<PAGE>
Annual Report
Value
Fund
-----------------
December 31, 1998
-----------------
[ARTWORK APPEARS HERE]
T. Rowe Price
<PAGE>
REPORT HIGHLIGHTS
- -------------------------------------------------------------------------------
Value Fund
. Stocks staged a powerful late-year rally following a steep summer correction,
but a narrow group of large-cap growth stocks accounted for much of the gain.
. The fund returned -1.54% and 6.85%, respectively, for the 6- and 12-month
periods ended December 31, 1998, behind both its Lipper benchmark and the S&P
500.
. Despite the fund's poor year, it has outpaced the Lipper average since its
inception in 1994.
. As always, we invested in undervalued companies that offer good potential for
appreciation.
. Stocks have been advancing at a faster rate than their fundamentals. We
believe our value investment approach will continue to serve shareholders
well in the more challenging environment we foresee.
<PAGE>
Fellow Shareholders
Last year was characterized by positive economic growth, a favorable interest
rate environment, and substantial stock market volatility. A solid first half
was undermined by a severe third quarter correction, which gave way to a
near-euphoric rally in the final months. The S&P 500 advanced by more than 20%
for a record fourth consecutive year. However, despite another strong year for
equities overall, growth stocks outpaced value stocks by a significant margin.
- -------------------------
Performance Comparison
- -------------------------------------------------------------
Periods Ended 12/31/98 6 Months 12 Months
- -------------------------------------------------------------
Value Fund -1.54% 6.85%
.............................................................
S&P 500 9.22 28.57
.............................................................
Lipper Growth & Income
Funds Average 3.09 15.61
.............................................................
Last year was both humbling and disappointing for your fund. In a difficult
environment for value stocks, the fund's 6.85% 12-month return trailed both the
broad equity market measured by the unmanaged Standard & Poor's 500 Stock Index
and the average return of its Lipper peer group. For the second half, the fund
posted a loss of 1.54% due primarily to a negative third quarter that not even a
13.7% rebound during the final three months could offset. We are never happy
with poor results. However, since the fund commenced operations on September 30,
1994, it has produced very competitive returns versus the Lipper benchmark, and
overall performance has been quite good considering the fund's relatively low
risk level. For example, despite the fund's poor year, its total return since
inception through December 31, 1998, exceeded that of Lipper (see Performance
Comparison chart on page 7). That said, our performance in 1998 warrants further
discussion, which appears later in this report.
YEAR-END DISTRIBUTIONS
Your Board of Directors declared a fourth quarter income dividend of $0.06 per
share, bringing the total for 1998 to $0.20. Earlier in the month, a $0.81 per
share capital gain distribution was declared, of which $0.14 represented
short-term and $0.67 long-term capital gains.
1
<PAGE>
- ---------------------------------------------------------------
Preparing For The Year 2000
- -------------------------------------------------------------------------------
The Year 2000 draws closer every day, and it holds special meaning beyond the
arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all new
systems process and store four-digit years. All critical systems have been
reprogrammed (including business applications required to service our customers
and processing infrastructure necessary to ensure the integrity of customer data
and investments), and they are currently being tested. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be able
to modify their interface files prior to December 31, 1999. In addition, we are
scheduling tests for critical vendors and companies that claim Year 2000
compliance to ensure that time-related data and calculations function properly
as we move into the next century.
SMOOTH TRANSITION PLANNED
We believe our programs and initiatives will provide a smooth transition into
the next millennium. We are assessing all systems providing products or services
to our retail mutual fund shareholders, retirement plan sponsors, and
participants, and we have modified them where necessary for the Year 2000.
The Securities Industry Association (SIA) is coordinating Year 2000 testing to
assure that securities markets, clearing corporations, depositories, and third
party service providers can send, receive, and process files and transactions
accurately. In late July 1998, the SIA completed a beta test of Year 2000
readiness. The test was considered successful in terms of transactions completed
and will serve as the basis for the SIA's industry-wide approach. During October
1998, T. Rowe Price completed its beta test of Year 2000 readiness with the SIA
and is ready for the industry-wide test that is scheduled for March and April
1999.
For a more detailed discussion of our Year 2000 effort, as well as continuing
updates on our progress, please check our Web site (www.troweprice.com).
