Annual Report
Mid-Cap
Value Fund
December 31, 1998
T. Rowe Price
Report Highlights
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Mid-Cap Value Fund
o Continuing a trend, large-cap growth stocks outperformed mid-size
companies, especially those with value characteristics.
o The fund's 6- and 12-month performance significantly trailed its
benchmarks, which benefited from greater exposure to growth stocks.
o Many of our high-quality holdings slumped in summer, although mergers and
acquisitions buoyed performance.
o We reduced our cash stake to invest in companies with attractive valuations
and business fundamentals.
o Further mergers and acquisitions may help realize some of the excellent
values we see in our universe.
Fellow Shareholders
The Standard & Poor's 500 Stock Index reigned supreme once again in 1998,
gaining nearly 30% despite a severe third quarter correction. The performance of
the S&P, a large-cap index with many growth-oriented companies, aptly summarized
investor sentiment for the year. Across markets, investors strongly favored
large companies over smaller ones and visible growth to value characteristics.
Performance Comparison
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Periods Ended 12/31/98 6 Months 12 Months
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Mid-Cap Value Fund -4.43% 1.39%
S&P MidCap Index 9.64 19.11
Lipper Mid Cap Funds Average 0.71 12.16
As a result, the S&P MidCap Index trailed the S&P 500 by a wide margin, rising
19.11% for the year. This showing, in turn, dwarfed the 12.16% return of the
Lipper Mid Cap Funds Average. Your fund's 1.39% gain over that time period
trailed far behind these benchmarks, both of which carry significant exposure to
growth stocks. This pattern also held true for the six-month period.
YEAR-END DISTRIBUTIONS
On December 15, 1998, your Board of Directors declared an income
distribution of $0.19 per share, a long-term capital gain distribution of
$0.49, and a short-term capital gain distribution of $0.27 to shareholders
of record on that date. The distribution was paid on December 17. You
should already have received your check or statement reflecting these
distributions, as well as Form 1099-DIV summarizing this information for
1998 tax purposes.
INVESTMENT REVIEW
How were we so out of sync in 1998? The simple explanation is that
growth stocks far outperformed value stocks throughout the year, and that
top performance was concentrated in a small number of large stocks. For
example, America Online alone accounted for nearly 40% of the S&P MidCap's
gains, even though the stock closed the year with a $62 billion market
capitalization-hardly a mid-cap stock and, in our opinion, never a value.
Given AOL's outsized market capitalization, few true mid-cap funds were in
a position to own the name. Further, the best-performing sector for the S&P
MidCap was technology, which rose 86% during the year and accounted for 70%
of the index's total performance. This put your fund in a tough position.
Our value discipline restricted us from investing in many high-priced
technology issues, and so we were quite underweighted in 1998. We were also
light in the communications services sector, which is dominated by high
price/earnings (P/E), technology-driven networking stocks. This sector rose
58% and contributed 141 basis points to the index's return (100 basis
points equal one percentage point).
Preparing For The Year 2000
The Year 2000 draws closer every day, and it holds special meaning beyond the
arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all new
systems process and store four-digit years. All critical systems have been
reprogrammed (including business applications required to service our customers
and processing infrastructure necessary to ensure the integrity of customer data
and investments), and they are currently being tested. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be able
to modify their interface files prior to December 31, 1999. In addition, we are
scheduling tests for critical vendors and companies that claim Year 2000
compliance to ensure that time-related data and calculations function properly
as we move into the next century.
SMOOTH TRANSITION PLANNED
We believe our programs and initiatives will provide a smooth transition into
the next millennium. We are assessing all systems providing products or services
to our retail mutual fund shareholders, retirement plan sponsors, and
participants, and we have modified them where necessary for the Year 2000. The
Securities Industry Association (SIA) is coordinating Year 2000 testing to
assure that securities markets, clearing corporations, depositories, and third
party service providers can send, receive, and process files and transactions
accurately. In late July 1998, the SIA completed a beta test of Year 2000
readiness. The test was considered successful in terms of transactions completed
and will serve as the basis for the SIA's industry-wide approach. During October
1998, T. Rowe Price completed its beta test of Year 2000 readiness with the SIA
and is ready for the industry-wide test that is scheduled for March and April
1999.
For a more detailed discussion of our Year 2000 effort, as well as continuing
updates on our progress, please check our Web site (www.troweprice.com).
