- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
SemiAnnual Report
Equity Income Fund
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
Report Highlights
================================================================================
Equity Income Fund
o The stock market continued strong after a relatively modest start this
year, as good earnings and fairly stable interest rates fueled a strong
rally during the past three months.
o Your fund posted robust returns for the six months ended June 30, in line
with the Lipper average but trailing the broad market.
o Our conservative investment strategy hindered performance relative to the
S&P 500, which usually happens when investor demand drives growth stocks to
fully valued levels.
o We reduced positions in several stocks that achieved our price targets and
added to other holdings with good potential for appreciation and moderate
downside risk.
o Over time we believe our conservative, value approach to stock selection
should benefit investors, particularly in the more difficult stock market
environment we foresee later this year.
Fellow Shareholders
================================================================================
<PAGE>
After a strong 1996, the equity market continued to advance sharply in the
first half of 1997. The year began slowly with the market progressing only
modestly in the first several months. April, May, and June, however, were
another matter altogether as the combination of good corporate earnings growth,
generally stable interest rates, and strong investor demand for equities fueled
a sharply rising, almost frenzied, equity market.
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 6/30/97 6 Months 12 Months
- --------------------------------------------------------------------------------
Equity Income Fund 14.66% 27.72%
S&P 500 20.61 34.70
Lipper Equity Income Funds Average 14.75 26.73
================================================================================
As shown in the performance table, your fund trailed the unmanaged Standard
& Poor's 500 Stock Index in this environment while performing in line with the
Lipper average of similar funds. Over the 12-month period, returns lagged behind
the broad market but were somewhat better than the Lipper peer group average.
Often in sharply rising markets, conservative funds like Equity Income tend to
advance at a moderate pace. This certainly applied to the first half of 1997.
Over the last 12 months we were pleased by the fund's almost 28% return but
frustrated that it was not even higher! Nonetheless, given the fund's
conservative investment program, we are reasonably satisfied with our progress
over the last year.
DIVIDEND DISTRIBUTION
On June 25, your Board of Trustees declared a second quarter income
dividend of $0.15 per share, bringing your 1997 total income distribution to
$0.31 per share. The dividend was paid on June 27 to shareholders of record on
June 25. You should already have received your check or statement reflecting
this dividend.
PORTFOLIO STRATEGY
What is a conservative, value-oriented fund to do in a market environment
like the first half of 1997? Our strategy has been to worry about risk even more
than we typically do. While we did not alter the fund's overall asset
allocation, we did reduce our investments in a number of companies that have
performed well and, consequently, no longer appear as undervalued as they once
did. The Major Portfolio Changes table following this letter highlights some of
these sales. We always distinguish between the quality of a company and the
price of a company stock. Several of our larger sales represent investments in
some of the world's great companies (Warner-Lambert, Honeywell, GE). When the
market fully values or even more than fully values a company's equity, however,
our valuation discipline prompts us to "recycle" those holdings into more
reasonably valued companies with attractive upside potential and relatively low
downside risk. Both good upside and low downside are equally important to us as
we contemplate which investments to make on your behalf.
<PAGE>
[edgar description: insert Security Diversification Pie Chart here, showing
Common stocks 86%, bonds 3%, reserves 10%, convertibles 1%. Wrap text from
preceding paragraph around chart.]
In looking at our large purchases over the past few months, the companies
share the characteristics of attractive relative valuations, high relative
dividend yields, and, in our opinion, good appreciation potential with moderate
downside risk. We added to positions in five companies, including Dow Chemical,
GM (some of which we also took profits in later during the period), and Duke
Energy. We purchased smaller positions in a number of other electric utilities,
one of the few groups that did not participate in the market's advance.
Occasionally, we can also opportunistically capitalize on negative market
responses to specific company news. For example, bad winter weather affecting
Burlington Northern Santa Fe and concern over Bankers Trust New York's
acquisition of Alex. Brown caused sharp drops in each company's stock price,
which we viewed as temporary overreactions.
