Annual Report
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week, call:
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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.
Invest With Confidence (registered trademark)
T. Rowe Price
DGF
T. Rowe Price
Dividend Growth Fund
December 31, 1995
Fellow Shareholders
Nineteen ninety-five was a banner year for U.S. financial markets. Strong
corporate earnings growth, moderate inflation, and falling interest rates
combined to provide a nearly perfect environment for stocks. The Standard &
Poor's 500 Stock Index responded with its best annual total return since 1958,
rising 37.6% without as much as a 4% correction along the way. Your investment
in the Dividend Growth Fund appreciated substantially also, rising 31.7%. As
shown below, your fund's six-month and one-year results compared favorably
with the Lipper Growth & Income Fund Average but lagged the unmanaged S&P 500
for the full year.
Performance Comparison
Periods Ended 12/31/95
6 Months 12 Months
_________ _________
Dividend Growth Fund 15.2% 31.7%
S&P 500 14.5 37.6
Lipper Growth & Income
Fund Average 12.0 30.8
Dividend Distribution
On December 26, your Board of Directors declared a fourth quarter dividend of
$0.11 per share, a short-term capital gain of $0.17 per share, and a long-term
capital gain of $0.14 per share. All three were paid on December 28 to
shareholders of record on December 26. You should already have received a
check or statement reflecting these distributions as well as your Form
1099-DIV reporting them for tax purposes.
Three-Year Perspective
The Dividend Growth Fund was launched three years ago because buying stocks of
consistent dividend-growth companies at attractive prices has been a
successful investment approach over long periods of time. We are pleased that
our implementation of this strategy has been reasonably successful so far.
From a total return perspective, the fund's cumulative 60.7% three-year gain
is ahead of both the Lipper Growth & Income Fund Average (45.4%) and the S&P
500 (53.5%). Also important, fund dividends have grown from $0.29 per share in
1993 to $0.36 in 1995. As shown in the chart, investors who purchased shares
at the $10 inception price (and reinvested the dividends and capital gains
into additional shares) have received rising dividends over the ensuing three
years, and their current dividend yield on their original investment has risen
to 4%.
We can't guarantee that the fund's dividends will increase every year,
but over the long term they should continue to rise as our portfolio companies
grow and increase their dividend payments. Indeed, many of our large holdings
have been excellent "dividend achievers" already. Fannie Mae, for instance,
has doubled its dividend over the last three years, and its yield on our
original cost is now over 5%. Travelers Group, too, has increased its payout
by 120% during the last three years, and the stock has more than doubled. We
think dividend growth investing has long-term appeal because, just as with
Fannie Mae and Travelers, stock prices eventually follow earnings and
dividends.
Chart 1 Dividend Growth Fund Yield
Yield is based on the assumption that all dividends and capital gains paid by
the fund are reinvested in additional shares. Dividends paid on the rising
number of shares are expressed as a return on the original $1,000 investment.
Dividend distributions on the investment are $29.29 in 1993, $35.82 in 1994,
and $40.27 in 1995.
1995 Performance Review
As investors lost interest in technology and cyclical stocks during the second
half of 1995, our steady growth companies began to shine. Financial stocks
such as Fannie Mae, Mellon Bank, UNUM, and Travelers turned in spectacular
performances, benefiting from the year-long declines in both short- and
long-term interest rates. Our two largest pharmaceutical holdings, Pfizer and
SmithKline Beecham, also rose handsomely as earnings accelerated and investors
once again began to pay a premium for their predictable growth. Our patience
with Hubbell and General Electric finally paid off as their two-year earnings
prospects became clearer and investors bid up their prices.
One of our worst performers was Vodafone, which gave back all of its
first half gains in the second half. The stock declined because worldwide
cellular telephone subscriber growth slowed more than expected. We bought more
on the decline because we still expect cash flow growth to exceed 15%, and the
stock's valuation is unusually cheap for a company of its kind. A midyear 20%
dividend boost was also a good sign. Other disappointments were American
Greetings and Petrie Stores, both victims of 1995's slowdown in consumer
spending - and both of which we sold.
Portfolio Changes
As the sector diversification chart shows, your fund remained broadly
diversified, and we strive to keep it that way to reduce risk. Three recent
purchases look particularly interesting to us.
