N-30D 1 dn30d.txt T. ROWE PRICE SMALL CAP STOCK FUND Semiannual Report SMALL-CAP STOCK FUND ------------- JUNE 30, 2002 ------------- [LOGO] T. ROWE PRICE(R) . REPORT HIGHLIGHTS --------------------------------------------------------------------- . Small-Cap Stock Fund . Equity markets slid further in the first half of 2002. Small-cap stocks continued to outperform large-caps but could not buck the overall downtrend. . Your fund posted a modest decline but outperformed the Russell 2000 Index and the Lipper peer group index. . We added the most value with stock selection in the technology and health care sectors, while our financial holdings were weak relative to those in the Russell 2000. . The small-cap outperformance cycle is likely to continue, but we expect the next leg to be led by emerging growth stocks. 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 Extraordinarily challenging times for investors continued throughout the first half of 2002. A barrage of new terror threats and corporate scandals mingled with anxiety about a potential "double dip" recession to prolong and intensify the bear market psychology. Small-caps had been an oasis of calm throughout this two-year ordeal, thanks entirely to the irrepressible value sector, but a sharp downturn near the end of the period dragged the Russell 2000 Index into the negative column. However, the large-cap dominated Standard & Poor's Index posted a far steeper decline, with a drop of more than 13% year-to-date. ---------------------- PERFORMANCE COMPARISON -------------------------------------------------------------------------------- Periods Ended 6/30/02 6 Months 12 Months -------------------------------------------------------------------------------- Small-Cap Stock Fund -2.88% -1.15% Small-Cap Stock Fund-- Advisor Class shares -3.00 -1.35 Russell 2000 Index -4.70 -8.60 Lipper Small-Cap Core Funds Index -5.42 -4.94 S&P 500 Index -13.16 -17.99 The Small-Cap Stock Fund suffered only modest losses during the 6- and 12-month periods ended June 30, 2002, as shown in the table. Results exceeded those of our primary benchmarks, the Russell 2000 and the Lipper Small-Cap Core Funds Index, as well as the S&P 500 in both instances. Gains among small-cap value stocks--always the core of our portfolio--nearly offset the losses in our small-cap growth holdings. During the last two years, encompassing much of the bear market, value stocks lifted the fund to a positive return of 8.52% (cumulative) compared with the -8.07% return of the Russell 2000, the -0.19% return of the Lipper peer group index, and the substantial 30.15% loss of the S&P 500, a proxy for the market as a whole. In that period, the Russell 2000 Value Index soared 41.91% while the Russell 2000 Growth Index--former home of many an Internet and telecom stock--plunged 42.51%. 1 INVESTMENT REVIEW The best performers in the Russell 2000 year-to-date were the financial (+14%), materials (+14%), and consumer discretionary (+10%) sectors. The telecommunication services (-51%), information technology (-33%), and health care (-25%) sectors fell the most. Better stock selection, particularly in the technology and health care sectors, drove performance relative to the benchmark, though the impact of sector weightings was also positive. During the period, we were net buyers of technology stocks, narrowing our underweighting versus the benchmark. Therefore, the positive impact of our tech underweighting was much smaller than it has been over the past two years. However, our technology holdings (-25%) held their value better than those of the Russell 2000. Methode Electronics, a somewhat low-tech automotive connector company, was one of our top relative contributors within the tech sector. The stock surged 61% on better-than-expected earnings and auto industry fundamentals. Another top contributor versus the benchmark was Analogic, a maker of imaging systems and components that won a key contract for bomb detectors and equipment for use in airports. The shares rose 28%. Relative performance in the health care sector was driven by Noven Pharmaceuticals, a drug delivery company specializing in transdermal patches for uses such as hormone replacement and the treatment of Attention Deficit Hyperactivity Disorder. With improved results from its European joint venture and sound clinical results, Noven gained 43%. Shortly after period-end, negative study results on estrogen treatment for post-menopausal women slammed Noven shares. However, the long-term implications of the study may prove less adverse for the company than the market currently anticipates, and we continue to hold the stock. Underweighting the hapless telecommunication services sector, overweighting the stable industrials and business services sector, and strong stock selection in consumer discretionary also aided relative results. Our top detracting sector in relative terms was financials, as we were underweight the strong group and our own financial holdings (+8%) did not keep pace with those of the benchmark. Two of our largest overall holdings, Horace Mann Educators and PartnerRe, both insurance companies, fell 16% and 10%, respectively. Horace Mann underwrites property and casualty insurance primarily for school system 2 employees. The stock declined after a strong recovery from last fall's lows, partly due to management's decision to issue convertible debt. PartnerRe's decline may have been linked to concerns about overcapitalization, and therefore price competition, in the reinsurance industry. We continue to hold both stocks. ---------------------- SECTOR DIVERSIFICATION -------------------------------------------------------------------------------- Reserves 9% Consumer 17% Energy and Utilities 7% Industrials and Business Services 21% Materials 6% Information Technology 15% Health Care 8% Financial 17% Based on net assets as of 6/30/02. The fund's three largest contributors on an absolute basis were all stocks in which we had high confidence and a long acquaintance with company management. Electric motor and water heater maker A.O. Smith, a classic small-cap value industrial stock, jumped nearly 62% as investors anticipated an economic recovery and a solid rebound from the two-year inventory overhang in the motor business. Casual dining chain O'Charley's was our second-largest contributor, rising nearly 37% on better-than-expected results in two consecutive quarters. High-end audio systems maker Harman International was our third-largest contributor. The stock gained 10% as the company received strong orders from Daimler-Chrysler for next-generation audio systems in several new Mercedes-Benz models. Not surprisingly our top three detractors in absolute terms were all technology stocks. Final demand for both hardware and software remains anemic. The evaporation of enterprise spending has hit the software sector hard. Our largest detractor, Internet Security Systems, plunged 59% after a strong move late last year. Investors appear to anticipate that the company will continue to struggle with sales and profits in the second half. We think infrastructure and security software is a strong theme and Internet Security Systems is poised to benefit in the years ahead. Wind River Systems, our second-largest detractor with a drop of 72%, sets the standard in the real-time operating systems market, but the company has struggled due to its heavy reliance 3 on telecommunications and networking equipment demand. Wind River was forced to lower earnings expectations for the remainder of the year. Electronic manufacturing services provider Plexus fell 45% and was our third-largest detractor. Investors were concerned the company