<PAGE>
Annual Report
SMALL-CAP
VALUE FUND
December 31, 1996
[LOGO OF T. ROWE PRICE APPEARS HERE]
<PAGE>
REPORT HIGHLIGHTS
-----------------------------------------------------------------------------
. The bull market continued in the second half, with the broad market rising
11.68% to post a full-year return of 22.96%.
. Value stocks -- the fund's focus -- did well in the final quarter, while the
energy, banking, and real estate sectors performed well throughout the second
half.
. The fund's 12-month return of 24.61% exceeded the S&P 500, Russell 2000, and
Nasdaq Composite indices; only the S&P 500 surpassed its six-month return of
10.86%.
. Since June, several positions were eliminated through mergers or takeovers;
among large purchases, we added only one new name.
. With market valuations at near-record levels, we believe investors should
temper their expectations for '97 and invest with a long-term view.
<PAGE>
FELLOW SHAREHOLDERS
The stock market continued its winning streak during the second half of 1996,
once again posting double-digit returns. Small-cap stocks also rose, but at a
slower pace. Demand for stocks was created by all-time high cash flows into
mutual funds, by strong corporate takeover activity, and by continued corporate
share buybacks. While the new issues market generated record activity and supply
of shares, it was not enough to satisfy demand. As a result, all of the major
stock indices repeatedly reached new highs throughout the year.
Unlike earlier in the year, technology stocks underperformed
other sectors during the second half, while less volatile
groups such as banks, real estate investment trusts, and
process industries did relatively well. Energy stocks
benefited from higher oil and gas prices. Value stocks did
especially well in the final quarter, reflecting perhaps a
more favorable view of the economy and its prospects for 1997.
For the second half, the Small-Cap Value Fund rose 10.86%,
slightly behind the unmanaged S&P 500 but well ahead of the
5.56% return of the Russell 2000 Index. (The Russell 2000 is
an unmanaged, widely quoted index that tracks the performance
of 2000 smaller-capitalization stocks.) For the first time in
over two years, small-cap value stocks outperformed small
growth stocks, clearly aiding your fund's results relative to
the Russell 2000. For the year, the fund outperformed all of
its comparative indices, thanks to particularly good results
from some of our larger holdings.
<TABLE>
<CAPTION>
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
Periods Ended 12/31/96 6 Months 12 Months
- --------------------------------------------------------------------------------
<S> <C> <C>
Small-Cap Value Fund 10.86% 24.61%
................................................................................
S&P 500 11.68 22.96
................................................................................
Russell 2000 Index 5.56 16.49
................................................................................
Nasdaq Composite * 8.95 22.71
................................................................................
*Principal only
</TABLE>
YEAR-END DISTRIBUTIONS
Your Board of Directors declared an income distribution of
$0.23 per share, a short-term capital gain of $0.35 per share,
and a long-term
1
<PAGE>
capital gain of $0.45 per share. All were paid on December 30
to shareholders of record on December 26. You should already
have received a check or statement reflecting these
distributions as well as your Form 1099-DIV reporting them for
tax purposes.
PORTFOLIO ACTIVITY
As shown in the Major Portfolio Changes table following this
letter, only two of our 10 largest purchases during the second
half were new to the portfolio. Of these two, we already owned
Offshore Logistics common stock, but we added to our position
by buying the company's convertible bonds. Synthetic
Industries was a new issue of stock in a Georgia-based company
that makes fiber backing and fabrics for a wide variety of
consumer and industrial uses.
Several of our sales were involuntary, triggered by mergers or
sales of the companies to others. Included in this category
were AMTROL, Sudbury, EZ Communications, and Homeowners Group.
We sold InaCom after making a 250% profit and reduced our
position in Pacific Sunwear for a similar reason. Finally, we
said good-bye to BJ Services, a stock we had owned since 1992
and on which the fund realized a profit of over 300%. As much
as we like the company, its market capitalization today
exceeds $2 billion and, as a result, it no longer qualifies as
a small-cap stock.
A DISCUSSION OF VALUE
Not only does your fund have "value" in its name, its managers
follow a value-based style in investing its assets. But what
is "value investing"? While the term appears frequently in
investment circles, it generally has a different meaning for
each investor. In fact, there is no commonly accepted
definition of a value stock, just as there are no clear
delineators for the categories of large-cap, mid-cap, and
small-cap stocks.
Investor Warren Buffet discussed the problem of defining value
as follows: "Whether appropriate or not, the term `value
investing' is widely used. Typically, it connotes the purchase
of stocks having attributes such as a low ratio of price to
book value, a low price-earnings ratio, or a high dividend
yield. Unfortunately, such characteristics, even if they
appear in combination, are far from determinative as to
whether an
2
<PAGE>
investor is indeed buying something for what it is worth and is therefore truly
operating on the principle of obtaining value in his investments."/1/
We agree. It is easy today to employ computers to identify stocks with low
price/book or price/earnings ratios. The problem is that many of these stocks
deserve to be cheap:their underlying companies show no growth and earn below-
average returns on capital, while managements exhibit little creativity in
extricating the companies from their poor circumstances. Without a clear change,
these stocks are likely to be just as cheap next year as they are today.
THE TRICK IS TO IDENTIFY A CATALYST THAT WILL ENHANCE THE MARKET'S VIEW OF
THOSE STOCKS.
