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Previous: NATIONAL MUNICIPAL TRUST MULTISTATE SERIES 54, 497, 1995-02-03 |
Next: NATIONAL MUNICIPAL TRUST SERIES 163, 497, 1995-02-03 |
Annual Report
<PAGE>
(Logo)
Dividend Growth Fund
December 31, 1994
FOR YIELD, PRICE, LAST TRANSACTION, AND CURRENT BALANCE, 24 HOURS,
7 DAYS A WEEK, CALL:
1-800-638-2587 toll free
625-7676 Baltimore area
FOR ASSISTANCE WITH YOUR EXISTING FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distri-bution only to shareholders and to others
who have received a copy of the prospectus of the T. Rowe Price Dividend
Growth Fund.
(Logo)
DGF
<PAGE>
Fellow Shareholders
The economy and corporate profits performed beautifully in 1994, but financial
markets struggled. The unmanaged Standard & Poor's 500 Stock Index was flat in
the fourth quarter and returned 1.3% for the year. But 1994 marked the first
time in 20 years that the stock and bond mutual fund averages both posted
losses in the same calendar year. The volatility of the market averages
remained low as the positive effect of strong corporate earnings offset the
negative impact of rising interest rates. In this difficult environment, your
Fund performed well relative to its benchmark and peer group for both the
quarter and full year.
Performance Comparison
Periods Ended
12/31/94
3 Months 12 Months
-------------------
Dividend Growth Fund 0.5% 2.2%
S&P 500 0.0 1.3
Lipper Growth & Income
Fund Average -1.6 -0.9
- ----------------------------------------------
YEAR-END DISTRIBUTIONS
On December 27, your Board of Directors declared a fourth quarter dividend of
$0.10 per share, a short-term capital gain of $0.27, and a long-term capital
gain of $0.05. All three distributions were paid on December 29 to
shareholders of record on December 27. The fourth quarter dividend brought the
full-year income total to $0.34 per share, up from $0.29 last year. You should
already have received a check or statement reflecting these distributions as
well as your Form 1099-DIV reporting them for tax purposes.
MARKET ENVIRONMENT
The economy was surprisingly strong in 1994: gross domestic product growth
exceeded most expectations and inflation remained subdued. Corporate earnings
grew more than 20%, and productivity gains were impressive. Such positive
factors would usually have been a recipe for strong stock returns, but a sharp
rise in interest rates neutralized their effect. The extent of the rise in
rates surprised many: banks, brokerage firms, municipalities (notably Orange
County, California), and others experienced large and highly publicized losses
on leveraged bond positions.
Interestingly, the S&P 500's modest 1.3% return was a tough standard to
beat. More than half the stocks in the S&P 500 delivered negative total
returns in 1994 and, as a result, more than 75% of the Lipper growth & income
funds underperformed the index.
PORTFOLIO REVIEW
Rebounding share prices for a number of consumer nondurable companies aided
your Fund's performance during the last three and 12 months. INTERNATIONAL
FLAVORS & FRAGRANCES, SMITHKLINE BEECHAM, COLGATE-PALMOLIVE, PFIZER, and
DISNEY all bounced back nicely as investor preference shifted to steady growth
companies from economically sensitive issues. A strong year-end surge for
GENERAL GROWTH PROPERTIES and several other real estate investment trusts
(REITs) also helped. We continue to like the prospects for our REIT holdings,
which make up 6% of Fund assets.
Financial stocks declined broadly during the quarter, and FANNIE MAE and
MELLON BANK dropped more than we thought likely. TELEFONOS DE MEXICO (Telmex)
also dropped substantially along with the rest of the Mexican market when the
government devalued the currency in December. The volatility
of this and other Mexican blue chip stocks underscores the risks of investing
in emerging markets, a lesson we are unlikely to forget. International stocks
now represent 7% of Fund assets and consist mostly of European blue chip
issues such as ROYAL DUTCH PETROLEUM and SmithKline Beecham. Telmex was our
only holding in the more risky emerging markets.
