Semiannual Report
Dividend Growth Fund
June 30, 1996
T. Rowe Price
Report Highlights
o Despite concerns over rising interest rates, U.S. stocks scored
impressive gains in the first half of 1996. Higher-yielding and
defensive stocks, which are important to your fund, lagged.
o Your fund achieved a solid 8.33% advance but trailed its benchmarks for
the first half. For the 12 months, the fund's 24.79% return exceeded its
peer group average but not the S&P 500.
o Many large holdings were top performers, while underperformers included
interest rate-sensitive issues.
o We took advantage of price declines among stocks hurt by rising interest
rates to increase some holdings and establish new ones.
o When the environment for stocks becomes less ideal, the fund should be
favorably positioned because of its focus on strong companies with
superior dividend growth potential.
Fellow Shareholders
U.S. stocks posted solid gains in the first half of 1996, powered by
better-than-expected corporate earnings, moderate inflation, and strong
investor demand. Short- and long-term interest rates rose as accelerating
economic growth led to a sell-off in fixed income markets. Stocks' impressive
returns were particularly notable in light of the rise in interest rates.
Your investment in the Dividend Growth Fund appreciated nicely but trailed the
unmanaged Standard & Poor's 500 Stock Index and the Lipper benchmark average.
For the 12-month period, the fund exceeded its peer group average but not the
S&P 500.
Performance Comparison
Periods Ended 6/30/96 6 Months 12 Months
_____________________________________________________________________________
Dividend Growth Fund 8.33% 24.79%
S&P 500 10.10 26.00
Lipper Growth & Income
Funds Average 9.24 22.13
Distributions
On June 25, your Board of Directors declared a second quarter income dividend
of $0.08 per share payable to shareholders of record on that date. You should
already have received your check or statement reflecting this distribution.
The fund's first quarter distributions included $0.08 of income per share, a
long-term capital gain of $0.02 per share, and a short-term gain of $0.16. All
of these distributions will be reported on Form 1099-DIV mailed to you in
January 1997.
Market and Performance Review
Group leadership changed frequently during the first half, but high-growth
stocks eventually prevailed over our steady dividend growers. The cyclical
natural resources and technology sectors each had its turn in the lead but
eventually faltered. Interest rate-sensitive and higher-yielding defensive
stocks (key holdings for the fund) lagged throughout, hurt by rising interest
rates. The kind of rapidly shifting leadership we have seen often indicates
indecision about the future direction of the economy as investors respond to
short-term news rather than focusing on longer-term trends. Such lack of
conviction is understandable. After over five years of expansion, our economy
appears to be at full employment with just 5.3% of the civilian workforce
unemployed. And after five years of surging earnings growth, corporate profit
margins are near 30-year highs. Investors are naturally questioning how much
better profit margins can get, particularly in sectors most exposed to the
economy.
Many of the fund's largest holdings were also its top performers. Analysts
International, PepsiCo, Starwood Lodging, GE, and AlliedSignal each rose more
than 20%, driven by strong earnings growth. Several of our worst-performing
holdings such as SBC Communications, Bell Atlantic, Storage USA, Storage Trust
Realty, and Tomkins continued to post solid financial results, but their
stocks fell when interest rates rose. Because their fundamentals are still
strong, we expect them to rebound once interest rates settle down. The
long-term appeal of dividend growth investing lies in the belief that stock
prices eventually follow earnings and dividends higher. We are pleased that
many of the fund's significant holdings continued to post strong dividend
increases in the first half, including Vodafone up 17%, Tomkins up 15%,
National City Bank up 13%, Hubbell up 10%, and Mellon Bank up 9%.
Strategy
As the sector diversification chart shows, your fund remained broadly
diversified. Our largest purchase was British Petroleum, whose earnings, cash
flow, and dividends are reaping the benefits of a multi-year restructuring
program. After a recent correction, we thought its valuation was quite
reasonable. We also purchased Richfood Holdings, a highly efficient food
distributor on the East Coast. Its earnings and dividends should grow rapidly
over the next several years as recent acquisitions are assimilated. We know
the management well and believe they will invest the company's substantial
free cash flow wisely. When interest rates rose in the first quarter,
insurance stocks fell across the board, and we bought sizable positions in ACE
Limited and Harleysville Group. Both are financially sound and growing
internally and through acquisitions. After recent price pullbacks we also
added substantially to our holdings of Tomkins, SBC Communications, and
SECURITY CAPITAL PACIFIC TRUST, companies with strong short-term and long-term
prospects and shareholder-oriented managements.
