<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Semiannual Report
Equity Income Fund
- --------------------------------------------------------------------------------
June 30, 1999
- --------------------------------------------------------------------------------
REPORT HIGHLIGHTS
================================================================================
EQUITY INCOME FUND
- ---------------------
* Stocks staged a strong first half advance in the face of rising
interest rates, and the shift from growth to cyclical and value stocks
benefited the fund.
* The fund's return for the six months ended June 30 was ahead of the
S&P 500 and comfortably surpassed the Lipper average for similar
funds.
* We took profits in many holdings and initiated positions in stocks
with good appreciation potential.
* The portfolio was diversified across abroad spectrum of industries,
with utilities and energy accounting for 28% of net assets.
* Stocks will be hard-pressed to match first-half returns, but we will
continue to emphasize investments in sound companies with limited
downside risk in the event of any turbulence later on.
================================================================================
FELLOW SHAREHOLDERS
================================================================================
PERFORMANCE COMPARISON
----------------------
Periods Ended 6/30/99 6 Months 12 Months
--------------------- -------- ---------
Equity Income Fund 12.54% 15.67%
S&P 500 12.38 22.76
Lipper Equity Income
Funds Average 8.98 11.36
================================================================================
The broad stock market and the Equity Income Fund advanced strongly during
the first half of 1999. Continued corporate earnings growth and a healthier
global outlook, particularly among some of last year's weaker economies,
combined to offset the negative effects of rising interest rates over the last
six months. Good overall economic news, high investor confidence, and trust in
the Federal Reserve's ability to take the proper preemptive action against
potentially higher inflation provided solid support for equities.
<PAGE>
For the six months ended June 30, your fund posted a strong 12.54% return,
ahead of the unmanaged Standard & Poor's 500 Stock Index and comfortably
exceeding the Lipper Equity Income Funds Average. We are pleased with this
performance, particularly considering the conservative nature of the fund's
investment approach. The last three months were particularly beneficial as value
stocks, which make up the majority of fund holdings, rebounded nicely.
For the last 12 months, the fund provided a return of 15.67%, again well
ahead of the universe of equity income funds but behind the S&P 500. The
portfolio provided good downside protection during last year's turbulent third
quarter and posted sound results in the first half of 1999 when investors
shifted their attention to the cyclical and value stocks in which we invest.
================================================================================
DIVIDEND DISTRIBUTIONS
================================================================================
Your Board of Trustees declared a second quarter income dividend of $0.14
per share, bringing your 1999 income distribution total to $0.26 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 the second
quarter dividend.
================================================================================
PORTFOLIO STRATEGY
================================================================================
The strong stock market environment during the first half of 1999 was
profitable for many of our holdings. In our annual report, we discussed many of
last year's market trends that were not particularly favorable for our
investment approach. However, during the past six months new trends came into
play that benefited fund investments. While value characteristics such as low
price/earnings ratios and high dividend yields were penalized in 1998, they
returned to favor in the most recent period. Companies with exposure to the
cyclical nature of the economy or to commodities suddenly sprang to life largely
because of the expectation of an upturn in international economies that had
suffered last year. The share price of Georgia Pacific advanced to levels where
we felt the upside potential was somewhat limited. We eliminated that position
and used the proceeds to take advantage of new investment opportunities.
============================================================
<PAGE>
INFORMATION ON YEAR-END DISTRIBUTIONS
-------------------------------------
To help you with tax planning, we try to give you
a good idea of the per-share income and capital
gain amounts our funds may distribute near
year-end. In late October, we will provide
estimates of these amounts, which will be paid on
December 16, 1999, to shareholders of record on
December 14. These preliminary numbers will be
included in The Price Report mailing to
shareholders in late October and will also be
available on our Web siteNwww.troweprice.com. We
hope that these preliminary numbers will be useful
to you in approximating the income and capital
gains taxes you may pay on distributions to
taxable accounts. If your fund distributed any
capital gains earlier in 1999, you can find the
amounts on your statements and should include them
in your tax planning calculations. Please keep in
mind that the numbers are not final and are likely
to be revised before the December 14 declaration
and record date. As the fall progresses, you may
want to check our Web site for revisions. If you
would like information on tax matters relating to
mutual funds, please visit our Web site to
download our Insights report, Tax Information for
Mutual Fund Investors, or call 1-800-225-5132 to
request a copy.
