Item 1. Report to Shareholders
T. Rowe Price Equity Income Fund
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Certified Financials
T. ROWE PRICE EQUITY INCOME FUND
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Certified Financials (Unaudited)
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Equity Income shares
6 Months Year
Ended Ended
6/30/03 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98
NET ASSET VALUE
Beginning of period $ 19.79 $ 23.65 $ 24.67 $ 24.81 $ 26.32 $ 26.07
Investment activities
Net investment
income (loss) 0.17 0.38 0.37 0.50 0.54 0.61
Net realized and
unrealized
gain (loss) 1.75 (3.43) (0.02)** 2.51 0.45 1.74
Total from
investment
activities 1.92 (3.05) 0.35 3.01 0.99 2.35
Distributions
Net investment
income (0.17) (0.36) (0.36) (0.51) (0.53) (0.61)
Net realized
gain (0.02) (0.45) (1.01) (2.64) (1.97) (1.49)
Total
distributions (0.19) (0.81) (1.37) (3.15) (2.50) (2.10)
NET ASSET VALUE
End of period $ 21.52 $ 19.79 $ 23.65 $ 24.67 $ 24.81 $ 26.32
---------------------------------------------------------
Ratios/Supplemental Data
Total return^ 9.78% (13.04)% 1.64% 13.12% 3.82% 9.23%
Ratio of total
expenses to
average net assets 0.80%+ 0.79% 0.80% 0.78% 0.77% 0.77%
Ratio of net
investment income
(loss) to average
net assets 1.73%+ 1.72% 1.53% 2.01% 1.95% 2.26%
Portfolio
turnover rate 6.80%+ 15.2% 17.3% 21.9% 21.8% 22.6%
Net assets,
end of period
(in millions) $ 10,227 $ 8,954 $ 10,128 $ 10,187 $ 12,321 $ 13,495
^ 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.
** The amount presented is calculated pursuant to a methodology prescribed by
the Securities and Exchange Commission for a share outstanding throughout
the period. This amount is inconsistent with the fund's aggregate gains and
losses because of the timing of sales and redemptions of fund shares in
relation to fluctuating market values for the investment portfolio.
+ Annualized
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE EQUITY INCOME FUND
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Certified Financials (Unaudited)
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
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Equity Income-Advisor Class shares
6 Months Year 3/31/00
Ended Ended Through
6/30/03 12/31/02 12/31/01 12/31/00
NET ASSET VALUE
Beginning
of period $ 19.75 $ 23.63 $ 24.68 $ 23.24
Investment activities
Net investment
income (loss) 0.16 0.37 0.34 0.36
Net realized and
unrealized
gain (loss) 1.75 (3.45) (0.02) 3.41
Total from
investment
activities 1.91 (3.08) 0.32 3.77
Distributions
Net investment
income (0.15) (0.35) (0.36) (0.40)
Net realized
gain (0.02) (0.45) (1.01) (1.93)
Total
distributions (0.17) (0.80) (1.37) (2.33)
NET ASSET VALUE
End of period $ 21.49 $ 19.75 $ 23.63 $ 24.68
------------------------------------------------
Ratios/Supplemental Data
Total return^ 9.73% (13.18)% 1.51% 16.62%
Ratio of total expenses to
average net assets 0.93%+ 0.94% 0.90% 0.60%+
Ratio of net investment
income (loss) to average
net assets 1.60%+ 1.72% 1.44% 2.09%+
Portfolio turnover rate 6.80%+ 15.2% 17.3% 21.9%+
Net assets,
end of period
(in thousands) $1,166,059 $878,375 $307,957 $ 851
^ 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.
T. ROWE PRICE EQUITY INCOME FUND
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Certified Financials (Unaudited)
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
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Equity Income-R Class shares
6 Months 9/30/02
Ended Through
6/30/03 12/31/02
NET ASSET VALUE
Beginning of period $ 19.78 $ 18.54
Investment activities
Net investment income (loss) 0.14 0.09**
Net realized and
unrealized gain (loss) 1.74 1.61**
Total from
investment activities 1.88 1.70
Distributions
Net investment income (0.13) (0.11)
Net realized gain (0.02) (0.35)
Total distributions (0.15) (0.46)
NET ASSET VALUE
End of period $ 21.51 $ 19.78
---------------------------
Ratios/Supplemental Data
Total return^ 9.56% 9.15%
Ratio of total expenses to
average net assets 1.18%+ 1.08%+
Ratio of net investment
income (loss) to average
net assets 1.37%+ 3.22%+
Portfolio turnover rate 6.80%+ 15.2%+
Net assets, end of period
(in thousands) $ 14,208 $ 5,759
** The amount presented is calculated pursuant to a methodology prescribed by
the Securities and Exchange Commission for a share outstanding throughout
the period. The amount may be inconsistent with aggregate income, gains and
losses reported elsewhere in the financial statements because of the timing
of the fund share transactions in relation to shareholder distributions and
fluctuating market values for the investment portfolio.
