- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Annual Report
Small-Cap Value Fund
- --------------------------------------------------------------------------------
December 31, 1998
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REPORT HIGHLIGHTS
================================================================================
Small-Cap Value Fund
* The S&P 500 Stock Index market surged over 20% for an unprecedented fourth
straight year, but small-cap value stocks were left far behind.
* The fund's returns were negative for both the 6- and 12-month periods and
compared unfavorably with its benchmarks.
* Results reflected the difficult small-stock environment, investor
preference for growth stocks, and some earnings disappointments among our
holdings.
* We purchased some undervalued electric utilities as a defensive measure.
* Cheaply valued small companies are increasingly attractive to
acquisition-minded corporations, which should benefit the fund.
FELLOW SHAREHOLDERS
The stock market went on a roller-coaster ride during the second half of
1998, plunging through the summer and early fall, and then staging a powerful
recovery after mid-October. The rally did not favor all issues equally, however.
Large blue chips, technology stocks, and especially any company related to the
Internet had the greatest gains. Small companies and value stocks lagged the
averages significantly. For the year, the S&P 500 scored another impressive
advance rising over 28%, while small stocks showed generally negative results.
<PAGE>
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 12/31/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Small-Cap Value Fund -14.66% -12.47%
Russell 2000 Index -7.12 -2.55
Lipper Small-Cap Fund Index -6.86 -0.85
S&P 500 9.22 28.57
================================================================================
The Small-Cap Value Fund fared poorly in this environment, falling 14.66%
for the six-month period. All of the characteristics that define the fund N very
small market capitalizations, low valuations, low technology exposure N hurt our
results relative not only to the broad market, but also to our usual small-cap
benchmarks. Our stock-picking was not rewarding, with few of our top holdings
making significant gains and several reporting poorer-than-expected earnings.
All in all, 1998 was a tough year for small-cap value investors.
Market Environment
For the overall stock market, 1998 can be viewed in three parts. During the
first six and a half months, stocks moved progressively higher, reflecting lower
interest rates and good economic reports. At its peak in July, the S&P 500 was
ahead almost 23% for the year. From mid-July to early October, the Index
retraced all of its gains and more, falling to a level about 4% below the
beginning of the year. During this period, small-cap stocks fell 34% from their
July peaks. Much of the decline can be attributed to fears of a financial system
meltdown triggered by Russian debt defaults, Asian turmoil, and emerging country
devaluations.
================================================================================
Preparing For The Year 2000
- --------------------------------------------------------------------------------
The Year 2000 draws closer every day, and it holds special meaning beyond
the arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
<PAGE>
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all
new systems process and store four-digit years. All critical systems have been
reprogrammed (including business applications required to service our customers
and processing infrastructure necessary to ensure the integrity of customer data
and investments), and they are currently being tested. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be able
to modify their interface files prior to December 31, 1999. In addition, we are
scheduling tests for critical vendors and companies that claim Year 2000
compliance to ensure that time-related data and calculations function properly
as we move into the next century.
SMOOTH TRANSITION PLANNED
We believe our programs and initiatives will provide a smooth transition
into the next millennium. We are assessing all systems providing products or
services to our retail mutual fund shareholders, retirement plan sponsors, and
participants, and we have modified them where necessary for the Year 2000.
The Securities Industry Association (SIA) is coordinating Year 2000 testing
to assure that securities markets, clearing corporations, depositories, and
third party service providers can send, receive, and process files and
transactions accurately. In late July 1998, the SIA completed a beta test of
Year 2000 readiness. The test was considered successful in terms of transactions
completed and will serve as the basis for the SIA's industry-wide approach.
During October 1998, T. Rowe Price completed its beta test of Year 2000
readiness with the SIA and is ready for the industry-wide test that is scheduled
for March and April 1999.
For a more detailed discussion of our Year 2000 effort, as well as
continuing updates on our progress, please check our Web site
(WWW.TROWEPRICE.COM).
================================================================================
Rapid response to the financial crisis by the Federal Reserve led to a
sharp rebound in stock prices to record levels by late December. The year-end
rally featured not only record prices for blue chip stocks, but also rampant
speculation in Internet issues (that has continued unabated as of this writing
in January). While our small-cap value sector enjoyed some gains during the
fourth quarter, they paled in comparison to the outsized results posted by the
largest blue chip and growth stocks.
<PAGE>
The two-tier market that developed in 1998 was similar to that last seen in
1972 where a narrow group of large Nifty Fifty stocks did far better than the
average stock. In fact, the 31-percentage-point gap between the Russell 2000 and
S&P 500 in 1998 was the largest ever for a calendar year. Surprisingly, it came
about not because small company sales fell, earnings or profitability suffered,
or the competitive positions of the companies deteriorated. Instead, it appears
to have been caused by institutional investors' preoccupation with liquidity N
the ability to buy or sell large blocks of stock quickly and without market
impact.
Portfolio Activity
Continuing a tactical move begun in May, we built a 3.5% weighting in
electric utilities during the second half of the year. This change was
noteworthy because prior to 1998, Small-Cap Value Fund had never owned electric
utilities. We added the group for two reasons: 1) to become more defensive at a
point when the market seemed vulnerable to a correction, and 2) to take
advantage of relative valuations in utilities that were at 20-year lows. Four of
the electrics show up in the largest purchases table: Madison Gas and Electric,
NorthWe stern, Otter Tail Power, and SIGCORP. To date, the stocks have done
substantially better than the fund overall, and yet they remain at or near
record low valuations.
