<PAGE>
Semiannual Report
EQUITY
MARKET
INDEX FUNDS
-----------------
JUNE 30, 1998
-----------------
[LOGO OF T. ROWE PRICE APPEARS HERE]
<PAGE>
Report Highlights
- --------------------------------------------------------------------------------
Equity Market Index Funds
. The equity market posted excellent returns again for the six months ended
June 30, despite some weakness in the second quarter.
. The Equity Index 500 Fund soared on the strength of investor demand for
blue chip companies with stable earnings.
. The Total Equity Market Index Fund's return since its January 30, 1998,
inception was strong, reflecting its large-cap focus.
. In its first five months, the Extended Equity Market Index Fund produced a
double-digit return but trailed funds with large-cap stock exposure.
. Volatility may increase, but we believe no single factor poses an imminent
threat to the U.S. economy or stock market.
<PAGE>
Fellow Shareholders
Despite fears regarding weakness in corporate profits, the direction of interest
rates, and the effect of the Asian crisis, the equity market once again showed
impressive results for the six months ended June 30, 1998. Large-capitalization
stocks continued to lead the way, with the unmanaged Standard & Poor's 500 Stock
Index posting a 17.71% total return. The small- and mid-cap Wilshire 4500 and
the Wilshire 5000, a proxy for the entire equity market, performed well but
trailed the S&P 500.
Market Review
Most of the market's gains thus far in 1998 were achieved in a torrid
first quarter. While the year began without much conviction and with
a fair amount of volatility, investor nervousness was put aside in
February and March, when the market turned in stunning back-to-back
returns. The S&P 500, for example, was up an astounding 7.21% in
February and 5.12% in March. Even small-caps, which have been out of
favor in recent years, did well. Market volatility - the day-to-day
fluctuations in the value of shares - briefly returned to the
historically low levels that have characterized much of the 1990s
bull market.
---------------------------------
Wilshire 5000 Returns By Sector
------------------------------------------------------------------------
Period Ended 6/30/98 6 Months
-----------------------------------------------------------------------
Consumer Services 25.37%
-----------------------------------------------------------------------
Technology 21.84
-----------------------------------------------------------------------
Health Care 21.50
-----------------------------------------------------------------------
Consumer Cyclicals 18.38
-----------------------------------------------------------------------
Financial 15.17
-----------------------------------------------------------------------
Capital Equipment 12.03
-----------------------------------------------------------------------
Utilities 10.01
-----------------------------------------------------------------------
Consumer Nondurables 9.48
-----------------------------------------------------------------------
Process Industries 9.22
-----------------------------------------------------------------------
Business Services and Transportation 7.72
-----------------------------------------------------------------------
Energy 1.68
-----------------------------------------------------------------------
Miscellaneous 0.67
-----------------------------------------------------------------------
Basic Materials -1.94
-----------------------------------------------------------------------
These conditions, however, did not last. Volatility returned in
April, as the market reacted daily to conflicting news from the
economic front. A nearly ideal economy, in which
<PAGE>
strong growth has accompanied subdued inflation, left many investors
worried about when or if the climate might sour. As a result, the market
responded quickly to any news, good or bad, regarding interest rates,
corporate profits, and other economic indicators. In one particular week,
equities faltered because of hints that the Federal Reserve might tighten
monetary policy. But investors reversed course later in the week upon
learning that labor costs had stayed under control while the economy
expanded. Markets continued to be whipsawed in similar fashion for the
remainder of the period.
- ---------------------------
Portfolio Characteristics
- ---------------------------
Extended
Equity Total Equity Equity
As of 6/30/98 Index 500 Market Index Market Index
- -------------------------------------------------------------------------------
Market Cap
(Investment-
Weighted
Median) 49.9 billion 21.3 billion 2.3 billion
................................................................................
Earnings Growth
Rated Estimated
Next 5 Years * 13.4% 13.6% 16.7%
................................................................................
P/E Ratio (Based
on Next 12
Months' Estimated
Earnings) 22.4X 21.0X 18.0X
................................................................................
*Forecasts are based on T. Rowe Price research and are in no way an indication
of future investment returns.
As the market gyrated during the second quarter, large-cap stocks held up
much better than small-caps. With investor expectations about the economy
balancing on a knife's edge and the Asian crisis pinching the earnings of
many companies, investors viewed large-caps - particularly those that might
maintain decent earnings in an economic slowdown - as safe havens. Also, a
liquidity premium appeared in large-cap stocks, as investors increasingly
valued the ability to buy and sell their stock selections easily. As shown
in the accompanying Portfolio Characteristics table, the price/earnings
(P/E) ratio for the large-cap Equity Index 500 Fund is 22.4, while the
Extended Equity Market Index Fund, which is representative of mid- and
small-cap stocks, carries only an 18.0 P/E. This difference is all the more
unusual since the expected growth rate of small companies is typically
higher than that of large companies.