could lose a major customer as a result of a merger. We continue to stand by both Wind River and Plexus. PORTFOLIO HIGHLIGHTS Given the near-capitulation in emerging growth stocks, we have continued to add to the group at the margin even as others are forced to sell, though the fund remains balanced, as always. Net new purchases in the first half were primarily in the technology, industrials and business services, and materials sectors, while we were net sellers in the utilities sector. Within technology we find the software industry compelling at current valuations, and we have continued to add to our holdings. Minerals Technologies, a maker of additives for the paper and steel industries, was our largest purchase. The company should benefit from a recovery in those industries, but it also possesses an excellent business model characterized by recurring revenues, leading market share, high intellectual property, solid margins, and a strong value proposition for its customers. A new additive for the glass industry, currently in testing, could become a growth driver for the company. Our second-largest purchase was Kronos, a software firm that dominates the labor management systems field with about half the market. Kronos' systems, targeted to small and mid-size businesses, can best be visualized as punch clocks for the digital age. The company is entering a strong new hardware and software product upgrade cycle with Web-enabled systems, allowing busy professionals to easily track their billable hours while on the road. Kronos also receives payment on a per-employee basis and is thus a direct beneficiary of an economic recovery. Another significant purchase was IMC Global, a fertilizer manufacturer, whose shares were cheap on a historical basis. The agricultural economy has suffered through its worst downturn in nearly 50 years thanks to an unprecedented combination of above-average corn harvests in the U.S., inventory liquidations in China, and declining corn exports due to the strong dollar and reduced Asian demand. Pricing is 4 improving in some key markets, and lower corn inventories should support increased planting and thus demand for fertilizer. Largest sales During the period, we said goodbye to a stock that felt like an old friend--Dal-Tile International was eliminated due to its acquisition by Mohawk Industries. Dal-Tile CEO Jacques Sardas created great value for shareholders (again) with this shrewd merger. Longtime shareholders may recall that Sardas once led and sold another of our successful holdings, Sudbury, back in the `90s. Jacques epitomizes the kind of high-quality, shareholder-focused corporate management that we favor, and we wish him success in his next endeavor. We also sold nearly all of our position in Downey Financial, a California savings and loan. Thrifts have benefited from falling interest rates, and Downey was no exception. However, we were concerned by weakness in portions of Downey's loan portfolio. Finally, home respiratory services provider Lincare Holdings has been an exceptionally strong holding over the last two years, but we continued to take profits as the valuation seemed full and Lincare's market cap exceeded $3 billion. OUTLOOK ---------------- GROWTH VS. VALUE --------------------------------------------------------------------- Periods Ended 6/30/02 6 Months 12 Months 2 Years --------------------------------------------------------------------- Russell 2000 Growth Index -17.35% -25.00% -42.51% Russell 2000 Value Index 7.26 8.49 41.91 As we write, the market has continued to be perfectly horrible. This period reminds us of the depths of the 1982 bear market, when we faced a seemingly endless litany of declining stock prices. However, of such things are market bottoms made. Investors now have a renewed appreciation for the inherent risk and volatility of the asset class. At market bottoms, confidence is low, fear is palpable, and investors just want out of stocks. Sound familiar? Smaller-company stocks bucked the bear trend until the second quarter. The small-cap outperformance cycle turned three years old in 5 April, and judging from the spring swoon, many investors are concerned the cycle might be getting long in the tooth. However, we believe the small-cap rally is alive and well. Prior to May, the Russell 2000 had scarcely stopped to catch its breath after a powerful surge from its September 21 lows. Corrections within an overall trend of small-cap outperformance are not the least unusual. A new wrinkle in the story has been the turnaround in the once-invincible U.S. dollar. Weakness in the greenback has caused some investors to shoot small-caps first and ask questions later. We would argue that the dollar's decline to date is not sufficient to cause alarm for small-cap investors, though a longer-term downtrend combined with rising interest rates would be cause for concern. The dollar's future trajectory will likely hinge on the relative strength of the U.S. economy versus the global economy. A robust domestic recovery--which we consider increasingly likely the longer the Fed keeps interest rates low--should lend support to the dollar and boost small-cap earnings disproportionately, since smaller companies tend to be more domestically focused. The steep drop in smaller companies' earnings, caused by the recession, has made small-cap valuations look full compared with large-caps on the basis of trailing earnings. But the group looks attractive based on forward earnings estimates. In fact, small-caps are still historically cheap relative to large-caps when one considers price/sales and price/book value ratios. By both measures, small-caps remain near or below their trough level of 1990 relative to large-caps. In addition, the small-cap recovery to date has been tepid compared with the last cycle in the early 1990s, when the Russell 2000 more than doubled in three years. By contrast, in the present cycle the small-cap benchmark has gained less than 30% since its trough in March 1999 (though the move has been much greater relative to the S&P 500). The current small-cap rally has been led entirely by value stocks, and that is unusual. History suggests that both value and growth participate in small-cap bull markets. Indeed, growth stocks in the past have outperformed in those circumstances. It remains our view that we are only midway through the small-cap cycle, and the next leg should be led by emerging growth stocks. The Russell 2000 was able to rise in spite of the bear market of the past two years primarily because of its extreme relative undervaluation following the large-cap growth bubble of the 1990s. Further small-cap 6 gains will depend on a sharp rebound in earnings, and this is where the emerging growth group should excel. We have continued to add to our growth stock holdings with that expectation. Our balanced approach between growth and value has served us well during the bear market, and certainly over the longer term. We have outperformed the Russell 2000 with less volatility. Our thesis is that by managing an all-weather blend of emerging growth, growth-at-a-reasonable-price, and value stocks, we can stay in the game when the going gets rough, yet still participate on the upside when the bull gets a head of steam. This philosophy remains as valid as ever. Respectfully submitted, /S/Greg McCrickard Greg A. McCrickard President of the fund and chairman of its Investment Advisory Committee July 19, 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. 