Item 1. Report to Shareholders T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- June 30, 2004 Certified Semiannual Report This report is certified under the Sarbanes-Oxley Act of 2002, which requires that public companies, including mutual funds, affirm that the information provided in their annual and semiannual shareholder reports fully and fairly represents their financial position. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) FINANCIAL HIGHLIGHTS For a share outstanding throughout each period - -------------------------------------------------------------------------------- Investor Class 6 Months Year Ended Ended 6/30/04 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99 NET ASSET VALUE Beginning of period $ 27.98 $ 21.50 $ 25.34 $ 23.87 $ 22.80 $ 20.79 Investment activities Net investment income (loss) (0.02) (0.02) 0.01 0.10 0.15 0.09 Net realized and unrealized gain (loss) 2.03 6.96 (3.61) 1.52 3.52 2.89 Total from investment activities 2.01 6.94 (3.60) 1.62 3.67 2.98 Distributions Net investment income -- -- (0.01) (0.10) (0.14) (0.08) Net realized gain -- (0.46) (0.23) (0.05) (2.46) (0.89) Total distributions -- (0.46) (0.24) (0.15) (2.60) (0.97) NET ASSET VALUE End of period $ 29.99 $ 27.98 $ 21.50 $ 25.34 $ 23.87 $ 22.80 --------------------------------------------------------------- Ratios/ Supplemental Data Total return^ 7.18% 32.35% (14.21)% 6.81% 16.49% 14.66% Ratio of total expenses to average net assets 0.94%! 0.96% 0.96% 0.98% 0.94% 0.96% Ratio of net investment income (loss) to average net assets (0.16)%! (0.10)% 0.04% 0.45% 0.63% 0.47% Portfolio turnover rate 21.9%! 16.3% 15.3% 16.5% 32.8% 42.3% Net assets, end of period (in millions) $ 5,499 $ 4,864 $ 3,298 $ 3,158 $ 2,255 $ 1,740 ^ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions. ! Annualized The accompanying notes are an integral part of these financial statements. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) FINANCIAL HIGHLIGHTS For a share outstanding throughout each period - -------------------------------------------------------------------------------- Advisor Class 6 Months Year 3/31/00 Ended Ended Through 6/30/04 12/31/03 12/31/02 12/31/01 12/31/00 NET ASSET VALUE Beginning of period $ 27.88 $ 21.44 $ 25.32 $ 23.89 $ 24.93 Investment activities Net investment income (loss) (0.05) (0.05) (0.02) 0.04 0.07 Net realized and unrealized gain (loss) 2.01 6.91 (3.63) 1.53 1.53 Total from investment activities 1.96 6.86 (3.65) 1.57 1.60 Distributions Net investment income -- -- -- (0.09) (0.18) Net realized gain -- (0.42) (0.23) (0.05) (2.46) Total distributions -- (0.42) (0.23) (0.14) (2.64) NET ASSET VALUE End of period $ 29.84 $ 27.88 $ 21.44 $ 25.32 $ 23.89 ---------------------------------------------------------- Ratios/Supplemental Data Total return^ 7.03% 32.06% (14.41)% 6.60% 6.79% Ratio of total expenses to average net assets 1.19%! 1.19% 1.19% 1.16% 0.82%! Ratio of net investment income (loss) to average net assets (0.41)%! (0.33)% (0.13)% 0.26% 0.85%! Portfolio turnover rate 21.9%! 16.3% 15.3% 16.5% 32.8%! Net assets, end of period (in thousands) $ 386,836 $ 319,096 $ 141,005 $ 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. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) June 30, 2004 PORTFOLIO OF INVESTMENTS (1) Shares/$ Par Value - -------------------------------------------------------------------------------- (Cost and value in $ 000s) COMMON STOCKS 90.6% CONSUMER DISCRETIONARY 10.3% Auto Components 0.5% Keystone Automotive * 640,300 17,858 Strattec Security * 190,600 13,043 30,901 Automobiles 0.1% Winnebago 85,200 3,176 3,176 Hotels, Restaurants & Leisure 2.6% Applebee's 707,512 16,287 CEC Entertainment * 464,000 13,693 Chicago Pizza & Brewery * 316,300 4,811 PF Chang's China Bistro * 400,000 16,460 Red Robin Gourmet Burgers * 277,500 7,595 Ruby Tuesday 1,064,800 29,229 Sonic * 1,317,750 29,979 The Cheesecake Factory * 864,000 34,378 152,432 Household Durables 0.8% Harman International 120,000 10,920 Jarden * 1,050,000 37,789 48,709 Internet & Catalog Retail 0.3% priceline.com * 570,000 15,350 