Certain sectors performed very well this half. With consumer confidence
approaching record levels, retailers and other consumer-service companies
posted very good returns. Large retailers, such as Wal-Mart and Home Depot,
benefited strongly from the trend. Health care stocks also shone:
pharmaceuticals like Pfizer, Warner-Lambert, and
<PAGE>
Schering-Plough are examples of the type of large company with dependable
earnings that investors favored. Overall, technology stocks did well, even
though semiconductor firms suffered harsh setbacks as a result of the
problems in Southeast Asia.
The year has been punctuated by many high-profile merger announcements, and
companies continued to view their high-priced stock as the perfect currency
for these transactions. Consolidation became particularly common in the
financial and telecommunications industries. In April, Citicorp and
Travelers Group announced their desire to merge, followed by several merger
announcements between other big financial companies. NationsBank and
BankAmerica jumped on the bandwagon as did BANCONE and First Chicago NBD.
In the telecommunications industry, SBC Communications and Ameritech
announced their plan to merge as did AT&T and Tele-Communications.
Equity Index 500 FUND
For the six months ended June 30, 1998, large-cap stocks were the place to
be yet again. The Equity Index 500 Fund's 6- and 12-month gains of 17.49%
and 29.71% closely tracked the stellar returns of the S&P 500. These
results were slightly behind those of the S&P 500 mainly because of the
fund's operating and management expenses.
- ------------------------
Performance Comparison
- --------------------------------------------------------------------------------
PERIODS ENDED 6/30/98 6 MONTHS 12 MONTHS
-------------------------------------------------------------------------------
Equity Index 500 Fund 17.49% 29.71%
...............................................................................
S&P 500 17.71 30.16
...............................................................................
The S&P 500's performance was driven by large growth stocks. Many well-
known companies, such as Microsoft, Dell Computer, Lucent Technologies,
Cisco Systems, and Warner-Lambert, turned in returns of over 50%. These
companies have long been reliable performers in their industries, and
investors were willing to pay high P/E multiples for their consistent
earnings growth.
Merger and acquisition activity and corporate restructurings triggered a
large number of changes - 20 in all - to the S&P 500 index in the first
half of 1998. As has been the case in recent years, the majority of addi-
tions were from the financial sector, which has become one of the largest
and most important sectors in the U.S. economy.
3
<PAGE>
Nine financial firms were added in the first half of 1998, representing a
wide range of services. Two investment banks, Lehman Brothers and Bear
Stearns, were added along with three regional banks, Summit Bancorp,
Northern Trust, and Mercantile Bancorporation. Two diversified finance
companies that provide both consumer and commercial services, Associates
First Capital and Capital One Financial, were added, as was the leading
provider of post-secondary financial services, SLM Holding, better known as
student-loan leader Sallie Mae. Rounding out the group of financial company
additions was investment manager Franklin Resources.
Other additions to the index were from a variety of sectors. Ascend
Communications, a provider of wide-area networking systems, was added, as
were discount retailer Consolidated Stores and wireless communications
provider Nextel Communications. Several additions were simply new
incarnations of S&P 500 companies. The new Marriott, for example, entered
the 500 after Marriott spun off its food service business.
Most deletions from the index occurred as a result of merger and
acquisition activity and other corporate transactions. One notable
exception was Echo Bay Mines, a firm that has been damaged by a weak
environment for gold prices. Its exit is one indication of how poorly
precious metals stocks have performed in recent years.
Total Equity Market Index Fund
The Total Equity Market Index Fund made the most of a strong domestic
equity market in its first five months of existence. Its 15.21% gains for
the period between its inception on January 30, 1998, and June 30, 1998,
represented a slight outperformance of its benchmark, the Wilshire 5000.
Fund expenses should ordinarily keep returns just behind those of the
index; these results reflect minor tracking error, which is expected while
the fund is small. The total market and, therefore, the fund did not
perform as well as the S&P 500 since roughly 25% of its value is in small-
and mid-cap stocks, which lagged.
- ------------------------
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
5 Months
Period Ended 6/30/98 Since Inception
-------------------------------------------------------------------------------
Total Equity Market
Index Fund 15.21%
...............................................................................
Wilshire 5000 14.84
...............................................................................