Chart 1 - Sector Diversification
We sold AVX, Alamo Group, and Echlin, each with faltering earnings, as well as
several longer-term winners that reached our target prices. For example, the
stock prices of three energy companies, Exxon, Schlumberger, and Helmerich &
Payne, rose substantially faster than their underlying businesses, and we
thought there were better bargains elsewhere. Our net purchases reduced cash
reserves to 10% of assets from the year-end's unusually high level of 19%.
Summary and Outlook
Investors have benefited from a nearly perfect investment environment over the
last two years as a combination of solid earnings growth, modest inflation,
favorable interest rates, and positive investor sentiment led to
well-above-average equity returns. At some point the environment is bound to
become more challenging and equity returns less thrilling. Your fund's focus
on financially strong companies with leading market share positions and
superior dividend growth potential should position it favorably for a more
challenging environment.
Respectfully submitted,
William J. Stromberg
President and Chairman of the Investment Advisory Committee
Brian C. Rogers
Executive Vice President
July 17, 1996
T. Rowe Price Dividend Growth Fund
Portfolio Highlights
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/96
_____________________________________________________________________________
Hubbell 3.1%
Fannie Mae 2.3
GE 1.8
AlliedSignal 1.7
Mobil 1.7
Vodafone 1.7
British Petroleum 1.6
Mellon Bank 1.6
Tomkins 1.6
UNUM 1.6
Royal Dutch Petroleum 1.5
SBC Communications 1.5
Kimberly-Clark 1.4
Great Lakes Chemical 1.4
PepsiCo 1.3
PartnerRe Holdings 1.3
ALLTEL 1.2
Norwest 1.2
Philip Morris 1.2
Cleveland Electric 1.2
Pfizer 1.1
GTE 1.1
Analysts International 1.1
Newell 1.1
Turner Broadcasting System 1.1
Total 37.4%
T. Rowe Price Dividend Growth Fund
Portfolio Highlights
MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended June 30, 1996
Ten Largest Purchases
_____________________________________________________________________________
British Petroleum*
ACE Limited*
United HealthCare*
Richfood Holdings*
Harleysville Group*
Revco*
Unilever N.V.*
Tomkins
SBC Communications
Security Capital Pacific Trust*
Ten Largest Sales
_____________________________________________________________________________
AVX**
Xerox**
Exxon**
Schlumberger**
Honeywell**
WMX Technologies**
Echlin**
Helmerich & Payne**
BANC ONE**
Alamo Group**
* Position added
** Position eliminated
T. Rowe Price Dividend Growth Fund
Performance Comparison
This chart shows the value of a hypothetical $10,000 investment in the fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or index.
The index return does not reflect expenses, which have been deducted from the
fund's return.
Chart 2 - Dividend Growth Fund
Average Annual Compound Total Return
This table shows how the fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Since Inception
Periods Ended 6/30/96 1 Year 3 Years Inception Date
_____________________________________________________________________________
Dividend Growth Fund 24.79% 16.53% 17.19% 12/30/92
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
T. Rowe Price Dividend Growth Fund
Unaudited
Financial HighlightsFor a share outstanding throughout each period
6 Months Year 12/30/92
Ended Ended to
6/30/96 12/31/95 12/31/94 12/31/93
_____________________________________________________________________________
NET ASSET VALUE
Beginning of period $ 13.81 $ 11.04 $ 11.48 $ 10.00
Investment activities
Net investment
income 0.18** 0.36** 0.35* 0.29*
Net realized and
unrealized
gain (loss) 0.96 3.08 (0.11) 1.63
Total from
investment
activities 1.14 3.44 0.24 1.92
Distributions
Net investment
income (0.16) (0.36) (0.34) (0.29)
Net realized gain (0.18) (0.31) (0.34) (0.15)
Total distri-
butions (0.34) (0.67) (0.68) (0.44)
NET ASSET VALUE
End of period $ 14.61 $ 13.81 $ 11.04 $ 11.48
Ratios/Supplemental Data
Total return 8.33%** 31.75%** 2.16%* 19.41%*
Ratio of expenses to
average net assets 1.10%!** 1.10%** 1.00%* 1.00%!*
Ratio of net investment
income to average
net assets 2.44%!** 2.92%** 3.11%* 2.60%!*
Portfolio turn-
over rate 49.9%! 56.1% 71.4% 51.2%!
