Item 1. Report to
Shareholders
Small-Cap
Stock Fund
|
December
31, 2013
|
The views and opinions in this report
were current as of December 31, 2013. 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 funds future investment intent. The report is certified under the
Sarbanes-Oxley Act, 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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Managers Letter
Fellow Shareholders
Small-cap stocks generated stellar
gains in 2013, rising 38.82%, the fourth-best return since the inception of the
Russell 2000 Index in 1979. Our Small-Cap Stock Fund rose 37.65%, yet modestly
trailed the indexs strong returns. Though we would like to beat the Russell
2000 in every calendar year, it has not been uncommon for our fund to lag in
strong markets. However, we outperformed competitive funds as measured by the
Lipper Small-Cap Core Funds Index.
The Small-Cap Stock Fund gained
37.65% in 2013, compared with 38.82% for the Russell 2000 Index and 36.13% for
the Lipper Small-Cap Core Funds Index. The fund gained 18.95% in the last
six months, trailing the Russell 2000, and
performing in line with its peer group index. Based on cumulative total return,
Lipper ranked the Small-Cap Stock Fund in the top 10% of small-cap core funds in
the five-year period ended December 31, 2013. Lipper ranked the Small-Cap Stock
Fund 325 of 718, 127 of 646, 51 of
591, and
43 of 352 small-cap core funds for the 1-, 3-, 5-, and 10-year periods ended
December 31, 2013, respectively. (Results will vary for other periods.
Past performance cannot guarantee future
results.)
Where did such strong performance
come from? Similar to 2003, the lowest-quality and highest-risk small-caps
outperformed higher-quality stocks, according to a study by Bank of America
Merrill Lynch, which measured returns based on liquidity, earnings, and growth
rates.
The Russell 2000 Index historically
has followed strong market returns with further appreciation in the subsequent
calendar year, and, as we write, the U.S. economy appears to be reaccelerating,
our firms continue to see improvements in European economies, and China looks as
if it will continue to grow, thus giving us a constructive backdrop for
equities.
Our greatest concern remains extended
valuations in small-caps. The asset class is richly priced, value is hard to
find, and a decade or more of limited initial
public offering (IPO) activity has more dollars chasing fewer names. With
that backdrop, we would caution investors not to expect future returns to match
the extraordinary gains of 2013. We continue to be cautious in the small-cap
space, and our concerns are detailed in the Outlook section of this
letter.
PERFORMANCE REVIEW
For the six-month period, our best
sector returns included financials, health care, industrials and business
services, and energy. Problem sectors included consumer discretionary; consumer
staples; and materials, where stock selection hindered performance.
In financials, healing credit
markets, a resumption of loan growth, and rising markets had positive effects on
our holdings. Five years after the financial crisis, the market has finally
begun to discount an end to the Feds quantitative easing program. As rates rise
with the improving business cycle, asset sensitive banks can earn stronger
returns.
Signature Bank
,
Western Alliance
Bancorp
, and
Texas Capital Bancshares
all fit this mold, and their shares rose strongly. Signature Bank rose
on solid earnings amid better loan growth than its peers and favorable
indications for future deposit and loan growth. Western Alliance and Texas
Capital generated strong gains, as both banks have seen improving credit trends.
Texas Capital is experiencing good loan growth in its specialty finance
business. Healing credit is also a theme that plays into the strong recovery
experienced by
E*TRADE
Financial
, which gained on better credit
metrics in its mortgage and home equity holdings. Moreover, the firm has won
approval from regulators to distribute $100 million of excess capital to the
holding company. Rising capital markets also presented a strong tailwind for
several of our holdings, notably
Waddell
& Reed Financial
and
Financial Engines
, a top holding in the portfolio. Waddell & Reed reported strong
earnings and its assets under management exceeded expectations. Financial
Engines, which provides financial advice to corporate plan participants, also
experienced strong asset growth. We expect promising growth in its retirement
income solutions business. (Please refer to the portfolio of investments for a
complete list of holdings and the amount each represents in the portfolio.)
Health care shares turned in another
strong performance.
Incyte
continued to exceed
expectations with its drug Jakafi, for treatment of patients with myelofibrosis.
Incyte is also seeking U.S. Food and Drug Administration approval of Jakafi for
treatment of polycythemia vera, a rare blood disorder. Its recently released
data on pancreatic cancer suggests that Jakafi may also have the potential to
treat other
challenging solid tumors.
Pacira Pharmaceuticals
nearly doubled, as its non-opioid painkiller Exparel
continued to gain momentum. This injectable, long-acting medication has cut
opioid use, hospital stays and, consequently, hospital costs for patients.
Among
industrials and business services,
Acuity
Brands
generated solid gains, as its LED
lighting products had brisk sales amid a rebound in new commercial construction.
The nonresidential construction market is in the early phases of a recovery,
with square footage growing 40% slower than its long-
term trend. Maintenance equipment manufacturer
Toro
generated strong gains despite challenging weather conditions compared
with the previous year. The firm signaled its continued confidence by
significantly increasing its dividend. Toro has a long history of accretive
share repurchases.
Longtime utility holding
UNS Energy
agreed to be acquired by Fortis for a 30% premium to its
trading price. As we dont foresee competing bids, we have begun trimming the
position. Energy stocks also added value in the second half of the year.
Clayton Williams Energy
rose briskly as the firm appears to have excellent
acreage positions in the sought-after Wolfcamp shale gas development in the
Permian Basin. Many theorize this acreage could have strategic value to an
acquirer.
Consumer discretionary was a drag on
relative performance in the past six months due to stock selection. We lost
money in
Francescas
Holdings
,
BJs Restaurants
,
Tile Shop Holdings
, and clothing retailer Express. Francescas fell after
the firm experienced disappointing traffic
and significant declining same-store sales in its gifting category. Mall
traffic clearly disappointed during the holiday season, and Francescas modest
Internet offerings could not offset declining brick-and-mortar traffic. BJs
Restaurants declined as same-store sales and traffic also disappointed.
Management hopes to reverse this trend with menu innovation. Tile Shop Holdings
declined as the stock was the subject of several aggressive reports alleging
accounting manipulation and management self-dealing. Tile Shop Holdings has high
margins, as the ceramic tile market is quite opaque. Indeed, it is difficult for
the consumer to engage in effective competitive price discovery. We are
monitoring the situation closely but holding on for now. Express reported
disappointing trends in November due to traffic weakness. Weak sales have led to
high inventory levels, further depressing the shares. One of the few bright
spots in the sector was recreational boat maker
Brunswick
, which rose on the
continued recovery in
the industry.
Brunswick recently laid out a multi-year plan for new product development and
strong earnings growth.
