-----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, NDIdi35Giyh+BihlQbZo2FbuX843NvrPHI4Y+PJW7I27HJzHakO7iHL/UOf4eySq AnV0XgWsuUKiRPcCD8iqHA== 0000950109-01-503069.txt : 20010822 0000950109-01-503069.hdr.sgml : 20010822 ACCESSION NUMBER: 0000950109-01-503069 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010821 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE SMALL CAP STOCK FUND INC CENTRAL INDEX KEY: 0000075170 STANDARD INDUSTRIAL CLASSIFICATION: [] 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: 1719939 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: 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 FORMER COMPANY: FORMER CONFORMED NAME: PRICE T ROWE OTC FUND INC DATE OF NAME CHANGE: 19930210 N-30D 1 dn30d.txt T.ROWE PRICE SMALL-CAP STOCK FUND - ADVISOR CLASS Semiannual Report SMALL-CAP STOCK FUND - ADVISOR CLASS ------------- JUNE 30, 2001 ------------- [LOGO] T. ROWE PRICE REPORT HIGHLIGHTS ---------------------------------------------------------------------------- Small-Cap Stock Fund -- Advisor Class . Small-cap stocks rose despite the downdraft in the overall market during the first half of 2001. . Your fund also gained but trailed its benchmarks over the past six months. The fund's 12-month performance exceeded both its Lipper peer group average and the Russell 2000 Index. . Industrial and health care stocks were our best performers, while energy and biotechnology stocks were among the worst. . Despite their recent outperformance, small-caps remain attractively valued and offer superior anticipated earnings growth. 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 Small-cap stocks continued their winning ways in the first half of 2001, posting gains despite the market's overall downdraft. A powerful second-quarter surge put small-caps in the black but did not erase severe first-quarter losses in most other major indices. The large-cap Standard & Poor's 500 Stock Index fell 6.70% in the first half, while the tech-heavy Nasdaq Composite Index lost 12.52%. Favorable valuations and the prospect of stronger relative earnings growth increased investor interest in small-caps. - ---------------------- PERFORMANCE COMPARISON - -------------------------------------------------------------------------------- Periods Ended 6/30/01 6 Months 12 Months - -------------------------------------------------------------------------------- Small-Cap Stock Fund -- Advisor Class 4.81% 9.86% Russell 2000 Index 6.94 0.66 Lipper Small-Cap Core Fund Index 6.59 5.00 S&P 500 Stock Index -6.70 -14.83 The Small-Cap Stock Fund - Advisor Class gained 4.81% during the period but trailed the Russell 2000 Index of smaller companies and the average competing fund as measured by Lipper Inc. Over the past 12 months, the fund delivered a solid 9.86% gain, well ahead of both benchmarks and in sharp contrast to the 14.83% loss of the S&P 500. The Advisor Class' first-half under-performance is attributable to ground we lost in January as a number of holdings that had soared in 2000 succumbed to profit taking. INVESTMENT REVIEW The best-performing sectors of the Russell 2000 were consumer discretionary, up 21%, consumer staples, up 18%, and financials, up 12%. The worst performing were energy, down 15%, and utilities, off 3%. Consumer stocks benefited from the continued buoyancy of consumer spending in the face of a slowing economy, while falling oil and gas prices hurt the energy sector. We paid a price in January for the strong performance of our financial holdings last year. A group of our stocks that had, on average, nearly doubled in 2000 fell an average of 13% in the first half, mostly due to routine profit taking rather than any fundamental disappointments. This helped put the fund several paces behind the Russell 2000 right 1 at this year's starting gun. Since then, we have succeeded in narrowing - --but not closing-- the gap. Southwest Bancorp, for example, rose 116% last year but fell 29% in the past six months. Fundamentals remained solid in its Houston service area, and Southwest's earnings growth outlook is still strong. But investors fretted that aggressive Fed rate cuts (there were six in the first half) would shave Southwest's profit margins because the bank is oriented more toward deposits than loans. Other examples in this vein included Downey Financial, our third-largest holding, which rose 174% last year but fell 13% in the first half of 2001, and Valley National Bancorp, which rose 29% last year before giving back 9%. We continue to find all three stocks attractive. The fund's overweighting in the weak energy sector also crimped results, but we continue to like the group's long-term prospects. Oil and gas prices have fallen from headline-grabbing levels, and relatively mild weather