15,350 Leisure Equipment & Products 2.0% Brunswick 1,220,200 49,784 MarineMax * 672,000 19,273 Polaris Industries 480,000 23,040 SCP Pool 577,025 25,966 118,063 Media 1.4% Emmis Communications * 644,300 13,517 Entercom Communications * 238,500 8,896 Getty Images * 186,000 11,160 Scholastic * 1,353,800 40,546 Young Broadcasting * 430,700 5,664 79,783 Multiline Retail 0.4% Big Lots * 795,000 11,496 Neiman Marcus, Class A 259,300 14,430 25,926 Specialty Retail 2.1% AC Moore Arts & Crafts * 313,800 8,633 AnnTaylor Stores * 2,062,500 59,771 Christopher & Banks 923,950 16,363 Hot Topic * 250,000 5,123 Linens 'n Things * 673,900 19,752 Monro Muffler Brake * 300,000 7,278 The Finish Line, Class A * 225,000 6,788 Ultimate Electronics * 337,800 1,669 125,377 Textiles, Apparel, & Luxury Goods 0.1% Culp * 209,900 1,633 Unifi * 908,400 2,662 4,295 Total Consumer Discretionary 604,012 CONSUMER STAPLES 1.9% Food & Staples Retailing 1.6% Casey's General Stores 2,448,000 44,799 Performance Food Group * 1,271,700 33,751 Wild Oats Markets * 881,900 12,408 90,958 Food Products 0.2% ADM Cranberry *!!@ 164 52 American Italian Pasta, Class A 274,000 8,352 Makepeace @ 164 984 Seneca Foods, Class A * 72,000 1,314 Seneca Foods, Class B * 187,600 3,611 14,313 Personal Products 0.1% Chattem * 243,000 7,015 7,015 Total Consumer Staples 112,286 ENERGY 7.4% Energy Equipment & Services 5.6% Atwood Oceanics * 577,000 24,090 Cooper Cameron * 103,300 5,031 FMC Technologies * 1,749,900 50,397 Grant Prideco * 3,274,350 60,444 Hanover Compressor * 1,625,000 19,337 Hydril * 373,300 11,759 Key Energy Services * 750,600 7,086 Lone Star Technologies * 405,700 11,181 National Oilwell * 2,401,700 75,630 Seacor Smit * 899,500 39,515 Smith International * 260,200 14,509 W-H Energy Services * 473,900 9,288 328,267 Oil & Gas 1.8% Forest Oil * 1,575,100 43,032 Noble Energy 859,400 43,829 Ultra Petroleum * 588,500 21,969 108,830 Total Energy 437,097 FINANCIALS 16.3% Capital Markets 1.5% Affiliated Managers Group * 550,000 27,703 Investor's Financial Services 751,000 32,729 National Financial Partners 338,000 11,921 Piper Jaffray * 383,000 17,323 89,676 Commercial Banks 5.6% Boston Private Financial 575,400 13,326 Chittenden 1,758,150 61,799 Citizens Banking 1,497,500 46,497 Glacier Bancorp 505,736 14,247 Pinnacle Financial Partners * 80,700 1,477 Provident Bankshares 952,078 27,458 Sandy Spring Bancorp 450,000 15,637 Signature Bank * 93,000 2,210 Southwest Bancorp 998,500 44,054 Texas Capital Bancshares * 804,600 13,356 Valley National Bancorp 1,446,995 36,580 WestAmerica 1,000,000 52,450 329,091 Diversified Financial Services 0.6% Assured Guaranty * 1,885,000 31,951 31,951 Insurance 5.7% Aspen Insurance Holdings 779,000 18,096 Bristol West Holdings 832,000 15,134 Brown and Brown 750,000 32,325 Harleysville Group 316,200 5,960 Horace Mann Educators 2,029,100 35,469 Infinity Property & Casualty 948,900 31,314 Markel * 111,500 30,941 Ohio Casualty * 2,495,700 50,239 PartnerRe 700,000 39,711 Selective Insurance 814,000 32,462 Triad Guaranty * 290,000 16,878 W. R. Berkley 586,000 25,169 333,698 Real Estate 2.9% Arden Realty, REIT 739,200 21,740 EastGroup Properties, REIT 887,600 29,885 Essex Property Trust, REIT 100,000 6,835 Gables Residential Trust, REIT 792,600 26,932 LaSalle Hotel Properties, REIT 495,400 12,088 Manufactured Home Communities, REIT 315,000 10,455 Parkway Properties, REIT ! 599,700 26,657 Reckson Associates Realty, REIT 265,900 7,302 Washington, REIT 971,300 28,537 170,431 Thrifts & Mortgage Finance 0.0% Frankfort First 61,400 1,386 1,386 Total Financials 956,233 HEALTH CARE 10.4% Biotechnology 3.0% Abgenix * 96,000 1,125 Alexion Pharmaceutical * 100,000 1,860 Alkermes * 938,700 12,766 Amylin Pharmaceuticals * 440,000 10,032 Anadys Pharmaceuticals * 540,000 3,834 Cephalon * 353,517 19,090 Cubist Pharmaceuticals * 922,200 10,236 CV Therapeutics * 104,300 1,748 Cytogen * 360,000 5,724 Cytokinetics * 65,000 965 deCODE GENETICS * 471,703 4,010 Dynavax Technologies * 366,000 2,438 Exelixis * 819,700 8,271 Memory Pharmaceuticals * 366,000 3,331 Myriad Genetics * 1,000,000 