Five of the stocks we sold were the objects of takeover and merger bids:
Post Properties, LeaRonal, Genovese Drug Stores, Logan's Roadhouse, and Special
Devices. All five were examples of companies that had above-average records and
business models, but whose stocks sold for a relatively cheap price. For
example, we first bought Genovese Drug Stores in late 1992 at $4. The company
operated a chain of drug stores on Long Island, had the leading share of its
market, and showed industry average profit margins. Yet because of its small
size, Genovese had no Wall Street sponsorship and therefore sold for a
below-average valuation. We stayed with Genovese for six years until the company
agreed to a $30 buyout offer from JC Penney.
For the year as a whole, portfolio activity remained at normal levels.
Portfolio turnover was 17%, about in line with previous years and well below
mutual fund industry averages. We follow the policy of knowing our companies
well, buying patiently and carefully, and avoiding excessive trading in these
relatively illiquid stocks.
A Look at Small-Cap Valuations
The poor performance of small-cap stocks versus larger companies in 1998
has, in turn, led to unusual and attractive valuation disparities between large
and small stocks. The price/earnings and price/book value ratios of the Russell
2000 (a well-known index of small-cap companies) have reached 20-year lows
compared with the same ratios for the S&P 500. (See chart below.) Between 1979
and 1997, the relative P/E of the Russell 2000 to the S&P 500 ranged between
about 1.0 and 1.5; today it stands at about 0.80. The relative price/book value
ratio historically had ranged between 0.67 and 1.23; today it stands at 0.52.
<PAGE>
[Edgar description: A line chart showing the Russell 200 Relative P/E and
book value ratios versus the S&P 500 from 1980 - 1998. ]
What do these ratios and statistics mean? In plain English, small stocks
are cheap. An investor with a value bias or a contrarian bent will find bargains
galore sifting through a list of small companies today. But what is to prevent
these stocks from remaining cheap? If the public is permanently enamored of the
largest 100 stocks, who will buy enough small companies to return relative
valuations to historic norms?
===============================
An investor with a value bias
or a contrarian bent will
find bargains galore sifting
through a list of small
companies today.
===============================
The answer is Corporate America. Large companies often recognize and act on
bargain opportunities faster than the stock market does. We believe that big
companies will use their own high-priced stock or low interest rate debt to buy
cheaper small companies. Acquirors will take advantage of the valuation
disparities that the stock market has provided to effect corporate arbitrage. In
fact, they are already doing so.
It appears that a powerful merger and acquisition wave is under way in the
United States today. The evidence is found in the Small-Cap Value Fund
portfolio. In the 1995-1997 period, the fund experienced an annual average of 13
announced takeovers or mergers of small-cap value companies. In 1998, the figure
jumped to 16. The pace really accelerated late in the year: from October 28,
1998, through January 11, 1999, we had 12 takeovers announced. If this rate were
sustained, it would mean 58 takeovers for a 12-month period, over four times the
previous experience.
As value investors, we find companies whose intrinsic worth is greater than
the prices their stocks are currently selling for. We take some satisfaction in
knowing that if the stock market will not value these companies appropriately,
then knowledgeable and sophisticated corporations are more than willing buyers
of our holdings.
Outlook
A year ago we predicted that 1998 would prove to be a tough year for the
stock market, and for the majority of stocks that forecast proved to be true.
However, we certainly did not foresee the narrow but powerful move that large
growth stocks would enjoy. Our view of 1999 is similar. Corporate profit growth
will remain sluggish due to low inflation, poor Asian and Latin American
economies, tight labor markets in the U.S., and slow growth of domestic GNP.
Average P/E ratios of the major large-cap indices are very high and seemingly
have little room for expansion.
<PAGE>
At the same time, small-cap stocks sell at extremely attractive relative
valuations. We do not know when the market will once again turn in favor of
small stocks. Until it does, it is clear that, as we noted in our valuation
discussion, corporate buyers are eager to acquire small companies at what appear
to be bargain prices. We are essentially fully invested at present, anticipating
a significantly better 1999 for our sector.
Respectfully submitted,
[signature]
Preston G. Athey
President and Chairman of the Investment Advisory Committee
January 20, 1999
================================================================================
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/98
--------
Electro Rent ............. 2.0%
Poe & Brown .............. 1.9
Medical Assurance ........ 1.8
McGrath RentCorp ......... 1.7
Insituform Technologies .. 1.6
Analogic ................. 1.6
Community First Bankshares 1.5
Consolidated Products .... 1.5
Allied Capital ........... 1.4
Meridian Industrial Trust 1.4
CSS Industries ........... 1.3
Saga Communications ...... 1.3
Furon .................... 1.3
Holophane ................ 1.3
Landauer ................. 1.2
Giant Cement ............. 1.1
Silicon Valley Bancshares 1.1
Sun Communities .......... 1.1
Grey Advertising ......... 1.1
Unitog ................... 1.0
Chromcraft Revington ..... 1.0
CORT Business Services ... 1.0
Puerto Rican Cement ...... 1.0
First Republic Bank ...... 0.9
Markel ................... 0.9
Total .................... 33.0%
================================================================================
<PAGE>
T. Rowe Price Small-Cap Value Fund
- --------------------------------------------------------------------------------
Portfolio Highlights
MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 12/31/98
Ten Largest Purchases
- --------------------------------------------------------------------------------
Madison Gas and Electric *
NorthWestern *
Otter Tail Power *
Garden Fresh Restaurant
Glycomed Cvt.
SIGCORP *
Leasing Solutions
Littelfuse
OmniQuip International
American Capital Strategies
Ten Largest Sales
- --------------------------------------------------------------------------------
Post Properties **
Special Devices **
PXRE
First Bell Bancorp **
Mine Safety Appliances **
LeaRonal
Genovese Drug Stores
Woodward Governor
Logans Roadhouse **
UniFirst
* Position added
** Position eliminated
================================================================================
<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 SEC Chart Shown here]
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.