We have historically had a hard time
finding value in the consumer staples sector, and 2013 was no exception. The
sector performed exceptionally well, and we were underweight the group.
Fresh Market
declined, as weaker-than-expected results in new markets
raised questions about store productivity and the validity of the firms real
estate strategy.
Materials also lagged, as we were
hurt by exposure to
Compass
Minerals
, which produces rock salt and
nutrient potassium sulfate for crops. The potash market
has been in turmoil following the breakup of a Russian
cartel. While this hasnt depressed potassium sulfate prices yet, volume has
dropped as farmers are awaiting a possible price break. Moreover, the road-salt
season was slower than expected, and southern U.S. customers remain flush with
inventories following a few mild winters. If Maryland is any indication of the
winter of 2013-2014, this may be a short-term problem. We were also hurt in this
segment as we prematurely eliminated our position in
AK Steel
. AK is
highly levered, and the stock gained strongly after announcing steel price
increases.
In the technology sector, we were
hurt by disappointing results in
Angies
List
,
Semtech
, and
RealD
. Angies
List fell after the firm reported mixed earnings results and issued tepid
revenue and earnings expectations. The firm was also testing lower price points
in selected
markets, which generated
negative press accounts. Semtech declined after the power management chip firm
experienced a disappointing product cycle for a new chip tied to the Samsung
Galaxy S4 phone. RealD declined on disappointing results for its 3-D movie
products. Cinema licensing did not reaccelerate as planned, and the slate of
movies released in the second half of the year performed below expectations. We
decided to eliminate the holding. One standout in the technology sector was
SS&C Technologies
Holdings
, a financial services software
firm that offers asset management accounting platforms. Management has
positioned the firm for solid organic growth and has executed on a number of
attractive acquisitions. The Board of Directors also recently authorized a $100
million share repurchase program.
PORTFOLIO STRATEGY
On the Buy Side
Our largest purchase in the past six
months was
Krispy Kreme
. We believe the company is in the early innings of a
turnaround story that could drive a significant expansion in efficiencies and
lead to years of growth. Krispy Kreme is an iconic American brand but has failed
to live up to its high expectations following its IPO. New management has a
vision of a smaller format store with improved economics, which should improve
returns for franchisees in new geographies.
Our second-largest addition was also
a new initiation of a previous holding that is now under new transformational
management.
Mobile Mini
buys used steel ocean-shipping containers, refurbishes
them, and leases them primarily to construction companies as portable storage
containers throughout locations in the U.S. and the UK. New CEO Erik Olsson has
led turnarounds of larger and more complex leasing companies. We believe he can
implement a culture of constant improvement and drive margins and returns
higher.
On the value side of the portfolio,
we added new holdings in
Constellium
and
Berry Plastics
.
Constellium is a downstream aluminum producer of fabricated parts for the
aerospace, automotive, and packaging markets. Aerospace exposure is with Airbus
and involves high-margin, long-term contracts. The company could benefit from
the shift from steel to aluminum among automakers. Berry Plastics is a leading
domestic supplier of rigid and flexible packaging products. We like the
companys consistent free cash generation
and its innovative new thermoform cup. The company is an active
consolidator in its industry, and its significant cash flow can be used to
either deliver the balance sheet or fund intriguing acquisitions.
In the energy sector, we added two
exploration and production firms and the independent power producer
Dynegy
. Dynegy is a highly levered play on rising natural gas prices. The
company emerged from
bankruptcy last fall
with an improved net debt position and strong free cash flow. The firm has a
fleet of Illinois coal-fired plants, which is supplemented by the recent
purchase of Amerens coal fleet at real bargain prices. The stock has been under
pressure due to the Obama administrations carbon initiatives, but we believe
the sell-off has been overdone.
EPL Oil
& Gas
is a proven operator in the
shallow Gulf of Mexico, which has been out of favor with investors given its
high well-decline rates and heavy natural gas exposure. The advent of
better seismic indicators allows petroleum
engineers to see and drill deeper and to potentially drive better-than-expected
growth in the Gulf. The stock appeared very cheap on a 2014 cash flow basis. In
a related play,
Energy XXI
Bermuda
is a shallow Gulf producer that
is applying horizontal drilling and seismic indicators to generate more growth
than the market appreciates from its assets, which have historically been out of
favor due to its wells perceived high decline rates and high gas exposure. The
company had some execution challenges that are likely improving and has a call
option on ultra-deep Gulf gas.
Other interesting new investments
included
PS Business
Parks
and
Pinnacle Foods
.
We initiated a position in PS Business Parks earlier in the year as we believe
the company will drive above-average cash
flow growth through the lease of existing assets, several of which were
recently acquired at attractive prices. In addition, with a strong history of
capital allocation, a solid balance sheet, and a reasonable valuation, PS
Business should produce good risk-adjusted returns over the medium term.
In December, we added to Pinnacle
Foods, a position we initiated through the companys March 2013 IPO. Pinnacle is
a well-run consolidator in the North American food industry, with solid
positions in frozen vegetables and baking mixes. In October 2013, Pinnacle
closed the acquisition of the Wishbone salad dressing business, and we
participated in a follow-on offering of Pinnacle shares in December. Pinnacle
has been a strong holding since the IPO and continues to execute its strategy
well.
On the Sell Side
We significantly cut or eliminated
several longtime holdings following huge runs in the stock price. We eliminated
our position in
3D
Systems
. 3-D printing has captured
investors imaginations, and our shares had appreciated more than tenfold. Given
valuation and market capitalization issues, we sold the shares.
Similarly, we trimmed
Regeneron Pharmaceuticals
, as its market cap continued to increase following the launch of its new
therapy for macular degeneration, Eylea, significantly exceeding investors
expectat
ions. Although we have a favorable
long-term view of Eylea and Regenerons drug pipeline, heightened Wall Street
expectations have moderated the risk/reward balance in the stock.
Insurer
Markel
has been a
longstanding holding in our portfolio, and we benefited from the companys
strong track record. Following the recent acquisition of competitor Alterra, the
company now qualifies as a mid-cap, and the acquisition modestly increases our
risk profile. Therefore, we have been selling the stock.
Following its strong
performance and position size, we trimmed Acuity Brands to manage the position
size. As is typical, merger and acquisition (M&A) activity
led to further trading in the second half of the year. As
noted earlier, we sold part of our stake in UNS Energy, given that the company
is in the process of being acquired by the Canada-based utility company
Fortis. Similarly, we eliminated
ONYX Pharmaceuticals
following its acquisition by Amgen, while
Optimer Pharmaceuticals
was acquired by
Cubist Pharmaceuticals
.
