- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Semiannual Report
Equity Income Fund
- --------------------------------------------------------------------------------
June 30, 1998
- --------------------------------------------------------------------------------
REPORT HIGHLIGHTS
================================================================================
EQUITY INCOME FUND
* Stocks continued their strong performance over the first half of the year,
but the environment grew challenging for funds with a value approach to
investing.
* Results were behind the S&P 500 and the Lipper average for the six months
ended June 30 but were close to the peer group for the past 12 months.
* Fund returns were hindered by low exposure to technology shares and a
relatively high focus on weaker energy and utility stocks.
* While we are disappointed with short-term results, our investment approach
remains unchanged and should continue to benefit shareholders over time.
* We still believe that the blistering broad market returns of recent years
are likely to moderate, and we will continue to seek sound investments as
the opportunities arise.
<PAGE>
FELLOW SHAREHOLDERS
The equity market performed very well in the first half of 1998 as low
inflation, a benign interest rate environment, and generally healthy corporate
earnings provided fuel for the advance. As the first half progressed and signs
of a deceleration in economic growth became visible, the environment grew
increasingly challenging for value-oriented funds such as yours.
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 6/30/98 6 Months 12 Months
- --------------------------------------------------------------------------------
Equity Income Fund ......................... 6.27% 19.39%
S&P 500 .................................... 17.71 30.16
Lipper Equity Income
Funds Average .............................. 9.13 20.94
================================================================================
During the first half, company size and the predictability of earnings
growth emerged as critical requirements for investment success. Characteristics
such as low stock valuations and above-average yield were viewed as something to
avoid rather than to seek. As shown in the table, your fund's results lagged the
broad market because of its focus on precisely the type of investment approach
that has recently been out of favor. Equity income funds in general struggled
during the period, and we struggled more than most for reasons we will explain.
Nevertheless, your fund provided an attractive return for the 12 months ended
June 30, 1998, which was only slightly behind our peer group average. Given the
conservative nature of the fund, it is difficult to keep up with the broad
market in times of powerful market advances.
DIVIDEND DISTRIBUTION
Your Board of Trustees declared a second quarter income dividend of $0.16
per share, bringing your 1998 total income distribution to $0.30 per share. This
distribution was paid on June 29 to shareholders of record on June 25. You
should have already received your check or statement reflecting this activity.
PORTFOLIO STRATEGY
In light of the fund's first half performance, it helps to review exactly
how the fund invests, and why. We follow a value approach, meaning that we
invest in companies our analysis suggests are undervalued on the basis of
earnings, dividends, cash flow, asset value, or some combination of these
measures. There is a contrarian element to this approach in that many companies
appearing undervalued by these measures are often out of favor for a variety of
company- or industry-related reasons. We invest in them in the belief that the
market's short-term sentiment is often too negative, and that investors will
view our companies more favorably in the future. Generally, this is a relatively
conservative style of equity investing with reasonable return potential and an
emphasis on risk control.
<PAGE>
[Security Diversification pie chart showing Bonds, 2%; Common Stocks, 91%;
Convertibles, 1%; and reserves, 6%]
Several shareholders have called or written to ask if the fund somehow lost
its way in the first half of 1998. Without doubt, we have been out of sync with
the market even though we did nothing differently in the last six months than we
have been doing since 1985. We made the investment decisions outlined in the
Major Portfolio Changes table following the letter for the same reasons as in
the past. The largest purchases represent companies that have attractively
priced earnings and dividend streams, whose share prices are depressed because
of various reasons and investor concerns. In our view, these stocks have the
ability to advance from their current low prices and provide good returns over
time. Each company also offers a reasonable level of dividend income in the
current low-rate environment.
Our largest sales, on the other hand, were of companies that we bought at
significantly lower prices when they were undervalued according to our in-house
analysis. They had performed well and no longer appeared as attractively valued
to us. We reinvested proceeds from these sales in companies with more upside
potential, in our view, that were generally trading at lower multiples of
earnings and had higher dividend yields.