Periods Ended 12/31/98 1 Year 3 Years 5 Years 10 Years
- ---------------------- ------ ------- ------- --------
Small-Cap Value Fund -12.47% 11.74% 12.21% 14.06%
- --------------------------------------------------------------------------------
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
================================================================================
<PAGE>
T. Rowe Price Small-Cap Value Fund
- --------------------------------------------------------------------------------
For a share outstanding throughout each period
Financial Highlights
<TABLE>
<S> <C> <C> <C> <C> <C>
Year
Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
-------- -------- -------- -------- --------
NET ASSET VALUE
Beginning of period $ 23.40 $ 19.56 $ 16.53 $ 13.40 $ 14.68
- ----------------------------------------------------------------------------------------------------
Investment activities
Net investment income 0.25 0.21 0.22 0.18 0.13
Net realized and
unrealized gain (loss) (3.23) 5.22 3.84 3.74 (0.35)
- ----------------------------------------------------------------------------------------------------
Total from
investment activities (2.98) 5.43 4.06 3.92 (0.22)
- ----------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.25) (0.20) (0.23) (0.18) (0.14)
Net realized gain (1.20) (1.39) (0.80) (0.61) (0.92)
- ----------------------------------------------------------------------------------------------------
Total distributions (1.45) (1.59) (1.03) (0.79) (1.06)
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE
====================================================================================================
End of period $ 18.97 $ 23.40 $ 19.56 $ 16.53 $ 13.40
====================================================================================================
==Ratios/Supplemental=Data==========================================================================
Total return* (12.47)% 27.92% 24.61% 29.29% (1.38)%
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets 0.87% 0.87% 0.94% 0.98% 0.97%
- ----------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets 1.02% 1.01% 1.28% 1.59% 0.93%
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate 17.3% 14.6% 15.2% 18.1% 21.4%
- ----------------------------------------------------------------------------------------------------
Net assets, end of period
(in millions) $ 1,632 $ 2,088 $ 1,410 $ 936 $ 408
- ----------------------------------------------------------------------------------------------------
</TABLE>
* 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 and payment of no redemption or account fees.
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Small-Cap Value Fund
- --------------------------------------------------------------------------------
December 31, 1998
Portfolio of Investments
------------------------
Shares/Par Value
In thousands
COMMON STOCKS 94.7%
FINANCIAL 13.8%
Bank and Trust 4.9%
Columbia Bancorp 100,000 $ 1,681
- -------------------------------------------------------------------------------
Community First Bankshares 1,200,000 25,238
- -------------------------------------------------------------------------------
First International Bancorp + 475,000 4,112
- -------------------------------------------------------------------------------
First National Bank of Anchorage 10,000 10,400
- -------------------------------------------------------------------------------
First Republic Bank of San Francisco * + 600,000 15,038
- -------------------------------------------------------------------------------
Glacier Bancorp 236,500 5,247
- -------------------------------------------------------------------------------
Silicon Valley Bancshares * + 1,033,000 17,593
- -------------------------------------------------------------------------------
79,309
- -------------------------------------------------------------------------------
Insurance 6.7%
Markel * 80,900 14,643
- -------------------------------------------------------------------------------
Medical Assurance * 880,000 29,095
- -------------------------------------------------------------------------------
NYMAGIC + 500,000 10,375
- -------------------------------------------------------------------------------
Poe & Brown + 875,000 30,570
- -------------------------------------------------------------------------------
Presidential Life 375,000 7,418
- -------------------------------------------------------------------------------
PXRE 300,000 7,519
- -------------------------------------------------------------------------------
UICI * 425,000 10,372
- -------------------------------------------------------------------------------
109,992
- -------------------------------------------------------------------------------
Financial Services 2.2%
<PAGE>
Allied Capital 1,350,000 23,414
- -------------------------------------------------------------------------------
American Capital Strategies 200,000 3,463
- -------------------------------------------------------------------------------
Delta Financial * 475,000 2,820
- -------------------------------------------------------------------------------
Medallion Financial 280,000 4,007
- -------------------------------------------------------------------------------
Sirrom Capital 600,000 2,963
- -------------------------------------------------------------------------------
36,667
- -------------------------------------------------------------------------------
Total Financial 225,968
- -------------------------------------------------------------------------------
=====UTILITIES==4.0%===========================================================
Telephone 0.5%
Commnet Cellular * 500,000 6,156
- -------------------------------------------------------------------------------
Rural Cellular (Class A) * 270,000 2,801
- -------------------------------------------------------------------------------
8,957
- -------------------------------------------------------------------------------
Electric Utilities 3.5%
Black Hills 400,000 10,550
- -------------------------------------------------------------------------------
Cleco 300,000 10,294
- -------------------------------------------------------------------------------
Madison Gas and Electric 400,000$ 9,175
- -------------------------------------------------------------------------------
NorthWestern 300,000 7,931
- -------------------------------------------------------------------------------
Otter Tail Power 250,000 10,016
- -------------------------------------------------------------------------------
SIGCORP 239,100 8,533
- -------------------------------------------------------------------------------
56,499
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Total Utilities 65,456
- -------------------------------------------------------------------------------
<PAGE>
=====CONSUMER=NONDURABLES==10.7%===============================================
Beverages 0.2%
Chalone Wine Group * 170,400 1,763
- -------------------------------------------------------------------------------
Chalone Wine Group, *++ 142,857 1,330
- -------------------------------------------------------------------------------
3,093
- -------------------------------------------------------------------------------
Food Processing 0.5%
Sylvan * + 500,000 7,500
- -------------------------------------------------------------------------------
7,500
- -------------------------------------------------------------------------------
Hospital Supplies/Hospital Management 2.8%
Allied Healthcare Products * + 489,700 780
- -------------------------------------------------------------------------------