On the other hand, the worst-performing groups for the year were energy and
basic materials-traditionally attractive sectors for value investors-which
declined 48% and 11%, respectively. Although we were underweighted in energy, we
did have significant holdings in the sector, and we were market weighted in
basic materials.
While our returns look poor against the above-mentioned growth-driven indices,
they compare somewhat more favorably with value-oriented benchmarks.
1998 Performance
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T. Rowe Price Mid-Cap Value Fund 1.39%
Wilshire Mid Cap Value Index - 2.69
Prudential Mid Cap Value Index - 3.73
Morningstar Mid Cap Value Index 1.40
Russell Mid Cap Value Index 5.08
Barra Mid Cap Value Index 4.67
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Average Mid Cap Value Index 0.95%
Some holdings did well. Three of our top four performers during 1998 came as the
result of takeovers. For example, Aliant Communications agreed to be acquired by
ALLTEL in December. Aliant's shares rose 49% during the last six months largely
in response to the takeout bid, adding an impressive 15 cents to your
portfolio's net asset value. Similarly, First Brands rose 54% in the second half
as it agreed to be acquired by Clorox, adding eight cents to NAV. Finally,
Willis-Corroon agreed to be acquired by a consortium headed by KKR, and the
resulting gain added seven cents to our performance. The fourth company,
Valassis Communications, rose more than 34% in the second half on strong
fundamentals in its business, and added 10 cents to the value of the portfolio.
We will discuss this company more in the section on portfolio sales.
Our major problems included Neiman-Marcus, Warnaco Group, and Unifi, which
shaved 12 cents, 11 cents, and 10 cents, respectively, off of NAV. Neiman-Marcus
plummeted 42% in the second half over fears that the third quarter market
correction and international financial crisis might dampen upscale consumer
spending. These fears proved excessive, and the stock price rose 66% off of its
October bottom as the company reported strong November and December comparable
store sales. Unfortunately, this was not enough to recoup the earlier damage. We
remain confident in the company's fundamentals.
Sector Diversification
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Capital
Equipment,
Process
Business Industries,
Services and and Basic Consumer
Transportation Financial Materials Nondurables Technology
5 14 15 15 4
Energy, Consumer
Utilities, Services
and and Consumer
Reserves Miscellaneous Cyclicals
3 22 22
Based on net assets as of 12/31/98.
Warnaco is an apparel manufacturer run by one of our favorite executives, Linda
Wachner. This stock also declined more than 40% over the past six months as the
market feared a big drop in consumer spending. While business conditions were
somewhat softer than expected and retail sales estimates did decline slightly
during the quarter, the loss appeared extreme to us. Fiber texturizer Unifi fell
victim to the Asia crisis, posting lower-than-expected sales and earnings due to
weak demand and growing pressure on its products' prices. The stock fell 43%,
but we very much believe in the company's long-term prospects and are willing to
hold the stock.
INVESTMENT STRATEGY
Our three top purchases of the second half were Parametric Technology,
North Fork Bancorporation, and Intimate Brands. Parametric is the
market share leader in computer-aided design software. Its software is
used to automate product designs from inception to prototype
development. The stock fell by about 70% last summer as the firm
missed its quarterly earnings estimate for the first time since going
public more than five years earlier. This provided us with an
excellent value-buying opportunity, and we acquired the shares last
fall at P/E multiples ranging from seven to 10. We feel very
optimistic about the prospects for the company's advanced new
Windchill product line.
North Fork is a $3.4 billion bank headquartered in Long Island, New York.
It has a strong track record of acquiring smaller banks in its territory.
Led by John Kanas, management is exceptional and the firm is positioned
well for the future. The bank's return on equity is a very strong 25%.
Return on assets is also terrific at 1.90%, and expense control (measured
by the efficiency ratio) sits at an attractive 38% (where anything under
60% is solid). Our final major purchase was Intimate Brands, better known
as the parent of Victoria's Secret and Bath and Body Works. We bought the
shares in September at less than 12 times earnings. We think that
represents a great price for this high-quality niche firm that has
consistently grown its earnings at 15% per year or better. Management is
excellent, free cash flow is strong, and operating margins are high-near
16%. The return on equity is a whopping 59%, and we believe at $18 the
shares were fundamentally mispriced. In the early going, we were proven
correct: the shares increased 66% from our initial purchase to year-end.
