<PAGE>
- --------------------------------------------------------------------------------
Fellow Shareholders
- --------------------------------------------------------------------------------
The equity market advanced strongly in the second quarter, continuing the trend
established at the beginning of the year. The 20.2% advance over the first half
is the strongest since the first half of 1987 and ranks eighth since 1926. It
has been a perfect environment for stocks, with expectations of a soft landing
for the economy, falling interest rates, good corporate earnings, and strong
demand for equities. It is difficult to see how the situation can improve.
As has often been the case in powerful markets, your fund's conservative
yield-oriented approach lagged the broad market measured by the unmanaged
Standard & Poor's 500 Stock Index. However, we are pleased by the fund's strong
absolute performance so far this year, which exceeded the average for similar
funds during the three- and six-month periods ended June 30.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 6/30/95
3 Months 6 Months
---------------------
<S> <C> <C>
Equity Income Fund 6.7% 15.4%
S&P 500 9.6 20.2
Lipper Equity Income
Fund Average 6.6 14.6
- --------------------------------------------------------------------------------
</TABLE>
DIVIDEND DISTRIBUTION
On June 27, your Board of Trustees declared a second quarter dividend of $0.16
per share, which brings your 1995 dividend total to $0.46, including the $0.14
per share first quarter capital gain distribution. The second quarter
distribution was paid on June 29 to shareholders of record on June 27. You
should have received your check or statement reflecting this dividend.
PORTFOLIO REVIEW
During the second quarter we focused on stocks in several areas. We are always
attracted to out-of-favor stocks with high dividend yields -- particularly those
that are high compared with their histories. We made new or additional
investments in ALLTEL, DAYTON HUDSON, MAY DEPARTMENT STORES, and WARNER-LAMBERT.
All these stocks carry high relative dividend yields and have been, in
varying degrees, recent laggards. By investing in sound companies with above-
average dividend yields following periods of underperformance, we believe your
fund will benefit from the market's tendency to revalue them upward in the
months ahead. In addition to the above stocks, we increased positions in a
number of real estate investment trusts that have favorable risk and return
characteristics.
Regarding portfolio sales, we continued to reduce exposure to high-yield
bonds, whose yield advantage relative to Treasury bonds no longer justifies
their higher credit risk. We also reduced or eliminated other positions,
including
- --------------------------------------------------------------------------------
Security Diversification
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Equity Income Fund Chart Description--for edgarizing only
- ---------------------------------------------------------
Chart Number 1: Security Diversification
A pie chart showing the percent of the Funds assets investment among common
stock 75.49%, convertibles 3.90%, bonds 5.53% and reserves 15.08%.
<PAGE>
SCHLUMBERGER and UNITED TECHNOLOGIES, fine companies whose stock prices have
risen to a level where their dividend yields no longer meet our criteria.
In terms of asset allocation, your portfolio mix is little changed from the
end of the first quarter. We reduced exposure to bonds and increased the
reserves position slightly, each by one percentage point.
SUMMARY AND OUTLOOK
In our last report, we anticipated "a more subdued stock market" in the second
quarter. While we are always happy with unexpectedly robust performance, we are
still concerned about signs of overvaluation and troubling investor behavior.
Caution and risk-aversion are now viewed with disdain by many investors,
who are buoyed by recent results. A debate has broken out about whether dividend
yield is still a valid measure of stock market valuation. Our view is that
dividends do matter and the historically low 2.5% average current yield of S&P
500 stocks suggests that returns may be somewhat uninspiring over the
intermediate term. Therefore, we have grown increasingly cautious in our outlook
for the rest of the year and we believe investors should be prepared for
increased volatility, such as occured after the close of our reporting period.
As always, we appreciate your confidence and support.
