T. Rowe Price
--------------------------------------------------------------------------------
Semiannual Report
Equity Income Fund
--------------------------------------------------------------------------------
June 30, 2000
--------------------------------------------------------------------------------
REPORT HIGHLIGHTS
================================================================================
EQUITY INCOME FUND
------------------
* First-half volatility ended with the major stock market indices down
slightly and growth stocks beating value stocks.
* Fund results trailed the S&P 500 and the Lipper average, but the fund held
up well during the spring sell-off in technology stocks.
* We made several significant purchases of sound companies whose share prices
were cut in half during the period.
* Value stocks remain inexpensive compared with the broad market, and we are
optimistic about their potential for appreciation as reality returns to the
stock market.
================================================================================
UPDATES AVAILABLE
-----------------
For updates on T. Rowe Price funds following the end of each calendar
quarter, please see our Web site at www.troweprice.com.
================================================================================
FELLOW SHAREHOLDERS
-------------------
The stock market soared, dove, then rose again during the first six months
of the year, creating significant volatility among various sectors and
individual stocks. By the time the dust settled at the end of June, most major
market indices posted slight losses for the six-month period. In a generally
poor environment for equities, the low-P/E and higher-yielding stocks that
compose the universe of value stocks your fund inhabits posted small losses for
the first half of 2000.
<PAGE>
PERFORMANCE COMPARISON
----------------------
Periods Ended 6/30/00 6 Months 12 Months
--------------------- -------- ---------
Equity Income Fund -2.77% -10.30%
S&P 500 -0.43 7.24
Lipper Equity Income
Funds Average -1.92 -6.70
As shown in the Performance Comparison table, your fund declined by 2.77%
during the six months ended June 30, 2000, reflecting a drop of 2.92% in the
first quarter and a slim gain of 0.16% in the second. Despite the weak results,
we were pleased to see the fund hold up reasonably well during the sharp
sell-off in technology and so-called New Economy stocks in the spring. Since
1998, your fund has struggled in an environment that has favored growth stocks,
many with little or no earnings, over value stocks. However, momentum may have
begun to shift back toward quality companies with a history of earnings growth
and relatively high dividend yields, and we regard this development -- if it
continues -- as a welcome return to reality in the equities market.
The year began with a continuation of the pattern that characterized the
stock market through most of last year. In the first quarter, the
technology-heavy Nasdaq Composite led the way as the more aggressive market
sectors provided the strongest performance. In April and May, those stocks
experienced a sudden and sharp decline, and traditional value stocks provided
better relative performance. In June the market underwent another reversal in
sentiment, with growth stocks re bounding from their spring decline. By the end
of the second quarter the S&P 500, the Dow Jones Industrial Average, and the
Nasdaq Composite had all posted losses. Within these indices, growth stocks
generally fared better than value stocks, and smaller and mid-cap shares
outperformed the largest-cap stocks.
DIVIDEND DISTRIBUTIONS
----------------------
On June 27, 2000, your Board of Trustees declared a second-quarter income
dividend of $0.13 per share, bringing the year-to-date total to $0.25. This
distribution was paid on June 29 to shareholders of record on June 27. Earlier
this year we declared a capital gain distri-bution of $0.71 per share, of which
$0.12 represented short-term and $0.59 represented long-term capital gains. This
distribution was paid in the first quarter, and no capital gain distribution was
declared in the second quarter.
<PAGE>
PORTFOLIO STRATEGY
------------------
During the first half, the portfolio benefited from several successful
investments and suffered from some that did not work out as well. Our holdings
in the health care, utility, and energy sectors were generally good performers,
while telecommunications and basic materials stocks declined overall. Among our
profitable positions were AMERICAN HOME PRODUCTS, BAKER HUGHES, PHARMACIA,
DISNEY, and STARWOOD HOTELS & RESORTS WORLDWIDE. Disappointing stocks included
INTERNATIONAL PAPER, DUPONT, HERCULES, and ALLTEL.
Security Diversification pie chart showing Business
Services and Transportation 4%, Capital Equipment,
Process Industries, and Basic Materials 10%, Technology
5%, Consumer Services and Cyclicala 13%, Financial 17%,
Energy and Utilities 26%, Consumer Nondurables 20%, and
Reserves 5%
The strategy we followed during the period was to invest in good companies
after the sell-off. Equity investors not only have high expectations for future
returns, but also little tolerance for any disappointing news affecting their
investments. What else could explain the recent collapse of stocks like PROCTER
& GAMBLE? It dropped about 50% after announcing slower earnings growth -- not
losses, but slower growth in profitability. Many small technology and Internet
companies fa red even worse. Imagine what would happen in a more difficult
economic environment.