With valuations looking quite
stretched in the technology sector following its extraordinary performance, we
have significantly reduced our exposure. Indeed, weve learned the hard lesson
that it is better to sell on the way up than to try to pick the top exit with
the crowd.
Splunk
is a high-quality enterprise software company that is a
big data play on collecting and analyzing data from many sources, including
Web applications and mobile devices. We think the company has bright prospects,
but we reduced our position as valuations became stretched.
Concur Technologies
, like Splunk, is a high-quality enterprise software company offering
e-commerce solutions. Concur has an easy-to-use Cloud-based application, which
has captured investors attention. Its rich valuation led us to trim.
We also cut exposure to
Synaptics
, given its strong year-to-date share gains in mobile devices. It offers
touchscreen interface solutions for mobile devices and computers. We believe
growth will decelerate and margins will decline as competition rises. Our bias
is to trim on strength.
We sold
Bankrate
after a
recovery in business fundamentals and a recent CEO departure. While we have
confidence in the companys strategy and believe the recovery in the insurance
segment will provide a tailwind to the business in 2014, we tend to be cautious
about management transitions. We took advantage of recent strength in the stock
to reduce our position.
OUTLOOK
Last year was truly exceptional for
domestic small-cap stock investors. Though we can be pleased with returns, we
would caution investors not to expect future returns to match the extraordinary
gains of 2013. Market momentum, though, can typically remain in place for a
while, thus big years such as those experienced in 2013 are often followed by
reasonably positive returns in subsequent 12-month periods. The U.S. economy
appears to be strengthening, boding well for domestic stocks. Europe is also
showing signs of life, further boosting management confidence.
Favorable fund flows benefited our
small-cap market. In fact, our sector is truly experiencing a premium valuation
based on scarcity value. From 1999 through the end of 2013, the number of
publicly traded firms in the Wilshire 5000 Total Market Index fell from more
than 7,000 to more than 3,700. Years of M&A activity, management leveraged
buyouts, and financial distress have thinned the ranks of public firms.
Moreover, the number of IPOs has plummeted in the ensuing decade, with the
advent of Sarbanes-Oxley compliance requirements. The result is more dollars
chasing fewer public companies.
Naturally this has driven small-cap
valuations sharply higher. Frankly, these rich valuations concern us.
Price/earnings (P/E) ratios have now eclipsed 2007 highs, exceeding 19X forward
earnings. Merrill Lynch notes in a recent study that these valuations are now
greater than one standard deviation above the norm. Moreover, our good friend
Lori Calvasina, a Credit Suisse small- and mid-cap equity strategist, notes that
valuations on a price-to-sales ratio of 1.53 for the Russell
2000 Index are near all-time highs, making further
appreciation a challenging matter.
Also, earnings expectations for the
small-cap space are quite elevated, opening
up the possibility of negative revisions and investor disappointment.
Finally, to the extent global economies continue to recover, the backdrop for
large companies earnings should finally improve. All these points lead us to
continue to believe that large-caps will outperform small-caps in the coming
periods.
Effective January 2, 2014, T. Rowe
Price closed its Small-Cap Stock Fund and the small-cap growth New Horizons Fund
to new investors. Our Small-Cap Stock Funds assets, driven by strong investment
returns and cash flow, have risen by over $7 billion since the fund reopened in
April 2009. Thus, caution is warranted in the sector, and we would again counsel
our investors to expect more muted returns in the future.
While we dont expect small-cap
stocks to experience sharp depreciation, we do expect them to underperform
large-cap companies. We could easily foresee a period similar to the mid-1990s,
in which even in a rising economy, the small-cap sector experienced years
of P/E compression and trailing returns
versus the S&P 500 Index. We would strongly advise you to review your
allocations to small-cap funds and consider reducing holdings in the space,
particularly if you find yourself overweight in the asset class after this
period of strong performance.
As always, thank you for continuing
to express your confidence in us by investing in the Small-Cap Stock
Fund.
Greg A. McCrickard
President of the fund and chairman of its Investment
Advisory Committee
January 13, 2014
The committee chairman has
day-to-day responsibility for managing the portfolio and works with committee
members in developing and executing the funds investment
program.
FUND CLOSED TO NEW
INVESTORS
On January 2, 2014, T. Rowe Price
closed the Small-Cap Stock Fund to new investors in order to protect the
interests of the funds existing shareholders. Existing shareholders in the fund
may continue to buy, exchange, and sell shares in accordance with our existing
fund policies. The Small-Cap Stock Fund had grown to more than $7 billion in
assets as of the end of 2013 and continuing to allow new investors to invest in
the fund could have compromised the portfolio managers ability to select and
hold the small-cap stocks that offer the best opportunities for long-term
returns. T. Rowe Price first closed the Small-Cap Stock Fund in March 2004 and
reopened the fund in April 2009. Given the recent very strong returns for
small-cap stocks in general, we suggest that you review your allocation to
small-cap companiesas well as your investment time horizonand consider
reducing the size of these holdings if they have grown to a larger-than-expected
proportion of your overall portfolio.
R
ISKS OF STOCK INVESTING
As with all stock and bond mutual
funds, the funds 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 managers 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.
G
LOSSARY
Lipper indexes:
Fund benchmarks that consist of a small number of the
largest mutual funds in a particular category as tracked by Lipper
Inc.
Market
capitalization:
The total value of a
companys publicly traded shares.
Price/book ratio:
A valuation measure that compares a stocks market price
with its book value; i.e., the companys net worth divided by the number of
outstanding shares.
Price/earnings (P/E)
ratio:
A valuation measure calculated by
dividing the price of a stock by its reported earnings per share. The ratio is a
measure of how much investors are willing to pay for the companys
earnings.
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.
Russell 2000 Growth
Index:
A market-weighted total return
index that measures the performance of companies within the Russell 2000 Index
having higher price/book value ratios and higher forecast growth
rates.
Russell 2000
Index:
An unmanaged index that tracks
the stocks of 2,000 small U.S. companies.
Russell 2000 Value
Index:
An index that tracks the
performance of small-cap stocks with higher price/book ratios and higher
forecast growth values.
S&P 500 Index:
An unmanaged index that tracks the stocks of 500
primarily large-cap U.S. companies.
Wilshire 5000 Total Market
Index:
An index that measures the
performance of all U.S. equity securities with readily available price
data.
Note: Russell Investment Group is the
source and owner of the trademarks, service marks, and copyrights related to the
Russell indexes. Russell
®
is a trademark of Russell Investment
Group.
Performance and Expenses
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.