Atrion * + 275,000 2,157
- -------------------------------------------------------------------------------
Intelligent Medical Imaging * + 950,000 490
- -------------------------------------------------------------------------------
Landauer + 625,000 20,234
- -------------------------------------------------------------------------------
Lunar * 200,000 1,938
- -------------------------------------------------------------------------------
Minntech + 650,000 9,953
- -------------------------------------------------------------------------------
Owens & Minor * 555,000 8,741
- -------------------------------------------------------------------------------
Safeguard Health * + 264,100 900
- -------------------------------------------------------------------------------
45,193
- -------------------------------------------------------------------------------
Pharmaceuticals 1.3%
Bone Care International * + 885,200 10,207
- -------------------------------------------------------------------------------
Coulter Pharmaceutical * 175,000 5,212
- -------------------------------------------------------------------------------
Neurocrine Biosciences * 500,000 3,344
- -------------------------------------------------------------------------------
Quidel * + 1,200,000 2,887
- -------------------------------------------------------------------------------
21,650
- -------------------------------------------------------------------------------
Biotechnology 0.4%
Cell Genesys * 1,065,000 6,423
- -------------------------------------------------------------------------------
6,423
- -------------------------------------------------------------------------------
<PAGE>
Miscellaneous Consumer Products 5.5%
American Safety Razor * + 700,000 8,466
- -------------------------------------------------------------------------------
Applied Extrusion Technologies * + 850,000 6,827
- -------------------------------------------------------------------------------
BWAY * + 750,000 11,297
- -------------------------------------------------------------------------------
CSS Industries * + 725,000$ 21,977
- -------------------------------------------------------------------------------
Culp 600,000 4,725
- -------------------------------------------------------------------------------
Dan River * 400,000 4,700
- -------------------------------------------------------------------------------
Fab Industries + 318,000 6,837
- -------------------------------------------------------------------------------
Home Products International * 350,000 3,423
- -------------------------------------------------------------------------------
Liqui-Box 100,000 5,262
- -------------------------------------------------------------------------------
Martin Industries 400,000 1,050
- -------------------------------------------------------------------------------
Rival + 750,000 10,055
- -------------------------------------------------------------------------------
Superior Surgical Mfg. + 401,000 5,814
- -------------------------------------------------------------------------------
90,433
- -------------------------------------------------------------------------------
Total Consumer Nondurables 174,292
- -------------------------------------------------------------------------------
=====CONSUMER=SERVICES==9.9%===================================================
Restaurants 3.4%
Consolidated Products * 1,187,500 24,492
- -------------------------------------------------------------------------------
Fresh Choice * + 540,000 844
- -------------------------------------------------------------------------------
Garden Fresh Restaurant * + 425,000 6,136
- -------------------------------------------------------------------------------
PJ America * 107,400 1,940
- -------------------------------------------------------------------------------
Rare Hospitality International * 400,000 5,525
- -------------------------------------------------------------------------------
Ruby Tuesday 625,000 13,281
- -------------------------------------------------------------------------------
Uno Restaurant * 400,000 3,150
- -------------------------------------------------------------------------------
55,368
- -------------------------------------------------------------------------------
<PAGE>
General Merchandisers 0.4%
Bon-Ton Stores * 375,000 2,859
- -------------------------------------------------------------------------------
Fred's (Class A) 225,000 3,361
- -------------------------------------------------------------------------------
6,220
- -------------------------------------------------------------------------------
Specialty Merchandisers 3.0%
Building Materials * 450,000 5,400
- -------------------------------------------------------------------------------
Compucom Systems * 1,000,000 3,531
- -------------------------------------------------------------------------------
Genovese Drug Stores (Class A) 150,000 4,275
- -------------------------------------------------------------------------------
Hancock Fabrics + 1,500,000 12,562
- -------------------------------------------------------------------------------
Haverty Furniture 275,000 5,775
- -------------------------------------------------------------------------------
Jo Ann Stores (Class B) * 625,000 8,672
- -------------------------------------------------------------------------------
S & K Famous Brands * + 425,000 4,071
- -------------------------------------------------------------------------------
Stein Mart * 620,000 4,321
- -------------------------------------------------------------------------------
48,607
- -------------------------------------------------------------------------------
Entertainment and Leisure 0.4%
Seattle Filmworks * + 1,423,900 6,675
- -------------------------------------------------------------------------------
6,675
- -------------------------------------------------------------------------------
Media and Communications 2.7%
Big City Radio * 450,000$ 1,913
- -------------------------------------------------------------------------------
Courier + 193,000 4,632
- -------------------------------------------------------------------------------
Grey Advertising 48,000 17,400
- -------------------------------------------------------------------------------
Saga Communications (Class A) * 1,025,390 21,020
- -------------------------------------------------------------------------------
44,965
- -------------------------------------------------------------------------------
Total Consumer Services 161,835
- -------------------------------------------------------------------------------
<PAGE>
=====CONSUMER=CYCLICALS==11.6%=================================================
Automobiles and Related 2.5%
Keystone Automotive * 240,400 5,063
- -------------------------------------------------------------------------------
Littelfuse * 350,000 6,650
- -------------------------------------------------------------------------------
Myers Industries 275,000 7,889
- -------------------------------------------------------------------------------
R & B * 400,000 3,350
- -------------------------------------------------------------------------------
Strattec Security * 269,700 8,125
- -------------------------------------------------------------------------------
TBC * + 1,475,000 10,371
- -------------------------------------------------------------------------------
41,448
- -------------------------------------------------------------------------------
Building and Real Estate 6.7%
First Washington Realty Trust, REIT 400,000 9,475