14,920 Neurocrine Biosciences * 437,500 22,684 NPS Pharmaceuticals * 247,400 5,195 ONYX Pharmaceuticals * 489,700 20,744 OSI Pharmaceuticals * 54,400 3,832 Rigel Pharmaceuticals * 244,000 3,467 Trimeris * 391,900 5,655 Vertex Pharmaceuticals * 1,319,620 14,305 176,232 Health Care Equipment & Supplies 3.2% Advanced Neuromodulation Systems * 575,000 18,860 Analogic 409,500 17,375 DJ Orthopedics * 478,000 10,994 Edwards Lifesciences * 589,900 20,558 EPIX Medical * 190,000 4,009 Integra LifeServices Holdings * 601,000 21,197 Matthews International, Class A 1,419,600 46,762 Nuvasive * 360,000 3,928 Steris * 1,050,100 23,690 Thoratec * 525,000 5,633 Wilson Greatbatch Technologies * 487,300 13,620 186,626 Health Care Providers & Services 3.0% Henry Schein * 777,200 49,072 Hooper Holmes 1,103,200 6,332 LabOne * 350,000 11,123 Lifeline Systems * 667,200 15,786 LifePoint Hospitals * 125,000 4,653 Sunrise Senior Living *! 1,269,100 49,673 Symbion * 144,300 2,519 United Surgical Partners International * 540,000 21,314 WellChoice * 425,000 17,595 178,067 Pharmaceuticals 1.2% Able Laboratories * 35,700 734 Atherogenics * 625,000 11,894 Eon Labs * 400,000 16,372 Inspire Phamaceuticals * 250,000 4,180 Medicines Company * 350,000 10,678 Nektar Therapeutics * 175,100 3,495 Noven Pharmaceuticals * 1,056,300 23,260 70,613 Total Health Care 611,538 INDUSTRIALS & BUSINESS SERVICES 16.6% Aerospace & Defense 1.2% Armor Holdings * 1,502,300 51,078 Mercury Computer Systems * 755,000 18,724 69,802 Air Freight & Logistics 2.2% EGL * 1,522,300 40,493 Expeditors International of Washington 83,600 4,131 Pacer International * 830,000 15,355 Ryder System 720,000 28,850 UTi Worldwide 787,600 41,499 130,328 Airlines 0.2% Frontier Airlines * 710,000 7,725 Midwest Express Holdings * 555,600 2,317 10,042 Building Products 0.4% Quixote 234,782 4,707 Trex * 443,500 16,742 21,449 Commercial Services & Supplies 5.5% Central Parking 1,486,400 27,781 Consolidated Graphics *! 1,001,900 44,134 Education Management * 163,600 5,376 Electro Rent 564,300 5,908 First Advantage, Class A * 245,800 4,646 G&K Services, Class A 807,700 32,461 Herman Miller 1,370,700 39,668 Intersections * 82,000 1,967 Ionics *! 1,150,000 32,487 KForce.com * 1,311,200 12,378 Layne Christensen * 343,700 5,688 LECG * 906,100 15,685 Resources Connection * 1,133,500 44,331 SOURCECORP * 625,900 17,225 Tetra Tech * 1,589,262 25,937 West Corporation * 371,908 9,725 325,397 Construction & Engineering 0.2% Insituform Technologies * 698,100 11,358 11,358 Electrical Equipment 2.0% A.O. Smith 1,745,700 55,496 American Superconductor * 219,000 2,865 Artesyn Technologies * 1,200,000 10,800 Belden ! 1,915,000 41,038 PECO II * 260,200 208 Woodward Governor 89,700 6,468 116,875 Machinery 3.5% Actuant Corporation, Class A * 918,260 35,803 Graco 1,020,000 31,671 Harsco 1,159,600 54,501 IDEX 406,950 13,979 Lindsay Manufacturing ! 1,062,200 25,514 Reliance Steel & Aluminum 323,100 13,028 Toro 475,000 33,283 207,779 Road & Rail 1.4% Genesee & Wyoming, Class A * 200,000 4,740 Heartland Express 533,391 14,594 Knight Transportation * 1,544,800 44,382 Overnite 585,000 17,199 80,915 Total Industrials & Business Services 973,945 INFORMATION TECHNOLOGY 20.1% Communications Equipment 1.6% Black Box 800,000 37,808 Emulex * 1,000,000 14,310 F5 Networks * 425,000 11,254 Ixia * 625,000 6,150 Packeteer * 477,500 7,712 Riverstone Networks * 1,750,000 2,292 Sirf Technology Holdings * 469,400 6,135 Stratos International * 42,143 231 Tekelec * 416,700 7,571 93,463 Computer & Peripherals 0.2% Synaptics * 650,000 12,447 12,447 Electronic Equipment & Instruments 2.3% Digital Theater Systems * 425,000 11,114 KEMET * 1,845,000 22,546 Littelfuse * 601,600 25,514 Methode Electronics 1,254,700 16,273 Newport * 789,600 12,768 Plexus * 1,898,600 25,631 Technitrol * 379,500 8,311 Woodhead Industries ! 