^ 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.
T. ROWE PRICE EQUITY INCOME FUND
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Certified Financials (Unaudited) June 30, 2003
PORTFOLIO OF INVESTMENTS Shares Value
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In thousands
COMMON STOCKS 94.7%
CONSUMER DISCRETIONARY 16.1%
AUTOMOBILES 0.3%
Ford Motor 3,500,000 $ 38,465
38,465
DISTRIBUTORS 0.6%
Genuine Parts 2,300,000 73,623
73,623
HOTELS, RESTAURANTS & LEISURE 2.8%
Hilton 5,520,000 70,601
McDonald's 6,500,000 143,390
Starwood Hotels & Resorts Worldwide, REIT 3,750,000 107,212
321,203
HOUSEHOLD DURABLES 1.7%
Black & Decker 1,000,000 43,450
Fortune Brands 2,000,000 104,400
Stanley Works 1,741,000 48,052
195,902
LEISURE EQUIPMENT & PRODUCTS 1.6%
Eastman Kodak 3,250,000 88,887
Hasbro 5,000,000 87,450
176,337
MEDIA 6.6%
AOL Time Warner * 10,500,000 168,945
Comcast, Class A * 3,750,000 113,175
Disney 6,987,100 137,995
Dow Jones 3,000,000 129,090
Knight-Ridder 1,750,000 120,628
New York Times, Class A 1,000,000 45,500
Reader's Digest, Class A 3,000,000 40,440
755,773
MULTILINE RETAIL 0.7%
J.C. Penney 800,000 13,480
May Department Stores 2,900,000 64,554
78,034
SPECIALTY RETAIL 1.8%
Home Depot 4,250,000 $ 140,760
Toys "R" Us * 5,000,000 60,600
201,360
Total Consumer Discretionary 1,840,697
CONSUMER STAPLES 6.8%
BEVERAGES 0.7%
Brown-Forman, Class B 1,000,000 78,620
78,620
FOOD PRODUCTS 2.4%
Campbell Soup 4,000,000 98,000
General Mills 1,750,000 82,967
Hershey Foods 350,000 24,381
Kellogg 1,000,000 34,370
McCormick 1,100,000 29,920
269,638
HOUSEHOLD PRODUCTS 1.5%
Clorox 1,700,000 72,505
Kimberly-Clark 2,000,000 104,280
176,785
PERSONAL PRODUCTS 0.7%
Gillette 2,500,000 79,650
79,650
TOBACCO 1.5%
Altria Group 1,750,000 79,520
UST 2,600,000 91,078
170,598
Total Consumer Staples 775,291
ENERGY 9.6%
ENERGY EQUIPMENT & SERVICES 0.9%
Baker Hughes 1,100,000 36,927
Schlumberger 1,500,000 71,355
108,282
OIL & GAS 8.7%
Amerada Hess 2,250,000 $ 110,655
BP ADR 3,000,000 126,060
ChevronTexaco 3,000,000 216,600
Exxon Mobil 6,750,000 242,393
Marathon Oil 2,000,000 52,700
Royal Dutch Petroleum ADS 3,200,000 149,184
Unocal 3,170,000 90,947
988,539
Total Energy 1,096,821
FINANCIALS 17.9%
CAPITAL MARKETS 2.5%
J.P. Morgan Chase 3,300,000 112,794
Mellon Financial 4,000,000 111,000
Northern Trust 1,500,600 62,710
286,504
COMMERCIAL BANKS 5.8%
Bank of America 1,490,000 117,755
Bank One 4,250,000 158,015
FleetBoston Financial 4,750,000 141,122
Mercantile Bankshares 2,000,000 78,760
National City 1,920,000 62,803
Wells Fargo 1,400,000 70,560
Wilmington Trust, Series A 1,000,000 29,350
658,365
CONSUMER FINANCE 1.2%
American Express 3,200,000 133,792
133,792
DIVERSIFIED FINANCIAL SERVICES 1.2%
Citigroup 2,240,000 95,872
Moody's 900,000 47,439
143,311
INSURANCE 5.7%
American International Group 1,070,658 $ 59,079
Aon 1,600,000 38,528
Chubb 1,600,000 96,000
John Hancock Financial Services 1,328,592 40,828
Lincoln National 2,730,188 97,277
Prudential Financial 1,000,000 33,650
SAFECO 3,400,000 119,952
St. Paul Companies 2,200,000 80,322
UnumProvident 6,233,300 83,588
649,224
REAL ESTATE 0.7%
Simon Property Group, REIT 2,000,000 78,060
78,060
THRIFTS & MORTGAGE FINANCE 0.8%
Fannie Mae 1,400,000 94,416
94,416
Total Financials 2,043,672
HEALTH CARE 9.4%
HEALTH CARE EQUIPMENT & SUPPLIES 1.3%
Baxter International 3,500,000 91,000
Becton, Dickinson 1,500,000 58,275
