-----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, NlXsOXoV6jSmg26LaW0ztqryD0dZvjmSa3fFiIO7AzKQ6dZL50gNeW7L9g+NICWp NQKtmncfDyX2Tm2r6TGz5Q== 0001005477-01-001732.txt : 20010307 0001005477-01-001732.hdr.sgml : 20010307 ACCESSION NUMBER: 0001005477-01-001732 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE SMALL CAP STOCK FUND INC CENTRAL INDEX KEY: 0000075170 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 231622210 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-00696 FILM NUMBER: 1559598 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT ST STREET 2: C/O T ROWE PRICE ASSOCIATES INC CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 2156432510 MAIL ADDRESS: STREET 1: 100 EAST PRATT STRE STREET 2: NULL CITY: BALTIMORE STATE: MD ZIP: 21202 FORMER COMPANY: FORMER CONFORMED NAME: PRICE T ROWE OTC FUND INC DATE OF NAME CHANGE: 19930210 FORMER COMPANY: FORMER CONFORMED NAME: OVER THE COUNTER SECURITIES GROUP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: OVER THE COUNTER SECURITIES FUND INC DATE OF NAME CHANGE: 19890108 N-30D 1 0001.txt ANNUAL REPORT Annual Report SMALL-CAP STOCK FUND- ADVISOR CLASS DECEMBER 31, 2000 [LOGO] T. ROWE PRICE REPORT HIGHLIGHTS - -------------------------------------------------------------------------------- Small-Cap Stock Fund - Advisor Class o The devastation in technology, telecom, and Internet stocks left small-cap value stocks unscathed. o Your fund resisted the powerful sell-off in late 2000, advancing 4.82% in the second half and 6.79% in the nine months since inception. o Value stocks in the energy, financial, and utility sectors were our top performers, while technology stocks were the worst detractors. o Small-caps remain attractively valued, and a blend of growth and value stocks should be ideal in this treacherous but fertile environment. 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 What bear market? Small-cap value stocks, which have long formed the core of our investment approach, finally got another chance to ride the bull after being thrown in the mid-1990s. Though 2000 will be remembered by some as the worst year for stocks since bell-bottoms were in fashion, neglected and inexpensive small-cap shares came back into vogue. Investors were finally rewarded for holding diversified portfolios. PERFORMANCE COMPARISON - -------------------------------------------------------------------------------- Since Inception Periods Ended 12/31/00 6 Months (3/31/00) - -------------------------------------------------------------------------------- Small-Cap Stock Fund - Advisor Class 4.82% 6.79% - -------------------------------------------------------------------------------- Russell 2000 Index -5.88 -9.44 - -------------------------------------------------------------------------------- Lipper Small-Cap Core Fund Index -1.49 -3.07 - -------------------------------------------------------------------------------- S&P 500 Stock Index -8.72 -11.15 - -------------------------------------------------------------------------------- In absolute terms and compared with our benchmarks, the performace of the Small-Cap Stock Fund - Advisor Class was outstanding in 2000, as we posted a healthy second-half gain despite the market's crash landing. As shown in the table, the fund's gain of 4.82% over six months and 6.79% for nine months since inception far exceeded the performance of the unmanaged Russell 2000 Index of smaller companies, the average competing fund as measured by Lipper, and the large-cap Standard & Poor's 500 Stock Index. Our strong results owed as much to the stocks we decided to buy as to those we avoided. We kept our shareholders healthy by refusing to handle most of these "bleeding edge" technology stocks. YEAR-END DISTRIBUTIONS Your fund's Board of Directors declared a year-end income distribution of $0.18 per share and a capital gain distribution of $2.46, of which $2.04 was long term and $0.42 was short term. These were paid on December 14 to shareholders of record on December 12. You should already have received your check or statement reflecting them as well as our Form 1099-DIV summarizing this information for 2000 tax purposes. 1 INVESTMENT REVIEW Several segments of the Russell 2000 Index posted excellent returns in the second half. Utilities rose nearly 38%, energy gained 25%, and financial stocks advanced almost 22%. By contrast, last year's glamour sectors were badly tarnished. Telecom services plunged 70% and information technology fell 41%. A slowdown in the economy caused a 21% loss in small-cap industrial stocks. Your fund benefited from strong stock selection in the financial sector. Though we had less exposure to financials than the index, our holdings, led by Downey Financial, surged more than 40%--nearly twice as strong as the overall small-cap financial sector. Downey, a Newport Beach, California, savings and loan, rose more than 90% in the second half. Investors recognized Downey's strong franchise value and may have anticipated that rate cuts by the Federal Reserve would boost the firm's earnings in 2001 and beyond. (In a surprise move between regular meetings, the Fed cut the key federal funds rate by a half point on January 3, after the end of the period under review.) Another strong performer was Southwest Bancorp, a solidly managed Houston bank that more than doubled in the past six months following strong results. Southwest's location in the Texas oil patch helps keep fundamentals looking strong in the near term. The financial sector alone accounted for about half of the fund's second-half gain. SECTOR DIVERSIFICATION - -------------------------------------------------------------------------------- Business Services and Transportation 20% Capital Equipment, Process Industries, and Basic Materials 5% Technology 10% Consumer Services, Cyclicals, and Education 19% Financial 14% Energy and Utilities 11% Consumer Nondurables 14% Reserves 7% - ------------------------------------------------------------------------------- Based on net assets as of 12/31/00 Overweighting the energy sector also aided results, and our selections here rose nearly 32% in the second half, led by Barrett Resources and Cross Timbers Oil, each of which soared more than 80%. These companies with their proven natural gas reserves are benefiting from the gas shortage and this winter's soaring prices. Inventories of natural gas, which is used increasingly as a cleaner fuel, ended the year 29% below year-ago levels. 2 Utilities power gains Though the fund had only half as large a weighting in utilities as the Russell 2000 Index weight of 4.3%, our holdings surged 63%, well ahead of the index components. Cleco was the fund's top performer here, gaining nearly 67% for the half. Investors came to appreciate its independent power generation subsidiary, which sells electric power to other utilities. Technology, telecom services, and industrial stocks detracted significantly from performance. Still, stock selection in industrials and technology, as well as a significant underweighting in telecom services, aided results relative to the index. Three of the fund's largest detractors came from the technology sector. Littelfuse and Artesyn Technologies declined 42% and 43%, respectively. Both experienced significant slowdowns in end-product demand and preannounced earnings shortfalls for the fourth quarter. Keynote Systems, which provides products to measure Web site performance, experienced slower growth as its dot-com customers deferred spending. The stock fell from above $70 to about $14 during the second half. PORTFOLIO HIGHLIGHTS The fund's largest purchase in the second half was Valley National Bancorp, a regional bank in northern New Jersey with 117 branches and $6.4 billion in assets. The bank has a strong franchise, steady loan growth, and a high return on assets. Management and employees are also significant shareholders and have always been focused on improving earnings per share. Our second-largest purchase, Artesyn Technologies, discussed above, is a global manufacturer of power control and conversion systems. Its products convert electrical currents and regulate the voltage of electricity as it enters a computer. Artesyn products also act as a backup to any brief power outages. The company is introducing many smaller and faster new products over the next year that will sell into the rapidly growing markets for Internet servers and telecommunications base stations. We bought the stock ahead of the new product cycle anticipating that investors would give Artesyn a higher valuation when these products come to market. Unfortunately, the company's sales fell short of expectations in the fourth quarter due to a component shortage. Artesyn performed well in the first half but gave up those gains and more late in the year. We remain committed to the stock. 