============================================================
Several stocks that recently did well, such as Tyco International, AMP, and
AT&T, had been successful for us over the last several years, and we sold either
all or part of these positions when their prices rose to less appealing levels.
Our largest sale in the first half was AMP, which was acquired by Tyco at a
substantial premium to our average cost.
[Security Diversification pie chart showing Business Services and
Transportation 5%, Capital Equipment, Process Industries, and Basic Materials
15%, Technology 4%, Consumer Services and Cyclical 11%, Financial 16%, Energy
and Utilities 28%, Consumer Nondurables 18%, and Reserves 3%]
Among these new investments are Lockheed Martin, Campbell, Hershey Foods,
Honeywell, Fort James, and Merck, all of which are successful enterprises that
have hit what we believe to be temporary stumbling blocks. Their share prices
have plummeted to attractive levels in our view, and their managements are
working vigorously to improve earnings performance. In the case of Honeywell, we
benefited more quickly than we anticipated when AlliedSignal announced its
intention in June to acquire Honeywell at a significant premium to our purchase
price.
<PAGE>
At the end of June, energy and utilities stocks accounted for 28% of
portfolio assets, consumer nondurables 18%, financial stocks 16%, and 15% of
assets were in capital equipment, process industries, and basic materials. (The
chart on this page shows the sector breakdown.) The balance was diversified
among several other industries. The narrow breadth of the market's advance over
the past few years created a large universe of out-of-favor stocks with
appealing valutions: in particular, low price/earnings ratios and relatively
high dividend yields. The Financial Profile table on page 4 demonstrates the
degree to which the stocks we buy have below-average valuations. Our preference
for high-yielding, lower P/E companies is evident and has been a consistent
cornerstone of our investment approach since the fund commenced operations in
1985. Given the wide variations in performance among companies and sectors over
the last two years, there is plenty of work to be done as we investigate new
investment opportunities on your behalf.
================================================================================
SUMMARY AND OUTLOOK
================================================================================
FINANCIAL PROFILE
-----------------
Equity
As of 6/30/99 Income Fund S&P 500
------------- ----------- -------
Current Yield 2.4%* 1.2%
Price/Book Ratio 3.8 6.6
Price/Earnings Ratio
(1999 estimated EPS) 19.3 27.9
Historical Beta
(based on monthly
returns for 5 years) 0.67 1.00
* The fund's annualized 30-day dividend yield is 1.84%.
================================================================================
So far this year, we have been pleasantly surprised by the durability of
the stock market's strength and resilience, particularly in the face of rising
interest rates. We believe it will be difficult, but not impossible, for stocks
to post such robust returns in the second half of 1999. Given historically high
stock valuations and unrealistic investor expectations, we would not be
surprised to see a bit of turbulence ahead. Nevertheless, whatever happens over
the short term, our investment approach will remain constant. We will continue
to emphasize investments in sound companies that may be out of favor in the
short run but offer an attractive combination of good upside potential and
relatively limited downside risk.
As always, we appreciate your confidence in T. Rowe Price and your
continued support.
Respectfully submitted,
/s/
Brian C. Rogers
President and Chairman of the Investment Advisory Committee
July 22, 1999
================================================================================
<PAGE>
T. Rowe Price Equity Income Fund
- --------------------------------
PORTFOLIO HIGHLIGHTS
- --------------------
TWENTY-FIVE LARGEST HOLDINGS
- ----------------------------
Percent of
Net Assets
6/30/99
- ------------------------------------------------------------------------
SBCCommunications 2.2%
- ------------------------------------------------------------------------
Mellon Bank 1.8
- ------------------------------------------------------------------------
ALLTEL 1.8
- ------------------------------------------------------------------------
BPAmoco 1.7
- ------------------------------------------------------------------------
Exxon 1.6
- ------------------------------------------------------------------------
American Home Products 1.5
- ------------------------------------------------------------------------
GTE 1.5
- ------------------------------------------------------------------------
International Paper 1.5
- ------------------------------------------------------------------------
Atlantic Richfield 1.4
- ------------------------------------------------------------------------
General Mills 1.4
- ------------------------------------------------------------------------
Pharmacia & Upjohn 1.4
- ------------------------------------------------------------------------
Dow Chemical 1.4
- ------------------------------------------------------------------------
Union Pacific 1.3
- ------------------------------------------------------------------------
Mobil 1.3
- ------------------------------------------------------------------------
Citigroup 1.3
- ------------------------------------------------------------------------
Chevron 1.3
- ------------------------------------------------------------------------
Kimberly-Clark 1.2
- ------------------------------------------------------------------------
Texaco 1.2
- ------------------------------------------------------------------------
DuPont 1.1
- ------------------------------------------------------------------------
Bell Atlantic 1.1
- ------------------------------------------------------------------------
3M 1.1
- ------------------------------------------------------------------------
J.P. Morgan 1.1
- ------------------------------------------------------------------------
Fannie Mae 1.1
- ------------------------------------------------------------------------
Hewlett-Packard 1.1
- ------------------------------------------------------------------------
Norfolk Southern 1.1
- ------------------------------------------------------------------------
Total 34.5%
Note: Table excludes reserves.