4
<PAGE>
The Wilshire 5000 Index is made up of all U.S.-headquartered companies
whose equity securities trade regularly. The index currently contains well
over 7,000 securities, and we do not seek to own them all. Rather, we
attempt to compile a sample that represents the index's makeup. On the
fund's first day of operations, its portfolio consisted of roughly 530
securities. By June 30, it had roughly 800 securities, and we plan to
increase the number as the fund grows to help minimize its tracking error.
The portfolio includes large-, mid-, and small-cap companies with broadly
differing investment characteristics. We expect to invest nearly always in
the index's largest 100 companies and sample among the many other
constituents of the Wilshire 5000. Because the top 100 holdings compose 50%
of total fund assets, they have a commanding influence on performance.
As noted in the Equity Index 500 discussion, large companies performed best
during the period, as investors sought blue chip reliability and liquidity.
The performance of small-cap stocks will be discussed further in the next
section.
Extended Equity Market Index FUND
While small- and mid-cap stocks have fallen behind large-cap stocks since
the inception of this fund on January 30, 1998, the Extended Equity Market
Index Fund performed well relative to its benchmark and to actively managed
small- and mid-cap funds. The fund's return of 12.40% versus the Wilshire
4500's return of 10.99% reflects tracking error that is not unusual while
the fund is small.
This fund invests in a sample of stocks representative of the Wilshire 4500
Index, which comprises all the stocks in the Wilshire 5000 less the S&P 500
stocks. As such, the fund represents a good complement to the Equity Index
500 Fund. This fund's initial portfolio on January 30 consisted of roughly
550 securities; by June 30, it had about 940. While the fund will never
hold all of the more than 6,500 in the
- ------------------------
Performance Comparison
- --------------------------------------------------------------------------------
5 MONTHS
PERIOD ENDED 6/30/98 SINCE INCEPTION
-------------------------------------------------------------------------------
Extended Equity Market
Index Fund 12.40%
...............................................................................
Wilshire 4500 10.99
...............................................................................
5
<PAGE>
benchmark, as it grows, we will increase the number of securities which
will decrease the tracking error.
The largest holding in the fund, Berkshire Hathaway, was up 55%. Berk-
shire, run by famed investor Warren Buffett, is in fact a very large-cap
stock that, because of several factors, is not included in the S&P 500. It
is, however, a significant component of the Wilshire 4500 and, therefore, a
candidate for this fund. Performance since inception was also boosted by
red-hot Internet stocks. Companies such as America Online and Yahoo! had
returns of over 100%, reflecting the potential growth investors see in this
sector (coupled with a healthy dose of hype).
- ------------------------
Sector Diversification
- --------------------------------------------------------------------------------
Percent of Extended
Equity Assets Equity Total Equity Equity
As of 6/30/98 Index 500 Market Index Market Index
-------------------------------------------------------------------------------
Basic Materials 0.7% 0.7% 1.1%
...............................................................................
Business
Services and
Transportation 2.5 4.4 9.1
...............................................................................
Capital Equipment 6.4 5.7 4.0
...............................................................................
Consumer Cyclicals 2.5 4.0 9.5
...............................................................................
Consumer
Nondurables 11.8 10.3 6.7
...............................................................................
Consumer Services 10.0 10.7 12.1
...............................................................................
Energy 7.9 6.3 4.9
...............................................................................
Financial 17.7 18.9 19.1
...............................................................................
Health Care 11.8 10.8 7.2
...............................................................................
Process Industries 3.2 3.0 3.1
...............................................................................
Technology 16.3 16.6 16.8
...............................................................................
Utilities 9.2 8.5 6.0
...............................................................................
Miscellaneous - 0.1 0.4
-------------------------------------------------------------------------------
TOTAL 100% 100% 100%
Outlook
No single factor poses an imminent threat to the U.S. economy or stock
market, in our view. However, as long as earnings growth continues to slow,
the problems in Southeast Asia remain unresolved, or the Fed contemplates
an interest rate hike, the markets may come under pressure. A pattern has
emerged over the last two years wherein the market stages a strong three-
to four-month rally before these pressures trigger a cooling-off period of
one or more months. With earnings growth
6
<PAGE>
slowing down, it is hard to imagine valuations getting pushed much higher. As
long as investors expect or fear a market correction, large-cap stocks may
continue to trade at a premium to their small- and mid-cap counterparts.
Whatever the future scenario, all three index funds offer low-cost ways to gain
exposure to different parts of the U.S. equity market. We will do our best to
deliver to you performance that accurately tracks the three respective
benchmarks.