- -------------------------------------------------------------------------------
Glenborough Realty Trust, REIT 500,000 10,187
- -------------------------------------------------------------------------------
Innkeepers USA, REIT 850,000 10,041
- -------------------------------------------------------------------------------
Meridian Industrial Trust, REIT 940,000 22,090
- -------------------------------------------------------------------------------
National Health Investors, REIT 250,000 6,172
- -------------------------------------------------------------------------------
National Health Realty, REIT + 550,000 6,256
- -------------------------------------------------------------------------------
Pacific Gulf Properties, REIT 622,400 12,487
- -------------------------------------------------------------------------------
Skyline 409,900 13,322
- -------------------------------------------------------------------------------
Sun Communities, REIT 500,000 17,406
- -------------------------------------------------------------------------------
Western Water *++ 350,000 1,772
- -------------------------------------------------------------------------------
109,208
- -------------------------------------------------------------------------------
Miscellaneous Consumer Durables 2.4%
Chromcraft Revington * + 1,000,000 16,562
- -------------------------------------------------------------------------------
CompX * 250,000 6,594
- -------------------------------------------------------------------------------
Juno Lighting 354,200 8,235
- -------------------------------------------------------------------------------
Stanley Furniture * + 375,000 6,938
- -------------------------------------------------------------------------------
38,329
- -------------------------------------------------------------------------------
Total Consumer Cyclicals 188,985
- -------------------------------------------------------------------------------
<PAGE>
=====TECHNOLOGY==7.1%==========================================================
Electronic Components 2.7%
Analogic + 698,000$ 26,262
- -------------------------------------------------------------------------------
Badger Meter 100,000 3,563
- -------------------------------------------------------------------------------
Optek Technology * 200,000 3,712
- -------------------------------------------------------------------------------
PCD * 350,000 4,572
- -------------------------------------------------------------------------------
Planar Systems * + 550,000 3,781
- -------------------------------------------------------------------------------
Trident International * 192,500 1,775
- -------------------------------------------------------------------------------
43,665
- -------------------------------------------------------------------------------
Electronic Systems 0.7%
CEM * + 300,000 2,944
- -------------------------------------------------------------------------------
Perceptron * + 650,000 4,225
- -------------------------------------------------------------------------------
Total Control Products * 400,000 4,462
- -------------------------------------------------------------------------------
11,631
- -------------------------------------------------------------------------------
Telecommunications Equipment 0.4%
Mosaix * + 660,000 5,280
- -------------------------------------------------------------------------------
Syntellect * + 700,000 1,772
- -------------------------------------------------------------------------------
7,052
- -------------------------------------------------------------------------------
Aerospace and Defense 3.3%
COMARCO * + 400,000 9,550
- -------------------------------------------------------------------------------
DONCASTERS ADR * + 130,000 2,105
- -------------------------------------------------------------------------------
Hawk (Class A) * 201,000 1,683
- -------------------------------------------------------------------------------
Nichols Research * 400,000 8,375
- -------------------------------------------------------------------------------
OEA 900,000 10,631
- -------------------------------------------------------------------------------
<PAGE>
Raven Industries + 350,000 5,600
- -------------------------------------------------------------------------------
Tech-Sym * 150,000 3,338
- -------------------------------------------------------------------------------
TransTechnology 299,000 6,204
- -------------------------------------------------------------------------------
Woodward Governor 255,000 5,546
- -------------------------------------------------------------------------------
53,032
- -------------------------------------------------------------------------------
Total Technology 115,380
- -------------------------------------------------------------------------------
=====CAPITAL=EQUIPMENT==4.4%===================================================
Electrical Equipment 2.7%
Franklin Electric 100,000 6,819
- -------------------------------------------------------------------------------
Holophane * + 800,000 20,550
- -------------------------------------------------------------------------------
LSI Industries 380,000$ 8,526
- -------------------------------------------------------------------------------
Thomas Industries 375,000 7,360
- -------------------------------------------------------------------------------
43,255
- -------------------------------------------------------------------------------
Machinery 1.4%
Alamo Group + 689,000 7,880
- -------------------------------------------------------------------------------
Farrel + 465,500 975
- -------------------------------------------------------------------------------
Haskel International (Class A) + 275,000 3,085
- -------------------------------------------------------------------------------
K-Tron * + 250,000 4,656
- -------------------------------------------------------------------------------
Scotsman Industries 275,000 5,655
- -------------------------------------------------------------------------------
22,251
- -------------------------------------------------------------------------------
Capital Equipment 0.3%
Omniquip International 370,000 5,573
- -------------------------------------------------------------------------------
5,573
- -------------------------------------------------------------------------------
Total Capital Equipment 71,079
- -------------------------------------------------------------------------------
<PAGE>
=====BUSINESS=SERVICES=AND=====================================================
TRANSPORTATION 17.7%
Computer Service and Software 1.6%
Analysts International 620,000 11,974
- -------------------------------------------------------------------------------
Ardent Software * 600,000 13,706
- -------------------------------------------------------------------------------
25,680
- -------------------------------------------------------------------------------
Distribution Services 1.4%
Allou Health & Beauty * 300,000 3,225
- -------------------------------------------------------------------------------
Richardson Electronics + 700,000 6,715
- -------------------------------------------------------------------------------
Sunsource 325,000 6,114
- -------------------------------------------------------------------------------
Valley National Gases * + 682,200 3,880
- -------------------------------------------------------------------------------
VWR Scientific Products * 175,000 3,030
- -------------------------------------------------------------------------------
22,964
- -------------------------------------------------------------------------------