7 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- -------------------- PORTFOLIO HIGHLIGHTS -------------------------------------------------------------------------------- TWENTY-FIVE LARGEST HOLDINGS Percent of Net Assets 6/30/02 ---------------------------------------------------------------------------- Harman International 1.8% Chittenden 1.4 Iron Mountain 1.3 A.O. Smith 1.3 Harsco 1.1 ---------------------------------------------------------------------------- SCP Pool 1.1 Matthews International 1.1 XTO Energy 1.1 Minerals Technologies 1.1 WestAmerica 1.1 ---------------------------------------------------------------------------- Horace Mann Educators 1.1 Belden 1.0 Scotts 1.0 PartnerRe 1.0 Maximus 1.0 ---------------------------------------------------------------------------- Valley National Bancorp 1.0 Citizens Banking 1.0 W. R. Berkley 0.9 Airgas 0.9 Henry Schein 0.9 ---------------------------------------------------------------------------- Cleco 0.9 Seacor Smit 0.9 Paxar 0.9 Armor Holdings 0.9 KEMET 0.9 ---------------------------------------------------------------------------- Total 26.7% Note: Table excludes investments in the T. Rowe Price Reserve Investment Fund. 8 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- -------------------- PORTFOLIO HIGHLIGHTS -------------------------------------------------------------------------------- MAJOR PORTFOLIO CHANGES Listed in descending order of size 6 Months Ended 6/30/02 Ten Largest Purchases Ten Largest Sales -------------------------------------------------------------------------------- Minerals Technologies * Dal-Tile International ** Kronos * Downey Financial Scotts * Lincare Holdings Paxar * JP Realty Great Atlantic & Pacific Tea Company * Cleco Plexus Ivex Packaging Resources Connection * Brown and Brown Jack Henry & Associates Brooks-Pri Automation ** KEMET McGrath RentCorp ** IMC Global * Columbia Sportswear * Position added ** Position eliminated 9 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 -------------------------------------------------------------------------------- [CHART] Lipper Small-Cap Russell Core Funds Small-Cap 2000 Index Index Stock Fund ------------ ---------- ----------- 6/92 $10,000 $10,000 $10,000 6/93 12,601 12,224 12,321 6/94 13,148 12,618 13,211 6/95 15,792 15,218 15,782 6/96 19,565 19,761 20,979 6/97 22,759 22,746 24,850 6/98 26,516 26,596 30,041 6/99 26,914 25,573 28,995 6/00 30,769 31,612 35,422 6/01 30,945 33,193 38,886 6/02 28,285 31,553 38,439 Note: Performance for Advisor Class shares will vary due to the differing fee structure. See returns table below. -------------------------------------------------------------------------------- ------------------------------------ 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 6/30/02 1 Year 3 Years 5 Years 10 Years Inception Date ------------------------------------------------------------------------------------------------ Small-Cap Stock shares -1.15% 9.85% 9.12% 14.41% - - Small-Cap Stock-- Advisor Class shares -1.35 - - - 4.51% 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. 10 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- Unaudited -------------------- FINANCIAL HIGHLIGHTS For a share outstanding throughout each period -------------------------------------------------------------------------------- Small-Cap Stock shares
6 Months Year Ended Ended 6/30/02 12/31/01 12/31/00 12/31/99 12/31/98 12/31/97 NET ASSET VALUE Beginning of period $ 25.34 $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) (0.73) 1.52 3.52 2.89 (0.89) 5.13 Total from investment activities (0.73) 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 $ 24.61 $25.34 $ 23.87 $ 22.80 $ 20.79 $ 22.20 ------------------------------------------------------------------ Ratios/Supplemental Data Total return/\ (2.88)% 6.81% 16.49% 14.66% (3.46)% 28.81% Ratio of total expenses to average net assets 0.94%+ 0.98% 0.94% 0.96% 1.01% 1.02% Ratio of net investment income (loss) to average net assets (0.04)%+ 0.45% 0.63% 0.47% 0.46% 0.33% Portfolio turnover rate 18.3%+ 16.5% 32.8% 42.3% 25.9% 22.9% Net assets, end of period (in millions) $ 3,696 $3,158 $ 2,255 $ 1,740 $ 1,153 $ 816
/\ 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. 11 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 Year 3/31/00 Ended Ended Through 6/30/02 12/31/01 12/31/00 NET ASSET VALUE Beginning of period $ 25.32 $ 23.89 $ 24.93 Investment activities Net investment income (loss) (0.02) 0.04 0.07 Net realized and unrealized gain (loss) (0.74) 1.53 1.53 Total from investment activities (0.76) 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 $ 24.56 $ 25.32 $ 23.89 ------------------------------------ Ratios/Supplemental Data Total return/\ (3.00)% 6.60% 6.79% Ratio of total expenses to average net assets 1.19%+ 1.16% 0.82%+ Ratio of net investment income (loss) to average net assets (0.26)%+ 0.26% 0.85%+ Portfolio turnover rate 18.3%+ 16.5% 32.8%+ Net assets, end of period (in thousands) $ 96,883 $ 38,632 $ 7,479 /\ 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. 12 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- Unaudited June 30, 2002 ------------------------ PORTFOLIO OF INVESTMENTS Shares Value -------------------------------------------------------------------------------- In thousands COMMON STOCKS 91.4% CONSUMER DISCRETIONARY 14.0% Auto Components 0.6% Keystone Automotive * 640,300 $ 12,185 Strattec Security * 190,600 10,544 ---------- 22,729 ---------- Hotels, Restaurants & Leisure 2.7% Applebee's 471,675 10,825 BUCA * 734,300 13,989 CEC Entertainment * 189,300 7,818 O'Charley's *+ 1,272,500 32,194 Ruby Tuesday 981,400 19,039 Sonic * 618,500 19,427 ---------- 103,292 ---------- Household Durables 3.0% Harman International 1,418,900 69,881 Matthews International, Class A + 1,809,800 42,259 ---------- 112,140 ---------- Internet & Catalog Retail 0.3% Alloy Online * 710,000 10,252 ---------- 10,252 ---------- Leisure Equipment & Products 1.8% Brunswick 950,200 26,606 SCP Pool *+ 1,553,550 43,126 ---------- 69,732 ---------- Media 1.6% Emmis Broadcasting, Class A * 644,300 13,653 Entercom Communications * 230,500 10,580 Scholastic * 339,800 12,878 Sinclair Broadcast Group, Class A * 1,230,700 17,770 Young Broadcasting, Class A * 430,700 7,658 ---------- 62,539 ---------- Multiline Retail 0.9% Neiman Marcus, Class A * 765,800 26,573 Stein Mart * 519,100 6,162 ---------- 32,735 ---------- 13 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- In thousands Specialty Retail 2.1% Aeropostale * 330,000 $ 9,032 Christopher & Banks * 325,100 13,752 Copart * 800,000 12,984 Linens'n Things * 623,900 20,470 Ultimate Electronics * 237,800 6,161 Urban Outfitters * 469,600 16,305 --------- 78,704 --------- Textiles, Apparel, & Luxury Goods 1.0% Columbia Sportswear * 124,450 3,982 Culp * 211,900 3,414 Dan River, Class A * 962,400 5,235 Stride Rite 1,711,800 13,694 Unifi * 908,400 9,902 --------- 36,227 --------- Total Consumer Discretionary 528,350 --------- CONSUMER STAPLES 3.1% Food & Drug Retailing 1.7% Casey's General Stores + 2,648,000 31,882 Great Atlantic & Pacific Tea Company * 1,205,000 22,521 Performance Food Group * 62,100 2,103 Seneca Foods, Class A * 187,600 2,509 Seneca Foods, Class B * 72,000 1,066 Wild Oats Markets * 349,100 5,620 --------- 65,701 --------- Food Products 0.9% ADM Cranberry *++1 164 4 American Italian Pasta, Class A * 239,000 12,187 International Multifoods * 752,200 19,557 Makepeace * 164 866 --------- 32,614 --------- Personal Products 0.5% Chattem *+ 536,500 16,900 Playtex Products * 167,000 2,162 --------- 19,062 --------- Total Consumer Staples 117,377 --------- 14 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- In thousands ENERGY 6.1% Energy Equipment & Services 3.5% Atwood Oceanics * 562,000 $ 21,075 Cooper Cameron * 103,300 5,002 FMC Technologies * 994,200 20,640 Grant Prideco * 131,450 1,788 Hydril * 318,300 8,530 Key Energy Services * 668,100 7,015 Lone Star Technologies * 305,700 7,001 National Oilwell * 451,700 9,508 Seacor Smit * 724,500 34,305 Smith International * 130,100 8,871 W-H Energy Services * 473,900 10,502 --------- 134,237 --------- Oil & Gas 2.6% Forest Oil * 763,100 21,695 Noble Affiliates 834,400 30,080 Ultra Petroleum * 588,500 4,467 XTO Energy 2,013,275 41,473 --------- 97,715 --------- Total Energy 231,952 --------- FINANCIALS 17.3% Banks 6.3% Chittenden + 1,813,150 52,545 Citizens Banking 1,256,600 36,416 Downey Financial 3,000 142 First Bell Bancorp 95,100 1,631 Frankfort First + 71,400 1,278 Glacier Bancorp 515,990 12,642 ITLA Capital * 137,000 4,067 Provident Bankshares 952,078 22,555 Southwest Bancorp * 858,500 31,095 Valley National Bancorp 1,312,468 36,487 WestAmerica 1,036,500 40,610 --------- 239,468 --------- 15 T. ROWE PRICE SMALL-CAP STOCK FUND --------------------------------------------------------------------------------