================================================================================
<PAGE>
T. Rowe Price Equity Income Fund
- --------------------------------
Portfolio Highlights
MAJOR PORTFOLIO CHANGES
-----------------------
Listed in descending order of size
6 Months Ended 6/30/99
TEN LARGEST PURCHASES TEN LARGEST SALES
- --------------------- -----------------
Lockheed Martin * AMP **
Campbell * BPAmoco
Hershey Foods * AT&T
Honeywell * First Union **
Fort James * Bausch & Lomb **
Merck * Georgia-Pacific **
Chubb GM
Abbott Laboratories Waste Management
Reynolds Metals Tomkins **
KeyCorp * Tyco International **
* Position added
** Position eliminated
================================================================================
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. An
index return does not reflect expenses, which have been deducted from the fund's
return.
[Equity Income Fund SEC chart shown here]
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- ------------------------------------
This table shows how the fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
Periods Ended 6/30/99 1 Year 3 Years 5 Years 10 Years
- --------------------- ------ ------- ------- --------
Equity Income Fund 15.67% 20.83% 21.81% 15.26%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
================================================================================
<PAGE>
T. Rowe Price Equity Income Fund
- -------------------------------- Unaudited
For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
- --------------------
6 Months Year
Ended Ended
6/30/99 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of period $ 26.32 $ 26.07 $ 22.54 $ 20.01 $ 15.98 $16.65
- --------------------------------------------------------------------------------
Investment activities
Net investment income 0.27 0.61 0.66 0.64 0.66 0.60
Net realized and
unrealized gain (loss) 2.99 1.74 5.67 3.38 4.56 0.13
- --------------------------------------------------------------------------------
Total from
investment activities 3.26 2.35 6.33 4.02 5.22 0.73
- --------------------------------------------------------------------------------
Distributions
Net investment income (0.26) (0.61) (0.66) (0.65) (0.65) (0.59)
Net realized gain (0.23) (1.49) (2.14) (0.84) (0.54) (0.81)
- --------------------------------------------------------------------------------
Total distributions (0.49) (2.10) (2.80) (1.49) (1.19) (1.40)
- --------------------------------------------------------------------------------
NET ASSET VALUE
================================================================================
End of period $ 29.09 $ 26.32 $ 26.07 $ 22.54 $ 20.01 $15.98
Ratios/Supplemental=Data
- ------------------------
Total return** 12.54% 9.23% 28.82% 20.40% 33.35% 4.53%
- --------------------------------------------------------------------------------
Ratio of total expenses
to average net assets 0.78%+ 0.77% 0.79% 0.81% 0.85% 0.88%
- --------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets 1.96%+ 2.26% 2.67% 3.08% 3.69% 3.63%
- --------------------------------------------------------------------------------
Portfolio turnover rate 19.3%+ 22.6% 23.9% 25.0% 21.4% 36.3%
- --------------------------------------------------------------------------------
Net assets, end of
period (in millions) $ 13,936 $ 13,495 $ 12,771 $ 7,818 $ 5,215 $ 3,204
- --------------------------------------------------------------------------------
** 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
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Equity Income Fund
- --------------------------------
Unaudited
June 30, 1999
Statement of Net Assets
Common=Stocks==96.4%
FINANCIAL==15.8%
Bank and Trust 8.4%
Bank of America 1,200,000 $ 87,975
- ----------------------------------------------------------------------------
Bank One 2,100,000 125,081
- ----------------------------------------------------------------------------
BankBoston 1,500,000 76,688
- ----------------------------------------------------------------------------
Chase Manhattan 1,200,000 103,950
- ----------------------------------------------------------------------------
Fleet Financial Group 2,500,000 110,937
- ----------------------------------------------------------------------------
J. P. Morgan 1,100,000 154,550
- ----------------------------------------------------------------------------
KeyCorp 1,200,000 38,550
- ----------------------------------------------------------------------------
Mellon Bank 7,001,600 254,683
- ----------------------------------------------------------------------------
Mercantile Bankshares 1,715,900 60,646
- ----------------------------------------------------------------------------
National City 1,000,000 65,500
- ----------------------------------------------------------------------------
Wells Fargo 2,250,000 96,188
- ----------------------------------------------------------------------------
1,174,748
- ----------------------------------------------------------------------------
Insurance 5.0%
American General 1,828,600 137,831
- ----------------------------------------------------------------------------
Chubb 1,150,000 79,925
- ----------------------------------------------------------------------------
Lincoln National 1,600,000 83,700
- ----------------------------------------------------------------------------
SAFECO 2,600,000 114,725
- ----------------------------------------------------------------------------
St. Paul Companies 3,869,450 123,097