Respectfully submitted,
/s/ Brian C. Rogers
Brian C. Rogers
President and Chairman of the
Investment Advisory Committee
July 19, 1995
2
<PAGE>
- --------------------------------------------------------------------------------
Twenty-Five Largest Holdings
- --------------------------------------------------------------------------------
June 30, 1995
<TABLE>
<CAPTION>
Percent of
Company Net Assets
- -------------------------------------------------------------------- ----------
<S> <C>
SmithKline Beecham 1.9%
- --------------------------------------------------------------------------------
Philip Morris 1.8
- --------------------------------------------------------------------------------
Exxon 1.8
- --------------------------------------------------------------------------------
Upjohn 1.5
- --------------------------------------------------------------------------------
Honeywell 1.5
- --------------------------------------------------------------------------------
Warner-Lambert 1.4
- --------------------------------------------------------------------------------
Eli Lilly 1.4
- --------------------------------------------------------------------------------
Atlantic Richfield 1.4
- --------------------------------------------------------------------------------
Mellon Bank 1.3
- --------------------------------------------------------------------------------
J. P. Morgan 1.3
- --------------------------------------------------------------------------------
Texaco 1.3
- --------------------------------------------------------------------------------
American Brands 1.3
- --------------------------------------------------------------------------------
American Home Products 1.2
- --------------------------------------------------------------------------------
American Express 1.2
- --------------------------------------------------------------------------------
Royal Dutch Petroleum 1.2
- --------------------------------------------------------------------------------
GE 1.2
- --------------------------------------------------------------------------------
GTE 1.2
- --------------------------------------------------------------------------------
British Petroleum 1.1
- --------------------------------------------------------------------------------
Eastman Kodak 1.0
- --------------------------------------------------------------------------------
Dun & Bradstreet 1.0
- --------------------------------------------------------------------------------
Entergy 1.0
- --------------------------------------------------------------------------------
Mobil 1.0
- --------------------------------------------------------------------------------
Sallie Mae 0.9
- --------------------------------------------------------------------------------
U.S. West 0.9
- --------------------------------------------------------------------------------
Baxter International 0.9
- --------------------------------------------------------------------------------
Total 31.7%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
Periods Ended June 30, 1995
<TABLE>
<CAPTION>
Since Inception
1 Year 5 Years 10/31/85
------ ------- ---------------
<S> <C> <C>
21.70% 13.25% 15.03%
- --------------------------------------------------------------------------------
</TABLE>
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
- --------------------------------------------------------------------------------
Portfolio Changes
- --------------------------------------------------------------------------------
Three Months Ended June 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PURCHASES
- --------------------------------------------------------------------------------
Cost (000)
--------------
<S> <C>
ALLTEL* $22,618
- --------------------------------------------------------------------------------
May Department Stores* 20,939
- --------------------------------------------------------------------------------
Warner-Lambert 20,089
- --------------------------------------------------------------------------------
Dayton Hudson* 18,082
- --------------------------------------------------------------------------------
Conrail* 17,320
- --------------------------------------------------------------------------------
Simon Property Group* 16,572
- --------------------------------------------------------------------------------
Roche Holding LYONs* 16,353
- --------------------------------------------------------------------------------
Cooper Industries 10,932
- --------------------------------------------------------------------------------
J.C. Penney 10,892
- --------------------------------------------------------------------------------
UNUM* 10,181
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALES
- --------------------------------------------------------------------------------
<CAPTION>
Proceeds (000)
--------------
<S> <C>
Continental** $19,484
- --------------------------------------------------------------------------------
Schlumberger** 12,626
- --------------------------------------------------------------------------------
Cooper Industries Cv. Bond** 10,909
- --------------------------------------------------------------------------------
United Technologies** 10,558
- --------------------------------------------------------------------------------
Southern Pacific Rail Cv. Deb.** 10,220
- --------------------------------------------------------------------------------
Rockefeller Center Cv. Deb. 9,941
- --------------------------------------------------------------------------------
Stone Container Sr. Notes** 6,592
- --------------------------------------------------------------------------------
Ferrellgas Bond** 6,263
- --------------------------------------------------------------------------------
Albany International** 5,660
- --------------------------------------------------------------------------------
Melville 5,436
- --------------------------------------------------------------------------------
</TABLE>
* Position added
** Position eliminated
3
<PAGE>
- --------------------------------------------------------------------------------
Statement of Net Assets
T. Rowe Price Equity Income Fund / June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
(values in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Common Stocks -- 75.5%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL -- 13.4%