In our view, the trick to making money in statistically inexpensive stocks is to
identify a catalyst or series of events that will enhance the stock market's
view of those stocks. The types of catalysts we often see are a) management
change, b) corporate restructuring, c) industry consolidation, and d) increased
investor attention.
Here are two examples of what we mean, taken from among the fund's 10 largest
holdings. Poe & Brown, a Florida-based insurance broker, resulted from the
merger of Poe and Associates, a public company, and Brown and Brown, a private
insurance broker. Poe and Associates stock was statistically undervalued
compared with other publicly traded insurance brokers, but it also had a modest
record. After the merger, Mr. Hyatt Brown, CEO of the acquired company, became
CEO of the combined public entity. Under his guidance, Poe & Brown has become
one of the fastest-growing, most profitable companies in its industry. In this
case, a management change was the catalyst that moved the company to a higher
level of earnings growth and led the stock to above-average performance.
Analogic is a Massachusetts supplier of electronic systems for major medical
equipment such as magnetic resonance imaging (MRI) machines. When the fund first
invested, the stock traded at a price only slightly above its book value because
the company's earnings had not increased for three years. We invested because we
expected new products to reinvigorate the company's growth in sales and
earnings, which, in turn, would lead to a higher stock price. Moreover, we
expected that better results would gain the company increased Wall
/1/ Buffet, Warren E., "Chairman's Letter," 1992 Annual Report of Berkshire
-------------------------------
Hathaway, Inc.,(C) Warren E. Buffet, pp. 13, 14.
-------------
3
<PAGE>
Street sponsorship that would sooner or later bring added
investor attention and a higher valuation. To date, the
company has delivered three straight quarters of substantially
higher profits, but Wall Street has yet to become interested.
At this point, Analogic remains a good value, and our catalyst
to unlock even higher prices is still intact.
OUTLOOK
In my last two shareholder reports, I sounded a cautionary
note about the outlook for small-cap stocks. I felt that the
extraordinarily good results seen in 1995 and early 1996 were
unsustainable in light of the long-term returns for these
stocks (12% annualized) and a rise in speculative activity. As
it turned out, my caution proved at the least premature.
Nonetheless, the overall market sells at near-record levels by
almost all valuation measures. Prudence suggests that
investors temper their expectations for 1997, avoid
speculation, and invest with a long-term view. We have stepped
up our selling in stocks that have moved rapidly higher and
are reinvesting in conservative small-cap companies with
sustainable business models and modest valuations.
Respectfully submitted,
/s/ Preston G. Athey
Preston G. Athey
President and Chairman of the Investment Advisory Committee
January 17, 1997
4
<PAGE>
Sticking To Your Game Plan
- --------------------------------------------------------------------------------
TIME REDUCES VOLATILITY OF MARKET RETURNS
- --------------------------------------------------------------------------------
(Annualized Returns for Best and Worst Period: Rolling Periods From 1950
to 1996*)
[BAR GRAPH APPEARS HERE]
*From 1950-1996, there were 47 one-year periods; 42 five-year periods; 37
ten-year periods; and 27 twenty-year periods.
Source: T. Rove Price Associates; data from Ibbotson Associates.
Chart is for illustrative purposes only and is not intended to represent
the past performance or future results of any specific securities.
In our report to you one year ago, we mentioned the possibility of a modest
decline in stock prices. In fact, from May to July 1996, the broad market (as
measured by the Standard & Poor's 500 Stock Index) fell around 7%. However, the
bull market resumed its charge to post a robust 23% gain for the year.
Some believe the market is poised for a significant downturn. We do not expect a
major drop in stock prices in 1997, although another modest pullback is
possible. On balance, we expect stocks to advance at a much slower pace.
How should you prepare for a potential market pullback? As always, our advice is
to diversify your investments and focus on the long term. If you've implemented
a sound investment strategy, stay the course. Stocks have historically overcome
periods of volatility to provide better returns than most other investments.
Market corrections can even have a silver lining because they result in good
buying opportunities.
Furthermore, the volatility of stock market returns has diminished significantly
over longer time frames. The chart shows the best and worst annualized returns
on stocks over various rolling time periods between 1950 and 1996. (For
instance, there were 37 rolling 10-year periods: 1950-1960, 1951-1961, etc.)
Investors who held stocks for only one year could have had as much as a 52.6%
gain, or as little as a 26.5% loss -- a spread of 79 percentage points. However,
investors who held stocks for 10-year periods or longer always overcame interim
volatility to post gains for the entire period.
In addition, a well-diversified portfolio can weather volatility better than a
more concentrated portfolio over the long term and particularly during market
corrections. For example, during last summer's correction, small-company stocks
fell nearly 16% while large-company issues dropped 7.3%. However, a portfolio
diversified among large U.S. companies (30% of assets), small U.S. companies
(15%), foreign companies (15%), intermediate-term Treasury bonds (30%), and
Treasury bills (10%) would have lost a smaller 5.2% of its value./1/
Above all, remember that investing is a long-distance race, not a sprint.
/1/ Ned Davis Research.
5
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- -------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
- -------------------------------------------------------------------------------
MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended December 31, 1996
Ten Largest Purchases Ten Largest Sales
-----------------------------------------------------------------------------
Analogic AMTROL **
.............................................................................
Offshore Logistics Cvt. * Sudbury **
.............................................................................
Synthetic Industries * EZ Communications
.............................................................................
Material Sciences BJ Services **
.............................................................................
