Item 1. Report to Shareholders
DECEMBER 31, 2004
SMALL-CAP STOCK FUND
Annual Report
T. ROWE PRICE
The views and opinions in this report were current as of December 31, 2004. They
are not guarantees of performance or investment results and should not be taken
as investment advice. Investment decisions reflect a variety of factors, and the
managers reserve the right to change their views about individual stocks,
sectors, and the markets at any time. As a result, the views expressed should
not be relied upon as a forecast of the fund's future investment intent. The
report is certified under the Sarbanes-Oxley Act of 2002, which requires mutual
funds and other public companies to affirm that, to the best of their knowledge,
the information in their financial reports is fairly and accurately stated in
all material respects.
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T. ROWE PRICE SMALL-CAP STOCK FUND
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Fellow Shareholders
After beginning the year on an upswing, stocks struggled as growth moderated
under the weight of rising short-term interest rates and surging energy costs.
Stock prices closed the year on a positive note, however, and a strong final two
months of the year ensured very attractive returns for small-cap stock
investors. For most of 2004, the stock market rewarded companies with earnings,
positive cash flow, and sales growth. However, as investors rushed to gain
exposure to the market following the November presidential election, speculative
stocks--many of them companies without earnings--again led the way, and the
stocks of money-losing companies soared 17.8% in the final quarter. Fortunately,
investors by and large were more cognizant of risk in 2004, and over the course
of the entire year, unprofitable companies underperformed the small-cap Russell
2000 Index.
PERFORMANCE COMPARISON
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Periods Ended 12/31/04 6 Months 12 Months
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Small-Cap Stock Fund 10.81% 18.77%
Small-Cap Stock Fund-Advisor Class 10.69 18.48
Russell 2000 Index 10.83 18.33
Lipper Small-Cap Core Funds Index 9.84 18.37
S&P 500 Stock Index 7.19 10.88
Against this backdrop, our Small-Cap Stock Fund kept pace with the surging
indices in the second half of the year, rising 10.81% through December 31, 2004,
in line with the unmanaged Russell 2000 Index of small-cap shares, as shown in
the table. For the year, the fund returned 18.77%, outperforming both the Lipper
Small-Cap Core Index and the unmanaged Russell benchmark. (Returns for Advisor
Class shares were slightly lower, reflecting their higher expense ratio.)
As we noted at mid-year, the small-cap rally, now more than six years old,
appears quite long in the tooth. While it is certainly possible for small-caps
to continue to outperform large-caps, we believe investors may wish to be more
cautious on the asset class. We'll go into more detail in our outlook section.
INVESTMENT REVIEW
The strongest-performing sectors over the most recent six months were energy,
materials, and financials, which rose 23%, 21%, and 17%, respectively. No
Russell sector declined in the second half of 2004.
Indeed, the worst returns in the Russell index were in the technology sector,
which rose a bit over 1%.
GROWTH VS. VALUE
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Periods Ended 12/31/04 6 Months 12 Months
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Russell 2000 Growth Index 8.16% 14.31%
Russell 2000 Value Index 13.37 22.25
Some of our most significant six-month contributors relative to the Russell
benchmark came from the information technology and industrial services sectors,
where strong stock selection aided the portfolio. Our holdings in tech rose
nearly 6%, substantially outperforming the sector's 1% return. Our top performer
in this segment, CACI International, rose nearly 68% over the six months as
investors returned to the shares following last spring's developments in Iraq.
You may recall from our June report that CACI, which supplies contract
interrogators to the military, suffered on concerns about the company's possible
role in the Iraq prison-abuse scandal. Both the Army and the company completed
an investigation and found no culpability on the part of CACI. As we noted then,
no employee of the firm was charged with misconduct. CACI remains a valuable
partner to the U.S. military, and we never lost confidence in the firm's
management. Other strong performers included Kronos, the time-management
software firm, which is experiencing strong revenue growth from the latest
release of its productivity enhancing software. Tessera Technologies more than
doubled as the firm reached a legal settlement with Samsung to begin receiving
royalties on its semiconductor chip packaging solution. Finally, Global
Payments, the card processor and funds transfer firm, rose 30% on strong
quarterly earnings.
We also added value through stock selection in industrials and business
services. One of our best-performing holdings here, Ionics, rose 53% as the firm
agreed to be acquired by General Electric. Ionics is an excellent fit with GE,
which should realize synergies through supplying both power and financing to
Ionics' water desalinization projects. Armor Holdings benefited from the
continuing conflict in Iraq, as the firm supplies armament kits for both troops
and military vehicles. The military's shortcomings were recently highlighted in
Secretary of Defense Donald Rumsfeld's Iraq visit, where a trooper told of
scrounging scrap metal to armor vehicles. After the resulting furor, Armor
Holdings received accelerated vehicle armor contracts. Another solid
contributor, Resources Connection, the financial project outsourcing firm, has
been a major beneficiary of the Sarbanes-Oxley legislation. Resources Connection
has seen great revenue and earnings growth as it helps firms comply with
new regulations. Finally, the U.S. freight industry has been on fire. We've
benefited from strong fundamentals at our logistics and trucking companies,
including logistics firm UTi Worldwide and trucker Knight Transportation.
SECTOR DIVERSIFICATION
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Percent of Percent of
Net Assets Net Assets
Periods Ended 6/30/04 12/31/04
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Information Technology 20.1% 21.2%
Financials 16.3 15.8
Industrials and Business Services 16.6 15.2
Health Care 10.4 12.2
Consumer Discretionary 10.3 10.3
Energy 7.4 6.6
Materials 6.4 6.3
Consumer Staples 1.9 1.6
Telecommunication Services 0.8 0.9
Trusts and Mutual Funds 0.6 0.6
Utilities 0.4 0.6
Other and Reserves 8.8 8.7
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Total 100.0% 100.0%
Historical weightings reflect current industry/sector classifications.
Sectors that detracted from performance versus the index included financials,
materials, and consumer staples. Financial stocks' strong results were a big
surprise last year. Given the near certainty that interest rates would rise, it
is typically a solid bet to underweight the sector. While these shares did well
during the early 1990s' rising-rate cycle, they advanced from extremely
depressed valuations. This certainly is not the case now, nor was it last
December. Consequently, our decision to underweight commercial banks, thrifts,
real estate investment trusts (REITs), and the mortgage industry hurt our
relative performance, costing us about a half-point in returns--hardly a
disaster, but still disappointing. We also slightly underperformed in stock
selection in the commercial bank segment, as several of our larger holdings
lagged the sector's strong returns.
In addition, we gave up modest ground in the materials sector as our positions
increased 15%, a bit behind the index segment's 21% increase. Here, our
typically more conservative holdings appreciated at a slower pace than the
more-commodity-oriented steel and basic material holdings represented in the
index. For example, Airgas, an industrial gas supply company and one of our
larger holdings, rose by 11% on decent fundamentals. While hardly a poor result
for the quarter, its returns pale when compared with the 85% increase for iron
ore supplier Cleveland-Cliffs,
which is held in the index but not in our portfolio. One holding in the sector
did decline sharply: Ferro fell when the company delayed its third-quarter
reporting due to an accounting issue--now largely resolved--at a small
subsidiary.
The consumer staples segment was our problem sector in the half. Wild Oats
Markets declined 37% as it noted increased price competition in its California
markets. Recent new management changes are giving us hope, and we are sticking
with the shares. American Italian Pasta also fell more than 23% on weakness in
the category. Pasta's Atkins-related woes are well known and have exacerbated an
industry-wide capacity problem. We are monitoring this small position closely.
Finally, Casey's General Stores was essentially flat as the firm was squeezed by
declining margins due to gasoline's rapid price increases. We expect this
negative pressure to moderate over time.
