Annual Report
Mid-Cap
Value Fund
December 31, 1999
T. Rowe Price
Report Highlights
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Mid-Cap Value Fund
o Growth stocks soared, but value stocks sagged once again in 1999's second
half.
o The fund's 6- and 12-month results reflected a strong headwind against
value investing.
o We continued to find excellent companies at very inexpensive prices that
have been ignored by the market.
o We will be well-positioned when the huge performance difference between
growth and value stocks narrows, as we expect.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
Fellow Shareholders
After a brief reprieve in the second quarter, value stocks of all sizes sagged
once again in the second half of 1999. Inspired by the rapid advances of
technology and telecommunications companies, investors bid up stocks with
high-growth potential and stock-price momentum-regardless of financial
performance-while ignoring the excellent values of numerous high-quality
companies.
For the past six months, your fund lost 3.28%, resulting in a positive
3.52% total return for the full year. These results reflect the strong
headwinds that true value funds, such as this one, faced. For example,
while the broad S&P MidCap Index returned almost 15% for the year, the
Russell Midcap Value Index actually declined in 1999.
Performance Comparison
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Periods Ended 12/31/99 6 Months 12 Months
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Mid-Cap Value Fund -3.28% 3.52%
S&P MidCap Index 7.34 14.72
Lipper Mid-Cap Value
Funds Average 0.80 9.68
With this report, we are also introducing the fund's new Lipper category.
Previously, Lipper Inc. assigned a fund to a category based on its
objective as outlined in its prospectus. The new categories are based on
the major characteristics of each fund's actual portfolio holdings, such as
market capitalization, valuation measures, earnings growth rates, and so
on. On those criteria, Lipper sensibly placed this fund in the Mid-Cap
Value Funds Average. This new group's returns were 0.80% for the six months
and 9.68% for the year, reflecting the strong gains of a few funds with
significant exposure to technology or certain large-cap stocks.
YEAR-END DISTRIBUTIONS
On December 14, 1999, your Board of Directors declared an income dividend
of $0.23 per share, a short-term capital gain distribution of $0.25 per
share, and a long-term capital gain distribution of $0.26 per share to
shareholders of record on that date. These were paid on December 16. You
should already have received your check or statement reflecting this
distribution, as well as Form 1099-DIV summarizing this information for
1999 tax purposes.
INVESTMENT REVIEW
The spread between growth and value investing among mid-cap stocks was the
widest ever recorded. For the year, the Russell Midcap Value Index fell
0.11% while the Russell Midcap Growth Index returned a whopping 51.3%.
Leading S&P MidCap groups included technology, up 93.37%, communication
services, up 83.99%, and energy, up 45.77%. Losers, of course, were highly
concentrated in value segments of the market. These included financials,
off 12.97%, consumer cyclicals, down 11.65%, and finally utilities, down
11.42%.
Technology, a major component of the growth indices and a sector in which
it's difficult to find value, drove returns in 1999. This sector accounted
for 110% of the S&P MidCap return. In other words, ex-technology, the S&P
MidCap would have lost money in 1999. All of our underperformance can be
explained by our underweighting of technology and business services (the
segment representing software shares) in the past year.
As noted in our past reports, because the fund focuses on the value sectors
of the mid-cap universe, there will be periods when performance will be
substantially different from the broad mid-cap indices. Unfortunately, for
the second year in a row, growth substantially outperformed value. We do
not believe value investing, which has long served us well, has permanently
gone out of favor. We remain optimistic that the near future will bring
rewards to value investors. More on this in our outlook section.
Our best performers in the second half included Parametric Technology,
Premark International, and Chris-Craft Industries. We initiated a position
in Parametric, a software company, in the fall of 1998 after the shares
fell to below 10 times earnings on a disappointing quarterly report. We
felt Parametric represented a tremendous value given the likely popularity
of the firm's new Windchill product. This proved to be the case. The shares
rose 95% in the six-month period and added 22 cents to our net asset value
(NAV). Our second- biggest contributor, Premark International, received a
takeover offer from Illinois Toolworks at a huge 52% premium to the market,
and contributed 15 cents to NAV. Finally, shares of media firm Chris-Craft
Industries rose over 53% and added nine cents to NAV. The firm acknowledged
it was in discussions concerning "a variety of possible transactions" in
the wake of its joint venture with Viacom/UPN/CBS to take advantage of
newly relaxed TV station ownership rules.