- ----------------------------------------------------------------------------
Transamerica 1,300,000 97,500
- ----------------------------------------------------------------------------
XL Capital (Class A) 1,000,000 56,500
- ----------------------------------------------------------------------------
693,278
- ----------------------------------------------------------------------------
Financial Services 2.4%
Citigroup 3,825,000 181,687
- ----------------------------------------------------------------------------
<PAGE>
Fannie Mae 2,250,000 153,844
- ----------------------------------------------------------------------------
335,531
- ----------------------------------------------------------------------------
Total Financial 2,203,557
- ----------------------------------------------------------------------------
UTILITIES==14.3%
Telephone 9.3%
ALLTEL 3,489,900 249,528
- ----------------------------------------------------------------------------
AT&T 1,125,000 62,789
- ----------------------------------------------------------------------------
BCE ADR 1,916,600 94,512
- ----------------------------------------------------------------------------
Bell Atlantic 2,400,000 156,900
- ----------------------------------------------------------------------------
BellSouth 1,000,000 46,875
- ----------------------------------------------------------------------------
GTE 2,800,000 $ 212,100
- ----------------------------------------------------------------------------
SBC Communications 5,332,617 309,292
- ----------------------------------------------------------------------------
Telebras ADR 850,000 53
- ----------------------------------------------------------------------------
Telebras ADR 850,000 76,660
- ----------------------------------------------------------------------------
U.S. West 1,400,000 82,250
- ----------------------------------------------------------------------------
1,290,959
- ----------------------------------------------------------------------------
Electric Utilities 5.0%
Constellation Energy Group 1,000,000 29,625
- ----------------------------------------------------------------------------
DQE 1,750,000 70,219
- ----------------------------------------------------------------------------
Duke Energy 1,700,000 92,437
- ----------------------------------------------------------------------------
Entergy 1,500,000 46,875
- ----------------------------------------------------------------------------
FirstEnergy 2,959,965 91,759
- ----------------------------------------------------------------------------
Niagara Mohawk 1,870,000 30,037
- ----------------------------------------------------------------------------
PacifiCorp 3,100,000 56,962
- ----------------------------------------------------------------------------
Reliant Energy 2,150,000 59,394
- ----------------------------------------------------------------------------
Southern Company 3,500,000 92,750
- ----------------------------------------------------------------------------
Teco Energy 1,600,000 36,400
- ----------------------------------------------------------------------------
<PAGE>
Unicom 2,400,000 92,550
- ----------------------------------------------------------------------------
699,008
- ----------------------------------------------------------------------------
Total Utilities 1,989,967
- ----------------------------------------------------------------------------
CONSUMER=NONDURABLES==17.7%
Cosmetics 1.1%
International Flavors & Fragrances 3,300,000 146,438
- ----------------------------------------------------------------------------
146,438
- ----------------------------------------------------------------------------
Beverages 2.0%
Anheuser-Busch 2,000,000 141,875
- ----------------------------------------------------------------------------
Brown-Forman (Class B) 1,500,000 97,781
- ----------------------------------------------------------------------------
PepsiCo 1,000,000 38,688
- ----------------------------------------------------------------------------
278,344
- ----------------------------------------------------------------------------
Food Processing 5.5%
Campbell 1,900,000 88,113
- ----------------------------------------------------------------------------
General Mills 2,480,000 199,330
- ----------------------------------------------------------------------------
Heinz 2,200,000 110,275
- ----------------------------------------------------------------------------
Hershey Foods 1,500,000 89,062
- ----------------------------------------------------------------------------
Kellogg 2,223,400 73,372
- ----------------------------------------------------------------------------
McCormick 2,944,600 92,939
- ----------------------------------------------------------------------------
Quaker Oats 1,694,800 112,492
- ----------------------------------------------------------------------------
765,583
- ----------------------------------------------------------------------------
Hospital Supplies/Hospital Management 1.0%
Abbott Laboratories 2,000,000 $ 91,000
- ----------------------------------------------------------------------------
Smith & Nephew (GBP) 15,840,700 47,940
- ----------------------------------------------------------------------------
138,940
- ----------------------------------------------------------------------------
Pharmaceuticals 3.4%
American Home Products 3,750,000 215,625
- ----------------------------------------------------------------------------
Merck 800,000 59,200
- ----------------------------------------------------------------------------