However, despite the consistency of our investment approach, several
factors combined to hurt results so far in 1998. First, in terms of sector
allocation, the fund had little exposure to the strong technology sector and too
much exposure to the weaker energy and utility sectors. We deliberately avoided
many of the 50 or so S&P 500 stocks that have accounted for so much of the broad
market advance, since many had very high price/earnings ratios and low or
nonexistent dividend yields. Some individual holdings impaired the first half
return as well, including UNION PACIFIC, with its well-publicized problems, and
more cyclical stocks such as DOW CHEMICAL and NORFOLK SOUTHERN, all of which
were among our top positions.
In short, some unfortunate short-term sector decisions, a handful of
laggards among our major stocks, and our avoidance of many large- capitalization
growth companies that do not meet our investment criteria restrained results
during the first six months. While we are unhappy about these short-term
problems, the fund's 12-month return is still in line with the peer group, and
the average annual return for the past 10 years surpasses the average for
similar funds. Since our focus has always been on the long term, we remain
confident that our investment approach will continue to provide attractive
returns for shareholders.
==============================
While we are unhappy about
these short-term problems, the
fund's 12-month return is
still in line with the peer
group . . .
- ------------------------------
<PAGE>
Some have expressed concern about the fund's asset allocation and its rapid
growth over the last few years. At the end of June, 91% of total assets were
invested in stocks, and 9% in bonds, convertibles, and money market securities.
This structure has not changed significantly since year-end, and we do not
envision major changes going forward. Equity Income Fund's growth in assets
under management has been significant but has not hampered our ability to invest
efficiently, since most investments are in larger companies. As you review the
Twenty-five Largest Holdings table, you will see that we hold many large-cap
companies with ample liquidity. If overall size should ever become a problem for
the fund, rest assured that I would be the first to be concerned about it.
SUMMARY AND OUTLOOK
In recent reports, we commented that the stock market cannot keep soaring
to new heights forever, yet it has been exceeding the expectations of even the
most optimistic bulls. However, at some point, stock market returns should begin
to moderate from their unsustainable levels. Investor expectations are currently
very high, signs of speculative activity are rising, and investors appear more
focused on return than on risk.
Nevertheless, despite lofty valuations and the volatile twists and turns
that are likely to occur along the way, we are confident that our investment
approach will continue to reward investors over time. Whatever type of
environment we face, we assure you that our efforts will be focused on making
sound investment decisions on your behalf in the months and years ahead.
As always, we appreciate your continued confidence and support.
Respectfully submitted,
/s/
Brian C. Rogers
President and Chairman of the Investment Advisory Committee
July 24, 1998
<PAGE>
T. Rowe Price Equity Income Fund
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================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/98
- --------------------------------------------------------------------------------
Mellon Bank ................................................. 1.7%
American Home Products ...................................... 1.5
Exxon ....................................................... 1.4
Starwood Hotels & Resorts ................................... 1.4
ALLTEL ...................................................... 1.4
- --------------------------------------------------------------------------------
Amoco ....................................................... 1.3
Dow Chemical ................................................ 1.3
Atlantic Richfield .......................................... 1.3
Chevron ..................................................... 1.2
Pharmacia & Upjohn .......................................... 1.2
- --------------------------------------------------------------------------------
Philip Morris ............................................... 1.2
St. Paul Companies .......................................... 1.2
Norfolk Southern ............................................ 1.1
Texaco ...................................................... 1.1
SBC Communications .......................................... 1.1
- --------------------------------------------------------------------------------
GTE ......................................................... 1.0
General Mills ............................................... 1.0
Anheuser-Busch .............................................. 1.0
Mobil ....................................................... 1.0
J.P. Morgan ................................................. 1.0
- --------------------------------------------------------------------------------
Union Pacific ............................................... 1.0
United States Surgical ...................................... 1.0
GE .......................................................... 1.0
Eastman Kodak ............................................... 0.9
AT&T ........................................................ 0.9
- --------------------------------------------------------------------------------
Total ....................................................... 29.2%
================================================================================
<PAGE>
T. Rowe Price Equity Income Fund
- --------------------------------------------------------------------------------
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 6/30/98
Ten Largest Purchases
- --------------------------------------------------------------------------------
Starwood Hotels & Resorts *
Hercules *
Kimberly-Clark
TRW *
3M
Browning-Ferris *
Amoco
Crescent Real Estate Equities *
Phelps Dodge *
Hewlett-Packard *
Ten Largest Sales
- --------------------------------------------------------------------------------