Tomkins PLC is a London-based international industrial management
company that owns and operates a variety of businesses ranging from food
products to industrial controls and bicycles. What makes Tomkins special is
management's talent for continuously improving operations and reinvesting its
generous free cash flow into new businesses. We were attracted to it because
earnings and dividends had grown for 12 straight years and the relative
dividend yield was at a five-year high.
Cincinnati Financial is a wonderfully profitable insurance holding
company that has been able to raise its dividend for 34 consecutive years. Its
competitive advantage stems from a lean cost structure, exemplary relations
with its agency force (many of whom sit on the board of directors), and a
successful investment portfolio. After treading water for several years, the
stock looked cheap.
Chart 2 Sector Diversification
Security Capital Industrial Trust is a real estate investment trust that
acquires, develops, and operates distribution and light industrial facilities
in the southern and western regions of the United States. The company combines
a unique blend of real estate, logistics, and construction skills to help its
customers locate and operate facilities for maximum efficiency. We think it
has excellent growth prospects.
Our sales fell into two camps. UST, EXEL Limited, Selective Insurance
Group, and Halliburton were successful investments that had risen to our price
targets. Developers Diversified Realty, General Growth Properties, American
Greetings, and Petrie Stores were situations where growth prospects weakened
and we found more appealing places to invest your money.
Summary and Outlook
Both the economy and corporate earnings growth appeared to slow in the fourth
quarter, and we think both will ease further during the first half of the
year. The Federal Reserve has already begun a program of gradual reductions in
short-term interest rates to stimulate more economic activity. Additionally,
governments in Europe and Japan are reducing interest rates to promote faster
growth as well, so the stage is set for stronger economies in the years ahead.
Like many investors, we were surprised by 1995's powerful stock market
advance, and our caution proved unwarranted. Still, most stocks we examine are
valued at the high end of their historic ranges, and we will continue to be
selective and opportunistic buyers. The federal budget impasse (which we hope
will be resolved before you read this) and potential capital gains legislation
coupled with slowing corporate earnings could lead to more volatility in share
prices and create attractive buying opportunities. Longer term, stocks still
look like a great way to accumulate wealth, and we think our dividend growth
approach will remain productive.
Respectfully submitted,
William J. Stromberg
President and Chairman of the
Investment Advisory Committee
Brian C. Rogers
Executive Vice President
January 17, 1996
A Word on Market Corrections
After the stock market's spectacular run in 1995, concerns about a
"correction" have intensified. Most market observers consider a correction to
be a short and sometimes steep decline following a period of rising prices.
Moderate corrections of around 10% have been quite common, occurring on
average about once every two years over the last half-century, according to
Ned Davis Research.
The market as measured by the Dow Jones Industrial Average has not experienced
a moderate correction since early 1994. Furthermore, the Dow last hit a bear
market bottom - defined as a drop of at least 20% - in October 1990.
Therefore, it would not be surprising to see a modest pullback in 1996, on the
order of 5% to 10%. In fact, as we write, the market has gotten off to a rocky
start.
Corrections not only are common, but can be beneficial for long-term
investors, especially those who invest in regular amounts through dollar cost
averaging. In a correction, overall stock prices decline, often leading to
more attractive valuations and good buying opportunities. History has shown
that investors who continue to buy through a downturn fare quite well. In
fact, the Dow has proven resilient in the aftermath of past corrections of
around 10%, taking an average of just six months to recover its losses,
according to Ned Davis. (To realize the benefits of dollar cost averaging, you
should be prepared to continuously purchase securities over a period of time,
in up and down markets. This approach does not assure a gain nor protect you
from a loss in declining markets.)
We raise the issue of a market correction not as a prediction, but as a
reminder that stock prices do not move in only one direction. If you are
satisfied that your investments are appropriate for your various objectives,
we recommend that you stay the course when a correction eventually occurs.