Our major losers included Galileo International, Hubbell, and International
Multifoods. Galileo declined almost 44% as investors feared a litany of
woes for this travel services firm. Analysts theorized a potential slowdown
in air travel in late 1999 might be damaging. When this didn't come to
pass, bears cited the merger of Preview Travel, a small Internet-based
customer of Galileo, with rival Sabre as harmful to Galileo's Internet
strategy. Investors are anxiously awaiting Galileo's soon-to-be-unveiled
Internet response. Our second-biggest loser, Hubbell, declined almost 40%
after the firm preannounced disappointing results in the September quarter.
While weakness in its telecom and electrical products division is hurting
the shares near-term, we like the Hubbell franchise and are sticking with
the stock.
Finally, our third-largest loser, International Multifoods, fell 41% in the
second half of 1999. The firm is experiencing problems integrating recent
acquisitions in its growing food services division. This, plus trouble with
a new management information system, weighed heavily on the shares. We
firmly believe management is committed to building shareholder value and
plan to maintain a position in the shares.
INVESTMENT STRATEGY
Our top three purchases in the second half were U.S. Foodservice,
Nordstrom, and McDermott International. U.S. Foodservice, the nation's
second-largest food distributor serving institutions such as restaurants,
hotels, and health care facilities, was in fact our largest new purchase
for the year. While the company has consistently grown 20% a year and has
never missed a Wall Street expectation, the stock had a tough 1999 as
"defensive" names like this-companies with steady, all-weather growth
characteristics-were shunned by the market in favor of higher-growth,
tech-flavored stocks. We took advantage of the company's move from the
mid-$20's down to the mid-teens, where we've established a meaningful
position. We strongly believe that the market will ultimately recognize the
value in this high-quality company, and that the stock's P/E multiple will
return to its historical norm of 20X, versus today's 15X level.
We are also taking another turn with Nordstrom, a fashion specialty
retailer with 99 stores in 22 states. The firm has 8% to 12% square footage
growth per year plus strong opportunities to expand margins through better
business practices, better control systems, and new professional
management. When we purchased the shares, the stock price was 15.7 times
anticipated 2000 earnings. The shares are at the bottom end of their
historic valuation range, typically a great entry point for us. Nordstrom
has a $3.93 billion market cap.
Sector Diversification
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Business Services and Transportation 7
Capital Equipment, Process Industries, and Basic Materials 18
Technology 6
Consumer Services and Consumer Cyclicals 24
Financial 14
Energy, Utilities, and Miscellaneous 18
Consumer Nondurables 8
Reserves 5
Based on net assets as of 12/31/99.
Finally we made a mistake in revisiting an earlier investment, McDermott
International. Following a mid-year writedown for possible asbestos
liabilities, McDermott's net asset value appeared greater than the stock
price suggested. McDermott boasts leading positions in energy services and
engineering construction that we felt were greatly undervalued in the
market and worth substantially in excess of all past and potential
liabilities for asbestos claims. Unfortunately we did not foresee the
plaintiff's lawyer's aggressive posturing to significantly increase the
asbestos claims per filed case. McDermott has noted the possibility of a
major increase in its asbestos-litigation reserves, and the value of its
shares was cut in half as a result.
Our three largest sales were the direct result of merger and acquisition
activity, which continued to aid our performance. We eliminated Premark and
Illinois Toolworks after the recent merger. The $20 billion- plus market
cap size of Alltel also played a role when we removed it from the
portfolio. Readers will recall Alltel purchased our holdings in Alliant
Telecom. Finally, SuperValu acquired Richfood Holdings and we eliminated
this position. Other major sales included Parametric Technology and Erie
Indemnity. Following Parametric's 95% return we trimmed our holdings, as we
felt the shares no longer represented compelling value. We also eliminated
our holdings in Erie Indemnity due to deteriorating fundamentals in the
auto insurance industry.
OUTLOOK
The past year was truly one that value investors would love to forget.