SUMMARY AND OUTLOOK
As we entered 1997, we did not fully anticipate a market advance as sharp
as the one we witnessed in the first half of the year. In the fund's 1996 annual
report, we referred to the "delinkage" that was occurring as stock prices surged
at a much faster rate than corporate earnings and dividends. This delinkage is
even more pronounced today after the market's first half rally. We will continue
to follow our conservative investment approach because there are always
interesting investment opportunities in any market environment. However, we
believe the going is likely to get tougher for stocks sometime in the second
half of the year.
As always, we appreciate your continued confidence and support.
Respectfully submitted,
/s/
Brian C. Rogers
President and Chairman of the Investment Advisory Committee
July 18, 1997
<PAGE>
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 6/30/97
Ten Largest Purchases
- --------------------------------------------------------------------------------
Dow Chemical
Knight-Ridder *
GM
Burlington Northern Santa Fe *
Duke Energy
Amerada Hess *
Tomkins *
Phillips Petroleum *
Bankers Trust New York
EXEL *
Ten Largest Sales
- --------------------------------------------------------------------------------
Warner-Lambert **
SmithKline Beecham **
Corning **
Sallie Mae **
U.S. Bancorp **
Great Western Financial
Kimberly-Clark **
Honeywell **
GM
GE
- --------------------------------------------------------------------------------
* Position added
** Position eliminated
================================================================================
<PAGE>
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/97
- --------------------------------------------------------------------------------
Mellon Bank ................................................... 1.6%
Dow Chemical .................................................. 1.6
Atlantic Richfield ............................................ 1.5
Exxon ......................................................... 1.3
GE ............................................................ 1.3
Chase Manhattan ............................................... 1.2
International Flavors & Fragrances ............................ 1.1
DuPont ........................................................ 1.1
Texaco ........................................................ 1.1
ALLTEL ........................................................ 1.1
J.C. Penney ................................................... 1.0
General Mills ................................................. 1.0
Georgia-Pacific ............................................... 1.0
Union Camp .................................................... 0.9
St. Paul Companies ............................................ 0.9
Tambrands ..................................................... 0.9
Simon DeBartolo Group ......................................... 0.9
Witco ......................................................... 0.9
American Home Products ........................................ 0.9
AT&T .......................................................... 0.9
Chevron ....................................................... 0.9
Duke Energy ................................................... 0.9
J. P. Morgan .................................................. 0.9
Royal Dutch Petroleum ......................................... 0.9
Knight-Ridder ................................................. 0.9
- --------------------------------------------------------------------------------
Total ......................................................... 26.7%
================================================================================
<PAGE>
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or index.
The index return does not reflect expenses, which have been deducted from the
fund's return.