Community First Bankshares Highlands Gold
.............................................................................
Furon ICO Cvt. **
.............................................................................
Sealright Pacific Sunwear
.............................................................................
DH Technology InaCom **
.............................................................................
Rival Leasing Solutions
.............................................................................
Chic by H.I.S Homeowners Group **
.............................................................................
* Position added
** Position eliminated
6
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- -----------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
- -----------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/96
---------------------------------------------------------------------
Electro Rent 1.7%
.....................................................................
Analogic 1.7
.....................................................................
UICI 1.5
.....................................................................
Seattle Filmworks 1.4
.....................................................................
CSS Industries 1.3
---------------------------------------------------------------------
Silicon Valley Bancshares 1.3
.....................................................................
Poe & Brown 1.2
.....................................................................
Landauer 1.1
.....................................................................
Commercial Federal 1.1
.....................................................................
Rival 1.1
---------------------------------------------------------------------
McGrath RentCorp 1.1
.....................................................................
Sun Communities 1.0
.....................................................................
Columbus Realty Trust 1.0
.....................................................................
PXRE 1.0
.....................................................................
Grey Advertising 0.9
---------------------------------------------------------------------
Consolidated Products 0.9
.....................................................................
Saga Communications 0.9
.....................................................................
Community First Bankshares 0.9
.....................................................................
TBC 0.9
.....................................................................
Chromcraft Revington 0.9
---------------------------------------------------------------------
Hancock Fabrics 0.9
.....................................................................
HS Resources 0.9
.....................................................................
CORT Business 0.9
.....................................................................
Suiza Foods 0.9
.....................................................................
Puerto Rican Cement 0.9
---------------------------------------------------------------------
Total 27.4%
7
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
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.
SMALL-CAP VALUE FUND
-------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Russell Small-Cap
2000 Value
Index Fund
6/30/88 10,000 10,000
12/88 9,846 9,618
12/89 11,447 11,357
12/90 9,218 10,077
12/91 13,462 13,521
12/92 15,940 16,343
12/93 18,949 20,151
12/94 18,604 19,873
12/95 23,897 25,693
12/96 27,838 32,015
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.
<TABLE>
<CAPTION>
Since Inception
Periods Ended 12/31/96 1 Year 3 Years 5 Years Inception Date
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Small-Cap Value Fund 24.61% 16.69% 18.81% 14.67% 6/30/88
................................................................................................
</TABLE>
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
8
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- ---------------------------------------------------------------------------------------------------------
Year
Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 16.53 $ 13.40 $ 14.68 $ 12.28 $ 10.37
Investment activities
Net investment income 0.22 0.18 0.13 0.12 0.11
Net realized and
unrealized gain (loss) 3.84 3.74 (0.35) 2.73 2.05
.................................................................
Total from
investment activities 4.06 3.92 (0.22) 2.85 2.16
.................................................................
Distributions
Net investment income (0.23) (0.18) (0.14) (0.10) (0.10)
.................................................................
Net realized gain (0.80) (0.61) (0.92) (0.35) (0.15)
.................................................................
Total distributions (1.03) (0.79) (1.06) (0.45) (0.25)
.................................................................
NET ASSET VALUE
End of period $ 19.56 $ 16.53 $ 13.40 $ 14.68 $ 12.28
-----------------------------------------------------------------
Ratios/Supplemental Data
Total return 24.61% 29.29% (1.38)% 23.30% 20.87%
.........................................................................................................
Ratio of expenses to
average net assets 0.94% 0.98% 0.97% 1.05% 1.25%
.........................................................................................................
Ratio of net investment
income to average
net assets 1.28% 1.59% 0.93% 0.91% 0.98%
.........................................................................................................
Portfolio turnover rate 15.2% 18.1% 21.4% 11.8% 12.1%
.........................................................................................................
Average commission
rate paid $ 0.0552 - - - -
.........................................................................................................
Net assets, end of period
(in millions) $ 1,410 $ 936 $ 408 $ 452 $ 264
.........................................................................................................
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
December 31, 1996
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
COMMON STOCKS AND WARRANTS 84.9%
<S> <C> <C>
FINANCIAL 14.4%
Bank and Trust 5.0%
Commercial Federal 325,000 $ 15,600
...........................................................................
Community First Bankshares 455,000 12,626
...........................................................................
First Bell Bancorp + 600,000 8,025
...........................................................................
First National Bank of Anchorage 5,000 8,262
...........................................................................
First Republic Bancorp * 310,000 5,193
...........................................................................
Glacier Bancorp 132,000 3,152
...........................................................................
Guardian Bancorp * 450,000 0
...........................................................................
Guardian Bancorp, warrants, 1/1/99 * 450,000 0
...........................................................................
Silicon Valley Bancshares *+ 545,000 17,644
...........................................................................
70,502
...............
Insurance 6.6%
Farm Family Holdings * 226,500 4,417
...........................................................................
Financial Security Assurance Holdings 150,000 4,931
...........................................................................
MAIC Holdings * 246,529 8,351
...........................................................................
Markel * 55,000 4,977
...........................................................................
NYMAGIC 500,000 9,000
...........................................................................
Poe & Brown + 650,000 17,469
...........................................................................
Presidential Life 500,000 6,062
...........................................................................
PXRE + 542,300 13,422
...........................................................................
Sphere Drake Holdings 300,000 2,663
...........................................................................