In this climate we capitalized on the significant price declines in several
stocks to make new investments. Our experience suggests that investing in strong
companies AFTER they lose half their value is often a rewarding move. This was
our reason for new purchases in ROCKWELL INTERNATIONAL, GILLETTE, MICROSOFT, and
Procter & Gamble. Rockwell is the classic value stock. Having fallen
substantially in price, the stock sold for 10 times earnings and sported a
dividend yield of 3% -- an attractive valuation for a leading manufacturing
company. The other companies listed in the Major Portfolio Changes table
following this letter share the common characteristics of recent price weakness,
strong market position, and attractive valuations. Microsoft is a slightly
unusual holding for us given our general reluctance to invest in technology
stocks for valuation reasons. Nonetheless, after its highly publicized antitrust
problems and stock price nosedive, we thought it was an opportune time to
initiate a small position.
<PAGE>
Most of the portfolio sales listed in the table were of successful
investments whose valuations reached unattractive levels as their share prices
rose, which diminished their appeal for us. Two holdings, US WEST and
CONSOLIDATED PAPER, were takeover targets.
As shown in the Financial Profile table on the next page, the fund's
holdings sell at a substantial discount to the overall market. Our historical
approach has been to invest in companies selling at relatively low
price/earnings ratios with attractive dividend yields and other compelling
valuation characteristics. Compared with the broad market, at the end of June we
had a portfolio of undervalued companies with good prospects over the next few
years.
*************************************************************************
ADVISOR SHARE CLASS CREATED
---------------------------
T. Rowe Price has introduced a new class of shares for
certain funds, including this one. The new Advisor
Class shares will be sold exclusively by financial
intermediaries, such as brokers and financial advisers,
and will enhance our ability to reach a new group of
investors through this expanding channel. Since the new
share class has a modest 12b-1 fee (a distribution fee
paid to the sales intermediary), its performance will
likely vary somewhat from your fund shares even though
both invest in the same portfolio.
We want to emphasize that the new class will have no
impact whatsoever on your investment in the fund or on
the returns provided to you by the fund. The daily net
asset value and expenses for the existing shares and
the Advisor Class shares are calculated separately. In
due course, you will see the Advisor Class share prices
listed in newspapers and other print and electronic
media. Certain expenses associated with the Advisor
Class shares will be itemized in financial statements
in your fund's shareholder reports.
*************************************************************************
<PAGE>
OUTLOOK
-------
FINANCIAL PROFILE
-----------------
Equity Income
As of 6/30/00 Fund S&P 500
------------- ------------- -------
Current Yield 2.9% 1.1%
Price/Book Ratio 3.2 8.9
Price/Earnings Ratio
(2000 estimated EPS) 14.5 30.0
Historical Beta
(based on monthly
returns for 5 years) 0.68 1.00
After the shakeout of the past six months, the market ended up treading
water as investors digested a series of tightening moves by the Fed aimed at
slowing the pace of economic growth. In earlier reports we discussed the
delinkage between stock prices and the earnings and dividend growth that
normally support them, since share prices have risen at a faster pace in recent
years. This gap began to close modestly during the first half of the year, with
earnings and dividend growth moving ahead while stocks declined in value.
Despite the improved performance of value stocks discussed earlier, they remain
very inexpensive relative to their growth stock siblings. If history is any
guide, true value tends to reassert itself over time. The fund holds investments
in many companies with inexpensive valuations, thanks to the contrary investor
sentiment of recent years. We believe our portfolio comprises stocks that offer
a good combination of solid return potential and relatively low 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 21, 2000
================================================================================
<PAGE>
T. Rowe Price Equity Income Fund
--------------------------------
PORTFOLIO HIGHLIGHTS
--------------------
TWENTY-FIVE LARGEST HOLDINGS
----------------------------
Percent of
Net Assets
6/30/00
-----------------------------------------------------------------------
BP Amoco 2.9%
-----------------------------------------------------------------------
Exxon Mobil 2.6
-----------------------------------------------------------------------
Mellon Financial 2.4
-----------------------------------------------------------------------
SBCCommunications 2.1
-----------------------------------------------------------------------
American Home Products 1.9
-----------------------------------------------------------------------
General Mills 1.9
-----------------------------------------------------------------------
Pharmacia 1.6
-----------------------------------------------------------------------
Chevron 1.6
-----------------------------------------------------------------------
FleetBoston Financial 1.5
-----------------------------------------------------------------------
Royal Dutch Petroleum 1.4
-----------------------------------------------------------------------
Texaco 1.4
-----------------------------------------------------------------------
ALLTEL 1.4
-----------------------------------------------------------------------
Hershey Foods 1.4
-----------------------------------------------------------------------
Heinz 1.3
-----------------------------------------------------------------------
Kimberly-Clark 1.3
-----------------------------------------------------------------------
Lockheed Martin 1.3
-----------------------------------------------------------------------
<PAGE>
Citigroup 1.3
-----------------------------------------------------------------------
GTE 1.3
-----------------------------------------------------------------------
3M 1.3
-----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide 1.2
-----------------------------------------------------------------------
Bell Atlantic 1.2
-----------------------------------------------------------------------
Eastman Kodak 1.2
-----------------------------------------------------------------------
Fannie Mae 1.2
-----------------------------------------------------------------------
Disney 1.2
-----------------------------------------------------------------------
International Paper 1.2
-----------------------------------------------------------------------
Total 39.1%
Note: Table excludes reserves.