[Equity Income Fund SEC chart shown here]
================================================================================
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how the fund would have performed if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
================================================================================
Periods Ended 6/30/97 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Equity Income Fund 27.72% 24.76% 18.58% 14.36%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
================================================================================
<PAGE>
<TABLE>
Unaudited
- ------------------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
6 Months Year
Ended Ended
6/30/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
Beginning of period ............... $ 22.54 $ 20.01 $ 15.98 $ 16.65 $ 15.63 $ 14.62
Investment activities
Net investment income .......... 0.31 0.64 0.66 0.60 0.54 0.62
Net realized and
unrealized gain (loss) ......... 2.95 3.38 4.56 0.13 1.74 1.41
Total from
investment activities .......... 3.26 4.02 5.22 0.73 2.28 2.03
Distributions
Net investment income .......... (0.31) (0.65) (0.65) (0.59) (0.54) (0.63)
Net realized gain .............. (0.38) (0.84) (0.54) (0.81) (0.72) (0.39)
Total distributions ............ (0.69) (1.49) (1.19) (1.40) (1.26) (1.02)
NET ASSET VALUE
End of period ..................... $ 25.11 $ 22.54 $ 20.01 $ 15.98 $ 16.65 $ 15.63
Ratios/Supplemental Data
Total return ...................... 14.66% 20.40% 33.35% 4.53% 14.84% 14.13%
Ratio of expenses to
average net assets ................ 0.80%+ 0.81% 0.85% 0.88% 0.91% 0.97%
Ratio of net investment
income to average
net assets ........................ 2.73%+ 3.08% 3.69% 3.63% 3.23% 3.95%
Portfolio turnover rate ........... 26.7%+ 25.0% 21.4% 36.3% 31.2% 30.0%
Average commission
rate paid ......................... $ 0.0443 $ 0.0576 -- -- -- --
Net assets, end of period
(in millions) ..................... $ 10,604 $ 7,818 $ 5,215 $ 3,204 $ 2,851 $ 2,092
====================================================================================================================================
<FN>
+ Annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited June 30, 1997
================================================================================
Statement of Net Assets
- --------------------------------------------------------------------------------
Shares/Par Value
In thousands
Common Stocks 85.7%
FINANCIAL 16.0%
Bank and Trust 9.2%
BANC ONE .................................. 1,850,000 $ 89,609
BankBoston ................................ 800,000 57,650
Bankers Trust New York .................... 950,000 82,650
Chase Manhattan ........................... 1,293,000 125,502
Fleet Financial Group ..................... 1,200,000 75,900
Great Western Financial ................... 200,000 10,750
J. P. Morgan .............................. 900,000 93,938
Mellon Bank ............................... 3,800,800 171,511
Mercantile Bankshares ..................... 840,000 33,521
National City ............................. 1,000,000 52,500
PNC Bank .................................. 958,300 39,889
Signet Banking ............................ 1,750,000 63,000
Wells Fargo ............................... 291,650 78,600
975,020
Insurance 4.1%
American General .......................... 1,828,600 87,316
EXEL ...................................... 1,200,000 63,300
Hilb, Rogal and Hamilton + ................ 700,000 11,900
Lincoln National .......................... 700,000 45,062
SAFECO .................................... 1,365,500 63,794
St. Paul Companies ........................ 1,300,000 99,125
USF&G ..................................... 1,500,000 36,000
Willis-Corroon ADR ........................ 2,500,000 27,969
434,466
Financial Services 2.7%
American Express .......................... 900,000 67,050
Fannie Mae ................................ 1,900,000 82,888
H&R Block ................................. 1,920,600 61,939
Travelers Group ........................... 1,133,200 71,462
283,339
Total Financial 1,692,825
<PAGE>
UTILITIES 14.1%
Telephone Services 7.0%
ALLTEL .................................... 3,334,700 $111,504
AT&T ...................................... 2,750,000 96,422
BCE ....................................... 1,916,600 53,665
Bell Atlantic ............................. 1,200,000 91,050
BellSouth ................................. 1,525,800 70,759