<PAGE>
Pharmacia & Upjohn 3,500,000 198,844
- ----------------------------------------------------------------------------
473,669
- ----------------------------------------------------------------------------
Miscellaneous Consumer Products 4.7%
Armstrong World 1,800,000 104,062
- ----------------------------------------------------------------------------
Fortune Brands 1,800,000 74,475
- ----------------------------------------------------------------------------
Philip Morris 3,700,000 148,694
- ----------------------------------------------------------------------------
PPG Industries 1,300,000 76,781
- ----------------------------------------------------------------------------
RJ Reynolds Tobacco * 916,666 28,875
- ----------------------------------------------------------------------------
RJR Nabisco 2,750,000 53,797
- ----------------------------------------------------------------------------
Stanley Works 1,750,000 56,328
- ----------------------------------------------------------------------------
UST 4,000,000 117,000
- ----------------------------------------------------------------------------
660,012
- ----------------------------------------------------------------------------
Total Consumer Nondurables 2,462,986
- ----------------------------------------------------------------------------
CONSUMER=SERVICES==5.3%=====================================================
General Merchandisers 1.0%
J.C. Penney 1,700,000 82,556
- ----------------------------------------------------------------------------
May Department Stores 1,500,000 61,313
- ----------------------------------------------------------------------------
143,869
- ----------------------------------------------------------------------------
Specialty Merchandisers 0.8%
Toys "R" Us * 3,000,000 62,062
- ----------------------------------------------------------------------------
Tupperware 1,800,000 45,900
- ----------------------------------------------------------------------------
107,962
- ----------------------------------------------------------------------------
Entertainment and Leisure 1.1%
Disney 1,000,000 30,812
- ----------------------------------------------------------------------------
Hilton 2,896,200 41,090
- ----------------------------------------------------------------------------
Reader's Digest (Class A) 2,000,000 79,500
- ----------------------------------------------------------------------------
151,402
- ----------------------------------------------------------------------------
<PAGE>
Media and Communications 2.4%
Dow Jones 1,500,000 79,594
- ----------------------------------------------------------------------------
Dun & Bradstreet 2,000,000 70,875
- ----------------------------------------------------------------------------
Knight-Ridder 2,100,000 $ 115,369
- ----------------------------------------------------------------------------
R.R. Donnelley 2,100,000 77,831
- ----------------------------------------------------------------------------
343,669
- ----------------------------------------------------------------------------
Total Consumer Services 746,902
- ----------------------------------------------------------------------------
CONSUMER=CYCLICALS==5.7%====================================================
Automobiles and Related 1.6%
Delphi Automotive Systems 90,744 1,684
- ----------------------------------------------------------------------------
Genuine Parts 3,000,000 105,000
- ----------------------------------------------------------------------------
GM 800,000 52,800
- ----------------------------------------------------------------------------
TRW 1,250,000 68,594
- ----------------------------------------------------------------------------
228,078
- ----------------------------------------------------------------------------
Building and Real Estate 2.2%
Crescent Real Estate Equities, REIT 2,100,000 49,875
- ----------------------------------------------------------------------------
Rouse 1,500,000 38,063
- ----------------------------------------------------------------------------
Simon DeBartolo Group, REIT 3,489,532 88,547
- ----------------------------------------------------------------------------
Starwood Hotels & Resorts, REIT 4,200,000 128,362
- ----------------------------------------------------------------------------
304,847
- ----------------------------------------------------------------------------
Miscellaneous Consumer Durables 1.9%
Eastman Kodak 2,200,000 149,050
- ----------------------------------------------------------------------------
Whirlpool 1,500,000 111,000
- ----------------------------------------------------------------------------
260,050
- ----------------------------------------------------------------------------
Total Consumer Cyclicals 792,975
- ----------------------------------------------------------------------------
<PAGE>
TECHNOLOGY==4.0%============================================================
Electronic Systems 1.7%
Hewlett-Packard 1,500,000 150,750
- ----------------------------------------------------------------------------
Honeywell 758,000 87,833
- ----------------------------------------------------------------------------
238,583
- ----------------------------------------------------------------------------
Information Processing 0.2%
COMPAQ Computer 1,500,000 35,531
- ----------------------------------------------------------------------------
35,531
- ----------------------------------------------------------------------------