AT&T
Echlin **
Enron **
Sprint **
American Express **
McGraw-Hill **
Repsol **
Unilever N.V. **
Western Resources **
Cadbury Schweppes **
* Position added
** Position eliminated
================================================================================
<PAGE>
T. Rowe Price Equity Income 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.
[Equity Income Fund 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 6/30/98 1 Year 3 Years 5 Years 10 Years
Equity Income Fund 19.39% 23.96% 19.60% 15.61%
================================================================================
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>
T. Rowe Price Equity Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Unaudited
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
6 Months Year
Ended Ended
6/30/98 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ................... $ 26.07 $ 22.54 $ 20.01 $ 15.98 $ 16.65 $ 15.63
Investment activities
Net investment income ......... 0.30 0.66 0.64 0.66 0.60 0.54
Net realized and
unrealized gain (loss) ........ 1.34 5.67 3.38 4.56 0.13 1.74
Total from
investment activities ......... 1.64 6.33 4.02 5.22 0.73 2.28
Distributions
Net investment income ......... (0.30) (0.66) (0.65) (0.65) (0.59) (0.54)
Net realized gain ............. (0.13) (2.14) (0.84) (0.54) (0.81) (0.72)
Total distributions ........... (0.43) (2.80) (1.49) (1.19) (1.40) (1.26)
NET ASSET VALUE
End of period ......................... $ 27.28 $ 26.07 $ 22.54 $ 20.01 $ 15.98 $ 16.65
Ratios/Supplemental Data
Total return^ ......................... 6.27% 28.82% 20.40% 33.35% 4.53% 14.84%
Ratio of expenses to
average net assets .................... 0.78%+ 0.79% 0.81% 0.85% 0.88% 0.91%
Ratio of net investment
income to average
net assets ............................ 2.25%+ 2.67% 3.08% 3.69% 3.63% 3.23%
Portfolio turnover rate ............... 10.1% 23.9% 25.0% 21.4% 36.3% 31.2%
Net assets, end of period
(in millions) ......................... $ 14,084 $ 12,771 $ 7,818 $ 5,215 $ 3,204 $ 2,851
<FN>
^ 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.
+ Annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Equity Income Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1998
================================================================================
Portfolio of Investments
- --------------------------------------------------------------------------------
Shares/Par Value
In thousands
Common Stocks 90.9%
FINANCIAL 15.3%
Bank and Trust 8.8%
BANC ONE ......................................... 2,100,000 $ 117,206
BankBoston ....................................... 1,400,000 77,875
Bankers Trust New York ........................... 850,000 98,653
Chase Manhattan .................................. 1,400,000 105,700
First Union ...................................... 1,700,000 99,025
Fleet Financial Group ............................ 1,200,000 100,200
J. P. Morgan ..................................... 1,200,000 140,550
Mellon Bank ...................................... 3,500,800 243,743
Mercantile Bankshares ............................ 1,312,700 45,657
National City .................................... 1,000,000 71,000
PNC Bank ......................................... 958,300 51,569
Wells Fargo ...................................... 225,000 83,025
1,234,203
Insurance 4.9%
American General ................................. 1,828,600 130,174
EXEL ............................................. 1,200,000 93,375
Hilb, Rogal and Hamilton ......................... 153,100 2,392
Lincoln National ................................. 800,000 73,100
SAFECO ........................................... 2,600,000 118,056
St. Paul Companies ............................... 3,869,450 162,759
Transamerica ..................................... 650,000 74,831
Willis-Corroon ADR ............................... 3,500,000 43,969
698,656
Financial Services 1.6%
Fannie Mae ....................................... 2,100,000 127,575
Travelers Group .................................. 1,549,800 93,957
221,532
Total Financial .................................. 2,154,391
<PAGE>
UTILITIES 14.7%
Telephone Services 7.9%
ALLTEL ........................................... 4,200,000 195,300
AT&T ............................................. 2,300,000 131,387
BCE ADR .......................................... 1,916,600 $ 81,815
Bell Atlantic .................................... 2,400,000 109,500
BellSouth ........................................ 1,400,000 93,975
Frontier ......................................... 2,000,000 63,000
GTE .............................................. 2,600,000 144,625
SBC Communications ............................... 3,800,000 152,000
Southern New England Telecommunications .......... 1,157,000 75,784
U.S. West ........................................ 1,300,000 61,100
1,108,486
Electric Utilities 6.8%
BGE .............................................. 1,400,000 43,488
Central and South West ........................... 1,400,000 37,625