and the slowing economy have allowed inventories to be rebuilt. This gave investors a chance to take profits in a formerly red-hot sector, and momentum investors bailed out. Our major holdings include SEACOR SMIT, which operates supply vessels for offshore drilling rigs, and exploration and production companies such as XTO Energy (formerly called Cross Timbers Oil), Noble Affiliates, and Forest Oil. - ---------------------- SECTOR DIVERSIFICATION - -------------------------------------------------------------------------------- [CHART] Energy and Utilities 7% Consumer Nondurables 14% Financial 14% Consumer Services, Cyclicals, and Education 20% Reserves 8% Business Services and Transportation 19% Technology 11% Capital Equipment, Process Industries, and Basic Materials 7% Based on net assets as of 6/30/01. Our holdings in the consumer sector kept pace with those of the Russell 2000, while our best performance compared with the index came from the industrial and health care sectors. The fund's top contributor for the period was Matthews International, a maker of bronze plaques and memorials, especially for the funeral home and cemetery market, which gained nearly 40%. In May, Matthews acquired the bronze commemorative products businesses of its competitor, The York Group, which are a perfect fit for Matthews and are expected to have an immediate positive impact on earnings. 2 Sola International, a manufacturer of glass and plastic eyeglass lenses, had a spectacular move from about $4 to $14 as it reported a positive earnings surprise in the March quarter and successfully refinanced its debt. Sola showed growth in the domestic market for the first time in over a year and the refinancing allayed investor fears about liquidity. Shares of Strayer Education, which offers business and technology-oriented instruction online and through 14 mid-Atlantic regional campuses of Strayer University, soared 91%. Investors cheered the new management's plans to increase the number of campuses and jump-start growth at the company. Woodward Governor, a longtime fund holding, also jumped 90% during the period. Strong results in the company's power-generation-related business led investors to bid up the shares. Woodward Governor makes components and systems for controlling gas-fired turbines as well as industrial and aircraft engines. Two biotechnology-related stocks and a software firm topped our worst detractors list. Inhale Therapeutic Systems fell 54% on disappointing late-stage trial results. While no definitive safety issues arose with Exubera, the firm's inhaleable insulin product developed in collaboration with Pfizer, some evidence pointed to potential problems. The company doesn't believe these concerns will derail product approval, but we are monitoring the situation closely. Molecular Devices missed its quarterly estimate and lowered full-year expectations. The company blamed the economic slowdown and delayed purchases of its bioanalytical measuring devices. While other biotechnology research tool providers have experienced slowing demand, we believe Molecular Devices' problems were largely self-inflicted and have nearly exited our position. Finally, NetIQ plunged 64% as investors reacted to slower-than-expected adoption of the Microsoft Windows 2000 operating system, which is a key earnings driver for NetIQ. The company's results for the March quarter were modestly below estimates. We continue to hold the position. PORTFOLIO HIGHLIGHTS The property and casualty insurance sector looked attractive to us. Premium pricing in the industry has been recovering for the past year or so. Our holdings in insurance broker Brown and Brown rose more than 20% in the first half. To further capitalize on the trend we 3 established new positions in Markel, a specialty commercial insurer, and Horace Mann Educators, a marketer of insurance products to educators and school system employees. Horace Mann, an $874 million company, sells for 11 times next year's earnings estimates and less than two times book value, and sports a 1.95% dividend yield. It's a good value with strong management in an industry with improving fundamentals. We also continued to find solid ideas in the real estate investment trust (REIT) sector. Our larger purchases here included Gables Residential Trust, an $860 million multifamily property company, and Washington, REIT, a Baltimore/Washington-based multipurpose owner and operator, which we found particularly attractive. Washington, REIT's property development prospects should allow it to grow funds from operations at a 9% rate. This, combined with the 5.5% yield, offers investors a potential 14% annual return. Largest sales Sales were primarily influenced by merger-and-acquisition activity. Our largest sales, Barrett