Twenty-Five Largest Holdings
December 31, 1995
Percent of
Company Net Assets
________________________________________ ____________
Hubbell 3.3%
Fannie Mae 2.4
Vodafone 1.9
UNUM 1.8
Mellon Bank 1.7
Philip Morris 1.7
Royal Dutch Petroleum 1.7
GE 1.6
AlliedSignal 1.5
GTE 1.5
Pfizer 1.4
Great Lakes Chemical 1.4
Mobil 1.3
SmithKline Beecham 1.3
ALLTEL 1.3
PartnerRe Holdings 1.2
Norwest 1.2
Tomkins 1.1
Sara Lee 1.1
PepsiCo 1.1
Kimberly-Clark 1.1
Starwood Lodging 1.1
Exxon 1.0
Travelers Group 1.0
Newell 1.0
Total 36.7%
Major Portfolio Changes
Six Months Ended December 31, 1995
Listed in descending order of size
TEN LARGEST PURCHASES
Xerox*
Tomkins*
SBC Communications*
Cincinnati Financial*
AMP*
Echlin*
Liberty Property Convertible Bond*
AMTROL*
Security Capital Industrial Trust*
Sara Lee
TEN LARGEST SALES
UST**
Developers Diversified Realty**
EXEL**
General Growth Properties**
Meadowbrook Insurance Group**
Selective Insurance
Halliburton**
American Greetings**
Petrie Stores**
Patriot American Hospitality**
* Position added
** Position eliminated
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 12/31/95. 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
With Capital Gains and Income Dividends Annual
Taken in Cash Reinvested in Add'l SharesTotal Return
_______________ ___________________________on Investment
Year Net Capital In- Capital In- Value % Change
Ended Asset Gain come Gain come of __________
12/31 Value Dis- Divi- Dis- Divi- In- Fund S&P
tribu- dends tribu- dends vest- 500
tions1 tions ment
_____ _________________ _____ _____ ______ _____ ______
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
1995 13.81 0.33 0.36 0.37 0.40 16.07 31.7 37.6
_____________________________________________________________________________
Total $0.82 $0.99 $0.88 $1.05
1 Includes short-term capital gains of $0.15 in 1993; $0.29 in 1994; and
$0.17 in 1995.
2 For the period from December 30, 1992, to December 31, 1993.
Chart 3 Performance Comparison
Average Annual Compound Total Return
Periods Ended December 31, 1995
1 Year Since Inception 12/30/92
________ _____________________
31.75% 17.14%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
Statement of Net Assets
T. Rowe Price Dividend Growth Fund / December 31, 1995
(values in thousands)
Value
Common Stocks - 74.3%
FINANCIAL - 14.3%
BANK AND TRUST - 5.4%
12,000 shs BANC ONE. . . . . . . . . . . . . . $ 453
13,000 Integra Financial . . . . . . . . . 819
27,000 Mellon Bank . . . . . . . . . . . . 1,451
6,000 Mercantile Bancorporation . . . . . 276
5,000 NationsBank . . . . . . . . . . . . 348
4,000 Northern Trust. . . . . . . . . . . 223
31,000 Norwest . . . . . . . . . . . . . . 1,023
4,593
INSURANCE - 4.4%
13,000 Cincinnati Financial. . . . . . . . 845
38,000 PartnerRe Holdings. . . . . . . . . 1,038
9,000 Selective Insurance . . . . . . . . 321
27,000 UNUM. . . . . . . . . . . . . . . . 1,485
3,689
FINANCIAL SERVICES - 4.5%
17,000 American Express. . . . . . . . . . 703
16,000 Fannie Mae. . . . . . . . . . . . . 1,986
4,000 Household International . . . . . . 237