UICI * 640,000 20,680
...........................................................................
91,972
...............
Financial Services 2.8%
Allied Capital Commercial 500,000 11,563
...........................................................................
Allied Capital II 210,000 4,436
...........................................................................
Allied Capital Lending 131,000 1,981
...........................................................................
BHC Financial 275,000 4,383
...........................................................................
Medallion Financial 207,000 3,131
...........................................................................
Quick & Reilly 138,750 4,145
...........................................................................
Sirrom Capital 275,000 9,969
...........................................................................
39,608
...............
Total Financial 202,082
...............
</TABLE>
10
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
CONSUMER NONDURABLES 10.1%
Beverages 0.2%
Chalone Wine Group *++ 175,000 $ 2,056
.........................................................................
Chalone Wine Group, warrants, 7/19/98 *++ 142,857 509
.........................................................................
2,565
..............
Food Processing 1.3%
Suiza Foods *+ ++ 625,000 12,024
.........................................................................
Sylvan *+ 530,000 6,857
.........................................................................
18,881
..............
Hospital Supplies/Hospital Management 2.5%
Allied Healthcare Products + 526,000 3,879
.........................................................................
IGEN * 200,000 1,025
.........................................................................
Landauer + 650,000 15,925
.........................................................................
Lunar * 100,000 3,462
.........................................................................
Owens & Minor 400,000 4,100
.........................................................................
Safeguard Health *+ 385,000 6,786
.........................................................................
35,177
..............
Pharmaceuticals 0.8%
Bone Care International *+ 325,000 2,519
.........................................................................
COR Therapeutics * 288,200 2,864
.........................................................................
Nexstar Pharmaceuticals * 65,900 976
.........................................................................
Quidel *+ 1,100,000 4,916
.........................................................................
11,275
..............
Biotechnology 0.3%
Cell Genesys * 400,000 3,625
.........................................................................
3,625
..............
Miscellaneous Consumer Products 5.0%
Applied Extrusion Technologies *+ 850,000 8,819
.........................................................................
Boston Acoustics 220,000 3,809
.........................................................................
BWAY *+ 477,500 9,132
.........................................................................
Chic by H.I.S *+ 700,000 3,325
.........................................................................
Culp 565,000 8,616
.........................................................................
ERO * 500,000 4,312
.........................................................................
Fab Industries + 303,800 8,354
.........................................................................
Horace Small Apparel ADR * 225,000 1,533
.........................................................................
Martin Industries 400,000 2,750
.........................................................................
</TABLE>
11
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Rival + 612,500 $ 15,045
..........................................................................
Superior Surgical Mfg. 380,000 5,130
..........................................................................
70,825
..............
Total Consumer Nondurables 142,348
..............
CONSUMER SERVICES 10.7%
General Merchandisers 0.3%
Fred's (Class A) 420,000 3,675
..........................................................................
3,675
..............
Specialty Merchandisers 4.4%
CompuCom Systems * 325,000 3,473
..........................................................................
CSS Industries *+ 699,000 18,174
..........................................................................
Designs * 400,000 2,263
..........................................................................
Frederick's of Hollywood (Class A) 102,600 423
..........................................................................
Frederick's of Hollywood (Class B) 265,000 1,093
..........................................................................
Genovese Drug Stores (Class A) + 308,630 4,784
..........................................................................
Hancock Fabrics + 1,200,000 12,450
..........................................................................
Haverty Furniture + 450,000 5,203
..........................................................................
Pacific Sunwear * 150,000 3,853
..........................................................................
Roberds * 140,000 1,173
..........................................................................
S & K Famous Brands *+ 425,000 4,037
..........................................................................
Stein Mart * 275,000 5,500
..........................................................................
62,426
..............
Entertainment and Leisure 3.4%
Bowl America (Class A) 12,600 83
..........................................................................
Carmike Cinemas (Class A) 300,000 7,613
..........................................................................
Consolidated Products * 664,989 12,967
..........................................................................
Fresh Choice *+ 525,000 2,166
..........................................................................
Longhorn Steaks * 150,000 2,850
..........................................................................
Seattle Filmworks *+ 950,000 19,178
..........................................................................
Uno Restaurant * 506,800 3,358
..........................................................................
48,215
..............
Media and Communications 2.6%
Courier + 130,000 1,982
..........................................................................
EZ Communications * 125,000 4,516
..........................................................................
Grey Advertising 51,865 13,122
..........................................................................
</TABLE>
12
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Price Communications *+ 500,000 $ 4,344
..........................................................................
Saga Communications (Class A) * 656,250 12,797
..........................................................................
36,761
..............
Total Consumer Services 151,077
..............
CONSUMER CYCLICALS 8.4%
Automobiles and Related 1.9%
Littelfuse * 45,000 2,171
..........................................................................
Myers Industries 250,000 4,219
..........................................................................
R & B * 350,000 2,625
..........................................................................
Republic Automotive Parts *+ 275,000 4,606
..........................................................................
Republic Automotive Parts *+ ++ 25,500 342
..........................................................................
TBC *+ 1,650,000 12,581
..........................................................................
26,544
..............
Building and Real Estate 5.0%
Columbus Realty Trust, REIT + 602,000 13,695
..........................................................................
Glenborough Realty Trust, REIT 350,000 6,169
..........................................................................
Innkeepers USA, REIT + 700,000 9,713
..........................................................................
National Health Investors, REIT 225,000 8,522
..........................................................................