Resources, Citadel Communications, FleetBoston Financial, and First Washington Realty Trust, all occurred because the companies were acquired or had agreed to be acquired by larger companies or by private firms. We also reduced positions in several stocks that appeared to be fully priced. Lincare Holdings has more than doubled since we purchased it last year, and we trimmed our holdings. We took profits in Columbia Sportswear, the designer and marketer of outerwear, sportswear, and footwear, after a strong run-up. Columbia had an excellent winter and spring selling season, benefiting from a cold winter, strong full-priced sales of its products, and good luck with styling. We love the brand but regard the shares as pricey. We have also begun to sell pizza chain operator Papa John's International. The sector has experienced cost inflation (including higher cheese prices) and slowing sales trends. Recent management turnover at Papa John's made us nervous, so we reduced the position size. OUTLOOK Small-cap shares have been on a roll, outperforming the S&P 500 year-to-date and indeed since the bear market began in March 2000. This is a testament to how inexpensive small-caps were relative to large-caps during the "irrational exuberance" of the late 1990s. Value 4 stocks have been the best performers, though growth stocks are no longer losing ground at the pace they were last year and early this year. - ---------------- GROWTH VS. VALUE - -------------------------------------------------------------------------------- Periods Ended 6/30/01 6 Months 12 Months - -------------------------------------------------------------------------------- Russell 2000 Growth Index 0.16% -23.25% Russell 2000 Value Index 12.78 30.87 Today, small-caps still appear relatively undervalued. Our own valuation work on emerging growth stocks compared with large-caps suggests the sector still has room to run. Moreover, the broader Russell 2000 continues to trade near historically low levels based on price-to-cash flow and price-to-sales ratios relative to larger companies. After lagging for years, small-cap earnings growth began to outstrip large-cap earnings growth last year, and this is the key to small-cap performance. Moreover, small-cap funds continue to experience strong investment flows. As investors put money to work into this relatively illiquid sector, prices typically rise. In our opinion, we are still in the early stages of this phenomenon -- strong performance is likely to drive even greater investor interest. The biggest fund flows typically occur near the end of a cycle, and we don't think we're there yet. In sum, we remain very positive. The darkest cloud on the horizon is the potential for a longer and deeper economic downturn than is generally expected. Small-caps would be vulnerable in this scenario because they are not quite at the bargain levels they were 16 months ago. On the other hand, we may be near the middle or the end of the current slowdown. Most of our companies began to experience near-recession business conditions last fall. Typically, small-caps do quite well coming out of a period of economic weakness. Stay tuned, keep the faith, and thanks for your support. Respectfully submitted, /s/ Greg A. McCrickard Greg A. McCrickard President of the fund and chairman of its Investment Advisory Committee July 17, 2001 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. 5 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- - -------------------- PORTFOLIO HIGHLIGHTS - -------------------------------------------------------------------------------- TWENTY-FIVE LARGEST HOLDINGS Percent of Net Assets 6/30/01 - -------------------------------------------------------------------------------- Harman International 1.7% Cleco 1.7 Downey Financial 1.6 Brown and Brown 1.6 Chittenden 1.5 - -------------------------------------------------------------------------------- Matthews International 1.4 WestAmerica 1.3 PartnerRe 1.3 Iron Mountain 1.2 BISYS Group 1.1 - -------------------------------------------------------------------------------- Maximus 1.1 Lincare Holdings 1.1 SCP Pool 1.0 Valley National Bancorp 1.0 Citizens Banking 1.0 - -------------------------------------------------------------------------------- Black Box 1.0 Houghton Mifflin 0.9 Insituform Technologies 0.9 Cephalon 0.9 Tetra Tech 0.9 - -------------------------------------------------------------------------------- Mentor 0.8 Parkway Properties 0.8 SEACOR SMIT 0.8 F. Y. I. 0.8 Littelfuse 0.8 - -------------------------------------------------------------------------------- Total 28.2% Note: Table excludes reserves. 