14,000 Travelers Group . . . . . . . . . . 880
3,806
Total Financial 12,088
UTILITIES - 6.0%
TELEPHONE - 4.8%
37,000 ALLTEL. . . . . . . . . . . . . . . 1,091
13,000 Bell Atlantic . . . . . . . . . . . 869
28,000 GTE . . . . . . . . . . . . . . . . 1,232
15,000 SBC Communications. . . . . . . . . 863
4,055
ELECTRIC UTILITIES - 1.2%
13,000 General Public Utilities. . . . . . 442
14,000 NIPSCO. . . . . . . . . . . . . . . 536
978
Total Utilities 5,033
CONSUMER NONDURABLES - 14.2%
BEVERAGES - 2.2%
13,000 Anheuser-Busch. . . . . . . . . . . 869
17,000 PepsiCo . . . . . . . . . . . . . . 950
1,819
FOOD PROCESSING - 1.9%
5,000 CPC International . . . . . . . . . 343
5,000 shs Ralston Purina. . . . . . . . . . . $ 312
30,000 Sara Lee. . . . . . . . . . . . . . 956
1,611
HOSPITAL SUPPLIES/HOSPITAL
MANAGEMENT - 0.6%
12,000 Abbott Laboratories . . . . . . . . 501
PHARMACEUTICALS - 5.4%
3,500 American Home Products. . . . . . . 339
9,000 Merck . . . . . . . . . . . . . . . 592
19,000 Pfizer. . . . . . . . . . . . . . . 1,197
16,000 Schering-Plough . . . . . . . . . . 876
20,000 SmithKline Beecham ADR. . . . . . . 1,110
5,000 Warner-Lambert. . . . . . . . . . . 486
4,600
MISCELLANEOUS CONSUMER
PRODUCTS - 4.1%
5,000 Colgate-Palmolive . . . . . . . . . 351
9,000 Duracell International. . . . . . . 466
34,000 Newell. . . . . . . . . . . . . . . 880
16,000 Philip Morris . . . . . . . . . . . 1,448
10,000 Sysco . . . . . . . . . . . . . . . 325
3,470
Total Consumer Nondurables 12,001
CONSUMER SERVICES - 5.5%
GENERAL MERCHANDISERS - 0.8%
5,000 Dayton Hudson . . . . . . . . . . . 375
7,000 May Department Stores . . . . . . . 296
671
ENTERTAINMENT AND LEISURE - 2.1%
7,000 Disney. . . . . . . . . . . . . . . 413
15,000 Reader's Digest (Class B) . . . . . 708
32,000 Sbarro. . . . . . . . . . . . . . . 688
1,809
MEDIA AND COMMUNICATIONS - 2.6%
10,000 Gannett . . . . . . . . . . . . . . 614
45,000 Vodafone ADR. . . . . . . . . . . . 1,586
2,200
Total Consumer Services 4,680
CONSUMER CYCLICALS - 8.0%
AUTOMOBILES AND RELATED - 0.8%
18,000 Echlin. . . . . . . . . . . . . . . 657
BUILDING AND REAL ESTATE - 6.2%
25,000 Chelsea GCA, REIT . . . . . . . . . 750
35,000 shs DeBartolo Realty, REIT. . . . . . . $ 455
21,000 Reckson Associates, REIT. . . . . . 617
35,000 Security Capital Industrial
Trust, REIT . . . . . . . . . . . . 613
45,000 South West Property
Trust, REIT . . . . . . . . . . . . 608
30,000 Starwood Lodging, REIT. . . . . . . 892
36,000 Storage Trust Realty, REIT. . . . . 819
15,000 Storage USA, REIT . . . . . . . . . 489
5,243
MISCELLANEOUS CONSUMER DURABLES - 1.0%
27,000 Corning . . . . . . . . . . . . . . 864
Total Consumer Cyclicals 6,764
TECHNOLOGY - 4.2%
ELECTRONIC COMPONENTS - 0.8%
18,000 AMP . . . . . . . . . . . . . . . . 691
ELECTRONIC SYSTEMS - 0.9%
15,000 Honeywell . . . . . . . . . . . . . 729
OFFICE AUTOMATION - 1.0%
6,000 Xerox . . . . . . . . . . . . . . . 822
AEROSPACE AND DEFENSE - 1.5%
27,000 AlliedSignal. . . . . . . . . . . . 1,283
Total Technology 3,525
CAPITAL EQUIPMENT - 7.2%
