================================================================================
EQUITY INCOME FUND
SEMIANNUAL REPORT
================================================================================
June 30,1996
- --------------------------------------------------------------------------------
================================================================================
Report Highlights
- --------------------------------------------------------------------------------
*The equity market and your fund generated strong returns during the past 6-
and 12-month periods, fueled by good earnings growth and favorable investor
sentiment.
*Fund returns exceeded the benchmark for similar funds and were slightly
behind the S&P 500, as we would expect in a robust market because of our
conservative investment approach.
*We favored some utility stocks, financial shares, and certain depressed
cyclical stocks that appear to offer good potential for price appreciation.
*At the end of June, 85% of fund assets were invested in stocks, 5% in bonds,
2% in convertible securities, and the rest in reserves.
*The current economic climate is more challenging than it has been for some
time, but we expect to find attractive investments for the portfolio in most
market environments.
<PAGE>
================================================================================
Fellow Shareholders
- --------------------------------------------------------------------------------
The equity market and your fund generated strong returns during the first
half of 1996. Continued good earnings growth and solid investor demand fueled
the advance. Individual investors provided a source of liquidity that
contributed significantly to the market's positive tone, which was particularly
notable in view of the weakness in the fixed income markets.
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 6/30/96 6 Months 12 Months
Equity Income Fund 8.09% 24.91%
S&P 500 10.10 26.00
Lipper Equity Income
Funds Average 7.65 22.09
- --------------------------------------------------------------------------------
Your fund performed well in an extremely healthy environment. As shown in
the table, your fund's returns were about as we would have expected in this type
of market: better than the average of similarly managed funds but slightly
behind the returns of the unmanaged Standard & Poor's 500 Stock Index for both
the 6- and 12-month periods ended June 30, 1996. Please keep in mind that our
conservative investment approach often lags broad market indices in unusually
robust markets.
- --------------------------------------------------------------------------------
First Half Distributions
- --------------------------------------------------------------------------------
On June 25, your Board of Trustees declared a second quarter dividend of
$0.16 per share, bringing your 1996 income distributions to $0.32 per share. The
second quarter distribution was paid on June 27 to shareholders of record on
June 25, and you should already have received a check or statement reflecting
it. The fund also paid a long-term capital gain distribution of $0.11 and a
short-term capital gain distribution of $0.02 at the end of March. All of these
will be reported on form 1099-DIV, which will be mailed to you in January 1997.
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Strategy
- --------------------------------------------------------------------------------
So far in 1996, the equity market has been characterized by strong investor
preference for high-growth companies and by scorn for interest rate-sensitive
stocks and most fixed income securities. Bond market weakness spilled over into
the utility sector, leading to disappointing returns for utility stocks during
the past six months. Because of improved valuations, we added incremental
investments in several telephone companies and established new positions in PECO
Energy and Public Service Enterprise. We also added to other existing holdings
in the sector such as Unicom.
[Security Diversification pie chart showing stocks 85%, bonds 5%,
convertibles 2%, reserves 8%]
Financial stocks were another area we found attractive since our last
report. We capitalized on price weakness in American General by taking a
significant position. The company is a broadly diversified financial services
firm with interests in annuities, consumer finance, and traditional life
insurance. In addition, we made new investments in Fleet Financial Group, a
large New England banking concern, and Salomon, the well-known investment
banking firm.
We also continued to favor depressed cyclical stocks such as
Georgia-Pacific and Reynolds Metals. The latter is of particular interest: a new
chief executive has been named, and we found the prospect of new management,
plus the undervalued share price, to be an alluring combination.
On the sales side of the ledger, we eliminated or reduced several
positions, which are listed in the Major Portfolio Changes table following this
letter. The sales were made in stocks that had generated profits for
shareholders, where we felt there was limited upside potential from current
levels. These included Monsanto, Sears, and Helene Curtis Industries.
The asset allocation pie chart shown on this page shows that we had 85% of
total fund assets invested in stocks on June 30, compared with 78% at the end of
December 1995.
- --------------------------------------------------------------------------------
SUMMARY AND OUTLOOK
- --------------------------------------------------------------------------------
Shareholders have benefited from a nearly perfect investment environment
for stocks during the past 18 months, characterized by solid earnings growth,
low inflation, generally supportive interest rates, and enthusiastic investor
sentiment. The rise in interest rates during the first six months of 1996 has
clouded the picture to some extent, posing a challenge for further stock market
advances in the near term.