Respectfully submitted,
/s/ Richard T. Whitney
Richard T. Whitney
President and Chairman of the Investment Advisory Committee
/s/ Kristen F. Culp
Kristen F. Culp
Executive Vice President
JULY 22, 1998
7
<PAGE>
T. Rowe Price Equity Market Index Funds
- --------------------------------------------------------------------------------
---------------------------
The Evolving S&P 500 Index
------------------------------------------------------------------------------
Changes to the S&P 500 Index in the first half of 1998
Additions Deletions
------------------------------------------------------------------------------
Ascend Communications Barnett Banks
...................................... .......................................
Associates First Capital Beneficial
...................................... .......................................
Bear Stearns Caliber Systems
...................................... .......................................
Capital One Financial Charming Shoppes
...................................... .......................................
Consolidated Stores Cognizant
...................................... .......................................
Dun & Bradstreet (New) CoreStates Financial
...................................... .......................................
FDX Digital Equipment
...................................... .......................................
Franklin Resources Dun & Bradstreet (Old)
...................................... .......................................
Gateway 2000 Echo Bay Mines
...................................... .......................................
IMS Health Federal Express
...................................... .......................................
Lehman Brothers Green Tree Financial
...................................... .......................................
Marriott (New) Inland Steel Industries
...................................... .......................................
Mercantile Bancorporation ITT Industries
...................................... .......................................
Nextel Communications John H. Harland
...................................... .......................................
Northern Trust Marriott (Old)
...................................... .......................................
Sealed Air Pacific Enterprises
...................................... .......................................
Sempra Energy Safety-Kleen
...................................... .......................................
SLM Holding USF&G
...................................... .......................................
Summit Bancorp W.R. Grace (Old)
...................................... .......................................
W.R. Grace (New) Whitman
...................................... .......................................
8
<PAGE>
T. Rowe Price Equity Market Index Funds
------------------------------------------------------------------------------
---------------------
Portfolio Highlights
------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
Equity Index 500 Fund 6/30/98
------------------------------------------------------------------------------
GE 3.3%
..............................................................................
Microsoft 3.0
..............................................................................
Coca-Cola 2.3
..............................................................................
Exxon 1.9
..............................................................................
Merck 1.8
------------------------------------------------------------------------------
Pfizer 1.6
..............................................................................
Wal-Mart 1.5
..............................................................................
Intel 1.4
..............................................................................
Procter & Gamble 1.3
..............................................................................
Royal Dutch Petroleum 1.3
------------------------------------------------------------------------------
Bristol-Myers Squibb 1.3
..............................................................................
IBM 1.2
..............................................................................
Lucent Technologies 1.2
..............................................................................
American International Group 1.1
..............................................................................
Johnson & Johnson 1.1
------------------------------------------------------------------------------
Philip Morris 1.1
..............................................................................
Cisco Systems 1.0
..............................................................................
AT&T 1.0
..............................................................................
DuPont 0.9
..............................................................................
SBC Communications 0.8
------------------------------------------------------------------------------
NationsBank 0.8
..............................................................................
Eli Lilly 0.8
..............................................................................
Disney 0.8
..............................................................................
Ford Motor 0.8
..............................................................................
Bell Atlantic 0.8
------------------------------------------------------------------------------
Total 34.1%
9
<PAGE>
T. Rowe Price Equity Market Index Funds
------------------------------------------------------------------------------
--------------------
Portfolio Highlights
------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
Total Equity Market Index Fund 6/30/98
------------------------------------------------------------------------------
GE 2.3%
..............................................................................
Microsoft 2.1
..............................................................................
Coca-Cola 1.6
..............................................................................
Exxon 1.4
..............................................................................
Merck 1.3
------------------------------------------------------------------------------
Pfizer 1.1
..............................................................................
Wal-Mart 1.0
..............................................................................
Intel 1.0
..............................................................................
Procter & Gamble 0.9
..............................................................................
Bristol-Myers Squibb 0.9
------------------------------------------------------------------------------
Lucent Technologies 0.8
..............................................................................
IBM 0.8
..............................................................................
Johnson & Johnson 0.8
..............................................................................
Berkshire Hathaway 0.8
..............................................................................
American International Group 0.8
------------------------------------------------------------------------------
Philip Morris 0.8
..............................................................................
Cisco Systems 0.7
..............................................................................
AT&T 0.7
..............................................................................
DuPont 0.6
..............................................................................
Disney 0.6
------------------------------------------------------------------------------
Bell Atlantic 0.6
..............................................................................
NationsBank 0.6
..............................................................................
Eli Lilly 0.6
..............................................................................
Chase Manhattan 0.6
..............................................................................