Aerospace and Defense 2.1%
AlliedSignal 1,750,000 110,250
- ----------------------------------------------------------------------------
Boeing 2,000,000 88,375
- ----------------------------------------------------------------------------
Lockheed Martin 2,410,700 89,799
- ----------------------------------------------------------------------------
288,424
- ----------------------------------------------------------------------------
Total Technology 562,538
- ----------------------------------------------------------------------------
CAPITAL=EQUIPMENT==1.8%=====================================================
Electrical Equipment 1.2%
GE 900,000 $ 101,700
- ----------------------------------------------------------------------------
Hubbell (Class B) 1,600,000 72,600
- ----------------------------------------------------------------------------
174,300
- ----------------------------------------------------------------------------
Machinery 0.6%
Cooper Industries 1,500,000 78,000
- ----------------------------------------------------------------------------
78,000
- ----------------------------------------------------------------------------
Total Capital Equipment 252,300
- ----------------------------------------------------------------------------
<PAGE>
BUSINESS=SERVICES=AND=======================================================
TRANSPORTATION==5.1%========================================================
Transportation Services 0.2%
Alexander & Baldwin 1,022,500 22,687
- ----------------------------------------------------------------------------
22,687
- ----------------------------------------------------------------------------
Miscellaneous Business Services 2.0%
Browning-Ferris 3,000,000 129,000
- ----------------------------------------------------------------------------
GATX 1,000,000 38,062
- ----------------------------------------------------------------------------
H&R Block 1,670,600 83,530
- ----------------------------------------------------------------------------
Waste Management 550,100 29,568
- ----------------------------------------------------------------------------
280,160
- ----------------------------------------------------------------------------
Railroads 2.9%
Burlington Northern Santa Fe 2,250,000 69,750
- ----------------------------------------------------------------------------
Norfolk Southern 5,000,000 150,625
- ----------------------------------------------------------------------------
Union Pacific 3,150,000 183,685
- ----------------------------------------------------------------------------
404,060
- ----------------------------------------------------------------------------
Total Business Services and Transportation 706,907
- ----------------------------------------------------------------------------
ENERGY==13.4%===============================================================
Energy Services 1.4%
Baker Hughes 4,000,000 134,000
- ----------------------------------------------------------------------------
Witco 2,800,000 56,000
- ----------------------------------------------------------------------------
190,000
- ----------------------------------------------------------------------------
Exploration and Production 0.7%
Unocal 2,625,000 104,016
- ----------------------------------------------------------------------------
104,016
- ----------------------------------------------------------------------------
Integrated Petroleum - Domestic 3.2%
Amerada Hess 2,187,800 $ 130,174
- ----------------------------------------------------------------------------
Atlantic Richfield 2,400,000 200,550
- ----------------------------------------------------------------------------
Phillips Petroleum 1,100,000 55,344
- ----------------------------------------------------------------------------
USX-Marathon 1,900,000 61,868
- ----------------------------------------------------------------------------
447,936
- ----------------------------------------------------------------------------
<PAGE>
Integrated Petroleum - International 8.1%
BP Amoco ADR 2,149,513 233,222
- ----------------------------------------------------------------------------
Chevron 1,900,000 180,856
- ----------------------------------------------------------------------------
Exxon 2,900,000 223,663
- ----------------------------------------------------------------------------
Mobil 1,850,000 183,150
- ----------------------------------------------------------------------------
Royal Dutch Petroleum ADR 2,400,000 144,600
- ----------------------------------------------------------------------------
Texaco 2,600,000 162,500
- ----------------------------------------------------------------------------
1,127,991
- ----------------------------------------------------------------------------
Total Energy 1,869,943
- ----------------------------------------------------------------------------
PROCESS=INDUSTRIES==11.2%===================================================
Diversified Chemicals 3.7%
Arch Chemicals 600,000 14,588
- ----------------------------------------------------------------------------
Dow Chemical 1,500,000 190,312
- ----------------------------------------------------------------------------
DuPont 2,300,000 157,119
- ----------------------------------------------------------------------------
Hercules 3,400,000 133,663
- ----------------------------------------------------------------------------
Olin 1,900,000 25,056
- ----------------------------------------------------------------------------
520,738