<PAGE>
At this stage of the economic cycle, with GDP growing at a rate that has
triggered fears of accelerating inflation in some quarters, a correction in the
overall market would not be unexpected. However, in virtually any environment,
we expect to find attractive investments to make on your behalf.
As always, we appreciate your continued confidence and support.
Respectfully submitted,
[Signature]
Brian C. Rogers
President and
Chairman of the Investment Advisory Committee
July 19, 1996
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 6/30/96
Purchases Sales
- --------------------------------------------------------------------------------
Abbott Laboratories * Monsanto **
Reynolds Metals * Loews **
Fleet Financial Group * Sears **
Great Lakes Chemical * Dayton-Hudson **
Georgia-Pacific * Helene Curtis Industries **
PECO Energy CPC International **
American General Philip Morris
Unilever N.V. Clorox **
Ciba-Geigy * Dow Chemical
Quaker Oats Schering-Plough **
- --------------------------------------------------------------------------------
* Position added
** Position eliminated
================================================================================
<PAGE>
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/96
- --------------------------------------------------------------------------------
GE 1.8%
Atlantic Richfield 1.7
Exxon 1.6
Chase Manhattan 1.4
Mellon Bank 1.4
Pharmacia & Upjohn 1.4
Texaco 1.3
American Home Products 1.2
SmithKline Beecham 1.2
General Mills 1.2
DuPont 1.1
Wells Fargo 1.1
Warner-Lambert 1.1
Georgia-Pacific 1.1
Royal Dutch Petroleum ADR 1.0
Quaker Oats 1.0
Eli Lilly 1.0
Union Camp 1.0
American General 1.0
Philip Morris 1.0
Chevron 1.0
Ciba-Geigy 1.0
J.P. Morgan 1.0
GTE 0.9
American Express 0.9
- --------------------------------------------------------------------------------
Total 29.4%
================================================================================
<PAGE>
================================================================================
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.
[SEC graph shown here]
================================================================================
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how the fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
================================================================================
Periods Ended 6/30/96 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Equity Income Fund 24.91% 17.07% 16.21% 13.81%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
================================================================================
<PAGE>
<TABLE>
Unaudited For a share outstanding throughout each period
===============================================================================================================
Financial Highlights
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 Months Year
Ended Ended
6/30/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
NET ASSET VALUE
Beginning of period $ 20.01 $15.98 $ 16.65 $ 15.63 $ 14.62 $ 12.27
Investment activities
Net investment income 0.32 0.66 0.60 0.54 0.62 0.62
Net realized and
unrealized gain (loss) 1.29 4.56 0.13 1.74 1.41 2.44
Total from
investment activities 1.61 5.22 0.73 2.28 2.03 3.06
Distributions
Net investment income (0.32) (0.65) (0.59) (0.54) (0.63) (0.61)
Net realized gain (0.13) (0.54) (0.81) (0.72) (0.39) (0.10)
Total distributions (0.45) (1.19) (1.40) (1.26) (1.02) (0.71)
NET ASSET VALUE
End of period $ 21.17 $ 20.01 $15.98 $ 16.65 $15.63 $ 14.62
Ratios/Supplemental Data
Total return 8.09% 33.35% 4.53% 14.84% 14.13% 25.28%
Ratio of expenses to
average net assets 0.81%* 0.85% 0.88% 0.91% 0.97% 1.05%
Ratio of net investment
income to average
net assets 3.14%* 3.69% 3.63% 3.23% 3.95% 4.44%
Portfolio turnover rate 28.5%* 21.4% 36.3% 31.2% 30.0% 33.5%
Average commission
rate paid $0.0698 - - - - -
Net assets, end of period
(in millions) $6,332 $5,215 $ 3,204 $ 2,851 $ 2,092 $ 1,335
- ---------------------------------------------------------------------------------------------------------------
<FN>
* Annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Net Assets
================================================================================
Unaudited June 30, 1996
- --------------------------------------------------------------------------------
In thousands
Shares/Par Value
Common Stocks 85.1%
FINANCIAL 17.1%
Bank and Trust 9.3%
BANC ONE .......................... 800,000 $ 27,200
Bank of Boston .................... 814,600 40,323
Bankers Trust New York ............ 479,200 35,401
Chase Manhattan ................... 1,270,900 89,757
Fleet Financial Group ............. 1,150,000 50,025
J. P. Morgan ...................... 718,700 60,820
Mellon Bank ....................... 1,537,500 87,637
Mercantile Bankshares ............. 665,800 17,020
National City ..................... 1,000,000 35,125
PNC Bank .......................... 958,300 28,509
S-E-Banken (SEK) .................. 2,000,000 16,012
U. S. Bancorp ..................... 958,300 34,559
Wells Fargo ....................... 291,650 69,668
592,056
Insurance 3.3%
American General ................... 1,769,700 64,373
Hilb, Rogal and Hamilton ........... 670,800 9,307
Provident .......................... 670,800 24,820
SAFECO ............................. 400,000 14,175
St. Paul Companies ................. 618,200 33,074
UNUM ............................... 239,600 14,915
USF&G .............................. 1,500,000 24,562
Willis-Corroon ADR ................. 1,900,000 22,562
207,788
Financial Services 4.5%
American Express ................... 1,341,600 59,869
Fannie Mae ......................... 1,427,320 47,815
H&R Block .......................... 800,000 26,100
Sallie Mae ......................... 670,800 49,639
Salomon ............................ 1,054,100 46,381
Travelers Group .................... 1,149,900 52,464
282,268
Total Financial 1,082,112
<PAGE>
UTILITIES 11.2%
Telephone Services 4.9%
ALLTEL .................................... 1,150,000 $ 35,362
BCE ....................................... 958,300 37,853
Bell Atlantic ............................. 500,000 31,875
BellSouth ................................. 1,200,000 50,850
GTE ....................................... 1,341,600 60,037
Pacific Telesis ........................... 500,000 16,875
SBC Communications ........................ 500,000 24,625
Southern New England Telecommunications ... 622,900 26,162
U. S. WEST Communications ................. 862,500 27,492
311,131
Electric Utilities 6.3%
BGE ....................................... 800,000 22,700
Centerior Energy .......................... 3,066,600 22,616
Dominion Resources ........................ 850,000 34,000
DQE ....................................... 503,100 13,835
Edison International ...................... 1,150,000 20,269
Entergy ................................... 1,533,300 43,507
Florida Progress .......................... 501,000 17,410
General Public Utilities .................. 479,200 16,892
Pacific Gas and Electric .................. 1,245,800 28,965
PacifiCorp ................................ 2,000,000 44,500
PECO Energy ............................... 1,850,000 48,100
Public Service Enterprise ................. 1,200,000 32,850
Southern Company .......................... 1,000,000 24,625
Unicom .................................... 1,100,000 30,662
400,931
Total Utilities 712,062
CONSUMER NONDURABLES 19.2%
Beverages 1.3%
Anheuser-Busch .......................... 699,800 52,485
Brown-Forman (Class B) .................. 800,000 32,000
84,485
Food Processing 4.1%
General Mills ........................... 1,341,600 73,117
Heinz ................................... 1,750,000 53,156
McCormick ............................... 1,850,000 $ 40,700
Quaker Oats ............................. 1,916,600 65,404
Sara Lee ................................ 862,500 27,924
260,301
<PAGE>
Hospital Supplies/Hospital Management 1.9%
Abbott Laboratories ..................... 1,200,000 52,200
Bausch & Lomb ........................... 479,200 20,366
Baxter International .................... 958,300 45,280
117,846
Pharmaceuticals 6.8%
American Home Products ............... 1,245,800 74,904
Ciba-Geigy (CHF) ..................... 50,000 60,990