================================================================================
T. Rowe Price Equity Income Fund
--------------------------------
PORTFOLIO HIGHLIGHTS
--------------------
MAJOR PORTFOLIO CHANGES
-----------------------
Listed in descending order of size
6 Months Ended 6/30/00
TEN LARGEST PURCHASES
---------------------
Rockwell International *
Microsoft *
Procter & Gamble *
Eaton *
Gillette *
Unisys *
Motorola *
BMCSoftware *
AT&T
Toys "R" Us
<PAGE>
TEN LARGEST SALES
-----------------
BCE **
Exxon Mobil
USWest
Hewlett-Packard **
BPAmoco
Baker Hughes
American Home Products
Consolidated Papers
Quaker Oats **
Anheuser-Busch
* 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 benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
S&P 500 Stock Lipper Equity Income Equity Income
Index Funds Average Fund
------------- -------------------- -------------
6/90 10000 10000 10000
6/91 10739 10589 10980
6/92 12180 12175 12677
6/93 13840 14047 14504
6/94 14034 14458 15308
6/95 17694 16970 18630
6/96 22294 20673 23271
6/97 30030 26233 29723
6/98 39088 31915 35487
6/99 47983 35130 41048
6/00 51459 32356 36820
<PAGE>
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 6/30/00 1 Year 3 Years 5 Years 10 Years
--------------------- ------ ------- ------- --------
Equity Income Fund -10.30% 7.40% 14.60% 13.92%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
================================================================================
T. Rowe Price Equity Income Fund
--------------------------------
Unaudited For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
--------------------
EQUITY INCOME SHARES
6 Months Year
Ended Ended
6/30/00 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
------- -------- -------- -------- -------- --------
NET ASSET VALUE
Beginning of period $ 24.81 $ 26.32 $ 26.07 $ 22.54 $ 20.01 $ 15.98
-------------------------------------------------------------------------------
Investment activities
Net investment
income (loss) 0.26 0.54 0.61 0.66 0.64 0.66
Net realized and
unrealized gain (loss (0.96) 0.45 1.74 5.67 3.38 4.56
-------------------------------------------------------------------------------
Total from
investment activities (0.70) 0.99 2.35 6.33 4.02 5.22
-------------------------------------------------------------------------------
Distributions
Net investment income (0.25) (0.53) (0.61) (0.66) (0.65) (0.65)
Net realized gain (0.71) (1.97) (1.49) (2.14) (0.84) (0.54)
-------------------------------------------------------------------------------
Total distributions (0.96) (2.50) (2.10) (2.80) (1.49) (1.19)
-------------------------------------------------------------------------------
<PAGE>
NET ASSET VALUE
End of period $ 23.15 $ 24.81 $ 26.32 $ 26.07 $ 22.54 $ 20.01
RATIOS/SUPPLEMENTAL DATA
-----------------------
Total return ** (2.77)% 3.82% 9.23% 28.82% 20.40% 33.35%
-------------------------------------------------------------------------------
Ratio of total expenses
to average net assets 0.79%+ 0.77% 0.77% 0.79% 0.81% 0.85%
-------------------------------------------------------------------------------
Ratio of net investment
income (loss) to average
net assets 2.11%+ 1.95% 2.26% 2.67% 3.08% 3.69%
-------------------------------------------------------------------------------
Portfolio turnover rate 17.1%+ 21.8% 22.6% 23.9% 25.0% 21.4%
-------------------------------------------------------------------------------
Net assets, end of
period (in millions) $ 9,803 $ 12,321 $ 13,495 $ 12,771 $ 7,818 $ 5,215
-------------------------------------------------------------------------------
** 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 For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
--------------------
EQUITY INCOME ADVISOR CLASS SHARES
----------------------------------
3/31/00
Through
6/30/00
NET ASSET VALUE
Beginning of period $ 23.24
------------------------------------------------------------------------------
Investment activities
Net investment income (loss) 0.13
Net realized and
unrealized gain (loss) (0.08)
------------------------------------------------------------------------------
Total from
investment activities 0.05
------------------------------------------------------------------------------
Distributions
Net investment income (0.13)
------------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 23.16
Ratios/Supplemental Data
Total return ** 0.20%
-----------------------------------------------------------------------------
Ratio of total expenses to
average net assets 0.69%+
-----------------------------------------------------------------------------
Ratio of net investment
income (loss) to average
net assets 2.28%+
-----------------------------------------------------------------------------
Portfolio turnover rate 17.1%+
-----------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 13
-----------------------------------------------------------------------------
** 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, 2000
PORTFOLIO OF INVESTMENTS In thousands
------------------------ Shares Value
------ -----
COMMON STOCKS 95.3%
FINANCIAL 16.6%
Bank and Trust 9.0%
Bank of America 1,300,000 $ 55,900
----------------------------------------------------------------------------
Bank One 3,650,000 96,953
----------------------------------------------------------------------------
Firstar 2,000,000 42,125
----------------------------------------------------------------------------
FleetBoston Financial 4,276,600 145,405
----------------------------------------------------------------------------
J. P. Morgan 1,000,000 110,125
----------------------------------------------------------------------------
KeyCorp 936,800 16,511
----------------------------------------------------------------------------
Mellon Financial 6,401,600 233,258