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, and the 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 funds actual returns. You may use the information on 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 on 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 funds actual expense ratio and an assumed
5% per year rate of return before expenses (not the funds 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 account service fee of
$20, generally for accounts with less than $10,000. The fee is waived for any
investor whose T. Rowe Price mutual fund accounts total $50,000 or more;
accounts electing to receive electronic delivery of account statements,
transaction confirmations, prospectuses, and shareholder reports; or accounts of
an investor who is a T. Rowe Price Preferred Services, Personal Services, or
Enhanced Personal Services client (enrollment in these programs generally
requires T. Rowe Price assets of at least $100,000). 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.
The accompanying notes are an
integral part of these financial statements.
The accompanying notes are an
integral part of these financial statements.
The accompanying notes are an
integral part of these financial statements.
The accompanying notes are an
integral part of these financial statements.
The accompanying notes are an
integral part of these financial statements.
The accompanying notes are an
integral part of these financial statements.
Notes to
Financial Statements
|
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 the Small-Cap Stock FundAdvisor 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.
NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES
Basis of Preparation
The fund is an investment company and
follows accounting and reporting guidance in the Financial Accounting Standards
Board
Accounting Standards
Codification
Topic 946 (ASC 946). The
accompanying financial statements were prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP), including
but not limited to ASC 946. GAAP requires the use of estimates made by
management. Management believes that estimates and valuations are appropriate;
however, actual results may differ from those estimates, and the valuations
reflected in the accompanying financial statements may differ from the value
ultimately realized upon sale or maturity.
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.
Income tax-related interest and penalties, if incurred, would be recorded as
income tax expense. Investment transactions are accounted
for on the trade date. Realized gains and losses are reported on the identified
cost basis. Distributions to shareholders are recorded on the ex-dividend date.
Income distributions are declared and paid by each class annually. Capital gain
distributions, if any, are generally declared and paid by the fund
annually.
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 classs 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
reflected as realized gain on securities in the accompanying financial
statements and totaled $151,000 for the year ended December 31, 2013.
Additionally, the fund earns credits on temporarily uninvested cash balances
held at the custodian, which reduce the funds custody charges. Custody expense
in the accompanying financial statements is presented before reduction for
credits, which are reflected as expenses paid indirectly.
In-Kind Redemptions
In accordance with guidelines described
in the funds prospectus, the fund may distribute portfolio securities rather
than cash as payment for a redemption of fund shares (in-kind redemption). For
financial reporting purposes, the fund recognizes a gain on in-kind redemptions
to the extent the value of the distributed securities on the date of redemption
exceeds the cost of those securities. Gains and losses realized on in-kind
redemptions
are not recognized for tax
purposes and are reclassified from undistributed realized gain (loss) to paid-in
capital. During the year ended December 31, 2013, the fund realized $78,999,000
of net gain on $180,509,000 of in-kind redemptions.
New Accounting Guidance
On January 1, 2013, the fund adopted new
accounting guidance, issued by the Financial Accounting Standards Board, that
requires an entity to disclose information about offsetting and related
arrangements to enable users of its financial statements to understand the
effect of those arrangements on its financial position. Adoption had no effect
on the funds net assets or results of operations.
NOTE 2 - VALUATION
The funds financial instruments are
valued, and each classs net asset value (NAV) per share is computed at the
close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day the
NYSE is open for business.
Fair Value
The funds financial instruments are reported at fair
value, which GAAP defines as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The T. Rowe Price Valuation Committee (the
Valuation Committee) has been established by the funds Board of Directors (the
Board) to ensure that financial instruments are appropriately priced at fair
value in accordance with GAAP and the 1940 Act. Subject to oversight by the
Board, the Valuation Committee develops and oversees pricing-related policies
and procedures and approves all fair value determinations. Specifically, the
Valuation Committee establishes procedures to value securities; determines
pricing techniques, sources, and persons eligible to effect fair value pricing
actions; oversees the selection, services, and performance of pricing vendors;
oversees valuation-related business continuity practices; and provides guidance
on internal controls and valuation-related matters. The Valuation Committee
reports to the funds Board; is chaired by the funds treasurer; and has
representation from legal, portfolio management and trading, operations, and
risk management.
Various valuation techniques and
inputs are used to determine the fair value of financial instruments. GAAP
establishes the following fair value hierarchy that categorizes the inputs used
to measure fair value:
Level 1 quoted prices (unadjusted)
in active markets for identical financial instruments that the fund can access
at the reporting date
Level 2 inputs other than Level 1
quoted prices that are observable, either directly or indirectly (including, but
not limited to, quoted prices for similar financial instruments in active
markets, quoted prices for identical or similar financial instruments in
inactive markets, interest rates and yield curves, implied volatilities, and
credit spreads)
Level 3 unobservable inputs
Observable inputs are developed using
market data, such as publicly available information about actual events or
transactions, and reflect the assumptions that market participants would use to
price the financial instrument. Unobservable inputs are those for which market
data are not available and are developed using the best information available
about the assumptions that market participants would use to price the financial
instrument. GAAP requires valuation techniques to maximize the use of relevant
observable inputs and minimize the use of unobservable inputs. When multiple
inputs are used to derive fair value, the financial instrument is assigned to
the level within the fair value hierarchy based on the lowest-level input that
is significant to the fair value of the financial instrument. Input levels are
not necessarily an indication of the risk or liquidity associated with financial
instruments at that level but rather the degree of judgment used in determining
those values.
Valuation Techniques
Equity securities listed or regularly
traded on a securities exchange or in the over-the-counter (OTC) market are
valued at the last quoted sale price or, for certain markets, the official
closing price at the time the valuations are made. OTC Bulletin Board securities
are valued at the mean of the closing 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 closing
bid and asked prices for domestic securities and the last quoted sale or closing
price for international securities.
For valuation purposes, the last
quoted prices of non-U.S. equity securities may be adjusted to reflect the fair
value of such securities at the close of 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, the fund will adjust the previous quoted prices to reflect
what it believes to be the fair value of the securities as of the close of the
NYSE. In deciding whether it is necessary to adjust quoted prices to reflect
fair value, 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 may also fair value securities in other
situations, such as when a particular foreign market is closed but the fund is
open. The fund uses outside pricing services to provide it with quoted prices
and information to evaluate or adjust those prices. The fund cannot predict how
often it will use quoted prices and how often it will determine it necessary to
adjust those prices to reflect fair value. As a means of evaluating its security
valuation process, the fund routinely compares quoted prices, the next days
opening prices in the same markets, and adjusted prices.
Actively traded domestic equity
securities generally are categorized in Level 1 of the fair value hierarchy.
Non-U.S. equity securities generally are categorized in Level 2 of the fair
value hierarchy despite the availability of quoted prices because, as described
above, the fund evaluates and determines whether those quoted prices reflect
fair value at the close of the NYSE or require adjustment. OTC Bulletin Board
securities, certain preferred securities, and equity securities traded in
inactive markets generally are categorized in Level 2 of the fair value
hierarchy.