Skyline, REIT 335,000 8,291
..........................................................................
South West Property Trust, REIT 597,500 10,083
..........................................................................
Sun Communities, REIT 400,000 13,800
..........................................................................
70,273
..............
Miscellaneous Consumer Durables 1.5%
Chromcraft Revington *+ 450,000 12,488
..........................................................................
Ellett Brothers + 300,000 1,575
..........................................................................
Juno Lighting 270,000 4,286
..........................................................................
Stanley Furniture * 175,000 3,434
..........................................................................
21,783
..............
Total Consumer Cyclicals 118,600
..............
TECHNOLOGY 6.2%
Electronic Components 2.0%
Analogic + 709,000 23,486
..........................................................................
Badger Meter + 61,000 2,341
..........................................................................
Pioneer-Standard Electronics 171,100 2,213
..........................................................................
28,040
..............
</TABLE>
13
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Electronic Systems 0.4%
BEI Electronics 75,000 $ 806
..........................................................................
CEM *+ 307,500 2,537
..........................................................................
Instron 200,000 2,550
..........................................................................
5,893
..............
Information Processing 0.7%
DH Technology *+ 432,400 10,188
..........................................................................
10,188
..............
Telecommunications 0.5%
Digital Systems * 300,000 4,744
..........................................................................
Syntellect * 500,000 2,094
..........................................................................
6,838
..............
Aerospace and Defense 2.6%
COMARCO *+ 294,400 5,318
..........................................................................
Nichols Research * 255,000 6,534
..........................................................................
Raven Industries + 370,000 8,256
..........................................................................
Tech-Sym * 200,000 5,950
..........................................................................
Woodward Governor 80,000 10,640
..........................................................................
36,698
..............
Total Technology 87,657
..............
CAPITAL EQUIPMENT 2.8%
Electrical Equipment 1.1%
Holophane * 525,000 10,106
..........................................................................
Thomas Industries 250,000 5,219
..........................................................................
15,325
..............
Machinery 1.7%
Alamo Group + 600,000 10,275
..........................................................................
Farrel 268,000 704
..........................................................................
K-Tron *+ 250,000 2,688
..........................................................................
Scotsman Industries 300,000 7,087
..........................................................................
Versa Technologies + 300,000 3,862
..........................................................................
24,616
..............
Total Capital Equipment 39,941
..............
</TABLE>
14
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
BUSINESS SERVICES AND
TRANSPORTATION 15.5%
Computer Service and Software 2.5%
Analysts International 400,000 $ 11,100
..........................................................................
Keane * 360,000 11,430
..........................................................................
State of the Art * 285,000 3,580
..........................................................................
Systems & Computer Technology * 225,000 3,656
..........................................................................
VMARK Software *+ 650,000 4,875
..........................................................................
34,641
..............
Distribution Services 1.4%
Allou Health & Beauty * 450,000 3,009
..........................................................................
JP Foodservice * 172,500 4,809
..........................................................................
Richardson Electronics 500,000 4,125
..........................................................................
Sullivan Dental Products 250,000 3,234
..........................................................................
VWR * 262,000 4,520
..........................................................................
19,697
..............
Environmental 0.8%
BHA Group (Class A) + 473,000 7,745
..........................................................................
EMCON *+ 600,000 2,175
..........................................................................
Fluor Daniel / GTI * 58,651 473
..........................................................................
TRC * 325,000 1,463
..........................................................................
11,856
..............
Transportation Services 1.8%
Builders Transport *+ 445,000 1,210
..........................................................................
Frozen Food Express 235,000 2,115
..........................................................................
International Shipholding + 580,000 10,730
..........................................................................
KLLM Transport * 150,000 1,519
..........................................................................
M.S. Carriers * 300,000 4,894
..........................................................................
Midwest Express Holdings * 132,900 4,784
..........................................................................
25,252
..............
Miscellaneous Business Services 9.0%
Aaron Rents (Class B) 437,000 5,135
..........................................................................
AMRESCO * 350,000 9,319
..........................................................................
Business Resource Group *+ 380,000 2,066
..........................................................................
CORT Business * 600,000 12,375
..........................................................................
Electro Rent *+ 1,000,000 24,500
..........................................................................
Insituform Technologies (Class A) * 700,000 5,250
..........................................................................
</TABLE>
15
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- ----------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Leasing Solutions * 320,000 $ 8,320
.............................................................................................
McGrath RentCorp + 587,200 14,900
.............................................................................................
Mine Safety Appliances 100,600 5,483
.............................................................................................
MYR Group + 260,000 3,347
.............................................................................................
Right Management Consultants *+ 375,000 8,578
.............................................................................................
Sealright + 641,000 6,851
.............................................................................................
Tab Products + 400,000 3,550
.............................................................................................
UniFirst 281,500 5,982
.............................................................................................
Unitog 435,000 11,826
.............................................................................................
127,482
...............
Total Business Services and Transportation 218,928
...............
ENERGY 3.4%
Energy Services 1.0%
Newpark Resources * 80,000 2,980
.............................................................................................
Offshore Logistics * 425,000 8,287
.............................................................................................
Pitt-DesMoines 63,800 2,656
.............................................................................................
13,923
...............
Exploration and Production 1.6%
Devon Energy 130,800 4,545
.............................................................................................
Flores & Rucks * 100,000 5,325
.............................................................................................