<PAGE>
MAJOR PORTFOLIO CHANGES
We made several opportunistic purchases during the quarter. STORAGE TRUST
REALTY is a new REIT issue that quickly fell in price after its initial
offering. We think this company, family-run and financially strong, can grow
at double-digit rates for several years. Shares of VODAFONE, the largest
cellular phone service provider in Britain and a growing force around the
world, dipped recently and allowed us to purchase this attractive, rapidly
growing franchise at a reasonable price. We also added to our holdings in
NORWEST and Mellon Bank; both stocks suffered punishing declines during the
quarter along with most financial stocks as investors sold on fears of higher
interest rates. We expect both to post solid results in 1995 and beyond.
Purchases of Disney and GREAT LAKES CHEMICAL exemplify our investment style:
to buy strong but temporarily out-of-favor companies with shareholder-oriented
managements.
We sold ENTERGY with some consternation, as this electric utility stock
had already declined appreciably. But even after its initial drop in share
price, the company's earnings and dividend outlook continued to deteriorate,
so we sold and reinvested the proceeds in NIPSCO INDUSTRIES, an electric
utility with better prospects.
OUTLOOK
Strong economic momentum in the U.S. should continue into 1995. We expect
further upward pressure on short-term interest rates from the Federal Reserve
until the economy slows noticeably. Although we don't think the Fed will be
overly ambitious and cause a recession, history suggests we should be mindful
of that possibility. Stocks could languish until the scenario plays out, but
continued strong corporate earnings should soon translate into faster dividend
growth and improved valuations.
We are pleased with your Fund's cumulative return during its first two
years, and believe our strategy of purchasing strong companies with proven
earnings growth will provide solid long-term growth of both capital and income
to our shareholders.
As always, we appreciate your confidence and support.
Respectfully submitted,
(SIG)
Brian C. Rogers
President
(SIG)
William J. Stromberg
Executive Vice President and
Chairman of the Investment
Advisory Committee
January 18, 1995
<PAGE>
Twenty-Five Largest Holdings
December 31, 1994
Percent of
Company Net Assets
- ------------------------------- ----------
Hubbell 3.1%
Fannie Mae 1.8
Alco Standard 1.8
Philip Morris 1.7
GE 1.7
Pfizer 1.5
Selective Insurance 1.5
Royal Dutch Petroleum 1.5
Great Lakes Chemical 1.5
Mellon Bank 1.5
AlliedSignal 1.4
SmithKline Beecham 1.3
Dun & Bradstreet 1.3
Colgate-Palmolive 1.3
Exxon 1.2
Sbarro 1.2
Analysts International 1.2
ALLTEL 1.2
Norwest 1.1
Kimberly-Clark 1.1
Mobil 1.1
Abbott Laboratories 1.1
Automatic Data Processing 1.1
Reader's Digest 1.1
PepsiCo 1.1
- ---------------------------------------
Total 35.4%
- ---------------------------------------
Major Portfolio Changes
Three Months Ended December 31, 1994
TEN LARGEST PURCHASES
Cost (000)
----------
Storage Trust Realty* $494
Vodafone* 492
NIPSCO* 363
Great Lakes Chemical 324
Norwest 295
Alco Standard 285
Mellon Bank 275
Kimberly-Clark 257
Cleveland Electric Pfd.* 255
Disney 251
- ------------------------------------------
TEN LARGEST SALES**
Proceeds
(000)
----------
Entergy** $386
American Premier Underwriters** 374
Autodesk** 337
Avery Dennison 302
Tambrands** 287
Alcoa** 263
Storage USA 243
Firstar** 236
James River Cv. Pfd.** 212
SEI 176
- ------------------------------------------
*Position added
**Position eliminated
<PAGE>
Investment Record
T. Rowe Price Dividend Growth Fund
The table below shows the investment record of one share of the T. Rowe Price
Dividend Growth Fund, purchased at the initial price of $10.00, for the period
12/30/92 through 12/31/94. Over this time, stock prices in general have risen.