6 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- - -------------------- PORTFOLIO HIGHLIGHTS - -------------------------------------------------------------------------------- MAJOR PORTFOLIO CHANGES Listed in descending order of size 6 Months Ended 6/30/01 Ten Largest Purchases Ten Largest Sales - -------------------------------------------------------------------------------- Horace Mann Educators * Barrett Resources ** Gables Residential Trust * Citadel Communications ** Washington, REIT * FleetBoston Financial ** Markel * First Washington Realty Trust ** Forward Air * Papa John's International Citizens Banking Lincare Holdings Chittenden Great Plains Software ** Cleco Columbia Sportswear Technitrol Battle Mountain Gold ** Dal-Tile International Interact Commerce ** * Position added ** Position eliminated 7 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 -- ADVISOR CLASS - -------------------------------------------------------------------------------- [CHART] As of 6/30/01 Lipper Small-Cap Small-Cap Stock Russell 2000 Index Core Fund Index Fund -- Advisor Class 3/31/00 10,000 10,000 10,000 Jun-00 9,622 9,840 10,189 Jun-01 9,685 10,332 11,194 - ------------------------------------ AVERAGE ANNUAL COMPOUND TOTAL RETURN - -------------------------------------------------------------------------------- This table shows how the fund would have performed each year if its actual (or cumulative) returns for the periods shown had been earned at a constant rate. Since Inception Periods Ended 6/30/01 1 Year Inception Date - -------------------------------------------------------------------------------- Small-Cap Stock Fund -- Advisor Class 9.86% 9.45% 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. 8 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Unaudited - -------------------- FINANCIAL HIGHLIGHTS For a share outstanding throughout each period - ------------------------------------------------------------------------------- Small-Cap Stock Advisor Class shares 6 Months 3/31/00 Ended Through 6/30/01 12/31/00 NET ASSET VALUE Beginning of period $ 23.89 $ 24.93 Investment activities Net investment income (loss) 0.02 0.07 Net realized and unrealized gain (loss) 1.13 1.53 Total from investment activities 1.15 1.60 Distributions Net investment income -- (0.18) Net realized gain -- (2.46) Total distributions -- (2.64) NET ASSET VALUE End of period $ 25.04 $ 23.89 --------------------------- Ratios/Supplemental Data Total return 4.81% 6.79% Ratio of total expenses to average net assets 1.15%+ 0.82%+ Ratio of net investment income (loss) to average net assets 0.31%+ 0.85%+ Portfolio turnover rate 11.2%+ 32.8%+ Net assets, end of period (in thousands) $ 20,334 $ 7,479 x 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. 9 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Unaudited June 30, 2001 - ------------------------ PORTFOLIO OF INVESTMENTS Shares Value - -------------------------------------------------------------------------------- In thousands COMMON STOCKS 91.6% FINANCIAL 14.4% Bank and Trust 8.3% Charter One Financial 249,347 $ 7,954 Chittenden 1,235,000 41,558 Citizens Banking 1,007,000 29,455 Downey Financial 975,300 46,092 First Bell Bancorp * 95,400 1,393 First Mariner Bancorp * 45,500 293 Frankfort First Bancorp + 71,600 1,228 Glacier Bancorp 517,590 9,834 Marshall & Ilsley 34,800 1,876 Provident Bankshares 345,300 8,612 Southwest Bancorp * 657,700 19,869 Valley National Bancorp 1,043,175 29,574 WestAmerica 920,000 36,110 ------------ 233,848 ------------ Insurance 5.7% Brown and Brown 1,065,200 44,728 Harleysville Group 365,700 10,880 Horace Mann Educators 988,600 21,304 London Pacific Group ADR 691,800 4,068 Markel * 89,500 17,587 PartnerRe 645,600 35,766 Selective Insurance 233,000 6,216 W. R. Berkley 495,000 20,503 ------------ 161,052 ------------ Financial Services 0.4% Financial Federal * 218,700 6,331 ITLA Capital *+ 368,100 6,626 ------------ 12,957 ------------ Total Financial 407,857 ------------ 10 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- In thousands UTILITIES 2.5% Electric Utilities 1.8% Cleco 2,081,800 $ 47,361 Unisource Energy 165,200 3,795 -------------- 51,156 -------------- Telephone 0.7% AirGate PCS * 121,800 6,334 Rural Cellular (Class A) * 108,000 4,892 Western Wireless * 183,100 7,873 -------------- 19,099 -------------- Total Utilities 70,255 -------------- CONSUMER NONDURABLES 14.1% Food Processing 1.4% ADM Cranberry * 164 4 American Italian Pasta * 319,900 14,843 International Multifoods + 1,019,400 21,153 Makepeace * 164 1,066 Seneca Foods (Class A) * 188,200 2,588 Seneca Foods (Class B) * 72,200 951 -------------- 40,605 -------------- Hospital Supplies/Hospital Management 4.6% Airgas * 975,900 11,613 Cephalon * 354,617 25,001 Hooper Holmes 1,085,600 11,127 Lincare * 991,800 29,764 Mentor 839,200 23,917 Molecular Devices * 54,300 1,089 Renal Care Group * 392,850 12,921 Steris * 