Two of our three largest sales in 1998 were stocks subject totakeovers--
Willis-Corroon and U.S. Surgical. Our final major sale was Valassis
Communications. VCI produces free-standing advertising inserts; you may
know these as the coupon packets in your Sunday newspaper. In 1998, their
business was very strong as demand typically strengthens at the top of an
economic cycle. The shares were further aided by a greater-than-expected
decline in paper prices-obviously a critical raw material component. We
first bought the shares at 12 to 14 times 1998 earnings and, toward the end
of the period, we began selling the shares at 22 times 1998 earnings.
Fundamentals remained great but, in view of the cyclicality in the
business, we felt it prudent to reduce our position from over 3% of assets
to a bit over 1%.
OUTLOOK
Our theory of value investing holds that soundly managed companies with
strong franchises, good business fundamentals, and strong cash flow should
outperform over time. Indeed, this approach has worked well for us over our
investing career. Unfortunately, during a period when investors were
fascinated with big-cap household names and anything "dotcom"-referring to
the Internet stock mania-this strategy wasn't rewarding. Nonetheless, we
plan to stick to our guns. We see incredible values in our universe;
indeed, as a result of new purchases, our cash reserves dwindled from 9% on
June 30 to 3% on December 31. It is also becoming obvious that corporate
America sees great value among mid-caps. Since we last wrote you in June,
the portfolio has seen seven stocks, involving many different names and
many different industries, become subject to takeover bids. These included
First Brands, Willis-Corroon, Aliant Communications, Arterial Vascular
Engineering, New England Electric System, Coltec, and Rutherford Moran.
We also believe patience will be rewarded because stock valuations remain
quite expensive among larger-cap stocks. The blue chips, in particular, are
significantly more expensive than mid- and small-cap stocks. It is our
belief that this valuation gap will narrow and that investors will return
to seek value in our universe. We've written often in the past that, given
our focus on value investing, there will be times when our returns will
differ materially from the indices. Though we never expected the wide
divergence we experienced in 1998, we remain convinced our style of
investing will deliver superior returns when the current Internet mania and
love affair with big-cap shares fades.
Respectfully submitted,
Greg A. McCrickard
President and Chairman of the Investment Advisory Committee
January 20, 1999
T. Rowe Price Mid-Cap Value Fund
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Portfolio Highlights
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/98
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Aliant Communications 3.1%
Premark International 2.2
BJ's Wholesale Club 2.1
PartnerRe Holdings 2.1
International Multifoods 2.0
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McCormick 1.9
Prologis Trust 1.8
Tomkins 1.8
Teco Energy 1.7
Hubbell 1.7
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Meredith 1.7
A.O. Smith 1.7
L3 Communications 1.7
Analogic 1.6
Sonoco Products 1.6
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First Brands 1.6
New England Electric System 1.5
Neiman-Marcus 1.5
Valassis Communications 1.5
NIPSCO 1.5
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GPU 1.5
Mercantile Bankshares 1.5
Parametric Technology 1.4
Northern Trust 1.4
Pinnacle West Capital 1.4
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Total 43.5%
T. Rowe Price Mid-Cap Value Fund
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Portfolio Highlights
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MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 12/31/98
Ten Largest Purchases
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Parametric Technology*
North Fork Bancorporation*
Intimate Brands*
Blyth Industries*
Union Pacific Resources
Richfood Holdings
Suiza Foods*
Reynolds & Reynolds*
Smith International*
Arterial Vascular Engineering*
Ten Largest Sales
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Willis-Corroon**
United States Surgical**
Valassis Communications
Owens Corning**
IndyMac Mortgage Holdings**
Century Telephone Enterprises
UICI**
PennCorp Financial Group**
American Standard**
WestPoint Stevens**
* Position added
** Position eliminated
T. Rowe Price Mid-Cap Value Fund
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Performance Comparison
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with a broad-based average or index. The index
return does not reflect expenses, which have been deducted from the fund's
return.