Environmental 1.4%
BHA Group (Class A) + 605,000 8,319
- -------------------------------------------------------------------------------
EMCON * + 715,000 2,324
- -------------------------------------------------------------------------------
IT Group + 875,000 9,734
- -------------------------------------------------------------------------------
TRC * 225,000 1,252
- -------------------------------------------------------------------------------
Waterlink * 500,000 1,812
- -------------------------------------------------------------------------------
23,441
- -------------------------------------------------------------------------------
Transportation Services 2.3%
Builders Transport * + 445,000 2
- -------------------------------------------------------------------------------
Frozen Food Express 600,000 4,725
- -------------------------------------------------------------------------------
International Shipholding + 664,000$ 10,417
- -------------------------------------------------------------------------------
Landstar Systems * 270,000 11,272
- -------------------------------------------------------------------------------
M.S. Carriers * 150,000 4,894
- -------------------------------------------------------------------------------
Transport Corp. of America * + 575,000 6,756
- -------------------------------------------------------------------------------
38,066
- -------------------------------------------------------------------------------
<PAGE>
Miscellaneous Business Services 10.5%
Aaron Rents (Class A) 55,500 829
- -------------------------------------------------------------------------------
Aaron Rents (Class B) 800,000 12,100
- -------------------------------------------------------------------------------
Business Resource Group * + 380,000 1,211
- -------------------------------------------------------------------------------
Children's Comprehensive Services * 200,000 2,750
- -------------------------------------------------------------------------------
CORT Business Services * + 670,000 16,248
- -------------------------------------------------------------------------------
Electro Rent * + 2,000,000 32,125
- -------------------------------------------------------------------------------
Hunt 202,000 2,146
- -------------------------------------------------------------------------------
Insituform Technologies (Class A) * + 1,830,000 26,478
- -------------------------------------------------------------------------------
Ivex Packaging * 225,200 5,236
- -------------------------------------------------------------------------------
Leasing Solutions * 425,900 1,730
- -------------------------------------------------------------------------------
McGrath RentCorp + 1,298,000 28,232
- -------------------------------------------------------------------------------
MPW Industrial Services Group * 195,100 2,268
- -------------------------------------------------------------------------------
MYR Group + 433,333 4,984
- -------------------------------------------------------------------------------
Rainbow Rentals * 250,000 2,453
- -------------------------------------------------------------------------------
Right Management Consultants * + 500,000 7,281
- -------------------------------------------------------------------------------
Tab Products + 400,000 2,350
- -------------------------------------------------------------------------------
UniFirst 250,000 5,703
- -------------------------------------------------------------------------------
Unitog + 575,000 16,567
- -------------------------------------------------------------------------------
170,691
- -------------------------------------------------------------------------------
Airlines 0.5%
Midwest Express Holdings * 299,025 7,868
- -------------------------------------------------------------------------------
7,868
- -------------------------------------------------------------------------------
Total Business Services and Transportation 288,710
- -------------------------------------------------------------------------------
<PAGE>
=====ENERGY==1.9%==============================================================
Energy Services 0.9%
Carbo Ceramics 353,100 6,047
- -------------------------------------------------------------------------------
Newpark Resources * 380,000 2,589
- -------------------------------------------------------------------------------
Offshore Logistics * 150,000 1,776
- -------------------------------------------------------------------------------
Pitt-DesMoines 175,000 4,200
- -------------------------------------------------------------------------------
14,612
- -------------------------------------------------------------------------------
Exploration and Production 1.0%
Brigham Exploration * 550,000 2,888
- -------------------------------------------------------------------------------
Chieftain International * 250,000$ 3,594
- -------------------------------------------------------------------------------
Cross Timbers Oil 300,000 2,250
- -------------------------------------------------------------------------------
HS Resources * + 1,000,000 7,562
- -------------------------------------------------------------------------------
Ocean Energy * 100,000 631
- -------------------------------------------------------------------------------
16,925
- -------------------------------------------------------------------------------
Total Energy 31,537
- -------------------------------------------------------------------------------
=====PROCESS=INDUSTRIES==7.3%==================================================
Diversified Chemicals 0.7%
Aceto + 593,400 7,900
- -------------------------------------------------------------------------------
LeaRonal 100,000 3,387
- -------------------------------------------------------------------------------
11,287
- -------------------------------------------------------------------------------
Specialty Chemicals 2.5%
Eco Soil Systems * 325,000 2,864
- -------------------------------------------------------------------------------
Furon * + 1,100,000 18,769
- -------------------------------------------------------------------------------
Hauser * + 600,000 2,644
- -------------------------------------------------------------------------------
Sybron Chemical * 191,200 2,581
- -------------------------------------------------------------------------------
Synalloy + 535,000 4,782
- -------------------------------------------------------------------------------
Tuscarora + 700,000 9,231
- -------------------------------------------------------------------------------
40,871
- -------------------------------------------------------------------------------
Paper and Paper Products 1.2%
Republic Group 451,400 9,056
- -------------------------------------------------------------------------------
Wausau-Mosinee Paper 620,000 10,966
- -------------------------------------------------------------------------------
20,022
- -------------------------------------------------------------------------------
<PAGE>
Building and Construction 2.9%
Cameron Ashley * 400,000 5,225
- -------------------------------------------------------------------------------
CorrPro Companies * 250,000 3,047
- -------------------------------------------------------------------------------
Giant Cement * + 750,000 18,656
- -------------------------------------------------------------------------------
Layne Christensen * + 600,000 4,500
- -------------------------------------------------------------------------------
Puerto Rican Cement + 450,000 15,722