2
<PAGE>
The dividend was paid on December 30, 1998, to shareholders of record on
December 28, and the capital gain distribution was paid on December 17 to
shareholders of record on December 15. You should have received your check or
statement reflecting them, as well as Form 1099-DIV summarizing this information
for 1998 tax purposes.
PORTFOLIO REVIEW
The equity market in 1998 was characterized by a couple of pronounced trends.
First, the market's breadth was unusually narrow as a small number of companies
generated extremely powerful returns that constituted the bulk of S&P 500
performance. However, beneath the surface of the index's 28.6% return, the
average stock on the New York Stock Exchange actually lost value in 1998, and
more than half of the return was generated by only 15 stocks. Therefore,
selectivity was more critical last year than in any time in the recent past.
THE MARKET'S RECENT PREFERENCE FOR GROWTH MAKES US RELATIVELY OPTIMISTIC ABOUT
THE VALUE FUND'S PROSPECTS OVER THE NEXT FEW YEARS, SINCE GROWTH AND VALUE
TYPICALLY GO THROUGH CYCLES WHEN ONE OR THE OTHER IS IN OR OUT OF FAVOR.
Second, investors continued to prefer growth stocks over value stocks, and in
1998 growth enjoyed a greater return advantage over value than any time in the
last 20 years. Stocks with low price/earnings ratios faced an extremely adverse
environment, with the 100 lowest P/E companies in the index posting a slightly
negative return for the year. Historically, large performance disparities
between growth and value styles tend to correct themselves over time. The
market's recent preference for growth makes us relatively optimistic about the
Value Fund's prospects over the next few years, since growth and value typically
go through cycles when one or the other is in or out of favor.
The fund ended the year with approximately 97% of its assets invested in stocks
that were well diversified across industry sectors (see chart on page 4). Four
of the companies sold in the last six months were the result of merger and
acquisition activity, and the sale prices in each case represented significant
premiums to cost. These transactions are shown in the Major Portfolio Changes
table following the report. Most new companies in the portfolio are financially
sound, but their stocks suffered in 1998 because of either a temporary
fundamental problem or the perception of one.
3
<PAGE>
Our experience suggests that temporary problems at good firms are eventually
solved, and investors' fixation on short-term developments often gives us an
opportunity to invest in sound franchises whose share prices are relatively
attractive. Viacom is a prime example. We invested in the stock more than a year
ago, and during the ensuing 12 months investors changed their perception about
the company and drove the stock price up sharply. We liquidated our position
when the stock had risen to a level we no longer considered appealing.
- -----------------------
Sector Diversification
- -----------------------------------------------------
[PIE CHART APPEARS HERE]
Consumer Nondurables 19%
Reserves and Other 19%
Financial 17%
Consumer Services 11%
Technology 10%
Business Services and Transportation 9%
Process Industries 8%
Energy 7%
Based on net assets as of 12/31/98
This concept of "attractive relative valuation" has been out of favor in the
marketplace recently but has enduring value, in our view. As always, we invest
in companies that seem underpriced based on various measures and, therefore,
provide us with the potential to benefit from changes in how other investors
view these companies. This is the classic approach of the value investor. The
style of this fund is to buy stocks of companies selling at prices below our
assessment of their underlying value -- not highflying, high-growth companies
that have become overpriced because they are in favor at the moment.
SUMMARY AND OUTLOOK
Twelve months ago, we commented on the rapid appreciation of stock prices
compared with the growth in the underlying earnings and dividends. In 1997,
share prices increased at a much faster rate than the underlying fundamentals,
and this "delinkage" between price and value grew even more pronounced in 1998.
We expect 1999 to be a more challenging year than the one just ended, which
could lead to more moderate returns than the robust and, in our view,
unsustainable performance of the past four years. In this environment, our
investment approach will be steady and constant. We will continue to search for
attractively valued stocks with solid long-term potential.
4
<PAGE>
As always, we will strive to justify the confidence you have placed in us, and
we appreciate your continued support.
Respectfully submitted,
/s/ Brian C. Rogers
Brian C. Rogers
President and Chairman of the Investment Advisory Committee
January 22, 1999
- ---------------------
Portfolio Highlights
- --------------------------------------------------------------------
MAJOR PORTFOLIO CHANGES
(Listed in descending order of size)
6 Months Ended 12/31/98
Ten Largest Purchases
- --------------------------------------------------------------------
BankAmerica
....................................................................
Stanley Works *
....................................................................