The results shown should not be considered as a representation of the income
or capital gain or loss which may be realized from an investment made in the
Fund today.
Per-Share Data
<TABLE>
With Capital Gains and Income Dividends Annual
Taken in Cash Reinvested in Additional Shares Total Return
--------------------------------- ---------------------------------- On Investment
Year Net Capital Capital % Change
Ended Asset Gain Income Gain Income Value of -------------
12/31 Value Distributions/1/ Dividends Distributions Dividends Investment Fund S&P500
- ------- ------ ---------------- --------- ------------- --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
19932 $11.48 $0.15 $0.29 $0.15 $0.29 $11.94 19.4% 10.1%
1994 11.04 0.34 0.34 0.36 0.36 12.20 2.2 1.3
Total $0.49 $0.63 $0.51 $0.65
- ------------------------------------------------------------------------------------------
1. Includes short-term capital gains of $0.15 in 1993 and $0.29 in 1994.
2. From inception 12/30/92 to 12/31/93.
Fiscal-Year Performance
Periods Ended December 31, 1994
1 Year Since Inception 12/30/92*
- ------ -------------------------
2.16% 10.43%
- --------------------------------
* Average Annual Compound Total Return
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
Fiscal-Year Performance Comparison
(CHART)
A line graph compares the 12/31/94 value of a hypotherical $10,000 investment
made in the Dividend Growth Fund at its inception (12/31/92) and a similar
investment made concurrently in the S&P 500 Index. At 12/31/94, the Fund
Investment would have been worth $12,199 and the S&P Index investment would
have been worth $11,153.
<PAGE>
Statement of Net Assets (Value in thousands)
T. Rowe Price Dividend Growth Fund / December 31, 1994
Common Stocks--78.1%
FINANCIAL--10.4%
Value
--------
BANK & TRUST--4.2%
12,000shs. Integra Financial..................... $493
25,500 Mellon Bank........................... 781
2,000 Mercantile Bancorporation............. 62
7,000 NationsBank........................... 316
26,000 Norwest............................... 608
2,260
INSURANCE--2.4%
12,000 EXEL 474
32,000 Selective Insurance................... 808
1,282
FINANCIAL SERVICES--3.8%
14,000 American Express...................... 413
13,000 Fannie Mae............................ 947
12,000 Money Store........................... 222
13,000 Travelers............................. 423
2,005
TOTAL FINANCIAL 5,547
UTILITIES--5.6%
TELEPHONE--4.3%
21,000 ALLTEL................................ 633
10,000 Bell Atlantic......................... 497
18,000 GTE................................... 547
12,500 Pacific Telesis....................... 356
7,000 Telmex ADR............................ 287
2,320
ELECTRIC UTILITIES--1.3%
12,000 General Public Utilities.............. 315
13,000 NIPSCO................................ 387
702
TOTAL UTILITIES 3,022
CONSUMER NONDURABLES--17.3%
COSMETICS--0.4%
5,000 International Flavors & Fragrances.... 231
BEVERAGES--2.0%
10,000 Anheuser-Busch........................ 509
16,000 PepsiCo............................... 580
1,089
FOOD PROCESSING--1.9%
7,000 CPC International..................... 373
8,000 McCormick............................. 146
5,000shs. Ralston Purina........................ $223
11,000 Sara Lee.............................. 278
1,020
HOSPITAL SUPPLIES/HOSPITAL
MANAGEMENT--1.1%
18,000 Abbott Laboratories................... 587
PHARMACEUTICALS--6.4%
4,500 American Home Products................ 283
6,000 Eli Lilly............................. 394
9,000 Merck................................. 343
10,500 Pfizer................................ 811
6,000 Schering-Plough....................... 444