HS Resources *+ 750,000 12,375
.............................................................................................
22,245
...............
Gas Transmission 0.8%
Atrion + 275,400 4,441
.............................................................................................
TPC * 750,000 6,750
.............................................................................................
11,191
...............
Total Energy 47,359
...............
PROCESS INDUSTRIES 4.7%
Diversified Chemicals 0.7%
Aceto + 400,000 5,625
.............................................................................................
LeaRonal 166,900 3,839
.............................................................................................
9,464
...............
Specialty Chemicals 1.9%
Furon + 550,000 11,687
.............................................................................................
Hauser Chemical Research *+ 600,000 3,469
.............................................................................................
</TABLE>
16
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- ----------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Sybron Chemical *+ 450,000 $ 7,200
.............................................................................................
Synalloy 279,000 4,499
.............................................................................................
26,855
...............
Paper and Paper Products 0.7%
Mosinee Paper 300,000 10,613
.............................................................................................
10,613
...............
Building and Construction 1.4%
Giant Cement * 455,000 7,251
.............................................................................................
Puerto Rican Cement + 383,900 11,997
.............................................................................................
19,248
...............
Total Process Industries 66,180
...............
BASIC MATERIALS 4.8%
Metals 2.7%
Cold Metal Products *+ 524,700 3,214
.............................................................................................
Gibraltor Steel * 428,700 11,146
.............................................................................................
Lone Star Technologies * 354,000 5,974
.............................................................................................
Material Sciences * 350,000 6,300
.............................................................................................
Sinter Metals (Class A) *+ 275,000 8,181
.............................................................................................
Steel Technologies 285,000 3,812
.............................................................................................
38,627
...............
Mining 1.0%
Dayton Mining * 1,600,000 10,700
.............................................................................................
Highlands Gold (AUD) * 377,280 222
.............................................................................................
Rand Gold (ZAR) * 125,000 848
.............................................................................................
TVX Gold * 350,000 2,713
.............................................................................................
14,483
...............
Miscellaneous Materials 1.1%
Oil-Dri + 414,300 6,214
.............................................................................................
Penn Virginia 111,600 5,273
.............................................................................................
Synthetic Industries * 200,000 3,200
.............................................................................................
14,687
...............
Total Basic Materials 67,797
...............
</TABLE>
17
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Shares/Par Value
- ---------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
INVESTMENT COMPANIES 0.5%
First Financial Fund 429,690 $ 6,607
............................................................................................
Total Investment Companies 6,607
............
Miscellaneous Common Stocks 3.4% 47,702
............
Total Common Stocks and Warrants (Cost $860,793) 1,196,278
............
PREFERRED STOCKS 0.3%
Prime Retail, Cum., 10.50%, Series A, REIT 180,000 4,410
............................................................................................
Total Preferred Stocks (Cost $3,454) 4,410
............
CONVERTIBLE PREFERRED STOCKS 1.3%
Cross Timbers Oil, Series A 344,200 10,412
............................................................................................
Prime Retail, 8.50%, Series B, REIT 300,000 6,600
............................................................................................
Redwood Empire Bancorp, Noncum., 7.875%, Series A 114,000 1,226
............................................................................................
Total Convertible Preferred Stocks (Cost $12,739) 18,238
............
CORPORATE BONDS 0.1%
Owens & Minor, Sr. Sub. Notes, 10.875%, 6/1/06 2,000,000 2,145
............................................................................................
Total Corporate Bonds (Cost $2,032) 2,145
............
CONVERTIBLE BONDS 0.9%
Builders Transport, Sub. Deb
6.50%, 5/1/11 + 330,000 172
............................................................................................
8.00%, 8/15/05 + 1,700,000 977
............................................................................................
First Republic Bancorp, Sub. Deb.
7.25%, 12/1/02 4,000,000 4,933
............................................................................................
Glycomed, Sub. Deb., 7.50%, 1/1/03 2,000,000 1,750
............................................................................................
Offshore Logistics, Sub. Notes, (144a), 6.00%, 12/15/03 3,000,000 3,153
............................................................................................
PerSeptive Biosystems, Sub. Deb., (144a), 8.25%, 8/15/01 2,000,000 1,350
............................................................................................
Total Convertible Bonds (Cost $11,865) 12,335
............
</TABLE>
18
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- ----------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
SHORT-TERM INVESTMENTS 12.5%
Certificates of Deposit 1.4%
Bayerische Hypotheken und Wechsel, (London)
5.62%, 2/27/97 10,000,000 $ 10,000
.............................................................................................
Deutsche Bank, 5.50%, 1/6/97 10,000,000 10,000
.............................................................................................
20,000
.............
Commercial Paper 10.5%
Beta Finance, 4(2), 5.32 - 5.34%, 1/7 - 2/21/97 12,000,000 11,976
.............................................................................................
BHF Finance (Delaware), 5.30 - 5.37%, 4/11/97 15,000,000 14,778
.............................................................................................
BMW U.S. Capital, 5.31%, 2/19/97 4,600,000 4,567
.............................................................................................
Caisse des Depots et Consignations, 4(2), 5.40%, 1/9/97 11,000,000 10,987
.............................................................................................
Cregem North America, 5.45%, 1/10/97 10,000,000 9,986
.............................................................................................
CS First Boston Group, 5.50%, 2/26/97 5,000,000 4,957
.............................................................................................