Frontier .................................. 2,000,000 39,875
GTE ....................................... 1,800,000 78,975
SBC Communications ........................ 1,331,450 82,383
Southern New England Telecomm ............. 1,000,000 38,875
Sprint .................................... 800,000 42,100
U S WEST Communications ................... 1,000,000 37,688
743,296
Electric Utilities 7.1%
BGE ....................................... 1,200,000 32,025
Centerior Energy .......................... 3,066,600 34,308
Central and South West .................... 1,200,000 25,500
Dominion Resources ........................ 1,500,000 54,937
DQE ....................................... 1,500,000 42,375
Duke Energy ............................... 2,000,000 95,875
Edison International ...................... 1,150,000 28,606
Entergy ................................... 1,533,300 41,974
Florida Progress .......................... 501,000 15,688
GPU ....................................... 479,200 17,191
Ohio Edison ............................... 1,750,000 38,172
PacifiCorp ................................ 2,250,000 49,500
PECO Energy ............................... 2,300,000 48,300
PG&E ...................................... 1,245,800 30,211
Public Service Enterprise ................. 1,300,000 32,500
Southern Company .......................... 2,750,000 60,156
Unicom .................................... 2,750,000 61,187
Western Resources ......................... 1,400,000 45,413
753,918
Total Utilities 1,497,214
CONSUMER NONDURABLES 16.5%
Cosmetics 1.2%
International Flavors & Fragrances......... 2,400,000 $ 121,200
121,200
Beverages 1.3%
Anheuser-Busch ............................ 2,000,000 83,875
Brown-Forman (Class B) .................... 1,119,900 54,665
138,540
Food Processing 4.0%
General Mills ............................. 1,600,000 104,200
Heinz ..................................... 1,593,600 73,505
Kellogg ................................... 700,000 59,937
McCormick ................................. 2,446,800 61,935
Quaker Oats ............................... 1,944,800 87,273
Sara Lee .................................. 862,500 35,902
422,752
<PAGE>
Hospital Supplies/Hospital Management 2.3%
Abbott Laboratories ....................... 1,200,000 80,100
Bausch & Lomb ............................. 1,500,000 70,688
Baxter International ...................... 1,024,200 53,514
C. R. Bard ................................ 1,200,000 43,575
247,877
Pharmaceuticals 2.6%
American Home Products .................... 1,280,000 97,920
Novartis (CHF) ............................ 53,333 85,260
Pharmacia & Upjohn ........................ 2,651,600 92,143
275,323
Miscellaneous Consumer Products 5.1%
Armstrong World ........................... 650,000 47,694
Dixie Group (Class A) * ................... 300,000 3,038
Fortune Brands ............................ 1,400,000 52,237
Gallaher Group PLC ADR * .................. 1,400,000 25,812
Grand Metropolitan ADR .................... 504,100 19,754
Philip Morris ............................. 1,600,000 71,000
Tambrands + ............................... 1,986,800 99,092
Tomkins (GBP) ............................. 12,000,000 52,357
Unilever N.V. ADR ......................... 400,000 $87,200
UST ....................................... 3,100,000 86,025
544,209
Total Consumer Nondurables ................ 1,749,901
CONSUMER SERVICES 6.5%
General Merchandisers 1.5%
J.C. Penney ............................... 2,100,000 109,594
May Department Stores ..................... 1,000,000 47,250
156,844
Specialty Merchandisers 0.2%
The Limited ............................... 1,250,000 25,312
25,312
Entertainment and Leisure 1.2%
ITT * ..................................... 1,200,000 73,275
Reader's Digest (Class A) ................. 1,650,000 47,334
Reader's Digest (Class B) ................. 125,100 3,464
124,073
Media and Communications 3.6%
Dow Jones ................................. 1,750,000 70,328
Dun & Bradstreet .......................... 2,000,000 52,500
Gannett ................................... 400,000 39,500
Knight-Ridder ............................. 1,900,000 93,219
McGraw-Hill ............................... 861,700 50,679
R. R. Donnelly ............................ 2,000,000 73,250
379,476
Total Consumer Services 685,705
<PAGE>
CONSUMER CYCLICAL 3.9%
Automobiles and Related 1.8%
Eaton ..................................... 524,700 45,813