INVESTMENT STRATEGY
In our June letter, we noted our interest in acquiring attractively priced
health care firms as this election year wore down. Health care stocks, from big
pharmaceuticals on down, can face strong headwinds during election years as
these profitable firms are often tempting political targets. While we did not
see a repeat of the 1992 election year anti-pharmaceutical rhetoric, the sector
did face some choppy sailing as several companies had well-publicized product
issues. Fortunately, we were able to find a few attractive investment
opportunities.
Our largest purchase, ResMed, designs and markets products for sleep apnea, a
disorder in which an individual stops breathing repeatedly throughout the night
due to a blockage of the airway leading to extremely fragmented sleep. The
company is one of just two firms serving this market and has strong market share
and high operating margins--about 25%. Estimates are that 90% of this potential
market remains undiagnosed, and we believe this can be an attractive growth
opportunity for some time. Another interesting health care name we added in 2004
is Martek Biosciences. Martek markets DHA additives as food supplements for
infant formula. DHA is an omega-3 fatty acid that has shown efficacy in
enhancing brain development. Martek is a critical supplier of this
difficult-to-produce product. In our opinion, Martek can be a profitable, and
much larger, company as demand for these products grow.
We also took advantage of this summer's technology pullback to add two new
technology holdings. Silicon Laboratories is a Texas-based
semiconductor firm that designs mixed-signal CMOS chips, primarily for the
communication sector. The firm has experienced strong share gains in the
handset, PC modem, and Voice over Internet Protocol markets. The firm is very
profitable, with strong operating margins and a solid record of growth. A
temporary inventory disruption with a major customer gave us the opportunity to
buy at a great price. The other tech holding, software firm Hyperion Solutions,
has a strong position in financial planning and business intelligence software.
Business for software firms should be poised to accelerate as firms finish their
mandatory spending for Sarbanes-Oxley compliance, and as discretionary spending
picks up, we believe Hyperion will benefit. As a further indication of value,
Hyperion has $9.00 per share in cash on its balance sheet.
Finally, we also initiated a position in Panera Bread. Panera owns and operates
franchise bakery cafes across the country. The stock had fallen out of favor due
to a challenging sales environment, and we found the valuation compelling given
solid long-term growth prospects. We expect an upturn in same-store sales as the
company executes on new sales initiatives. We believe underlying business
remains quite healthy, unit economics are compelling, and Wall Street sentiment
is too negative.
The rapid runup in energy stocks led us to keep reducing our exposure to this
sector. One of our most successful stocks over the last year or so has been
Ultra Petroleum, which has increased approximately 10 times our original
investment as the firm found itself sitting on one of the most prolific gas
basins in North America. Ultra's position in Wyoming's Pinedale anticline basin
has led to huge gains in shareholder value, but with its market value
approaching $4 billion, we eliminated the position. Other successful energy
investments that we recently eliminated include Smith International and Cooper
Cameron.
We also have enjoyed great success investing in the transportation industry. The
recovering U.S. economy has led to strong fundamentals for transportation and
logistics firms. One longtime holding that we were sad to let go was Expeditors
International. Expeditors is a freight-forwarding concern that we had held for
my entire 12-year tenure as portfolio manager for the fund. We believe
Expeditors is a true growth company and would have likely continued to hold the
shares if its market cap had not grown outside our universe.
Finally, we eliminated our position in Artisan Components, the semiconductor
intellectual property (IP) design firm that agreed to be acquired by ARM
Holdings, a large-cap European firm, in a stock-for-stock swap.
OUTLOOK
Wow! 2004 marked the sixth straight year of small-cap stocks' outperformance
relative to their larger brethren. While such a long cycle is not without
precedent, it is the longest run since the highly profitable 1976 to 1983 cycle.
Can it last longer? Sure. But it's clear we are in the late stages of this
cycle. As we wrote in our report six months ago, relative valuations no longer
look compelling. Interest rates are rising--typically a tough sign for the
sector--and the IPO market is back and beginning to look frothy. These are all
classic signs of the cycle top. Mega-cap firms now sell for essentially the same
valuation level as small-caps--a far cry from the huge premium they traded at
when this cycle began.
As always, the wild card that could extend the small-cap performance cycle is a
surge in relative earnings strength for the small-cap sector. For the last
several quarters, we've not seen sufficient acceleration in earnings strength.
The declining U.S. dollar has not helped our cause--since most small-caps are
domestically oriented, they don't benefit from the increased sales and currency
translation gains that aid large-cap multinationals. The dollar seems unlikely
to strengthen significantly, and we may not get a sustained strong upsurge in
small-cap earnings.
On the other hand, it has become gospel that large-caps will outperform in 2005.
Nearly every analyst is calling for large-cap growth stocks to outperform, and
even some small-cap strategists are expecting the imminent end of the cycle.
Given such a consensus, we wouldn't be surprised to see popular wisdom
confounded a bit longer. Indeed, we could have written the same thing at the
beginning of 2004.
What could extend the cycle? Slowing economic growth could cause investors to
favor the relatively stronger growth prospects of emerging growth stocks, which
in turn could spark the speculative surge typical of a late-stage small-cap
rally. Small-cap growth has underperformed small-cap value in most periods since
1999, and they are certainly due for a bounce. Moreover, we could see a rush of
merger and acquisition activity, which typically tends to target smaller-cap
stocks.
We will continue to watch for these signs, but the end of a cycle is not always
well telegraphed. We are certainly nearing the end of this rally. Valuations are
no longer at a discount, cash flow to the asset class has been strong, and our
own fund closed to new investors last February.
In light of our six strong years and current valuations, we think shareholders
who are overweight the small-cap segment should consider reducing their
holdings.
We thank you once again for entrusting T. Rowe Price with your investment needs.
We remain confident that our balanced mix of growth and value can serve us well
over the course of the cycle.
Respectfully submitted,
Greg A. McCrickard
President of the fund and chairman of its Investment Advisory Committee
January 20, 2005
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.
Risks of Stock Investing
As with all stock and bond mutual funds, the fund's share price can fall because
of weakness in the stock or bond markets, a particular industry, or specific
holdings. The financial markets can decline for many reasons, including adverse
political or economic developments, changes in investor psychology, or heavy
institutional selling. The prospects for an industry or company may deteriorate
because of a variety of factors, including disappointing earnings or changes in
the competitive environment. In addition, the investment manager's assessment of
companies held in a fund may prove incorrect, resulting in losses or poor
performance even in rising markets. Investing in small companies involves
greater risk than is customarily associated with larger companies. Stocks of
small companies are subject to more abrupt or erratic price movements than
larger-company stocks. Small companies often have limited product lines,
markets, or financial resources, and their managements may lack depth and
experience. Such companies seldom pay significant dividends that could cushion
returns in a falling market.
Glossary
Lipper indexes: Consist of a small number of the largest mutual funds in a
particular category as tracked by Lipper Inc.
S&P 500 Stock Index: An unmanaged index that tracks the stocks of 500 primarily
large-cap U.S. companies.
Russell 2000 Index: Consists of the smallest 2,000 companies in the Russell 3000
Index. Performance is reported on a total return basis.
Russell 2000 Value Index: Market-weighted total return index that measures the
performance of companies within the Russell 2000 Index having lower price/book
value ratios and lower forecasted growth rates.
Russell 2000 Growth Index: Market-weighted total return index that measures the
performance of companies within the Russell 2000 Index having higher price/book
value ratios and higher forecasted growth rates.
Market capitalization: The total value of a company's publicly traded shares.
Price/earnings ratio (P/E): A valuation measure calculated by dividing the price
of a stock by its current or projected (forward) earnings per share. This ratio
gives investors an idea of how much they are paying for current or future
earnings power.
Price/sales ratio: A valuation measure calculated by dividing the price of a
stock by its current or projected (forward) sales (or revenues) per share.
Price/book value ratio: A valuation measure calculated by dividing the price of
a stock by a company's book value per share. Book value is the net worth, or
liquidating value, of a business and is calculated by subtracting all
liabilities, including debt and preferred stocks, from total assets, and
dividing by the number of shares of common stock outstanding.