Traditionally, the highest returns have accrued to those investing in the
cheapest segments of the market. In 1999 the opposite was true. The chart
below breaks the equity universe into six groups by P/E ratio. Quintile 1
represents the market's least-expensive stocks by that measure, while
quintile 5 represents stocks with the highest valuations. The sixth bar
shows all companies for which a P/E cannot be calculated because the
companies have no earnings. As you can see, the cheapest sectors actually
had negative returns, while the greatest returns accrued to firms that
actually lost money!
Lowest P/E Quintile Was Not
The Place to Be in 1999
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The cheapest stocks as measured by price/earnings ratio actually lost
money in 1999, while the most expensive, and those with no earnings,
did best.
Q1 - 3.86
Q2 -11.75
Q3 - 9.56
Q4 18.51
Q5 72.36
Nonearnings stories 96.30
Source: Frank Russell Company; Prudential Securities, Inc.
Some have suggested that this thoroughly puzzling pattern occurred because
the rules have changed-that the market environment is different now. Others
have theorized that prices in today's market are no longer determined by
the sophisticated investor but rather the aggressive Internet day trader,
who ignores valuation and invests primarily in Internet shares.
Please don't misunderstand-we don't ignore technology shares or the major
impact the Internet has on our holdings. We scrutinize every investment and
potential investment for firms that will be aided by the Internet and those
whose business models will be hurt by it. Investing in the Internet doesn't
have to involve "dot-com" stocks. It can be as simple as choosing firms
that have or will have a substantial Internet presence.
However, we don't believe today's Internet investor has found the fountain
of youth for this bull market. Rather, we think it likely that we are near
a market top in the technology sector. It is not "different this time," and
for that reason we will not invest in companies with little revenues, no
earnings, and no viable business models. If we are right, then we will be
well positioned when the huge spread between growth and value stocks
inevitably narrows. Keep the faith, and thanks for your continued support.
Respectfully submitted,
Greg A. McCrickard
President and Chairman of the Investment Advisory Committee
January 20, 2000
T. Rowe Price Mid-Cap Value Fund
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Portfolio Highlights
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TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/99
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BJ's Wholesale Club 3.0%
Meredith 1.9
Neiman-Marcus 1.8
Prologis Trust 1.8
Perkinelmer 1.7
---------------------------------------------------------------------------
McCormick 1.7
Parametric Technology 1.7
Chris-Craft 1.6
Murphy Oil 1.6
Illinova 1.6
---------------------------------------------------------------------------
A.O. Smith 1.6
New England Electric System 1.6
PartnerRe 1.5
Analogic 1.5
Northern Trust 1.4
---------------------------------------------------------------------------
Nucor 1.4
Inco 1.4
Phelps Dodge 1.4
U.S. Foodservice 1.4
Amerada Hess 1.3
---------------------------------------------------------------------------
TCF Financial 1.3
Hubbell 1.3
Sonoco Products 1.3
Stanley Works 1.3
Centurytel 1.3
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Total 39.4%
Note: Table excludes reserves.
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 12/31/99
Ten Largest Purchases
---------------------------------------------------------------------------
U.S. Foodservice *
Nordstrom *
McDermott International *
Wilmington Trust *
Federated Investors *
Martin Marietta Materials *
Potlatch *
Cyprus Amax Minerals *
WestPoint Stevens *
Allegheny Teledyne *
Ten Largest Sales
---------------------------------------------------------------------------
Premark International **
ALLTEL **
Richfood Holdings **
Parametric Technology
Erie Indemnity **
Illinois Tool Works **
Suiza Foods **
First Health Group **
Inco
FirStar **
* Position added
** Position eliminated
T. Rowe Price Mid-Cap Value Fund
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Performance Comparison
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This chart shows the value of a hypothetical $10,000 investment in the fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with benchmarks, which may include
a broad-based market index and a peer group average or index. Market
indexes do not include expenses, which are deducted from fund returns as
well as mutual fund averages and indexes.