- --------------------------------------------------------------------------------
Value
-------------
<C> <S> <C>
BANK & TRUST -- 7.0%
700,000 shs. BANC ONE.................................. $ 22,575
300,000 *Brooklyn Bancorp.......................... 10,050
600,000 Chase Manhattan........................... 28,200
600,000 Chemical Banking.......................... 28,350
450,000 First Interstate.......................... 36,112
750,000 J. P. Morgan.............................. 52,594
1,300,000 Mellon Bank............................... 54,112
700,000 National City............................. 20,563
250,000 NationsBank............................... 13,406
250,000 PNC Bank.................................. 6,594
2,000,000 S-E-Banken (SEK).......................... 10,397
282,953
INSURANCE -- 2.0%
631,600 Hilb, Rogal and Hamilton.................. 7,895
300,000 Loews..................................... 36,300
700,000 Provident Life & Accident
Insurance (Class B).................... 16,275
250,000 UNUM...................................... 11,719
800,000 Willis-Corroon ADR........................ 9,600
81,789
FINANCIAL SERVICES -- 4.4%
1,400,000 American Express.......................... 49,175
350,000 Fannie Mae................................ 33,031
500,000 H&R Block................................. 20,563
800,000 Sallie Mae................................ 37,500
800,000 Travelers................................. 35,000
175,269
TOTAL FINANCIAL 540,011
- --------------------------------------------------------------------------------
UTILITIES -- 11.4%
- --------------------------------------------------------------------------------
TELEPHONE -- 4.9%
900,000 ALLTEL.................................... 22,838
350,000 BCE....................................... 11,244
325,000 Bell Atlantic............................. 18,200
300,000 BellSouth................................. 19,050
400,000 COMSAT.................................... 7,850
1,400,000 GTE....................................... 47,775
400,000 Pacific Telesis........................... 10,700
600,000 Southern New England
Telecommunications..................... 21,150
900,000 U. S. WEST................................ 37,462
196,269
ELECTRIC UTILITIES -- 6.5%
677,500 shs. BGE....................................... $ 16,937
2,200,000 Centerior Energy.......................... 21,175
400,000 Dominion Resources........................ 14,600
525,000 DQE....................................... 12,338
1,600,000 Entergy................................... 38,600
500,000 Florida Progress.......................... 15,625
500,000 General Public Utilities.................. 14,875
900,000 Pacific Gas and Electric.................. 26,100
1,750,000 PacifiCorp................................ 32,812
500,000 *Public Service of New
Mexico................................. 7,125
1,200,000 SCEcorp................................... 20,550
1,000,000 Southern Company.......................... 22,375
750,000 Unicom.................................... 19,969
263,081
TOTAL UTILITIES 459,350
- --------------------------------------------------------------------------------
CONSUMER NONDURABLES -- 19.7%
- --------------------------------------------------------------------------------
COSMETICS -- 0.2%
250,000 Helene Curtis Industries.................. 7,125
BEVERAGES -- 1.3%
550,000 Anheuser-Busch............................ 31,281
600,000 Brown-Forman (Class B).................... 20,025
51,306
FOOD PROCESSING -- 2.8%
500,000 CPC International......................... 30,875
700,000 General Mills............................. 35,962
700,000 Quaker Oats............................... 23,013
900,000 Sara Lee.................................. 25,650
115,500
HOSPITAL SUPPLIES/HOSPITAL
MANAGEMENT -- 1.3%
400,000 Bausch & Lomb............................. 16,600
1,000,000 Baxter International...................... 36,375
52,975
PHARMACEUTICALS -- 8.1%
650,000 American Home Products.................... 50,294
700,000 Eli Lilly................................. 54,950
600,000 Schering-Plough........................... 26,475
1,700,000 SmithKline Beecham,
equity units ADR....................... 76,925
1,600,000 Upjohn.................................... 60,600
650,000 Warner-Lambert............................ 56,144
325,388
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
MISCELLANEOUS CONSUMER
PRODUCTS -- 6.0%
1,305,000 shs. American Brands........................... $ 51,874
225,000 Clorox.................................... 14,681
300,000 *Dixie Yarns............................... 2,025
800,000 Hanson ADR................................ 14,100
346,700 Jostens................................... 7,368
950,000 Philip Morris............................. 70,656
595,779 RJR Nabisco............................... 16,607
800,000 Tambrands................................. 34,200
1,000,000 UST....................................... 29,750
241,261
TOTAL CONSUMER NONDURABLES 793,555
- --------------------------------------------------------------------------------
CONSUMER SERVICES -- 6.2%
- --------------------------------------------------------------------------------
RESTAURANTS -- 0.1%
356,500 *Darden Restaurants........................ 3,877
GENERAL MERCHANDISERS -- 3.2%
292,429 *Carson Pirie Scott........................ 4,789
260,000 Dayton Hudson............................. 18,655
750,000 J.C. Penney............................... 36,000
585,900 May Department Stores..................... 24,388
600,000 Sears..................................... 35,925
700,000 TJX....................................... 9,275
129,032
SPECIALTY MERCHANDISERS -- 0.7%
550,000 Fleming Companies......................... 14,575
250,000 Hancock Fabrics........................... 2,281
300,000 Melville.................................. 10,275
27,131
ENTERTAINMENT & LEISURE -- 0.3%
189,300 Reader's Digest (Class A),
non-voting............................. 8,353
107,100 Reader's Digest (Class B)................. 4,378
12,731
MEDIA & COMMUNICATIONS -- 1.9%
750,000 Dun & Bradstreet.......................... 39,375
400,000 McGraw-Hill............................... 30,350
332,828 Times Mirror (Class A).................... 7,946
77,671
TOTAL CONSUMER SERVICES 250,442
- --------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 3.2%
- --------------------------------------------------------------------------------
BUILDING & REAL ESTATE -- 1.9%