Shares Value -------------------------------------------------------------------------------- In thousands Insurance 6.4% Brown and Brown 1,010,000 $ 31,815 Harleysville Group 447,100 12,394 Horace Mann Educators + 2,139,100 39,937 London Pacific Group ADR 68,970 232 Markel * 111,500 21,965 Ohio Casualty * 1,463,400 30,585 PartnerRe 770,600 37,721 Selective Insurance 695,000 19,689 Triad Guaranty * 290,000 12,624 W. R. Berkley 646,000 35,530 --------------- 242,492 --------------- Real Estate 4.6% Apartment Investment & Management, Class A, REIT 102,900 5,063 Arden Realty, REIT 739,200 21,030 EastGroup Properties, REIT + 887,600 22,723 Gables Residential Trust, REIT 792,600 25,308 Glenborough Realty Trust, REIT 775,000 18,367 JP Realty, REIT 269,300 7,177 LaSalle Hotel Properties, REIT 495,400 7,803 Manufactured Home Communities, REIT 315,000 11,056 Parkway Properties, REIT + 599,700 21,817 Reckson Associates Realty, Class B, REIT 265,900 6,780 Washington, REIT 971,300 28,071 --------------- 175,195 --------------- Total Financials 657,155 HEALTH CARE 7.9% Biotechnology 2.1% Abgenix * 96,000 941 Alkermes * 906,900 14,519 Cephalon * 353,517 15,979 Cubist Pharmaceuticals * 109,500 1,030 CV Therapeutics * 104,300 1,942 Deltagen * 260,700 639 Exelixis * 353,700 2,663 Gilead Sciences * 95,000 3,124 Incyte Genomics * 171,800 1,249
16 T. ROWE PRICE SMALL-CAP STOCK FUND -----------------------------------------------------------------------------
Shares Value ----------------------------------------------------------------------------- In thousands Neurocrine Biosciences * 280,100 $ 8,025 NPS Pharmaceuticals * 289,000 4,428 OSI Pharmaceuticals * 173,500 4,167 Regeneron Pharmaceuticals * 119,700 1,737 Triangle Pharmaceuticals * 684,800 1,856 Trimeris * 270,000 11,985 Versicor * 271,200 3,648 Vertex Pharmaceuticals * 149,620 2,436 ViroPharma * 163,200 233 --------------- 80,601 --------------- Health Care Equipment & Supplies 1.3% Edwards Lifesciences * 589,900 13,686 EPIX Medical * 190,000 2,005 Inhale Therapeutic Systems * 350,100 3,322 Serologicals * 125,900 2,303 Sola * 197,500 2,271 Steris * 825,100 15,768 Wilson Greatbatch Technologies * 470,700 11,993 --------------- 51,348 --------------- Health Care Providers & Services 3.7% AmeriPath * 778,300 18,679 AMN Healthcare Services * 32,100 1,124 Cross Country * 190,800 7,212 Henry Schein * 777,200 34,585 Hooper Holmes 1,632,900 13,063 Lifeline Systems *+ 333,600 8,787 Lincare Holdings * 95,000 3,069 Maximus *+ 1,158,300 36,718 Orthodontic Centers of America * 299,400 6,901 Renal Care Group * 303,650 9,459 --------------- 139,597 --------------- Pharmaceuticals 0.8% Eon Labs * 200,000 3,558 Guilford Pharmaceuticals * 52,100 393 IntraBiotics Pharmaceuticals * 300,000 390 Medicines Company * 234,700 2,894 Noven Pharmaceuticals * 861,600 21,970 --------------- 29,205 --------------- Total Health Care 300,751 ---------------
17 T. ROWE PRICE SMALL-CAP STOCK FUND -----------------------------------------------------------------------------
Shares Value In thousands ----------------------------------------------------------------------------- INDUSTRIALS & BUSINESS SERVICES 20.2% Aerospace & Defense 0.9% Armor Holdings * 1,307,300 $ 33,336 --------------- 33,336 --------------- Air Freight & Logistics 2.6% C.H. Robinson Worldwide 277,400 9,301 Expeditors International of Washington 733,600 24,326 Forward Air * 587,105 19,245 Pacer International * 680,000 11,723 Ryder System 720,000 19,505 UTi Worldwide 774,700 15,316 --------------- 99,416 --------------- Airlines 0.2% Frontier Airlines * 90,000 732 Midwest Express Holdings * 555,600 7,334 --------------- 8,066 --------------- Building Products 0.5% Simpson Manufacturing * 244,900 13,991 Watsco, Class A 202,600 3,698 --------------- 17,689 --------------- Commercial Services & Supplies 9.0% BISYS Group * 744,000 24,775 Central Parking 1,421,400 32,479 CompX International, Class A + 448,700 5,945 Electro Rent * 564,300 7,330 Factset Research Systems 665,300 19,806 G&K Services, Class A 658,700 22,554 Global Payments 620,000 18,445 Herman Miller 995,100 20,201 Iron Mountain * 1,641,825 50,650 KForce.com * 95,312 567 Layne Christensen * 343,700 3,179 New England Business Service + 911,000 22,903 Resources Connection * 1,015,000 27,395 SOURCECORP * 625,900 16,586 Spherion * 839,300 9,988 Tetra Tech * 1,614,262 23,730 United Stationers * 823,400 25,032
18 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------
Shares Value ------------------------------------------------------------------------------- In thousands Waterlink * 445,400 $ 31 West Corporation * 371,908 8,204 --------------- 339,800 --------------- Construction & Engineering 0.4% Insituform Technologies, Class A * 698,100 14,786 --------------- 14,786 --------------- Electrical Equipment 3.6% A.O. Smith 1,520,700 47,461 American Superconductor * 219,000 1,196 Belden + 1,875,000 39,075 Global Power Equipment Group * 19,800 196 Paxar *+ 2,005,000 33,584 PECO II * 260,200 871 Woodward Governor 260,400 15,395 --------------- 137,778 --------------- Machinery 2.6% Actuant Corporation, Class A * 461,080 19,019 Cuno * 548,400 19,841 Harsco 1,159,600 43,485 IDEX 181,300 6,074 Joy Global * 191,900 3,327 Reliance Steel & Aluminum 253,100 7,720 --------------- 99,466 --------------- Marine 0.0% International Shipholding * 135,062 885 --------------- 885 --------------- Road & Rail 0.2% Heartland Express * 233,391 5,585 --------------- 5,585 --------------- Trading Companies & Distributors 0.2% MSC Industrial Direct, Class A * 421,400 8,217 --------------- 8,217 --------------- Total Industrials & Business Services 765,024 --------------- INFORMATION TECHNOLOGY 15.4% Communications Equipment 1.1% Black Box * 650,000 26,474 ditech Communications * 146,300 415