T. ROWE PRICE SMALL-CAP STOCK FUND
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PORTFOLIO HIGHLIGHTS
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TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/04
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Airgas 1.1%
National Oilwell 1.1
Armor Holdings 1.0
Kronos 1.0
Grant Prideco 1.0
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Harsco 0.9
Sunrise Senior Living 0.9
Minerals Technologies 0.9
Brunswick 0.9
WestAmerica 0.9
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Resources Connection 0.9
Ohio Casualty 0.8
Chittenden 0.8
ResMed 0.8
FMC Technologies 0.8
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Iron Mountain 0.8
Noble Energy 0.8
A.O. Smith 0.8
Citizens Banking 0.8
Global Payments 0.7
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Scholastic 0.7
FactSet Research Systems 0.7
Forest Oil 0.7
Henry Schein 0.7
Ionics 0.7
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Total 21.2%
Note: Table excludes investments in the T. Rowe Price Reserve Investment Fund.
T. ROWE PRICE SMALL-CAP STOCK FUND
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PORTFOLIO HIGHLIGHTS
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MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 12/31/04
Largest Purchases
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ResMed *
Piper Jaffray
Accredo Health *
Silicon Laboratories *
Panera Bread *
Global Imaging Systems *
United Surgical Partners International
Hyperion Solutions *
Martek Biosciences *
ADTRAN *
Largest Sales
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Ultra Petroleum **
Artisan Components **
UTi Worldwide
Brown & Brown
Ryder System
Steel Dynamics
Ruby Tuesday
Websense **
Smith International **
Knight Transportation
* Position added
** Position eliminated
T. ROWE PRICE SMALL-CAP STOCK FUND
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GROWTH OF $10,000
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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.
[Graphic Omitted]
SMALL-CAP STOCK FUND
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As of 12/31/04
Russell 2000 Index $29,796
Lipper Small-Cap Core Funds Index $33,901
Small-Cap Stock Fund $38,770
Russell 2000 Lipper Small-Cap Small-Cap
Index Core Funds Index Stock Fund
12/94 $10,000 $10,000 $10,000
12/95 12,845 13,074 13,385
12/96 14,964 15,520 16,203
12/97 18,310 18,971 20,871
12/98 17,844 18,281 20,150
12/99 21,637 21,969 23,104
12/00 20,983 23,492 26,915
12/01 21,505 25,166 28,748
12/02 17,100 20,327 24,665
12/03 25,181 28,641 32,643
12/04 29,796 33,901 38,770
Note: Performance for Advisor Class shares will vary due to the differing fee
structure. See the returns table on the next page.
T. ROWE PRICE SMALL-CAP STOCK FUND
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AVERAGE ANNUAL COMPOUND TOTAL RETURN
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This table shows how the fund and its benchmarks would have performed if their
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Since Inception
Periods Ended 12/31/04 1 Year 5 Years 10 Years Inception Date
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Small-Cap Stock Fund 18.77% 10.91% 14.51% -- --
Russell 2000 Index 18.33 6.61 11.54
Lipper Small-Cap Core
Funds Index 18.37 9.06 12.99
S&P 500 Stock Index 10.88 -2.30 12.07
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Small-Cap Stock Fund-
Advisor Class 18.48 - - 9.27% 3/31/00
Russell 2000 Index 18.33 - - 5.43
Lipper Small-Cap
Core Funds Index 18.37 - - 7.32
S&P 500 Stock Index 10.88 - - -2.88
Current performance may be higher or lower than the quoted past performance,
which cannot guarantee future results. Share price, principal value, and return
will vary, and you may have a gain or loss when you sell your shares. For the
most recent month-end performance information, please visit our Web site
(troweprice.com) or contact a T. Rowe Price representative at 1-800-225-5132.
Average annual total return figures include changes in principal value,
reinvested dividends, and capital gain distributions. Returns do not reflect
taxes that the shareholder may pay on fund distributions or the redemption of
fund shares. When assessing performance, investors should consider both short-
and long-term returns.
T. ROWE PRICE SMALL-CAP STOCK FUND
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FUND EXPENSE EXAMPLE
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As a mutual fund shareholder, you may incur two types of costs: (1) transaction
costs such as redemption fees or sales loads and (2) ongoing costs, including
management fees, distribution and service (12b-1) fees, and other fund expenses.
The following example is intended to help you understand your ongoing costs (in
dollars) of investing in the fund and to compare these costs with the ongoing
costs of investing in other mutual funds. The example is based on an investment
of $1,000 invested at the beginning of the most recent six-month period and held
for the entire period.
Please note that the fund has two share classes: The original share class
("investor class") charges no distribution and service (12b-1) fee. Advisor
Class shares are offered only through unaffiliated brokers and other financial
intermediaries and charge a 0.25% 12b-1 fee. Each share class is presented
separately in the table.
Actual Expenses
The first line of the following table ("Actual") provides information about
actual account values and expenses based on the fund's actual returns. You may
use the information in this line, together with your account balance, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
Hypothetical Example for Comparison Purposes
The information on the second line of the table ("Hypothetical") is based on
hypothetical account values and expenses derived from the fund's actual expense
ratio and an assumed 5% per year rate of return before expenses (not the fund's
actual return). You may compare the ongoing costs of investing in the fund with
other funds by contrasting this 5% hypothetical example and the 5% hypothetical
examples that appear in the shareholder reports of the other funds. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period.
Note: T. Rowe Price charges an annual small-account maintenance fee of $10,
generally for accounts with less than $2,000 ($500 for UGMA/UTMA). The fee is
waived for any investor whose T. Rowe Price mutual fund accounts total $25,000
or more, accounts employing automatic investing, and IRAs and other retirement
plan accounts that utilize a prototype plan sponsored by T. Rowe Price (although
a separate custodial or administrative fee may apply to such accounts). This fee
is not included in the accompanying table. If you are subject to the fee, keep
it in mind when you are estimating the ongoing expenses of investing in the fund
and when comparing the expenses of this fund with other funds.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs, such as redemption
fees or sales loads. Therefore, the second line of the table is useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. To the extent a fund charges transaction costs,
however, the total cost of owning that fund is higher.
T. ROWE PRICE SMALL-CAP STOCK FUND
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Beginning Ending Expenses Paid
Account Value Account Value During Period*
7/1/04 12/31/04 7/1/04 to 12/31/04
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Investor Class
Actual $1,000.00 $1,108.10 $4.93
Hypothetical (assumes 5%
return before expenses) 1,000.00 1,020.46 4.72
Advisor Class
Actual 1,000.00 1,106.90 6.14
Hypothetical (assumes 5%
return before expenses) 1,000.00 1,019.30 5.89
* Expenses are equal to the fund's annualized expense ratio for the six-month
period, multiplied by the average account value over the period, multiplied
by the number of days in the most recent fiscal half year (184) divided by
the days in the year (366) to reflect the half-year period. The annualized
expense ratio of the investor class was 0.93%; the Advisor Class was 1.16%.