3 Black Box, our third-largest purchase, is a marketer of computer accessory, wiring, and networking products sold through a catalog. The company has been able to develop a very loyal customer base around the world by offering free technical assistance. Black Box has recently expanded into on-site wiring services. The company sells and installs the computer and telephone wiring for new and existing offices, schools, retail establishments, and other commercial locations. Through acquisitions of regional wiring companies, Black Box has built a business that should be larger than its traditional computer product sales this year. Black Box's earnings are expected to grow 25% this year, and we were able to purchase the stock at a reasonable forward price/earnings multiple of 17. Largest sales Our largest sales included Texas Instruments, US Can, and Technitrol. Texas Instruments bought chipmaker Burr Brown, in which we had a big position. Following the acquisition, we sold TI because of its extremely large market capitalization. Similarly, we exited US Can when management completed a leveraged buyout last summer. Finally, we took profits by selling about half of our position in Technitrol, a networking component manufacturer that soared in 2000 and hit our price targets. OUTLOOK GROWTH VS. VALUE - -------------------------------------------------------------------------------- 1999 2000 - -------------------------------------------------------------------------------- Russell 2000 Growth Index 43.09% -22.43% - -------------------------------------------------------------------------------- Russell 2000 Value Index -1.49 22.83 - -------------------------------------------------------------------------------- Last year, value stocks made up the ground they had lost to aggressive growth stocks in 1999's Internet-crazed market. The resurgence of value stocks enabled your fund to outperform its benchmarks by a wide margin. A more balanced perspective comes from viewing both years together. Neither period is typical. Moving ahead we can expect more moderate results versus the index. We continue to believe small-caps will outperform large-caps in the intermediate future. While large-cap shares fell hard last year, their valuations remain stretched. Meanwhile, empirical evidence suggests 4 small-caps remain quite attractively valued compared with historical averages. New Economy companies still possess tremendous growth potential, but valuations in some sectors remain inflated, and standing near a bursting bubble can be hazardous. Therefore, we believe our time-tested strategy of blending growth and value is particularly right for these times. Respectfully submitted, /s/ Greg A. McCrickard Greg A. McCrickard President of the fund and chairman of its Investment Advisory Committee January 16, 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 - ADVISOR CLASS - -------------------------------------------------------------------------------- PORTFOLIO HIGHLIGHTS - -------------------------------------------------------------------------------- TWENTY-FIVE LARGEST HOLDINGS Percent of Net Assets 12/31/00 - -------------------------------------------------------------------------------- Downey Financial 2.3% - -------------------------------------------------------------------------------- Cleco 2.0 - -------------------------------------------------------------------------------- Harman International 1.7 - -------------------------------------------------------------------------------- Barrett Resources 1.6 - -------------------------------------------------------------------------------- PartnerRe 1.4 - -------------------------------------------------------------------------------- Lincare 1.4 - -------------------------------------------------------------------------------- Brown and Brown 1.4 - -------------------------------------------------------------------------------- WestAmerica 1.3 - -------------------------------------------------------------------------------- Valley National Bancorp 1.3 - -------------------------------------------------------------------------------- Cross Timbers Oil 1.3 - ------------------------------------------------------------------------------- Matthews International 1.2 - -------------------------------------------------------------------------------- Chittenden 1.2 - -------------------------------------------------------------------------------- Insituform Technologies 1.2 - -------------------------------------------------------------------------------- Southwest Bancorp 1.2 - -------------------------------------------------------------------------------- Noble Affiliates 1.2 - -------------------------------------------------------------------------------- Inhale Therapeutic Systems 1.2 - -------------------------------------------------------------------------------- Maximus 1.1 - -------------------------------------------------------------------------------- SCP Pool 1.1 - -------------------------------------------------------------------------------- SEACOR SMIT 1.1 - -------------------------------------------------------------------------------- Iron Mountain 1.1 - -------------------------------------------------------------------------------- Casey's General Stores 1.0 - -------------------------------------------------------------------------------- Littelfuse 1.0 - -------------------------------------------------------------------------------- Tetra Tech 0.9 - -------------------------------------------------------------------------------- F. Y. I. 0.9 - -------------------------------------------------------------------------------- NetIQ 0.9 - -------------------------------------------------------------------------------- Total 32.0% Note: Table excludes reserves. 6 T. ROWE PRICE SMALL-CAP STOCK FUND - ADVISOR CLASS - -------------------------------------------------------------------------------- PORTFOLIO HIGHLIGHTS - -------------------------------------------------------------------------------- MAJOR PORTFOLIO CHANGES Listed in descending order of size 6 Months Ended 12/31/00 Ten Largest Purchases Ten Largest Sales - -------------------------------------------------------------------------------- Valley National Bancorp * Texas Instruments ** - -------------------------------------------------------------------------------- Artesyn Technologies * US Can ** - -------------------------------------------------------------------------------- Black Box * Technitrol - -------------------------------------------------------------------------------- Harman International Southwest Bancorp - -------------------------------------------------------------------------------- SEACOR SMIT Keynote Systems - -------------------------------------------------------------------------------- Harmonic * C.H. Robinson Worldwide - -------------------------------------------------------------------------------- Houghton Mifflin Applied Micro Circuits - -------------------------------------------------------------------------------- Atwood Oceanics * Kennametal ** - -------------------------------------------------------------------------------- Wilson Greatbatch Technologies * Burr Brown ** - -------------------------------------------------------------------------------- Edwards Lifesciences * Performance Food Group ** - -------------------------------------------------------------------------------- *Position added **Position eliminated 7 T. ROWE PRICE SMALL-CAP STOCK FUND - ADVISOR CLASS - -------------------------------------------------------------------------------- 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. [The following table was depicted as a line chart in the printed material.] SMALL CAP VALUE FUND-ADVISOR CLASS - -------------------------------------------------------------------------------- Small Cap Value Fund- Russell 2000 Funds As of 12/31/00 Advisor Class Index Average - -------------------------------------------------------------------------------- 3/31/00 $10,000 $10,000 $10,000 - -------------------------------------------------------------------------------- 12/00 $10,679 $ 9,056 $ 9,593 - -------------------------------------------------------------------------------- TOTAL RETURN - -------------------------------------------------------------------------------- Since Inception Period Ended 12/31/00 Inception Date - -------------------------------------------------------------------------------- Small-Cap Stock Fund - Advisor Class 6.79% 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. 