General Mills *
....................................................................
Citigroup *
....................................................................
Corning *
....................................................................
Unocal *
....................................................................
Goodyear Tire & Rubber *
....................................................................
Canadian Pacific *
....................................................................
FMC
....................................................................
Delta *
....................................................................
Ten Largest Sales
- --------------------------------------------------------------------
Viacom **
....................................................................
Willis-Corroon **
....................................................................
General Signal **
....................................................................
Betz Laboratories **
....................................................................
Waste Management **
....................................................................
Valassis Communications **
....................................................................
Tricon Global Restaurants **
....................................................................
BankBoston **
....................................................................
Pennzoil **
....................................................................
3Com **
....................................................................
* Position added
** Position eliminated
5
<PAGE>
T. Rowe Price Value Fund
- ------------------------------------------------------------------------------
- ----------------------
Portfolio Highlights
- ------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/98
- ------------------------------------------------------------------------------
Loews 1.9%
..............................................................................
EXEL 1.8
..............................................................................
Corning 1.7
..............................................................................
ALLTEL 1.7
..............................................................................
Great Lakes Chemical 1.7
- ------------------------------------------------------------------------------
RJR Nabisco 1.5
..............................................................................
Amoco 1.5
..............................................................................
General Mills 1.5
..............................................................................
CBS 1.5
..............................................................................
Union Pacific 1.5
- ------------------------------------------------------------------------------
Amerada Hess 1.4
..............................................................................
Citigroup 1.4
..............................................................................
Norfolk Southern 1.4
..............................................................................
Analog Devices 1.4
..............................................................................
GM 1.4
- ------------------------------------------------------------------------------
Motorola 1.4
..............................................................................
Armstrong World 1.4
..............................................................................
Hewlett-Packard 1.3
..............................................................................
Allegheny Teledyne 1.3
..............................................................................
Phelps Dodge 1.3
- ------------------------------------------------------------------------------
American Stores 1.3
..............................................................................
First Union 1.3
..............................................................................
Toys "R" Us 1.3
..............................................................................
AlliedSignal 1.3
..............................................................................
Aetna 1.3
- ------------------------------------------------------------------------------
Total 36.5%
6
<PAGE>
T. Rowe Price 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.
VALUE FUND
- -----------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
As of 12/31/98
Lipper Growth &
Date S&P 500 Index Income Funds Average Value Fund
---- ------------- -------------------- ----------
9/30/94 $10,000 $10,000 $10,000
12/1/94 $9,998 $9,848 $10,310
12/1/95 $13,756 $12,951 $14,419
12/1/96 $16,914 $15,690 $18,529
12/1/97 $22,557 $20,073 $23,948
12/1/98 $29,000 $23,350 $25,590
- -------------------------------------
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how the fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Since Inception
Periods Ended 12/31/98 1 Year 3 Years Inception Date
- ------------------------------------------------------------------------------
Value Fund 6.85% 21.07% 24.73% 9/30/94
..............................................................................
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
7
<PAGE>
T. Rowe Price Value Fund
- --------------------------------------------------------------------------------
- ---------------------
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year 9/30/94
Ended Through
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 18.24 $ 15.76 $ 13.21 $ 10.24 $ 10.00
...........................................................
Investment activities
Net investment income 0.19 0.21 0.27* 0.27* 0.08*
Net realized and
unrealized gain (loss) 1.04 4.31 3.45 3.78 0.23
...........................................................
Total from
investment activities 1.23 4.52 3.72 4.05 0.31
...........................................................
Distributions
Net investment income (0.20) (0.21) (0.26) (0.26) (0.07)
Net realized gain (0.96) (1.83) (0.91) (0.82) -
...........................................................
Total distributions (1.16) (2.04) (1.17) (1.08) (0.07)
...........................................................
NET ASSET VALUE
End of period $ 18.31 $ 18.24 $ 15.76 $ 13.21 $ 10.24
-----------------------------------------------------------
Ratios/Supplemental Data
Total return** 6.85% 29.25% 28.51%* 39.85%* 3.10%*
.......................................................................................
Ratio of expenses to
average net assets 0.98% 1.05% 1.10%* 1.10%* 1.10%*+
.......................................................................................
Ratio of net investment
income to average
net assets 1.06% 1.26% 1.71%* 2.03%* 3.16%*+
.......................................................................................