ELECTRICAL EQUIPMENT - 5.4%
15,000 AVX . . . . . . . . . . . . . . . . 397
18,500 GE. . . . . . . . . . . . . . . . . 1,332
11,100 Hubbell (Class A) . . . . . . . . . 690
32,000 Hubbell (Class B) . . . . . . . . . 2,104
4,523
MACHINERY - 1.8%
20,000 Alamo Group . . . . . . . . . . . . 360
35,000 AMTROL. . . . . . . . . . . . . . . 547
15,000 Teleflex. . . . . . . . . . . . . . 615
1,522
Total Capital Equipment 6,045
BUSINESS SERVICES AND TRANSPORTATION - 3.2%
COMPUTER SERVICE AND SOFTWARE - 1.8%
22,000 Analysts International. . . . . . . 668
9,000 Automatic Data Processing . . . . . 668
5,000 Reynolds & Reynolds . . . . . . . . 195
1,531
DISTRIBUTION SERVICES - 0.7%
13,000 shs Alco Standard . . . . . . . . . . . $ 593
MISCELLANEOUS BUSINESS SERVICES - 0.7%
20,000 WMX Technologies. . . . . . . . . . 598
Total Business Services and Transportation 2,722
ENERGY - 6.9%
ENERGY SERVICES - 1.4%
15,000 Helmerich & Payne . . . . . . . . . 446
10,000 Schlumberger. . . . . . . . . . . . 693
1,139
INTEGRATED PETROLEUM - DOMESTIC - 0.5%
6,000 Amoco . . . . . . . . . . . . . . . 431
INTEGRATED PETROLEUM -
INTERNATIONAL - 5.0%
11,000 Exxon . . . . . . . . . . . . . . . 881
10,000 Mobil . . . . . . . . . . . . . . . 1,120
25,000 Repsol ADR. . . . . . . . . . . . . 822
10,000 Royal Dutch Petroleum ADR . . . . . 1,411
4,234
Total Energy 5,804
PROCESS INDUSTRIES - 3.1%
DIVERSIFIED CHEMICALS - 0.7%
8,500 DuPont. . . . . . . . . . . . . . . 594
SPECIALTY CHEMICALS - 1.3%
16,000 Great Lakes Chemical. . . . . . . . 1,152
PAPER AND PAPER PRODUCTS - 1.1%
11,000 Kimberly-Clark. . . . . . . . . . . 910
Total Process Industries 2,656
CONGLOMERATES - 1.1%
54,000 Tomkins ADR . . . . . . . . . . . . 965
Total Conglomerates 965
Miscellaneous Common Stocks - 0.6% 496
Total Common Stocks (Cost $48,734) 62,779
Preferred Stocks - 1.6%
3,000 shs California Federal Bank,
10.625%, Series B . . . . . . . . . $ 328
6,000 Cleveland Electric,
$1.88 Adj., Series L. . . . . . . . 423
320 Cleveland Electric,
8.80%, Series R . . . . . . . . . . 282
13,000 Manville, $2.70, Cum.,
Series B. . . . . . . . . . . . . . 327
Total Preferred Stocks (Cost $1,282) 1,360
Convertible Preferred Stocks - 0.6%
16,000 Freeport-McMoRan, Dep. Shs. . . . . 460
Total Convertible Preferred Stocks (Cost $472) 460
Convertible Bonds - 2.0%
$600,000 Liberty Property,
8.00%, 7/1/01 . . . . . . . . . . . 612
Miscellaneous Convertible Bonds 1,086
Total Convertible Bonds (Cost $1,691) 1,698
Corporate Bonds - 2.6%
250,000 American Standard, Sr.
Sub. Deb., 9.875%, 6/1/01 . . . . . 269
35,000 American Standard, Sub.
Deb., 9.25%, 12/1/16. . . . . . . . 36
400,000 Coltec Industries, Sr. Sub.
Deb., 10.25%, 4/1/02. . . . . . . . 411
300,000 Exide, Sr. Notes, 10.00%, 4/15/05 . 326
250,000 Imo Industries, Sr. Sub. Deb.,
12.00%, 11/1/01 . . . . . . . . . . 255
108,000 Imo Industries, Sr. Sub. Deb.,
12.25%, 8/15/97 . . . . . . . . . . 108
120,000 Lear Seating, Sub. Notes 8.25%, 2/1/02 118
200,000 Southern Pacific Rail, Sr.
Notes, 9.375%, 8/15/05. . . . . . . 217
500,000 Texas Bottling Group, Sr. Sub.