- -------------------------------------------------------------------------------
47,150
- -------------------------------------------------------------------------------
Total Process Industries 119,330
- -------------------------------------------------------------------------------
=====BASIC=MATERIALS==4.2%=====================================================
Metals 1.5%
Cold Metal Products * + 550,000 1,238
- -------------------------------------------------------------------------------
Gibraltar Steel * 450,000 10,237
- -------------------------------------------------------------------------------
Lone Star Technologies * 354,000$ 3,584
- -------------------------------------------------------------------------------
Material Sciences * 600,000 5,100
- -------------------------------------------------------------------------------
Shiloh Industries * 290,000 3,806
- -------------------------------------------------------------------------------
Steel Technologies 85,900 591
- -------------------------------------------------------------------------------
24,556
- -------------------------------------------------------------------------------
Mining 0.3%
Dayton Mining (CAD) * + 2,200,000 550
- -------------------------------------------------------------------------------
Gold Fields (ZAR) * 475,434 2,623
- -------------------------------------------------------------------------------
Golden Star Resources (CAD) * 1,300,000 1,381
- -------------------------------------------------------------------------------
TVX Gold * 600,000 1,088
- -------------------------------------------------------------------------------
5,642
- -------------------------------------------------------------------------------
Miscellaneous Materials 2.4%
Ameron International 179,400 6,638
- -------------------------------------------------------------------------------
<PAGE>
Oil-Dri + 500,000 7,500
- -------------------------------------------------------------------------------
Optical Coating Laboratory 350,000 8,991
- -------------------------------------------------------------------------------
Penn Virginia + 500,000 9,187
- -------------------------------------------------------------------------------
Synthetic Industries * 375,000 6,422
- -------------------------------------------------------------------------------
38,738
- -------------------------------------------------------------------------------
Total Basic Materials 68,936
- -------------------------------------------------------------------------------
=====INVESTMENT=COMPANIES==0.2%================================================
First Financial Fund 429,690 3,787
- -------------------------------------------------------------------------------
Total Investment Companies 3,787
- -------------------------------------------------------------------------------
=====MISCELLANEOUS==1.9%=======================================================
Integrated Water Technology *+++ 200,000 247
- -------------------------------------------------------------------------------
Other Miscellaneous Common Stocks 30,457
- ------------------------------------------------------------------------------
Total Miscellaneous 30,704
Total Common Stocks (Cost $1,273,994) 1,545,999
===============================================================================
=====PREFERRED=STOCKS==0.3%====================================================
Prime Retail, Cum., 10.50%, (Series A), REIT 175,000 4,430
- -------------------------------------------------------------------------------
===============================================================================
Total Preferred Stocks (Cost $3,333) 4,430
===============================================================================
=====CONVERTIBLE=PREFERRED=STOCKS==1.3%========================================
Chieftain Intl., $1.8125 42,800 $ 1,033
- -------------------------------------------------------------------------------
Cross Timbers Oil (Series A) 480,390 10,418
- -------------------------------------------------------------------------------
IT Group, 7.00% + 155,000 3,197
- -------------------------------------------------------------------------------
Prime Retail, 8.50%, (Series B), REIT 325,000 5,403
- -------------------------------------------------------------------------------
Western Water (Series C) * 2,180 743
- -------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Cost $23,183) 20,794
<PAGE>
=====CONVERTIBLE=BONDS==0.4%===================================================
Builders Transport, Deb., 6.50%, 5/1/11 +$ 1,158,000 17
- -------------------------------------------------------------------------------
Builders Transport, Deb., 8.00%, 8/15/05 + 1,700,000 26
- -------------------------------------------------------------------------------
Glycomed, Sub. Deb., 7.50%, 1/1/03 4,000,000 3,522
- -------------------------------------------------------------------------------
Leasing Solutions, Sub. Notes,
6.875%, 10/1/03 4,000,000 1,030
- -------------------------------------------------------------------------------
Offshore Logistics, Sub. Notes,
(144a), 6.00%, 12/15/03 2,000,000 1,736
- -------------------------------------------------------------------------------
Richardson Electronics, Sr. Sub.
Notes, 7.25%, 12/15/06 + 1,000,000 815
- -------------------------------------------------------------------------------
Miscellaneous Convertible Bonds 27
- -------------------------------------------------------------------------------
===============================================================================
Total Convertible Bonds (Cost $10,521) 7,173
===============================================================================
=====CORPORATE=BONDS==0.8%=====================================================
Delta Financial, 9.50%, 8/1/04 3,000,000 2,475
- -------------------------------------------------------------------------------
Furon, Sr. Sub. Notes, 8.125%, 3/1/08 + 2,000,000 1,980
- -------------------------------------------------------------------------------
International Shipholding, Sr.
Notes, 7.75%, 10/15/07 + 3,000,000 2,880
- -------------------------------------------------------------------------------
Owens & Minor, Sr. Sub. Notes,
10.875%, 6/1/06 2,000,000 2,150
- -------------------------------------------------------------------------------
Synthetic Industries, Sr. Sub.
Notes, 9.25%, 2/15/07 3,000,000 3,060
<PAGE>
===============================================================================
Total Corporate Bonds (Cost $13,122) 12,545
===============================================================================
=====SHORT-TERM=INVESTMENTS==2.3%==============================================
Money Market Fund 2.3%
Reserve Investment Fund, 5.42% # 37,310,732 37,311
- -------------------------------------------------------------------------------
Total Short-Term Investments (Cost $37,311) 37,311
===============================================================================
Total Investments in Securities
99.8% of Net Assets (Cost $1,361,464) $1,628,252
===============================================================================
Other Assets Less Liabilities 3,688
NET ASSETS $1,631,940
===============================================================================
# Seven-day yield
+ Affiliated company
* Non-income producing
++ Security contain some restrictions as to
public resale--total of such securities at
period-end amounts to 0.2% of net assets.
ADR American Depository Receipt
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
0.1% of net assets.