T. ROWE PRICE SMALL-CAP STOCK FUND
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FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Investor Class
Year
Ended
12/31/04 12/31/03 12/31/02 12/31/01 12/31/00
NET ASSET VALUE
Beginning of period $ 27.98 $ 21.50 $ 25.34 $ 23.87 $ 22.80
Investment activities
Net investment income (loss) (0.05) (0.02) 0.01 0.10 0.15
Net realized and
unrealized gain (loss) 5.28 6.96 (3.61) 1.52 3.52
Total from
investment activities 5.23 6.94 (3.60) 1.62 3.67
Distributions
Net investment income - - (0.01) (0.10) (0.14)
Net realized gain (1.39) (0.46) (0.23) (0.05) (2.46)
Total distributions (1.39) (0.46) (0.24) (0.15) (2.60)
NET ASSET VALUE
End of period $ 31.82 $ 27.98 $ 21.50 $ 25.34 $ 23.87
------------------------------------------------
Ratios/Supplemental Data
Total return^ 18.77% 32.35% (14.21)% 6.81% 16.49%
Ratio of total expenses to
average net assets 0.94% 0.96% 0.96% 0.98% 0.94%
Ratio of net investment
income (loss) to average
net assets (0.17)% (0.10)% 0.04% 0.45% 0.63%
Portfolio turnover rate 18.3% 16.3% 15.3% 16.5% 32.8%
Net assets, end of period
(in millions) $ 6,364 $ 4,864 $ 3,298 $ 3,158 $ 2,255
^ Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SMALL-CAP STOCK FUND
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FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Advisor Class
Year 3/31/00
Ended Through
12/31/04 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) (0.10) (0.05) (0.02) 0.04 0.07
Net realized and
unrealized gain (loss) 5.23 6.91 (3.63) 1.53 1.53
Total from
investment activities 5.13 6.86 (3.65) 1.57 1.60
Distributions
Net investment income - - - (0.09) (0.18)
Net realized gain (1.33) (0.42) (0.23) (0.05) (2.46)
Total distributions (1.33) (0.42) (0.23) (0.14) (2.64)
NET ASSET VALUE
End of period $ 31.68 $ 27.88 $ 21.44 $ 25.32 $ 23.89
------------------------------------------------
Ratios/Supplemental Data
Total return^ 18.48% 32.06% (14.41)% 6.60% 6.79%
Ratio of total expenses to
average net assets 1.18% 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 18.3% 16.3% 15.3% 16.5% 32.8%!
Net assets, end of period
(in thousands) $456,049 $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
- --------------------------------------------------------------------------------
December 31, 2004
PORTFOLIO OF INVESTMENTS (1) Shares/$ Par Value
- --------------------------------------------------------------------------------
(Cost and value in $ 000s)
COMMON STOCKS 91.3%
CONSUMER DISCRETIONARY 10.3%
Auto Components 0.6%
Keystone Automotive * 640,300 14,887
Strattec Security *! 190,600 11,935
TRW Automotive * 591,300 12,240
39,062
Automobiles 0.0%
Winnebago 85,200 3,328
3,328
Hotels, Restaurants & Leisure 3.0%
Applebee's 707,512 18,714
BJ's Restaurants * 311,300 4,358
CEC Entertainment * 464,000 18,546
Great Wolf Resorts * 324,400 7,247
Panera Bread, Class A * 550,000 22,176
PF Chang's China Bistro * 420,000 23,667
Red Robin Gourmet Burgers * 277,500 14,838
Ruby Tuesday 400,800 10,453
Sonic * 1,317,750 40,191
Texas Roadhouse, Class A * 85,000 2,512
The Cheesecake Factory * 1,296,000 42,081
204,783
Household Durables 0.6%
Jarden * 920,000 39,965
39,965
Internet & Catalog Retail 0.4%
J. Jill Group * 898,100 13,373
priceline.com * 570,000 13,446
26,819
Leisure Equipment & Products 1.9%
Brunswick 1,220,200 60,400
MarineMax * 672,000 19,999
Polaris Industries 340,000 23,127
SCP Pool 775,537 24,739
128,265
Media 1.4%
Emmis Communications * 644,300 12,364
Entercom Communications * 458,500 16,456
Getty Images * 186,000 12,806
Scholastic * 1,353,800 50,036
Young Broadcasting, Class A * 430,700 4,548
96,210
Multiline Retail 0.3%
Big Lots * 795,000 9,643
Neiman Marcus, Class A 124,300 8,893
18,536
Specialty Retail 2.1%
AC Moore Arts & Crafts * 313,800 9,040
AnnTaylor Stores * 2,062,500 44,406
Christopher & Banks 923,950 17,047
Hot Topic * 1,225,000 21,058
Linens 'n Things * 673,900 16,713
Monro Muffler Brake *! 825,000 20,872
Select Comfort * 250,000 4,485
The Finish Line, Class A 450,000 8,235
141,856
Textiles, Apparel, & Luxury Goods 0.0%
Culp * 209,900 1,423
Unifi * 481,400 1,844
3,267
Total Consumer Discretionary 702,091
CONSUMER STAPLES 1.6%
Food & Staples Retailing 1.3%
Casey's General Stores 2,448,000 44,431
Performance Food Group * 1,271,700 34,221
Wild Oats Markets * 881,900 7,770
86,422
Food Products 0.2%
ADM Cranberry *!@ 164 53
American Italian Pasta, Class A 374,000 8,696
Makepeace @ 164 1,000
Seneca Foods
Class A * 187,600 3,422
Class B * 72,000 1,314
14,485
Personal Products 0.1%
Chattem * 243,000 8,043
8,043
Total Consumer Staples 108,950
ENERGY 6.6%
Energy Equipment & Services 5.0%
Atwood Oceanics * 577,000 30,062
FMC Technologies * 1,749,900 56,347
Grant Prideco * 3,274,350 65,651
Hanover Compressor * 1,625,000 22,961
Hydril * 373,300 16,989
Key Energy Services * 750,600 8,857
Lone Star Technologies * 405,700 13,575
National Oilwell * 2,051,700 72,404
Seacor Holdings * 899,500 48,033
W-H Energy Services * 473,900 10,596
345,475
Oil & Gas 1.6%
Bill Barrett * 158,000 5,054
Forest Oil * 1,575,100 49,962
Noble Energy 859,400 52,991
108,007
Total Energy 453,482
FINANCIALS 15.8%
Capital Markets 2.0%
Affiliated Managers Group * 550,000 37,257
Investors Financial Services 751,000 37,535
National Financial Partners 338,000 13,115
Piper Jaffray *! 992,500 47,590
135,497
Commercial Banks 5.4%
Boston Private Financial 575,400 16,209
Chittenden 2,010,187 57,753
Citizens Banking 1,497,500 51,439
Community Bancorp * 55,000 1,683
Glacier Bancorp 505,736 17,215
Pinnacle Financial Partners * 80,700 1,826
Provident Bankshares 952,078 34,627
Sandy Spring Bancorp 594,400 22,783
Signature Bank * 93,000 3,009
Southwest Bancorp of Texas 2,047,000 47,675
Texas Capital Bancshares * 820,100 17,731
Valley National Bancorp 1,446,995 40,009
WestAmerica 1,028,400 59,966
371,925
Insurance 5.4%
Aspen Insurance Holdings 1,019,000 24,986
Assured Guaranty 1,910,000 37,570
Bristol West Holdings 1,011,000 20,220
Brown & Brown 280,000 12,194
Harleysville Group 316,200 7,548
Horace Mann Educators ! 1,729,100 32,991
Infinity Property & Casualty 998,900 35,161
Markel * 111,500 40,586
Ohio Casualty * 2,495,700 57,925
PartnerRe 700,000 43,358
Selective Insurance 614,000 27,163
W. R. Berkley 586,000 27,642
367,344
Real Estate 2.7%
Arden Realty, REIT 739,200 27,883
EastGroup Properties, REIT 887,600 34,013
Equity Lifestyle Properties, REIT 315,000 11,261
Essex Property Trust, REIT 100,000 8,380
Gables Residential Trust, REIT 792,600 28,367
LaSalle Hotel Properties, REIT 495,400 15,768
Parkway Properties, REIT ! 399,700 20,285
Reckson Associates Realty, REIT 265,900 8,724
Washington SBI, REIT 971,300 32,898
187,579
Thrifts & Mortgage Finance 0.3%
Frankfort First 61,400 1,504
Triad Guaranty * 290,000 17,539
19,043
Total Financials 1,081,388
HEALTH CARE 12.2%
Biotechnology 3.0%
Abgenix * 96,000 993
Alexion Pharmaceutical * 350,000 8,820
Alkermes * 938,700 13,226
Amylin Pharmaceuticals * 440,000 10,278
Anadys Pharmaceuticals * 540,000 4,001
Cephalon * 353,517 17,987
Cubist Pharmaceuticals * 947,200 11,205
CV Therapeutics * 104,300 2,399
Cytogen * 360,000 4,147
Cytokinetics * 100,000 1,025
deCode Genetics * 471,703 3,684
Dynavax Technologies * 366,000 2,928
Exelixis * 845,000 8,028
Martek Biosciences * 350,000 17,920
Memory Pharmaceuticals * 366,000 1,947
Myriad Genetics * 1,000,000 22,510
Neurocrine Biosciences * 437,500 21,569
NPS Pharmaceuticals * 247,400 4,523
ONYX Pharmaceuticals * 500,000 16,195