522,100 10,468 Unilab * 200,000 5,040 -------------- 130,940 -------------- Pharmaceuticals 1.4% Arena Pharmaceuticals * 47,700 1,454 AtheroGenics * 7,300 44 Aurora Biosciences * 191,000 5,921 Incyte Genomics * 145,200 3,560 11 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- In thousands Noven Pharmaceuticals * 120,400 $ 4,720 NPS Pharmaceuticals * 233,100 9,371 OSI Pharmaceuticals * 45,000 2,366 Regeneron Pharmaceuticals * 105,200 3,645 Triangle Pharmaceuticals * 656,600 3,073 Trimeris * 117,500 5,883 -------------- 40,037 -------------- Biotechnology 3.0% Abgenix * 96,300 4,333 Alkermes * 282,700 9,923 COR Therapeutics * 228,200 6,960 Cubist Pharmaceuticals * 124,600 4,735 CV Therapeutics * 45,100 2,571 Deltagen * 146,500 1,316 EDEN Bioscience * 59,600 595 Edwards Lifesciences * 496,900 13,098 Genaissance Pharmaceuticals * 5,100 72 Gilead Sciences * 67,700 3,939 Inhale Therapeutic Systems * 551,200 12,678 Neose Technologies * 22,700 1,021 Neurocrine Biosciences * 213,800 8,550 Serologicals * 402,100 8,581 ViroPharma * 156,500 5,321 -------------- 83,693 -------------- Health Care Services 1.6% AmeriPath * 659,900 19,335 Boron LePore & Associates * 75,800 1,045 Bruker Daltonics * 7,600 115 Orthodontic Centers of America * 287,100 8,725 Packard BioScience * 176,800 1,467 Wilson Greatbatch Technologies * 455,700 13,215 -------------- 43,902 -------------- Miscellaneous Consumer Products 2.0% Coach * 80,000 3,044 Culp 263,200 1,184 Dan River * 965,400 2,607 Polymer Group 382,200 864 QuikSilver * 350,000 8,750 12 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- In thousands Reebok * 246,700 $ 7,882 Sola * 1,061,100 14,972 Stride Rite 1,390,800 11,822 Unifi * 597,300 5,077 -------------- 56,202 -------------- Cosmetics 0.1% Chattem * 328,200 3,479 -------------- 3,479 -------------- Total Consumer Nondurables 398,858 -------------- CONSUMER SERVICES 9.1% Restaurants 1.8% Applebee's 475,950 15,230 BUCA * 676,200 14,707 PJ America *+ 278,500 2,356 Ruby Tuesday 931,400 15,927 Uno Restaurant * 382,300 3,613 -------------- 51,833 -------------- General Merchandisers 2.3% Bon-Ton Stores *+ 709,900 2,158 Casey's General Stores 1,634,500 21,249 Columbia Sportswear * 403,850 20,592 Neiman Marcus * 681,100 21,114 -------------- 65,113 -------------- Specialty Merchandisers 1.4% Netegrity * 190,000 5,700 O' Charley's *+ 1,018,300 19,735 Ultimate Electronics * 184,000 5,965 Urban Outfitters * 421,300 4,525 Wild Oats Markets * 334,700 3,484 -------------- 39,409 -------------- Entertainment and Leisure 1.5% Houghton Mifflin 437,000 26,190 Papa John's * 191,100 4,844 Sonic * 341,600 10,839 -------------- 41,873 -------------- 13 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- In thousands Media & Communications 2.1% American Tower Systems (Class A) * 57,600 $ 1,190 Emmis Broadcasting (Class A) * 559,900 17,217 Entercom Communications * 211,000 11,312 Pegasus Communications * 220,900 4,970 Sinclair Broadcast (Class A) * 1,299,700 13,387 Young Broadcasting (Class A) * 365,000 12,257 -------------- 60,333 -------------- Total Consumer Services 258,561 -------------- CONSUMER CYCLICALS 10.4% Automobiles and Related 2.1% A.O. Smith (Class B) 1,009,600 18,072 Adrian Steel + 13,000 4,355 Keystone Automotive * 572,300 6,839 Littelfuse * 862,700 23,112 Strattec Security * 191,200 6,638 -------------- 59,016 -------------- Building and Real Estate 6.1% Apartment Investment & Management, REIT 203,500 9,809 Arden Realty, REIT 689,200 18,402 EastGroup Properties, REIT + 880,400 19,897 Gables Residential Trust, REIT 700,000 20,965 Glenborough Realty Trust, REIT 777,400 15,004 JP Realty, REIT + 836,900 20,504 Lasalle Hotel Properties, REIT * 496,900 8,855 Parkway Properties, REIT + 671,800 23,681 Reckson Associates Realty (Class B), REIT 255,000 6,275 Washington, REIT 700,000 16,548 Woodhead Industries + 657,500 11,177 -------------- 171,117 -------------- Miscellaneous Consumer Durables 2.2% CompX + 463,200 5,535 Harman 1,266,400 48,237 Intranet Solutions * 244,600 9,307 -------------- 63,079 -------------- Total Consumer Cyclicals 293,212 -------------- 14 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- In thousands TECHNOLOGY 10.1% Electronic Components 3.6% American Superconductor * 200,000 $ 5,160 Analogic 411,800 18,758 Artesyn Technologies * 734,100 9,470 ATMI * 490,000 14,700 Benchmark Electronics * 506,000 12,326 Exar * 410,000 8,102 Methode Electronics (Class A) 1,069,400 9,197 MKS Instruments * 603,900 17,392 QuickLogic * 465,800 2,804 Sipex * 368,000 4,280 ---------------- 102,189 ---------------- Electronic Systems 2.0% Applied Micro Circuits * 23,800 409 Armor Holdings *+ 1,270,000 19,050 Black Box * 428,400 28,857 Lifeline Systems *+ 334,600 6,612 Lo-Jack * 603,500 3,452 ---------------- 58,380 ---------------- Telecommunications 1.3% Airnet Communications * 21,900 32 Ditech Communications * 140,200 1,040 Harmonic * 526,500 5,265 PECO II * 249,500 1,634 Stratos Lightwave 1,139,498 14,814 Tekelec * 274,900 7,450 VYYO * 92,800 137 West Corporation * 307,000 6,757 ---------------- 37,129 ---------------- Aerospace and Defense 1.5% DONCASTERS ADR * 115,300 3,164 Harsco 727,000 19,723 Woodward Governor 222,700 18,785 ---------------- 41,672 ---------------- Information Processing 0.8% F. Y. I. * 567,200 23,255 ---------------- 23,255 ---------------- 15 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- In thousands Specialized Computer 0.3% Activision * 191,600 $ 7,520 Virata * 76,600 908 ---------------- 8,428 ---------------- Office Automation 0.6% Technitrol 620,000 16,120 16,120 ---------------- Total Technology 287,173 ---------------- CAPITAL EQUIPMENT 1.5% Electrical Equipment 0.5% hi/fn * 196,700 2,976 LSI Industries 435,600 10,189 ---------------- 13,165 ---------------- Machinery 1.0% Actuant * 306,280 5,038 Brooks Automation * 279,800 12,899 IDEX 145,000 4,930 Newport 75,200 1,993 NN Ball & Roller * 334,700 3,578 ---------------- 28,438 ---------------- Total Capital Equipment 41,603 ---------------- BUSINESS SERVICES AND TRANSPORTATION 18.7% Computer Service and Software 5.0% 724 Solutions* 11,400 84 Actuate * 223,000 2,130 Alliance Data Systems * 441,600 6,624 Analysts 554,400 2,473 BISYS * 521,000 30,739 Cambridge Technology Partners * 285,900 1,012 Concord Communications * 171,900 1,547 Digital Impact * 408,900 511 Electronic Arts * 95,300 5,518 Genomica * 16,200 70 Igate Capital * 382,500 1,377 16 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- In thousands Jack Henry & Associates * 95,400 $ 2,957 Keynote Systems * 309,000 3,383 net.Genesis * 115,000 90 NetIQ * 423,900 13,264 Packeteer * 505,800 6,338 Pixelworks * 359,000 12,831 Progress Software * 1,320,100 21,385 Quest Software * 75,600 2,854 Register.com * 215,600 3,340 Sonicwall * 124,400 3,136 SPSS * 268,300 4,242 Telecommunication Systems * 17,300 52 Usinternetworking * 1,051,900 1,262 ValiCert * 287,200 896 Verity * 316,000 6,304 Zebra Technologies (Class A) * 150,600 7,397 ---------------- 141,816 ---------------- Distribution Services 2.3% MSC Industrial Direct * 404,100 7,031 Primesource 145,900 576 SCP Pool *+ 861,700 29,677 United Stationers * 516,600 16,304 Watsco (Class A) 716,000 10,096 ---------------- 63,684 ---------------- Environmental 0.6% CUNO * 432,000 12,960 IT Group * 473,500 3,007 Waterlink * 446,800 85 ---------------- 16,052 ---------------- Transportation Services 3.1% C.H. Robinson Worldwide 308,300 8,598 Comfort Systems USA * 740,300 2,680 EGL * 254,600 4,445 Expeditors International of Washington 367,900 22,074 Forward Air * 415,300 12,438 Heartland Express * 131,908 3,008 Hub Group (Class A) * 93,300 1,213 International Shipholding 135,462 1,294 17 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- In thousands SEACOR SMIT * 497,600 $ 23,258 UTi Worldwide 630,600 10,039 ---------------- 89,047 ---------------- Miscellaneous Business Services 7.4% AnswerThink * 287,200 2,869 Electro Rent * 566,100 9,233 G&K Services 457,700 12,312 Global Payments 290,400 8,741 Herman Miller 220,600 5,338 Insituform Technologies (Class A) * 700,300 25,561 Iron Mountain * 752,850 33,758 Ivex Packaging * 814,000 15,466 KForce.com * 91,412 594 Maximus * 751,000 30,108 McGrath RentCorp 290,600 7,015 MPW Industrial Services *+ 549,600 687 New England Business Service + 833,800 16,009 Strayer Education 374,700 18,267 Tetra Tech * 901,850 24,530 ---------------- 210,488 ---------------- Airlines 0.3% Midwest Express * 527,300 9,149 ---------------- 9,149 ---------------- Total Business Services and Transportation 530,236 ---------------- ENERGY 4.8% Energy Services 1.5% Atwood Oceanics * 333,000 11,688 Cooper Cameron * 89,500 4,994 Global Power Equipment Group * 19,000 557 Grant Prideco * 131,850 2,306 Hydril * 239,000 5,442 Smith * 95,400 5,715 W-H Energy Services * 200,000 3,800 Weatherford * 132,050 6,338 ---------------- 40,840 ---------------- 18 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- In thousands Exploration and Production 3.3% Chieftain * 573,800 $ 16,491 Forest Oil * 515,000 14,420 Key Energy Services * 1,052,500 11,409 National Oilwell * 317,100 8,498 Noble Affiliates 610,000 21,564 XTO Energy 1,537,275 22,060 ---------------- 94,442 ---------------- Total Energy 135,282 ---------------- PROCESS INDUSTRIES 2.9% Specialty Chemicals 0.0% MacDermid 105,400 1,897 ---------------- 1,897 ---------------- Paper and Paper Products 0.5% Buckeye Technologies * 719,000 10,354 Smurfit-Stone Container * 191,700 3,105 ---------------- 13,459 ---------------- Building and Construction 1.2% Dal-Tile * 860,000 15,953 