CAD Canadian dollar
ZAR South African rand
================================================================================
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Small-Cap Value Fund
- --------------------------------------------------------------------------------
December 31, 1998
Statement of Assets and Liabilities
- -----------------------------------
In thousands
Assets
Investments in securities, at value
Affiliated companies (cost $568,121) $ 680,315
Other companies (cost $793,343) 947,937
Total investments in securities 1,628,252
Other assets 12,592
Total assets 1,640,844
Liabilities
Total liabilities 8,904
NET ASSETS $ 1,631,940
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 371
Accumulated net realized gain/loss - net of distributions 14,328
Net unrealized gain (loss) 266,788
Paid-in-capital applicable to 86,015,633 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares authorized 1,350,453
NET ASSETS $ 1,631,940
NET ASSET VALUE PER SHARE $ 18.97
================================================================================
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
<PAGE>
T. Rowe Price Small-Cap Value Fund
- --------------------------------------------------------------------------------
Statement of Operations
In thousands
Year
Ended
12/31/98
--------
Investment Income
Income
Dividend (including $8,456 from
affiliated companies) $ 26,798
Interest 9,811
Total income 36,609
Expenses
Investment management 13,021
Shareholder servicing 3,434
Prospectus and shareholder reports 186
Custody and accounting 146
Registration 86
Legal and audit 13
Directors 11
Miscellaneous 17
Total expenses 16,914
Net investment income 19,695
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 98,360
Futures (426)
Foreign currency transactions (14)
Net realized gain (loss) 97,920
Change in net unrealized gain or loss
Securities (including $118,460 from
affiliated companies) (369,317)
Futures (503)
Change in net unrealized gain or loss (369,820)
Net realized and unrealized gain (loss) (271,900)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $(252,205)
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Small-Cap Value Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
In thousands
Year
Ended
12/31/98 12/31/97
-------- --------
Increase (Decrease) in Net Assets
Operations
Net investment income ........................... $ 19,695 $ 17,402
Net realized gain (loss) ........................ 97,920 109,610
Change in net unrealized gain or loss ........... (369,820) 294,031
Increase (decrease) in net assets from operations (252,205) 421,043
Distributions to shareholders
Net investment income ........................... (20,063) (16,703)
Net realized gain ............................... (96,286) (116,072)
Decrease in net assets from distributions ....... (116,349) (132,775)
Capital share transactions *
Shares sold ..................................... 456,561 587,864
Distributions reinvested ........................ 109,998 126,742
Shares redeemed ................................. (654,433) (324,546)
Redemption fees received ........................ 151 60
Increase (decrease) in net assets from capital
share transactions ............................. (87,723) 390,120
Net Assets
Increase (decrease) during period ................ (456,277) 678,388
Beginning of period .............................. 2,088,217 1,409,829
End of period .................................... $ 1,631,940 $ 2,088,217
*Share information
Shares sold .................................... 20,522 26,430
Distributions reinvested ....................... 6,044 5,520
Shares redeemed ................................ (29,793) (14,781)
Increase (decrease) in shares outstanding ...... (3,227) 17,169
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Small-Cap Value Fund
- --------------------------------------------------------------------------------
December 31, 1998
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.
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.
Affiliated Companies As defined by the Investment Company Act of 1940, an
affiliated company is one in which the fund owns at least 5% of the outstanding
voting securities.
<PAGE>
Currency Translation Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing exchange rate on the dates of such transactions.
The effect of changes in foreign exchange rates on realized and unrealized
security gains and losses is reflected as a component of such gains and losses.
Premiums and Discounts Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $310,905,000 and $322,303,000, respectively, for the year
ended December 31, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of its
taxable income.
At December 31, 1998, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$1,361,464,000. Net unrealized gain aggregated $266,788,000 at period end, of
which $461,930,000 related to appreciate d investments and $195,142,000 to
depreciated investments.
<PAGE>
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 $886,000 was payable at December 31, 1998. The fee is computed daily
and paid monthly, and consists of an individual fund fee equal to 0.35% of
average daily net assets and a group fee. The group fee is based on the combined
assets of certain mutual funds sponsored by the manager or Rowe Price-Fleming
International, Inc. (the group). The group fee rate ranges from 0.48% for the
first $1 billion of assets to 0.30% for assets in excess of $80 billion. At
December 31, 1998, and for the year then ended, the effective ann ual 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
$2,908,000 for the year ended December 31, 1998, of which $254,000 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, 1998, totaled
$7,534,000 and are reflected as interest income in the accompanying Statement of
Operations.
================================================================================
T. Rowe Price Small-Cap Value Fund
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Directors and Shareholders of
T. Rowe Price Small-Cap Value Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of T. Rowe Price Small-Cap Value Fund,
Inc.
<PAGE>
(the "Fund") at December 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for each of the fiscal
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with custodians, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 21, 1999
================================================================================
T. Rowe Price Small-Cap Value Fund
- --------------------------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 12/31/98
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included:
* $7,221,000 from short-term capital gains,
* $89,065,000 from long-term capital gains, subject to the 20% rate
gains category.
For corporate shareholders, $17,027,000 of the fund's distributed income
and short-term capital gains qualified for the dividends-received deduction.
================================================================================
<PAGE>
FOR YIELD, PRICE, LAST TRANSACTION,
CURRENT BALANCE, OR TO CONDUCT
TRANSACTIONS, 24 HOURS, 7 DAYS
A WEEK, CALL TELE*ACCESS [REGISTRATION MARK]:
1-800-638-2587 toll free
FOR ASSISTANCE
WITH YOUR EXISTING
FUND ACCOUNT, CALL:
shareholder service center
1-800-225-5132 toll free
410-625-6500 Baltimore area
TO OPEN A BROKERAGE ACCOUNT
OR OBTAIN INFORMATION, CALL:
1-800-638-5660 toll free
INTERNET ADDRESS:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price 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
T. Rowe Price Investment Services, Inc., Distributor. F46-050 12/31/98