Investments in Commercial Paper through a joint account
6.75 - 7.10%, 1/2/97 12,778,530 12,776
.............................................................................................
Island Finance Puerto Rico, 5.32 - 5.57%, 1/7 - 2/25/97 15,000,000 14,949
.............................................................................................
Korea Development Bank, 5.32 - 5.59%, 2/13/97 15,000,000 14,903
.............................................................................................
Merrill Lynch & Co., 5.34%, 1/13/97 10,000,000 9,982
.............................................................................................
Nordbanken North America, 5.40%, 2/10/97 10,000,000 9,940
.............................................................................................
Preferred Receivables Funding, 5.35 - 5.65%
1/8 - 1/13/97 19,000,000 18,973
.............................................................................................
Unifunding, 5.44%, 1/6/97 10,000,000 9,993
.............................................................................................
148,767
.............
Medium-Term Notes 0.5%
Morgan Stanley Group, Eurodollar, VR, 5.656%, 1/31/97 7,000,000 7,002
.............................................................................................
7,002
.............
U.S. Government Obligations 0.1%
U.S. Treasury Bills, 5.085%, 4/3/97 1,000,000 987
.............................................................................................
987
.............
Total Short-Term Investments (Cost $176,756) 176,756
.............
</TABLE>
19
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- ----------------------------------------------------------------------------------------------------------
In thousands
<S> <C>
Total Investments in Securities
100.0% of Net Assets (Cost $1,067,639) $ 1,410,162
Futures Contracts
In thousands
<CAPTION>
Contract Unrealized
Expiration Value Gain (Loss)
---------- ---------- -----------
<S> <C> <C> <C>
Long, 40 Russell 2000 Stock Index
contracts, $1,000,000 of U.S. Treasury Bill
pledged as initial margin 3/97 $ 7,255 $ 57
Net payments (receipts) of variation
margin to date (114)
..............
Variation margin receivable
(payable) on open futures contracts (57)
Other Assets Less Liabilities (276)
..............
NET ASSETS $ 1,409,829
--------------
</TABLE>
* Non-income producing
+ Affiliated company
++ Securities contain some restrictions as to public resale--total of such
securities at year-end amounts to 1.06% of net assets.
REIT Real Estate Investment Trust
VR Variable Rate
4(2) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under section 4.2 of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "accredited investors."
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 year-end amounts to
0.32% of net assets.
AUD Australian dollar
ZAR South African rand
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
December 31, 1996
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
In thousands
<S> <C>
Assets
Investments in securities, at value
Affiliated companies (cost $415,260) $ 532,532
Other companies (cost $652,379) 877,630
..............
Total investments in securities 1,410,162
Other assets 9,249
..............
Total assets 1,419,411
..............
Liabilities
Total liabilities 9,582
..............
NET ASSETS $ 1,409,829
--------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 40
Accumulated net realized gain/loss - net of distributions 19,156
Net unrealized gain (loss) 342,577
Paid-in-capital applicable to 72,073,583 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares authorized 1,048,056
..............
NET ASSETS $ 1,409,829
--------------
NET ASSET VALUE PER SHARE $ 19.56
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- ------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year
Ended
12/31/96
<S> <C>
Investment Income
Income
Dividend (including $6,640 from affiliated companies) $ 15,486
Interest (including $133 from affiliated companies) 11,216
...............
Total income 26,702
...............
Expenses
Investment management 8,187
Shareholder servicing 2,498
Registration 304
Custody and accounting 169
Prospectus and shareholder reports 147
Legal and audit 23
Directors 18
Miscellaneous 16
...............
Total expenses 11,362
...............
Net investment income 15,340
...............
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on
Securities (including $16,207 from affiliated companies) 60,163
Futures 1,481
Foreign currency transactions (39)
...............
Net realized gain (loss) 61,605
...............
Change in net unrealized gain or loss on
Securities (including $83,295 from affiliated companies) 188,740
Futures (77)
Other assets and liabilities
denominated in foreign currencies (10)
...............
Change in net unrealized gain or loss 188,653
...............
Net realized and unrealized gain (loss) 250,258
...............
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 265,598
---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year
Ended
12/31/96 12/31/95
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ 15,340 $ 9,843
Net realized gain (loss) 61,605 39,731
Change in net unrealized gain or loss 188,653 98,996
...............................
Increase (decrease) in net assets from operations 265,598 148,570
...............................
Distributions to shareholders
Net investment income (15,749) (9,636)
Net realized gain (54,759) (32,664)
...............................
Decrease in net assets from distributions (70,508) (42,300)
...............................
Capital share transactions *
Shares sold 467,160 500,883
Distributions reinvested 67,615 40,668
Shares redeemed (256,974) (119,922)
Redemption fees received 513 94
...............................
Increase (decrease) in net assets from capital
share transactions 278,314 421,723
...............................
Net Assets
Increase (decrease) during period 473,404 527,993
Beginning of period 936,425 408,432
...............................
End of period $ 1,409,829 $ 936,425
-------------------------------
* Share information
Shares sold 26,142 31,422
Distributions reinvested 3,482 2,474
Shares redeemed (14,216) (7,705)
...............................
Increase (decrease) in shares outstanding 15,408 26,191
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
December 31, 1996
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Small-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 30, 1988.
Valuation Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price at the time 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.
Short-term debt securities are valued at their amortized cost which, when
combined with accrued interest, approximates fair value. Financial futures
contracts are valued at closing settlement prices.