21,000 SmithKline Beecham,
equity units ADR.................... 719
8,500 Upjohn................................ 261
2,000 Warner-Lambert........................ 154
3,409
MISCELLANEOUS CONSUMER
PRODUCTS--5.5%
14,000 American Greetings (Class A).......... 378
11,000 Colgate-Palmolive..................... 697
13,000 Hanson ADR............................ 234
21,000 Newell................................ 441
16,000 Philip Morris......................... 920
10,000 UST................................... 278
2,948
TOTAL CONSUMER NONDURABLES 9,284
CONSUMER SERVICES--7.7%
GENERAL MERCHANDISERS--1.8%
6,000 Dayton Hudson......................... 424
5,000 J.C. Penney........................... 223
15,000 Wal-Mart.............................. 319
966
SPECIALTY MERCHANDISERS--0.2%
14,000 Hancock Fabrics....................... 124
ENTERTAINMENT & LEISURE--2.9%
7,000 Disney................................ 323
13,000 Reader's Digest (Class B)............. 582
25,000 Sbarro................................ 650
1,555
MEDIA & COMMUNICATIONS--2.8%
13,000 Dun & Bradstreet...................... 715
4,000 Gannett............................... 213
16,000 Vodafone ADR.......................... 538
1,466
TOTAL CONSUMER SERVICES 4,111
<PAGE>
CONSUMER CYCLICALS--7.0%
BUILDING & REAL ESTATE--6.2%
9,000shs. Chelsea GCA........................... $245
33,000 DeBartolo Realty...................... 495
23,000 General Growth Properties............. 521
11,000 ROC Communities....................... 231
22,000 South West Property Trust............. 270
29,000 Storage Trust Realty.................. 518
18,000 Storage USA........................... 495
15,000 Weingarten Realty Investors........... 568
3,343
MISCELLANEOUS CONSUMER DURABLES--0.5%
8,000 Corning............................... 239
AUTOMOBILES & RELATED--0.3%
5,000 Echlin................................ 150
TOTAL CONSUMER CYCLICALS 3,732
TECHNOLOGY--3.1%
ELECTRONIC SYSTEMS--1.1%
18,000 Honeywell............................. 567
TELECOMMUNICATIONS--0.6%
6,000 LM Ericsson (Class B) ADR............. 331
AEROSPACE & DEFENSE--1.4%
22,000 AlliedSignal.......................... 748
TOTAL TECHNOLOGY 1,646
CAPITAL EQUIPMENT--5.3%
ELECTRICAL EQUIPMENT--5.2%
18,000 GE.................................... 918
5,000 Getronics (NLG)....................... 182
8,000 Hubbell (Class A)..................... 410
24,000 Hubbell (Class B)..................... 1,278
2,788
MACHINERY--0.1%
1,000 Teleflex.............................. 36
TOTAL CAPITAL EQUIPMENT 2,824
BUSINESS SERVICES & TRANSPORTATION--6.1%
COMPUTER SERVICE & SOFTWARE--2.7%
31,000 Analysts International................ 635
10,000 Automatic Data Processing............. 585
14,000 SEI................................... 242
1,462
DISTRIBUTION SERVICES--2.2%
15,000 Alco Standard......................... 941
4,000 W. W. Grainger........................ 231
1,172
MISCELLANEOUS BUSINESS SERVICES--0.6%
12,000shs. WMX Technologies...................... $315
RAILROADS--0.6%
5,000 CSX................................... 348
TOTAL BUSINESS SERVICES & TRANSPORTATION 3,297
ENERGY--7.2%
ENERGY SERVICES--1.7%
16,000 Helmerich & Payne..................... 410
10,000 Schlumberger.......................... 504
914
INTEGRATED PETROLEUM-DOMESTIC--0.6%
5,000 Amoco................................. 296
INTEGRATED PETROLEUM-
INTERNATIONAL--4.9%
11,000 Exxon................................. 668
7,000 Mobil................................. 590
21,000 Repsol ADR............................ 572
7,500 Royal Dutch Petroleum ADR............. 806
2,636
TOTAL ENERGY 3,846
PROCESS INDUSTRIES--5.1%
DIVERSIFIED CHEMICALS--0.9%