149,275
HEALTH CARE PROVIDERS & SERVICES 0.8%
CIGNA 1,900,000 89,186
89,186
PHARMACEUTICALS 7.3%
Abbott Laboratories 1,600,000 70,016
Bristol-Myers Squibb 7,350,000 199,553
Merck 4,750,000 287,612
Schering-Plough 6,250,000 116,250
Wyeth 3,500,000 159,425
832,856
Total Health Care 1,071,317
INDUSTRIALS & BUSINESS SERVICES 14.4%
AEROSPACE & DEFENSE 4.1%
Boeing 1,800,000 $ 61,776
Honeywell International 7,250,000 194,663
Lockheed Martin 1,050,000 49,949
Raytheon 1,817,700 59,693
Rockwell Collins 4,228,400 104,145
470,226
COMMERCIAL SERVICES & SUPPLIES 1.8%
Dun & Bradstreet * 1,250,000 51,375
R.R. Donnelley 1,800,000 47,052
Waste Management 4,560,000 109,850
208,277
ELECTRICAL EQUIPMENT 3.0%
Cooper Industries 3,600,000 148,680
Emerson Electric 1,100,000 56,210
Hubbell, Class B 1,968,000 65,141
Rockwell Automation 2,800,000 66,752
336,783
INDUSTRIAL CONGLOMERATES 2.1%
GE 7,000,000 200,760
Tyco International 2,200,000 41,756
242,516
MACHINERY 1.4%
Eaton 700,000 55,027
Pall 4,600,000 103,500
158,527
ROAD & RAIL 2.0%
Norfolk Southern 4,200,000 80,640
Union Pacific 2,500,000 145,050
225,690
Total Industrials & Business Services 1,642,019
INFORMATION TECHNOLOGY 4.3%
COMMUNICATIONS EQUIPMENT 1.3%
Cisco Systems * 3,000,000 $ 50,070
Lucent Technologies * 11,250,000 22,838
Motorola 8,000,000 75,440
148,348
COMPUTER & PERIPHERALS 1.3%
Hewlett-Packard 6,920,625 147,409
147,409
OFFICE ELECTRONICS 0.2%
Xerox * 2,100,000 22,239
22,239
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT 0.6%
Agere Systems
Class A * 6,770,310 15,775
Class B * 2,447,207 5,628
Texas Instruments 2,850,000 50,160
71,563
SOFTWARE 0.9%
Microsoft 3,750,000 96,038
96,038
Total Information Technology 485,597
MATERIALS 5.2%
CHEMICALS 3.5%
Dow Chemical 3,500,000 108,360
DuPont 3,000,000 124,920
Great Lakes Chemical+ 2,700,000 55,080
Hercules * 4,641,400 45,950
International Flavors & Fragrances 2,250,000 71,842
406,152
METALS & MINING 0.2%
Alcoa 800,000 20,400
20,400
PAPER & FOREST PRODUCTS 1.5%
International Paper 4,000,000 $ 142,920
MeadWestvaco 1,100,000 27,170
170,090
Total Materials 596,642
TELECOMMUNICATION SERVICES 6.3%
DIVERSIFIED TELECOMMUNICATION SERVICES 6.3%
Alltel 2,250,000 108,495
AT&T 4,000,000 77,000
Qwest Communications International * 20,000,000 95,600
SBC Communications 5,000,000 127,750
Sprint 6,000,000 86,400
Verizon Communications 5,750,000 226,838
Total Telecommunication Services 722,083
UTILITIES 4.7%
ELECTRIC UTILITIES 2.7%
Constellation Energy Group 3,500,000 120,050
FirstEnergy 1,700,000 65,365
PPL 791,504 34,035
TXU 4,114,500 92,370
311,820
GAS UTILITIES 0.8%
NiSource 4,750,000 90,250
90,250
MULTI-UTILITIES & UNREGULATED POWER 1.2%
Duke Energy 4,750,000 94,763
El Paso Energy 4,500,000 36,360
131,123
Total Utilities 533,193
Total Common Stocks (Cost $10,136,779) 10,807,332
CONVERTIBLE PREFERRED STOCKS 0.8%
Ford Motor Company Capital Trust II, 6.50% 574,000 $ 24,940
Lucent Technologies, 8.00% 66,228 67,530
Total Convertible Preferred Stocks
(Cost $84,242) 92,470
SHORT-TERM INVESTMENTS 4.2%
Money Market Funds 4.2%
T. Rowe Price Reserve Investment Fund, 1.16% #+ 477,763,988 477,764
Total Short-Term Investments (Cost $477,764) 477,764
TOTAL INVESTMENTS IN SECURITIES
99.7% of Net Assets (Cost $10,698,785) $ 11,377,566
Other Assets Less Liabilities 29,791
NET ASSETS $ 11,407,357
------------
# Seven-day yield
* Non-income producing
+ Affiliated company - See Note 2.