Eli Lilly ............................ 1,006,200 65,403
Pharmacia & Upjohn ................... 1,935,800 85,901
SmithKline Beecham ................... 1,358,725 73,881
Warner-Lambert ....................... 1,245,800 68,519
429,598
Miscellaneous Consumer Products 5.1%
American Brands ...................... 1,250,600 56,746
Armstrong World ...................... 300,000 17,288
Dixie Yarns * ........................ 300,000 1,519
Grand Metropolitan ADR ............... 1,054,100 28,197
Philip Morris ........................ 600,000 62,400
RJR Nabisco .......................... 570,879 17,697
Tambrands ............................ 1,000,000 40,875
Unilever N.V. ADR .................... 400,000 58,050
UST .................................. 1,150,000 39,387
322,159
Total Consumer Nondurables 1,214,389
CONSUMER SERVICES 4.2%
General Merchandisers 1.2%
J.C. Penney ............................... 958,300 50,311
May Department Stores ..................... 561,500 24,565
74,876
Specialty Merchandisers 0.2%
Fleming Companies ......................... 600,000 8,625
Hancock Fabrics ........................... 250,000 2,750
11,375
<PAGE>
Entertainment and Leisure 0.4%
Reader's Digest (Class A), non-voting ..... 500,000 $ 21,250
Reader's Digest (Class B) ................. 200,100 7,879
29,129
Media and Communications 2.4%
Dun & Bradstreet .......................... 766,600 47,912
Gannett ................................... 479,200 33,903
McGraw-Hill ............................... 766,600 35,072
U. S. WEST Media * ........................ 862,500 15,741
Vodafone ADR .............................. 500,000 18,438
151,066
Total Consumer Services 266,446
CONSUMER CYCLICALS 4.9%
Automobiles and Related 1.1%
Eaton .................................... 417,900 24,499
Ford Motor ............................... 500,000 16,188
Genuine Parts ............................ 287,500 13,153
TRW ...................................... 200,000 17,975
71,815
Building and Real Estate 2.1%
DeBartolo Realty, REIT ................... 1,724,900 27,814
General Growth Properties, REIT .......... 400,000 9,650
Rouse .................................... 479,200 12,399
SECURITY CAPITAL PACIFIC TRUST, REIT ..... 287,500 6,253
Simon Property Group, REIT ............... 1,916,600 46,957
Taubman Centers, REIT .................... 500,000 5,563
Weingarten Realty Investors, REIT ........ 670,800 25,993
134,629
Miscellaneous Consumer Durables 1.7%
Corning .................................. 1,437,500 55,164
Eastman Kodak ............................ 646,900 50,297
105,461
Total Consumer Cyclicals 311,905
<PAGE>
TECHNOLOGY 1.1%
Electronic Systems 0.9%
General Signal .............................. 227,000 $ 8,598
Honeywell ................................... 862,500 47,006
55,604
Office Automation 0.2%
Pitney Bowes ................................ 287,500 13,728
13,728
Total Technology 69,332
CAPITAL EQUIPMENT 3.2%
Electrical Equipment 2.5%
GE .......................................... 1,341,600 116,049
Hubbell (Class B) ........................... 591,700 39,200
155,249
Machinery 0.7%
Cooper Industries ........................... 958,300 39,769
TRINOVA ..................................... 200,000 6,675
46,444
Total Capital Equipment 201,693
BUSINESS SERVICES AND
TRANSPORTATION 2.2%
Transportation Services 0.6%
Alexander & Baldwin ......................... 718,700 17,428
PHH ......................................... 359,400 20,486
37,914
Miscellaneous Business Services 0.5%
Deluxe Corp. ................................ 479,200 17,012
GATX ........................................ 287,500 13,872
30,884
<PAGE>
Railroads 1.1%
Conrail ..................................... 479,200 31,807
Union Pacific ............................... 527,100 36,831
68,638
Total Business Services and Transportation 137,436
ENERGY 10.7%
Energy Services 0.9%
Cooper Cameron * ............................ 325,550 $ 14,243
McDermott International ..................... 718,700 15,003
Witco ....................................... 900,000 30,937
60,183
Gas Transmission 0.2%
TransCanada PipeLines ....................... 670,800 9,894