MID-CAP VALUE FUND
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As of 12/31/98
S&P Lipper
MidCap Mid Cap Mid-Cap
Index Funds Average Value Fund
6/30/96 10,000 10,000 10,000
12/96 10,914 10,573 11,630
12/97 14,435 12,730 14,783
12/98 17,194 14,249 14,988
Average Annual Compound Total Return
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This table shows how the fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Since Inception
Periods Ended 12/31/98 1 Year Inception Date
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Mid-Cap Value Fund 1.39% 17.49% 6/28/96
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
T. Rowe Price Mid-Cap Value Fund
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Financial Highlights For a share outstanding throughout each period
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Year 6/28/96
Ended Through
12/31/98 12/31/97 12/31/96
NET ASSET VALUE
Beginning of period $ 14.47 $ 11.56 $ 10.00
Investment activities
Net investment income 0.19 0.08* 0.10*
Net realized and
unrealized gain (loss) (0.05) 3.05 1.53
Total from
investment activities 0.14 3.13 1.63
Distributions
Net investment income (0.19) (0.08) (0.07)
Net realized gain (0.76) (0.14) --
Total Distributions (0.95) (0.22) (0.07)
NET ASSET VALUE
End of period $ 13.66 $ 14.47 $ 11.56
------------------------------------------
Ratios/Supplemental Data
Total return# 1.39% 27.1%* 16.3%*
Ratio of expenses to
average net assets 1.08% 1.25%* 1.25%*!
Ratio of net investment
income to average
net assets 1.24% 1.18%* 2.10%*!
Portfolio turnover rate 32.0% 16.0% 3.9%!
Net assets, end of period
(in thousands) $221,338 $217,991 $49,189
# 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.
* Excludes expenses in excess of a 1.25% voluntary expense limitation in
effect through 12/31/97.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Mid-Cap Value Fund
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December 31, 1998
Statement of Net Assets Shares/Par Value
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In thousands
Common Stocks 95.8%
FINANCIAL 14.5%
Bank and Trust 7.8%
Bank United 60,000 $ 2,349
First Security 106,750 2,492
Mercantile Bancorporation 25,000 1,153
Mercantile Bankshares 85,000 3,270
North Fork Bancorporation 95,000 2,274
Northern Trust 36,000 3,142
TCF Financial 105,000 2,540
17,220
Insurance 5.4%
ACE Limited 16,500 568
Erie Indemnity 89,400 2,794
Harleysville Group 60,000 1,539
PartnerRe Holdings 100,000 4,575
UNUM 10,400 607
W. R. Berkley 58,000 1,958
12,041
Financial Services 1.3%
Delta Financial * 120,000 713
Leucadia National 65,000 2,047
2,760
Total Financial 32,021
UTILITIES 17.4%
Telephone Services 5.8%
Aliant Communications 170,000 6,933
Century Telephone Enterprises 42,000 2,835
Cincinnati Bell 80,000 3,025
12,793
Electric Utilities 11.6%
DQE 50,000 2,197
FirstEnergy 60,000 1,954
GPU 75,000 3,314
Illinova 100,000 $ 2,500
New England Electric System 70,000 3,369
NIPSCO 110,000 3,348
Pinnacle West Capital 74,000 3,136
Teco Energy 135,000 3,805
United Water Resources 88,400 2,116
25,739
Total Utilities 38,532
CONSUMER NONDURABLES 15.3%
Food Processing 4.6%
International Multifoods 170,000 4,388
McCormick 125,000 4,223
Suiza Foods * 30,000 1,528
10,139
Hospital Supplies/Hospital Management 0.6%
Arterial Vascular Engineering * 25,000 1,310
1,310
Miscellaneous Consumer Products 10.1%
Blyth Industries * 55,000 1,719
First Brands 90,000 3,549
Hasbro 70,000 2,529
Premark International 140,000 4,847
Reebok * 75,000 1,116
Stanley Works 75,000 2,081
Tomkins (GBP) 825,000 3,920
Unifi 135,000 2,641
22,402
Total Consumer Nondurables 33,851
CONSUMER SERVICES 10.3%
General Merchandisers 4.9%
BJ's Wholesale Club * 100,000 4,631
Neiman-Marcus * 135,000 3,367
Warnaco Group (Class A) 110,000 2,777
10,775
Specialty Merchandisers 1.1%
CVS 15,208 $ 836
Intimate Brands 50,000 1,494
2,330
Media and Communications 4.3%
Chris-Craft * 51,500 2,482
Meredith 100,000 3,787