19 T. ROWE PRICE SMALL-CAP STOCK FUND ------------------------------------------------------------------------------- Shares Value ------------------------------------------------------------------------------- In thousands Harmonic * 484,900 $ 1,774 Packeteer * 527,500 2,332 Riverstone Networks * 1,750,000 5,478 Stratos Lightwave * 421,432 674 Tekelec * 331,700 2,664 --------------- 39,811 --------------- Electronic Equipment & Instruments 5.0% Analogic 484,500 23,823 Artesyn Technologies * 1,034,200 6,753 KEMET * 1,845,000 32,952 Littelfuse * 1,066,200 24,661 LSI Industries 651,400 11,966 Methode Electronics, Class A 1,254,700 16,023 Newport * 313,300 4,906 Plexus * 1,798,600 32,555 Technitrol 904,500 21,075 Woodhead Industries + 912,600 15,642 --------------- 190,356 --------------- Internet Software & Services 1.0% Digital Impact * 407,600 799 Internet Security Systems * 1,087,600 14,269 Keynote Systems * 298,000 2,181 MatrixOne * 1,603,700 9,783 Netegrity * 900,000 5,544 Register.com * 184,900 1,409 Sonicwall * 340,200 1,708 Stellent * 390,600 1,758 --------------- 37,451 --------------- IT Consulting & Services 1.5% Analysts International 578,200 2,457 AnswerThink * 424,500 1,609 CACl International, Class A * 649,000 24,785 ManTech , Class A * 353,900 8,490 MPS Group * 1,446,800 12,298 Renaissance Learning * 422,200 8,537 --------------- 58,176 --------------- Semiconductor Equipment & Products 2.9% Applied Micro Circuits * 23,700 112 ATMI * 898,400 20,097 20 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- Shares Value -------------------------------------------------------------------------------- In thousands Cabot Microelectronics * 324,000 $ 13,984 Entegris * 1,405,000 20,513 Exar * 638,000 12,582 Genesis Microchip * 150,000 1,251 hi/fn * 105,200 689 MKS Instruments * 900,700 18,077 Mykrolis * 1,365,900 16,131 Pixelworks * 440,500 3,696 QuickLogic * 485,900 1,764 Sipex * 413,800 2,023 -------- 110,919 -------- Software 3.9% Activision * 76,500 2,223 Actuate * 545,500 2,455 Concord Communications * 206,300 3,400 Jack Henry & Associates 1,789,800 29,872 Kronos *+ 1,030,000 31,404 Magma Design Automation * 81,400 1,367 Mercury Interactive * 279,300 6,413 Midway Games * 1,621,000 13,778 NetIQ * 216,400 4,897 Progress Software * 1,316,000 19,423 Quest Software * 409,400 5,948 SPSS * 536,400 8,336 Verisity *++ 208,600 3,617 Verity * 872,200 9,673 Wind River Systems * 1,010,900 5,064 -------- 147,870 -------- Total Information Technology 584,583 -------- MATERIALS 6.3% Chemicals 4.9% Airgas * 2,017,800 34,908 Arch Chemicals + 1,198,100 29,593 Ferro 285,000 8,593 IMC Global 1,650,000 20,625 MacDermid 165,000 3,547 Material Sciences * 691,100 9,689 21 T. ROWE PRICE SMALL-CAP STOCK FUND ------------------------------------------------------------------------------ Shares Value ------------------------------------------------------------------------------ In thousands Minerals Technologies 828,000 $ 40,837 Scotts, Class A * 842,000 38,227 ------------- 186,019 ------------- Containers & Packaging 0.3% Ivex Packaging * 400,000 9,108 Smurfit-Stone Container * 191,100 2,947 ------------- 12,055 ------------- Metals & Mining 0.7% Adrian Steel +1 13,000 3,380 Coal Creek 1 9,295 1,766 Gibraltar Steel 228,500 5,070 Lihir Gold (AUD) * 7,971,900 6,015 Newmont Mining 138,856 3,656 NN, Inc. 349,100 4,469 ------------- 24,356 ------------- Paper & Forest Products 0.4% Buckeye Technologies * 1,460,100 14,309 Potlatch 12,100 411 ------------- 14,720 ------------- Total Materials 237,150 ------------- TELECOMMUNICATION SERVICES 0.0% Wireless Telecommunication Services 0.0% Western Wireless, Class A * 340,000 1,088 ------------- Total Telecommunication Services 1,088 ------------- UTILITIES 1.1% Electric Utilities 1.1% Cleco 1,577,300 34,543 Unisource Energy 344,500 6,408 ------------- Total Utilities 40,951 ------------- Total Common Stocks (Cost $3,159,413) 3,464,381 ------------- SHORT-TERM INVESTMENTS 8.5% Money Market Fund 8.5% T. Rowe Price Reserve Investment Fund, 1.95% #+ 323,609,600 323,610 ------------- Total Short-Term Investments (Cost $323,610) 323,610 -------------
22 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- Value -------------------------------------------------------------------------------- In thousands Total Investments in Securities 99.9% of Net Assets (Cost $3,483,023) $ 3,787,991 Other Assets Less Liabilities 5,172 ----------- NET ASSETS $ 3,793,163 ----------- * Non-income producing + Affiliated company, as defined by the Investment Company Act of 1940, as a result of the fund's ownership of at least 5% of the company's outstanding voting securities. ++ Security contains restrictions as to public resale pursuant to the Securities Act of 1933 and related rules -- total of such securities at period-end amounts to $3,621 and represents 0.1% of net assets. 1 Securities valued by the Fund's Board of Directors. ADR American Depository Receipts REIT Real Estate Investment Trust AUD Australian dollar # Seven-day yield The accompanying notes are an integral part of these financial statements. 23 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- Unaudited June 30, 2002 ----------------------------------- STATEMENT OF ASSETS AND LIABILITIES -------------------------------------------------------------------------------- In thousands Assets Investments in securities, at value Affiliated companies (cost $473,093) $ 531,691 Other companies (cost $3,009,930) 3,256,300 -------------- Total investments in securities 3,787,991 Other assets 29,600 -------------- Total assets 3,817,591 -------------- Liabilities Total liabilities 24,428 -------------- NET ASSETS $ 3,793,163 -------------- Net Assets Consist of: Undistributed net investment income (loss) $ (790) Undistributed net realized gain (loss) 72,801 Net unrealized gain (loss) 304,968 Paid-in-capital applicable to 154,125,634 shares of $0.50 par value capital stock outstanding; 200,000,000 shares authorized 3,416,184 -------------- NET ASSETS $ 3,793,163 -------------- NET ASSET VALUE PER SHARE Small-Cap Stock shares ($3,696,279,635/150,180,346 shares outstanding) $ 24.61 -------------- Small-Cap Stock - Advisor Class shares ($96,883,163/3,945,288 shares outstanding) $ 24.56 -------------- The accompanying notes are an integral part of these financial statements. 24 T. ROWE PRICE SMALL-CAP STOCK FUND ------------------------------------------------------------------------------- Unaudited ----------------------- STATEMENT OF OPERATIONS ------------------------------------------------------------------------------- In thousands
6 Months Ended 6/30/02 Investment Income (Loss) Income Dividend (including $4,358 from affiliated companies) $ 12,811 Interest 3,455 --------- Total income 16,266 --------- Expenses Investment management 13,875 Shareholder servicing Small-Cap Stock shares 2,593 Small-Cap Stock - Advisor Class shares 35 Prospectus and shareholder reports Small-Cap Stock shares 173 Small-Cap Stock - Advisor Class shares 13 Registration 156 Custody and accounting 126 Distribution - Small Cap Stock - Advisor Class shares 85 Proxy and annual meeting 72 Legal and audit 13 Directors 11 -------- Total expenses 17,152 Expenses paid indirectly (96) -------- Net expenses 17,056 -------- Net investment income (loss) (790) -------- Realized and Unrealized Gain (Loss) Net realized gain (loss) on securities (including $6,194 from affiliated companies) 68,886 Change in net unrealized gain (loss) on securities (197,056) -------- Net realized and unrealized gain (loss) (128,170) -------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $(128,960) ---------
The accompanying notes are an integral part of these financial statements. 25 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- Unaudited ---------------------------------- STATEMENT OF CHANGES IN NET ASSETS -------------------------------------------------------------------------------- In thousands