9,894
Integrated Petroleum - Domestic 3.6%
Atlantic Richfield .......................... 910,400 107,882
British Petroleum ADR ....................... 479,100 51,204
Pennzoil .................................... 365,100 16,886
Sun Company ................................. 509,712 15,482
USX-Marathon ................................ 1,916,600 38,572
230,026
Integrated Petroleum - International 6.0%
Chevron ..................................... 1,054,100 62,192
Exxon ....................................... 1,150,000 99,906
Mobil ....................................... 383,300 42,978
Repsol ADR .................................. 750,000 26,063
Royal Dutch Petroleum ADR ................... 431,200 66,297
Texaco ...................................... 958,300 80,377
377,813
Total Energy 677,916
<PAGE>
PROCESS INDUSTRIES 9.1%
Diversified Chemicals 1.5%
Dow Chemical ................................. 350,000 26,600
DuPont ....................................... 910,400 72,035
98,635
Specialty Chemicals 3.4%
3M ........................................... 766,600 52,895
Betz Laboratories ............................ 958,300 42,046
Crompton & Knowles ........................... 300,000 5,025
Great Lakes Chemical ......................... 750,000 46,688
Lubrizol ..................................... 1,000,000 30,375
Nalco Chemical ............................... 1,150,800 $ 36,250
213,279
Paper and Paper Products 3.1%
Consolidated Papers .......................... 519,600 27,019
International Paper .......................... 1,054,100 38,870
James River .................................. 814,600 21,485
Kimberly-Clark ............................... 575,000 44,419
Union Camp ................................... 1,341,600 65,403
197,196
Forest Products 1.1%
Georgia-Pacific .............................. 958,300 68,039
68,039
Total Process Industries 577,149
BASIC MATERIALS 1.3%
Metals 0.7%
Reynolds Metals .............................. 900,000 46,912
46,912
Minin 0.6%
Newmont Mining ............................... 789,889 39,001
39,001
Total Basic Materials 85,913
<PAGE>
CONGLOMERATES 0.5%
LONRHO (GBP) ....................................... 10,000,000 28,731
Total Conglomerates 28,731
Miscellaneous Common Stocks 0.4% 26,946
Total Common Stocks (Cost $4,212,246) 5,392,030
Preferred Stocks 0.2%
California Federal Bank, 10.625%, Series B .......... 100,000 10,950
Total Preferred Stocks (Cost $10,000) 10,950
Convertible Preferred Stocks 0.2%
James River, Dep. Shs., Series P .................... 538,600 13,600
Total Convertible Preferred Stocks
(Cost $9,291) 13,600
Convertible Bonds 1.2%
Banco Nacional de Mexico (144a), Sub. Deb
7.00%, 12/15/9 ................................... $17,250,000 $ 15,870
Liberty Property, 8.00%, 7/1/01 ..................... 5,000,000 5,150
Roche Holding, LYONs, Zero Coupon, 4/20/10 .......... 43,985,000 18,694
WMX Technologies, Sub. Deb., 2.00%, 1/24/05 ......... 38,330,000 35,263
Total Convertible Bonds (Cost $72,393) 74,977
Corporate Bonds 1.4%
American Standard, Sr. Sub. Deb., 9.875%, 6/1/01 .......... 5,750,000 5,922
Ametek, Sr. Notes, 9.75%, 3/15/04 ......................... 5,000,000 5,294
B.F. Saul REIT, Sr. Secured Notes, 11.625%, 4/1/02 ........ 9,150,000 9,379
Coltec Industries, Sr. Sub. Notes, 10.25%, 4/1/02 ......... 10,855,000 11,018
Container Corporation of America, Sr. Notes
9.75%, 4/1/03 ......................................... 9,585,000 9,417
El Paso Electric, 1st Mtg. Notes, 9.40%, 5/1/11 ........... 10,000,000 9,900
IMC Fertilizer Group, Sr. Notes, 9.25%, 10/1/00 ........... 7,000,000 7,157
Paging Network, Sr. Sub. Notes, 8.875%, 2/1/06 ............ 2,800,000 2,534
Texas Bottling Group, Sr. Sub. Notes, 9.00%, 11/15/03 ..... 8,000,000 7,760
Trump Atlantic City Associates, 11.25%, 5/1/06 ............ 23,960,000 24,080
Total Corporate Bonds (Cost $92,592) 92,461
<PAGE>
U.S. Government
Obligations/Agencies 4.1%
U.S. Treasury Bonds
6.875%, 8/15/25 ...................................... 75,000,000 74,238
U.S. Treasury Notes
5.375%, 11/30/97 ..................................... 28,750,000 28,512