623,000 DeBartolo Realty, REIT.................... 9,111
700,000 General Growth Properties,
REIT................................... 14,262
300,000 McArthur/Glen Realty, REIT................ 4,388
300,000 Rouse..................................... 5,906
680,000 shs. Simon Property Group...................... 17,085
590,000 Taubman Centers, REIT..................... 5,605
500,000 Weingarten Realty Investors,
REIT................................... 18,875
75,232
MISCELLANEOUS CONSUMER
DURABLES -- 1.3%
675,000 Eastman Kodak............................. 40,922
800,000 Maytag.................................... 12,800
53,722
TOTAL CONSUMER CYCLICALS 128,954
- --------------------------------------------------------------------------------
TECHNOLOGY -- 2.1%
- --------------------------------------------------------------------------------
ELECTRONIC SYSTEMS -- 1.8%
750,000 EG&G...................................... 12,562
1,400,000 Honeywell................................. 60,375
72,937
OFFICE AUTOMATION -- 0.3%
300,000 Pitney Bowes.............................. 11,513
TOTAL TECHNOLOGY 84,450
- --------------------------------------------------------------------------------
CAPITAL EQUIPMENT -- 2.4%
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.8%
850,000 GE........................................ 47,919
400,000 Hubbell (Class B)......................... 22,600
70,519
MACHINERY -- 0.6%
408,996 Cooper Cameron............................ 7,720
467,424 Cooper Industries......................... 18,463
26,183
TOTAL CAPITAL EQUIPMENT 96,702
- --------------------------------------------------------------------------------
BUSINESS SERVICES & TRANSPORTATION -- 2.5%
- --------------------------------------------------------------------------------
TRANSPORTATION SERVICES -- 0.8%
709,900 Alexander & Baldwin....................... 15,973
375,000 PHH....................................... 16,687
32,660
MISCELLANEOUS BUSINESS
SERVICES -- 0.7%
425,000 Deluxe Corp............................... 14,078
300,000 GATX...................................... 14,138
28,216
RAILROADS -- 1.0%
320,000 Conrail................................... 17,800
400,000 Union Pacific............................. 22,150
39,950
TOTAL BUSINESS SERVICES & TRANSPORTATION 100,826
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price Equity Income Fund / Statement of Net Assets (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
- --------------------------------------------------------------------------------
ENERGY -- 10.6%
- --------------------------------------------------------------------------------
ENERGY SERVICES -- 0.6%
500,000 shs. Halliburton............................... $ 17,875
250,000 Witco..................................... 8,062
25,937
EXPLORATION & PRODUCTION -- 0.2%
230,000 Eastern Enterprises....................... 6,871
GAS TRANSMISSION -- 0.2%
700,000 TransCanada PipeLines..................... 9,363
INTEGRATED PETROLEUM-
DOMESTIC -- 4.0%
500,000 Atlantic Richfield........................ 54,875
500,000 British Petroleum ADR..................... 42,812
381,000 Pennzoil.................................. 17,955
650,000 Sun Company............................... 17,794
1,300,000 USX-Marathon.............................. 25,675
159,111
INTEGRATED PETROLEUM-
INTERNATIONAL -- 5.6%
300,000 Chevron................................... 13,987
1,000,000 Exxon..................................... 70,625
400,000 Mobil..................................... 38,400
400,000 Royal Dutch Petroleum ADR................. 48,750
800,000 Texaco.................................... 52,500
224,262
TOTAL ENERGY 425,544
- --------------------------------------------------------------------------------
PROCESS INDUSTRIES -- 3.1%
- --------------------------------------------------------------------------------
DIVERSIFIED CHEMICALS -- 1.6%
500,000 DuPont.................................... 34,375
325,000 Monsanto.................................. 29,290
63,665
SPECIALTY CHEMICALS -- 0.6%
400,000 3M........................................ 22,900
PAPER & PAPER PRODUCTS -- 0.9%
600,000 Kimberly-Clark............................ 35,925
TOTAL PROCESS INDUSTRIES 122,490
- --------------------------------------------------------------------------------
CONGLOMERATES -- 0.5%
- --------------------------------------------------------------------------------
8,000,000 LONRHO (GBP).............................. 18,769
TOTAL CONGLOMERATES 18,769
MISCELLANEOUS COMMON STOCKS -- 0.4% 18,254
TOTAL COMMON STOCKS (COST $2,528,699) 3,039,347
- --------------------------------------------------------------------------------
Preferred Stocks -- 0.3%
- --------------------------------------------------------------------------------
100,000 shs. California Federal Bank,
10.625%, Series B...................... $ 10,775
TOTAL PREFERRED STOCKS (COST $10,000) 10,775
- --------------------------------------------------------------------------------
Convertible Preferred Stocks -- 1.8%
- --------------------------------------------------------------------------------
195,500 Ford Motor, Dep. Shs.,
$4.20, Cum., Series A.................. 18,988
562,000 James River, Dep. Shs.,
Series P............................... 13,910
60,000 Mobile Telecommunication
Technologies (144a), $2.25............. 2,235
600,000 Newmont Mining (144a),
$2.75.................................. 35,025
142,172 Times Mirror, $1.374,
Series B............................... 3,394
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $54,060) 73,552
- --------------------------------------------------------------------------------
Convertible Bonds -- 1.8%
- --------------------------------------------------------------------------------
$18,000,000 Banco Nacional de Mexico,
Sub. Deb., 7.00%, 12/15/99............. 12,983
18,000,000 Delta, Sub. Deb.,
3.23%, 6/15/03......................... 17,167
45,900,000 Roche Holding, LYONs,
Zero Coupon, 4/20/10................... 18,217
1,000,000 *Rockefeller Center, Euro. Deb.,
13.00%, 12/31/00....................... 1,023
22,000,000 Time Warner, Sub. Deb.,
8.75%, 1/10/15......................... 23,017
TOTAL CONVERTIBLE BONDS (COST $69,262) 72,407
- --------------------------------------------------------------------------------
Corporate Bonds -- 2.7%
- --------------------------------------------------------------------------------
5,750,000 American Standard, Sr.