960,300 14,846 137,003 Internet Software & Services 1.1% Digital Insight * 845,000 17,517 Internet Security Systems * 937,600 14,383 MatrixOne * 1,603,700 11,082 Netegrity * 875,000 7,402 Sonicwall * 115,200 991 Websense * 433,800 16,150 67,525 IT Services 3.7% BISYS Group * 1,094,000 15,382 CACl International, Class A * 870,800 35,215 Global Payments 868,000 39,078 Iron Mountain * 1,181,825 57,035 Maximus * 1,058,300 37,527 MPS Group * 2,646,800 32,079 216,316 Semiconductor & Semiconductor Equipment 4.6% AMIS Holdings * 680,000 11,506 Artisan Components * 875,000 22,575 Atheros Communications * 364,000 3,836 ATMI * 860,000 23,487 Cabot Microelectronics * 544,000 16,652 Entegris * 1,441,200 16,675 Exar * 1,163,000 17,050 Lattice Semiconductor * 168,800 1,183 Microsemi * 1,165,000 16,555 MKS Instruments * 1,456,200 33,230 Mykrolis * 1,554,800 27,085 PDF Solutions * 826,300 6,999 Power Integrations * 145,000 3,610 Semtech * 1,764,000 41,524 Sigmatel * 428,000 12,438 Tessera Technologies * 758,900 13,675 268,080 Software 6.6% Actuate * 395,500 1,562 Altiris * 585,400 16,163 Catapult Communications * 418,600 9,628 Concord Communications * 499,400 5,698 FactSet Research Systems 856,200 40,473 FileNet * 1,271,400 40,138 Jack Henry & Associates 2,420,100 48,644 Kronos *! 1,575,000 64,890 Magma Design Automation * 506,400 9,738 Mercury Interactive * 279,300 13,918 Motive * 641,900 6,624 NetIQ * 1,346,400 17,773 Open Solutions * 422,000 10,542 Progress Software * 900,000 19,503 Quest Software * 1,059,400 13,666 Red Hat * 856,700 19,678 RSA Security * 1,177,200 24,097 SPSS * 536,400 9,639 Verisity Ltd. * 340,000 2,040 Verity * 1,225,000 16,550 390,964 Total Information Technology 1,185,798 MATERIALS 6.4% Chemicals 4.3% Airgas 2,875,000 68,742 Arch Chemicals ! 1,198,100 34,529 Ferro 1,340,000 35,751 IMC Global 2,325,000 31,155 MacDermid 175,000 5,924 Material Sciences * 691,100 7,360 Minerals Technologies 948,000 54,984 Symyx Technologies * 575,000 13,869 252,314 Containers & Packaging 0.4% Chesapeake Corp. 710,000 18,943 Smurfit-Stone Container * 191,100 3,812 22,755 Metals & Mining 1.4% Adrian Steel !@ 13,000 4,095 Coal Creek @ 9,295 1,924 Gibraltar Steel 378,500 12,423 Lihir Gold (AUD) * 7,971,900 5,486 Meridian Gold * 1,700,000 22,049 NN 163,900 2,083 Steel Dynamics * 1,175,000 33,640 81,700 Paper & Forest Products 0.3% Buckeye Technologies * 1,780,100 20,471 20,471 Total Materials 377,240 TELECOMMUNICATION SERVICES 0.8% Wireless Telecommunication Services 0.8% Spectrasite * 896,000 38,725 Western Wireless, Class A * 340,000 9,829 Total Telecommunication Services 48,554 UTILITIES 0.4% Electric Utilities 0.4% Cleco 767,200 13,794 El Paso Electric * 726,200 11,213 Total Utilities 25,007 Total Common Stocks (Cost $4,141,952) 5,331,710 TRUSTS & MUTUAL FUNDS 0.6% Trusts & Mutual Funds 0.6% Ishares Russell 2000 300,000 35,397 Total Trusts & Mutual Funds (Cost $30,479) 35,397 SHORT-TERM INVESTMENTS 7.9% U.S. Treasury Obligations 0.1% U.S. Treasury Bills 0.97%, 8/26/04 ++ 1,000,000 998 1.005%, 8/26/04 ++ 4,600,000 4,593 1.02%, 8/26/04 ++ 250,000 250 1.07%, 8/26/04 ++ 250,000 250 6,091 Money Market Fund 7.8% T. Rowe Price Reserve Investment Fund, 1.16% #! 459,208,907 459,209 459,209 Total Short-Term Investments (Cost $465,299) 465,300 Total Investments in Securities 99.1% of Net Assets (Cost $4,637,730) $ 5,832,407 -------------------- Futures Contracts ($ 000s) Contract Unrealized Expiration Value Gain (Loss) ---------- -------- ---------- Long, 412 Russell 2000 contracts, $6,100 par of U.S. Treasury Bills pledged as initial margin 9/04 $ 122,024 $ 5,291 Net payments (receipts) of variation margin to date (4,498) Variation margin receivable (payable) on open futures contracts $ 793 --------------- (1) Denominated in U.S. dollars unless otherwise noted # Seven-day yield * Non-income producing ++ All or a portion of this security is pledged to cover margin requirements on futures contracts at 6/30/04. ! Affiliated company - See Note 2. !! Security contains restrictions as to public resale pursuant to the Securities Act of 1933 and related rules - total value of such securities at period-end amounts to $52 and represents 0.00% of net assets @ Valued by the T. Rowe Price Valuation Committee, established by the fund's Board of Directors AUD Australian dollar REIT Real Estate Investment Trust The accompanying notes are an integral part of these financial statements. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) June 30, 2004 STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- (In thousands except shares and per share amounts) Assets Investments in securities, at value Affiliated companies (cost $723,419) $ 797,072 Other companies (cost $3,914,311) 5,035,335 Total investments in securities 5,832,407 Other assets 69,399 Total assets 5,901,806 Liabilities Total liabilities 15,761 NET ASSETS $ 5,886,045 -------------------- Net Assets Consist of: Undistributed net investment income (loss) $ (4,952) Undistributed net realized gain (loss) 193,198 Net unrealized gain (loss) 1,199,968 Paid-in-capital applicable to 196,357,035 shares of $0.50 par value capital stock outstanding; 200,000,000 shares authorized 4,497,831 NET ASSETS $ 5,886,045 -------------------- NET ASSET VALUE PER SHARE Investor Class ($5,499,208,857/183,391,973 shares outstanding) $ 29.99 -------------------- Advisor Class ($386,836,417/12,965,062 shares outstanding) $ 29.84 -------------------- The accompanying notes are an integral part of these financial statements. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- ($ 000s) 6 Months Ended 6/30/04 Investment Income (Loss) Income Dividend $ 21,682 Interest 23 Total income 21,705 Expenses Investment management 21,253 Shareholder servicing Investor Class 4,227 Advisor Class 264 Rule 12b-1 fees - Advisor Class 455 Prospectus and shareholder reports Investor Class 151 Advisor Class 39 Custody and accounting 138 Registration 111 Legal and audit 13 Directors 6 Miscellaneous 4 Total expenses 26,661 Expenses paid indirectly (4) Net expenses 26,657 Net investment income (loss) (4,952) Realized and Unrealized Gain (Loss) Net realized gain (loss) Securities 115,181 Futures 1,274 Net realized gain (loss) 116,455 Change in net unrealized gain (loss) Securities 264,286 Futures 4,396 Change in net unrealized gain (loss) 268,682 Net realized and unrealized gain (loss) 385,137 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 380,185 -------------------- The accompanying notes are an integral part of these financial statements. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- ($ 000s) 6 Months Year Ended Ended 6/30/04 12/31/03 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ (4,952) $ (4,492) Net realized gain (loss) 116,455 159,039 Change in net unrealized gain (loss) 268,682 1,058,509 Increase (decrease) in net assets from operations 380,185 1,213,056 Distributions to shareholders Net realized gain Investor Class -- (79,833) Advisor Class -- (4,666) Decrease in net assets from distributions -- (84,499) Capital share transactions * Shares sold Investor Class 857,971 1,456,686 Advisor Class 97,186 160,137 Distributions reinvested Investor Class -- 75,918 Advisor Class -- 4,529 Shares redeemed Investor Class (578,873) (1,037,784) Advisor Class (53,666) (44,286) Increase (decrease) in net assets from capital share transactions 322,618 615,200 Net Assets Increase (decrease) during period 702,803 1,743,757 Beginning of period 5,183,242 3,439,485 End of period $ 5,886,045 $ 5,183,242 ------------------------------------ (Including undistributed net investment income (loss) of $(4,952) at 6/30/04 and $0 at 12/31/03) T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- ($ 000s) 6 Months Year Ended Ended 6/30/04 12/31/03 *Share information Shares sold Investor Class 29,567 60,161 Advisor Class 3,375 6,571 Distributions reinvested Investor Class -- 2,799 Advisor Class -- 168 Shares redeemed Investor Class (20,006) (42,561) Advisor Class (1,857) (1,869) Increase (decrease) in shares outstanding 11,079 25,269 The accompanying notes are an integral part of these financial statements. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Certified Semiannual Report (Unaudited) June 30, 2004 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 (the 1940 Act) 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: the Small-Cap Stock Fund original share class, referred to in this report as the Investor Class, offered since June 1, 1956, and Small-Cap Stock--Advisor Class (Advisor Class), offered since March 31, 2000. Advisor Class shares are sold only through brokers and other financial intermediaries that are compensated by the class for distribution, shareholder servicing, and/or 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 The fund values its investments and computes its net asset value per share at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for business. 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, for certain markets, the official closing price at the time the valuations are made, except for OTC Bulletin Board securities, which are valued at the mean of the latest bid and asked prices. 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 asked prices for domestic securities and the last quoted sale price for international securities. Debt securities with original maturities of less than one year are valued at amortized cost in local currency, which approximates fair value when combined with accrued interest. Investments in mutual funds are valued at the mutual fund's closing net asset value per share on the day of valuation. Financial futures contracts are valued at closing settlement prices. Other investments and those 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 the T. Rowe Price Valuation Committee, established by the fund's Board of Directors. Most foreign markets close before the close of trading on the NYSE. If the fund determines that developments between the close of a foreign market and the close of the NYSE will, in its judgment, materially affect the value of some or all of its portfolio securities, which in turn will affect the fund's share price, the fund will adjust the previous closing prices to reflect the fair value of the securities as of the close of the NYSE, as determined in good faith by the T. Rowe Price Valuation Committee, established by the fund's Board of Directors. A fund may also fair value securities in other situations, such as when a particular foreign market is closed but the fund is open. In deciding whether to make fair value adjustments, the fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U. S. markets that represent foreign securities and baskets of foreign securities. The fund uses outside pricing services to provide it with closing market prices and information used for adjusting those prices. The fund cannot predict how often it will use closing prices and how often it will adjust those prices. As a means of evaluating its fair value process, the fund routinely compares closing market prices, the next day's opening prices in the same markets, and adjusted prices. Currency Translation Assets, including investments, 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 asked prices of such currencies against U.S. dollars as quoted 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 date of the transaction. The effect of changes in foreign currency exchange rates on realized and unrealized security gains and losses is reflected as a component of security gains and losses. Class Accounting The Advisor Class pays distribution, shareholder servicing, and/or certain administrative expenses in the form of Rule 12b-1 fees, in an amount not exceeding 0.25% of the class's average daily 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. Rebates and Credits Subject to best execution, the fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the fund in cash. Commission rebates are included in realized gain on securities in the accompanying financial statements and totaled $124,000 for the six months ended June 30, 2004. Additionally, the fund earns credits on temporarily uninvested cash balances at the custodian that reduce the fund's custody charges. Custody expense in the accompanying financial statements is presented before reduction for credits, which are reflected as expenses paid indirectly. Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Premiums and discounts on debt securities are amortized for financial reporting purposes. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Payments ("variation margin") made or received to settle the daily fluctuations in the value of futures contracts are recorded as unrealized gains or losses until the contracts are closed. Unrealized gains and losses on futures contracts are included in other assets and other liabilities, respectively, and in the change in net unrealized gain or loss in the accompanying financial statements. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared and paid by each class on an annual basis. Capital gain distributions, if any, are declared and paid by the fund, typically on an annual basis. Other In the normal course of business, the fund enters into contracts that provide general indemnifications. The fund's maximum exposure under these arrangements is dependent on claims that may be made against the fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote. NOTE 2 - INVESTMENT TRANSACTIONS Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks or enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the fund's prospectus and Statement of Additional Information. Futures Contracts During the six months ended June 30, 2004, the fund was a party to futures contracts, which provide for the future sale by one party and purchase by another of a specified amount of a specific financial instrument at an agreed upon price, date, time, and place. Risks arise from possible illiquidity of the futures market and from movements in security values. Affiliated Companies The fund may invest in certain securities that are considered affiliated companies. As defined by the 1940 Act, an affiliated company is one in which the fund owns 5% or more of the outstanding voting securities. At June 30, 2004, the value of affiliated companies totaled $797,072,000, representing 13.7% of the value of the fund's investments in securities. For the six months then ended, $5,222,000 (24.1%) of dividend income and $6,116,000 (5.3%) of net realized gain reflected in the accompanying financial statements resulted from the fund's transactions with affiliated companies. Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $750,180,000 and $558,038,000, respectively, for the six months ended June 30, 2004. 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 under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable income and gains. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions 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. Financial records are not adjusted for temporary differences. 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, 2004. At June 30, 2004, the cost of investments for federal income tax purposes was $4,637,730,000. Net unrealized gain aggregated $1,199,968,000 at period-end, of which $1,442,556,000 related to appreciated investments and $242,588,000 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, Inc. 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 average daily net assets to those of the group. At June 30, 2004, the effective annual group fee rate was 0.31%, and investment management fee payable totaled $3,569,000. The Advisor Class is also subject to a contractual expense limitation through April 30, 2006. During the limitation period, the manager is required to waive its management fee and reimburse the class for any expenses, excluding interest, taxes, brokerage commissions, and extraordinary expenses, that would otherwise cause the class's ratio of total expenses to average net assets (expense ratio) to exceed its expense limitation of 1.20%. Through April 30, 2008, the class is required to repay the manager for expenses previously reimbursed and management fees waived to the extent its net assets have grown or expenses have declined sufficiently to allow repayment without causing the class's expense ratio to exceed its expense limitation. For the six months ended June 30, 2004, the Advisor Class operated below its expense limitation. 