ADR American Depository Receipts
ADS American Depository Shares
REIT Real Estate Investment Trust
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE EQUITY INCOME FUND
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Certified Financials (Unaudited) June 30, 2003
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value
Affiliated companies (cost $591,493) $ 532,844
Other companies (cost $ 10,107,292) 10,844,722
Total investments in securities 11,377,566
Other assets 51,029
Total assets 11,428,595
Liabilities
Total liabilities 21,238
NET ASSETS $11,407,357
-----------
Net Assets Consist of:
Undistributed net investment income (loss) $ 6,044
Undistributed net realized gain (loss) 90,845
Net unrealized gain (loss) 678,781
Paid-in-capital applicable to 530,233,799
shares of no par value capital stock outstanding;
unlimited shares authorized 10,631,687
NET ASSETS $11,407,357
-----------
NET ASSET VALUE PER SHARE
Equity Income shares
($10,227,090,286/475,300,075 shares outstanding) $ 21.52
Equity Income-Advisor Class shares
($1,166,058,620/54,273,091 shares outstanding) $ 21.49
Equity Income-R Class shares
($14,208,028/660,633 shares outstanding) $ 21.51
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE EQUITY INCOME FUND
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Certified Financials (Unaudited) June 30, 2003
STATEMENT OF OPERATIONS
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In thousands
6 Months
Ended
6/30/03
Investment Income (Loss)
Income
Dividend $ 125,139
Income distributions from mutual funds 2,266
Total income 127,405
Expenses
Investment management 28,766
Shareholder servicing
Equity Income shares 10,201
Equity Income-Advisor Class shares 437
Equity Income-R Class shares 6
Distribution
Equity Income-Advisor Class shares 1,151
Equity Income-R Class shares 31
Prospectus and shareholder reports
Equity Income shares 192
Equity Income-Advisor Class shares 48
Custody and accounting 170
Registration 77
Trustees 27
Legal and audit 20
Total expenses 41,126
Expenses paid indirectly (97)
Net expenses 41,029
Net investment income (loss) 86,376
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 91,372
Change in net unrealized gain (loss) on securities 813,093
Net realized and unrealized gain (loss) 904,465
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 990,841
----------
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE EQUITY INCOME FUND
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Certified Financials (Unaudited)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/03 12/31/02
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 86,376 $ 175,910
Net realized gain (loss) 91,372 207,302
Change in net unrealized gain (loss) 813,093 (1,840,249)
Increase (decrease) in net
assets from operations 990,841 (1,457,037)
Distributions to shareholders
Net investment income
Equity Income shares (79,452) (159,289)
Equity Income-Advisor Class shares (7,402) (10,398)
Equity Income-R Class shares (84) (12)
Net realized gain
Equity Income shares (9,240) (199,037)
Equity Income-Advisor Class shares (928) (16,452)
Equity Income-R Class shares (13) (40)
Decrease in net assets from distributions (97,119) (385,228)
Capital share transactions *
Shares sold
Equity Income shares 1,001,705 1,866,678
Equity Income-Advisor Class shares 415,235 914,477
Equity Income-R Class shares 9,094 5,925
Distributions reinvested
Equity Income shares 84,147 342,908
Equity Income-Advisor Class shares 8,280 26,707
Equity Income-R Class shares 97 52
Shares redeemed
Equity Income shares (622,977) (1,650,176)
Equity Income-Advisor Class shares (218,158) (262,683)
Equity Income-R Class shares (1,610) (123)
Increase (decrease) in net assets from
capital share transactions 675,813 1,243,765
Net Assets
Increase (decrease) during period 1,569,535 (598,500)
Beginning of period 9,837,822 10,436,322
End of period $11,407,357 $ 9,837,822
----------- -----------
*Share information
Shares sold
Equity Income shares 50,438 84,263
Equity Income-Advisor Class shares 20,500 43,125
Equity Income-R Class shares 447 294
Distributions reinvested
Equity Income shares 4,213 16,415
Equity Income-Advisor Class shares 411 1,309
Equity Income-R Class shares 5 3
Shares redeemed
Equity Income shares (31,672) (76,535)
Equity Income-Advisor Class shares (11,101) (13,002)
Equity Income-R Class shares (82) (6)
Increase (decrease) in shares
outstanding 33,159 55,866
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE EQUITY INCOME FUND