8 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- For a share outstanding throughout the period FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- SMALL-CAP STOCK ADVISOR CLASS SHARES 3/31/00 Through 12/31/00 NET ASSET VALUE Beginning of period $ 24.93 --------- Investment activities Net investment income (loss) 0.07 Net realized and unrealized gain (loss) 1.53 --------- Total from investment activities 1.60 --------- Distributions Net investment income (0.18) Net realized gain (2.46) --------- Total distributions (2.64) NET ASSET VALUE --------- End of period $ 23.89 ========= - -------------------------------------------------------------------------------- Ratios/Supplemental Data Total return@ 6.79% - -------------------------------------------------------------------------------- Ratio of total expenses to average net assets 0.82%+ - -------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets 0.85%+ - -------------------------------------------------------------------------------- Portfolio turnover rate 32.8%+ - -------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 7,479 - -------------------------------------------------------------------------------- @ Total return reflects the rate that an investor would have earned on an investment in the fund during the 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 - -------------------------------------------------------------------------------- December 31, 2000 PORTFOLIO OF INVESTMENTS Shares/Par Value - -------------------------------------------------------------------------------- In thousands COMMON STOCKS 93.1% FINANCIAL 13.9% Bank and Trust 9.2% Charter One Financial 239,347 $ 6,911 - -------------------------------------------------------------------------------- Chittenden 914,500 27,721 - -------------------------------------------------------------------------------- Citizens Banking 611,900 17,841 - -------------------------------------------------------------------------------- Downey Financial 927,400 51,007 - -------------------------------------------------------------------------------- First Bell Bancorp 95,300 1,313 - -------------------------------------------------------------------------------- First Mariner Bancorp 45,500 185 - -------------------------------------------------------------------------------- Frankfort First Bancorp + 71,500 970 - -------------------------------------------------------------------------------- Glacier Bancorp 497,690 6,128 - -------------------------------------------------------------------------------- Marshall & Ilsley 28,800 1,464 - -------------------------------------------------------------------------------- Southwest Bancorp * 637,600 27,397 - -------------------------------------------------------------------------------- Summit Bancorp 205,300 7,840 - -------------------------------------------------------------------------------- Valley National Bancorp 898,800 29,941 - -------------------------------------------------------------------------------- WestAmerica 709,100 30,513 - -------------------------------------------------------------------------------- 209,231 ------------- Insurance 4.2% Brown and Brown 900,300 31,510 - -------------------------------------------------------------------------------- Harleysville Group 208,600 6,134 - -------------------------------------------------------------------------------- London Pacific Group ADR 631,500 4,776 - -------------------------------------------------------------------------------- PartnerRe Holdings 534,600 32,611 - -------------------------------------------------------------------------------- Selective Insurance 148,000 3,603 - -------------------------------------------------------------------------------- W. R. Berkley 324,900 15,341 - -------------------------------------------------------------------------------- 93,975 ------------- Financial Services 0.5% Delta Financial * 284,000 89 - -------------------------------------------------------------------------------- Financial Federal * 218,700 5,221 - -------------------------------------------------------------------------------- ITLA Capital * 268,000 5,142 ------------- - -------------------------------------------------------------------------------- 10,452 ------------- Total Financial 313,658 ------------- UTILITIES 2.5% Electric Utilities 2.1% Cleco 839,400 45,957 - -------------------------------------------------------------------------------- Unisource Energy 95,300 1,793 ------------- - -------------------------------------------------------------------------------- 47,750 ------------- 10 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares/Par Value - -------------------------------------------------------------------------------- In thousands Telephone 0.4% Rural Cellular (Class A) * 108,000 $ 3,196 - -------------------------------------------------------------------------------- Western Wireless * 148,000 5,805 ------------- - -------------------------------------------------------------------------------- 9,001 ------------- Total Utilities 56,751 ------------- CONSUMER NONDURABLES 14.4% Food Processing 1.5% American Italian Pasta * 319,800 8,575 - -------------------------------------------------------------------------------- International Multifoods + 1,004,900 20,412 - -------------------------------------------------------------------------------- Makepeace * 164 1,148 - -------------------------------------------------------------------------------- Seneca Foods (Class A) * 167,700 2,390 - -------------------------------------------------------------------------------- Seneca Foods (Class B) * 72,200 1,060 - -------------------------------------------------------------------------------- 33,585 ------------- Hospital Supplies/Hospital Management 5.1% Airgas * 683,200 4,654 - -------------------------------------------------------------------------------- Cephalon * 323,517 20,473 - -------------------------------------------------------------------------------- Hooper Holmes 826,800 9,144 - -------------------------------------------------------------------------------- Lincare Holdings * 562,000 32,052 - -------------------------------------------------------------------------------- Mentor 939,000 18,516 - -------------------------------------------------------------------------------- Molecular Devices * 172,800 11,821 - -------------------------------------------------------------------------------- Renal Care Group * 392,950 10,769 - -------------------------------------------------------------------------------- Steris * 502,100 8,096 - -------------------------------------------------------------------------------- 115,525 ------------- Pharmaceuticals 1.0% - -------------------------------------------------------------------------------- Arena Pharmaceuticals * 47,700 741 - -------------------------------------------------------------------------------- AtheroGenics * 7,300 36 - -------------------------------------------------------------------------------- Aurora Biosciences * 144,000 4,532 - -------------------------------------------------------------------------------- Incyte Genomics * 115,200 2,862 - -------------------------------------------------------------------------------- Noven Pharmaceuticals * 95,300 3,550 - -------------------------------------------------------------------------------- NPS Pharmaceuticals * 188,200 9,004 - -------------------------------------------------------------------------------- Triangle Pharmaceuticals * 526,300 2,615 - -------------------------------------------------------------------------------- 23,340 ------------- Biotechnology 3.3% Abgenix * 81,200 4,798 - -------------------------------------------------------------------------------- Alkermes * 210,500 6,611 - -------------------------------------------------------------------------------- COR Therapeutics * 224,300 7,886 - -------------------------------------------------------------------------------- 11 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares/Par Value - -------------------------------------------------------------------------------- In thousands Cubist Pharmaceuticals * 74,500 $ 2,195 - -------------------------------------------------------------------------------- Deltagen * 121,500 1,291 - -------------------------------------------------------------------------------- EDEN Bioscience * 59,600 1,782 - -------------------------------------------------------------------------------- Edwards Lifesciences * 422,000 7,491 - -------------------------------------------------------------------------------- Genaissance Pharmaceuticals * 5,100 92 - -------------------------------------------------------------------------------- Gilead Sciences * 28,800 2,389 - -------------------------------------------------------------------------------- Inhale Therapeutic Systems * 536,200 26,827 - -------------------------------------------------------------------------------- Neose Technologies * 22,700 748 - -------------------------------------------------------------------------------- Neurocrine Biosciences * 168,800 5,586 - -------------------------------------------------------------------------------- Serologicals * 402,200 6,071 - -------------------------------------------------------------------------------- ViroPharma * 71,500 1,032 - -------------------------------------------------------------------------------- 74,799 ------------- Health Care Services 1.7% AmeriPath * 645,400 16,175 - -------------------------------------------------------------------------------- Boron LePore & Associates * 107,200 1,122 - -------------------------------------------------------------------------------- Bruker Daltonics * 7,600 180 - -------------------------------------------------------------------------------- Orthodontic Centers of America * 287,000 8,969 - -------------------------------------------------------------------------------- Packard BioScience * 176,800 2,028 - -------------------------------------------------------------------------------- Wilson Greatbatch Technologies * 366,800 10,362 - -------------------------------------------------------------------------------- 38,836 ------------- Miscellaneous Consumer Products 1.7% Coach * 83,900 2,412 - -------------------------------------------------------------------------------- Cone Mills * 741,200 1,899 - -------------------------------------------------------------------------------- Culp 263,400 527 - -------------------------------------------------------------------------------- Dan River * 965,200 2,143 - -------------------------------------------------------------------------------- Polymer Group 382,300 2,055 - -------------------------------------------------------------------------------- QuikSilver * 251,200 4,867 - -------------------------------------------------------------------------------- Reebok International * 246,800 6,748 - -------------------------------------------------------------------------------- Sola * 1,060,700 4,375 - -------------------------------------------------------------------------------- Stride Rite 860,900 6,026 - -------------------------------------------------------------------------------- Unifi * 596,800 5,334 - -------------------------------------------------------------------------------- WestPoint Stevens 334,600 2,506 - -------------------------------------------------------------------------------- 38,892 ------------- Cosmetics 0.1% Chattem * 328,100 1,887 - -------------------------------------------------------------------------------- 1,887 ------------- Total Consumer Nondurables 326,864 ------------- 12 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares/Par Value - -------------------------------------------------------------------------------- In thousands CONSUMER SERVICES 9.1% Restaurants 1.5% Applebee's 239,300 $ 7,575 - -------------------------------------------------------------------------------- BUCA * + 760,600 11,148 - -------------------------------------------------------------------------------- PJ America * + 278,600 1,585 - -------------------------------------------------------------------------------- Ruby Tuesday 691,700 10,548 - -------------------------------------------------------------------------------- Uno Restaurant * 382,300 3,154 - -------------------------------------------------------------------------------- 34,010 ------------- General Merchandisers 2.7% Bon-Ton Stores * + 710,700 1,921 - -------------------------------------------------------------------------------- Casey's General Stores 1,583,900 23,560 - -------------------------------------------------------------------------------- Columbia Sportswear * 315,800 15,751 - -------------------------------------------------------------------------------- Neiman Marcus Group * 546,100 19,421 - -------------------------------------------------------------------------------- 60,653 ------------- Specialty Merchandisers 1.2% O' Charley's * + 973,100 17,394 - -------------------------------------------------------------------------------- PurchasePro.com * 325,300 5,682 - -------------------------------------------------------------------------------- Urban Outfitters * 421,000 3,355 - -------------------------------------------------------------------------------- Wild Oats Markets * 334,600 1,443 - -------------------------------------------------------------------------------- 27,874 ------------- Entertainment and Leisure 1.4% Houghton Mifflin 365,100 16,932 - -------------------------------------------------------------------------------- Papa John's International * 382,300 8,542 - -------------------------------------------------------------------------------- Sonic * 296,400 6,928 - -------------------------------------------------------------------------------- 32,402 ------------- Media and Communications 2.3% American Tower (Class A) * 57,600 2,182 - -------------------------------------------------------------------------------- Citadel Communications * 507,400 6,073 - -------------------------------------------------------------------------------- Classic Communications (Class A) * 280,000 586 - -------------------------------------------------------------------------------- Emmis Broadcasting (Class A) * 416,900 11,934 - -------------------------------------------------------------------------------- Entercom Communications * 185,000 6,371 - -------------------------------------------------------------------------------- Pegasus Communications * 170,600 4,398 - -------------------------------------------------------------------------------- Sinclair Broadcast Group (Class A) * 1,079,100 10,808 - -------------------------------------------------------------------------------- Young Broadcasting (Class A) * 247,600 8,248 - -------------------------------------------------------------------------------- 50,600 ------------- Total Consumer Services 205,539 ------------- 13 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares/Par Value - -------------------------------------------------------------------------------- In thousands CONSUMER CYCLICALS 9.6% Automobiles and Related 2.4% A.O. Smith (Class B) 1,008,900 $ 17,214 - -------------------------------------------------------------------------------- Adrian Steel + 13,000 5,018 - -------------------------------------------------------------------------------- Keystone Automotive * 247,400 1,728 - -------------------------------------------------------------------------------- Littelfuse * 813,300 23,332 - -------------------------------------------------------------------------------- Strattec Security * 191,200 5,975 - -------------------------------------------------------------------------------- 53,267 ------------- Building and Real Estate 4.8% Apartment Investment & Management, REIT 143,400 7,161 - -------------------------------------------------------------------------------- Arden Realty, REIT 633,900 15,927 - -------------------------------------------------------------------------------- EastGroup