----------------------------------------------------------------------------
Mercantile Bankshares 2,175,900 64,937
----------------------------------------------------------------------------
National City 2,100,000 35,831
----------------------------------------------------------------------------
Wells Fargo 2,250,000 87,188
----------------------------------------------------------------------------
888,233
Insurance 5.1%
American General 1,828,600 111,545
----------------------------------------------------------------------------
Chubb 1,500,000 92,250
----------------------------------------------------------------------------
Lincoln National 1,600,000 57,800
----------------------------------------------------------------------------
SAFECO 2,750,000 54,742
----------------------------------------------------------------------------
St. Paul 2,869,450 97,920
----------------------------------------------------------------------------
UNUMProvident 4,200,000 84,262
----------------------------------------------------------------------------
498,519
<PAGE>
Financial Services 2.5%
Citigroup 2,100,000 126,525
----------------------------------------------------------------------------
Fannie Mae 2,250,000 117,422
----------------------------------------------------------------------------
243,947
Total Financial 1,630,699
UTILITIES 12.8%
Telephone 7.6%
ALLTEL 2,200,000 136,263
----------------------------------------------------------------------------
AT&T 1,950,000 61,669
----------------------------------------------------------------------------
Bell Atlantic 2,400,000 121,950
----------------------------------------------------------------------------
BellSouth 1,600,000 68,200
----------------------------------------------------------------------------
GTE 2,000,000 124,500
----------------------------------------------------------------------------
SBC Communications 4,682,617 202,523
----------------------------------------------------------------------------
Vodafone AirTouch ADR 750,000 $ 31,078
----------------------------------------------------------------------------
746,183
Electric Utilities 5.2%
Duke Energy 1,850,000 104,294
----------------------------------------------------------------------------
Entergy 1,500,000 40,781
----------------------------------------------------------------------------
FirstEnergy 2,959,965 69,189
----------------------------------------------------------------------------
Niagara Mohawk * 2,370,000 33,032
----------------------------------------------------------------------------
Reliant Energy 2,000,000 59,125
----------------------------------------------------------------------------
Scottish Power ADR 1,198,000 40,058
----------------------------------------------------------------------------
Southern 3,500,000 81,594
----------------------------------------------------------------------------
Unicom 2,200,000 85,112
----------------------------------------------------------------------------
513,185
Total Utilities 1,259,368
<PAGE>
CONSUMER NONDURABLES 20.1%
Cosmetics 1.6%
Gillette 1,600,000 55,900
----------------------------------------------------------------------------
International Flavors & Fragrances 3,300,000 99,619
----------------------------------------------------------------------------
155,519
----------------------------------------------------------------------------
Beverages 1.3%
Anheuser-Busch 711,700 53,155
----------------------------------------------------------------------------
Brown-Forman (Class B) 1,500,000 80,625
----------------------------------------------------------------------------
133,780
----------------------------------------------------------------------------
Food Processing 7.1%
Campbell 2,406,000 70,075
----------------------------------------------------------------------------
General Mills 4,750,000 181,687
----------------------------------------------------------------------------
Heinz 3,000,000 131,250
----------------------------------------------------------------------------
Hershey Foods 2,750,000 133,375
----------------------------------------------------------------------------
Kellogg 1,400,000 41,650
----------------------------------------------------------------------------
McCormick 2,759,500 89,684
----------------------------------------------------------------------------
Unilever (EUR) 1,000,000 45,873
----------------------------------------------------------------------------
693,594
Hospital Supplies/Hospital Management 1.5%
Abbott Laboratories 2,250,000 100,266
----------------------------------------------------------------------------
Becton, Dickinson 1,750,000 50,203
----------------------------------------------------------------------------
150,469
----------------------------------------------------------------------------
<PAGE>
Pharmaceuticals 4.1%
American Home Products 3,132,900 $ 184,058
----------------------------------------------------------------------------
Merck 800,000 61,300
----------------------------------------------------------------------------
Pharmacia 2,998,500 154,985
----------------------------------------------------------------------------
400,343
----------------------------------------------------------------------------
Miscellaneous Consumer Products 4.5%
Armstrong Holdings 1,800,000 27,563
----------------------------------------------------------------------------
Fortune Brands 2,500,000 57,656
----------------------------------------------------------------------------
Hasbro 2,979,200 44,874
----------------------------------------------------------------------------
Philip Morris 3,200,000 85,000
----------------------------------------------------------------------------
PPG Industries 984,600 43,630
----------------------------------------------------------------------------