Rigel Pharmaceuticals * 350,000 8,547
Trimeris * 500,000 7,085
Vertex Pharmaceuticals * 1,400,000 14,798
203,815
Health Care Equipment & Supplies 4.0%
Advanced Neuromodulation Systems * 625,000 24,663
Analogic 409,500 18,342
DJ Orthopedics * 773,000 16,558
Edwards Lifesciences * 589,900 24,339
EPIX Pharmaceuticals * 190,000 3,403
Integra LifeSciences * 851,000 31,427
Matthews International, Class A 1,294,600 47,641
NuVasive * 550,000 5,638
ResMed * 1,125,000 57,487
Steris * 1,000,100 23,722
Thoratec * 525,000 5,471
Wilson Greatbatch Technologies * 487,300 10,925
269,616
Health Care Providers & Services 3.9%
Accredo Health * 1,200,000 33,264
Henry Schein * 717,300 49,953
LabOne * 350,000 11,214
Lifeline Systems *! 667,200 17,187
LifePoint Hospitals * 125,000 4,353
Sunrise Senior Living *! 1,369,100 63,471
Symbion * 840,774 18,564
United Surgical Partners International * 1,085,000 45,244
WellChoice * 425,000 22,695
265,945
Pharmaceuticals 1.3%
Able Laboratories * 325,000 7,394
Atherogenics * 850,000 20,026
Eon Labs * 400,000 10,800
Inspire Pharmaceuticals * 1,120,000 18,782
Medicines Company * 350,000 10,080
Nektar Therapeutics * 175,100 3,544
Noven Pharmaceuticals * 986,300 16,826
Theravance * 129,800 2,324
89,776
Total Health Care 829,152
INDUSTRIALS & BUSINESS SERVICES 15.2%
Aerospace & Defense 1.4%
Armor Holdings *! 1,502,300 70,638
Mercury Computer Systems * 755,000 22,409
MTC Technologies * 50,200 1,685
94,732
Air Freight & Logistics 1.4%
EGL * 1,222,300 36,534
Pacer International * 830,000 17,646
Ryder System 280,000 13,376
UTi Worldwide 417,600 28,405
95,961
Airlines 0.1%
Frontier Airlines * 710,000 8,101
Midwest Express Holdings * 555,600 1,617
9,718
Building Products 0.5%
Quixote 234,782 4,773
Trex * 540,800 28,360
33,133
Commercial Services & Supplies 5.5%
Central Parking 1,486,400 22,519
Consolidated Graphics *! 1,001,900 45,987
Education Management * 279,800 9,236
Electro Rent 564,300 8,030
First Advantage, Class A * 245,800 5,014
G & K Services, Class A 932,700 40,498
Herman Miller 1,640,700 45,333
Intersections * 200,000 3,450
Ionics *! 1,150,000 49,841
KForce * 1,311,200 14,554
Layne Christensen * 50,000 908
LECG * 956,100 17,831
Resources Connection *! 1,083,500 58,845
SOURCECORP * 625,900 11,961
Tetra Tech * 1,589,262 26,604
West Corporation * 371,908 12,314
372,925
Construction & Engineering 0.2%
Insituform Technologies * 698,100 15,826
15,826
Electrical Equipment 1.1%
A.O. Smith 1,745,700 52,266
American Superconductor * 219,000 3,261
Artesyn Technologies * 1,200,000 13,560
Woodward Governor 89,700 6,424
75,511
Machinery 3.6%
Actuant, Class A * 918,260 47,887
Cascade 395,000 15,780
Graco 1,020,000 38,097
Harsco 1,159,600 64,636
IDEX 406,950 16,481
Lindsay Manufacturing ! 1,062,200 27,490
Toro 450,000 36,608
246,979
Road & Rail 1.3%
Genesee & Wyoming, Class A * 200,000 5,626
Heartland Express 800,086 17,978
Knight Transportation 1,657,200 41,099
Overnite 585,000 21,785
86,488
Trading Companies & Distributors 0.1%
Interline Brands * 509,400 8,960
8,960
Total Industrials & Business Services 1,040,233
INFORMATION TECHNOLOGY 21.2%
Communications Equipment 2.2%
ADTRAN 900,000 17,226
Belden CDT ! 1,915,000 44,428
Black Box 655,000 31,453
F5 Networks * 425,000 20,706
Ixia * 675,000 11,347
Packeteer * 477,500 6,900
Riverstone Networks * 1,750,000 1,864
Sirf Technology Holdings * 827,000 10,519
Tekelec * 416,700 8,517
152,960
Computers & Peripherals 0.9%
Applied Films * 78,800 1,699
Emulex * 1,225,000 20,629
Gateway * 3,628,000 21,804
Synaptics * 494,000 15,107
59,239
Electronic Equipment & Instruments 2.4%
Cogent * 212,000 6,996
Digital Theater Systems * 575,000 11,575
Global Imaging Systems * 701,400 27,705
KEMET * 1,845,000 16,513
Littelfuse * 808,701 27,625
Methode Electronics 1,254,700 16,123
Newport * 789,600 11,133
Plexus * 1,898,600 24,701
Technitrol * 300,000 5,460
Woodhead Industries ! 960,300 15,394
163,225
Internet Software & Services 0.5%
Digital Insight * 1,095,000 20,148
MatrixOne * 1,603,700 10,504
WebSideStory * 228,200 2,837
33,489
IT Services 3.7%
BISYS Group * 1,094,000 17,996
CACI International, Class A * 720,800 49,108
Global Payments 868,000 50,813
Iron Mountain * 1,772,737 54,051
Maximus * 1,058,300 32,934
MPS Group * 2,646,800 32,450
RightNow Technologies * 709,000 11,450
248,802
Semiconductor & Semiconductor Equipment 4.9%
AMIS Holdings * 700,000 11,564
Atheros Communications * 364,000 3,731
ATMI * 828,500 18,666
Brooks-Pri Automation * 800,000 13,776
Cabot Microelectronics * 544,000 21,787
Credence Systems * 1,450,000 13,268
Cymer * 525,000 15,508
Cypress Semiconductor * 600,000 7,038
Entegris * 1,441,200 14,340
Exar * 1,163,000 16,503
Lattice Semiconductor * 2,168,800 12,362
Microsemi * 840,000 14,582
MKS Instruments * 1,556,200 28,868
Mykrolis * 1,554,800 22,032
PDF Solutions * 973,800 15,688
PortalPlayer * 43,000 1,061
Power Integrations * 795,000 15,725
Semtech * 1,764,000 38,579
Silicon Laboratories * 700,000 24,717
Tessera Technologies * 708,900 26,378
336,173
Software 6.6%
Actuate * 245,500 626
Altiris * 730,000 25,864
Blackbaud * 126,400 1,851
Catapult Communications * 418,600 10,113
Concord Communications * 699,400 7,749
FactSet Research Systems 856,200 50,036
FileNet * 1,546,400 39,835
Hyperion Solutions * 450,000 20,979
Internet Security Systems * 901,400 20,958
Jack Henry & Associates 2,420,100 48,184
Kronos *! 1,325,000 67,747
Magma Design Automation * 510,900 6,417
Mercury Interactive * 279,300 12,722
Motive * 751,000 8,546
NetIQ * 1,371,400 16,745
Open Solutions * 350,000 9,086
Progress Software * 900,000 21,015
Quest Software * 1,279,400 20,407
Red Hat * 856,700 11,437
RSA Security * 1,177,200 23,615
SPSS * 536,400 8,389
Verisity * 340,000 2,788
Verity * 1,250,000 16,400
451,509
Total Information Technology 1,445,397
MATERIALS 6.3%
Chemicals 4.4%
Airgas 2,875,000 76,216
Arch Chemicals ! 1,198,100 34,481
Ferro 1,785,000 41,394
MacDermid 375,000 13,538
Material Sciences * 691,100 12,433
Minerals Technologies 948,000 63,232
Mosaic * 2,325,000 37,944
Symyx Technologies * 575,000 17,296
296,534
Containers & Packaging 0.3%
Chesapeake Corp. 710,000 19,283
Smurfit-Stone Container * 191,100 3,570
22,853
Metals & Mining 1.3%
Adrian Steel !@ 13,000 5,291
Coal Creek @ 9,295 2,417
Gibraltar Industries 559,800 13,223
Lihir Gold (AUD) * 7,971,900 7,214
Meridian Gold * 1,700,000 32,249
Steel Dynamics 650,000 24,622
85,016
Paper & Forest Products 0.3%
Buckeye Technologies * 1,780,100 23,159
23,159
Total Materials 427,562
TELECOMMUNICATION SERVICES 0.9%
Diversified Telecommunication Services 0.0%
Arbinet Holdings * 53,000 1,317
1,317
Wireless Telecommunication Services 0.9%
Spectrasite * 846,000 48,983
Western Wireless, Class A * 323,000 9,464
58,447
Total Telecommunication Services 59,764
TRUSTS & MUTUAL FUNDS 0.6%
Trusts & Mutual Funds 0.6%
Ishares Russell 2000 300,000 38,850
Total Trusts & Mutual Funds 38,850
UTILITIES 0.6%
Electric Utilities 0.6%
Black Hills 400,000 12,272
Cleco 767,200 15,544
El Paso Electric * 726,200 13,754
Total Utilities 41,570
Total Common Stocks (Cost $4,523,206) 6,228,439
SHORT-TERM INVESTMENTS 8.8%
Money Market Fund 8.7%
T. Rowe Price Reserve Investment Fund, 2.28% #! 595,923,046 595,923
595,923
U.S. Treasury Obligations 0.1%
U.S. Treasury Bills, 1.702%, 1/27/05 ++ 6,083,000 6,075
6,075
Total Short-Term Investments (Cost $601,999) 601,998
FUTURES CONTRACTS 0.0%
Variation margin receivable (payable)
on open futures contracts (2) 93
Total Futures Contracts 93