Dominion Resources ............................... 1,600,000 65,200
DQE .............................................. 1,750,000 63,000
Duke Energy ...................................... 2,000,000 118,500
Entergy .......................................... 1,700,000 48,875
FirstEnergy ...................................... 3,159,965 97,169
GPU .............................................. 931,800 35,234
Houston Industries ............................... 2,700,000 83,362
PacifiCorp ....................................... 2,250,000 50,906
PECO Energy ...................................... 2,200,000 64,212
Southern Company ................................. 3,700,000 102,444
Teco Energy ...................................... 1,750,000 46,922
Unicom ........................................... 2,750,000 96,422
953,359
Total Utilities .................................. 2,061,845
CONSUMER NONDURABLES 17.1%
Cosmetics 0.9%
International Flavors & Fragrances ............... 2,850,000 123,797
123,797
Beverages 1.6%
Anheuser-Busch ................................... 3,029,000 142,931
Brown-Forman (Class B) ........................... 1,300,000 83,525
226,456
Food Processing 3.8%
General Mills .................................... 2,100,000 143,588
Heinz ............................................ 1,593,600 89,441
Kellogg .......................................... 1,500,000 $ 56,344
McCormick ........................................ 3,000,000 107,156
Quaker Oats ...................................... 1,944,800 106,842
Sara Lee ......................................... 500,000 27,969
531,340
<PAGE>
Hospital Supplies/Hospital Management 2.7%
Abbott Laboratories .............................. 2,000,000 81,750
Bausch & Lomb .................................... 1,500,000 75,187
Baxter International ............................. 800,000 43,050
Smith & Nephew (GBP) ............................. 16,840,700 42,038
United States Surgical ........................... 3,000,000 136,875
378,900
Pharmaceuticals 3.2%
American Home Products ........................... 4,000,000 207,000
Amgen * .......................................... 609,000 39,832
Johnson & Johnson ................................ 500,000 36,875
Pharmacia & Upjohn ............................... 3,600,000 166,050
449,757
Miscellaneous Consumer Products 4.9%
Armstrong World .................................. 1,000,000 67,375
Fortune Brands ................................... 2,400,000 92,250
Philip Morris .................................... 4,200,000 165,375
PPG Industries ................................... 1,500,000 104,344
RJR Nabisco ...................................... 2,750,000 65,312
Tomkins (GBP) .................................... 17,200,000 93,408
Unifi ............................................ 338,800 11,604
UST .............................................. 3,700,000 99,900
699,568
Total Consumer Nondurables ....................... 2,409,818
CONSUMER SERVICES 5.0%
General Merchandisers 1.2%
J.C. Penney ...................................... 1,500,000 108,469
May Department Stores ............................ 1,000,000 65,500
173,969
Specialty Merchandisers 0.4%
Tupperware ....................................... 1,800,000 50,625
50,625
Entertainment and Leisure 0.7%
Hilton ........................................... 1,746,400 $ 49,772
Reader's Digest (Class A) ........................ 2,100,000 56,963
106,735
Media and Communications 2.7%
Dow Jones ........................................ 1,600,000 89,200
Dun & Bradstreet ................................. 2,000,000 72,250
Knight-Ridder .................................... 2,100,000 115,631
R.R. Donnelly .................................... 2,200,000 100,650
377,731
Total Consumer Services .......................... 709,060
<PAGE>
CONSUMER CYCLICALS 6.8%
Automobiles and Related 2.1%
Genuine Parts .................................... 3,000,000 103,687
GM ............................................... 1,600,000 106,900
TRW .............................................. 1,700,000 92,863
303,450
Building and Real Estate 3.0%
Crescent Real Estate Equities, REIT .............. 2,200,000 73,975
Rouse ............................................ 771,600 24,257
SECURITY CAPITAL PACIFIC TRUST, REIT ............. 1,400,000 31,500
Simon DeBartolo Group, REIT ...................... 3,489,532 113,410
Starwood Hotels & Resorts, REIT .................. 3,200,000 154,600
Weingarten Realty Investors, REIT ................ 600,000 25,087
422,829
Miscellaneous Consumer Durables 1.7%
Eastman Kodak .................................... 1,800,000 131,513
Whirlpool ........................................ 1,500,000 103,125
234,638
Total Consumer Cyclicals ......................... 960,917
TECHNOLOGY 1.6%
Electronic Systems 0.4%
Hewlett-Packard .................................. 1,000,000 59,875
59,875
Electronic Components 0.6%
AMP .............................................. 2,600,000 $ 89,375
89,375
Aerospace and Defense 0.6%