Procter & Gamble 1,000,000 57,250
----------------------------------------------------------------------------
Stanley Works 2,750,000 65,312
----------------------------------------------------------------------------
UST 4,000,000 58,750
----------------------------------------------------------------------------
440,035
----------------------------------------------------------------------------
Total Consumer Nondurables 1,973,740
CONSUMER SERVICES 7.3%
General Merchandisers 0.8%
J.C. Penney 1,700,000 31,344
----------------------------------------------------------------------------
May Department Stores 2,000,000 48,000
----------------------------------------------------------------------------
79,344
----------------------------------------------------------------------------
Specialty Merchandisers 1.4%
Toys "R" Us * 7,500,000 109,219
----------------------------------------------------------------------------
Tupperware 1,100,000 24,200
----------------------------------------------------------------------------
133,419
----------------------------------------------------------------------------
<PAGE>
Entertainment and Leisure 2.3%
Disney 3,000,000 116,438
----------------------------------------------------------------------------
Hilton 5,750,000 53,906
----------------------------------------------------------------------------
Reader's Digest (Class A) 1,500,000 59,625
----------------------------------------------------------------------------
229,969
----------------------------------------------------------------------------
Media and Communications 2.8%
Dow Jones 750,000 54,938
----------------------------------------------------------------------------
Dun & Bradstreet 2,300,000 65,837
----------------------------------------------------------------------------
Knight-Ridder 1,800,000 95,737
----------------------------------------------------------------------------
R.R. Donnelley * 2,400,000 54,150
----------------------------------------------------------------------------
270,662
----------------------------------------------------------------------------
Total Consumer Services 713,394
CONSUMER CYCLICALS 5.2%
Automobiles and Related 1.3%
Dana 900,000 $ 19,069
----------------------------------------------------------------------------
Eaton 800,000 53,600
----------------------------------------------------------------------------
Genuine Parts 3,000,000 60,000
----------------------------------------------------------------------------
132,669
----------------------------------------------------------------------------
Building and Real Estate 2.7%
Rouse 2,500,000 61,875
----------------------------------------------------------------------------
Simon Property Group, REIT 3,489,532 77,424
----------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, REIT 3,755,200 122,278
----------------------------------------------------------------------------
261,577
----------------------------------------------------------------------------
Miscellaneous Consumer Durables 1.2%
Eastman Kodak 2,000,000 119,000
----------------------------------------------------------------------------
119,000
----------------------------------------------------------------------------
Total Consumer Cyclicals 513,246
<PAGE>
TECHNOLOGY 4.9%
Information Processing 0.9%
COMPAQ Computer 2,000,000 51,125
----------------------------------------------------------------------------
Unisys * 2,500,000 36,406
----------------------------------------------------------------------------
87,531
----------------------------------------------------------------------------
Office Automation 0.8%
Xerox 3,750,000 77,813
----------------------------------------------------------------------------
77,813
----------------------------------------------------------------------------
Electronic Components 0.4%
Motorola 1,500,000 43,594
----------------------------------------------------------------------------
43,594
----------------------------------------------------------------------------
Telecommunications Equipment 0.3%
USWest 300,000 25,725
----------------------------------------------------------------------------
25,725
----------------------------------------------------------------------------
Aerospace and Defense 2.5%
Boeing 1,000,000 41,812
----------------------------------------------------------------------------
Lockheed Martin 5,250,000 130,266
----------------------------------------------------------------------------
Rockwell International 2,300,000 72,450
----------------------------------------------------------------------------
244,528
----------------------------------------------------------------------------
Total Technology 479,191
CAPITAL EQUIPMENT 0.9%
Electrical Equipment 0.7%
Hubbell (Class B) 2,601,000 $ 66,325
----------------------------------------------------------------------------
66,325
----------------------------------------------------------------------------
Machinery 0.2%
Cooper Industries 750,000 24,422
----------------------------------------------------------------------------
24,422
----------------------------------------------------------------------------
Total Capital Equipment 90,747
<PAGE>
BUSINESS SERVICES AND TRANSPORTATION 4.5%
Miscellaneous Business Services 1.4%
H&R Block 1,500,000 48,563
----------------------------------------------------------------------------
Waste Management 4,750,000 90,250
----------------------------------------------------------------------------
138,813
----------------------------------------------------------------------------
Railroads 1.9%
Norfolk Southern 5,100,000 75,862
----------------------------------------------------------------------------
Union Pacific 2,800,000 104,125
----------------------------------------------------------------------------