Properties, REIT + 800,400 17,909 - -------------------------------------------------------------------------------- First Washington Realty Trust, REIT 310,800 8,022 - -------------------------------------------------------------------------------- Glenborough Realty Trust, REIT 642,600 11,165 - -------------------------------------------------------------------------------- JP Realty, REIT 672,100 10,586 - -------------------------------------------------------------------------------- Parkway Properties, REIT + 672,000 19,950 - -------------------------------------------------------------------------------- Reckson Associates Realty (Class B), REIT 218,650 5,944 - -------------------------------------------------------------------------------- Woodhead Industries + 573,900 11,245 - -------------------------------------------------------------------------------- 107,909 ------------- Miscellaneous Consumer Durables 2.4% CompX International + 463,700 4,145 - -------------------------------------------------------------------------------- Harman International 1,064,500 38,854 - -------------------------------------------------------------------------------- Intranet Solutions * 244,500 12,431 ------------- 55,430 ------------- Total Consumer Cyclicals 216,606 ------------- TECHNOLOGY 9.7% Electronic Components 3.9% American Superconductor * 160,300 4,589 - -------------------------------------------------------------------------------- Analogic 401,800 17,993 - -------------------------------------------------------------------------------- Artesyn Technologies * 573,900 9,254 - -------------------------------------------------------------------------------- ATMI * 425,200 8,292 - -------------------------------------------------------------------------------- Benchmark Electronics * 410,300 9,257 - -------------------------------------------------------------------------------- Exar * 288,000 8,919 - -------------------------------------------------------------------------------- Methode Electronics (Class A) 665,700 15,103 - -------------------------------------------------------------------------------- MKS Instruments * 249,500 3,844 - -------------------------------------------------------------------------------- 14 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares/Par Value - -------------------------------------------------------------------------------- In thousands QuickLogic * 465,700 $ 3,245 - -------------------------------------------------------------------------------- SIPEX * 334,600 7,968 - -------------------------------------------------------------------------------- 88,464 ------------- Electronic Systems 2.2% Applied Micro Circuits * 23,800 1,789 - -------------------------------------------------------------------------------- Armor Holdings * + 1,148,900 20,034 - -------------------------------------------------------------------------------- Black Box * 378,300 18,288 - -------------------------------------------------------------------------------- Lifeline Systems * + 334,600 4,203 - -------------------------------------------------------------------------------- Lo-Jack * 603,800 4,604 - -------------------------------------------------------------------------------- 48,918 ------------- Telecommunications 0.9% Airgate PCS * 76,800 2,722 - -------------------------------------------------------------------------------- Airnet Commerce * 21,800 148 - -------------------------------------------------------------------------------- Ditech Communications * 115,200 1,861 - -------------------------------------------------------------------------------- Harmonic * 526,300 3,010 - -------------------------------------------------------------------------------- Peco II * 204,600 5,288 - -------------------------------------------------------------------------------- Vyyo * 92,700 569 - -------------------------------------------------------------------------------- West TeleServices * 286,800 8,084 - -------------------------------------------------------------------------------- 21,682 ------------- Aerospace and Defense 1.1% DONCASTERS ADR * 95,300 1,906 - -------------------------------------------------------------------------------- Harsco 569,000 14,047 - -------------------------------------------------------------------------------- Woodward Governor 187,700 8,476 - -------------------------------------------------------------------------------- 24,429 ------------- Information Processing 0.9% F. Y. I. * 567,000 21,032 - -------------------------------------------------------------------------------- 21,032 ------------- Specialized Computer 0.2% Activision * 191,600 2,880 - -------------------------------------------------------------------------------- Virata * 76,500 834 - -------------------------------------------------------------------------------- 3,714 ------------- Office Automation 0.5% Technitrol 278,000 11,433 - -------------------------------------------------------------------------------- 11,433 ------------- Total Technology 219,672 ------------- 15 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares/Par Value - -------------------------------------------------------------------------------- In thousands CAPITAL EQUIPMENT 1.3% Electrical Equipment 0.6% hi/fn * 196,600 $ 5,413 - -------------------------------------------------------------------------------- LSI Industries 435,800 8,852 - -------------------------------------------------------------------------------- 14,265 ------------- Machinery 0.7% Actuant 1,264,300 3,793 - -------------------------------------------------------------------------------- Brooks Automation * 279,800 7,843 - -------------------------------------------------------------------------------- NN Ball & Roller 334,600 3,032 - -------------------------------------------------------------------------------- 14,668 ------------- Total Capital Equipment 28,933 ------------- BUSINESS SERVICES AND TRANSPORTATION 20.0% Computer Service and Software 6.1% 724 Solutions * 11,500 192 - -------------------------------------------------------------------------------- Actuate * 192,900 3,695 - -------------------------------------------------------------------------------- Analysts International 554,100 2,164 - -------------------------------------------------------------------------------- BISYS Group * 391,200 20,514 - -------------------------------------------------------------------------------- Cambridge Technology Partners * 286,000 719 - -------------------------------------------------------------------------------- Concord Communications * 171,800 1,506 - -------------------------------------------------------------------------------- Digital Impact * 408,900 965 - -------------------------------------------------------------------------------- Electronic Arts * 95,300 4,065 - -------------------------------------------------------------------------------- Genomica * 16,100 87 - -------------------------------------------------------------------------------- Great Plains Software * 117,700 5,539 - -------------------------------------------------------------------------------- iGATE Capital * 382,300 1,069 - -------------------------------------------------------------------------------- Interact Commerce * 206,100 1,687 - -------------------------------------------------------------------------------- Jack Henry & Associates 47,700 2,962 - -------------------------------------------------------------------------------- Keynote Systems * 264,100 3,755 - -------------------------------------------------------------------------------- Loislaw.com * 95,000 405 - -------------------------------------------------------------------------------- net.Genesis * 239,300 785 - -------------------------------------------------------------------------------- NetIQ * 240,300 20,989 - -------------------------------------------------------------------------------- Packeteer * 332,600 4,126 - -------------------------------------------------------------------------------- Pixelworks * 150,600 3,389 - -------------------------------------------------------------------------------- Progress Software * 1,315,000 19,026 - -------------------------------------------------------------------------------- PSINet * 365,400 274 - -------------------------------------------------------------------------------- 16 