AlliedSignal ..................................... 1,700,000 75,438
75,438
Total Technology ................................. 224,688
CAPITAL EQUIPMENT 1.8%
Electrical Equipment 1.3%
GE ............................................... 1,500,000 136,500
Hubbell (Class B) ................................ 1,300,000 54,112
190,612
Machinery 0.5%
Cooper Industries ................................ 1,200,000 65,925
65,925
Total Capital Equipment .......................... 256,537
BUSINESS SERVICES AND
TRANSPORTATION 5.1%
Transportation Services 0.2%
Alexander & Baldwin .............................. 1,022,500 29,717
29,717
<PAGE>
Miscellaneous Business Services 2.3%
Browning-Ferris .................................. 2,500,000 86,875
GATX ............................................. 1,000,000 43,875
H&R Block ........................................ 1,920,600 80,905
Waste Management ................................. 3,000,000 105,000
316,655
Railroads 2.6%
Burlington Northern Santa Fe ..................... 750,000 73,641
Norfolk Southern ................................. 5,250,000 156,515
Union Pacific .................................... 3,150,000 138,994
369,150
Total Business Services and Transportation ....... 715,522
ENERGY 11.6%
Energy Services 0.5%
Witco ............................................ 2,600,000 $ 76,050
76,050
Integrated Petroleum - Domestic 4.3%
Amerada Hess ..................................... 1,950,000 105,909
Atlantic Richfield ............................... 2,300,000 179,687
British Petroleum ADR ............................ 983,680 86,810
Occidental Petroleum ............................. 2,500,000 67,500
Phillips Petroleum ............................... 1,200,000 57,825
Unocal ........................................... 1,200,000 42,900
USX-Marathon ..................................... 1,900,000 65,194
605,825
Integrated Petroleum - International 6.8%
Amoco ............................................ 4,500,000 187,312
Chevron .......................................... 2,100,000 174,431
Exxon ............................................ 2,800,000 199,675
Mobil ............................................ 1,850,000 141,756
Royal Dutch Petroleum ADR ........................ 1,772,800 97,172
Texaco ........................................... 2,600,000 155,188
955,534
Total Energy ..................................... 1,637,409
PROCESS INDUSTRIES 9.8%
Diversified Chemicals 3.8%
Dow Chemical ..................................... 1,900,000 183,706
DuPont ........................................... 1,750,000 130,594
Eastman Chemical ................................. 500,000 31,125
Hercules ......................................... 2,600,000 106,925
Olin ............................................. 2,000,000 83,375
535,725
<PAGE>
Specialty Chemicals 3.2%
3M ............................................... 1,400,000 115,062
Great Lakes Chemical ............................. 2,200,000 86,763
Imperial Chemical ADR ............................ 1,000,000 64,500
Lubrizol ......................................... 1,300,000 39,325
Nalco Chemical ................................... 2,000,000 $ 70,250
Pall ............................................. 3,443,000 70,582
446,482
Paper and Paper Products 2.0%
Consolidated Papers .............................. 2,510,200 68,403
Kimberly-Clark ................................... 2,500,000 114,687
Union Camp ....................................... 2,000,000 99,250
282,340
Forest Products 0.7%
Georgia-Pacific .................................. 700,000 41,256
International Paper .............................. 1,500,000 64,500
105,756
Building & Construction 0.1%
Georgia-Pacific Timber ........................... 525,000 12,108
12,108
Total Process Industries ......................... 1,382,411
BASIC MATERIALS 2.0%
Metals 1.4%
Inco ............................................. 2,500,000 34,063
Phelps Dodge ..................................... 1,000,000 57,187
Reynolds Metals .................................. 1,000,000 55,937
USX-U.S. Steel ................................... 1,500,000 49,500
196,687
Mining 0.6%
Lonrho (GBP) ..................................... 3,200,000 15,014
Lonrho Africa (GBP) * ............................ 2,134,000 2,619
Newmont Mining ................................... 2,750,000 64,969
82,602
Total Basic Materials ............................ 279,289
Miscellaneous Common Stocks 0.1% ................ 10,931
Total Common Stocks (Cost $9,487,496) ........... 12,802,818
Convertible Preferred Stocks 0.1%
Crown Cork & Seal, 4.50% ......................... 500,000 22,375
Total Convertible Preferred Stocks (Cost $24,026). 22,375
<PAGE>
Convertible Bonds 0.6%
Bell Atlantic Financial Services, (144a),
5.75%, 4/1/03 .................................... $35,000,000 $35,853
Corporate Express, Notes, 4.50%, 7/1/00 .......... 2,000,000 1,859
Corporate Express, (144a), 4.50%, 7/1/00 ......... 19,000,000 17,660
Roche Holding, LYONs, 0%, 4/20/10 ................ 43,985,000 25,512