179,987
----------------------------------------------------------------------------
Computer Service and Software 1.2%
BMC Software * 1,100,000 40,115
----------------------------------------------------------------------------
Microsoft * 1,000,000 79,969
----------------------------------------------------------------------------
120,084
----------------------------------------------------------------------------
Total Business Services and Transportation 438,884
ENERGY 13.5%
Energy Services 0.8%
Baker Hughes 2,400,000 76,800
----------------------------------------------------------------------------
76,800
----------------------------------------------------------------------------
Exploration and Production 1.2%
Unocal 3,400,000 112,625
----------------------------------------------------------------------------
112,625
----------------------------------------------------------------------------
Integrated Petroleum - Domestic 1.5%
Amerada Hess 1,500,000 92,625
----------------------------------------------------------------------------
USX-Marathon 2,300,000 57,644
----------------------------------------------------------------------------
150,269
----------------------------------------------------------------------------
<PAGE>
Integrated Petroleum - International 10.0%
BP Amoco ADR 5,071,026 $ 286,830
----------------------------------------------------------------------------
Chevron 1,800,000 152,662
----------------------------------------------------------------------------
Exxon Mobil 3,292,277 258,444
----------------------------------------------------------------------------
Royal Dutch Petroleum 2,300,000 141,594
----------------------------------------------------------------------------
Texaco 2,600,000 138,450
----------------------------------------------------------------------------
977,980
----------------------------------------------------------------------------
Total Energy 1,317,674
PROCESS INDUSTRIES 8.7%
Diversified Chemicals 2.0%
Dow Chemical 1,500,000 45,281
----------------------------------------------------------------------------
DuPont 2,300,000 100,625
----------------------------------------------------------------------------
Hercules 3,500,000 49,219
----------------------------------------------------------------------------
195,125
----------------------------------------------------------------------------
Specialty Chemicals 3.1%
3M 1,500,000 123,750
----------------------------------------------------------------------------
Great Lakes Chemical 2,200,000 69,300
----------------------------------------------------------------------------
Imperial Chemical ADR 1,000,000 30,812
----------------------------------------------------------------------------
Pall 4,300,000 79,550
----------------------------------------------------------------------------
303,412
----------------------------------------------------------------------------
Paper and Paper Products 3.6%
Consolidated Papers 111,900 4,092
----------------------------------------------------------------------------
Fort James 4,400,000 101,750
----------------------------------------------------------------------------
International Paper 3,850,000 114,778
----------------------------------------------------------------------------
Kimberly-Clark 2,284,100 131,050
----------------------------------------------------------------------------
351,670
----------------------------------------------------------------------------
Total Process Industries 850,207
----------------------------------------------------------------------------
<PAGE>
BASIC MATERIALS 0.8%
Metals 0.8%
Newmont Mining 1,800,000 38,925
----------------------------------------------------------------------------
Phelps Dodge 1,000,000 37,188
----------------------------------------------------------------------------
76,113
----------------------------------------------------------------------------
Total Basic Materials 76,113
----------------------------------------------------------------------------
Total Common Stocks (Cost $8,239,414) 9,343,263
SHORT-TERM INVESTMENTS 4.5%
Money Market Funds 4.5%
Reserve Investment Fund, 6.68% #+ 443,788,776 $ 443,789
----------------------------------------------------------------------------
Total Short-Term Investments (Cost $443,789) 443,789
Total Investments in Securities
99.8% of Net Assets (Cost $8,683,203) $ 9,787,052
Other Assets Less Liabilities 16,122
NET ASSETS $ 9,803,174
# Seven-day yield
+ Affiliated company
* Non-income producing
ADR American Depository Receipt
REIT Real Estate Investment Trust
EUR Euro
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Equity Income Fund
--------------------------------
Unaudited June 30, 2000
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
In thousands
ASSETS
Investments in securities, at value
Affiliated companies (cost $443,789) $ 443,789
Other companies (cost $8,239,414) 9,343,263
-----------------------------------------------------------------------
Total investments in securities 9,787,052
Other assets 146,654
-----------------------------------------------------------------------
Total assets 9,933,706
-----------------------------------------------------------------------
Liabilities
Total liabilities 130,532
=======
NET ASSETS $ 9,803,174
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 4,574
Accumulated net realized gain/loss -
net of distributions 711,994
Net unrealized gain (loss) 1,103,922
Paid-in-capital applicable to 423,420,103
shares of no par value capital stock
outstanding; unlimited shares authorized 7,982,684
NET ASSETS $ 9,803,174
Equity Income shares
($9,803,160,354/423,419,531 shares outstanding) $ 23.15
Equity Income Advisor Class shares
($13,247/572 shares outstanding) $ 23.16
