Deering Affirmative: 58,277,111.929 Withhold: 543,378.208 Total: 58,820,490.137 Donald W. Dick, Jr. Affirmative: 58,283,458.235 Withhold: 537,031.902 Total: 58,820,490.137 David K. Fagin Affirmative: 58,280,606.481 Withhold: 539,883.656 Total: 58,820,490.137 F. Pierce Linaweaver Affirmative: 58,225,657.344 Withhold: 594,832.793 Total: 58,820,490.137 Hanne M. Merriman Affirmative: 58,266,865.417 Withhold: 553,624.720 Total: 58,820,490.137 John G. Schreiber Affirmative: 58,267,300.856 Withhold: 553,189.281 Total: 58,820,490.137 Hubert D. Vos Affirmative: 58,253,416.363 Withhold: 567,073.774 Total: 58,820,490.137 Paul M. Wythes Affirmative: 58,245,565.843 Withhold: 574,924.294 Total: 58,820,490.137 James S. Riepe Affirmative: 58,281,702.393 Withhold: 538,787.744 Total: 58,820,490.137 T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Independent Directors - -------------------------------------------------------------------------------- Number of Portfolios Term of in Fund Other Name, Office* Principal Complex Directorships Address, Position(s) and Length Occupation(s) Overseen of Public and Date Held With of Time During Past by Companies of Birth Fund Served 5 Years Director Held - -------------------------------------------------------------------------------- Calvin W. Director Elected President, 97 Provident Burnett, 2001 Coppin State Bank of Ph.D. College Maryland 100 East Pratt Street 3/16/32 - -------------------------------------------------------------------------------- Anthony W. Director Elected Director, 97 The Rouse Deering 2001 Chairman of Company 100 East the Board, Pratt President, Street and Chief 1/28/45 Executive Officer, The Rouse Company, real estate developers - -------------------------------------------------------------------------------- Donald W. Director Elected Principal, 97 Not Dick, 1992 EuroCapital Applicable Jr. Advisors, 100 East LLC, an Pratt acquisition Street and management 1/27/43 advisory firm - -------------------------------------------------------------------------------- David K. Director Elected Director, 97 Dayton Mining Fagin 1992 Dayton Mining Corporation, 100 East Corporation Golden Star Pratt (6/98 to present), Resources Street Golden Star Ltd., and 4/9/38 Resources Canyon Ltd., and Resources, Canyon Corp. Resources, Corp. (5/00 to present); Chairman and President, Nye Corporation - -------------------------------------------------------------------------------- F. Pierce Director Elected President, 97 Not Linaweaver 2001 F. Pierce Applicable 100 East Linaweaver & Pratt Associates, Street Inc., 8/22/34 consulting environmental and civil engineers - -------------------------------------------------------------------------------- *Each director serves until election of a successor. Independent Directors (continued) - -------------------------------------------------------------------------------- Number of Portfolios Term of in Fund Other Name, Office* Principal Complex Directorships Address, Position(s) and Length Occupation(s) Overseen of Public and Date Held With of Time During Past by Companies of Birth Fund Served 5 Years Director Held - -------------------------------------------------------------------------------- Hanne M. Director Elected Retail 97 Ann Taylor Merriman 1994 Business Stores 100 East Consultant Corporation, Pratt Ameren Corp., Street Finlay 11/16/41 Enterprises, Inc., The Rouse Company, and US Airways Group, Inc. - -------------------------------------------------------------------------------- John G. Director Elected Owner/President, 97 AMLI Schreiber 2001 Centaur Capital Residential 100 East Partners, Inc., Properties Pratt a real Trust, Street estate Host Marriott 10/21/46 investment Corporation, company; and Senior The Rouse Advisor Company, and Partner, real estate Blackstone developers Real Estate Advisors, L.P. - -------------------------------------------------------------------------------- Hubert D. Director Elected Owner/President, 97 Not Vos 1992 Stonington Applicable 100 East Capital Pratt Corporation, Street a private 8/2/33 investment company - -------------------------------------------------------------------------------- Paul