Sub. Deb., 9.875%, 6/1/01.............. 5,923
5,000,000 Ametek, Sr. Notes,
9.75%, 3/15/04......................... 5,250
10,000,000 Coltec Industries, Sr.
Sub. Notes, 10.25%, 4/1/02............. 10,350
10,000,000 Container Corporation of
America, Sr. Notes,
9.75%, 4/1/03.......................... 9,900
8,625,000 Continental Cablevision,
Sr. Deb., 9.00%, 9/1/08................ 8,668
6,800,000 Crown Central Petroleum,
10.875%, 2/1/05........................ 7,106
6,100,000 Exide, 10.75%, 12/15/02................... 6,451
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
$ 7,000,000 IMC Fertilizer Group, Sr.
Notes, 9.25%, 10/1/00................... $ 7,192
10,000,000 Imo Industries, Sr. Sub.
Deb., 12.00%, 11/1/01................... 10,350
10,000,000 Paging Network, Sr. Sub.
Notes, 8.875%, 2/1/06................... 9,100
10,000,000 Riverwood International, Sr.
Sub. Notes, 10.375%, 6/30/04............ 11,000
8,000,000 Texas Bottling Group, Sr. Sub.
Notes, 9.00%, 11/15/03................. 7,880
5,000,000 Westpoint Stevens, Sr. Notes,
8.75%, 12/15/01........................ 4,925
104,095
MISCELLANEOUS CORPORATE BONDS 3,473
TOTAL CORPORATE BONDS (COST $105,601) 107,568
- --------------------------------------------------------------------------------
U.S. Government Obligations/Agencies --- 3.3%
- --------------------------------------------------------------------------------
U.S. Treasury Notes,
20,000,000 5.125%, 11/15/95....................... 19,956
30,000,000 6.125%, 7/31/96........................ 30,103
35,000,000 6.625%, 3/31/97........................ 35,454
30,000,000 7.375%, 11/15/97....................... 30,975
17,000,000 8.875%, 11/15/97-5/15/00............... 18,639
TOTAL U.S. GOVERNMENT OBLIGATIONS/AGENCIES
(COST $131,713) 135,127
- --------------------------------------------------------------------------------
Short-Term Investments -- 15.5%
- --------------------------------------------------------------------------------
BANK NOTES -- 0.5%
10,000,000 First Union National Bank,
6.12%, 7/31/95......................... 10,002
10,000,000 NBD Bank, NA,
6.17%, 10/31/95........................ 10,005
20,007
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- 6.3%
- --------------------------------------------------------------------------------
40,000,000 Bank of Montreal, 5.97 - 6.03%,
7/12 - 8/17/95......................... 40,000
35,000,000 Bayerische Hypotheken,
6.11 - 6.45%, 7/14/95 -
5/24/96................................ 35,023
35,000,000 Bayerische Vereinsbank,
6.00%, 7/17/95......................... 35,000
20,000,000 Caisse Nationale de Credit
Agricole, 6.19%, 7/27/95............... 20,002
35,000,000 National Westminster Bank,
6.01 - 6.125%, 8/11 - 11/8/95.......... 35,006
25,000,000 Nordeutsche Landesbank
(London), 6.03%, 7/31/95............... 25,002
$15,000,000 Societe Generale,
6.05%, 7/7/95.......................... $ 15,001
50,000,000 Swiss Bank, 6.01%, 7/21/95................ 50,001
255,035
- --------------------------------------------------------------------------------
COMMERCIAL PAPER -- 8.0%
- --------------------------------------------------------------------------------
20,000,000 American Express,
6.05%, 7/10/95......................... 19,697
10,000,000 Asset Securitization
Cooperative, 4(2),
5.83%, 9/20/95......................... 9,854
10,000,000 Barnett Banks, 6.02%, 7/6/95.............. 9,973
20,000,000 Bell Atlantic Network Funding,
5.97%, 7/11/95......................... 19,954
10,000,000 Caisse des Depots et
Consignations, 4(2),
5.95%, 7/21/95......................... 9,936
10,000,000 Canadian Wheat Board,
6.01%, 10/24/95........................ 9,700
91,000 Cargill Financial Services,
6.10%, 7/3/95.......................... 91
20,000,000 Electronic Data Systems,
5.95%, 7/17/95......................... 19,848
30,000,000 Falcon Asset Securitization,
4(2), 5.97%, 7/13/95................... 29,786
30,000,000 KFW International Finance,
5.95%, 7/28/95......................... 29,838
10,000,000 Kingdom of Sweden,
6.025%, 9/25/95........................ 9,744
20,000,000 Leeds Permanent Building
Society, 6.04%, 10/10/95............... 19,433
10,000,000 MCA Funding, 4(2),
6.17%, 9/11/95......................... 9,693
25,000,000 New Center Asset Trust,
5.95 - 6.05%, 7/6 - 8/3/95............. 24,716
10,000,000 Preferred Receivables Funding,
5.90%, 8/15/95......................... 9,920
25,000,000 Rabobank Nederland,
6.00%, 7/3/95.......................... 24,946
15,000,000 Rockwell International, 4(2),
6.15%, 9/6/95.......................... 14,518
20,000,000 Statoil (Den Norske Stats
Oljeselskap), 5.96%, 7/11/95........... 19,904
14,500,000 UBS Finance (Delaware),
6.25%, 7/3/95.......................... 14,492
15,000,000 United Parcel Service,
5.88%, 9/20/95......................... 14,777
320,820
- --------------------------------------------------------------------------------
MEDIUM-TERM NOTES -- 0.7%
- --------------------------------------------------------------------------------
10,000,000 Avco Financial Services, VR,
6.103%, 12/21/95....................... 10,000
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price Equity Income Fund / Statement of Net Assets (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C>
- --------------------------------------------------------------------------------
MEDIUM-TERM NOTES (cont'd)
- --------------------------------------------------------------------------------
$18,600,000 Wells Fargo, VR,
6.063%, 9/16/96........................ $ 18,595
28,595
TOTAL SHORT-TERM INVESTMENTS (COST $624,457) 624,457
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 100.9% OF
NET ASSETS (COST $3,523,792) $ 4,063,233
- --------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES.................................. $ (37,208)
--------------
NET ASSETS CONSIST OF: Value
-------
Accumulated net investment
income-net of distributions............ 2,358
Accumulated net realized
gain/loss-net of distributions......... 66,092
Net unrealized gain (loss).................. 539,536
Paid-in-capital applicable to
224,173,214 no par
value shares of beneficial
interest outstanding; unlimited
number of shares authorized............ 3,418,039