Portfolio turnover rate 72.1% 67.2% 68.0% 89.7% 30.8%+
.......................................................................................
Net assets, end of period
(in thousands) $774,514 $ 546,375 $ 197,846 $ 46,582 $ 8,850
.......................................................................................
</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.
* Excludes expenses in excess of a 1.10% voluntary expense limitation in effect
through 12/31/96.
+ Annualized
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
T. Rowe Price Value Fund
- --------------------------------------------------------------------------------
December 31, 1998
- -----------------------
Statement of Net Assets Shares Value
- --------------------------------------------------------------------------------
In thousands
Common Stocks 96.6%
FINANCIAL 17.2%
Bank and Trust 7.7%
Bank One 162,000 $ 8,272
................................................................................
BankAmerica 150,000 9,019
................................................................................
Citigroup 225,000 11,137
................................................................................
First Union 167,000 10,156
................................................................................
Mellon Bank 105,000 7,219
................................................................................
Mercantile Bancorporation 125,000 5,765
................................................................................
Union Planters 175,000 7,930
................................................................................
59,498
...............
Insurance 8.6%
EXEL (Class A) 181,720 13,629
................................................................................
Loews 150,000 14,737
................................................................................
Ohio Casualty 200,000 8,238
................................................................................
PartnerRe Holdings 150,000 6,863
................................................................................
SAFECO 200,000 8,594
................................................................................
Transamerica 75,000 8,662
................................................................................
Travelers Property Casualty (Class A) 200,000 6,200
................................................................................
66,923
...............
Financial Services 0.9%
Morgan Stanley Dean Witter 100,000 7,100
................................................................................
7,100
...............
Total Financial 133,521
...............
UTILITIES 2.5%
Telephone Services 2.5%
ALLTEL 222,000 13,278
................................................................................
Telebras ADR 85,000 6,179
................................................................................
Total Utilities 19,457
...............
CONSUMER NONDURABLES 19.4%
Food Processing 3.7%
ConAgra 300,000 9,450
................................................................................
General Mills 150,000 11,662
................................................................................
9
<PAGE>
T. Rowe Price Value Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
McCormick 220,000 $ 7,432
................................................................................
28,544
.................
Hospital Supplies/Hospital Management 1.3%
HealthSouth * 350,000 5,403
................................................................................
Smith & Nephew (GBP) 1,600,000 4,865
................................................................................
10,268
.................
Pharmaceuticals 2.3%
Pharmacia & Upjohn 150,000 8,494
................................................................................
Teva Pharmaceutical Industries ADR 225,000 9,176
................................................................................
17,670
.................
Health Care Services 1.8%
Aetna 125,000 9,828
................................................................................
United HealthCare 100,000 4,306
................................................................................
14,134
.................
Miscellaneous Consumer Products 10.3%
Armstrong World 175,000 10,555
................................................................................
Fortune Brands 300,000 9,488
................................................................................
Hasbro 250,000 9,031
................................................................................
RJR Nabisco 400,000 11,875
................................................................................
Rubbermaid 225,000 7,073
................................................................................
Seagram 250,000 9,500
................................................................................
Stanley Works 275,000 7,631
................................................................................
Tomkins (GBP) 1,200,000 5,702
................................................................................
UST 250,000 8,719
................................................................................
79,574
.................
Total Consumer Nondurables 150,190
.................
CONSUMER SERVICES 10.1%
General Merchandisers 1.0%
Neiman-Marcus * 300,000 7,481
................................................................................
7,481
.................
Specialty Merchandisers 4.1%
A&P 200,000 5,925
................................................................................
American Stores 275,000 10,158
................................................................................
Toys "R" Us * 600,000 10,125
................................................................................
Tupperware 350,000 5,753
................................................................................
31,961
.................
10
<PAGE>
T. Rowe Price Value Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
Entertainment and Leisure 1.9%
Hilton 475,000 $ 9,085
................................................................................
Reader's Digest (Class A) 225,000 5,667
................................................................................
14,752
...............
Media and Communications 3.1%
CBS 350,000 11,462
................................................................................
Chris-Craft * 150,000 7,228
................................................................................
News Corporation 200,000 5,288
................................................................................
23,978
...............
Total Consumer Services 78,172
...............
CONSUMER CYCLICALS 6.7%
Automobiles and Related 2.3%
GM 150,000 10,734
................................................................................