- ----------------------------------------------------------------------------
Specialty Chemicals 3.7%
3M 1,780,000 154,749
- ----------------------------------------------------------------------------
Great Lakes Chemical 2,200,000 101,337
- ----------------------------------------------------------------------------
Imperial Chemical ADR 1,350,000 53,663
- ----------------------------------------------------------------------------
Nalco Chemical 2,000,000 103,750
- ----------------------------------------------------------------------------
Pall 4,300,000 95,406
- ----------------------------------------------------------------------------
508,905
- ----------------------------------------------------------------------------
Paper and Paper Products 2.3%
Consolidated Papers 2,460,200 65,810
- ----------------------------------------------------------------------------
<PAGE>
Fort James 2,200,000 83,325
- ----------------------------------------------------------------------------
Kimberly-Clark 3,000,000 171,000
- ----------------------------------------------------------------------------
320,135
- ----------------------------------------------------------------------------
Forest Products 1.5%
International Paper 4,120,400 $ 208,080
- ----------------------------------------------------------------------------
208,080
- ----------------------------------------------------------------------------
Total Process Industries 1,557,858
- ----------------------------------------------------------------------------
BASIC=MATERIALS==2.0%=======================================================
Metals 1.6%
Inco 3,000,000 54,000
- ----------------------------------------------------------------------------
Phelps Dodge 1,000,000 61,938
- ----------------------------------------------------------------------------
Reynolds Metals 1,750,000 103,250
- ----------------------------------------------------------------------------
219,188
- ----------------------------------------------------------------------------
Mining 0.4%
Newmont Mining 2,750,000 54,656
- ----------------------------------------------------------------------------
54,656
- ----------------------------------------------------------------------------
Total Basic Materials 273,844
- ----------------------------------------------------------------------------
Total Miscellaneous Common Stocks 0.1% 20,210
Total Common Stocks (Cost $9,402,100) 13,439,987
Short-Term=Investments==3.9%
Money Market Funds 3.9%
Reserve Investment Fund, 5.05%, #+ 37,236,341 537,236
Total Short-Term Investments (Cost $537,236) 537,236
100.3% of Net Assets (Cost $9,939,336) $ 13,977,223
Other Assets Less Liabilities (40,757)
<PAGE>
NET ASSETS $ 13,936,466
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 1,699
Accumulated net realized gain/loss - net of distributions 615,206
Net unrealized gain (loss) 4,037,884
Paid-in-capital applicable to 479,080,846 shares of no par
value capital stock outstanding; unlimited shares authorized 9,281,677
NET ASSETS $ 13,936,466
NET ASSET VALUE PER SHARE $ 29.09
# Seven-day yield
+ Affiliated company
* Non-income producing
ADR American Depository Receipt
GBP British sterling
REIT Real Estate Investment Trust
The accompanying notes are an integral part of these financial statements.
================================================================================
T. Rowe Price Equity Income Fund
- -------------------------------- Unaudited
STATEMENT OF OPERATIONS
----------------------- In thousands
6 Months
Ended
6/30/99
==Investment=Income============================================================
Income
Dividend $ 166,863
Interest (including $14,682 from affiliated companies) 15,001
- -------------------------------------------------------------------------------
Total income 181,864
- -------------------------------------------------------------------------------
Expenses
Investment management 37,811
Shareholder servicing 13,125
Prospectus and shareholder reports 596
Custody and accounting 230
Registration 37
Trustees 18
Legal and audit 14
Miscellaneous 56
- -------------------------------------------------------------------------------
Total expenses 51,887
Expenses paid indirectly (11)
- -------------------------------------------------------------------------------
Net expenses 51,876
- -------------------------------------------------------------------------------
Net investment income 129,988
<PAGE>
- -------------------------------------------------------------------------------
==Realized=and=Unrealized=Gain=(Loss)==========================================
Net realized gain (loss)
Securities 610,123
Foreign currency transactions 23
- -------------------------------------------------------------------------------
Net realized gain (loss) 610,146
- -------------------------------------------------------------------------------
Change in net unrealized gain or loss
Securities 838,979
Other assets and liabilities
denominated in foreign currencies (6)
- -------------------------------------------------------------------------------
Change in net unrealized gain or loss 838,973
- -------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1,449,119
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
===============================================================================
ASSETS FROM OPERATIONS $ 1,579,107
===============================================================================
The accompanying notes are an integral part of these financial statements.