Ford Motor ................................ 750,000 28,313
Genuine Parts ............................. 1,500,000 50,812
GM ........................................ 1,250,000 69,609
194,547
Building and Real Estate 1.5%
Rouse ..................................... 558,700 16,482
SECURITY CAPITAL PACIFIC TRUST, REIT ...... 779,400 17,829
Simon DeBartolo Group, REIT ............... 3,089,532 $ 98,865
Weingarten Realty Investors, REIT ......... 600,000 25,350
158,526
Miscellaneous Consumer Durables 0.6%
Whirlpool ................................. 1,200,000 65,475
65,475
Total Consumer Cyclicals .................. 418,548
TECHNOLOGY 0.7%
Electronic Components 0.7%
AMP ....................................... 1,800,000 75,150
Total Technology .......................... 75,150
CAPITAL EQUIPMENT 2.6%
Electrical Equipment 1.8%
GE ........................................ 2,100,000 137,287
Hubbell (Class B) ......................... 1,193,900 52,532
189,819
Machinery 0.8%
Cooper Industries ......................... 1,200,000 59,700
FMC * ..................................... 273,300 21,710
81,410
Total Capital Equipment 271,229
BUSINESS SERVICES AND
TRANSPORTATION 2.2%
Transportation Services 0.2%
Alexander & Baldwin 800,000 20,925
20,925
Miscellaneous Business Services 0.4%
Deluxe Corp. .............................. 750,000 25,594
GATX ...................................... 350,000 20,212
45,806
Railroads 1.6%
Burlington Northern Santa Fe .............. 850,000 76,394
Union Pacific ............................. 1,250,000 88,125
164,519
Total Business Services and Transportation 231,250
<PAGE>
ENERGY 10.9%
Energy Services 0.9%
Witco ..................................... 2,600,000 $98,637
98,637
Integrated Petroleum - Domestic 3.7%
Amerada Hess .............................. 1,000,000 55,563
Atlantic Richfield ........................ 2,200,000 155,100
British Petroleum ADR ..................... 983,680 73,653
Phillips Petroleum ........................ 1,200,000 52,500
USX-Marathon .............................. 1,987,400 57,386
394,202
Integrated Petroleum - International 6.3%
Amoco ..................................... 1,000,000 86,938
Chevron ................................... 1,300,000 96,119
Exxon ..................................... 2,300,000 141,450
Mobil ..................................... 1,300,000 90,837
Repsol ADR ................................ 1,100,000 46,681
Royal Dutch Petroleum ADR ................. 1,724,800 93,786
Texaco .................................... 1,028,300 111,828
667,639
Total Energy .............................. 1,160,478
PROCESS INDUSTRIES 10.3%
Diversified Chemicals 3.1%
Dow Chemical .............................. 1,900,000 165,538
DuPont .................................... 1,871,800 117,689
Eastman Chemical .......................... 750,000 47,625
330,852
Specialty Chemicals 3.9%
3M ........................................ 664,900 67,820
Betz Laboratories ......................... 900,000 59,400
Great Lakes Chemical ...................... 1,700,000 89,037
Imperial Chemical ADR ..................... 1,000,000 56,875
Lubrizol .................................. 1,200,000 50,325
Nalco Chemical ............................ 1,200,800 46,381
Pall ...................................... 2,100,000 48,825
418,663
Paper and Paper Products 1.6%
Consolidated Papers ....................... 1,255,100 $ 67,775
Union Camp ................................ 2,000,000 100,000
167,775
Forest Products 1.7%
Georgia-Pacific ........................... 1,200,000 102,450
International Paper ....................... 1,500,000 72,844
175,294
Total Process Industries .................. 1,092,584
BASIC MATERIALS 1.7%
Metals 0.7%
Reynolds Metals ........................... 1,044,700 74,435
74,435
<PAGE>
Mining 1.0%
LONRHO (GBP) .............................. 14,000,000 29,609
Newmont Mining ............................ 2,000,000 78,000
107,609
Total Basic Materials ..................... 182,044
Miscellaneous Common Stocks 0.3% .......... 27,587
Total Common Stocks (Cost $6,780,415) .... 9,084,515
Convertible Bonds 0.9%
Corporate Express
4.50%, 7/1/00 ..................... $15,000,000 13,443
(144a) 4.50%, 7/1/00 .............. 30,000,000 26,885
Roche Holding, LYONs, Zero Coupon, 4/20/10 43,985,000 22,322
WMX Technologies, Sub. Deb., 2.00%, 1/24/05 38,330,000 36,043
Total Convertible Bonds (Cost $93,258) ... 98,693
U.S. Government Obligations/
Agencies 4.1%
U.S. Treasury Bonds