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 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 Investor Class. Expenses incurred pursuant to these service agreements totaled $2,476,000 for the six months ended June 30, 2004, of which $392,000 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, 2004, the fund was charged $98,000 for shareholder servicing costs related to the college savings plans, of which $71,000 was for services provided by Price and $18,000 was payable at period-end. At June 30, 2004, approximately 1.1% of the outstanding shares of the Investor Class were held by college savings plans. The fund is also one of several mutual funds sponsored by Price Associates (underlying Price funds) in which the T. Rowe Price Retirement Funds (Retirement Funds) may invest. The Retirement Funds do not invest in the underlying Price funds for the purpose of exercising management or control. Pursuant to a special servicing agreement, expenses associated with the operation of the Retirement Funds are borne by each underlying Price fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by the Retirement Funds. Expenses allocated under this agreement are reflected as shareholder servicing expense in the accompanying financial statements. For the six months ended June 30, 2004, the fund was allocated $180,000 of Retirement Funds' expenses, of which $120,000 related to services provided by Price and $36,000 was payable at period-end. At June 30, 2004, approximately 2.2% of the outstanding shares of the Investor Class were held by the Retirement Funds. The fund may invest in the T. Rowe Price Reserve Investment Fund and the 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 to mutual funds, trusts, and other accounts managed by Price Associates and/or its affiliates, and are not available for direct purchase by members of the public. The Reserve Funds pay no investment management fees. During the six months ended June 30, 2004, dividend income from the Reserve Funds totaled $2,620,000. T. Rowe Price Small-Cap Stock Fund - -------------------------------------------------------------------------------- Certified Semiannual Report INFORMATION ON PROXY VOTING - -------------------------------------------------------------------------------- A description of the policies and procedures that the T. Rowe Price Small-Cap Stock Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request by calling 1-800-225-5132. It also appears in the fund's Statement of Additional Information (Form 485B), which can be found on the SEC's Web site, www.sec.gov. Item 2. Code of Ethics. A code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions is filed as an exhibit to the registrant's annual Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the registrant's most recent fiscal half-year. Item 3. Audit Committee Financial Expert. Disclosure required in registrant's annual Form N-CSR. Item 4. Principal Accountant Fees and Services. Disclosure required in registrant's annual Form N-CSR. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. Schedule of Investments. Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 9. Submission of Matters to a Vote of Security Holders. Not applicable. Item 10. Controls and Procedures. (a) The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of this filing and have concluded that the registrant's disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) The registrant's principal executive officer and principal financial officer are aware of no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11. Exhibits. (a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is filed with the registrant's annual Form N-CSR. (2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached. (3) Written solicitation to repurchase securities issued by closed-end companies: not applicable. (b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. T. Rowe Price Small-Cap Stock Fund, Inc. By: /s/ James S. Riepe James S. Riepe Principal Executive Officer Date: August 16, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ James S. Riepe James S. Riepe Principal Executive Officer Date: August 16, 2004 By: /s/ Joseph A. Carrier Joseph A. Carrier Principal Financial Officer Date: August 16, 2004