Goodyear Tire & Rubber 150,000 7,566
................................................................................
18,300
...............
Building and Real Estate 2.2%
Owens Corning 250,000 8,859
................................................................................
Starwood Hotels & Resorts, REIT 350,000 7,941
................................................................................
16,800
...............
Miscellaneous Consumer Durables 2.2%
Corning 300,000 13,500
................................................................................
Polaroid 175,000 3,270
................................................................................
16,770
...............
Total Consumer Cyclicals 51,870
...............
TECHNOLOGY 10.0%
Electronic Components 2.8%
Analog Devices * 350,000 10,981
................................................................................
Motorola 175,000 10,686
................................................................................
21,667
...............
Electronic Systems 1.3%
Hewlett-Packard 150,000 10,247
................................................................................
10,247
...............
Aerospace and Defense 5.9%
Allegheny Teledyne 500,000 10,219
................................................................................
AlliedSignal 225,000 9,970
................................................................................
11
<PAGE>
T. Rowe Price Value Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
Boeing 300,000 $ 9,788
................................................................................
Lockheed Martin 75,000 6,356
................................................................................
Raytheon (Class B) 175,000 9,319
................................................................................
45,652
..............
Total Technology 77,566
..............
CAPITAL EQUIPMENT 1.5%
Machinery 1.5%
FMC * 125,000 7,000
................................................................................
Parker Hannifin 150,000 4,913
................................................................................
Total Capital Equipment 11,913
..............
BUSINESS SERVICES AND TRANSPORTATION 9.5%
Airlines 0.8%
Delta 125,000 6,500
................................................................................
6,500
..............
Computer Service and Software 2.6%
First Data 225,000 7,130
................................................................................
NCR * 200,000 8,350
................................................................................
Parametric Technology * 300,000 4,875
................................................................................
20,355
..............
Miscellaneous Business Services 2.3%
Browning-Ferris 300,000 8,531
................................................................................
FDX * 100,000 8,900
................................................................................
17,431
..............
Railroads 3.8%
Canadian Pacific 350,000 6,606
................................................................................
Norfolk Southern 350,000 11,091
................................................................................
Union Pacific 250,000 11,265
................................................................................
28,962
..............
Total Business Services and Transportation 73,248
..............
ENERGY 6.9%
Integrated Petroleum - Domestic 3.9%
Amerada Hess 225,000 11,194
................................................................................
Murphy Oil 175,000 7,219
................................................................................
12
<PAGE>
T. Rowe Price Value Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
Occidental Petroleum 300,000 $ 5,062
................................................................................
Unocal 225,000 6,567
................................................................................
30,042
...............
Exploration and Production 1.5%
Burlington Resources 225,000 8,058
................................................................................
Pioneer Natural Resources 400,000 3,500
................................................................................
11,558
...............
Integrated Petroleum - International 1.5%
Amoco 200,000 11,800
................................................................................
11,800
...............
Total Energy 53,400
...............
PROCESS INDUSTRIES 8.2%
Diversified Chemicals 2.1%
Hercules 350,000 9,581
................................................................................
Union Carbide 160,000 6,800
................................................................................
16,381
...............
Specialty Chemicals 3.9%
Cytec Industries * 300,000 6,375
................................................................................
Great Lakes Chemical 325,000 13,000
................................................................................
Imperial Chemical ADR 150,000 5,240
................................................................................
Raychem 175,000 5,655
................................................................................
30,270
...............
Paper and Paper Products 1.2%
Kimberly-Clark 175,000 9,538
................................................................................
9,538
...............
Forest Products 1.0%
Georgia-Pacific 125,000 7,320
................................................................................
7,320
...............
Total Process Industries 63,509
...............
BASIC MATERIALS 4.1%
Metals 2.4%
Inco 750,000 7,922
................................................................................
Phelps Dodge 200,000 10,175
................................................................................
18,097
...............
13
<PAGE>
T. Rowe Price Value Fund
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
In thousands
Mining 1.7%
Newmont Mining 375,000 $ 6,773
................................................................................
WMC Limited (AUD) 2,200,000 6,633
................................................................................
13,406
..............
Total Basic Materials 31,503
..............
Total Miscellaneous Common Stock 0.5% 4,066
..............
Total Common Stocks (Cost $744,302) 748,415
..............