9,000 DuPont................................ 506
SPECIALTY CHEMICALS--3.1%
4,000 Avery Dennison........................ 142
1,000 Crompton & Knowles.................... 16
14,000 Great Lakes Chemical.................. 798
10,000 Lubrizol.............................. 339
6,000 Rohm & Haas........................... 343
1,638
PAPER & PAPER PRODUCTS--1.1%
12,000 Kimberly-Clark........................ 606
TOTAL PROCESS INDUSTRIES 2,750
MISCELLANEOUS--3.3% 1,781
TOTAL COMMON STOCKS (COST $40,910) 41,840
Preferred Stocks--1.6%
3,000 California Federal Bank, 10.625%,
Series B............................ 301
320 Cleveland Electric Illuminating,
8.80%, Series R..................... 255
12,000 Manville, $2.70, Cum. Pfd., Series B.. 279
TOTAL PREFERRED STOCKS (COST $838) 835
<PAGE>
Convertible Preferred Stocks--1.2%
16,000shs. Freeport-McMoRan, Dep. Shs............ $376
5,500 Newmont Mining (144a), $2.75.......... 289
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $844) 665
Convertible Bonds--0.9%
$540,000 Rockefeller Center, 8.00%, 12/31/00... 499
TOTAL CONVERTIBLE BONDS (COST $527) 499
Corporate Bonds--3.7%
250,000 American Standard,
Sr. Sub. Deb., 9.875%, 6/1/01....... 243
35,000 American Standard,
Sub. Deb., 9.25%, 12/1/16........... 32
250,000 Imo Industries,
Sr. Sub. Deb., 12.00%, 11/1/01...... 252
230,000 Imo Industries,
Sr. Sub. Deb., 12.25%, 8/15/97...... 230
120,000 Lear Seating,
Sub. Notes, 8.25%, 2/1/02........... 106
250,000 Paging Network,
Sr. Sub. Notes, 8.875%, 2/1/06...... 195
350,000 Southern Pacific Rail,
Sr. Notes, 9.375%, 8/15/05.......... 325
500,000 Texas Bottling Group,
Sr. Sub. Notes, 9.00%, 11/15/03..... 435
200,000 Westpoint Stevens,
Sr. Notes, 8.75%, 12/15/01.......... 184
TOTAL CORPORATE BONDS (COST $2,182) 2,002
U.S. Government Mortgage-Backed
Securities--0.7%
186,458 Government National Mortgage
Assn., I, 10.00%, 4/15/18........... 198
146,527 Government National Mortgage
Assn., II, 10.50%, 12/20/20......... 154
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES (COST $368) 352
U.S. Government Obligations/
Agencies--0.7%
350,000 U.S. Treasury Notes, 4.25%, 1/31/95... 350
TOTAL U.S. GOVERNMENT OBLIGATIONS/AGENCIES
(COST $350) 350
Short-Term Investments--13.0%
BANK NOTES--0.9%
$500,000 Huntington National Bank, VR,
5.82%, 4/6/95....................... $500
COMMERCIAL PAPER--10.2%
1,000,000 Abbey National North America,
5.50%, 2/2/95....................... 986
1,000,000 Asset Securitization Cooperative,
4(2), 5.50%, 1/25/95................ 986
1,000,000 Countrywide Funding, 6.30%, 1/5/95.... 999
1,517,000 President & Fellows Harvard
College, 6.00%, 1/3/95.............. 1,516
1,000,000 US West Communications,
4(2), 6.05%, 1/12/95................ 995
5,482
CERTIFICATE OF DEPOSIT--1.9%
1,000,000 Societe Generale, 5.80%, 3/1/95....... 1,000
TOTAL SHORT-TERM INVESTMENTS (COST $6,982) 6,982
- --------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES--99.9%
(COST $53,001) 53,525
- --------------------------------------------------------------
Other Assets Less Liabilities ....................... 72
NET ASSETS CONSISTING OF:
Accumulated net investment
income - net of distributions....... $ 7
Accumulated realized gains/losses -
net of distributions................ 157
Net unrealized gain................... 524
Paid-in-capital applicable to
4,855,279 shares of $.0001 par
value capital stock outstanding;
1,000,000,000 shares authorized..... 52,909
-------
NET ASSETS............................ $53,597
-------
-------
NET ASSET VALUE PER SHARE $11.04
-------
-------
- ------------------------------------------------------
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."