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares/Par Value - -------------------------------------------------------------------------------- In thousands Quest Software * 55,600 $ 1,562 - -------------------------------------------------------------------------------- Register.com * 215,500 1,515 - -------------------------------------------------------------------------------- Sonicwall * 104,300 1,692 - -------------------------------------------------------------------------------- SPSS * 268,100 5,974 - -------------------------------------------------------------------------------- SunGard Data Systems * 37,100 1,748 - -------------------------------------------------------------------------------- Telecommunication Systems * 17,200 62 - -------------------------------------------------------------------------------- USinternetworking * 1,051,600 5,225 - -------------------------------------------------------------------------------- Verity * 175,300 4,213 - -------------------------------------------------------------------------------- WebTrends * 382,400 11,078 - -------------------------------------------------------------------------------- Zebra Technologies (Class A) * 150,600 6,208 - -------------------------------------------------------------------------------- 137,190 ------------- Distribution Services 2.5% MSC Industrial Direct * 403,900 7,296 - -------------------------------------------------------------------------------- Primesource 145,900 638 - -------------------------------------------------------------------------------- SCP Pool * + 861,100 25,860 - -------------------------------------------------------------------------------- SunSource * 204,600 627 - -------------------------------------------------------------------------------- United Stationers * 516,400 12,829 - -------------------------------------------------------------------------------- Watsco (Class A) 716,400 8,253 - -------------------------------------------------------------------------------- 55,503 ------------- Environmental 0.5% CUNO * 361,700 9,777 - -------------------------------------------------------------------------------- IT Group * 473,700 2,368 - -------------------------------------------------------------------------------- Waterlink * 447,800 175 - -------------------------------------------------------------------------------- 12,320 ------------- Transportation Services 3.3% C.H. Robinson Worldwide 308,300 9,702 - -------------------------------------------------------------------------------- Comfort Systems USA * 740,800 1,574 - -------------------------------------------------------------------------------- EGL * 316,100 7,517 - -------------------------------------------------------------------------------- Expeditors International of Washington 356,600 19,223 - -------------------------------------------------------------------------------- Heartland Express * 77,327 1,769 - -------------------------------------------------------------------------------- Hub Group (Class A) * 93,300 843 - -------------------------------------------------------------------------------- International Shipholding 135,562 847 - -------------------------------------------------------------------------------- SEACOR SMIT * 487,600 25,660 - -------------------------------------------------------------------------------- UTI Worldwide * 365,000 7,186 - -------------------------------------------------------------------------------- 74,321 ------------- Miscellaneous Business Services 7.3% AnswerThink * 287,000 1,041 - -------------------------------------------------------------------------------- Corio * 41,500 86 - -------------------------------------------------------------------------------- 17 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares/Par Value - -------------------------------------------------------------------------------- In thousands Electro Rent * 566,000 $ 8,030 - -------------------------------------------------------------------------------- G&K Services 382,700 10,799 - -------------------------------------------------------------------------------- Herman Miller 210,500 6,045 - -------------------------------------------------------------------------------- Insituform Technologies (Class A) * 689,400 27,511 - -------------------------------------------------------------------------------- Iron Mountain * 671,450 24,928 - -------------------------------------------------------------------------------- Ivex Packaging * 813,200 8,895 - -------------------------------------------------------------------------------- kForce.com * 91,312 285 - -------------------------------------------------------------------------------- Maximus * 740,800 25,882 - -------------------------------------------------------------------------------- McGrath RentCorp 290,900 5,536 - -------------------------------------------------------------------------------- MPW Industrial Services Group * + 550,100 567 - -------------------------------------------------------------------------------- New England Business Service + 833,100 15,204 - -------------------------------------------------------------------------------- Strayer Education 374,800 9,452 - -------------------------------------------------------------------------------- Tetra Tech * 673,950 21,461 - -------------------------------------------------------------------------------- 165,722 ------------- Airlines 0.3% Midwest Express Holdings * 492,200 7,229 - -------------------------------------------------------------------------------- 7,229 ------------- Total Business Services and Transportation 452,285 ------------- ENERGY 8.2% Energy Services 1.7% Atwood Oceanics * 297,900 13,051 - -------------------------------------------------------------------------------- Cooper Cameron * 89,500 5,912 - -------------------------------------------------------------------------------- Grant Prideco * 131,950 2,895 - -------------------------------------------------------------------------------- Hydril * 141,400 2,492 - -------------------------------------------------------------------------------- Smith International * 95,300 7,106 - -------------------------------------------------------------------------------- Weatherford International * 131,950 6,235 - -------------------------------------------------------------------------------- 37,691 ------------- Exploration and Production 6.5% Barrett Resources * 620,600 35,258 - -------------------------------------------------------------------------------- Chieftain International * 573,900 15,854 - -------------------------------------------------------------------------------- Cross Timbers Oil 1,024,950 28,442 - -------------------------------------------------------------------------------- Forest Oil * 484,950 17,883 - -------------------------------------------------------------------------------- Key Energy Services * 1,052,600 10,986 - -------------------------------------------------------------------------------- National Oilwell * 317,100 12,268 - -------------------------------------------------------------------------------- Noble Affiliates 590,000 27,140 - -------------------------------------------------------------------------------- 147,831 ------------- Total Energy 185,522 ------------- 18 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares/Par Value - -------------------------------------------------------------------------------- In thousands - -------------------------------------------------------------------------------- PROCESS INDUSTRIES 2.4% Specialty Chemicals 0.1% MacDermid 95,300 $ 1,811 - -------------------------------------------------------------------------------- 1,811 ------------- Paper and Paper Products 0.5% Buckeye Technologies * 573,900 8,070 - -------------------------------------------------------------------------------- Smurfit-Stone Container * 191,600 2,856 - -------------------------------------------------------------------------------- 10,926 ------------- Building and Construction 0.7% Dal-Tile International * 226,300 3,211 - -------------------------------------------------------------------------------- Layne Christensen * 343,600 1,128 - -------------------------------------------------------------------------------- Simpson Manufacturing * 141,400 7,211 - -------------------------------------------------------------------------------- Trex * 59,700 1,504 - -------------------------------------------------------------------------------- U.S. Aggregates 368,700 2,834 - -------------------------------------------------------------------------------- 15,888 ------------- Diversified Chemicals 1.1% Arch Chemicals 817,500 14,511 - -------------------------------------------------------------------------------- Cabot Microelectronics * 191,700 9,974 - -------------------------------------------------------------------------------- 24,485 ------------- Total Process Industries 53,110 ------------- BASIC MATERIALS 1.9% Metals 1.6% Gibraltar Steel 190,500 3,364 - -------------------------------------------------------------------------------- Material Sciences * 693,400 5,330 - -------------------------------------------------------------------------------- Matthews International (Class A) + 889,700 28,192 - -------------------------------------------------------------------------------- 36,886 ------------- Mining 0.3% Battle Mountain Gold * 2,185,300 3,688 - -------------------------------------------------------------------------------- Coal Creek + 9,295 730 - -------------------------------------------------------------------------------- Lihir Gold (USD) * 7,996,400 2,709 - -------------------------------------------------------------------------------- 7,127 ------------- Total Basic Materials 44,013 ------------- MISCELLANEOUS 0.0% ADM Cranberry * 164 4 - -------------------------------------------------------------------------------- Total Miscellaneous 4 ------------- 19 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Shares/Par Value - -------------------------------------------------------------------------------- In thousands EDUCATION 0.0% Education 0.0% ITT Educational Services * 37,700 $ 829 - ------------------------------------------------------------------------------- Total Education 829 ------------ FOREIGN 0.1% Other Foreign 0.1% ValiCert * 287,000 1,816 - ------------------------------------------------------------------------------- Total Foreign 1,816 ------------ Total Common Stocks (Cost $1,792,827) 2,105,602 ------------ CONVERTIBLE BONDS 0.1% Vantive, 4.75%, 9/1/02 3,000,000 3,092 - ------------------------------------------------------------------------------- Total Convertible Bonds (Cost $ 2,527) 3,092 ------------ SHORT-TERM INVESTMENTS 8.7% Money Market Funds 8.7% Reserve Investment Fund, 6.69%# 197,280,222 197,280 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Total Short-Term Investments (Cost $ 197,280) 197,280 ------------ Total Investments in Securities 101.9% of Net Assets (Cost $1,992,634) $ 2,305,974 ------------ Other Assets Less Liabilities (43,112) ------------ NET ASSETS $ 2,262,862 ============ # Seven-day yield + Affiliated company * Non-income producing ADR American Depository Receipt REIT Real Estate Investment Trust The accompanying notes are an integral part of these financial statements. 20 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- Dcember 31, 2000 STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- In thousands - -------------------------------------------------------------------------------- Assets - -------------------------------------------------------------------------------- Investments in securities, at value Affiliated companies (cost $203,461) $ 206,486 Other companies (cost $1,789,173) 2,099,488 ---------- Total investments in securities 2,305,974 Other assets 10,657 ---------- Total assets 2,316,631 - -------------------------------------------------------------------------------- Liabilities - -------------------------------------------------------------------------------- Total liabilities 53,769 ---------- NET ASSETS $2,262,862 ========== Net Assets Consist of: Accumulated net realized gain/loss - net of distributions $ 2,585 Net unrealized gain (loss) 313,340 Paid-in-capital applicable to 94,790,683 shares of $0.50 par value capital stock outstanding; 200,000,000 shares authorized 1,946,937 ---------- NET ASSETS $2,262,862 ========== NET ASSET VALUE PER SHARE Small-Cap Stock shares ($2,255,383,054/94,477,565 shares outstanding) $ 23.87 ========== Small-Cap Stock Advisor Class shares ($7,479,006/313,118 shares outstanding) $ 23.89 ========== The accompanying notes are an integral part of these financial statements. 21 T. ROWE PRICE SMALL-CAP STOCK FUND STATEMENT OF OPERATIONS In thousands Year Ended 12/31/00 - -------------------------------------------------------------------------------- Investment Income (Loss) Income Dividend (including $5,251 from affiliated companies) $ 19,183 Interest 12,785 --------- Total income 31,968 --------- Expenses Investment management 15,623 Shareholder servicing Small-Cap Stock shares 2,965 Small-Cap Stock Advisor Class shares -- Registration 215 Custody and accounting 199 Prospectus and shareholder reports Small-Cap Stock shares 127 Small-Cap Stock Advisor Class shares -- Legal and audit 24 Directors 10 Miscellaneous 11 --------- Total expenses 19,174 Expenses paid indirectly (40) --------- Net expenses 19,134 --------- Net investment income (loss) 12,834 --------- Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities (including $17,918 from affiliated companies) 187,797 Foreign currency transactions 3 --------- Net realized gain (loss) 187,800 Change in net unrealized gain or loss on securities (including $5,176 from affiliated companies) 97,585 --------- Net realized and unrealized gain (loss) 285,385 --------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 298,219 ========= The accompanying notes are an integral part of these financial statements. 22 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- In thousands Year Ended 12/31/00 12/31/99 -------------------------- Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 12,834 $ 6,337 Net realized gain (loss) 187,800 131,905 Change in net unrealized gain or loss 97,585 77,185 -------------------------- Increase (decrease) in net assets from operations 298,219 215,427 -------------------------- Distributions to shareholders Net investment income Small-Cap Stock shares (12,079) (5,845) Small-Cap Stock Advisor Class shares (49) -- Net realized gain Small-Cap Stock shares (212,307) (65,022) Small-Cap Stock Advisor Class shares (673) -- -------------------------- Decrease in net assets from distributions (225,108) (70,867) -------------------------- Capital share transactions * Shares sold Small-Cap Stock shares 912,777 918,700 Small-Cap Stock Advisor Class shares 8,702 -- Distributions reinvested Small-Cap Stock shares 212,796 66,463 Small-Cap Stock Advisor Class shares 426 -- Shares redeemed Small-Cap Stock shares (684,077) (541,991) Small-Cap Stock Advisor Class shares (1,199) -- -------------------------- Increase (decrease) in net assets from capital share transactions 449,425 443,172 -------------------------- Net Assets Increase (decrease) during period 522,536 587,732 Beginning of period 1,740,326 1,152,594 -------------------------- End of period $ 2,262,862 $ 1,740,326 ========================== *Share information Shares sold Small-Cap Stock shares 36,839 44,046 Small-Cap Stock Advisor Class shares 345 -- Distributions reinvested Small-Cap Stock shares 9,224 3,120 Small-Cap Stock Advisor Class shares 18 -- Shares redeemed Small-Cap Stock shares (27,904) (26,285) Small-Cap Stock Advisor Class shares (50) -- -------------------------- Increase (decrease) in shares outstanding 18,472 20,881 The accompanying notes are an integral part of these financial statements. 23 T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- December 31, 2000 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price Small-Cap Stock, Inc. (the fund) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The fund seeks to provide long-term capital growth by investing primarily in stocks of small companies. The fund has two classes of shares--Small-Cap Stock, offered since June 1, 1956, and Small-Cap Stock Advisor Class, first offered on March 31, 2000. Small-Cap Stock Advisor Class sells its shares only through financial intermediaries, which it compensates for distribution and certain administrative services under a Board-approved Rule 12b-1 plan. Each class has exclusive voting rights on matters related solely to that class, separate voting rights on matters that relate to both classes, and, in all other respects, the same rights and obligations as the other class. The accompanying financial statements were prepared in accordance with generally accepted accounting principles, which require the use of estimates made by fund management. Valuation Equity securities listed or regularly traded on a securities exchange are valued at the last quoted sales price at the time the valuations are made. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day and securities regularly traded in the over-the-counter market are valued at the mean of the latest bid and asked prices. Other equity securities are valued at a price within the limits of the latest bid and asked prices deemed by the Board of Directors, or by persons delegated by the Board, best to reflect fair value. Debt securities are generally traded in the over-the-counter market and are valued at a price deemed best to reflect fair value as quoted by dealers who make markets in these securities or by an independent pricing service. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. Assets and liabilities for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by or under the supervision of the officers of the fund, as authorized by the Board of Directors. Currency Translation Assets and liabilities denominated in foreign currencies are translated into U.S. dollar values each day at the prevailing exchange rate, using 24 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- the mean of the bid and offer prices of such currencies against U.S. dollars quoted by a major bank. Purchases and sales of securities and income and expenses are translated into U.S. dollars at the prevailing exchange rate on the dates of such transactions. The effect of changes in foreign exchange rates on realized and unrealized security gains and losses is reflected as a component of such gains and losses. Affiliated Companies As defined by the Investment Company Act of 1940, an affiliated company is one in which the fund owns at least 5% of the outstanding voting securities. Premiums and Discounts Premiums and discounts on debt securities are amortized for both financial reporting and tax purposes. Class Accounting The Small-Cap Stock Advisor Class pays distribution and administrative expenses, in the form of Rule 12b-1 fees, in an amount not exceeding 0.25% of the class's average net assets; no such fees were incurred during the period ended December 31, 2000. Shareholder servicing, prospectus, and shareholder report expenses are charged directly to the class to which they relate. Expenses common to both classes, investment income, and realized and unrealized gains and losses are allocated to the classes based upon the relative daily net assets of each class. Income distributions are declared and paid by each class on an annual basis. Capital gain distributions are declared and paid by the fund on an annual basis. Other Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Dividend income and distributions to shareholders are recorded by the fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with generally accepted accounting principles. Expenses paid indirectly reflect credits earned on daily uninvested cash balances at the custodian and are used to reduce the fund's custody charges. NOTE 2 - INVESTMENT TRANSACTIONS Purchases and sales of portfolio securities, other than short-term securities, aggregated $820,018,000 and $606,636,000, respectively, for the year ended December 31, 2000. 25 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- 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. In order for the fund's capital accounts and distributions to shareholders to reflect the tax character of certain transactions, the following reclassifications were made during the year ended December 31, 2000. The reclassifications relate primarily to redemptions in-kind and a tax practice that treats a portion of the proceeds from each redemption of capital shares as a distribution of taxable net investment income and/or realized capital gain. The results of operations and net assets were not affected by the increases/(decreases) to these accounts. -------------------------------------------------------------------------- Undistributed net investment income $(1,016,000) Undistributed net realized gain (46,264,000) Paid-in-capital 47,280,000 At December 31, 2000, the cost of investments for federal income tax purposes was substantially the same as for financial reporting and totaled $1,992,634,000. Net unrealized gain aggregated $313,340,000 at period-end, of which $618,696,000 related to appreciated investments and $305,356,000 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 (Price Group). The investment management agreement between the fund and the manager provides for an annual investment management fee, of which $1,431,000 was payable at December 31, 2000. The fee is computed daily and paid monthly, and consists of an individual fund fee equal to 0.45% of average daily net assets and a group fee. The group fee is based on the combined assets of certain mutual funds sponsored by Price Group (the group). The group fee rate ranges from 0.48% for the first $1 billion of assets to 0.295% for assets in excess of $120 billion. At December 31, 2000, and for the year then ended, the effective annual group fee rate was 0.32%. The fund pays a pro-rata share of the group fee based on the ratio of its net assets to those of the group. 26 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- 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 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 $2,230,000 for the year ended December 31, 2000, of which $205,000 was payable at period-end. The fund may invest in the Reserve Investment Fund and Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by Price Associates. The Reserve Funds are offered as cash management options only to mutual funds and other accounts sponsored by Price Group, and are not available to the public. The Reserve Funds pay no investment management fees. Distributions from the Reserve Funds to the fund for the year ended December 31, 2000, totaled $12,265,000 and are reflected as interest income in the accompanying Statement of Operations. 27 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- To the Board of Directors and Small-Cap Stock Advisor Class Shareholders of T. Rowe Price Small-Cap Stock Fund, Inc. In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Small-Cap Stock Fund, Inc. (the "Fund") at December 31, 2000, and the results of its operations, the changes in its net assets and the financial highlights for each of the fiscal periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Baltimore, Maryland January 19, 2001 28 T. ROWE PRICE SMALL-CAP STOCK FUND - -------------------------------------------------------------------------------- TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/00 - -------------------------------------------------------------------------------- We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements. The fund's distributions to shareholders included: o $38,761,000 from short-term capital gains, o $193,136,000 from long-term capital gains, subject to the 20% rate gains category. For corporate shareholders, $11,541,000 of the fund's distributed income and short-term capital gains qualified for the dividends-received deduction. - -------------------------------------------------------------------------------- 29 For fund and account information or to conduct transactions, 24 hours, 7 days a week By touch-tone telephone Tele*Access 1-800-638-2587 By Account Access on the Internet www.troweprice.com/access For assistance with your existing fund account, call: Shareholder Service Center 1-800-225-5132 To open a brokerage account or obtain information, call: 1-800-638-5660 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. Walk-In 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 Colorado Springs 2260 Briargate Parkway Los Angeles Area Warner Center 21800 Oxnard Street, Suite 270 Woodland Hills San Francisco Area 1990 North California Boulevard Suite 100 Walnut Creek Tampa 4200 West Cypress Street 10th Floor Washington, D.C. 900 17th Street N.W. Farragut Square Invest With Confidence(R) T.RowePrice [LOGO] T. Rowe Price Investment Services, Inc., Distributor. E265-050 12/31/00 -----END PRIVACY-ENHANCED MESSAGE-----