Valassis Communications * 65,000 3,356
9,625
Total Consumer Services 22,730
CONSUMER CYCLICALS 10.5%
Automobiles and Related 2.7%
A.O. Smith (Class B) 152,500 3,746
Littelfuse * 35,000 665
SPX * 25,000 1,675
6,086
Building & Real Estate 6.8%
Archstone Communities Trust, REIT 95,000 1,924
Arden Realty, REIT 72,500 1,681
Federal Realty
Investment Trust, REIT 30,000 709
Prologis Trust, REIT 180,000 3,735
Reckson Associates Realty, REIT 100,000 2,219
Rouse 85,000 2,337
Security Capital U.S. Realty * 150,000 1,485
Starwood Hotels & Resorts, REIT 15,000 340
Texas Industries 20,000 539
14,969
Miscellaneous Consumer Durables 1.0%
Masco 78,000 2,242
2,242
Total Consumer Cyclicals 23,297
TECHNOLOGY 3.7%
Electronic Components 1.8%
Analogic 95,000 $ 3,574
Molex 8,358 319
3,893
Aerospace & Defense 1.9%
Harsco 20,000 609
L 3 Communications * 80,000 3,725
4,334
Total Technology 8,227
CAPITAL EQUIPMENT 3.7%
Electrical Equipment 1.7%
Hubbell (Class A) 10,000 381
Hubbell (Class B) 90,000 3,420
3,801
Machinery 2.0%
Coltec Industries * 19,000 370
Danaher 28,000 1,521
Teleflex 55,000 2,509
4,400
Total Capital Equipment 8,201
BUSINESS SERVICES AND
TRANSPORTATION 4.7%
Computer Service and Software 3.3%
Galileo International 60,000 2,610
Parametric Technology * 195,000 3,169
Reynolds & Reynolds 65,000 1,491
7,270
Distribution Services 1.4%
Richfood Holdings 150,600 3,125
3,125
Total Business Services and Transportation 10,395
ENERGY 4.8%
Energy Services 1.7%
Baker Hughes 40,500 $ 716
BJ Services * 40,000 625
McDermott International 20,000 494
Smith International * 35,000 881
Weatherford International * 8,000 155
Witco 50,000 797
3,668
Exploration and Production 0.6%
Devon Energy 11,550 355
Rutherford-Moran Oil * 40,000 116
Union Pacific Resources 100,000 906
1,377
Integrated Petroleum - Domestic 2.5%
Amerada Hess 58,000 2,886
Murphy Oil 62,500 2,578
5,464
Total Energy 10,509
PROCESS INDUSTRIES 6.8%
Diversified Chemicals 1.1%
Olin 90,000 2,548
2,548
Specialty Chemicals 1.0%
Great Lakes Chemical 45,000 1,800
Octel * 30,250 420
2,220
Paper and Paper Products 2.8%
Consolidated Papers 22,000 605
Sonoco Products 120,000 3,555
Wausau-Mosinee Paper 90,000 1,592
Willamette Industries 11,000 368
6,120
Forest Products 1.9%
Domtar 225,000 1,322
English China Clay (GBP) 200,000 542
Louisiana Pacific 90,000 $ 1,648
Rayonier 15,000 689
4,201
Total Process Industries 15,089
BASIC MATERIALS 4.1%
Metals 3.3%
Cambior 150,000 741
Inco 175,000 1,848
Inland Steel Industries 100,000 1,688
Nucor 54,000 2,335
Reynolds Metals 15,000 790
7,402
Mining 0.8%
Lonrho Africa (GBP) 41,700 37
Newmont Mining 75,000 1,355
TVX Gold * 200,000 363
1,755
Total Basic Materials 9,157
Total Common Stocks (Cost $201,871) 212,009
Convertible Preferred Stocks 0.1%
Prologis Trust (Series B),
7.00%, REIT 12,000 317
Total Convertible Preferred Stocks (Cost $281) 317
Convertible Bonds 0.8%
Liberty Property Trust,
Sub. Deb., 8.40%, 7/1/01 $ 200,000 241
Security Capital U. S. Realty,
(144a), 2.00%, 5/22/03 2,000,000 1,565
Total Convertible Bonds (Cost $1,848) 1,806
Short-Term Investments 1.6%
Money Market Funds 1.6%
Reserve Investment Fund, 5.42% # 3,514,203 3,514
Total Short-Term Investments (Cost $3,514) 3,514
Total Investments in Securities
98.3% of Net Assets (Cost $207,514) $ 217,646
Other Assets Less Liabilities 3,692
NET ASSETS $ 221,338
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 110
Accumulated net realized gain/loss -
net of distributions 1,168
Net unrealized gain (loss) 10,132
Paid-in-capital applicable to 16,202,153
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 209,928
NET ASSETS $ 221,338
----------
NET ASSET VALUE PER SHARE $ 13.66
----------
* Non-income producing
# Seven-day yield
REIT Real Estate Investment Trust
144a Security was purchased pursuant to Rule 144a under the Securities Act
of 1933 and may not be resold subject to that rule except to qualified
institutional buyers total of such securities at period-end amounts to
0.7% of net assets.