6 Months Year Ended Ended 6/30/02 12/31/01 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ (790) $ 11,794 Net realized gain (loss) 68,886 14,725 Change in net unrealized gain (loss) (197,056) 188,684 ------------------------------- Increase (decrease) in net assets from operations (128,960) 215,203 ------------------------------- Distributions to shareholders Net investment income Small-Cap Stock shares - (12,048) Small-Cap Stock - Advisor Class shares - (120) Net realized gain Small-Cap Stock shares - (6,014) Small-Cap Stock - Advisor Class shares - (67) ------------------------------- Decrease in net assets from distributions - (18,249) ------------------------------- Capital share transactions * Shares sold Small-Cap Stock shares 1,122,782 1,287,637 Small-Cap Stock - Advisor Class shares 81,759 36,319 Distributions reinvested Small-Cap Stock shares - 17,051 Small-Cap Stock - Advisor Class shares - 184 Shares redeemed Small-Cap Stock shares (460,324) (596,594) Small-Cap Stock - Advisor Class shares (18,929) (7,578) ------------------------------- Increase (decrease) in net assets from capital share transactions 725,288 737,019 ------------------------------- Net Assets Increase (decrease) during period 596,328 933,973 Beginning of period 3,196,835 2,262,862 ------------------------------- End of period $3,793,163 $3,196,835 ------------------------------- *Share information Shares sold Small-Cap Stock shares 43,628 54,909 Small-Cap Stock - Advisor Class shares 3,143 1,533 Distributions reinvested Small-Cap Stock shares - 701 Small-Cap Stock - Advisor Class shares - 7 Shares redeemed Small-Cap Stock shares (18,077) (25,459) Small-Cap Stock - Advisor Class shares (724) (327) ------------------------------- Increase (decrease) in shares outstanding 27,970 31,364
The accompanying notes are an integral part of these financial statements. 26 T. ROWE PRICE SMALL-CAP STOCK FUND Unaudited June 30, 2002 NOTES TO FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price Small-Cap Stock Fund, Inc. (the fund) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The fund seeks to provide long-term capital growth by investing primarily in stocks of small companies. The fund has two classes of shares: Small-Cap Stock Fund, offered since June 1, 1956, and Small-Cap Stock Fund - Advisor Class, which was 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 accounting principles generally accepted in the United States of America, which require the use of estimates made by fund management. Valuation Equity securities listed or regularly traded on a securities exchange or in the over-the-counter market are valued at the last quoted sale price, or official closing price for certain markets, 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 are valued at the mean of the latest bid and ask prices. Other equity securities are valued at a price within the limits of the latest bid and ask 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 ask prices of such currencies against U.S. dollars quoted 27 T. ROWE PRICE SMALL-CAP STOCK FUND ------------------------------------------------------------------------------- by a major bank. Purchases and sales of securities, 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. Class Accounting 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 incurred by each class 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, typically on an annual basis. Expenses Paid Indirectly Certain security trades are directed to brokers who have agreed to rebate a portion of the related commission to the fund to pay fund expenses. Additionally, credits earned on temporarily uninvested cash balances at the custodian are used to reduce the fund's custody charges. Total expenses in the accompanying statement of operations are presented before reduction for rebates and credits, which totaled $95,000 and $1,000, respectively, for the period ended June 30, 2002. 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. NOTE 2 - INVESTMENT TRANSACTIONS Purchases and sales of portfolio securities, other than short-term securities, aggregated $988,149,000 and $302,488,000, respectively, for the six months ended June 30, 2002. 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. Federal income tax regulations differ from generally accepted accounting principles; therefore, distribu- 28 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- tions determined in accordance with tax regulations may differ in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Temporary differences are not adjusted. The amount and character of tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of June 30, 2002. At June 30, 2002, the cost of investments for federal income tax purposes was substantially the same as for financial reporting and totaled $3,483,023,000. Net unrealized gain aggregated $304,968,000 at period-end, of which $644,062,000 related to appreciated investments and $339,094,000 related 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, which is computed daily and paid monthly. The fee consists of an individual fund fee, equal to 0.45% of the fund's average daily net assets, and the fund's pro-rata share of a group fee. The group fee is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.295% for assets in excess of $120 billion. The fund's portion of the group fee is determined by the ratio of its net assets to those of the group. At June 30, 2002, the effective annual group fee rate was 0.32%, and investment management fee payable totaled $2,412,000. The manager has agreed to bear any expenses through December 31, 2003, which would cause the Small-Cap Stock - Advisor Class's ratio of total expenses to average net assets to exceed 1.20%. Thereafter, through December 31, 2005, the 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 service agreements with Price Associates and two wholly owned subsidiaries of Price Associates (collectively, Price). Price Associates computes the daily share prices and maintains the financial 29 T. ROWE PRICE SMALL-CAP STOCK FUND ------------------------------------------------------------------------------- records of the fund. T. Rowe Price Services, Inc. provides shareholder and administrative services in its capacity as the fund's transfer and dividend disbursing agent. T. Rowe Price Retirement Plan Services, Inc. provides subaccounting and recordkeeping services for certain retirement accounts invested in the Small-Cap Stock share class. Expenses incurred pursuant to these service agreements totaled $1,777,000 for the six months ended June 30, 2002, of which $233,000 was payable at period-end. Additionally, the fund is one of several mutual funds in which certain college savings plans managed by Price Associates may invest. As approved by the fund's Board of Directors, shareholder servicing costs associated with each college savings plan are borne by the fund in proportion to the average daily value of its shares owned by the college savings plan. For the six months ended June 30, 2002, the Small-Cap Stock share class was charged $52,000 for shareholder servicing costs related to the college savings plans, of which $45,000 was for services provided by Price and $10,000 was payable at period-end. At June 30, 2002, approximately 1.6% of the outstanding shares of the Small-Cap Stock share class 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 six months ended June 30, 2002, totaled $3,455,000 and are reflected as interest income in the accompanying Statement of Operations. 30 T. ROWE PRICE SMALL-CAP STOCK FUND ------------------------------------------------------------------------------- --------------------------------------- ABOUT THE FUND'S DIRECTORS AND OFFICERS ------------------------------------------------------------------------------- Your fund is governed by a Board of Directors that meets regularly to review investments, performance, expenses, and other business matters, and is responsible for protecting the interests of shareholders. The majority of the fund's directors are independent of T. Rowe Price Associates, Inc. ("T. Rowe Price"); "inside" directors are officers of T. Rowe Price. The Board of Directors elects the fund's officers, who are listed in the final table. The business address of each director and officer is 100 East Pratt Street, Baltimore, MD 21202.