Debt securities generally are traded
in the OTC market. Securities with remaining maturities of one year or more at
the time of acquisition are valued at prices furnished by dealers who make
markets in such securities or by an independent pricing service, which considers
the yield or price of bonds of comparable quality, coupon, maturity, and type,
as well as prices quoted by dealers who make markets in such securities. Debt
securities with remaining maturities of less than one year at the time of
acquisition generally use amortized cost in local currency to approximate fair
value. However, if amortized cost is deemed not to reflect fair value or the
fund holds a significant amount of such securities with remaining maturities of
more than 60 days, the securities are valued at prices furnished by dealers who
make markets in such securities or by an independent pricing service. Generally,
debt securities are categorized
in Level 2
of the fair value hierarchy; however, to the extent the valuations include
significant unobservable inputs, the securities would be categorized in Level
3.
Investments in mutual funds are
valued at the mutual funds closing NAV per share on the day of valuation and
are categorized in Level 1 of the fair value hierarchy. Financial futures
contracts are valued at closing settlement prices and are categorized in Level 1
of the fair value hierarchy. Assets and liabilities other than financial
instruments, including short-term receivables and payables, are carried at cost,
or estimated realizable value, if less, which approximates fair value.
Thinly traded financial instruments
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 Valuation Committee. The objective of any fair value pricing
determination is to arrive at a price that could reasonably be expected from a
current sale. Financial instruments fair valued by the Valuation Committee are
primarily private placements, restricted securities, warrants, rights, and other
securities that are not publicly traded.
Subject to oversight by the Board,
the Valuation Committee regularly makes good faith judgments to establish and
adjust the fair valuations of certain securities as events occur and
circumstances warrant. For instance, in determining the fair value of an equity
investment with limited market activity, such as a private placement or a thinly
traded public company stock, the Valuation Committee considers a variety of
factors, which may include, but are not limited to, the issuers business
prospects, its financial standing and performance, recent investment
transactions in the issuer, new rounds of financing, negotiated transactions of
significant size between other investors in the company, relevant market
valuations of peer companies, strategic events affecting the company, market
liquidity for the issuer, and general economic conditions and events. In
consultation with the investment and pricing teams, the Valuation Committee will
determine an appropriate valuation technique based on available information,
which may include both observable and unobservable inputs. The Valuation
Committee typically will afford greatest weight to actual prices in arms length
transactions, to the extent they represent orderly transactions between market
participants; transaction information can be reliably obtained; and prices are
deemed representative of fair value. However, the Valuation Committee may also
consider other valuation methods such as market-based valuation multiples; a
discount or premium from market value of
a
similar, freely traded security of the same issuer; or some combination. Fair
value determinations are reviewed on a regular basis and updated as information
becomes available, including actual purchase and sale transactions of the issue.
Because any fair value determination involves a significant amount of judgment,
there is a degree of subjectivity inherent in such pricing decisions, and fair
value prices determined by the Valuation Committee could differ from those of
other market participants. Depending on the relative significance of
unobservable inputs, including the valuation technique(s) used, fair valued
securities may be categorized in Level 2 or 3 of the fair value
hierarchy.
Valuation Inputs
The following table summarizes the funds financial
instruments, based on the inputs used to determine their fair values on December
31, 2013:
There were no material transfers
between Levels 1 and 2 during the year.
Following is a reconciliation of the
funds Level 3 holdings for the year ended December 31, 2013. Gain (loss)
reflects both realized and change in unrealized gain/loss on Level 3 holdings
during the period, if any, and is included on the accompanying Statement of
Operations. The change in unrealized gain/loss on Level 3 instruments held at
December 31, 2013, totaled $6,669,000 for the year ended December 31, 2013.
Transfers into and out of Level 3 are reflected
at the value of the financial instrument at the beginning of the period.
During the year, transfers out of Level 3 were because observable market data
became available for the security.
NOTE 3 - DERIVATIVE
INSTRUMENTS
During the year ended December 31,
2013, the fund invested in derivative instruments. As defined by GAAP, a
derivative is a financial instrument whose value is derived from an underlying
security price, foreign exchange rate, interest rate, index of prices or rates,
or other variable; it requires little or no initial investment and permits or
requires net settlement. The fund invests in derivatives only if the expected
risks and rewards are consistent with its investment objectives, policies, and
overall risk profile, as described in its prospectus and Statement of Additional
Information. The fund may use derivatives for a variety of purposes, such as
seeking to hedge against declines in principal value, increase yield, invest in
an asset with greater efficiency and at a lower cost than is possible through
direct investment, or to adjust credit exposure. The risks associated with the
use of derivatives are different from, and potentially much greater than, the
risks associated with investing directly in the instruments on which the
derivatives are based. The fund at all times maintains sufficient cash reserves,
liquid assets, or other SEC-permitted asset types to cover its settlement
obligations under open derivative contracts.
The fund values its derivatives at
fair value, as described in Note 2, and recognizes changes in fair value
currently in its results of operations. Accordingly, the fund does not follow
hedge accounting, even for derivatives employed as
economic hedges. Generally, the fund accounts for its derivatives on a
gross basis. It does not offset the fair value of derivative liabilities against
the fair value of derivative assets on its financial statements, nor does it
offset the fair value of derivative instruments against the right to reclaim or
obligation to return collateral. As of December 31, 2013, the fund held equity
futures with cumulative unrealized gain of $13,114,000; the value reflected on
the accompanying Statement of Assets and Liabilities is the related unsettled
variation margin.
Additionally, during the year ended
December 31, 2013, the fund recognized $70,855,000 of realized gain on Futures
and a $9,518,000 change in unrealized gain/loss on Futures related to its
investments in equity derivatives; such amounts are included on the accompanying
Statement of Operations.
Counterparty Risk and Collateral
The fund invests in exchange-traded or
centrally cleared derivative contracts, such as futures, exchange-traded
options, and centrally cleared swaps. Counterparty risk on such derivatives is
minimal because the clearinghouse provides protection against counterparty
defaults. For futures and centrally cleared swaps, the fund is required to
deposit collateral in an amount equal to a certain percentage of the contract
value (margin requirement), and the margin requirement must be maintained over
the life of the contract. Each clearing broker, in its sole discretion, may
adjust the margin requirements applicable to the fund.
Collateral may be in the form of cash
or debt securities issued by the U.S. government or related agencies. Cash and
currencies posted by the fund are reflected as cash deposits in the accompanying
financial statements and generally are restricted from withdrawal by the fund;
securities posted by the fund are so noted in the accompanying Portfolio of
Investments; both remain in the funds assets. As of December 31, 2013,
securities valued at $11,102,000 had been posted by the fund for exchange-traded
and/or centrally cleared derivatives.