5.50%, 11/15/98 ...................................... 47,900,000 47,144
6.125%, 7/31/96 ...................................... 28,750,000 28,773
6.625%, 3/31/97 ...................................... 33,540,000 33,765
7.375%, 11/15/97 ..................................... 30,750,000 31,298
8.875%, 11/15/98 - 5/15/00 ........................... 15,000,000 16,014
Total U.S. Government Obligations/Agencies
(Cost $259,650) 259,744
Short-Term Investments 8.8%
Bank Notes 0.3%
NBD Bank Michigan, 5.38%, 9/3/96 .......................... $20,000,00 20,001
20,001
Certificates of Deposit 1.4%
Abbey National, (London), 5.345%, 7/8/96 .................. 10,000,000 10,000
Bank of Scotland, 5.41%, 7/11/96 .......................... 15,000,000 15,000
Barclays Bank, 5.32%, 7/23/96 ............................. 20,000,000 20,000
Bayerische Hypotheken, (London), 5.51%, 10/15/96 .......... 13,000,000 13,003
Toronto Dominion Bank, (London), 5.39%, 10/25/96 .......... 30,000,000 29,991
87,994
Commercial Paper 5.1%
Asset Securitization Cooperative, 4(2)
5.36%, 7/22/96 ....................................... 19,900,000 19,838
Australian Wheat Board, 5.33%, 7/3/96 ..................... 20,000,000 19,994
Bex America Finance, 5.33%, 8/7/96 ........................ 24,000,000 23,869
Ciesco, 5.33-5.36%, 7/11/96 ............................... 25,000,000 24,963
Corporate Asset Funding, 5.40%, 7/18/96 ................... 5,000,000 4,987
Corporate Asset Funding, 4(2), 5.31%, 7/18/96 ............. 5,000,000 4,987
Delaware Funding, 4(2), 5.40%, 7/8/96 ..................... 5,000,000 4,995
Dillard Investment, 5.31%, 7/8/96 ......................... 20,200,000 20,179
Dover, 4(2), 5.36%, 7/16/96 ............................... 6,300,000 6,286
Du Pont (EI) de Nemours, 4(2), 5.32%, 7/15/96 ............. 15,000,000 14,969
Heinz (H. J.), 4(2), 5.36%, 7/16/96 ....................... 4,000,000 3,991
Internationale Nederland, 5.40%, 7/29/96 .................. 16,700,000 16,630
<PAGE>
Internationale Nederlanden U.S. Funding, 5.28%, 7/1/96 ... 20,000,000 20,000
Investments in Commercial Paper through a joint account
5.49-5.68%, 7/1/96 .................................... 27,975,157 27,975
Island Finance Puerto Rico, 5.40%, 7/16/96 ............... 5,400,000 5,388
Korea Development Bank, 5.30%, 7/25/96 ................... 25,000,000 24,912
Kredietbank N.A. Finance, 5.34%, 7/10/96 ................. 20,000,000 19,973
Ontario Hydro, 5.42%, 9/9/96 ............................. 22,000,000 21,768
Preferred Receivables Funding, 5.32-5.40%, 7/2-7/9/96 .... 9,722,000 9,715
Sysco, 4(2), 5.41%, 7/2/96 ............................... 5,000,000 4,999
Teco Finance, 4(2), 5.30%, 8/26/96 ....................... 20,800,000 20,629
321,047
Government Agency Obligations 0.6%
Federal National Mortgage Assn., VR, MTN
5.395-5.405%, 9/27-10/7/96 ............................ 35,000,000 $35,000
35,000
Medium-Term Notes 1.4%
General Motors Acceptance Corporation,VR
5.66%, 7/19/96 ........................................ 7,000,000 7,002
Morgan Stanley Group, VR, 5.613%, 1/31/97 ................ 31,445,000 31,455
PHH, VR, 5.415%, 11/12/96 ................................ 14,000,000 13,993
SMM Trust, VR, 5.616%, 3/26/97 ........................... 19,000,000 18,998
Wells Fargo, VR, 5.582%, 9/16/96 ......................... 19,100,000 19,095
90,543
Total Short-Term Investments (Cost $554,585) 554,585
Total Investments in Securities
101.0% of Net Assets (Cost $5,210,757) $6,398,347
Other Assets Less Liabilities (65,991)
NET ASSETS $6,332,356
Net Assets Consist of:
Accumulated net investment income - net of distributions $3,056
Accumulated net realized gain/loss - net of distributions 234,393
Net unrealized gain (loss) 1,187,587
Paid-in-capital applicable to 299,103,805 shares of no par
value capital stock outstanding; unlimited shares authorized 4,907,320
NET ASSETS $6,332,356
NET ASSET VALUE PER SHARE $21.17
<PAGE>
* Non-income producing
MTN Medium term note
REIT Real Estate Investment Trust
VR Variable rate
4(2) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under section 4.2 of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "accredited investors."