Short-Term Investments 4.0%
Money Market Funds 4.0%
Reserve Investment Fund, 5.42% # 30,603,473 30,603
................................................................................
Total Short-Term Investments (Cost $30,603) 30,603
..............
14
<PAGE>
T. Rowe Price Value Fund
- --------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------
In thousands
Total Investments in Securities
100.6% of Net Assets (Cost $774,905) $ 779,018
Other Assets Less Liabilities (4,504)
..............
NET ASSETS $ 774,514
--------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ (140)
Accumulated net realized gain/loss - net of distributions 29,963
Net unrealized gain (loss) 4,117
Paid-in-capital applicable to 42,307,185 shares of $0.0001 par
value capital stock outstanding; 1,000,000,000 shares authorized 740,574
..............
NET ASSETS $ 774,514
--------------
NET ASSET VALUE PER SHARE $ 18.31
--------------
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
REIT Real Estate Investment Trust
AUD Australian dollar
GBP British sterling
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
T. Rowe Price Value Fund
- --------------------------------------------------------------------------------
- -----------------------
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/98
Investment Income
Income
Dividend $ 13,044
Interest 2,686
...........
Total income 15,730
...........
Expenses
Investment management 5,176
Shareholder servicing 1,848
Registration 243
Prospectus and shareholder reports 124
Custody and accounting 106
Legal and audit 14
Directors 8
Miscellaneous 32
...........
Total expenses 7,551
...........
Net investment income 8,179
...........
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 62,799
Foreign currency transactions (108)
...........
Net realized gain (loss) 62,691
...........
Change in net unrealized gain or loss
Securities (42,016)
Other assets and liabilities
denominated in foreign currencies 7
...........
Change in net unrealized gain or loss (42,009)
Net realized and unrealized gain (loss) 20,682
...........
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 28,861
-----------
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
T. Rowe Price 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 $ 8,179 $ 4,492
Net realized gain (loss) 62,691 50,739
Change in net unrealized gain or loss (42,009) 29,089
........................
Increase (decrease) in net assets from operations 28,861 84,320
........................
Distributions to shareholders
Net investment income (8,467) (4,372)
Net realized gain (39,006) (47,279)
........................
Decrease in net assets from distributions (47,473) (51,651)
........................
Capital share transactions *
Shares sold 579,976 395,564
Distributions reinvested 45,081 50,164
Shares redeemed (378,306) (129,868)
........................
Increase (decrease) in net assets from capital
share transactions 246,751 315,860
........................
Net Assets
Increase (decrease) during period 228,139 348,529
Beginning of period 546,375 197,846
........................
End of period $ 774,514 $ 546,375
------------------------
* Share information
Shares sold 30,243 21,897
Distributions reinvested 2,469 2,810
Shares redeemed (20,355) (7,310)
........................
Increase (decrease) in shares outstanding 12,357 17,397
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
T. Rowe Price Value Fund
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December 31, 1998
- ------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price 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 September 30, 1994.
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.
Investments in mutual funds are valued at the closing net asset value per share
of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
Currency Translation Assets and liabilities are translated into U.S. dollars at
the prevailing exchange rate at the end of the reporting period. Purchases and
sales of securities and income and expenses are translated into U.S. dollars at
the prevailing exchange rate on the dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized security gains and
losses is reflected as a component of such gains and losses.
18
<PAGE>
T. Rowe Price Value Fund
- --------------------------------------------------------------------------------
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 $744,464,000 and $515,053,000, respectively, for the year ended
December 31, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of its
taxable income.
In order for the fund's capital accounts and distributions to shareholders to
reflect the tax character of certain transactions, the following
reclassifications were made during the year ended December 31, 1998. The results
of operations and net assets were not affected by the increases/(decreases) to
these accounts.
- --------------------------------------------------------------------------------
Undistributed net investment income $ 18,000
Paid-in-capital (18,000)
At December 31, 1998, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled $774,905,000.
Net unrealized gain aggregated $4,113,000 at period-end, of which $86,900,000
related to appreciated investments and $82,787,000 to depreciated investments.