6.875%, 8/15/25 .................... 75,000,000 75,281
U.S. Treasury Notes
5.375%, 11/30/97 ................... 28,750,000 28,728
5.50%, 11/15/98 .................... 57,900,000 57,556
U.S. Treasury Notes
5.875%, 11/15/99 - 2/15/00 ......... $125,000,000 $124,121
6.25%, 5/31/99 ..................... 50,000,000 50,140
6.50%, 10/15/06 .................... 50,000,000 49,789
7.375%, 11/15/97 ................... 27,000,000 27,169
8.875%, 11/15/98 - 5/15/00 ......... 15,000,000 15,752
Total U.S. Government Obligations/
Agencies (Cost $428,522) ................ 428,536
Short-Term Investments 9.7%
Bank Notes 0.1%
Comerica Bank, 5.93%, 6/24/98 .............. 10,000,000 9,993
9,993
Certificates of Deposit 5.7%
ABN AMRO, 6.05%, 8/1/97 ................................. 30,000,000 30,008
ABN AMRO North America, 5.81%, 8/29/97 .................. 25,000,000 25,006
Australia & New Zealand Banking, 5.66 - 5.76%
9/26 - 12/18/97 ................................ 35,000,000 35,002
Banco Santander, 5.57%, 7/16/97 ......................... 30,000,000 30,000
Banque Nationale de Paris, 5.56%, 7/7/97 ................ 25,000,000 25,000
Bayerische Hypotheken und Wechsel, (London)
5.58%, 9/10/97 ................................. 50,000,000 50,001
<PAGE>
Bayerische Landesbank Girozentrale, 5.58%, 9/8/97 ....... 50,000,000 49,998
Caisse National de Credit Agricole, 5.51%, 8/11/97 ...... 50,000,000 50,001
Commerzbank, 5.665 - 5.93%, 9/18/97 - 6/26/98 ........... 70,000,000 69,988
Credit Agricole Indosuez, 5.62%, 8/18/97 ................ 10,000,000 10,001
Creditanstalt Bankverein, 5.565%, 9/3/97 ................ 30,000,000 29,999
Deutsche Bank AG, 5.56%, 7/21/97 ........................ 20,000,000 20,000
Deutsche Bank AG, (London), 5.60%, 8/11/97 .............. 30,000,000 30,000
General Banque, 5.96%, 6/18/98 .......................... 15,000,000 14,994
Hessische Landesbank, 6.13%, 4/7/98 ..................... 10,000,000 9,991
MBNA America Bank N.A., 5.63%, 7/2/97 ................... 10,000,000 10,000
Rabobank Nederland N.V., 5.97%, 3/20/98 ................. 10,000,000 9,998
Royal Bank Canada, 5.91 - 5.95%, 3/24 - 6/17/98 ......... 35,000,000 24,979
Sudwest Deutsche Landesbank, (London), 5.655 - 5.755%
9/25 - 12/29/97 ................................ 50,000,000 50,001
Union Bank of California, 5.55%, 7/11/97 ................ 30,000,000 30,000
604,967
Commercial Paper 3.0%
Abbey National North America, 5.55%, 8/12/97 .......... $20,000,000 $ 19,870
Asset Securitization Cooperative, 4(2), 5.55%, 8/19/97 20,000,000 19,849
Bank of New York, 5.535%, 7/22/97 ..................... 15,000,000 14,952
BEX America Finance, 5.56%, 8/19/97 ................... 20,000,000 19,849
Caisse des Depots et Consignations, 4(2), 5.41%, 9/5/97 30,000,000 29,702
Caterpillar Financial Services, 5.75%, 10/20/97 ....... 10,000,000 9,823
Corporate Asset Funding, 4(2), 5.55%, 9/10/97 ......... 20,000,000 19,781
Cregem N.A., 5.60%, 9/3/97 ............................ 20,000,000 19,801
European Investment Bank, 5.55%, 7/14/97 .............. 10,000,000 9,980
Ford Motor Credit, 5.57%, 7/18/97 ..................... 15,000,000 14,961
GMAC, 5.58%, 7/9/97 ................................... 20,000,000 19,975
GTE Funding, 5.55%, 7/17/97 ........................... 10,000,000 9,975
National City Credit, 5.56%, 8/25/97 .................. 20,000,000 19,830
Repeat Offering, 4(2), 5.60%, 8/29/97 ................. 11,000,000 10,899
RTZ America, 5.56%, 9/16/97 ........................... 10,000,000 9,881
Statoil (Den Norske Stats Oljeselskap), 5.53%, 7/10/97 30,000,000 29,958
Investments in Commercial Paper through a Joint Account
6.05 - 6.20%, 7/1/97 ......................... 41,479,668 41,480
320,566
Medium-Term Notes 0.3%
Morgan Stanley Group, VR, 6.051%, 9/17/97 ......... 36,000,000 36,082
36,082
Structured Investment Vehicles 0.6%
Short Term Card Account Trust, VR, (144a)
5.708%, 7/15/97 .......................... 30,000,000 30,000
SMM Trust, VR, (144a) 5.688%, 7/28/97 ............. 20,000,000 20,000
Tiers Trust, VR, (144a) 5.718%, 7/15/97 ........... 10,000,000 10,000
60,000
<PAGE>
Total Short-Term Investments (Cost $1,031,608) 1,031,608
Total Investments in Securities
100.4% of Net Assets (Cost $8,333,803) ............ $ 10,643,352
Other Assets Less Liabilities ..................... (38,899)
NET ASSETS ........................................ $ 10,604,453
Net Assets Consist of:
Accumulated net investment income -