Layne Christensen * 344,800 2,931 Simpson Manufacturing * 234,800 14,206 Trex * 59,700 1,149 U.S. Aggregates 369,100 498 ---------------- 34,737 ---------------- Diversified Chemicals 1.2% Arch Chemicals 817,900 17,855 Cabot Microelectronics * 249,900 15,494 ---------------- 33,349 ---------------- Total Process Industries 83,442 ---------------- BASIC MATERIALS 2.3% Metals 2.0% Gibraltar Steel 210,500 4,126 Material Sciences * 693,200 6,849 19 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares Value - -------------------------------------------------------------------------------- In thousands Matthews International (Class A) + 910,100 $ 40,015 Reliance Steel & Aluminum * 190,000 4,797 ---------------- 55,787 ---------------- Mining 0.3% Coal Creek + 9,295 901 Lihir Gold (USD) * 7,996,700 3,712 Newmont Mining 229,556 4,272 ---------------- 8,885 ---------------- Total Basic Materials 64,672 ---------------- EDUCATION 0.1% Education 0.1% ITT Educational Services * 37,700 1,696 ---------------- Total Education 1,696 ---------------- Total Miscellaneous Common Stocks 0.7% 20,011 ---------------- Total Common Stocks (Cost $2,136,018) 2,592,858 ---------------- SHORT-TERM INVESTMENTS 8.8% Money Market Funds 8.8% T. Rowe Price Reserve Investment Fund, 4.34%, #+ 249,937,073 249,937 ---------------- Total Short-Term Investments (Cost $249,937) 249,937 ---------------- 20 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Value - -------------------------------------------------------------------------------- In thousands Total Investments in Securities 100.4% of Net Assets (Cost $2,385,955) $ 2,842,795 Other Assets Less Liabilities (10,959) ---------------- NET ASSETS $ 2,831,836 ---------------- # Seven-day yield + Affiliated company * Non-income producing ADR American Depository Receipt REIT Real Estate Investment Trust USD U.S. dollar The accompanying notes are an integral part of these financial statements. 21 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Unaudited June 30, 2001 - ----------------------------------- STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- In thousands Assets Investments in securities, at value Affiliated companies (cost $472,488) $ 501,293 Other companies (cost $1,913,467) 2,341,502 ---------------- Total investments in securities 2,842,795 Other assets 5,138 ---------------- Total assets 2,847,933 ---------------- Liabilities Total liabilities 16,097 ---------------- NET ASSETS $ 2,831,836 ---------------- Net Assets Consist of: Accumulated net investment income - net of distributions $ 5,869 Accumulated net realized gain/loss - net of distributions 11,712 Net unrealized gain (loss) 456,840 Paid-in-capital applicable to 113,025,167 shares of $0.50 par value capital stock outstanding; 200,000,000 shares authorized 2,357,415 NET ASSETS $ 2,831,836 ---------------- Small-Cap Stock shares ($2,811,502,063/112,213,283 shares outstanding) $ 25.05 Small-Cap Stock Advisor Class shares ---------------- ($20,333,542/811,884 shares outstanding) $ 25.04 ---------------- NET ASSET VALUE PER SHARE The accompanying notes are an integral part of these financial statements. 22 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Unaudited - ----------------------- STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- In thousands 6 Months Ended 6/30/01 Investment Income (Loss) Income Interest (including $6,839 from affiliated companies) $ 6,862 Dividend (including $2,737 from affiliated companies) 11,211 ---------------- Total Income 18,073 ---------------- Expenses Investment management 9,525 Shareholder servicing Small-Cap Stock shares 2,354 Small-Cap Stock Advisor Class shares 5 Registration 128 Custody and accounting 105 Prospectus and shareholder reports Small-Cap Stock shares 69 Small-Cap Stock Advisor Class shares -- Distribution - Small-Cap Stock Advisor Class shares 17 Legal and audit 10 Directors 8 ---------------- Total expenses 12,221 Expenses paid indirectly (17) ---------------- Net expenses 12,204 ---------------- Net investment income (loss) 5,869 ---------------- Realized and Unrealized Gain (Loss) Net realized gain (loss) on securities (including $184 from affiliated companies) 9,127 Change in net unrealized gain or loss on securities (including $(26) from affiliated companies) 143,500 ---------------- Net realized and unrealized gain (loss) 152,627 ---------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 158,496 ---------------- The accompanying notes are an integral part of these financial statements. 23 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Unaudited - ---------------------------------- STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- In thousands