Total Investments in Securities
100.1% of Net Assets (Cost $5,125,205) $6,830,530
----------
(1) Denominated in U.S. dollars unless otherwise noted
# Seven-day yield
* Non-income producing
++ All or a portion of this security is pledged to cover margin requirements
on futures contracts at December 31, 2004
@ Valued by the T. Rowe Price Valuation Committee, established by the fund's
Board of Directors
AUD Australian dollar
REIT Real Estate Investment Trust
(2) Open Futures Contracts at December 31, 2004 were as follows:
($ 000s)
Contract Unrealized
Expiration Value Gain (Loss)
---------- -------- ----------
Long, 412 Russell 2000 contracts,
$6,083 par of 1.702% U.S. Treasury Bills
pledged as initial margin 3/05 $ 134,714 $ 3,079
Net payments (receipts) of variation
margin to date (2,986)
Variation margin receivable (payable)
on open futures contracts $ 93
--------
!Affiliated Companies
($ 000s)
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, or a company which is
under common ownership or control.
Purchase Sales Investment Value
Affiliate Cost Cost Income 12/31/04 12/31/03
- --------------------------------------------------------------------------------
Adrian Steel $ - $ - $ 52 $ 5,291 $ 4,056
Arch Chemicals - - 958 34,481 30,743
Armor Holdings - - - 70,638 39,526
Belden CDT - - 192 44,428 40,387
CompX International - 8,303 - - 2,603
Consolidated Graphics 2,803 - - 45,987 29,212
Horace Mann Educators - 9,146 789 32,991 29,883
Ionics - - - 49,841 36,628
Kronos - 7,716 - 67,747 62,386
Lifeline Systems - - - 17,187 12,677
Lindsay Manufacturing - - 223 27,490 26,821
Monro Buffler Brake 18,606 - - 20,872 *
New England Business Services - 26,893 401 - 26,875
Parkway Properties, REIT - 6,604 1,429 20,285 24,948
Paxar - 32,558 - - 26,315
Piper Jaffray 49,805 7,093 - 47,590 *
Resources Connection 1,518 1,782 - 58,845 *
Strattec Security - - - 11,935 11,609
Sunrise Senior Living 25,608 - - 63,471 *
Woodhead Industries $ 889 $ - $ 384 $ 15,394 $ 15,423
T. Rowe Price Reserve
Investment Fund ** ** 7,156 595,923 457,072
--------------------------------
Totals $ 11,584 $1,230,396 $ 877,164
--------------------------------
* The issuer was not considered an affiliated company at December 31, 2003.
** Realized gain/(loss) and purchase and sale information not shown for cash
management funds.
!!Restricted Securities
Amounts in (000s)
The fund may invest in securities that cannot be offered for public resale
without first being registered under the Securities Act of 1933 and related
rules. The total restricted securities (excluding 144A issues) at period-end
amounts to $53 and represents 0.0% of net assets.
Acquisition Acquisition
Description Date Cost
- ----------------------------------------------- ------------ ------------
ADM Cranberry 6/30/00 $ 0
Totals $ 0
----
The fund has registration rights for certain restricted securities held as of
December 31, 2004. Any costs related to such registration are borne by the
issuer.
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SMALL-CAP STOCK FUND
- --------------------------------------------------------------------------------
December 31, 2004
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
(In thousands except shares and per share amounts)
Assets
Investments in securities, at value
Affiliated companies (cost $1,010,639) $ 1,230,396
Non-affiliated companies (cost $4,114,566) 5,600,134
Total investments in securities 6,830,530
Other assets 30,229
Total assets 6,860,759
Liabilities
Total liabilities 40,428
NET ASSETS $ 6,820,331
---------------
Net Assets Consist of:
Undistributed net realized gain (loss) $ 47,461
Net unrealized gain (loss) 1,708,311
Paid-in-capital applicable to 214,407,085 shares of
$0.50 par value capital stock outstanding;
200,000,000 shares authorized 5,064,559
NET ASSETS $ 6,820,331
---------------
NET ASSET VALUE PER SHARE
Investor Class
($6,364,281,207/200,010,154 shares outstanding) $ 31.82
---------------
Advisor Class
($456,049,339/14,396,931 shares outstanding) $ 31.68
---------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Small-Cap Stock Fund
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
12/31/04
Investment Income (Loss)
Income
Dividend $ 44,467
Interest 69
Total income 44,536
Expenses
Investment management 44,236
Shareholder servicing
Investor Class 8,509
Advisor Class 521
Rule 12b-1 fees - Advisor Class 956
Prospectus and shareholder reports
Investor Class 355
Advisor Class 70
Custody and accounting 275
Registration 111
Legal and audit 27
Directors 13
Miscellaneous 47
Total expenses 55,120
Expenses paid indirectly (9)
Net expenses 55,111
Net investment income (loss) (10,575)
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Affiliated securities 7,853
Non-affiliated securities 249,507
Futures 15,851
Net realized gain (loss) 273,211
Change in net unrealized gain (loss)
Securities 774,841
Futures 2,184
Change in net unrealized gain (loss) 777,025
Net realized and unrealized gain (loss) 1,050,236
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 1,039,661
---------------
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SMALL-CAP STOCK FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
12/31/04 12/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ (10,575) $ (4,492)
Net realized gain (loss) 273,211 159,039
Change in net unrealized gain (loss) 777,025 1,058,509
Increase (decrease) in net assets
from operations 1,039,661 1,213,056
Distributions to shareholders
Net realized gain
Investor Class (265,484) (79,833)
Advisor Class (18,285) (4,666)
Decrease in net assets from distributions (283,769) (84,499)
Capital share transactions *
Shares sold
Investor Class 1,603,004 1,456,686
Advisor Class 168,970 160,137
Distributions reinvested
Investor Class 256,566 75,918
Advisor Class 17,609 4,529
Shares redeemed
Investor Class (1,065,975) (1,037,784)
Advisor Class (98,977) (44,286)
Increase (decrease) in net assets from
capital share transactions 881,197 615,200
Net Assets
Increase (decrease) during period 1,637,089 1,743,757
Beginning of period 5,183,242 3,439,485
End of period $ 6,820,331 $ 5,183,242
----------- -----------
(Including undistributed net investment income
of $0 at 12/31/04 and $0 at 12/31/03)
T. ROWE PRICE SMALL-CAP STOCK FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
12/31/04 12/31/03
*Share information
Shares sold
Investor Class 54,340 60,161
Advisor Class 5,789 6,571
Distributions reinvested
Investor Class 8,192 2,799
Advisor Class 565 168
Shares redeemed
Investor Class (36,353) (42,561)
Advisor Class (3,404) (1,869)
Increase (decrease) in shares outstanding 29,129 25,269
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SMALL-CAP STOCK FUND
- --------------------------------------------------------------------------------
December 31, 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 Fund--Advisor Class (Advisor Class), offered since March 31, 2000. Advisor
Class shares are sold only through unaffiliated brokers and other unaffiliated
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, including restricted securities, 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 $277,000 for the
year ended December 31, 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. Unsettled
variation margin on futures contracts is included in investments in securities,
and unrealized gains and losses on futures contracts are included 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.