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Equity Income Fund
-------------------------------- Unaudited
In thousands
STATEMENT OF OPERATIONS
-----------------------
6 Months
Ended
6/30/00
INVESTMENT INCOME (LOSS)
Income
Dividend $ 138,753
Interest (including $11,980 from
affiliated companies) 12,015
-----------------------------------------------------------------------
Total income 150,768
=======
EXPENSES
Investment management 29,579
Shareholder servicing
Equity Income shares 10,960
Equity Income Advisor Class shares -
Prospectus and shareholder reports
Equity Income shares 261
Equity Income Advisor Class shares -
Custody and accounting 209
Registration 24
Legal and audit 17
Trustees 13
Miscellaneous 40
------------------------------------------------------------------------
Total expenses 41,103
Expenses paid indirectly (18)
------------------------------------------------------------------------
Net expenses 41,085
------------------------------------------------------------------------
Net investment income (loss) 109,683
------------------------------------------------------------------------
<PAGE>
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Securities 709,588
Foreign currency transactions (75)
------------------------------------------------------------------------
Net realized gain (loss) 709,513
------------------------------------------------------------------------
Change in net unrealized gain or loss
Securities (1,209,381)
Other assets and liabilities
denominated in foreign currencies 65
------------------------------------------------------------------------
Change in net unrealized gain or loss (1,209,316)
------------------------------------------------------------------------
Net realized and unrealized gain (loss) (499,803)
------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (390,120)
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
6/30/00 12/31/99
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 109,683 $ 258,429
Net realized gain (loss) 709,513 1,122,124
Change in net unrealized gain or loss (1,209,316) (885,673)
------------------------------------------------------------------------------
Increase (decrease) in net assets from operations (390,120) 494,880
------------------------------------------------------------------------------
Distributions to shareholders
Net investment income
Equity Income shares (106,870) (254,140)
Net realized gain
Equity Income shares (305,891) (931,329)
------------------------------------------------------------------------------
Decrease in net assets from distributions (412,761) (1,185,469)
------------------------------------------------------------------------------
<PAGE>
Capital share transactions *
Shares sold
Equity Income shares 775,646 2,127,388
Equity Income Advisor Class shares 13 -
------------------------------------------------------------------------------
Increase in net assets from shares sold 775,659 2,127,388
Distributions reinvested
Equity Income shares 397,528 1,142,884
Shares redeemed
Equity Income shares (2,888,345) (3,753,520)
------------------------------------------------------------------------------
Increase (decrease) in net assets from
capital share transactions (1,715,158) (483,248)
------------------------------------------------------------------------------
Net Assets
Increase (decrease) during period (2,518,039) (1,173,837)
Beginning of period 12,321,213 13,495,050
------------------------------------------------------------------------------
End of period $ 9,803,174 $12,321,213
=========== ===========
*Share information
Shares sold
Equity Income shares 33,172 78,259
Equity Income Advisor Class shares 1 -
Distributions reinvested
Equity Income shares 17,324 45,473
Shares redeemed
Equity Income shares (123,710) (139,811)
------------------------------------------------------------------------------
Increase (decrease) in shares outstanding (73,213) (16,079)
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Equity Income Fund
--------------------------------
Unaudited June 30, 2000
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. The fund has two classes of shares -- Equity Income, offered since
October 31, 1985, and Equity Income Advisor Class, first offered on March 31,
2000. Equity Income Advisor Class sells its shares only through financial
intermediaries, which it compensates for distribution and certain administrative
services under a Board-approved Rule 12b-1 plan. Each class has exclusive voting
rights on matters related solely to that class, separate voting rights on
matters that relate to both classes, and, in all other respects, the same rights
and obligations as the other class. The fund seeks substantial dividend income
as well as long-term growth of capital by investing primarily in the common
stocks of established companies paying above-average dividends.
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.
<PAGE>
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.
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.
Class Accounting The Equity Income Advisor Class pays distribution and
administrative expenses, in the form of Rule 12b-1 fees, in an amount not
exceeding 0.25% of the class's average net assets. Shareholder servicing,
prospectus, and shareholder report expenses are charged directly to the class to
which they relate. Expens es common to both classes, investment income, and
realized and unrealized gains and losses are allocated to the classes based upon
the relative daily net assets of each class. Income distributions are declared
and paid by each class on an annual basis.
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 and are used to reduce the
fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $863,865,000 and $2,747,935,000, respectively, for the
six months ended June 30, 2000.