6 Months Year Ended Ended 6/30/01 12/31/00 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 5,869 $ 12,834 Net realized gain (loss) 9,127 187,800 Change in net unrealized gain or loss 143,500 97,585 ---------------------------- Increase (decrease) in net assets from operations 158,496 298,219 ---------------------------- Distributions to shareholders Net investment income Small-Cap Stock shares -- (12,079) Small-Cap Stock Advisor Class shares -- (49) Net realized gain Small-Cap Stock shares -- (212,307) Small-Cap Stock Advisor Class shares -- (673) ---------------------------- Decrease in net assets from distributions -- (225,108) ---------------------------- Capital share transactions * Shares sold Small-Cap Stock shares 704,693 912,777 Small-Cap Stock Advisor Class shares 15,072 8,702 Distributions reinvested Small-Cap Stock shares -- 212,796 Small-Cap Stock Advisor Class shares -- 426 Shares redeemed Small-Cap Stock shares (305,870) (684,077) Small-Cap Stock Advisor shares (3,417) (1,199) ---------------------------- Increase (decrease) in net assets from capital share transactions 410,478 449,425 ---------------------------- Net Assets Increase (decrease) during period 568,974 522,536 Beginning of period 2,262,862 1,740,326 ---------------------------- End of period $ 2,831,836 $ 2,262,862 ----------------------------
The accompanying notes are an integral part of these financial statements. 24 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Unaudited - ---------------------------------- STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- In thousands 6 Months Year Ended Ended 6/30/01 12/31/00 * Share information Shares sold Small-Cap Stock shares 30,629 36,839 Small-Cap Stock Advisor Class shares 643 345 Distributions reinvested Small-Cap Stock shares -- 9,224 Small-Cap Stock Advisor Class shares -- 18 Shares redeemed Small-Cap Stock shares (12,894) (27,904) Small-Cap Stock Advisor Class shares (144) (50) ----------------------------- Increase (decrease) in shares outstanding 18,234 18,472 The accompanying notes are an integral part of these financial statements. 25 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Unaudited June 30, 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 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. 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 26 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- 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. 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 $460,989,000 and $127,953,000, respectively, for the six months ended June 30, 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 all of its taxable income. 27 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- At June 30, 2001, the cost of investments for federal income tax purposes was substantially the same as for financial reporting and totaled $2,385,955,000. Net unrealized gain aggregated $456,840,000 at period end, of which $682,690,000 related to appreciated investments and $225,850,000 to depreciated investments. 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 $1,735,000 was payable at June 30, 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 June 30, 2001, 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 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 $ 1,905,000 for the six months ended June 30, 2001, of which $322,000 was payable at period end. 28 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- 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 sponsored by Price Associates, 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, 2001, totaled $6,839,000 and are reflected as interest income in the accompanying Statement of Operations. 29 For fund and account information or to conduct transactions, 24 hours, 7 days a week By touch-tone telephone Tele*Access(R) 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 For the hearing impaired, call: 1-800-367-0763 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. Investor Centers: For directions, call 1-800-225-5132 or visit our Web site at www.troweprice.com/investorcenters Baltimore Area Downtown 105 East Lombard Street Owings Mills Three Financial Center 4515 Painters Mill Road Boston Area 386 Washington Street Wellesley Chicago Area 1900 Spring Road, Suite 104 Oak Brook Colorado Springs 2260 Briargate Parkway Los Angeles Area Warner Center 21800 Oxnard Street, Suite 270 Woodland Hills New Jersey/New York Area 51 JFK Parkway, 1st Floor Short Hills, New Jersey San Francisco Area 1990 North California Boulevard, Suite 100 Walnut Creek Tampa 4200 West Cypress Street 10th Floor Washington, D.C., Area Downtown 900 17th Street N.W. Farragut Square Tysons Corner 1600 Tysons Boulevard Suite 150 [LOGO OF T. ROWE PRICE] T. Rowe Price Investment Services, Inc., Distributor. E265-051 6/30/01 -----END PRIVACY-ENHANCED MESSAGE-----