Restricted Securities
The fund may invest in securities that are subject to legal or contractual
restrictions on resale. Although certain of these securities may be readily
sold, for example, under Rule 144A, others may be illiquid, and their sale may
involve substantial delays and additional costs, and prompt sale at an
acceptable price may be difficult.
Futures Contracts
During the year ended December 31, 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.
Other
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $1,376,591,000 and $974,105,000, respectively, for the year ended
December 31, 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 significantly 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.
Distributions during the year ended December 31, 2004 were characterized as
follows for tax purposes:
Ordinary income $ 46,264,000
Long-term capital gain 237,505,000
Total distributions $ 283,769,000
------------------
At December 31, 2004, the tax-basis components of net assets were as follows:
Unrealized appreciation $ 1,910,832,000
Unrealized depreciation (205,599,000)
Net unrealized appreciation (depreciation) 1,705,233,000
Undistributed ordinary income 19,533,000
Undistributed long-term capital gain 31,006,000
Paid-in capital 5,064,559,000
Net assets $ 6,820,331,000
-----------------
Federal income tax regulations require the fund to treat the gain/loss on
certain open futures contracts as realized on the last day of the tax year;
accordingly, $3,079,000 of unrealized gains reflected in the accompanying
financial statements were realized for tax purposes as of December 31, 2004.
For the year ended December 31, 2004, the fund recorded the following permanent
reclassifications to reflect tax character. Reclassifications to paid-in capital
relate primarily to 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. Reclassifications between income and gain
relate primarily to the offset of the current net operating loss against
realized gains. Results of operations and net assets were not affected by these
reclassifications.
Undistributed net investment income $ 10,575,000
Undistributed net realized gain (18,724,000)
Paid-in capital 8,149,000
At December 31, 2004, the cost of investments for federal income tax purposes
was $5,128,283,000.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price
Associates), a wholly owned subsidiary of T. Rowe Price Group, 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 December 31,
2004, the effective annual group fee rate was 0.31%, and investment management
fee payable totaled $4,317,000.
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 year ended December 31, 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. For the year ended December 31, 2004, expenses
incurred pursuant to these service agreements were $73,000 for Price Associates,
$1,655,000 for T. Rowe Price Services, Inc., and $3,216,000 for T. Rowe Price
Retirement Plan Services, Inc. At period-end, a total of $435,000 of these
expenses was payable.
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 year ended December 31,
2004, the fund was charged $179,000 for shareholder servicing costs related to
the college
savings plans, of which $132,000 was for services provided by Price and $13,000
was payable at period-end. At December 31, 2004, approximately 1.3% 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
year ended December 31, 2004, the fund was allocated $508,000 of Retirement
Funds' expenses, of which $352,000 related to services provided by Price and
$45,000 was payable at period-end. At December 31, 2004, approximately 4.3% 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 and
affiliates of the fund. 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.
As of December 31, 2004, T. Rowe Price Group, Inc. and/or its wholly owned
subsidiaries owned 123,299 shares of the fund, representing less than 1% of the
fund's net assets.
T. ROWE PRICE SMALL-CAP STOCK FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Small-Cap Stock Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of T. Rowe Price Small-Cap Stock Fund,
Inc. (the "Fund") at December 31, 2004, 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 the auditing standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 11, 2005
T. ROWE PRICE SMALL-CAP STOCK FUND
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/04
- --------------------------------------------------------------------------------
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 $48,196,000 from short-term capital gains,
o $243,722,000 from long-term capital gains, subject to the 15% rate gains
category.
For taxable non-corporate shareholders, $29,842,000 of the fund's income
represents qualified dividend income subject to the 15% rate category.
For corporate shareholders, $28,591,000 of the fund's income qualifies for the
dividends-received deduction.
INFORMATION ON PROXY VOTING POLICIES, PROCEDURES, AND RECORDS
- --------------------------------------------------------------------------------
A description of the policies and procedures used by T. Rowe Price funds and
portfolios to determine how to vote proxies relating to portfolio securities is
available in each fund's Statement of Additional Information, which you may
request by calling 1-800-225-5132 or by accessing the SEC's Web site,
www.sec.gov. The description of our proxy voting policies and procedures is also
available on our Web site, www.troweprice.com. To access it, click on the words
"Company Info" at the top of our homepage for individual investors. Then, in the
window that appears, click on the "Proxy Voting Policy" navigation button in the
top left corner.
Each fund's most recent annual proxy voting record is available on our Web site
and through the SEC's Web site. To access it through our Web site, follow the
directions above, then click on the words "Proxy Voting Record" at the bottom of
the Proxy Voting Policy page.
HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
The fund files a complete schedule of portfolio holdings with the Securities and
Exchange Commission for the first and third quarters of each fiscal year on Form
N-Q. The fund's Form N-Q is available electronically on the SEC's Web site
(www.sec.gov); hard copies may be reviewed and copied at the SEC's Public
Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information
on the Public Reference Room, call 1-800-SEC-0330.
T. ROWE PRICE SMALL-CAP STOCK FUND
- --------------------------------------------------------------------------------
ABOUT THE FUND'S DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
Your fund is governed by a Board of Directors that meets regularly to review
investments, performance, compliance matters, advisory fees, expenses, and other
business affairs, and is responsible for protecting the interests of
shareholders. The majority of the fund's directors are independent of T. Rowe
Price Associates, Inc. (T. Rowe Price); "inside" directors are officers of
T. Rowe Price. The Board of Directors elects the fund's officers, who are listed
in the final table. The business address of each director and officer is 100
East Pratt Street, Baltimore, MD 21202. The Statement of Additional Information
includes additional information about the fund directors and is available
without charge by calling a T. Rowe Price representative at 1-800-225-5132.
Independent Directors
Name
(Year of Birth) Principal Occupation(s) During Past 5 Years and
Year Elected * Directorships of Other Public Companies
Anthony W. Deering Director, Chairman of the Board, President, and Chief
(1945) Executive Officer, The Rouse Company, real estate
2001 developers; Director, Mercantile Bank (4/03 to present)
Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an acquisition
(1943) and management advisory firm
1992
David K. Fagin Director, Golden Star Resources Ltd., Canyon Resources
(1938) Corp. (5/00 to present), and Pacific Rim Rim Mining
1992 Corp. (2/02 to present); Chairman and President,
Nye Corp.