144(a) 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.
NLG Dutch guilder
VR Variable rate
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of Operations
T. Rowe Price Dividend Growth Fund / Year Ended December 31, 1994
Amounts in
Thousands
----------
INVESTMENT INCOME
Income
Dividends........................................ $1,337
Interest......................................... 610
----------
Total income..................................... 1,947
----------
Expenses
Shareholder servicing............................ 137
Custody and accounting........................... 114
Investment management............................ 107
Registrations.................................... 38
Legal and auditing............................... 23
Prospectus and shareholder reports............... 20
Directors........................................ 9
Proxy and annual meeting......................... 7
Miscellaneous.................................... 20
----------
Total expenses................................... 475
----------
Net investment income ............................. 1,472
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain on:
Securities....................................... 1,672
Foreign currency transactions.................... 1
----------
Net realized gain ............................... 1,673
Change in net unrealized gain or loss on (2,077)
securities.........................................
----------
Net realized and unrealized loss................... (404)
----------
INCREASE IN NET ASSETS FROM OPERATIONS............. $1,068
----------
----------
- --------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of Changes in Net Assets
T. Rowe Price Dividend Growth Fund
</TABLE>
<TABLE>
<S> <C> <C>
From
Dec. 30, 1992
(Commencement
Year Ended of Operations) to
Dec. 31, 1994 Dec. 31, 1993
---------------------------
(Amounts in thousands)
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income ..................................... $1,472 $690
Net realized gain ......................................... 1,673 679
Change in net unrealized gain or loss...................... (2,077) 2,602
------------- -------------
Increase in net assets from operations..................... 1,068 3,971
------------- -------------
Distributions to shareholders
Net investment income...................................... (1,477) (806)
Net realized gain.......................................... (1,570) (521)
------------- -------------
Decrease in net assets from distributions.................. (3,047) (1,327)
------------- -------------
Capital share transactions/1/
Shares sold................................................ 25,974 46,026
Distributions reinvested................................... 2,798 1,224
Shares redeemed............................................ (14,110) (9,259)
------------- -------------
Increase in net assets from capital share transactions..... 14,662 37,991
------------- -------------
Net equalization............................................. 52 127
------------- -------------
Increase in net assets....................................... 12,735 40,762
NET ASSETS
Beginning of period ......................................... 40,862 100
------------- -------------
End of period ............................................... $53,597 $40,862
------------- -------------
------------- -------------
- -----------------------------------------------------------------------------------------
<FN>
/1/Capital share transactions (number of shares)
Shares sold................................................ 2,290 4,285
Distributions reinvested................................... 252 110
Shares redeemed............................................ (1,248) (843)
------------- -------------
Increase in capital shares outstanding..................... 1,294 3,552
------------- -------------
------------- -------------
- -----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Notes to Financial Statements
T. Rowe Price Dividend Growth Fund / December 31, 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Dividend Growth Fund (the Fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company.
A) Valuation - Equity securities listed or regularly traded on a securities
exchange (including Nasdaq) 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. Other equity securities and those listed
securities that are not traded on a particular day are valued at a price
within the limits of the latest bid and asked prices deemed by the Board of
Directors, or by persons delegated by the Board, best to reflect fair value.
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 their 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 Directors.
B) Currency translation - Assets and liabilities are converted 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 or losses is reflected as a component of such gains
or losses.
C) Discounts and Premiums - Discounts and premiums on debt securities are
amortized for both financial and tax reporting purposes.
D) 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 an 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. The Fund follows the practice of
equalization under which undistributed net investment income per share is
unaffected by Fund shares sold or redeemed.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term and U.S.
Government securities, aggregated $42,083,000 and $29,230,000, respectively,
for the year ended December 31, 1994.
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.