Futures Contracts
The fund is subject to equity price risk in the normal
course of pursuing its investment objectives and uses futures contracts to help
manage such risk. The fund may enter into futures contracts to manage exposure
to interest rates, security prices, foreign currencies, and credit quality; as
an efficient means of adjusting exposure to all or part of a target market; to
enhance income; as a cash management tool; or to adjust credit exposure. A
futures contract provides for the future sale by one party and purchase by
another of a specified amount of a particular underlying financial instrument at
an agreed-upon price, date, time, and place. The fund currently invests only in
exchange-traded futures, which generally are
standardized as to maturity date, underlying financial instrument, and other
contract terms. Payments are made or received by the fund each day to settle
daily fluctuations in the value of the contract (variation margin), which
reflect changes in the value of the underlying financial instrument. Variation
margin is recorded as unrealized gain or loss until the contract is closed. The
value of a futures contract included in net assets is the amount of unsettled
variation margin; net variation margin receivable is reflected as an asset and
net variation margin payable is reflected as a liability on the accompanying
Statement of Assets and Liabilities. Risks related to the use of futures
contracts include possible illiquidity of the futures markets, contract prices
that can be highly volatile and imperfectly correlated to movements in hedged
security values, and potential losses in excess of the funds initial
investment. During the year ended December 31, 2013, the funds exposure to
futures, based on underlying notional amounts, was generally less than 1% of net
assets.
NOTE 4 - OTHER INVESTMENT
TRANSACTIONS
Consistent with its investment
objective, the fund engages in the following practices to manage exposure to
certain risks and/or to enhance performance. The investment objective, policies,
program, and risk factors of the fund are described more fully in the funds
prospectus and Statement of Additional Information.
Restricted Securities
The fund may invest in securities that
are subject to legal or contractual restrictions on resale. Prompt sale of such
securities at an acceptable price may be difficult and may involve substantial
delays and additional costs.
Other
Purchases and sales of portfolio securities other than
short-term securities aggregated $1,758,160,000 and $1,790,439,000,
respectively, for the year ended December 31, 2013.
NOTE 5 - 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. Distributions
determined in accordance with federal income
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
but are not adjusted for temporary differences.
The fund files U.S. federal, state,
and local tax returns as required. The funds tax returns are subject to
examination by the relevant tax authorities until expiration of the applicable
statute of limitations, which is generally three years after the filing of the
tax return but which can be extended to six years in certain circumstances. Tax
returns for open years have incorporated no uncertain tax positions that require
a provision for income taxes.
Reclassifications to paid-in capital
relate primarily to redemptions in kind and a tax practice that treats a portion
of the proceeds from each redemption of capital shares as a distribution of
taxable net investment income or realized capital gain. Reclassifications
between income and gain relate primarily to the offset of the current net
operating loss against realized gains. For the year ended December 31, 2013, the
following reclassifications were recorded to reflect tax character (there was no
impact on results of operations or net assets):
Distributions during the years ended
December 31, 2013 and December 31, 2012, were characterized for tax purposes as
follows:
At December 31, 2013, the tax-basis
cost of investments and components of net assets were as follows:
The difference between book-basis and
tax-basis net unrealized appreciation (depreciation) is attributable to the
deferral of losses from wash sales and the realization of gains/losses on
passive foreign investment companies and certain open derivative contracts for
tax purposes.
NOTE 6 - RELATED PARTY
TRANSACTIONS
The fund is managed by T. Rowe Price
Associates, Inc. (Price Associates), a wholly owned subsidiary of T. Rowe Price
Group, Inc. (Price Group). The investment management agreement between the fund
and Price Associates 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 funds average daily net assets, and a group fee. The
group fee rate 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
0.275% for assets in excess of $400 billion. The funds group fee is determined
by applying the group fee rate to the funds average daily net assets. At
December 31, 2013, the effective annual group fee rate was 0.29%.
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 provides certain other administrative services to the fund. T.
Rowe Price Services, Inc., provides shareholder and administrative services in
its capacity as the funds 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, 2013, expenses incurred pursuant to these service
agreements were $110,000 for Price Associates; $1,425,000 for T. Rowe Price
Services, Inc.; and $2,050,000 for T. Rowe Price Retirement Plan Services, Inc.
The total amount payable at period-end pursuant to these service agreements is
reflected as Due to Affiliates in the accompanying financial
statements.
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 funds 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, 2013, the fund was charged
$313,000 for shareholder servicing costs related to the college savings plans,
of which $238,000 was for services provided by Price. The amount payable at
period-end pursuant to this agreement is reflected as Due to Affiliates in the
accompanying financial statements. At December 31, 2013, approximately 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 and T. Rowe Price Target 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, 2013, the fund was
allocated $2,270,000 of Retirement Funds expenses, of which $1,124,000 related
to services provided by Price. At
period-end, the amount payable to Price pursuant to this agreement is
reflected as Due to Affiliates in the accompanying financial statements. At
December 31, 2013, approximately 14% 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, the T. Rowe Price Government Reserve Investment
Fund, or the T. Rowe Price Short-Term Reserve Fund (collectively, the Price
Reserve Investment Funds), open-end management investment companies managed by
Price Associates and considered affiliates of the fund. The Price Reserve
Investment Funds are offered as short-term investment options to mutual funds,
trusts, and other accounts managed by Price Associates or its affiliates and are
not available for direct purchase by members of the public. The Price Reserve
Investment Funds pay no investment management fees.
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, 2013, and the results of its operations, the changes in its net assets and
the financial highlights for each of the periods indicated therein, 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 Funds 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 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,
2013
by correspondence with the custodian and brokers, and confirmation of the
underlying funds by correspondence with the transfer agent, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers
LLP
Baltimore, Maryland
February 14, 2014
Tax
Information (Unaudited) for the Tax Year Ended
12/31/13
|
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 funds distributions to
shareholders included:
-
$65,070,000 from short-term capital
gains,
-
$484,088,000 from long-term capital gains, of
which $483,754,000 was subject to the
15%
rate gains category, and $334,000 to the 25% rate gains category.
For taxable non-corporate
shareholders, $52,189,000 of the funds income represents qualified dividend
income subject to the 15% rate category.
For corporate shareholders,
$50,227,000 of the funds 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 funds Statement
of Additional Information. You may request this document by calling
1-800-225-5132 or by accessing the SECs website, sec.gov.