144a Security was purchased pursuant to Rule 144a under the Securities Act
of 1933 and may not be resold subject to that rule except to
qualified institutional buyers -- total of such securities at year-end
amounts to 0.25% of net assets.
CHF Swiss franc
GBP British sterling
SEK Swedish krona
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands 6 Months
Ended
6/30/96
Investment Income
Income
Dividend $83,599
Interest 34,891
Total income 118,490
Expenses
Investment management 17,487
Shareholder servicing 5,994
Registration 266
Custody and accounting 188
Prospectus and shareholder reports 158
Directors 20
Legal and audit 17
Miscellaneous 44
Total expenses 24,174
Net investment income 94,316
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 234,677
Futures 1,022
Foreign currency transactions (153)
Net realized gain (loss) 235,546
Change in net unrealized gain or loss
Securities 131,775
Other assets and liabilities
denominated in foreign currencies (4)
Change in net unrealized gain or loss 131,771
Net realized and unrealized gain (loss) 367,317
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $461,633
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited
================================================================================
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/96 12/31/95
Increase (Decrease) in Net Assets
Operations
Net investment income $94,316 $152,570
Net realized gain (loss) 235,546 139,663
Change in net unrealized gain or loss 131,771 894,739
Increase (decrease) in net assets from operations 461,633 1,186,972
Distributions to shareholders
Net investment income (94,633) (150,621)
Net realized gain (37,969) (130,781)
Decrease in net assets from distributions (132,602) (281,402)
Capital share transactions *
Shares sold 1,524,621 1,431,239
Distributions reinvested 127,940 272,282
Shares redeemed (864,014) (598,164)
Increase (decrease) in net assets from capital
share transactions 788,547 1,105,357
Net Assets
Increase (decrease) during period 1,117,578 2,010,927
Beginning of period 5,214,778 3,203,851
End of period $6,332,356 $5,214,778
*Share information
Shares sold 73,780 78,850
Distributions reinvested 6,121 14,467
Shares redeemed (41,455) (33,108)
Increase (decrease) in shares outstanding 38,446 60,209
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited June 30, 1996
================================================================================
Notes to Financial Statements
================================================================================
================================================================================
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 and commenced operations on October 31, 1985.
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.
Currency Translation Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing exchange rate on the dates of such transactions.
The effect of changes in foreign exchange rates on realized and unrealized
security gains and losses is reflected as a component of such gains and losses.
Premiums and Discounts Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
<PAGE>
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
- --------------------------------------------------------------------------------
Commercial Paper Joint Account The fund, and other affiliated funds, may
transfer uninvested cash into a commercial paper joint account, the daily
aggregate balance of which is invested in high-grade commercial paper. All
securities purchased by the joint account satisfy the fund's criteria as to
quality, yield, and liquidity.
Other Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $1,638,454,000 and $741,889,000,
respectively, for the six months ended June 30, 1996.
================================================================================
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, 1996, the aggregate cost of investments for federal income tax
and financial reporting purposes was $5,210,757,000, and net unrealized gain
aggregated $1,187,590,000, of which $1,235,085,000 related to appreciated
investments and $47,495,000 to depreciated investments.
================================================================================
NOTE 4 - RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management fee,
of which $3,018,000 was payable at June 30, 1996. 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 0.305% for assets in excess of $50 billion. At
June 30, 1996, and for the six months then ended, the effective annual group fee
rate was 0.33% and 0.34%, respectively. The fund pays a pro rata share of the
group fee based on the ratio of its net assets to those of the group.
<PAGE>
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) invest. 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
$5,273,000 for the six months ended June 30, 1996, of which $568,000 was payable
at period-end.
For yield, price, last transaction,
and current balance, 24 hours,
7 days a week, call:
1-800-638-2587 toll free
For assistance with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. Rowe Price
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 Equity Income Fund.
T. Rowe Price Investment Services, Inc., Distributor
RPRTEIF 6/30/96