19
<PAGE>
T. Rowe Price Value Fund
- --------------------------------------------------------------------------------
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 $446,000 was payable at December 31, 1998. The fee is computed daily
and paid monthly, and consists of an individual fund fee equal to 0.35% of
average daily net assets and a group fee. The group fee is based on the combined
assets of certain mutual funds sponsored by the manager or Rowe Price-Fleming
International, Inc. (the group). The group fee rate ranges from 0.48% for the
first $1 billion of assets to 0.30% for assets in excess of $80 billion. At
December 31, 1998, and for the year then ended, the effective annual group fee
rate was 0.32%. The fund pays a pro-rata share of the group fee based on the
ratio of its net assets to those of the group.
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 $1,544,000 for the year ended
December 31, 1998, of which $157,000 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
$2,649,000 and are reflected as interest income in the accompanying Statement of
Operations.
During the year ended December 31, 1998, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $3,067,000 with
certain affiliates of the manager and paid commissions of $15,000 related
thereto.
20
<PAGE>
T. Rowe Price Value Fund
- --------------------------------------------------------------------------------
- ----------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To The Board of Directors and Shareholders of
T. Rowe Price Value Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
T. Rowe Price Value Fund, Inc. (the "Fund") at December 31, 1998, and the
results of its operations, the changes in its 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
21
<PAGE>
T. Rowe Price 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:
. $9,219,000 from short-term capital gains,
. $29,787,000 from long-term capital gains, all of which is subject to the 20%
rate gains category.
For corporate shareholders, $10,849,000 of the fund's distributed income and
short-term capital gains qualified for the dividends-received deduction.
22
<PAGE>
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from
8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(R) and the T. Rowe Price Web
site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services,
Inc., Member NASD/SIPC.
23
<PAGE>
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
STOCK FUNDS
..................................
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500*
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons**
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
..................................
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Intermediate Tax-Free***
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond+
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond++
International Bond
MONEY MARKET FUNDS+++
..................................
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
..................................
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
..................................
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Formerly named Equity Index.
** Closed to new investors.
*** Formerly named Florida Insured Intermediate Tax-Free.
+ Formerly named Tax-Free Insured Intermediate Bond.
++ Formerly named Global Government Bond.
+++ Neither the funds nor their share prices are insured or guaranteed by the
U.S. government.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY.
T. Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
24
<PAGE>
T. Rowe Price Retirement Plans and Resources
- --------------------------------------------------------------------------------
Retirement Plans and Resources
We recognize that saving for retirement is the number one investment goal for
most Americans. We can help you meet your retirement needs, whether you are
starting an IRA or designing a retirement program for your employees. T. Rowe
Price offers an assortment of retirement plans for individuals, the
self-employed, small businesses, corporations, and nonprofit organizations. We
provide recordkeeping, communications, and investment management services, as
well as a variety of educational materials, self-help planning guides, and
software tools to help you choose and implement a retirement plan appropriate
for you. For information or to request literature, call us at 1-800-638-5660.
IRAs AND QUALIFIED PLANS
................................................................................
Traditional IRA
Roth IRA
Rollover IRA
SEP-IRA
SIMPLE IRA
Profit Sharing
Money Purchase Pension
"Paired" Plans (Money Purchase Pension and Profit Sharing Plans)
401(k)
403(b)
457 Deferred Compensation
RETIREMENT RESOURCES AT T. ROWE PRICE
................................................................................
Planning and Informational Guides
Minimum Required Distributions Guide
Retirement Planning Kit
Retirees Financial Guide
Tax Considerations for Investors
Investment Kits
The IRA Investing Kit
Roth IRA Conversion Kit
Rollover IRA Kit
The T. Rowe Price SIMPLE IRA Plan Kit
The T. Rowe Price SEP-IRA Plan
The Simplified Keogh Plan(R) From
T. Rowe Price
The T. Rowe Price 401(k) Century Plan(R) (for small businesses)
Money Purchase Pension/Profit Sharing Plan Kit
Investing for Retirement in Your 403(b) Account
The T. Rowe Price No-Load Variable Annuity Information Kit
Insights Reports
The Challenge of Preparing for Retirement
Financial Planning After Retirement
The Roth IRA: A Review
Software Packages
T. Rowe Price Retirement Planning Analyzer(TM) CD-ROM or diskette $19.95. To
order, please call 1-800-541-5760. Also available on the Internet for $9.95.
T. Rowe Price Variable Annuity Analyzer(TM) CD-ROM or diskette, free. To order,
please call 1-800-469-5304.
Many of these resources are also available for viewing or ordering on the
Internet at www.troweprice.com.
25
<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 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 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. F07-050 12/31/98