The description of our proxy voting
policies and procedures is also available on our website, troweprice.com. To
access it, click on the words Social Responsibility at the top of our
corporate homepage. Next, click on the words Conducting Business Responsibly
on the left side of the page that appears. Finally, click on the words Proxy
Voting Policies on the left side of the page that appears.
Each funds most recent annual proxy
voting record is available on our website and through the SECs website. To
access it through our website, follow the above directions to reach the
Conducting Business Responsibly page. Click on the words Proxy Voting
Records on the left side of that page, and then click on the View Proxy Voting
Records link at the bottom of the page that appears.
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 funds Form N-Q is available
electronically on the SECs website (sec.gov); hard copies may be reviewed and
copied at the SECs Public Reference Room, 100 F St. N.E., Washington, DC 20549.
For more information on the Public Reference Room, call 1-800-SEC-0330.
About the
Funds Directors and Officers
|
Your fund is overseen by a Board of
Directors (Board) that meets regularly to review a wide variety of matters
affecting or potentially affecting the fund, including performance, investment
programs, compliance matters, advisory fees and expenses, service providers, and
business and regulatory affairs. The Board elects the funds officers, who are
listed in the final table. At least 75% of the Boards members are independent
of T. Rowe Price Associates, Inc. (T. Rowe Price), and its affiliates; inside
or interested directors are employees or officers of T. Rowe Price. The
business address of each director and officer is 100 East Pratt Street,
Baltimore, Maryland 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 1-800-638-5660.
Independent
Directors
|
|
|
|
Name
|
|
|
(Year of
Birth)
|
|
|
Year
Elected*
|
|
|
[Number of T.
Rowe Price
|
|
Principal
Occupation(s) and Directorships of Public Companies and
|
Portfolios
Overseen]
|
|
Other
Investment Companies During the Past Five Years
|
|
William R.
Brody, M.D., Ph.D.
|
|
President and
Trustee, Salk Institute for Biological Studies (2009
|
(1944)
|
|
to present);
Director, Novartis, Inc. (2009 to present); Director, IBM
|
2009
|
|
(2007 to
present); President and Trustee, Johns Hopkins University
|
[157]
|
|
(1996 to 2009);
Chairman of Executive Committee and Trustee,
|
|
|
Johns Hopkins
Health System (1996 to 2009)
|
|
|
|
Anthony W.
Deering
|
|
Chairman, Exeter
Capital, LLC, a private investment firm (2004 to
|
(1945)
|
|
present);
Director and Member of the Advisory Board, Deutsche
|
2001
|
|
Bank North
America (2004 to present); Director, Under Armour
|
[157]
|
|
(2008 to
present); Director, Vornado Real Estate Investment Trust
|
|
|
(2004 to
2012)
|
|
|
|
Donald W. Dick,
Jr.
|
|
Principal,
EuroCapital Partners, LLC, an acquisition and management
|
(1943)
|
|
advisory firm
(1995 to present)
|
1992
|
|
|
[157]
|
|
|
|
|
|
Bruce W.
Duncan
|
|
President, Chief
Executive Officer, and Director, First Industrial Realty
|
(1951)
|
|
Trust, owner and
operator of industrial properties (2009 to present);
|
2013
|
|
Chairman of the
Board (2005 to present), Interim Chief Executive
|
[157]
|
|
Officer (2007),
and Director (1999 to present), Starwood Hotels &
|
|
|
Resorts, a hotel
and leisure company; Senior Advisor, Kohlberg,
|
|
|
Kravis, Roberts
& Co. LP, a global investment firm (2008 to 2009);
|
|
|
Trustee,
Starwood Lodging Trust, a real estate investment trust and
|
|
|
former
subsidiary of Starwood (1995 to 2006)
|
|
|
|
Robert J.
Gerrard, Jr.
|
|
Advisory Board
Member, Pipeline Crisis/Winning Strategies (1997
|
(1952)
|
|
to present);
Chairman of Compensation Committee and Director,
|
2012
|
|
Syniverse
Holdings, Inc. (2008 to 2011); Executive Vice President
|
[157]
|
|
and General
Counsel, Scripps Networks, LLC (1997 to 2009)
|
|
|
|
Karen N.
Horn
|
|
Limited Partner
and Senior Managing Director, Brock Capital Group,
|
(1943)
|
|
an advisory and
investment banking firm (2004 to present); Director,
|
2003
|
|
Eli Lilly and
Company (1987 to present); Director, Simon Property
|
[157]
|
|
Group (2004 to
present); Director, Norfolk Southern (2008 to
|
|
|
present);
Director, Fannie Mae (2006 to 2008)
|
|
|
|
Paul F.
McBride
|
|
Former Company
Officer and Senior Vice President, Human
|
(1956)
|
|
Resources and
Corporate Initiatives (2004 to 2010)
|
2013
|
|
|
[157]
|
|
|
|
|
|
Cecilia E.
Rouse, Ph.D.
|
|
Dean, Woodrow
Wilson School (2012 to present); Professor and
|
(1963)
|
|
Researcher,
Princeton University (1992 to present); Director, MDRC
|
2012
|
|
(2011 to
present); Member, National Academy of Education (2010
|
[157]
|
|
to present);
Research Associate, National Bureau of Economic
|
|
|
Researchs Labor
Studies Program (1998 to 2009 and 2011 to
|
|
|
present);
Member, Presidents Council of Economic Advisors
|
|
|
(2009 to 2011);
Member, The MacArthur Foundation Network on
|
|
|
the Transition
to Adulthood and Public Policy (2000 to 2008);
|
|
|
Member, National
Advisory Committee for the Robert Wood
|
|
|
Johnson
Foundations Scholars in Health Policy Research Program
|
|
|
(2008); Director
and Member, National Economic Association
|
|
|
(2006 to 2008);
Member, Association of Public Policy Analysis and
|
|
|
Management
Policy Council (2006 to 2008); Member, Hamilton
|
|
|
Projects
Advisory Board at The Brookings Institute (2006 to 2008);
|
|
|
Chair of
Committee on the Status of Minority Groups in the Economic
|
|
|
Profession,
American Economic Association (2006 to 2008 and
|
|
|
2012 to
present)
|
|
|
|
John G.
Schreiber
|
|
Owner/President,
Centaur Capital Partners, Inc., a real estate
|
(1946)
|
|
investment
company (1991 to present); Cofounder and Partner,
|
2001
|
|
Blackstone Real
Estate Advisors, L.P. (1992 to present); Director,
|
[157]
|
|
General Growth
Properties, Inc. (2010 to present); Director, BXMT
|
|
|
(formerly
Capital Trust, Inc.), a real estate investment company
|
|
|
(2012 to
present); Director and Chairman of the Board, Brixmor
|
|
|
Property
Group, Inc. (2013 to present)
|
|
Mark R.