MID-CAP VALUE FUND
As of 12/31/99
Lipper
S&P Mid-Cap Value Mid-Cap
MidCap Index Funds Average Value Fund
6/30/1996 10,000 10,000 10,000
12/96 10,914 10,978 11,630
12/97 14,435 13,814 14,783
12/98 17,194 14,029 14,988
12/99 19,725 15,539 15,516
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
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 12/31/99 1 Year 3 Years Inception Date
---------------------------------------------------------------------------
Mid-Cap Value Fund 3.52% 10.09% 13.33% 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
- --------------------------------------------------------------------------------
Year 6/28/96
Ended Through
12/31/99 12/31/98 12/31/97 12/31/96
NET ASSET VALUE
Beginning of period $ 13.66 $ 14.47 $ 11.56 $ 10.00
Investment activities
Net investment
income (loss) 0.23 0.19 0.08* 0.10*
Net realized and
unrealized gain (loss) 0.22 (0.05) 3.05 1.53
Total from
investment activities 0.45 0.14 3.13 1.63
Distributions
Net investment income (0.23) (0.19) (0.08) (0.07)
Net realized gain (0.51) (0.76) (0.14) --
Total distributions (0.74) (0.95) (0.22) (0.07)
NET ASSET VALUE
End of period $ 13.37 $ 13.66 $ 14.47 $ 11.56
Ratios/Supplemental Data
Total return (diamond) 3.52% 1.39% 27.1%* 16.3%*
Ratio of total expenses
to average net assets 1.04% 1.08% 1.25%* 1.25%*!
Ratio of net investment
income (loss) to average
net assets 1.60% 1.24% 1.18%* 2.10%*!
Portfolio turnover rate 26.8% 32.0% 16.0% 3.9%!
Net assets, end of period
(in thousands) $211,730 $221,338 $217,991 $ 49,189
(diamond) 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, 1999
Statement of Net Assets Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks 94.5%
FINANCIAL 14.2%
Bank and Trust 9.0%
Bank United 60,000 $ 1,618
First Security 96,750 2,470
First Tennessee National 50,000 1,425
Mercantile Bankshares 79,000 2,526
North Fork Bancorporation 115,000 2,012
Northern Trust 57,000 3,044
Peoples Heritage Financial Group 80,000 1,203
TCF Financial 110,000 2,736
Wilmington Trust 40,000 1,930
18,964
Insurance 3.1%
ACE Limited 16,500 275
PartnerRe Ltd. 97,000 3,146
PMI Group 40,000 1,953
W. R. Berkley 58,000 1,218
6,592
Financial Services 2.1%
Delta Financial * 120,000 495
Federated Investors (Class B) 120,000 2,408
Leucadia National 65,000 1,503
4,406
Total Financial 29,962
UTILITIES 11.5%
Water Utilities 1.4%
Azurix * 100,000 893
United Water Resources 63,000 2,154
3,047
Telephone 2.4%
Broadwing 64,000 2,360
Centurytel 56,000 2,653
5,013
Electric Utilities 7.7%
DQE 70,000 $ 2,424
FirstEnergy 60,000 1,361
GPU 45,000 1,347
Illinova 97,000 3,371
New England Electric System 64,000 3,312
Pinnacle West Capital 69,000 2,109
Teco Energy 130,000 2,413
16,337
Total Utilities 24,397
CONSUMER NONDURABLES 7.8%
Food Processing 2.8%
International Multifoods 170,000 2,253
McCormick 122,000 3,629
5,882
Health Care Services 0.2%
United HealthCare 5,000 265
Wellpoint Health Networks * 4,000 264
529
Miscellaneous Consumer Products 4.8%
Blyth Industries * 85,000 2,088
Hasbro 60,000 1,144
Reebok * 75,000 614
Stanley Works 90,000 2,711
Tomkins (GBP) 265,100 857
Unifi * 135,000 1,662
WestPoint Stevens 60,000 1,050
10,126
Total Consumer Nondurables 16,537
CONSUMER SERVICES 12.6%
General Merchandisers 5.0%
BJ's Wholesale Club * 174,000 6,351
Neiman Marcus Group (Class A) 135,000 3,772
Warnaco Group (Class A) 40,000 492
10,615
Specialty Merchandisers 2.0%
CVS 13,208 $ 527
Intimate Brands 31,000 1,337
Nordstrom 90,000 2,357
4,221
Media and Communications 5.6%
Chris-Craft * 48,000 3,462
Knight-Ridder 40,000 2,380
Meredith 97,500 4,065
Valassis Communications * 45,000 1,901
11,808
Total Consumer Services 26,644
CONSUMER CYCLICALS 11.0%
Automobiles and Related 3.7%
A.O. Smith (Class B) 152,500 3,336
Eaton 14,000 1,017
Littelfuse * 60,000 1,457
SPX * 25,000 2,020
7,830
Building & Real Estate 5.6%
Archstone Communities Trust, REIT 95,000 1,947
Arden Realty, REIT 72,500 1,455
Prologis Trust, REIT 180,000 3,465
Reckson Associates Realty, REIT 100,000 2,050
Rouse 85,000 1,806