GBP British sterling
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Mid-Cap Value Fund
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Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/98
Investment Income
Income
Dividend $ 4,316
Interest 1,165
Total income 5,481
Expenses
Investment management 1,596
Shareholder servicing 659
Custody and accounting 92
Registration 67
Prospectus and shareholder reports 64
Legal and audit 12
Directors 7
Miscellaneous 58
Total expenses 2,555
Net investment income 2,926
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 12,026
Foreign currency transactions 9
Net realized gain (loss) 12,035
Change in net unrealized gain or loss
Securities (14,186)
Other assets and liabilities
denominated in foreign currencies (1)
Change in net unrealized
gain or loss (14,187)
Net realized and unrealized gain (loss) (2,152)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 774
---------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Mid-Cap Value Fund
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Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 2,926 $ 1,160
Net realized gain (loss) 12,035 2,769
Change in net unrealized
gain or loss (14,187) 19,275
Increase (decrease) in net
assets from operations 774 23,204
Distributions to shareholders
Net investment income (2,892) (1,175)
Net realized gain (11,566) (2,056)
Decrease in net assets
from distributions (14,458) (3,231)
Capital share transactions*
Shares sold 74,806 169,513
Distributions reinvested 14,239 3,185
Shares redeemed (72,014) (23,869)
Increase (decrease) in net
assets from capital
share transactions 17,031 148,829
Net Assets
Increase (decrease)
during period 3,347 168,802
Beginning of period 217,991 49,189
End of period $ 221,338 $ 217,991
-----------------------
*Share information
Shares sold 5,137 12,445
Distributions reinvested 1,109 224
Shares redeemed (5,113) (1,855)
Increase (decrease) in
shares outstanding 1,133 10,814
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Mid-Cap Value Fund
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December 31, 1998
Notes to Financial Statements
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Mid-Cap Value Fund, Inc. (the fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company and commenced operations on June 28, 1996.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
Valuation Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price on the day the
valuations are made. A security which is listed or traded on more than one
exchange is valued at the quotation on the exchange determined to be the
primary market for such security. Listed securities not traded on a
particular day and securities regularly traded in the over-the-counter
market are valued at the mean of the latest bid and asked prices. Other
equity securities are valued at a price within the limits of the latest bid
and asked prices deemed by the Board of Directors, or by persons delegated
by the Board, best to reflect fair value.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers
who make markets in these securities or by an independent pricing service.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of
such currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the
officers of the fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated
into U.S. dollars at the prevailing exchange rate on the dates of such
transactions. The effect of changes in foreign exchange rates on realized
and unrealized security gains and losses is reflected as a component of
such gains and losses.
Premiums and Discounts Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses
are reported on the identified cost basis. Dividend income and
distributions to shareholders are recorded by the fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with federal income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $88,604,000 and $69,103,000, respectively, for the
year ended December 31, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended December 31, 1998. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
- --------------------------------------------------------------------------------
Undistributed net investment income $55,000
Paid-in-capital (55,000)
At December 31, 1998, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$207,514,000. Net unrealized gain aggregated $10,132,000 at period end, of
which $33,539,000 related to appreciated investments and $23,407,000 to
depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management
fee, of which $122,000 was payable at December 31, 1998. The fee is
computed daily and paid monthly, and consists of an individual fund fee
equal to 0.35% of average daily net assets and a group fee. The group fee
is based on the combined assets of certain mutual funds sponsored by the
manager or Rowe Price-Fleming International, Inc. (the group). The group
fee rate ranges from 0.48% for the first $1 billion of assets to 0.30% for
assets in excess of $80 billion. At December 31, 1998, and for the year
then ended, the effective annual group fee rate was 0.32%. The fund pays a
pro-rata share of the group fee based on the ratio of its net assets to
those of the group.