Tercek
|
|
President and
Chief Executive Officer, The Nature Conservancy (2008
|
(1957)
|
|
to present);
Managing Director, The Goldman Sachs Group, Inc.
|
2009
|
|
(1984 to
2008)
|
[157]
|
|
|
|
*Each
independent director 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) and Directorships of Public Companies and
|
Portfolios
Overseen]
|
|
Other
Investment Companies During the Past Five Years
|
|
|
|
Edward C.
Bernard
|
|
Director and
Vice President, T. Rowe Price; Vice Chairman of the
|
(1956)
|
|
Board, Director,
and Vice President, T. Rowe Price Group, Inc.;
|
2006
|
|
Chairman of the
Board, Director, and President, T. Rowe Price
|
[157]
|
|
Investment
Services, Inc.; Chairman of the Board and Director,
|
|
|
T. Rowe Price
Retirement Plan Services, Inc., and T. Rowe Price
|
|
|
Services, Inc.;
Chairman of the Board, Chief Executive Officer,
|
|
|
and Director, T.
Rowe Price International; Chairman of the Board,
|
|
|
Chief Executive
Officer, Director, and President, T. Rowe Price Trust
|
|
|
Company;
Chairman of the Board, all funds
|
|
|
|
Brian C. Rogers,
CFA, CIC
|
|
Chief Investment
Officer, Director, and Vice President, T. Rowe Price;
|
(1955)
|
|
Chairman of the
Board, Chief Investment Officer, Director, and Vice
|
2013
|
|
President, T.
Rowe Price Group, Inc.; Vice President, T. Rowe Price
|
[105]
|
|
Trust
Company
|
|
*Each inside
director serves until retirement, resignation, or election of a
successor.
|
Officers
|
|
|
|
Name (Year of
Birth)
|
|
|
Position Held
With Small-Cap Stock Fund
|
|
Principal
Occupation(s)
|
|
|
|
Francisco Alonso
(1978)
|
|
Vice President,
T. Rowe Price and T. Rowe Price
|
Vice
President
|
|
Group,
Inc.
|
|
|
|
Preston G.
Athey, CFA, CIC (1949)
|
|
Vice President,
T. Rowe Price, T. Rowe Price
|
Vice
President
|
|
Group, Inc., and
T. Rowe Price Trust Company
|
|
|
|
Ira W. Carnahan,
CFA (1963)
|
|
Vice President,
T. Rowe Price and T. Rowe Price
|
Vice
President
|
|
Group,
Inc.
|
|
|
|
Andrew S. Davis
(1978)
|
|
Vice President,
T. Rowe Price and T. Rowe
|
Vice
President
|
|
Price Group,
Inc.; Intern, Franklin Templeton
|
|
|
Investments (to
2009)
|
|
|
|
Hugh M. Evans
III, CFA (1966)
|
|
Vice President,
T. Rowe Price and T. Rowe Price
|
Vice
President
|
|
Group,
Inc.
|
|
|
|
Roger L. Fiery
III, CPA (1959)
|
|
Vice President,
Price Hong Kong, Price
|
Vice
President
|
|
Singapore, T.
Rowe Price, T. Rowe Price Group,
|
|
|
Inc., T. Rowe
Price International, and T. Rowe
|
|
|
Price Trust
Company
|
|
|
|
Christopher T.
Fortune (1973)
|
|
Vice President,
T. Rowe Price and T. Rowe Price
|
Vice
President
|
|
Group,
Inc.
|
|
|
|
John R. Gilner
(1961)
|
|
Chief Compliance
Officer and Vice President,
|
Chief Compliance
Officer
|
|
T. Rowe Price;
Vice President, T. Rowe Price
|
|
|
Group, Inc., and
T. Rowe Price Investment
|
|
|
Services,
Inc.
|
|
|
|
Gregory S.
Golczewski (1966)
|
|
Vice President,
T. Rowe Price and T. Rowe Price
|
Vice
President
|
|
Trust
Company
|
|
|
|
Gregory K.
Hinkle, CPA (1958)
|
|
Vice President,
T. Rowe Price, T. Rowe Price
|
Treasurer
|
|
Group, Inc., and
T. Rowe Price Trust Company
|
|
|
|
Steven D.
Krichbaum (1977)
|
|
Vice President,
T. Rowe Price and T. Rowe Price
|
Vice
President
|
|
Group,
Inc.
|
|
|
|
Patricia B.
Lippert (1953)
|
|
Assistant Vice
President, T. Rowe Price and
|
Secretary
|
|
T. Rowe Price
Investment Services, Inc.
|
|
|
|
Robert J.
Marcotte (1962)
|
|
Vice President,
T. Rowe Price and T. Rowe Price
|
Vice
President
|
|
Group,
Inc.
|
|
|
|
Gregory A.
McCrickard, CFA (1958)
|
|
Vice President,
T. Rowe Price, T. Rowe Price
|
President
|
|
Group, Inc., and
T. Rowe Price Trust Company
|
|
|
|
David
Oestreicher (1967)
|
|
Director, Vice
President, and Secretary, T. Rowe
|
Vice
President
|
|
Price Investment
Services, Inc., T. Rowe
|
|
|
Price Retirement
Plan Services, Inc., T. Rowe
|
|
|
Price Services,
Inc., and T. Rowe Price Trust
|
|
|
Company; Chief
Legal Officer, Vice President,
|
|
|
and Secretary,
T. Rowe Price Group, Inc.; Vice
|
|
|
President and
Secretary, T. Rowe Price and
|
|
|
T. Rowe Price
International; Vice President,
|
|
|
Price Hong Kong
and Price Singapore
|
|
|
|
Curt J. Organt,
CFA (1968)
|
|
Vice President,
T. Rowe Price and T. Rowe Price
|
Vice
President
|
|
Group,
Inc.
|
|
|
|
Deborah D.
Seidel (1962)
|
|
Vice President,
T. Rowe Price, T. Rowe Price
|
Vice
President
|
|
Group, Inc., T.
Rowe Price Investment Services,
|
|
|
Inc., and T.
Rowe Price Services, Inc.
|
|
|
|
Michael F. Sola,
CFA (1969)
|
|
Vice President,
T. Rowe Price and T. Rowe Price
|
Vice
President
|
|
Group,
Inc.
|
|
|
|
J. David Wagner,
CFA (1974)
|
|
Vice President,
T. Rowe Price and T. Rowe Price
|
Vice
President
|
|
Group,
Inc.
|
|
|
|
Julie L. Waples
(1970)
|
|
Vice President,
T. Rowe Price
|
Vice
President
|
|
|
|
Unless
otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least 5
years.
|