net of distributions .............................. $ 2,301
Accumulated net realized gain/loss -
net of distributions .............................. 486,361
Net unrealized gain (loss) ........................ 2,309,503
Paid-in-capital applicable to 422,235,867
shares of no par value capital stock
outstanding; unlimited shares authorized .......... 7,806,288
NET ASSETS ........................................ $ 10,604,453
NET ASSET VALUE PER SHARE ......................... $25.11
+ Affiliated company
* Non-income producing
REIT Real Estate Investment Trust
VR Variable rate
4(2) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under section 4.2 of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "accredited investors."
144a Security was purchased pursuant to Rule 144a under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers - total of such securities at period-end amounts to
0.82% of net assets.
CHF Swiss franc
GBP British sterling
LYONs Liquid Yield Option Notes
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
6/30/97
Investment Income
Income
Dividend .............................................. $ 122,351
Interest .............................................. 39,187
Total income .......................................... 161,538
Expenses
Investment management ................................. 26,376
Shareholder servicing ................................. 9,180
Prospectus and shareholder reports .................... 440
Registration .......................................... 344
Custody and accounting ................................ 227
Trustees .............................................. 21
Legal and audit ....................................... 13
Miscellaneous ......................................... 18
Total expenses ........................................ 36,619
Net investment income ..................................... 124,919
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities ............................................ 478,279
Futures ............................................... 3,020
Foreign currency transactions ......................... (141)
Net realized gain (loss) .............................. 481,158
Change in net unrealized gain or loss
Securities ............................................ 681,957
Futures ............................................... 373
Other assets and liabilities
denominated in foreign currencies ..................... (31)
Change in net unrealized gain or loss ................. 682,299
Net realized and unrealized gain (loss) ................... 1,163,457
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS .................................... $ 1,288,376
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/97 12/31/96
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations
Net investment income ...................... $ 124,919 $ 200,010
Net realized gain (loss) ................... 481,158 457,366
Change in net unrealized gain or loss ...... 682,299 571,388
Increase (decrease) in net assets
from operations ............................ 1,288,376 1,228,764
Distributions to shareholders
Net investment income ...................... (124,602) (201,399)
Net realized gain .......................... (146,579) (274,623)
Decrease in net assets from distributions .. (271,181) (476,022)
Capital share transactions *
Shares sold ................................ 2,188,846 2,769,484
Distributions reinvested ................... 262,653 457,250
Shares redeemed ............................ (682,375) (1,376,120)
Increase (decrease) in net assets
from capital share transactions ............ 1,769,124 1,850,614
Net Assets
Increase (decrease) during period .............. 2,786,319 2,603,356
Beginning of period ............................ 7,818,134 5,214,778
End of period .................................. $ 10,604,453 $ 7,818,134
*Share information
Shares sold ................................ 93,253 130,381
Distributions reinvested ................... 11,081 20,657
Shares redeemed ............................ (28,972) (64,822)
Increase (decrease) in shares outstanding .. 75,362 86,216
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited June 30, 1997
================================================================================
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
T. Rowe Price Equity Income Fund (the fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company and commenced operations on October 31, 1985.