Average commission
rate paid $0.1274 - - -
Net assets,
end of period
(in thousands) $112,224 $ 84,500 $53,597 $ 40,862
* Excludes expenses in excess of a 1.00% voluntary expense limitation in
effect through 12/31/94.
** Excludes expenses in excess of a 1.10% voluntary expense limitation in
effect through 12/31/96.
! Annualized.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
Unaudited June 30, 1996
Statement of Net Assets Shares/Par Value
In thousands
Common Stocks 82.6%
FINANCIAL 16.8%
Bank and Trust 5.3%
Fifth Third Bancorp 3,000 $ 162
Marshall & Ilsley 25,000 695
Mellon Bank 31,000 1,767
National City 28,000 984
Northern Trust 17,000 984
Norwest 39,000 1,360
_____________________________________________________________________________
5,952
Insurance 5.8%
ACE Limited 26,000 1,222
Cincinnati Financial 16,000 921
Harleysville Group 40,000 1,160
PartnerRe Holdings ADR 48,000 1,437
UNUM 28,000 1,743
_____________________________________________________________________________
6,483
Financial Services 5.7%
American Express 18,000 803
Associates First Capital * 7,500 282
Fannie Mae 76,000 2,546
H&R Block 15,000 489
Household International 4,000 304
Sallie Mae 11,000 814
Travelers Group 25,500 1,164
_____________________________________________________________________________
6,402
_____________________________________________________________________________
Total Financial 18,837
UTILITIES 6.3%
Telephone 4.6%
ALLTEL 45,000 1,384
Bell Atlantic 13,000 829
GTE 28,000 1,253
SBC Communications 34,000 1,674
_____________________________________________________________________________
5,140
Electric Utilities 1.7%
General Public Utilities 25,000 $ 881
NIPSCO 25,000 1,006
_____________________________________________________________________________
1,887
_____________________________________________________________________________
Total Utilities 7,027
CONSUMER NONDURABLES 18.3%
Beverages 2.4%
Anheuser-Busch 16,000 1,200
PepsiCo 42,000 1,486
_____________________________________________________________________________
2,686
Food Processing 3.3%
Heinz 15,000 456
McCormick 22,000 484
Quaker Oats 20,000 682
Ralston Purina 15,000 962
Sara Lee 34,000 1,101
_____________________________________________________________________________
3,685
Hospital Supplies/Hospital Management 1.6%
Abbott Laboratories 15,000 652
United HealthCare 22,000 1,111
_____________________________________________________________________________
1,763
Pharmaceuticals 4.7%
American Home Products 11,000 661
Merck 9,000 581
Pfizer 18,000 1,285
Schering-Plough 16,000 1,004
SmithKline Beecham 21,000 1,142
Warner-Lambert 11,000 605
_____________________________________________________________________________
5,278
Miscellaneous Consumer Products 6.3%
Colgate-Palmolive 5,000 424
Duracell International 16,000 690
Newell 40,000 1,225
Philip Morris 13,000 1,352
Procter & Gamble 10,000 906
Richfood Holdings 35,000 1,135
Sysco 10,000 $ 343
Unilever N.V. ADR 7,000 1,016
_____________________________________________________________________________
7,091
_____________________________________________________________________________
Total Consumer Nondurables 20,503
CONSUMER SERVICES 4.7%
General Merchandisers 0.3%
May Department Stores 9,000 394
_____________________________________________________________________________
394
Specialty Merchandisers 0.8%
Revco * 36,000 860
_____________________________________________________________________________
860
Entertainment and Leisure 1.4%
Disney 8,000 503
Reader's Digest (Class B) 16,000 630
Sbarro 20,000 502
_____________________________________________________________________________
1,635
Media and Communications 2.2%
Gannett 8,000 566
Vodafone ADR 50,400 1,858
_____________________________________________________________________________
2,424
_____________________________________________________________________________
Total Consumer Services 5,313
CONSUMER CYCLICALS 7.9%
Building and Real Estate 6.9%
Chelsea GCA, REIT 27,000 857
DeBartolo Realty, REIT 50,000 806
Masco 5,000 151
Reckson Associates, REIT 35,000 1,155
Security Capital Industrial Trust, REIT 50,000 881
SECURITY CAPITAL PACIFIC TRUST, REIT 45,000 979
South West Property Trust, REIT 45,000 602
Starwood Lodging, REIT 29,000 1,055
Storage Trust Realty, REIT 36,000 738
Storage USA, REIT 15,000 484
_____________________________________________________________________________
7,708
Miscellaneous Consumer Durables 1.0%
Corning 29,000 $ 1,113
_____________________________________________________________________________
1,113
_____________________________________________________________________________
Total Consumer Cyclicals 8,821
TECHNOLOGY 2.4%