Starwood Hotels & Resorts Worldwide, REIT 15,000 353
Texas Industries 20,000 851
11,927
Miscellaneous Consumer Durables 1.7%
B. F. Goodrich 10,640 293
Black & Decker 25,000 1,306
Masco 78,000 1,979
3,578
Total Consumer Cyclicals 23,335
TECHNOLOGY 5.7%
Electronic Components 1.7%
Analogic 95,000 $ 3,117
Molex 8,358 474
3,591
Electronic Systems 1.7%
Perkinelmer 88,000 3,669
3,669
Aerospace & Defense 2.3%
Allegheny Technologies 70,000 1,570
Harsco 45,000 1,429
L-3 Communications * 43,000 1,790
4,789
Total Technology 12,049
CAPITAL EQUIPMENT 3.8%
Electrical Equipment 1.8%
Hubbell (Class A) 10,000 281
Hubbell (Class B) 90,000 2,453
SLI * 75,000 1,017
3,751
Machinery 2.0%
Danaher 24,000 1,158
Parker Hannifin 30,000 1,539
Teleflex 52,000 1,628
4,325
Total Capital Equipment 8,076
BUSINESS SERVICES AND TRANSPORTATION 6.5%
Computer Service and Software 3.7%
Galileo International 75,000 2,245
Parametric Technology * 132,100 3,571
Reynolds & Reynolds (Class A) 85,000 1,913
7,729
Distribution Services 1.4%
U.S. Foodservice * 175,000 $ 2,931
2,931
Miscellaneous Business Services 1.4%
Manpower 37,000 1,392
ServiceMaster 135,000 1,662
3,054
Total Business Services and Transportation 13,714
ENERGY 6.7%
Energy Services 3.0%
Baker Hughes 81,000 1,706
BJ Services * 40,000 1,672
McDermott International 105,000 952
Smith International * 35,000 1,739
Weatherford International * 8,000 320
6,389
Exploration and Production 0.8%
Devon Energy 11,550 380
Union Pacific Resources 100,000 1,275
1,655
Integrated Petroleum - Domestic 2.9%
Amerada Hess 49,000 2,781
Murphy Oil 59,000 3,385
6,166
Total Energy 14,209
PROCESS INDUSTRIES 8.2%
Diversified Resources 1.0%
Arch Chemicals 101,000 2,115
2,115
Specialty Chemicals 1.3%
CK Witco 46,210 618
Great Lakes Chemical 45,000 1,718
Octel * 30,250 314
2,650
Paper and Paper Products 2.1%
Consolidated Papers 22,000 $ 700
Sonoco Products 120,000 2,730
Wausau-Mosinee Paper 90,000 1,052
4,482
Forest Products 2.8%
Domtar 180,000 2,115
Plum Creek Timber 44,000 1,100
Potlatch 46,000 2,053
Rayonier 15,000 724
5,992
Building & Construction 1.0%
Martin Marietta Materials 52,500 2,153
2,153
Total Process Industries 17,392
BASIC MATERIALS 6.5%
Metals 5.5%
Inco * 125,000 2,937
Nucor 54,000 2,960
Phelps Dodge 43,750 2,937
Reynolds Metals 12,500 958
Ryerson Tull 100,000 1,944
11,736
Mining 1.0%
Newmont Mining 85,000 2,082
2,082
Total Basic Materials 13,818
Total Common Stocks (Cost $198,566) 200,134
Convertible Preferred Stocks 0.2%
Prologis Trust (Series B), REIT, 7.00% 12,000 297
Total Convertible Preferred Stocks (Cost $281) 297
Convertible Bonds 0.8%
Liberty Property Trust, Sub. Deb.,
9.00%, 7/1/01 $ 200,000 $ 245
Security Capital U.S. Realty, (144a),
2.00%, 5/22/03 2,000,000 1,486
Total Convertible Bonds (Cost $1,918) 1,731
Short-Term Investments 4.1%
Money Market Funds 4.1%
Reserve Investment Fund, 6.16% # 8,699,007 8,699
Total Short-Term Investments (Cost $8,699) 8,699
Total Investments in Securities
99.6% of Net Assets (Cost $209,464) $210,861
Other Assets Less Liabilities 869
NET ASSETS $ 211,730
----------
Net Assets Consist of:
Accumulated net investment income
- - net of distributions $ 58
Accumulated net realized gain/loss
- - net of distributions 5,404
Net unrealized gain (loss) 1,397
Paid-in-capital applicable to 15,840,643
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 204,871
NET ASSETS $ 211,730
----------
NET ASSET VALUE PER SHARE $ 13.37
----------
# Seven-day yield
* Non-income producing
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
12/31/99
Investment Income (Loss)
Income
Dividend $ 5,100
Interest 516
Total income 5,616
Expenses
Investment management 1,427
Shareholder servicing 581
Custody and accounting 96
Prospectus and shareholder reports 55
Registration 24
Legal and audit 13
Directors 7
Miscellaneous 4
Total expenses 2,207
Expenses paid indirectly (2)
Net expenses 2,205
Net investment income (loss) 3,411
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 11,913
Foreign currency transactions 2