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.
Affiliated Companies Investments in companies 5% or more of whose
outstanding voting securities are held by the fund are defined as
"Affiliated Companies" in Section 2(a)(3) of the Investment Company Act of
1940.
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
24
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
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. Payments ("variation margin") made
or received by the fund to settle the daily fluctuations in the value of
futures contracts are recorded as unrealized gains or losses until the
contracts are closed. Unrealized gains and losses on futures contracts are
included in Liabilities, and in Change in net unrealized gain or loss in the
accompanying financial statements.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Futures Contracts At December 31, 1996, the fund was a party to futures
contracts, which provide for the future sale by one party and purchase by
another of a specified amount of a specific financial instrument at an
agreed upon price, date, time, and place. Risks arise from possible
illiquidity of the futures market and from movements in security values.
Commercial Paper Joint Account The fund, and other affiliated funds, may
transfer uninvested cash into a commercial paper joint account, the daily
aggregate balance of which is invested in high-grade commercial paper. All
securities purchased by the joint account satisfy the fund's criteria as to
quality, yield, and liquidity.
Other Purchases and sales of portfolio securities, other than short-term,
aggregated $388,491,000 and $155,099,000, respectively, for the year ended
December 31, 1996.
25
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
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, 1996, the aggregate cost of investments for federal income
tax and financial reporting purposes was $1,067,639,000, and net unrealized
gain aggregated $342,523,000, of which $378,811,000 related to appreciated
investments and $36,288,000 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 $790,000 was payable at December 31, 1996. 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 0.305% for assets in excess
of $50 billion. At December 31, 1996, and for the year then ended, the
effective annual group fee rate was 0.33%. 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. (TRPS) 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 $2,154,000 for the year ended December 31, 1996, of which
$218,000 was payable at period-end.
26
<PAGE>
T. ROWE PRICE SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
T. Rowe Price Small-Cap Value Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
T. Rowe Price Small-Cap Value Fund, Inc., including the portfolio of
investments, as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
investments owned as of December 31, 1996, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
T. Rowe Price Small-Cap Value Fund, Inc. as of December 31, 1996, the
results of its operations, the changes in its net assets and financial
highlights for each of the respective periods stated in the first paragraph,
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 20, 1997
27
<PAGE>
T. ROWE PRICE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone Shareholder service representatives are available from 8 a.m.
to 10 p.m. ET Monday through Friday and from 8:30 a.m. to 5 p.m. ET on
weekends. Call 1-800-225-5132 to speak directly with a representative
who will be able to assist you with your accounts.
In Person Visit one of our investor center locations to meet with a
representative who will be able to assist you with your accounts. You
can also drop off applications or obtain prospectuses and other
literature at these centers.
AUTOMATED 24-HOUR SERVICES
Tele*Access(R) Call 1-800-638-2587 to obtain information such as
account balance, date and amount of your last transaction, latest
dividend payment, fund prices, and yields. Additionally, you have the
ability to request prospectuses, statements, and account and tax forms;
to reorder checks; and to initiate purchase, redemption, and exchange
orders for identically registered accounts.
T. Rowe Price OnLine Through a personal computer via dial-up modem, you
can replicate all the services available on Tele*Access plus conduct
transactions in your Discount Brokerage and Variable Annuity Accounts.
ACCOUNT SERVICES
Checking Write checks for $500 or more on any money market and most
bond fund accounts (except the High Yield and Emerging Markets Bond
Funds).
Automatic Investing Build your account over time by investing directly
from your bank account or paycheck with Automatic Asset Builder.
Additionally, Automatic Exchange enables you to set up systematic
investments from one fund account into another, such as from a money
fund into a stock fund. A $50 minimum makes it easy to get started.
28
<PAGE>
T. ROWE PRICE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
Automatic Withdrawal If you need money from your fund account on a
regular basis, you can establish scheduled, automatic redemptions.
Dividend and Capital Gains Payment Options Reinvest all or some of your
distributions, or take them in cash. We give you maximum flexibility
and convenience.
DISCOUNT BROKERAGE*
Investments Available You can trade stocks, bonds, options, precious
metals, and other securities at a savings over regular commission
rates.
To Open an Account Call a shareholder service representative for more
information.
INVESTMENT INFORMATION
Combined Statement A comprehensive overview of your T. Rowe Price
accounts is provided. The summary page gives you earnings by tax
category, provides total portfolio value, and lists your investments by
type--stock, bond, and money market. Detail pages itemize account
transactions by fund.
Shareholder Reports Portfolio managers review the performance of the
funds in plain language and discuss T. Rowe Price's economic outlook.
T. Rowe Price Report This is a quarterly newsletter with relevant
articles on market trends, personal financial planning, and T. Rowe
Price's economic perspective.
Performance Update This quarterly report reviews recent market
developments and provides comprehensive performance information for
every T. Rowe Price fund.
Insights This library of information includes reports on mutual fund
tax issues, investment strategies, and financial markets.
Detailed Investment Guides Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Retirees Financial Guide, and Retirement Planning
Kit (also available on disk for PC use) can help you determine and
reach your investment goals.
*A division of T. Rowe Price Investment Services, Inc. Member
NASD/SIPC.
29
<PAGE>
For yield, price, last transaction,
current balance or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(R):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call:
1-800-638-5660 toll free
Internet address:
http://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 Small-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
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor RPRTSCV 12/31/96