In order for the Fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, $41,000 of undistributed
net investment income was reclassified as an increase to paid-in-capital
during the year ended December 31, 1994. The results of operations and net
assets were not affected by the reclassification.
At December 31, 1994, the aggregate cost of investments for federal income
tax and financial reporting purposes was $53,001,000 and net unrealized gain
aggregated $524,000, of which $2,362,000 related to appreciated investments
and $1,838,000 to depreciated investments.
<PAGE>
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 $13,000 was payable at December 31, 1994. The fee is computed
daily and paid monthly, and consists of an Individual Fund Fee equal to 0.20%
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 0.31% for assets in excess of $34
billion. At December 31, 1994, and for the year then ended, the effective
annual Group Fee rate was 0.34%. The Fund pays a pro rata share of the Group
Fee based on the ratio of its net assets to those of the Group.
Under the terms of the investment management agreement, the Manager is
required to bear any expenses through December 31, 1994, which would cause the
Fund's ratio of expenses to average net assets to exceed 1.00%. Thereafter
through December 31, 1996, the Fund is required to reimburse the Manager for
these expenses, provided that average net assets have grown or expenses have
declined sufficiently to allow reimbursement without causing the Fund's ratio
of expenses to average net assets to exceed 1.10%. Pursuant to this agreement,
$151,000 of management fees were not accrued by the Fund for the year ended
December 31, 1994. Additionally, $229,000 of unaccrued fees and expenses from
the prior period are subject to reimbursement through December 31, 1996.
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. The Fund incurred expenses
pursuant to these related party agreements totaling approximately $169,000 for
the year ended December 31, 1994, of which $20,000 was payable at year end.
<PAGE>
Financial Highlights
T. Rowe Price Dividend Growth Fund
For a share outstanding
throughout each period
----------------------------
From
Dec. 30, 1992
(Commencement
Year Ended of Operations)
to
Dec. 31, 1994 Dec. 31, 1993
------------- --------------
NET ASSET VALUE, BEGINNING OF PERIOD.............. $11.48 $10.00
------------- --------------
Investment Activities
Net investment income........................... 0.35* 0.29*
Net realized and unrealized gain (loss)......... (0.11) 1.63
------------- --------------
Total from Investment Activities................ 0.24 1.92
------------- --------------
Distributions
Net investment income........................... (0.34) (0.29)
Net realized gain............................... (0.34) (0.15)
------------- --------------
Total Distributions............................. (0.68) (0.44)
------------- --------------
NET ASSET VALUE, END OF PERIOD.................... $11.04 $11.48
------------- --------------
------------- --------------
- ------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return...................................... 2.2%* 19.4%*
Ratio of Expenses to Average Net Assets........... 1.00%* 1.00%[daggar]*
Ratio of Net Investment Income to Average Net 3.11%* 2.60%[daggar]*
Portfolio Turnover Rate........................... 71.4% 51.2%[daggar]
Net Assets, End of Period (in thousands).......... $53,597 $40,862
- ------------------------------------------------------------------------------
[daggar]Annualized.
*Excludes expenses in excess of a 1.00%
voluntary expense limitation in effect through
December 31, 1994.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
T. Rowe Price Dividend Growth Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the selected per
share data and information (which appears under the heading "Financial
Highlights") present fairly, in all material respects, the financial position
of the T. Rowe Price Dividend Growth Fund, Inc. at December 31, 1994, and the
results of its operations, the changes in its net assets and the selected per
share data and information for each of the fiscal periods presented, in
conformity with generally accepted accounting principles. These financial
statements and selected per share data and information (hereafter referred to
as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1994 by correspondence with
custodians and brokers and, where appropriate, the application of alternative
auditing procedures for unsettled security transactions, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
January 19, 1995
<PAGE>
Shareholder Services
To help shareholders monitor their current investments and make decisions that
accu-rately reflect their financial goals, T. Rowe Price offers a wide variety
of information and services-at no extra cost.
KNOWLEDGEABLE SERVICE
REPRESENTATIVES
BY PHONE-Shareholder service representatives are available from 8:00 a.m. to
10:00 p.m., Monday - Friday, and weekends from 9:00 a.m. to 5:00 p.m., ET.