VALUATION Equity securities 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.
Debt securities are generally traded in the over-the-counter market and
are valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service.
Short-term debt securities are valued at amortized cost which, when combined
with accrued interest, approximates fair value.
For purposes of determining the fund's net asset value per share, the
U.S. dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Trustees.
AFFILIATED COMPANIES Investments in companies 5% or more of whose
outstanding voting securities are held by the fund are defined as "Affiliated
Companies" in Section 2(a)(3) of the Investment Company Act of 1940.
CURRENCY TRANSLATION Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing exchange rate on the dates of such transactions.
The effect of changes in foreign exchange rates on realized and unrealized
security gains and losses is reflected as a component of such gains and losses.
PREMIUMS AND DISCOUNTS Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
OTHER Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles.
<PAGE>
NOTE 2 - INVESTMENT TRANSACTIONS
- --------------------------------------------------------------------------------
COMMERCIAL PAPER JOINT ACCOUNT The fund, and other affiliated funds, may
transfer uninvested cash into a commercial paper joint account, the daily
aggregate balance of which is invested in high-grade commercial paper. All
securities purchased by the joint account satisfy the fund's criteria as to
quality, yield, and liquidity.
OTHER Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $2,233,600,000 and $1,075,112,000,
respectively, for the six months ended June 30, 1997.
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, 1997, the aggregate cost of investments for federal income
tax and financial reporting purposes was $8,333,803,000, and net unrealized gain
aggregated $2,309,549,000, of which $2,384,374,000 related to appreciated
investments and $74,825,000 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 $4,929,000 was payable at June 30, 1997. 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, 1997, and for the six months then ended, the effective annual group fee rate
was 0.33%. The fund pays a pro-rata share of the group fee based on the ratio of
its net assets to those of the group.
In addition, the fund has entered into agreements with the manager and
two wholly owned subsidiaries of the manager, pursuant to which the fund
receives certain other services. The manager computes the daily share price and
maintains the financial records of the fund. T. Rowe Price Services, Inc. (TRPS)
is the fund's transfer and dividend disbursing agent and provides shareholder
and administrative services to the fund. T. Rowe Price Retirement Plan Services,
Inc., provides subaccounting and recordkeeping services for certain retirement
accounts invested in the fund. Additionally, the fund is one of several T. Rowe
Price mutual funds (the underlying funds) in which the T. Rowe Price Spectrum
Growth and Income Funds (Spectrum) invest. In accordance with an agreement among
Spectrum, the underlying funds, the manager, and TRPS, expenses from the
operation of Spectrum are borne by the underlying funds based on each underlying
fund's proportionate share of assets owned by Spectrum. The fund incurred
expenses pursuant to these related party agreements totaling approximately
$7,915,000 for the six months ended June 30, 1997, of which $1,319,000 was
payable at period-end.
<PAGE>
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access [Registration Mark]:
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Equity Income Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor. F71-051 6/30/97