Total Convertible Bonds (Cost $74,635) ........... 80,884
Corporate Bonds 0.3%
Starwood Hotel & Resort, Sr. Secured Notes, VR
7.898%, 2/23/03 .................. 42,500,000 42,500
Total Corporate Bonds (Cost $42,460) ............. 42,500
U.S. Government Obligations/
Agencies 2.7%
U.S. Treasury Bonds
6.875%, 8/15/25 .................. 75,000,000 86,859
U.S. Treasury Notes
5.50%, 11/15/98 .................. 57,900,000 57,918
5.875%, 11/15/99 - 2/15/00 ....... 125,000,000 125,613
6.25%, 5/31/99 ................... 50,000,000 50,321
6.50%, 10/15/06 .................. 50,000,000 53,093
8.875%, 11/15/98 ................. 5,000,000 5,063
Total U.S. Government Obligations/
Agencies (Cost $362,784) ........................ 378,867
Short-Term Investments 5.4%
Money Market Funds 5.4%
Reserve Investment Fund, 5.69% # + ............... 763,343,361 763,343
Total Short-Term Investments (Cost $763,343) .... 763,343
Total Investments in Securities
100.0% of Net Assets (Cost $10,754,744) .......... $ 14,090,787
Other Assets Less Liabilities .................... (6,826)
NET ASSETS ....................................... $ 14,083,961
# Seven-day yield
+ Affiliated company
* Non-income producing
ADR American Depository Receipt
REIT Real Estate Investment Trust
VR Variable rate
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
0.38% of net assets.
GBP British sterling
LYONs Liquid Yield Option Notes
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Equity Income Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1998
================================================================================
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value
Affiliated companies (cost $763,343) ................... $ 763,343
Other companies (cost $9,991,401) ...................... 13,327,444
Total investments in securities ........................ 14,090,787
Other assets ................................................... 72,288
Total assets ................................................... 14,163,075
Liabilities
Total liabilities .............................................. 79,114
NET ASSETS ..................................................... 14,083,961
Net Assets Consist of:
Accumulated net investment income - net of distributions ....... $ 3,076
Accumulated net realized gain/loss - net of distributions ...... 460,806
Net unrealized gain (loss) ..................................... 3,336,061
Paid-in-capital applicable to 516,233,547 shares of
no par value capital stock outstanding;
unlimited shares authorized .................................... 10,284,018
NET ASSETS ..................................................... $14,083,961
NET ASSET VALUE PER SHARE ...................................... $ 27.28
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Equity Income Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Operations
In thousands
6 Months
Ended
6/30/98
Investment Income
Income
Dividend .............................................. $167,746
Interest .............................................. 41,409
Total income .......................................... 209,155
Expenses
Investment management ................................. 39,487
Shareholder servicing ................................. 12,915
Registration .......................................... 570
Prospectus and shareholder reports .................... 394
Custody and accounting ................................ 208
Directors ............................................. 20
Legal and audit ....................................... 12
Miscellaneous ......................................... 51
Total expenses ........................................ 53,657
Net investment income ......................................... 155,498
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities ............................................ 464,038
Foreign currency transactions ......................... 61
Net realized gain (loss) .............................. 464,099
Change in net unrealized gain or loss
Securities ............................................ 205,559
Other assets and liabilities
denominated in foreign currencies ..................... 19
Change in net unrealized gain or loss ................. 205,578
Net realized and unrealized gain (loss) ....................... 669,677
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ........................................ $825,175
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Equity Income Fund
- --------------------------------------------------------------------------------
Unaudited
================================================================================
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income ................... $ 155,498 $ 281,009
Net realized gain (loss) ................ 464,099 859,742
Change in net unrealized gain or loss ... 205,578 1,503,279
Increase (decrease) in net assets
from operations ......................... 825,175 2,644,030
Distributions to shareholders