---------
NET ASSETS..................................................... $ 4,026,025
============
NET ASSET VALUE PER SHARE...................................... $17.96
======
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing
REIT Real Estate Investment Trust
VR Variable rate
4(2) Commercial Paper sold within terms of a private placement memorandum,
exempt from registration under section 4.2 of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "accredited investors."
144a Security was purchased pursuant to Rule 144a under the Securities Act
of 1933 and may not be resold subject to that rule except to qualified
institutional buyers--total of such securities at period-end amounts to
0.93% of net assets.
GBP British sterling
SEK Swedish krona
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
T. Rowe Price Equity Income Fund / Six Months Ended June 30, 1995 (Unaudited)
(in thousands)
<TABLE>
<S> <C>
INVESTMENT INCOME
Income
Dividend..................................................................... $ 57,852
Interest..................................................................... 28,319
--------
Total income................................................................. 86,171
--------
Expenses
Investment management........................................................ 10,764
Shareholder servicing........................................................ 4,176
Prospectus and shareholder reports........................................... 166
Custodian and accounting..................................................... 146
Registration................................................................. 82
Trustees..................................................................... 24
Legal and audit.............................................................. 14
Miscellaneous................................................................ 37
--------
Total expenses............................................................... 15,409
--------
Net investment income............................................................ 70,762
--------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Securities................................................................... 67,854
Foreign currency transactions................................................ (56)
--------
Net realized gain (loss)..................................................... 67,798
--------
Change in net unrealized gain or loss on:
Securities................................................................... 378,362
Other assets and liabilities denominated in foreign currencies............... 97
--------
Change in net unrealized gain or loss........................................ 378,459
--------
Net realized and unrealized gain (loss).......................................... 446,257
--------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS................................ $517,019
========
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
T. Rowe Price Equity Income Fund (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 Dec. 31, 1994
---------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income........................................................ $ 70,762 $ 109,184
Net realized gain (loss)..................................................... 67,798 158,971
Change in net unrealized gain or loss........................................ 378,459 (134,234)
---------- ----------
Increase (decrease) in net assets from operations............................ 517,019 133,921
---------- ----------
Distributions to shareholders
Net investment income........................................................ (69,829) (107,759)
Net realized gain............................................................ (29,640) (152,377)
---------- ----------
Decrease in net assets from distributions.................................... (99,469) (260,136)
---------- ----------
Capital share transactions*
Shares sold.................................................................. 630,260 760,081
Distributions reinvested..................................................... 95,865 251,069
Shares redeemed.............................................................. (321,501) (532,431)
---------- ----------
Increase (decrease) in net assets from capital share transactions............ 404,624 478,719
---------- ----------
Increase (decrease) in net assets.................................................. 822,174 352,504
NET ASSETS
Beginning of period................................................................ 3,203,851 2,851,347
---------- ----------
End of period...................................................................... $4,026,025 $3,203,851
========== ==========
- --------------------------------------------------------------------------------------------------------------------------
*Share information
Shares sold.................................................................. 36,798 45,628
Distributions reinvested..................................................... 5,523 15,592
Shares redeemed.............................................................. (18,596) (32,027)
---------- ----------
Increase (decrease) in shares outstanding.................................... 23,725 29,193
========== ==========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
T. Rowe Price Equity Income Fund / June 30, 1995 (Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Equity Income Fund (the fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
A) Valuation - Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price at the time the valuations
are made. A security which is listed or traded on more than one exchange is
valued at the quotation on the exchange determined to be the primary market for
such security. Listed securities that are not traded on a particular day and
securities that are 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 Trustees, or by persons delegated by the Trustees, best to reflect
fair value.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service. Short-
term debt securities are valued at their cost which, when combined with accrued
interest, approximates fair value.