Net realized gain (loss) 11,915
Change in net unrealized
gain or loss on securities (8,735)
Net realized and unrealized gain (loss) 3,180
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 6,591
----------
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
12/31/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment
income (loss) $ 3,411 $ 2,926
Net realized gain (loss) 11,915 12,035
Change in net unrealized
gain or loss (8,735) (14,187)
Increase (decrease) in
net assets from operations 6,591 774
Distributions to shareholders
Net investment income (3,463) (2,892)
Net realized gain (7,679) (11,566)
Decrease in net assets
from distributions (11,142) (14,458)
Capital share transactions*
Shares sold 35,316 74,806
Distributions reinvested 10,928 14,239
Shares redeemed (51,301) (72,014)
Increase (decrease) in
net assets from capital
share transactions (5,057) 17,031
Net Assets
Increase (decrease) during period (9,608) 3,347
Beginning of period 221,338 217,991
End of period $ 211,730 $ 221,338
-----------------------
*Share information
Shares sold 2,570 5,137
Distributions reinvested 852 1,109
Shares redeemed (3,783) (5,113)
Increase (decrease) in
shares outstanding (361) 1,133
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Mid-Cap Value Fund
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December 31, 1999
Notes to Financial Statements
- --------------------------------------------------------------------------------
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. Expenses paid
indirectly reflect credits earned on daily uninvested cash balances at the
custodian and are used to reduce the fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $55,245,000 and $68,816,000, respectively, for the
year ended December 31, 1999.
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.
At December 31, 1999, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$209,464,000. Net unrealized gain aggregated $1,397,000 at period-end, of
which $33,842,000 related to appreciated investments and $32,445,000 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 $117,000 was payable at December 31, 1999. 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 0.295% for
assets in excess of $120 billion. At December 31, 1999, 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.
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 $321,000 for the year ended December 31, 1999, of which
$33,000 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 53.3% of the
outstanding shares of the fund at December 31, 1999. For the year then
ended, the fund was allocated $263,000 of Spectrum expenses, $24,000 of
which was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by 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, 1999, totaled $378,000 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,
1999, and the results of its operations, the changes in its net assets and
the financial highlights for each of the fiscal periods presented, in
conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, 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, 1999 by correspondence with
custodians, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 20, 2000
T. Rowe Price Mid-Cap Value Fund
- --------------------------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 12/31/99
- --------------------------------------------------------------------------------
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 $3,764,000 from short-term capital gains,
o $3,915,000 from long-term capital gains, subject to the 20% rate gains
category.
For corporate shareholders, $4,041,000 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*Accesso 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.
** Based on a September 1999 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary depending on
size of order.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
T. Rowe Price, Invest with Confidence (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F15-050 12/31/99