Net investment income ................... (153,943) (281,472)
Net realized gain ....................... (66,339) (948,478)
Decrease in net assets from distributions (220,282) (1,229,950)
Capital share transactions *
Shares sold ............................. 1,995,579 3,858,730
Distributions reinvested ................ 212,255 1,194,182
Shares redeemed ......................... (1,499,951) (1,513,941)
Increase (decrease) in net assets
from capital share transactions ......... 707,883 3,538,971
Net Assets
Increase (decrease) during period ............... 1,312,776 4,953,051
Beginning of period ............................. 12,771,185 7,818,134
End of period ................................... $ 14,083,961 $ 12,771,185
*Share information
Shares sold ............................. 73,617 156,117
Distributions reinvested ................ 7,657 47,135
Shares redeemed ......................... (54,893) (60,273)
Increase (decrease) in shares outstanding 26,381 142,979
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Equity Income Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1998
================================================================================
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Equity Income 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 October 31, 1985.
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
Trustees, or by persons delegated by the Board, best to reflect fair value.
Debt securities are generally traded in the over-the-counter market and
are valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the
U.S. dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
AFFILIATED COMPANIES As defined by the Investment Company Act of 1940, an
affiliated company is one in which the fund owns at least 5% of the outstanding
voting securities.
<PAGE>
CURRENCY TRANSLATION Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing exchange rate on the dates of such transactions.
The effect of changes in foreign exchange rates on realized and unrealized
security gains and losses is reflected as a component of such gains and losses.
PREMIUMS AND DISCOUNTS Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
OTHER Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $2,091,349,000 and $1,306,671,000, respectively, for the
six months ended June 30, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends
to continue to qualify as a regulated investment company and distribute all of
its taxable income.
At June 30, 1998, the aggregate cost of investments for federal income
tax and financial reporting purposes was $10,754,744,000, and net unrealized
gain aggregated $3,336,043,000, of which $3,586,673,000 related to appreciated
investments and $250,630,000 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 $6,641,000 was payable at June 30, 1998. 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 0.30% for assets in excess of $80 billion. At June
30, 1998, and for the six months 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.
<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
recordkeepin g services for certain retirement accounts invested in the fund.
The fund incurred expenses pursuant to these related party agreements totaling
approximately $9,627,000 for the six months ended June 30, 1998, of which
$1,750,000 was payable at period-end.
Additionally, the fund is one of several T. Rowe Price-sponsored mutual
funds (underlying funds) in which the T. Rowe Price Spectrum Funds (Spectrum)
may invest. Spectrum does not invest in the underlying funds for the purpose of
exercising management or control. Expenses associated with the operation of
Spectrum are borne by each underlying fund to the extent of estimated savings to
it and in proportion to the average daily value of its shares owned by Spectrum,
pursuant to special servicing agreements between and among Spectrum, the
underlying funds, T. Rowe Price, and, in the case of T. Rowe Price Spectrum
International, Rowe Price-Fleming International. Spectrum Growth Fund and
Spectrum Income Fund held approximately 4.8% of the outstanding shares of the
Equity Income Fund at June 30, 1998. For the six months then ended, the fund was
allocated $851,000 of Spectrum expenses, $123,000 of which 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 six months ended June 30, 1998, totaled
$23,227,000 and are reflected as interest income in the accompanying Statement
of Operations.
<PAGE>
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
BY PHONE Shareholder service representatives are available from 8 a.m.
to 10 p.m. ET Monday through Friday and from 8:30 a.m. to 5 p.m. ET on
weekends. Call 1-800-225-5132 to speak directly with a representative
who will be able to assist you with your accounts.
IN PERSON Visit one of our investor center locations to meet with a
representative who will be able to assist you with your accounts. You
can also drop off applications or obtain prospectuses and other
literature at these centers.