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Certified Financials (Unaudited) June 30, 2003
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 (the 1940 Act) as a diversified, open-end management
investment company. The fund seeks to provide substantial dividend income as
well as long-term growth of capital through investments in the common stocks of
established companies. The fund has three classes of shares: Equity Income Fund
(Equity Income class), offered since October 31, 1985, Equity Income
Fund-Advisor Class (Advisor Class), offered since March 31, 2000, and Equity
Income Fund-R Class (R Class), offered since September 30, 2002. Advisor Class
shares are offered only through brokers and other financial intermediaries, and
R Class shares are only available to small retirement plans serviced by
intermediaries. The Advisor Class and R Class each operate under separate
Board-approved Rule 12b-1 plans, pursuant to which each class compensates
financial intermediaries for distribution and certain administrative services.
Each class has exclusive voting rights on matters related solely to that class,
separate voting rights on matters that relate to all classes, and, in all other
respects, the same rights and obligations as the other classes.
The accompanying financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America, which
require the use of estimates made by fund management.
Valuation
Investments are valued at the close of the New York Stock Exchange (NYSE),
normally 4 p.m. ET, each day that the NYSE is open for business. Equity
securities listed or regularly traded on a securities exchange or in the
over-the-counter market are valued at the last quoted sale price, or official
closing price for certain markets, at the time the valuations are made. A
security that 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 are valued at the mean of the
latest bid and ask prices for domestic securities and the last quoted sale price
for international securities.
Investments in mutual funds are valued at the closing net asset value per share
of the mutual fund on the day of valuation.
Other investments and those 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.
Class Accounting
The Advisor Class and R Class each pay distribution and administrative expenses
in the form of Rule 12b-1 fees, in an amount not exceeding 0.25% and 0.50%,
respectively, of the class's average net assets. Shareholder servicing,
prospectus, and shareholder report expenses incurred by each class are charged
directly to the class to which they relate. Expenses common to all 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 a quarterly basis. Capital
gain distributions, if any, are declared and paid by the fund, typically on an
annual basis.
Expenses
Paid Indirectly Certain security trades are directed to brokers who have agreed
to rebate a portion of the related commission to the fund to pay fund expenses.
Additionally, credits earned on temporarily uninvested cash balances at the
custodian are used to reduce the fund's custody charges. Total expenses in the
accompanying statement of operations are presented before reduction for rebates
and credits, which totaled $96,000 and $1,000, respectively, for the six months
ended June 30, 2003.
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.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Affiliated Companies
The fund may invest in certain securities that are considered affiliated
companies. As defined by the 1940 Act, an affiliated company is one in which the
fund owns 5% or more of the outstanding voting securities. At June 30, 2003, the
value of affiliated companies totaled $532,844,000, representing 4.7% of the
value of the fund's investments in securities. For the six months then ended,
$486,000 (0.4%) of dividend income, and $2,266,000 (100.0%) of interest income
reflected in the accompanying financial statements resulted from transactions
with affiliated companies.
Other
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $780,689,000 and $334,954,000, respectively, for the six months ended
June 30, 2003.
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 to
shareholders all of its taxable income and gains. Federal income tax regulations
differ from generally accepted accounting principles; therefore, distributions
determined in accordance with tax regulations may differ in amount or character
from net investment income and realized gains for financial reporting purposes.