Karen N. Horn Managing Director and President, Global Private Client
(1943) Services, Marsh Inc. (1999-2003); Managing Director
2003 and Head of International Private Banking, Bankers
Trust (1996-1999); Director, Eli Lilly and Company and
Georgia Pacific (5/04 to present)
F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates, Inc.,
(1934) consulting environmental and civil engineers
2001
John G. Schreiber Owner/President, Centaur Capital Partners, Inc., a real
(1946) estate investment company; Partner, Blackstone Real
2001 Estate Advisors, L.P.; Director, AMLI Residential
Properties Trust and The Rouse Company, real estate
developers
* Each independent director oversees 112 T. Rowe Price portfolios and serves
until retirement, resignation, or election of a successor.
Inside Directors
Name
(Year of Birth)
Year Elected *
[Number of T. Rowe Price Principal Occupation(s) During Past 5 Years
Portfolios Overseen] and Directorships of Other Public Companies
John H. Laporte, CFA Vice President, T. Rowe Price and T. Rowe
(1945) Price Group, Inc.
1994
[15]
James S. Riepe Director and Vice President, T. Rowe Price; Vice
(1943) Chairman of the Board, Director, and Vice
1992 President, T. Rowe Price Group, Inc.; Chairman of
[112] the Board and Director, T. Rowe Price Global
Asset Management Limited, T. Rowe Price Global
Investment Services Limited, T. Rowe Price
Investment Services, Inc., T. Rowe Price
Retirement Plan Services, Inc., and T. Rowe Price
Services, Inc.; Chairman of the Board, Director,
President, and Trust Officer, T. Rowe Price Trust
Company; Director, T. Rowe Price International,
Inc.; Chairman of the Board, Small-Cap Stock Fund
* Each inside director serves until retirement, resignation, or election of a
successor.
Officers
Name (Year of Birth)
Title and Fund(s) Served Principal Occupation(s)
Francisco Alonso (1978) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Group, Inc.
Preston G. Athey, CFA, CIC (1949) Vice President, T. Rowe Price, T. Rowe
Vice President, Small-Cap Stock Fund Price Group, Inc., and T. Rowe Price
Trust Company
Stephen V. Booth, CPA (1961) Vice President, T. Rowe Price, T. Rowe
Vice President, Small-Cap Stock Fund Price Group, Inc., and T. Rowe Price
Trust Company
Brace C. Brooks, CFA (1967) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Group, Inc.
Joseph A. Carrier (1960) Vice President, T. Rowe Price, T. Rowe
Treasurer, Small-Cap Stock Fund Price Group, Inc., T. Rowe Price
Investment Services, Inc., and T. Rowe
Price Trust Company
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Officers (continued)
Name (Year of Birth)
Title and Fund(s) Served Principal Occupation(s)
Hugh M. Evans III, CFA (1966) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Group, Inc.
Roger L. Fiery III, CPA (1959) Vice President, T. Rowe Price, T. Rowe
Vice President, Small-Cap Stock Fund Price Group, Inc., T. Rowe Price
International, Inc., and T. Rowe Price
Trust Company
John R. Gilner (1961) Chief Compliance Officer and Vice
Chief Compliance Officer, President, T. Rowe Price; Vice
Small-Cap Stock Fund President,T. Rowe Price Investment
Services, Inc., and T. Rowe Price
Group, Inc.
Gregory S. Golczewski (1966) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Trust Company
Henry H. Hopkins (1942) Director and Vice President, T. Rowe
Vice President, Small-Cap Stock Fund Price Investment Services, Inc., T. Rowe
Price Services, Inc., and T. Rowe Price
Trust Company; Vice President, T. Rowe
Price, T. Rowe Price Group, Inc.,
T. Rowe Price International, Inc., and
T. Rowe Price Retirement Plan Services,
Inc.
Kris H. Jenner, M.D., D. Phil. (1962) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Group, Inc.
Patricia B. Lippert (1953) Assistant Vice President, T. Rowe Price
Secretary, Small-Cap Stock Fund and T. Rowe Price Investment Services,
Inc.
Robert J. Marcotte (1962) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Group, Inc.
Jay S. Markowitz, M.D. (1962) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Group, Inc.; formerly
Transplant Surgeon and Assistant
Professor of Surgery, Johns Hopkins
University School of Medicine (to 2001)
Gregory A. McCrickard, CFA (1958) Vice President, T. Rowe Price, T. Rowe
President, Small-Cap Stock Fund Price Group, Inc., and T. Rowe Price
Trust Company
Joseph M. Milano, CFA (1972) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Group, Inc.
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Officers (continued)
Name (Year of Birth)
Title and Fund(s) Served Principal Occupation(s)
Curt J. Organt (1968) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Group, Inc.
Charles G. Pepin (1966) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Group, Inc.
Michael F. Sola, CFA (1969) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Group, Inc.
J. David Wagner, CFA (1974) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Group, Inc.
Julie L. Waples (1970) Vice President, T. Rowe Price
Vice President, Small-Cap Stock Fund
Wenhua Zhang, CPA, CFA (1970) Vice President, T. Rowe Price and
Vice President, Small-Cap Stock Fund T. Rowe Price Group, Inc.; formerly
student, The Wharton School, University
of Pennsylvania (to 2001)
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Item 2. Code of Ethics.
The registrant has adopted 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. A copy of this code of ethics is filed as an exhibit to this Form
N-CSR. No substantive amendments were approved or waivers were granted to this
code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Directors/Trustees has determined that Mr. David K.
Fagin qualifies as an audit committee financial expert, as defined in Item 3 of
Form N-CSR. Mr. Fagin is considered independent for purposes of Item 3 of Form
N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal accountant were
as follows:
2004 2003
Audit Fees $16,969 $17,783
Audit-Related Fees 2,322 1,084
Tax Fees 4,602 4,618
All Other Fees - 124
Audit fees include amounts related to the audit of the registrant's annual
financial statements and services normally provided by the accountant in
connection with statutory and regulatory filings. Audit-related fees include
amounts reasonably related to the performance of the audit of the registrant's
financial statements, specifically the issuance of a report on internal
controls. Tax fees include amounts related to tax compliance, tax planning, and
tax advice. Other fees include the registrant's pro-rata share of amounts for
agreed-upon procedures in conjunction with service contract approvals by the
registrant's Board of Directors/Trustees.
(e)(1) The registrant's audit committee has adopted a policy whereby audit and
non-audit services performed by the registrant's principal accountant for the
registrant, its investment adviser, and any entity controlling, controlled by,
or under common control with the investment adviser that provides ongoing
services to the registrant require pre-approval in advance at regularly
scheduled audit committee meetings. If such a service is required between
regularly scheduled audit committee meetings, pre-approval may be authorized by
one audit committee member with ratification at the next scheduled audit
committee meeting. Waiver of pre-approval for audit or non-audit services
requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) - (d) above were approved pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50 percent of the hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees.
(g) The aggregate fees billed for the most recent fiscal year and the preceding
fiscal year by the registrant's principal accountant for non-audit services
rendered to the registrant, its investment adviser, and any entity controlling,
controlled by, or under common control with the investment adviser that provides
ongoing services to the registrant were $903,000 and $821,000, respectively, and
were less than the aggregate fees billed for those same periods by the
registrant's principal accountant for audit services rendered to the T. Rowe
Price Funds.
(h) All non-audit services rendered in (g) above were pre-approved by the
registrant's audit committee. Accordingly, these services were considered by the
registrant's audit committee in maintaining the principal accountant's
independence.
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. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. 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 change in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal quarter covered by
this report that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is
attached.
(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 February 18, 2005
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 February 18, 2005
By /s/ Joseph A. Carrier
-----------------------------------
Joseph A. Carrier
Principal Financial Officer
Date February 18, 2005