================================================================================
T. Rowe Price Equity Income Fund
- -------------------------------- Unaudited
STATEMENT OF CHANGES IN NET ASSETS
---------------------------------- In thousands
6 Months Year
Ended Ended
6/30/99 12/31/98
------- --------
Increase=(Decrease)=in=Net=Assets
Operations
Net investment income $ 129,988 $ 305,713
Net realized gain (loss) 610,146 784,665
Change in net unrealized gain or loss 838,973 68,428
- -------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 1,579,107 1,158,806
- -------------------------------------------------------------------------------
Distributions to shareholders
Net investment income (125,761) (309,762)
Net realized gain (112,517) (730,134)
- -------------------------------------------------------------------------------
Decrease in net assets from distributions (238,278) (1,039,896)
- -------------------------------------------------------------------------------
Capital share transactions*
Shares sold 1,135,469 3,094,274
Distributions reinvested 229,255 1,005,143
Shares redeemed (2,264,137) (3,494,462)
- -------------------------------------------------------------------------------
Increase (decrease) in net assets from capital
share transactions (899,413) 604,955
Net=Assets
Increase (decrease) during period 441,416 723,865
Beginning of period 13,495,050 12,771,185
- --------------------------------------------------------------------------------
<PAGE>
End of period $13,936,466 $13,495,050
- --------------------------------------------------------------------------------
*Share information
Shares sold 42,120 115,398
Distributions reinvested 8,520 38,342
Shares redeemed (84,271) (130,881)
- -------------------------------------------------------------------------------
Increase (decrease) in shares outstanding (33,631) 22,859
The accompanying notes are an integral part of these financial statements.
================================================================================
T. Rowe Price Equity Income Fund
- -------------------------------- Unaudited
June 30, 1999
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.
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.
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 Trustees.
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.
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. Expenses paid indirectly reflect credits earned
on daily, uninvested cash balances at the custodian, used to reduce the fund's
custody charges.
================================================================================
NOTE 2 - INVESTMENT TRANSACTIONS
================================================================================
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $1,232,585,000 and $2,205,232,000, respectively, for the
six months ended June 30, 1999.
================================================================================
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, 1999, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$9,939,336,000. Net unrealized gain aggregated $4,037,887,000 at period-end, of
which $4,299,733,000 related to appreciated investments and $261,846,000 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 $6,471,000 was payable at June 30, 1999. 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, 1999, 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. is the fund's
transfer and dividend disbursing agent and provides shareholder and
administrative services to the fund. T. Rowe Price Retirement Plan Services,
Inc., provides subaccounting and recordkeeping services for certain retirement
accounts invested in the fund. The fund incurred expenses pursuant to these
related party agreements totaling approximately $9,728,000 for the six months
ended June 30, 1999, of which $1,945,000 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 4.9% of the outstanding shares of the
fund at June 30, 1999. For the six months then ended, the fund was allocated
$869,000 of Spectrum expenses, $154,000 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, 1999, totaled
$14,682,000 and are reflected as interest income in the accompanying Statement
of Operations.
================================================================================
FOR YIELD, PRICE, LAST
TRANSACTION, CURRENT BALANCE,
OR TO CONDUCT TRANSACTIONS, 24
HOURS, 7 DAYS A WEEK, CALL
TELE*ACCESS [REGISTRATION
MARK:] 1-800-638-2587 toll
free
FOR ASSISTANCE WITH YOUR
EXISTING FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
TO OPEN A BROKERAGE ACCOUNT OR
OBTAIN INFORMATION, CALL:
1-800-638-5660 toll free
<PAGE>
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
appropriate to the fund or
funds covered in this report.
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
4200 West Cypress St.
10th Floor
Tampa, FL 33607
4410 ArrowsWest Drive
Colorado Springs, CO 80907
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills, CA 91367
T. Rowe Price Investment Services, Inc., Distributor. F71-051 6/30/99