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 Trustees.
B) 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.
C) 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 an 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 and U.S.
government securities, aggregated $494,037,000 and $449,376,000, respectively,
for the six months ended June 30, 1995.
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 June 30, 1995, the aggregate cost of investments for federal income tax
and financial reporting purposes was $3,523,792,000 and net unrealized gain
aggregated $539,441,000, of which $574,756,000 related to appreciated
investments and $35,315,000 to depreciated investments.
11
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
T. Rowe Price Equity Income Fund / June 30, 1995 (Unaudited)
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 $1,957,000 was payable at June 30, 1995. The fee is computed daily and
paid monthly, and consists of an Individual Fund Fee equal to 0.25% 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 0.31% for assets in excess of $34 billion. At June
30, 1995, and for the six months then ended, the effective annual Group Fee rate
was 0.34%. The fund pays a pro rata share of the Group Fee based on the ratio of
its net assets to those of the Group.
In addition, the fund has entered into agreements with the Manager and two
wholly owned subsidiaries of the Manager, pursuant to which the fund receives
certain other services. The Manager computes the daily share price and maintains
the financial records of the fund. T. Rowe Price Services, Inc. (TRPS) is the
fund's transfer and dividend disbursing agent and provides shareholder and
administrative services to the fund. T. Rowe Price Retirement Plan Services,
Inc. provides subaccounting and recordkeeping services for certain retirement
accounts invested in the fund. Additionally, the fund is one of several T. Rowe
Price mutual funds (the Underlying Funds) in which the T. Rowe Price Spectrum
Growth and Income Funds (Spectrum) invests. In accordance with an Agreement
among Spectrum, the Underlying Funds, the Manager and TRPS, expenses from the
operation of Spectrum are borne by the Underlying Funds based on each Underlying
Fund's proportionate share of assets owned by Spectrum. The fund incurred
expenses pursuant to these related party agreements totaling approximately
$3,631,000 for the six months ended June 30, 1995, of which $627,000 was payable
at period-end.
12
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
T. Rowe Price Equity Income Fund (Unaudited)
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended ---------------------------------------------------------------------
June 30, 1995 1994 1993 1992 1991 1990
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD............................ $15.98 $16.65 $15.63 $14.62 $12.27 $14.06
------- ------- ------- ------- ------- -------
Investment Activities
Net investment income................ 0.32 0.60 0.54 0.62 0.62 0.67
Net realized and unrealized
gain (loss).......................... 2.12 0.13 1.74 1.41 2.44 (1.62)
------- ------- ------- ------- ------- -------
Total from Investment Activities..... 2.44 0.73 2.28 2.03 3.06 (0.95)
------- ------- ------- ------- ------- -------
Distributions
Net investment income................ (0.32) (0.59) (0.54) (0.63) (0.61) (0.65)
Net realized gain.................... (0.14) (0.81) (0.72) (0.39) (0.10) (0.19)
------- ------- ------- ------- ------- -------
Total Distributions.................. (0.46) (1.40) (1.26) (1.02) (0.71) (0.84)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD............. $17.96 $15.98 $16.65 $15.63 $14.62 $12.27
======= ======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return............................... 15.4% 4.5% 14.8% 14.1% 25.3% (6.8)%
Ratio of Expenses to Average
Net Assets........................... 0.85%+ 0.88% 0.91% 0.97% 1.05% 1.13%
Ratio of Net Investment Income
to Average Net Assets................ 3.88%+ 3.63% 3.23% 3.95% 4.44% 5.09%
Portfolio Turnover Rate.................... 28.1%+ 36.3% 31.2% 30.0% 33.5% 24.4%
Net Assets, End of Period
(in thousands)....................... $4,026,025 $3,203,851 $2,851,347 $2,091,535 $1,335,400 $862,059
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
13
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Services
- --------------------------------------------------------------------------------
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety of
information and services--at no extra cost.