Call 1-800-225-5132 to speak directly with a representative who will be able
to assist you with your accounts.
IN PERSON-Visit one of our investor center locations to meet with a
representative who
will be able to assist you with your accounts. While there, you can drop off
applications or obtain prospectuses and other literature.
AUTOMATED 24-HOUR SERVICES
Tele*Access[registered mark] (1-800-638-2587) provides information such as
account balance, date and amount of your last transaction, latest dividend
payment, and fund prices and yields. Additionally, you have the ability to
request prospectuses, statements, account and tax forms; reorder checks; and
initiate purchase, redemption, and exchange orders for identi-cally registered
accounts.
PC*Access provides the same information as Tele*Access, but on a personal
computer
via dial-up modem.
ACCOUNT SERVICES
Checking-Write checks for $500 or more on any money market and bond fund
accounts (except the High Yield Fund and Emerging Markets Bond Fund).
Automatic Investing-Build your account over time by investing directly
from your bank account or paycheck with Automatic Asset Builder. Additionally,
Automatic Exchange enables you to set up systematic investments from one fund
account into another, such as from a money fund into a stock fund. A low, $50
minimum makes it easy to get started
Automatic Withdrawal-If you need money from your fund account on a regular
basis,
you can establish scheduled, automatic redemptions.
Dividend and Capital Gains Payment Options-Reinvest all or some of your
distributions or take them in cash. We give you maximum flexibility and
convenience.
INVESTMENT INFORMATION
Combined Statement-A comprehensive overview of your T. Rowe Price
accounts. The summary page gives your earnings by tax category, provides total
portfolio value, and lists your investments by type-stock, bond, and money
market. Detail pages itemize account transactions by fund.
Quarterly Shareholder Reports-Portfolio managers review the performance of
the funds in plain language and discuss T. Rowe Price's economic outlook.
The T. Rowe Price Report-A quarterly newsletter with relevant articles on
market trends, personal financial planning, and T. Rowe Price's economic
perspective.
Insights-A library of information that includes reports on mutual fund tax
issues, investment strategies, and financial markets.
Detailed Investment Guides-Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Retirees Financial Guide, Retirement Planning Kit (also
available on disk for PC use), and Guide to Risk-Adjusted Performance can help
you determine and reach your investment goals.
DISCOUNT BROKERAGE
You can trade stocks, bonds, options, precious metals, and other securities at
a substantial savings over regular commission rates. Call a shareholder
service representative for more information.
<PAGE>
T. Rowe Price No-Load Mutual Funds
STABILITY
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
CONSERVATIVE INCOME
Adjustable Rate U.S. Government
Short-Term Bond
Short-Term Global Income
Summit Limited-Term Bond
U.S. Treasury Intermediate
Florida Insured Intermediate Tax-Free
Maryland Short-Term Tax-Free Bond
Summit Municipal Intermediate
Tax-Free Insured Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
INCOME
Global Government Bond
GNMA
New Income
Spectrum Income
Summit GNMA
U.S. Treasury Long-Term
California Tax-Free Bond
Georgia Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Tax-Free Income
Virginia Tax-Free Bond
AGGRESSIVE INCOME
Emerging Markets Bond
High Yield
International Bond
Tax-Free High Yield
CONSERVATIVE GROWTH
Balanced
Capital Appreciation
Dividend Growth
Equity Income
Equity Index
Growth & Income
Spectrum Growth Value
GROWTH
Blue Chip Growth
European Stock
Growth Stock
International Stock
Japan
Mid-Cap Growth
New Era
Small-Cap Value
AGGRESSIVE GROWTH
Capital Opportunity
International Discovery
Latin America
New America Growth
New Asia
New Horizons
OTC
Science & Technology
PERSONAL STRATEGY FUNDS
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
Call if you want to know about any T. Rowe Price Fund. We'll send you a
prospectus with more complete information, including management fees and other
expenses. Read it carefully before you invest or send money.
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