Independent Directors Name (Date of Birth) Principal Occupation(s) During Past 5 Years and Year Elected* Other Directorships of Public Companies Calvin W. Burnett, Ph.D. President, Coppin State College; Director, (3/16/32) Provident Bank of Maryland 2001 Anthony W. Deering Director, Chairman of the Board, President, and (1/28/45) Chief Executive Officer, The Rouse Company, 2001 real estate developers Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an acquisition (1/27/43) and management advisory firm 1992 David K. Fagin Director, Dayton Mining Corp. (6/98 to present), (4/9/38) Golden Star Resources Ltd., and Canyon Resources 1992 Corp. (5/00 to present); Chairman and President, Nye Corp. F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates, Inc., (8/22/34) consulting environmental and civil engineers 2001 Hanne M. Merriman Retail Business Consultant; Director, Ann Taylor (11/16/41) Stores Corp., Ameren Corp., Finlay Enterprises, Inc., 1994 The Rouse Company, and US Airways Group, Inc. John G. Schreiber Owner/President, Centaur Capital Partners, Inc., a (10/21/46) real estate investment company; Senior Advisor and 2001 Partner, Blackstone Real Estate Advisors, L.P.; Director, AMLI Residential Properties Trust, Host Marriott Corp., and The Rouse Company Hubert D. Vos Owner/President, Stonington Capital Corp., a private (8/2/33) investment company 1992 *Each independent director oversees 98 T. Rowe Price portfolios and serves until the election of a successor.
31 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- Independent Directors (continued) Name (Date of Birth) Principal Occupation(s) During Past 5 Years and Year Elected* Other Directorships of Public Companies Paul M. Wythes Founding Partner, Sutter Hill Ventures, a venture (6/23/33) capital limited partnership, providing equity 1992 capital to young high-technology companies throughout the United States; Director, Teltone Corp. *Each independent director oversees 98 T. Rowe Price portfolios and serves until the election of a successor. Inside Directors Name (Date of Birth) Year Elected** [Number of T. Rowe Price Principal Occupation(s) During Past 5 Years and Portfolios Overseen] Other Directorships of Public Companies John H. Laporte Director, T. Rowe Price Group, Inc.; Vice President, (7/26/45) T. Rowe Price 1994 [15] James S. Riepe Director and Vice President, T. Rowe Price; Vice (6/25/43) Chairman of the Board, Director, and Vice President, 1992 T. Rowe Price Group, Inc.; Chairman of the Board [98] and Director, T. Rowe Price Global Asset Management Limited, 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., and T. Rowe Price Global Investment Services Limited; Vice President, Small-Cap Stock Fund M. David Testa Vice Chairman of the Board, Chief Investment (4/22/44) Officer, Director, and Vice President, T. Rowe Price 1997 Group, Inc.; Chief Investment Officer, Director, and [98] Vice President, T. Rowe Price; Chairman and Director, T. Rowe Price Global Asset Management Limited; Vice President and Director, T. Rowe Price Trust Company; Director, T. Rowe Price Global Investment Services Limited and T. Rowe Price International, Inc. **Each inside director serves until the election of a successor. 32 T. ROWE PRICE SMALL-CAP STOCK FUND -------------------------------------------------------------------------------- Officers
Name (Date of Birth) Title and Fund(s) Served Principal Occupation(s) Marcy L. Arnold (8/5/59) Vice President, T. Rowe Price and T. Rowe Vice President, Small-Cap Stock Fund Price Group, Inc. Brace C. Brooks (1/10/67) Vice President, T. Rowe Price and T. Rowe Vice President, Small-Cap Stock Fund Price Group, Inc. Preston G. Athey (7/17/49) Vice President, T. Rowe Price, T. Rowe Price Vice President, Small-Cap Stock Fund Group, Inc., and T. Rowe Price Trust Company Joseph A. Carrier (12/30/60) Vice President, T. Rowe Price, T. Rowe Price Treasurer, Small-Cap Stock Fund Group, Inc., and T. Rowe Price Investment Services, Inc. Hugh M. Evans III (5/17/66) Vice President, T. Rowe Price Vice President, Small-Cap Stock Fund Henry H. Hopkins (12/23/42) Director and Vice President, T. Rowe Price Vice President, Small-Cap Stock Fund Group, Inc.; Vice President, T. Rowe Price, T. Rowe Price International, Inc., and T. Rowe Price Retirement Plan Services, Inc.; Vice President and Director, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Trust Company Kris H. Jenner, 2/5/62 Vice President, T. Rowe Price and T. Rowe Vice President, Small-Cap Stock Fund Price Group, Inc. J. Jeffrey Lang (1/10/62) Vice President, T. Rowe Price and T. Rowe Vice President, Small-Cap Stock Fund Price Trust Company Patricia B. Lippert (1/12/53) Assistant Vice President, T. Rowe Price and Secretary, Small-Cap Stock Fund T. Rowe Price Investment Services, Inc. Gregory A. McCrickard (10/19/58) Vice President, T. Rowe Price and T. Rowe President, Small-Cap Stock Fund Price Group, Inc., and T. Rowe Price Trust Company David S. Middleton (1/18/56) Vice President, T. Rowe Price, T. Rowe Price Controller, Small-Cap Stock Fund Group, Inc., and T. Rowe Price Trust Company Joseph M. Milano (9/14/72) Vice President, T. Rowe Price and T. Rowe Vice President, Small-Cap Stock Fund Price Group, Inc. Curt J. Organt (1/5/68) Vice President, T. Rowe Price Vice President, Small-Cap Stock Fund Charles G. Pepin, 4/23/66 Vice President, T. Rowe Price and T. Rowe Vice President, Small-Cap Stock Fund Price Group, Inc.