KNOWLEDGEABLE SERVICE REPRESENTATIVES
BY PHONE--Shareholder service representatives are available from 8:00 a.m. to
10:00 p.m., Monday - Friday, and weekends from 9:00 a.m. to 5:00 p.m ET. Call
1-800-225-5132 to speak directly with a representative who will be able to
assist you with your accounts.
IN PERSON--Visit one of our investor center locations to meet with a
representative who will be able to assist you with your accounts. While there,
you can drop off applications or obtain prospectuses and other literature.
AUTOMATED 24-HOUR SERVICES
Tele*Access(R) (1-800-638-2587) provides information such as account
balance, date and amount of your last transaction, latest dividend payment, and
fund prices and yields. Additionally, you have the ability to request
prospectuses, statements, account and tax forms; reorder checks; and initiate
purchase, redemption, and exchange orders for identically registered accounts.
PC*Access(R) provides the same information as Tele*Access, but on a
personal computer via dial-up modem.
ACCOUNT SERVICES
Checking--Write checks for $500 or more on any money market and most bond
fund accounts (except the High Yield Fund and Emerging Markets Bond Fund).
Automatic Investing--Build your account over time by investing directly
from your bank account or paycheck with Automatic Asset Builder. Additionally,
Automatic Exchange enables you to set up systematic investments from one fund
account into another, such as from a money fund into a stock fund. A low, $50
minimum makes it easy to get started.
Automatic Withdrawal--If you need money from your fund account on a regular
basis, you can establish scheduled, automatic redemptions.
Dividend and Capital Gains Payment Options--Reinvest all or some of your
distributions, or take them in cash. We give you maximum flexibility and
convenience.
INVESTMENT INFORMATION
Combined Statement--A comprehensive overview of your T. Rowe Price
accounts. The summary page gives your earnings by tax category, provides total
portfolio value, and lists your investments by type--stock, bond, and money
market. Detail pages itemize account transactions by fund.
Quarterly Shareholder Reports--Portfolio managers review the performance of
the funds in plain language and discuss T. Rowe Price's economic outlook.
The T. Rowe Price Report--A quarterly newsletter with relevant articles on
market trends, personal financial planning, and T. Rowe Price's economic
perspective.
Insights--A library of information that includes reports on mutual fund tax
issues, investment strategies, and financial markets.
Detailed Investment Guides--Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Retirees Financial Guide, Retirement Planning Kit (also
available on disk for PC use), and Guide to Risk-Adjusted Performance can help
you determine and reach your investment goals.
DISCOUNT BROKERAGE
You can trade stocks, bonds, options, precious metals, and other securities at a
substantial savings over regular commission rates. Call a shareholder service
representative for more information.
14
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price No-Load Mutual Funds
- --------------------------------------------------------------------------------
STABILITY
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
CONSERVATIVE INCOME
Short-Term Bond
Short-Term Global Income
Short-Term U.S. Government
Summit Limited-Term Bond
U.S. Treasury Intermediate
Florida Insured Intermediate Tax-Free
Maryland Short-Term Tax-Free Bond
Summit Municipal Intermediate
Tax-Free Insured Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
INCOME
Global Government Bond
GNMA
New Income
Spectrum Income
Summit GNMA
U.S. Treasury Long-Term
California Tax-Free Bond
Georgia Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Tax-Free Income
Virginia Tax-Free Bond
AGGRESSIVE INCOME
Emerging Markets Bond
High Yield
International Bond
Tax-Free High Yield
CONSERVATIVE GROWTH
Balanced
Capital Appreciation
Dividend Growth
Equity Income
Equity Index
Growth & Income
Spectrum Growth
Value
GROWTH
Blue Chip Growth
European Stock
Growth Stock
International Stock
Japan
Mid-Cap Growth
New Era
Small-Cap Value
AGGRESSIVE GROWTH
Capital Opportunity
Emerging Markets Stock
International Discovery
Latin America
New America Growth
New Asia
New Horizons
OTC
Science & Technology
PERSONAL STRATEGY FUNDS
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
Call if you want to know about any T. Rowe Price fund. We'll send you a
prospectus with more complete information, including management fees and other
expenses. Read it carefully before you invest or send money. T. Rowe Price
Investment Services, Inc., Distributor.
15
<PAGE>
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
T. Rowe Price
-------------
EQUITY INCOME FUND
JUNE 30, 1995
FOR YIELD, PRICE, LAST TRANSACTION,
AND CURRENT BALANCE, 24 HOURS,
7 DAYS A WEEK, CALL:
1-800-638-2587 toll free
625-7676 Baltimore area
FOR ASSISTANCE WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distri-
bution only to shareholders and to
others who have received a copy of
the prospectus of the T. Rowe Price
Equity Income Fund.
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price
Invest With Confidence/(R)/
EIF