Financial reporting records are adjusted for permanent book/tax differences to
reflect tax character. Temporary differences are not adjusted. The amount and
character of tax-basis distributions and composition of net assets are finalized
at fiscal year-end; accordingly, tax-basis balances have not been determined as
of June 30, 2003.
At June 30, 2003, the cost of investments for federal income tax purposes was
$10,698,785,000. Net unrealized gain aggregated $678,781,000 at period-end, of
which $2,095,201,000 related to appreciated investments and $1,416,420,000
related to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price
Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The
investment management agreement between the fund and the manager provides for an
annual investment management fee, which is computed daily and paid monthly. The
fee consists of an individual fund fee, equal to 0.25% of the fund's average
daily net assets, and the fund's pro-rata share of a group fee. The group fee is
calculated based on the combined net assets of certain mutual funds sponsored by
Price Associates (the group) applied to a graduated fee schedule, with rates
ranging from 0.48% for the first $1 billion of assets to 0.295% for assets in
excess of $120 billion. The fund's portion of the group fee is determined by the
ratio of its net assets to those of the group. At June 30, 2003, the effective
annual group fee rate was 0.32%, and investment management fee payable totaled
$5,338,000.
Through December 31, 2003 for the Advisor Class and through April 30, 2004 for
the R Class, the manager is required to bear any expenses, excluding interest,
taxes, brokerage commissions, and extraordinary expenses that would cause the
class's ratio of total expenses to average net assets (expense ratio) to exceed
1.00% and 1.30%, respectively. Thereafter, through December 31, 2005 for the
Advisor Class and through April 30, 2006 for the R Class, each 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 expense ratio to exceed 1.00% and 1.30%, respectively. This
agreement had no impact on the fund's total expenses during the six months ended
June 30, 2003 and, at that date, no amounts were subject to future reimbursement
by the fund.
In addition, the fund has entered into service agreements with Price Associates
and two wholly owned subsidiaries of Price Associates (collectively, Price).
Price Associates computes the daily share prices and maintains the financial
records of the fund. T. Rowe Price Services, Inc. provides shareholder and
administrative services in its capacity as the fund's transfer and dividend
disbursing agent. T. Rowe Price Retirement Plan Services, Inc. provides
subaccounting and recordkeeping services for certain retirement accounts
invested in the Equity Income class and R Class. Expenses incurred pursuant to
these service agreements totaled $7,188,000 for the six months ended June 30,
2003, of which $1,559,000 was payable at period-end.
Additionally, the fund is one of several mutual funds in which certain college
savings plans managed by Price Associates may invest. As approved by the fund's
Board of Directors, shareholder servicing costs associated with each college
savings plan are borne by the fund in proportion to the average daily value of
its shares owned by the college savings plan. At June 30, 2003, approximately
0.001% of the outstanding shares of the Equity Income class were held by college
savings plans.
The fund is also one of several mutual funds sponsored by Price Associates
(underlying Price funds) in which the T. Rowe Price Spectrum Funds (Spectrum
Funds) may invest. The Spectrum Funds do not invest in the underlying Price
funds for the purpose of exercising management or control. Pursuant to special
servicing agreements, expenses associated with the operation of the Spectrum
Funds are borne by each underlying Price fund to the extent of estimated savings
to it and in proportion to the average daily value of its shares owned by the
Spectrum Funds.
Expenses allocated under these agreements are reflected as shareholder servicing
expense in the accompanying financial statements. For the six months ended June
30, 2003 the Equity Income class was allocated $1,029,000 of Spectrum Funds'
expenses, of which $454,000 related to services provided by Price and $421,000
was payable at period-end. At June 30, 2003, approximately 7.1% of the
outstanding shares of the Equity Income class were held by the Spectrum Funds.
The fund may invest in the T. Rowe Price Reserve Investment Fund and T. Rowe
Price Government Reserve Investment Fund (collectively, the Reserve Funds),
open-end management investment companies managed by Price Associates. The
Reserve Funds are offered as cash management options only to mutual funds,
trusts, and other accounts managed by Price Associates and/or 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, 2003, totaled $2,266,000.
Item 2. Code of Ethics.
Not required at this time.
Item 3. Audit Committee Financial Expert.
Not required at this time.
Item 4. Principal Accountant Fees and Services.
Not required at this time.
Item 5. Audit Committee of Listed Registrants.
Not required at this time.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The registrant's principal executive officer and principal financial officer
are aware of no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a)(1) Not required at this time.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b) A certification by the registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940,
is attached.
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Equity Income Fund
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date August 13, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date August 13, 2003
By /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date August 12, 2003