Electronic Components 0.7%
AMP 19,000 763
_____________________________________________________________________________
763
Aerospace and Defense 1.7%
AlliedSignal 34,000 1,942
_____________________________________________________________________________
1,942
_____________________________________________________________________________
Total Technology 2,705
CAPITAL EQUIPMENT 7.4%
Electrical Equipment 4.9%
GE 23,000 1,989
Hubbell (Class A) 19,000 1,183
Hubbell (Class B) 35,000 2,319
_____________________________________________________________________________
5,491
Machinery 2.5%
AMTROL 39,000 853
Cooper Industries 20,000 830
Teleflex 25,000 1,194
_____________________________________________________________________________
2,877
_____________________________________________________________________________
Total Capital Equipment 8,368
BUSINESS SERVICES AND
TRANSPORTATION 4.2%
Computer Service and Software 2.1%
Analysts International 30,000 1,241
Automatic Data Processing 22,000 850
Reynolds & Reynolds 6,000 319
_____________________________________________________________________________
2,410
Distribution Services 0.5%
Alco Standard 13,000 588
_____________________________________________________________________________
588
Environmental 0.6%
Rentokil Group (GBP) 115,000 $ 730
_____________________________________________________________________________
730
Miscellaneous Business Services 0.6%
RPM 40,000 628
_____________________________________________________________________________
628
Railroads 0.4%
Conrail 6,000 398
_____________________________________________________________________________
398
_____________________________________________________________________________
Total Business Services and Transportation 4,754
ENERGY 5.6%
Integrated Petroleum - Domestic 1.6%
British Petroleum ADR 17,000 1,817
_____________________________________________________________________________
1,817
Integrated Petroleum - International 4.0%
Mobil 17,000 1,906
Repsol ADR 25,000 869
Royal Dutch Petroleum ADR 11,000 1,691
_____________________________________________________________________________
4,466
_____________________________________________________________________________
Total Energy 6,283
PROCESS INDUSTRIES 4.5%
Diversified Chemicals 0.4%
DuPont 6,000 475
_____________________________________________________________________________
475
Specialty Chemicals 1.9%
Great Lakes Chemical 25,000 1,556
Nalco Chemical 20,000 630
_____________________________________________________________________________
2,186
Paper and Paper Products 2.2%
Consolidated Papers 16,000 832
Kimberly-Clark 21,000 1,622
_____________________________________________________________________________
2,454
_____________________________________________________________________________
Total Process Industries 5,115
CONGLOMERATES 1.6%
Tomkins ADR 115,000 $ 1,754
_____________________________________________________________________________
Total Conglomerates 1,754
_____________________________________________________________________________
Miscellaneous Common Stocks 2.9% 3,251
_____________________________________________________________________________
Total Common Stocks (Cost $75,021) 92,731
Preferred Stocks 1.4%
California Federal Bank, 10.625%, Series B 3,000 328
Cleveland Electric, $1.88 Adj., Series L 14,000 994
Cleveland Electric, 8.80%, Series R 320 302
_____________________________________________________________________________
Total Preferred Stocks (Cost $1,543) 1,624
Convertible Preferred Stocks 0.6%
Freeport-McMoRan, Dep. Shs. 16,000 496
Security Capital Industrial Trust 7,000 162
_____________________________________________________________________________
Total Convertible Preferred Stocks (Cost $631) 658
Convertible Bonds 2.0%
ALZA, LYONS, Zero Coupon, 7/14/14 $ 800,000 344
Liberty Property, 8.00%, 7/1/01 600,000 618
Turner Broadcasting System, LYONS,
Zero Coupon, 2/13/07 2,600,000 1,222
_____________________________________________________________________________
Total Convertible Bonds (Cost $2,160) 2,184
Corporate Bonds 1.6%
American Standard, Sub. Deb., 9.875%, 6/1/01250,000 257
American Standard, Sub. Deb., 9.25%, 12/1/1635,000 35
Coltec Industries, Sr. Sub. Notes,
10.25%, 4/1/02 400,000 406
El Paso Electric, 1st Mtg. Notes, 9.40%, 5/1/11300,000 297
Lear Seating, Sub. Notes, 8.25%, 2/1/02 120,000 114
Southern Pacific Rail, Sr. Sub. Notes,
9.375%, 8/15/05 200,000 208
Texas Bottling Group, Sr. Sub. Notes,
9.00%, 11/15/03 500,000 485
_____________________________________________________________________________
Total Corporate Bonds (Cost $1,813) 1,802
U.S. Government Mortgage-Backed
Securities 0.2%
Government National Mortgage Assn.