AUTOMATED 24-HOUR SERVICES
TELE*ACCESS [REGISTRATION MARK] Call 1-800-638-2587 to obtain
information such as account balance, date and amount of your last
transaction, latest dividend payment, fund prices, and yields.
Additionally, you have the ability to request prospectuses,
statements, and account and tax forms; to reorder checks; and to
initiate purchase, redemption, and exchange orders for identically
registered accounts.
INTERNET. T. Rowe Price Web site: www.troweprice.com All the
information and services available on Tele*Access are available on our
Web site, including transactions in your fund and Discount Brokerage
accounts (with preauthorized access).
ACCOUNT SERVICES
CHECKING Write checks for $500 or more on any money market and most
bond fund accounts (except the High Yield and Emerging Markets Bond
Funds).
AUTOMATIC INVESTING Build your account over time by investing directly
from your bank account or paycheck with Automatic Asset Builder.
Additionally, Automatic Exchange enables you to set up systematic
investments from one fund account into another, such as from a money
fund into a stock fund. A $50 minimum makes it easy to get started.
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.
<PAGE>
DISCOUNT BROKERAGE*
INVESTMENTS AVAILABLE You can trade stocks, bonds, options, precious
metals, mutual funds, and other securities at a savings over regular
commission rates.
TO OPEN AN ACCOUNT Call a shareholder service representative for more
information.
Investment Information
COMBINED STATEMENT A comprehensive overview of your T. Rowe Price
accounts is provided. The summary page gives you earnings by tax
category, provides total portfolio value, and lists your investments
by type. Detail pages itemize account transactions.
SHAREHOLDER REPORTS Portfolio managers review the performance of the
funds in plain language and discuss T. Rowe Price's economic outlook.
T. ROWE PRICE REPORT This is a quarterly newsletter with relevant
articles on market trends, personal financial planning, and T. Rowe
Price's economic perspective.
PERFORMANCE UPDATE This quarterly report reviews recent market
developments and provides comprehensive performance information for
every T. Rowe Price fund.
INSIGHTS This library of information includes reports on mutual fund
tax issues, investment strategies, and financial markets.
DETAILED INVESTMENT GUIDES Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Diversifying Overseas: A Guide to International
Investing, Retirees Financial Guide, and Retirement Planning Kit (also
available on disk or CD-ROM for PC use) can help you determine and
reach your investment goals.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
<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 Stock
Japan
Latin America
New Asia
Spectrum International
<PAGE>
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 Insured 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 Insured 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
<PAGE>
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.
** Formerly the closed-end New Age Media Fund. Converted to open-end status on
7/28/97.
*** Closed to new investors.
+ 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.
<PAGE>
T. Rowe Price Discount Brokerage
- --------------------------------------------------------------------------------
DISCOUNT BROKERAGE
A Division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC
This low-cost service gives you the opportunity to easily consolidate all
your investments with one company. Through T. Rowe Price Discount
Brokerage, you can buy and sell individual securities-stocks, bonds,
options, and others-as well as mutual funds at considerable commission
savings over full-service brokers.* We also provide a wide range of
services, including:
AUTOMATED TELEPHONE and Internet Services You can enter trades, access
quotes, and review account information 24 hours a day, seven days a week.
Any trades executed through these programs provide additional savings on
commissions.**
INVESTOR INFORMATION A variety of informative reports, such as our
Brokerage Insights series, S&P Market Month newsletter, and select stock
reports, can help you better evaluate economic trends and investment
opportunities.
DIVIDEND REINVESTMENT Service Virtually all stocks held in customer
accounts are eligible for this service, free of charge.
* Based on an April 1998 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary by size of order.
** Discount applies to our current commission schedule. All trades subject to
a $35 minimum commission except equity trades placed through
Internet-Trader, which are subject to a $29.95 minimum commission.
<PAGE>
FOR YIELD, PRICE, LAST TRANSACTION,
CURRENT BALANCE, OR TO CONDUCT
TRANSACTIONS, 24 HOURS, 7 DAYS
A WEEK, CALL TELE*ACCESS [REGISTRATION MARK]:
1-800-638-2587 toll free
FOR ASSISTANCE
WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
TO OPEN A DISCOUNT 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 Equity Income Fund.
INVESTOR CENTERS:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor. F71-051 6/30/98