<PAGE>
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, 2000, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$8,683,203,000. Net unrealized gain aggregated $1,103,849,000 at period-end, of
which $2,240,462,000 related to appreciated investments and $1,136,613,000 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 $4,827,000 was payable at June 30, 2000. 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 0.295% for assets in excess of $120 billion. At
June 30, 2000, 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. The manager has agreed to bear
any expenses through December 31, 2001, which would cause Equity Income Advisor
Class's ratio of total expenses to average net assets to exceed 1.00%.
Thereafter, through December 31, 2003, Equity Income Advisor Class is required
to reimburse the manager for these expenses, provided that its average net
assets have grown or expenses have declined sufficiently to allow reimbursement
without causing its ratio of total expenses to average net assets to exceed
1.00%.
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 $8,389,000 for the six months
ended June 30, 2000, of which $1,579,000 was payable at period-end.
<PAGE>
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 5.7% of the outstanding Equity Income
shares at June 30, 2000. For the six months then ended, the Equity Income shares
were allocated $818,000 of Spectrum expenses, $156,000 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, 2000, totaled
$11,980,000 and are reflected as interest income in the accompanying Statement
of Operations.
================================================================================
T. Rowe Price Shareholder Services
----------------------------------
INVESTMENT SERVICES AND INFORMATION
-----------------------------------
KNOWLEDGEABLE SERVICE REPRESENTATIVES
-------------------------------------
BY PHONE 1-800-225-5132 Available Monday through Friday from
8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
IN PERSON Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
----------------
CHECKING Available on most fixed-income funds ($500 minimum).
AUTOMATIC INVESTING From your bank account or paycheck.
AUTOMATIC WITHDRAWAL Scheduled, automatic redemptions.
<PAGE>
DISTRIBUTION OPTIONS Reinvest all, some, or none of your distributions.
AUTOMATED 24-HOUR SERVICES Including Tele*AccessRegistration Mark and the
T. Rowe Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
-------------------
Individual Investments Stocks, bonds, options, precious metals,
and other securities at a savings over full-service commission rates. **
INVESTMENT INFORMATION
----------------------
COMBINED STATEMENT Overview of all your accounts with T. Rowe Price.
SHAREHOLDER REPORTS Fund managers' reviews of their strategies and results.
T. ROWE PRICE REPORT Quarterly investment newsletter discussing
markets and financial strategies.
PERFORMANCE UPDATE Quarterly review of all T. Rowe Price fund results.
INSIGHTS Educational reports on investment strategies and financial markets.
INVESTMENT GUIDES Asset Mix Worksheet, College Planning Kit,
Diversifying Overseas: A Guide to International Investing, Personal
Strategy Planner, Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a July 2000 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary depending on size of
order.
================================================================================
<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
Tax-Efficient Growth
Total
Equity Market Index
Value
INTERNATIONAL/GLOBAL
Emerging Markets Stock
European Stock
Global Stock
International Discovery*
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
<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 Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
Virginia Tax-Free Bond
INTERNATIONAL/GLOBAL
Emerging Markets Bond
Global Bond
International Bond
MONEY MARKET FUNDS
------------------
TAXABLE
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
<PAGE>
TAX-FREE
--------
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
---------------------
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD VARIABLE ANNUITY
--------------------------------------
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced
Portfolio
Prime Reserve Portfolio
* Closed to new investors.
+ Investments in the funds are not insured or guaranteed by the FDIC or
any other government agency. Although the funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in the funds.
Please call for a prospectus, which contains complete information,
including fees and expenses. 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>
FOR FUND AND ACCOUNT INFORMATION
OR TO CONDUCT TRANSACTIONS,
24 HOURS, 7 DAYS A WEEK
By touch-tone telephone
TELE*ACCESS 1-800-638-2587
By Account Access on the Internet
WWW.TROWEPRICE.COM/ACCESS
FOR ASSISTANCE
WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132
TO OPEN A BROKERAGE ACCOUNT
OR OBTAIN INFORMATION, CALL:
1-800-638-5660
INTERNET ADDRESS:
www.troweprice.com
PLAN ACCOUNT LINES FOR RETIREMENT
PLAN PARTICIPANTS:
The appropriate 800 number appears
on your retirement account statement.
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.
WALK-IN INVESTOR CENTERS:
For directions, call 1-800-225-5132
or visit our Web site
<PAGE>
BALTIMORE AREA
DOWNTOWN
101 East Lombard Street
OWINGS MILLS
Three Financial Center
4515 Painters Mill Road
BOSTON AREA
386 Washington Street
Wellesley
COLORADO SPRINGS
4410 ArrowsWest Drive
LOS ANGELES AREA
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
TAMPA
4200 West Cypress Street
10th Floor
WASHINGTON, D.C.
900 17th Street N.W.
Farragut Square
T. Rowe Price Investment Services, Inc., Distributor. F71-051 6/30/00