I, 10.00%, 4/15/18 $ 140,428 $ 153
II, 10.50%, 12/20/20 92,813 103
_____________________________________________________________________________
Total U.S. Government Mortgage-Backed
Securities (Cost $258) 256
U.S. Government Obligations 1.5%
U.S. Treasury Notes
5.625%, 2/15/06 500,000 464
5.75%, 8/15/03 400,000 381
6.375%, 5/15/99 500,000 501
6.50%, 5/31/01 300,000 300
_____________________________________________________________________________
Total U.S. Government Obligations (Cost $1,630) 1,646
Short-Term Investments 11.0%
Commercial Paper 10.1%
Countrywide Funding, 5.35%, 7/9/96 2,000,000 1,998
General Electric Capital, 5.28%, 7/2/96 2,000,000 2,000
Investments in Commercial Paper through
a joint account,
5.49 - 5.68%, 7/1/96 2,276,594 2,277
National Rural Utilities Cooperative Finance,
5.35%, 7/8/96 1,435,000 1,433
Preferred Receivables Funding, 5.32%, 7/2/962,000,000 2,000
Tasmanian Public Finance, 5.10%, 7/15/961,000,000 998
Wisconsin Electric Power Company, 5.30%, 7/8/96610,000 609
_____________________________________________________________________________
11,315
Medium-Term Notes 0.9%
Morgan Stanley Group, VR, 5.613%, 1/31/971,000,000 1,000
_____________________________________________________________________________
1,000
_____________________________________________________________________________
Total Short-Term Investments (Cost $12,315) 12,315
_____________________________________________________________________________
Total Investments in Securities
100.9% of Net Assets (Cost $95,371) $ 113,216
Other Assets Less Liabilities (992)
NET ASSETS $ 112,224
Net Assets Consist of:
Accumulated net investment income - net of distributions$ 100
Accumulated net realized gain/loss - net of distributions2,877
Net unrealized gain (loss) 17,845
Paid-in-capital applicable to 7,681,105 shares of
$0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized 91,402
NET ASSETS $ 112,224
NET ASSET VALUE PER SHARE $ 14.61
* Non-income producing
REIT Real Estate Investment Trust
VR Variable rate
GBP British sterling
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
Unaudited
Statement of Operations
In thousands
6 Months
Ended
6/30/96
_____________________________________________________________________________
Investment Income
Income
Dividend $ 1,153
Interest 580
Total income 1,733
Expenses
Investment management 261
Shareholder servicing 128
Custody and accounting 54
Registration 24
Legal and audit 9
Prospectus and shareholder reports 5
Directors 4
Miscellaneous 8
Reimbursed to Manager 46
Total expenses 539
Net investment income 1,194
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 2,848
Foreign currency transactions 1
Net realized gain (loss) 2,849
Change in net unrealized gain or
loss on securities 3,667
Net realized and unrealized gain (loss) 6,516
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 7,710
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
Unaudited
Statement of Changes in Net Assets
In thousands
6 Months Year
Ended Ended
6/30/96 12/31/95
_____________________________________________________________________________
Increase (Decrease) in Net Assets
Operations
Net investment income $ 1,194 $ 1,961
Net realized gain (loss) 2,849 3,020
Change in net unrealized gain or loss 3,667 13,654
Increase (decrease) in net assets
from operations 7,710 18,635
Distributions to shareholders
Net investment income (1,153) (1,982)
Net realized gain (1,222) (1,923)
Decrease in net assets from distributions (2,375) (3,905)
Capital share transactions*
Shares sold 36,215 26,044
Distributions reinvested 2,168 3,566
Shares redeemed (16,053) (13,488)
Increase (decrease) in net assets from
capital share transactions 22,330 16,122
Net equalization 59 51
Net Assets
Increase (decrease) during period 27,724 30,903
Beginning of period 84,500 53,597
End of period $ 112,224 $ 84,500
*Share information
Shares sold 2,541 2,076
Distributions reinvested 152 270
Shares redeemed (1,131) (1,081)
Increase (decrease) in shares outstanding 1,562 1,265
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
Unaudited June 30, 1996
Notes to Financial Statements
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 and commenced operations on December 30, 1992.