Schering-Plough 0.5
------------------------------------------------------------------------------
Total 23.9%
10
<PAGE>
T. Rowe Price Equity Market Index Funds
------------------------------------------------------------------------------
--------------------
PORTFOLIO HIGHLIGHTS
------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
Extended Equity Market Index Fund 6/30/98
------------------------------------------------------------------------------
Berkshire Hathaway 3.1%
..............................................................................
Carnival 0.7
..............................................................................
America Online 0.7
..............................................................................
Safeway 0.6
..............................................................................
Electronic Data Systems 0.6
------------------------------------------------------------------------------
Equitable 0.6
..............................................................................
Coca-Cola Enterprises 0.4
..............................................................................
Level 3 Communications 0.4
..............................................................................
Washington Post 0.4
..............................................................................
M&T Bank 0.4
------------------------------------------------------------------------------
Republic Industries 0.4
..............................................................................
BMC Software 0.3
..............................................................................
PeopleSoft 0.3
..............................................................................
Compuware 0.3
..............................................................................
USA Waste Services 0.3
------------------------------------------------------------------------------
Cox Communications 0.3
..............................................................................
Starwood Hotels & Resorts 0.3
..............................................................................
Tele-Communications 0.3
..............................................................................
CNA Financial 0.3
..............................................................................
ServiceMaster 0.3
------------------------------------------------------------------------------
Kohl's 0.3
..............................................................................
Genentech 0.3
..............................................................................
Donaldson, Lufkin & Jenrette 0.3
..............................................................................
McKesson 0.3
..............................................................................
Staples 0.3
------------------------------------------------------------------------------
Total 12.5%
11
<PAGE>
T. Rowe Price Equity Market Index Funds
------------------------------------------------------------------------------
----------------------
PERFORMANCE COMPARISON
------------------------------------------------------------------------------
These charts show the value of a hypothetical $10,000 investment in each
fund over the past 10 fiscal year periods or since inception (for funds
lacking 10-year records). The result is compared with a broad-based
average or index. The index return does not reflect expenses, which have
been deducted from the fund's return.
[LINE GRAPH APPEARS HERE]
EQUITY INDEX 500 FUND
- --------------------------------------------------------------------------------
Date S&P 500 Stock Index Equity Index 500 Fund
3/30/90 10,000 10,000
6/90 10,629 10,680
6/91 11,415 11,403
6/92 12,946 12,857
6/93 14,711 14,510
6/94 14,917 14,659
6/95 18,807 18,428
6/96 23,696 23,155
6/97 26,565 25,934
6/98 41,547 40,331
TOTAL EQUITY MARKET INDEX FUND
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Wilshire 5000 Index Total Equity Market Index Fund
1/30/98 10,000 10,000
6/98 11,484 11,521
12
<PAGE>
T. Rowe Price Equity Market Index Funds
- --------------------------------------------------------------------------------
- ----------------------
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
EXTENDED EQUITY MARKET INDEX FUND
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Wilshire 4500 Index Extended Equity Market Index Fund
1/30/98 10,000 10,000
6/98 11,099 11,240
- ------------------------------------
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- --------------------------------------------------------------------------------
This table shows how each fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
<TABLE>
<CAPTION>
Since Inception
Periods Ended 6/30/98 1 Year 5 Years 10 Years Inception Date
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Equity Index 500 Fund 29.71% 22.69% - 18.41% 3/30/90
..........................................................................................
Total Equity Market Index Fund - - - 15.21 1/30/98
..........................................................................................
Extended Equity Market Index Fund - - - 12.40 1/30/98
..........................................................................................
</TABLE>
Investment return represents past performance and will vary. Shares may be
worth more or less at redemption than at original purchase.
13
<PAGE>
For yield, price, last transaction, Investor Centers:
current balance, or to conduct 101 East Lombard St.
transactions, 24 hours, 7 days Baltimore, MD 21202
a week, call Tele*Access(R):
1-800-638-2587 toll free T. Rowe Price
Financial Center
For assistance 10090 Red Run Blvd.
with your existing Owings Mills, MD 21117
fund account, call:
Shareholder Service Center Farragut Square
1-800-225-5132 toll free 900 17th Street, N.W.
410-625-6500 Baltimore area Washington, D.C. 20006
To open a Discount Brokerage ARCO Tower
account or obtain information, 31st Floor
call: 1-800-638-5660 toll free 515 South Flower St.
Los Angeles, CA 90071
Internet address:
www.troweprice.com 4200 West Cypress St.
10th Floor
T. Rowe Price Associates Tampa, FL 33607
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Equity Market Index Funds.
[LOGO OF T. ROWE PRICE APPEARS HERE]