M. Director Elected Founding 97 Teltone Wythes 1992 Partner of Corporation 100 East Sutter Hill Pratt Ventures, a Street venture 6/23/33 capital limited partnership, providing equity capital to young high technology companies throughout the United States - -------------------------------------------------------------------------------- *Each director serves until election of a successor. Inside Directors - -------------------------------------------------------------------------------- Number of Portfolios Term of in Fund Other Name, Office* Principal Complex Directorships Address, Position(s) and Length Occupation(s) Overseen of Public and Date Held With of Time During Past by Companies of Birth Fund Served 5 Years Director Held - -------------------------------------------------------------------------------- John H. Director Elected Managing 15 Not Laporte 1994 Director, Applicable 100 East T. Rowe Pratt Price; Street Managing 7/26/45 Director and Director, T. Rowe Price Group, Inc. - -------------------------------------------------------------------------------- James S. Director Elected Vice 82 Not Riepe 1992 Chairman of Applicable 100 East the Board, Pratt Director, and Street Managing 6/25/43 Director, T. Rowe Price Group, Inc.; Director and Managing Director, T. Rowe Price; Chairman of the Board and Director, T. Rowe Price Investment Services, Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Services, Inc.; Chairman of the Board, Director, President, and Trust Officer, T. Rowe Price Trust Company; Director, T. Rowe Price International, Inc. - -------------------------------------------------------------------------------- M. David Director Elected Vice 97 Not Testa 1997 Chairman of Applicable 100 East the Board, Pratt Chief Street Investment 4/22/44 Officer, Director, and Managing Director, T. Rowe Price Group, Inc.; Chief Investment Officer, Director, and Managing Director, T. Rowe Price; Vice President and Director, T. Rowe Price Trust Company; Director, T. Rowe Price International, Inc. - -------------------------------------------------------------------------------- *Each director serves until election of a successor. T. Rowe Price Mutual Funds - -------------------------------------------------------------------------------- STOCK FUNDS Domestic Blue Chip Growth* Capital Appreciation Capital Opportunity Developing Technologies 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 Tax-Efficient Growth Tax-Efficient Multi-Cap Growth Total Equity Market Index Value* BLENDED ASSET FUNDS Balanced Personal Strategy Balanced Personal Strategy Growth Personal Strategy Income Tax-Efficient Balanced BOND FUNDS Domestic Taxable Corporate Income GNMA High Yield* New Income Short-Term Bond Spectrum Income Summit GNMA U.S. Bond Index 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 Tax-Free Bond MONEY MARKET FUNDS! Taxable Prime Reserve Summit Cash Reserves U.S. Treasury Money Tax-Free California Tax-Free Money Maryland Tax-Free Money New York Tax-Free Money Summit Municipal Money Market Tax-Exempt Money INTERNATIONAL/GLOBAL FUNDS Stock Emerging Europe & Mediterranean Emerging Markets Stock European Stock Global Stock Global Technology International Discovery** International Equity Index International Growth & Income International Stock* Japan Latin America New Asia Spectrum International Bond Emerging Markets Bond International Bond* For more information about T. Rowe Price funds or services, please contact us directly at 1-800-225-5132. * T. Rowe Price Advisor Class available for these funds. The T. Rowe Price Advisor Class is offered only through financial intermediaries. For more information about T. Rowe Price Advisor Class funds, contact your financial professional or T. Rowe Price at 1-877-804-2315. ** Closed to new investors. ! 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, which contains complete information, including risks, fees, and expenses. Read it carefully before investing. T. Rowe Price Invest with Confidence (registered trademark) T. Rowe Price Investment Services, Inc. 100 East Pratt Street Baltimore, MD 21202 F65-050 12/31/01 -----END PRIVACY-ENHANCED MESSAGE-----