Under the terms of a previous investment management agreement, the manager
was required to bear any expenses through December 31, 1997, which would
cause the fund's ratio of expenses to average net assets to exceed 1.25%.
Thereafter, through December 31, 1999, the fund is required to reimburse
the manager for these expenses, provided that average net assets have grown
or expenses have declined sufficiently to allow reimbursement without
causing the fund's ratio of expenses to average net assets to exceed 1.25%.
Pursuant to this previous agreement, $7,000 of unaccrued fees were repaid
during the year ended December 31, 1998.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund
receives certain other services. The manager computes the daily share price
and maintains the financial records of the fund. T. Rowe Price Services,
Inc. is the fund's transfer and dividend disbursing agent and provides
shareholder and administrative services to the fund. T. Rowe Price
Retirement Plan Services, Inc. provides subaccounting and recordkeeping
services for certain retirement accounts invested in the fund. The fund
incurred expenses pursuant to these related party agreements totaling
approximately $372,000 for the year ended December 31, 1998, of which
$39,000 was payable at period-end.
Additionally, the fund is one of several T. Rowe Price-sponsored mutual
funds (underlying funds) in which the T. Rowe Price Spectrum Funds
(Spectrum) may invest. Spectrum does not invest in the underlying funds for
the purpose of exercising management or control. Expenses associated with
the operation of Spectrum are borne by each underlying fund to the extent
of estimated savings to it and in proportion to the average daily value of
its shares owned by Spectrum, pursuant to special servicing agreements
between and among Spectrum, the underlying funds, T. Rowe Price, and, in
the case of T. Rowe Price Spectrum International, Rowe Price-Fleming
International. Spectrum Growth Fund held approximately 50.2% of the
outstanding shares of the Mid-Cap Value Fund at December 31, 1998. For the
year then ended, the fund was allocated $265,000 of Spectrum expenses.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve
Funds are offered as cash management options only to mutual funds and other
accounts managed by T. Rowe Price and its affiliates and are not available
to the public. The Reserve Funds pay no investment management fees.
Distributions from the Reserve Funds to the fund for the year ended
December 31, 1998, totaled $1,083,000 and are reflected as interest income
in the accompanying Statement of Operations.
T. Rowe Price Mid-Cap Value Fund
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Mid-Cap Value Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of T. Rowe Price Mid-Cap Value Fund, Inc. (the "Fund") at December 31,
1998, 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 generally accepted accounting principles. 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 generally accepted auditing standards which 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, 1998, by correspondence
with custodians, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 21, 1999
T. Rowe Price Mid-Cap Value Fund
- --------------------------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 12/31/98
- --------------------------------------------------------------------------------
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 $4,109,000 from short-term capital gains,
o $7,457,000 from long-term capital gains, subject to the 20% rate gains
category.
For corporate shareholders, $3,179,000 of the fund's distributed income and
short-term capital gains qualified for the dividends-received deduction.
- --------------------------------------------------------------------------------
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10
p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
STOCK FUNDS
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500*
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons**
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Intermediate Tax-Free***
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond!
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond!!
International Bond
MONEY MARKET FUNDS!!!
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Formerly named Equity Index.
** Closed to new investors.
*** Formerly named Florida Insured Intermediate Tax-Free.
! Formerly named Tax-Free Insured Intermediate Bond.
!! Formerly named Global Government Bond.
!!! Neither the funds nor their share prices are insured or
guaranteed by the U.S. government.
Please call for a prospectus. Read it carefully before investing. The T. Rowe
Price No-Load Variable Annuity [#V6021] is issued by Security Benefit Life
Insurance Company. In New York, it [#FSB201(11-96)] is issued by First Security
Benefit Life Insurance Company of New York, White Plains, NY. T. Rowe Price
refers to the underlying portfolios' investment managers and the distributors,
T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance Agency, Inc.;
and T. Rowe Price Insurance Agency of Texas, Inc. The Security Benefit Group of
Companies and the T. Rowe Price companies are not affiliated. The variable
annuity may not be available in all states. The contract has limitations. Call a
representative for costs and complete details of the coverage.