Valuation Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price at the time 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 that are not traded on a particular day
and securities that are regularly traded in the over-the-counter market are
valued at the mean of the latest bid and asked prices. Other equity securities
are valued at a price within the limits of the latest bid and asked prices
deemed by the Board of 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.
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 other than
mortgage-backed securities, are amortized for both financial reporting and tax
purposes. Premiums and discounts on mortgage-backed securities are recognized
upon principal repayment as gain or loss for financial reporting purposes and
as ordinary income for 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. 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
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 $45,039,000 and $21,043,000,
respectively, for the six months ended June 30, 1996.
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, 1996, the aggregate cost of investments for federal income tax and
financial reporting purposes was $95,371,000, and net unrealized gain
aggregated $17,845,000, of which $18,440,000 related to appreciated
investments and $595,000 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 $48,000 was payable at June 30, 1996. 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 0.305% for assets in excess of $50
billion. At June 30, 1996, and for the six months then ended, the effective
annual group fee rate was 0.33% and 0.34%, respectively. 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, 1996, which would cause the
fund's ratio of expenses to average net assets to exceed 1.10%. Thereafter,
through December 31, 1998, 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 a previous
agreement, $46,000 of unaccrued 1992-1994 fees were repaid during the six
months ended June 30, 1996, and $333,000 remains subject to reimbursement
through December 31, 1996. Additionally, $5,000 of unaccrued management fees
related to the current limitation are subject to reimbursement through
December 31,1998.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund receives
certain other services. The manager computes the daily share price and
maintains the financial records of the fund. T. Rowe Price Services, Inc., is
the fund's transfer and dividend disbursing agent and provides shareholder and
administrative services to the fund. T. Rowe Price Retirement Plan Services,
Inc., provides subaccounting and recordkeeping services for certain retirement
accounts invested in the fund. The fund incurred expenses pursuant to these
related party agreements totaling approximately $130,000 for the six months
ended June 30, 1996, of which $22,000 was payable at period-end.
T. Rowe Price Shareholder Services
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety
of information and services - at no extra cost.
Knowledgeable Service Representatives
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10
p.m. and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
Account Services
Checking Available on most fixed income funds.
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and T.
Rowe Price OnLine.
Discount Brokerage*
Individual Securities Stocks, bonds, options, precious metals, and other
securities at a savings over regular commission rates.
Investment Information
Combined Statement An overview of your T. Rowe Price accounts.
Shareholder Reports Fund managers' reviews of their strategies and results.
The T. Rowe Price Report A quarterly investment newsletter discussing markets
and financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Personal
Strategy Planner, Retirees Financial Guide, and Retirement Planning Kit.
*T. Rowe Price Discount Brokerage is a division of T. Rowe Price Investment
Services, Inc. Member NASD/SIPC.
For yield, price, last transaction, and current balance, 24 hours, 7 days a
week, call:
1-800-638-2587 toll free
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 distribution only to shareholders and to others
who have received a copy of the prospectus of the T. Rowe Price Dividend
Growth Fund.
Invest With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., DistributorRPRTDGF 6/30/96
Chart 1 - Sector Diversification Pie Chart - Consumer 26%, Reserves 10%,
Financial 18%, Utilities 8%, Capital Equipment 8%, Energy 6%, REITs 8%, Other
16%.
Chart 2 - Dividend Growth Fund - A line chart showing the cumulative growth of
$10,000 invested in the Dividend Growth Fund from inception compared with
$10,000 invested in a broad-based index over the same period.