Notes, 9.00%, 11/15/03. . . . . . . 495
Total Corporate Bonds (Cost $2,175) 2,235
U.S. Government Mortgage-Backed
Securities - 0.4%
$158,279 Government National Mortgage
Assn., I, 10.00%, 4/15/18 . . . . . $ 175
110,993 Government National Mortgage
Assn., II, 10.50%, 12/20/20 . . . . 123
Total U.S. Government Mortgage-Backed
Securities (Cost $298) 298
Short-Term Investments - 17.8%
COMMERCIAL PAPER - 16.6%
1,000,000 ANZ (Delaware), 5.668%, 2/9/96. . . 986
1,000,000 AT&T, 5.70%, 1/25/96. . . . . . . . 983
1,000,000 Bayer, 4(2), 5.52%, 2/28/96 . . . . 991
1,100,000 Becton Dickinson, 5.80%, 1/18/96. . 1,094
2,000,000 Cargill Global Funding,
5.47%, 3/19/96. . . . . . . . . . . 1,973
2,000,000 Ciesco L.P., 5.53%, 2/27/96 . . . . 1,979
1,000,000 Dean Witter Discover,
5.68%, 1/31/96. . . . . . . . . . . 983
1,000,000 Finnish Export Credit Ltd.,
5.71%, 1/17/96. . . . . . . . . . . 984
1,000,000 Ford Credit Europe,
5.68%, 2/12/96. . . . . . . . . . . 981
1,000,000 Hanson Finance U.K.,
5.47%, 3/20/96. . . . . . . . . . . 986
1,141,415 Investments in Commercial
Paper through a joint account,
5.90-6.05%, 1/2/96. . . . . . . . . 1,141
1,000,000 Vermont American, 4(2),
5.75%, 2/2/96 . . . . . . . . . . . 993
14,074
MEDIUM-TERM NOTES - 1.2%
1,000,000 Morgan Stanley Group,VR,
6.063%, 1/31/96 . . . . . . . . . . 1,000
Total Short-Term Investments (Cost $15,074) 15,074
Total Investments in Securities - 99.3% of Net Assets
(Cost $69,726) $83,904
Other Assets Less Liabilities . . . . . . . . . . 596
______
Net Assets Consist of: Value
_______
Accumulated net realized gain/loss -
net of distributions . . . . . . . . . $ 1,250
Net unrealized gain (loss) . . . . . . . 14,178
Paid-in-capital applicable to 6,119,416 shares
of $0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized. . . . . 69,072
_______
NET ASSETS . . . . . . . . . . . . . $84,500
_________
_________
NET ASSET VALUE PER SHARE. . . . . . . . $13.81
______
______
REIT Real Estate Investment Trust
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."
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price Dividend Growth Fund / Year Ended December 31, 1995
(in thousands)
INVESTMENT INCOME
Income
Dividend . . . . . . . . . . . . . . . $ 1,687
Interest . . . . . . . . . . . . . . . 1,013
___________
Total income . . . . . . . . . . . . . 2,700
___________
Expenses
Investment management. . . . . . . . . 357
Shareholder servicing. . . . . . . . . 169
Custody and accounting . . . . . . . . 101
Registration . . . . . . . . . . . . . 39
Prospectus and shareholder reports . . 25
Legal and audit. . . . . . . . . . . . 22
Directors. . . . . . . . . . . . . . . 9
Miscellaneous. . . . . . . . . . . . . 17
___________
Total expenses . . . . . . . . . . . . 739
___________
Net investment income. . . . . . . . . . 1,961
___________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Securities . . . . . . . . . . . . . . 3,026
Foreign currency transactions. . . . . (6)
___________
Net realized gain (loss) . . . . . . . 3,020
Change in net unrealized gain or
loss on securities . . . . . . . . . . . 13,654
___________
Net realized and unrealized gain (loss) 16,674
___________
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS. . . . . . . . . . . . . $18,635
___________
___________
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Dividend Growth Fund
(in thousands)
Year Ended December 31,
1995 1994
______ ______
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income . . . . . . . . $1,961 $ 1,472
Net realized gain (loss). . . . . . . 3,020 1,673
Change in net unrealized gain or loss 13,654 (2,077)
___________ ___________
Increase (decrease) in net assets
from operations . . . . . . . . . . . 18,635 1,068
___________ ___________
Distributions to shareholders
Net investment income . . . . . . . . (1,982) (1,477)
Net realized gain . . . . . . . . . . (1,923) (1,570)
___________ ___________
Decrease in net assets
from distributions. . . . . . . . . . (3,905) (3,047)
___________ ___________
Capital share transactions*
Shares sold . . . . . . . . . . . . . 26,044 25,974
Distributions reinvested. . . . . . . 3,566 2,798
Shares redeemed . . . . . . . . . . . (13,488) (14,110)
___________ ___________
Increase (decrease) in net assets from
capital share transactions. . . . . . 16,122 14,662
___________ ___________
Net equalization . . . . . . . . . . . 51 52
___________ ___________
Increase (decrease) in net assets. . . 30,903 12,735
NET ASSETS
Beginning of period. . . . . . . . . . 53,597 40,862
___________ ___________
End of period. . . . . . . . . . . . . $84,500 $53,597
___________ ___________
___________ ___________
*Share information
Shares sold . . . . . . . . . . . . . 2,076 2,290
Distributions reinvested. . . . . . . 270 252
Shares redeemed . . . . . . . . . . . (1,081) (1,248)
___________ ___________
Increase (decrease) in
shares outstanding. . . . . . . . . . 1,265 1,294
___________ ___________
___________ ___________
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Dividend Growth Fund / December 31, 1995
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 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.