T. Rowe Price Retirement Plans and Resources
- --------------------------------------------------------------------------------
Retirement Plans and Resources
We recognize that saving for retirement is the number one investment goal
for most Americans. We can help you meet your retirement needs, whether you
are starting an IRA or designing a retirement program for your employees.
T. Rowe Price offers an assortment of retirement plans for individuals, the
self-employed, small businesses, corporations, and nonprofit organizations.
We provide recordkeeping, communications, and investment management
services, as well as a variety of educational materials, self-help planning
guides, and software tools to help you choose and implement a retirement
plan appropriate for you. For information or to request literature, call us
at 1-800-638-5660.
IRAs AND QUALIFIED PLANS
Traditional IRA
Roth IRA
Rollover IRA
SEP-IRA
SIMPLE IRA
Profit Sharing
Money Purchase Pension
"Paired" Plans (Money Purchase Pension and Profit Sharing Plans)
401(k)
403(b)
457 Deferred Compensation
RETIREMENT RESOURCES AT T. ROWE PRICE
Planning and Informational Guides
Minimum Required Distributions Guide
Retirement Planning Kit
Retirees Financial Guide
Tax Considerations for Investors
Investment Kits
The IRA Investing Kit
Roth IRA Conversion Kit
Rollover IRA Kit
The T. Rowe Price SIMPLE IRA Plan Kit
The T. Rowe Price SEP-IRA Plan
The Simplified Keogh Plan(registered trademark) From T. Rowe Price
The T. Rowe Price 401(k) Century Plan(registered trademark)
(for small businesses)
Money Purchase Pension/Profit Sharing Plan Kit
Investing for Retirement in Your 403(b) Account
The T. Rowe Price No-Load Variable Annuity Information Kit
Insights Reports
The Challenge of Preparing for Retirement
Financial Planning After Retirement
The Roth IRA: A Review
Software Packages
T. Rowe Price Retirement Planning AnalyzerTM CD-ROM or diskette $19.95.
To order, please call 1-800-541-5760. Also available on the Internet
for $9.95.
T. Rowe Price Variable Annuity AnalyzerTM CD-ROM or diskette, free.
To order, please call 1-800-469-5304.
Many of these resources are also available for viewing or ordering on the
Internet at www.troweprice.com.
T. Rowe Price Insights Reports
- --------------------------------------------------------------------------------
The Fundamentals of Investing
Whether you are unsure how to get started or are saving for a specific
goal, such as retirement or college, the T. Rowe Price Insights series can
help you make informed investment decisions. These reports, written in
plain English about fundamental investment topics, can be useful at every
stage of your investment journey. They cover a range of topics, from the
basic, such as getting started with mutual funds, to the more advanced,
such as managing risk through diversification or buying individual
securities through a broker. To request one or more Insights, call us at
1-800-638-5660.
INSIGHTS REPORTS
General Information
The ABCs of Giving
Back to Basics: The ABCs of Investing
The Challenge of Preparing for Retirement
Financial Planning After Retirement
Getting Started: Investing With Mutual Funds
The Roth IRA: A Review
Tax Information for Mutual Fund Investors
Investment Strategies
Conservative Stock Investing
Dollar Cost Averaging
Equity Index Investing
Growth Stock Investing
Investing for Higher Yield
Managing Risk Through Diversification
The Power of Compounding
Value Investing
Types of Securities
The Basics of International Stock Investing
The Basics of Tax-Free Investing
The Fundamentals of Fixed Income Investing
Global Bond Investing
Investing in Common Stocks
Investing in Emerging Growth Stocks
Investing in Financial Services Stocks
Investing in Health Care Stocks
Investing in High-Yield Municipal Bonds
Investing in Money Market Securities
Investing in Mortgage-Backed Securities
Investing in Natural Resource Stocks
Investing in Science and Technology Stocks
Investing in Small-Company Stocks
Understanding Derivatives
Understanding High-Yield "Junk" Bonds
Brokerage Insights
Combining Individual Securities With Mutual Funds
Getting Started: An Introduction to Individual Securities
What You Should Know About Bonds
What You Should Know About Margin and Short-Selling
What You Should Know About Options
What You Should Know About Stocks
T. Rowe Price Insights are also available for reading or downloading on the
Internet at www.troweprice.com.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a brokerage account
or obtain information, call:
1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Mid-Cap Value Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
Invest With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor. F64-050 12/31/98