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years. 33 T. ROWE PRICE SMALL-CAP STOCK FUND --------------------------------------------------------------------------------
Officers (continued) Name (Date of Birth) Principal Occupation(s) During Past 5 Years and Year Elected* Other Directorships of Public Companies Michael F. Sola (7/21/69) Vice President, T. Rowe Price and T. Rowe Price Group, Inc. Vice President, Small-Cap Stock Fund J. David Wagner (2/25/74) Vice President, T. Rowe Price Vice President, Small-Cap Stock Fund Wenhua Zhang (3/14/70) Employee, T. Rowe Price; formerly Swiss Reinsurance Company Vice President, Small-Cap (to 1999), Wharton School of Business, University of Stock Fund Pennsylvania (to 2001)
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years. 34 T. ROWE PRICE INVESTMENT SERVICES AND INFORMATION -------------------------------------------------------------------------------- INVESTMENT SERVICES AND INFORMATION KNOWLEDGEABLE SERVICE REPRESENTATIVES By Phone 1-800-225-5132. Available Monday through Friday from 7 a.m. until midnight ET and weekends from 8:30 a.m. until 5 p.m. ET. In Person. Available in T. Rowe Price Investor Centers. Please call a service representative at 1-800-225-5132 or visit the Web at www.troweprice.com/investorcenter to locate a center near you. ACCOUNT SERVICES Automated 24-Hour Services Including Tele*Access(R) and Account Access through the T. Rowe Price Web site on the Internet. Address: www.troweprice.com. Automatic Investing. From your bank account or paycheck. Automatic Withdrawal. Scheduled, automatic redemptions. IRA Rebalancing. Ensuring that your accounts reflect your desired asset allocation. BROKERAGE SERVICES * Individual Investments. Stocks, bonds, options, precious metals, and other securities at a savings over full-service commission rates. INVESTMENT INFORMATION Consolidated Statement. Overview of all of your accounts. Shareholder Reports. Manager reviews of their strategies and results. T. Rowe Price Report. Quarterly investment newsletter. Performance Update. Quarterly review of all T. Rowe Price fund results. Insights. Educational reports on investment strategies and markets. Investment Guides. Asset Mix Worksheet, Diversifying Overseas: A Guide to International Investing, Retirement Planning Kit, Retirement Readiness Guide, and Tax Considerations Guide. *T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC. 35 T. ROWE PRICE WEB SERVICES ------------------------------------------------------------------------------- www.troweprice.com ACCOUNT INFORMATION Account Access allows you to access, in a secure environment, all of your T. Rowe Price mutual fund, brokerage, variable annuity, and workplace retirement accounts with a single login. AccountMinder is a personal page, with one password, that gives you access to all your online financial information and other records from the secure T. Rowe Price Account Access site. FINANCIAL TOOLS AND CALCULATORS College Investment Calculator. This interactive tool allows you to estimate simultaneously the college costs for as many as five children. Morningstar(R) Portfolio Tracker(SM). See how your investments are performing at any time. After you enter ticker symbols for your stocks and mutual funds, Portfolio Tracker provides information on prices, market value, and any applicable Morningstar ratings. Investment Strategy Planner. This planning tool can help you develop and implement an asset allocation strategy that's appropriate for you. Retirement Income Calculator. This free calculator simulates 500 potential market scenarios to estimate the probability of maintaining an income strategy throughout retirement. INVESTMENT TRACKING AND INFORMATION My TRP e-Updates. This free e-mail service offers timely market reports, important information about investing, and the latest updates on the T. Rowe Price funds and services. Morningstar(R) Portfolio Watchlist(SM). Like the Portfolio Tracker, the Watchlist allows you to see how your investments are performing. After entering your ticker symbols, the Watchlist automatically provides you with prices, price changes in dollars and percentages, target highs and lows, and target volume. Morningstar(R) Portfolio X-Ray(SM). This comprehensive tool goes below the surface to give you an in-depth examination of all your investments. It analyzes your portfolio by asset allocation, stock sector, fees and expenses, stock statistics, world regions, and top holdings. 36 T. ROWE PRICE COLLEGE PLANNING -------------------------------------------------------------------------------- COLLEGE PLANNING With the costs of college steadily increasing, it's critical to plan early for this financial event. Our educational investment vehicles and information can help you lay the foundation for the future of your loved ones. For more information or to request a kit, call us at 1-800-638-5660, or visit our Web site at www.troweprice.com. T. Rowe Price College Savings Plan. This national "529" plan is sponsored by the Education Trust of Alaska and designed to help families prepare for college education costs. The Plan, which is open to any U.S. resident, allows participants to invest up to a maximum account balance of $250,000 for a person's education. With systematic investing, you can invest as little as $50 per month. In addition, assets grow tax-deferred and are free of federal income taxes when used for qualified educational expenses. We also offer two additional college savings plans, including the Maryland College Investment Plan and the University of Alaska College Savings Plan, both of which offer federal tax-deferred growth and benefits for state residents. Education Savings Accounts (formerly Education IRAs). This education investment account allows individuals to invest a total of $2,000 per year per beneficiary to pay for educational costs at eligible schools including elementary, secondary, and post-secondary institutions. Withdrawals from Education Savings Accounts are tax-free if the proceeds are used for qualifying educational expenses. College Investment Calculator. This Web-based application helps you to determine simultaneously the college costs for as many as five children. The calculator is also connected with a database that lets you select specific schools with actual costs of tuition and room and board. College Planning Basics. This Insights report offers a college cost worksheet and describes the options available to individuals planning for college. 37 T. ROWE PRICE MUTUAL FUNDS --------------------------------------------------------------------------------
STOCK FUNDS BOND FUNDS MONEY MARKET FUNDS Domestic Domestic Taxable Taxable Blue Chip Growth* Corporate Income Prime Reserve Capital Appreciation GNMA Summit Cash Reserves Capital Opportunity High Yield* U.S. Treasury Money Developing Technologies New Income Diversified Small-Cap Growth Short-Term Bond Tax-Free Dividend Growth Spectrum Income California Tax-Free Money Equity Income* Summit GNMA Maryland Tax-Free Money Equity Index 500 U.S. Bond Index New York Tax-Free Money Extended Equity Market Index U.S. Treasury Intermediate Summit Municipal Money Market Financial Services U.S. Treasury Long-Term Tax-Exempt Money Growth & Income Growth Stock* Domestic Tax-Free INTERNATIONAL/GLOBAL Health Sciences California Tax-Free Bond FUNDS Media & Telecommunications Florida Intermediate Tax-Free Mid-Cap Growth* Georgia Tax-Free Bond Stock Mid-Cap Value Maryland Short-Term Emerging Europe & New America Growth Tax-Free Bond Mediterranean New Era Maryland Tax-Free Bond Emerging Markets Stock New Horizons New Jersey Tax-Free Bond European Stock Real Estate New York Tax-Free Bond Global Stock Science & Technology* Summit Municipal Income Global Technology Small-Cap Stock* Summit Municipal Intermediate International Discovery+ Small-Cap Value*+ Tax-Free High Yield International Equity Index Spectrum Growth Tax-Free Income International Growth & Income Tax-Efficient Growth Tax-Free Intermediate Bond International Stock* Tax-Efficient Multi-Cap Growth Tax-Free Short-Intermediate Japan Total Equity Market Index Virginia Tax-Free Bond Latin America Value* New Asia Spectrum International BLENDED ASSET FUNDS Bond Balanced Emerging Markets Bond Personal Strategy Balanced International Bond* Personal Strategy Growth Personal Strategy Income Tax-Efficient Balanced
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. [LOGO] T.ROWE PRICE T. Rowe Price Investment Services, Inc. 100 East Pratt Street Baltimore, MD 21202 F65-051 6/30/02D