B) 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.
C) 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.
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 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
A) 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.
B) Other - Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $36,318,000 and $30,619,000,
respectively, for the year ended December 31, 1995.
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, $36,000 of
undistributed net investment income was reclassified as a $40,000 increase to
paid-in-capital and a $4,000 decrease to undistributed net realized gains
during the year ended December 31, 1995. The results of operations and net
assets were not affected by the reclassifications.
At December 31, 1995, the aggregate cost of investments for federal
income tax and financial reporting purposes was $69,726,000 and net unrealized
gain aggregated $14,178,000, of which $14,316,000 related to appreciated
investments and $138,000 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 December 31, 1995. 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, 1995, 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, 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 this agreement,
$5,000 of management fees were not accrued by the fund for the year ended
December 31, 1995. Additionally, $380,000 of unaccrued fees and expenses
related to a previous expense limitation 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.,
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 $193,000 for the year
ended December 31, 1995, of which $21,000 was payable at period-end.
Financial Highlights
T. Rowe Price Dividend Growth Fund
For a share outstanding throughout each period
From
December 30, 1992#
Year Ended December 31, to
1995 1994 December 31, 1993
NET ASSET VALUE,
BEGINNING OF PERIOD. . . $11.04 $11.48 $10.00
______ ______ ______
Investment activities
Net investment income . 0.36** 0.35* 0.29*
Net realized and
unrealized gain (loss). 3.08 (0.11) 1.63
______ ______ ______
Total from investment
activities. . . . . . . 3.44 0.24 1.92
______ ______ ______
Distributions
Net investment income . (0.36) (0.34) (0.29)
Net realized gain . . . (0.31) (0.34) (0.15)
______ ______ ______
Total distributions . . (0.67) (0.68) (0.44)
______ ______ ______
NET ASSET VALUE,
END OF PERIOD. . . . . . $13.81 $11.04 $11.48
______ ______ ______
______ ______ ______
RATIOS/SUPPLEMENTAL DATA
Total return . . . . . . 31.7%** 2.2%* 19.4%*
Ratio of expenses to
average net assets . . . 1.10%** 1.00%* 1.00%!*
Ratio of net investment
income to average
net assets . . . . . . . 2.92%** 3.11%* 2.60%!*
Portfolio turnover rate. 56.1% 71.4% 51.2%!
Net assets,
end of period
(in thousands) . . . . . $84,500 $53,597 $40,862
* Excludes expenses in excess of a 1.00% voluntary expense limitation in
effect through December 31, 1994.
** Excludes expenses in excess of a 1.10% voluntary expense limitation in
effect through December 31, 1996.
! Annualized.
# Commencement of operations.
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 financial
highlights present fairly, in all material respects, the financial position of
T. Rowe Price Dividend Growth Fund, Inc. (the "Fund") at December 31, 1995,
and the results of its operations, the changes in its net assets and the
financial highlights for each of the fiscal periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (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, 1995 by
correspondence with custodians and brokers, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
January 18, 1996
