<PAGE>
Semiannual Report
DIVIDEND
GROWTH
FUND
- -------------
June 30, 1997
- -------------
[LOGO OF T. ROWE PRICE APPEARS HERE]
<PAGE>
REPORT HIGHLIGHTS
- -----------------------------
Dividend Growth Fund
. After a dull first quarter, U.S. stocks surged in the second quarter in an
almost-ideal economic environment.
. The fund provided a strong total return for the six months ended June 30, in
line with its Lipper group average but, reflecting its conservative bias,
trailing the S&P 500.
. Financial services companies reporting strong earnings were among the
portfolio's best performers.
. The fund more than doubled in size during the first half, reflecting
appreciation and strong cash inflows.
. In light of the market's high valuation, we remain cautious and will closely
monitor downside risk as we search for promising investments.
<PAGE>
Fellow Shareholders
U.S. stocks rose sharply in the first half of 1997 as strong corporate earnings,
tame inflation, falling interest rates, and favorable investor sentiment created
an optimal environment for stocks. The 20.6% return of the unmanaged Standard &
Poor's 500 Stock Index was particularly impressive coming on top of big gains in
1995 and 1996. In fact, the index's 104% return over the last two and a half
years was its best performance since a similar period from 1954 through mid-
1956.
- ----------------------
Performance Comparison
- ----------------------
<TABLE>
<CAPTION>
Periods Ended 6/30/97 6 Months 12 Months
- ----------------------------------------------
<S> <C> <C>
Dividend Growth Fund 15.23% 33.34%
..............................................
S&P 500 20.61 34.70
..............................................
Lipper Growth & Income
Funds Average 15.52 28.07
..............................................
</TABLE>
Your investment in the Dividend Growth Fund rose 15.23% in the first half,
behind the broad market but in line with the Lipper average of comparable funds.
Over the 12-month period, the fund returned 33.34%, just behind the S&P 500 but
well ahead of its peer group average.
DISTRIBUTIONS
On June 25, your Board of Directors declared a second quarter income dividend of
$0.09 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 $0.10 of income per share, a long-
term capital gain of $0.08 per share, and a short-term gain of $0.07. All of
these will be reported on the Form 1099-DIV mailed to you in January 1998.
INVESTMENT ENVIRONMENT
The U.S. economy's first quarter surge initially caused interest rates to rise
and stocks to flatten out as investors feared the higher inflation that often
accompanies rapid growth. Alan Greenspan and the Federal
1
<PAGE>
Reserve showed their concern by raising the federal funds rate a notch, but
subsequent data continued to confirm modest and still slowing inflation. Bond
and stock investors rejoiced.
As the second quarter got under way, investors were experiencing an unusually
potent combination of broad-based economic growth and minimal inflation. Short-
and long-term interest rates soon dropped, and stocks surged. The S&P 500
checked in with a 17.46% second quarter gain, its best second quarter
performance since 1938. The largest and most expensive stocks in the index
provided the bulk of the gains, as investors became more willing to pay a high
price for the predictability of earnings offered by companies like Coca-Cola,
Procter & Gamble, and GE.
PORTFOLIO REVIEW
We are generally pleased with the fund's performance. Because of our emphasis
on dividends and companies with moderate valuations, Dividend Growth often lags
the broad market during periods of rapid price increases but catches up in more
difficult environments. We believe the fund is well positioned for the more
challenging environment that we think lies ahead.
Several of our best-performing stocks were financial services companies. Fannie
Mae, EXEL, ACE Limited, Erie Indemnity, and Mellon Bank all rose sharply as
their collectively strong earnings were rewarded with higher price/earnings
multiples. The fund also benefited from three restructuring situations. SPX and
Stanley Works both surged after new management teams--former GE executives in
both cases--announced major steps to improve shareholder value. Also, our ADT
Operations convertible bond holdings nearly doubled after the company accepted a
merger offer from Tyco International. Our worst performers, including Unisource
Worldwide, Tupperware, Reader's Digest, and Reynolds & Reynolds, fell primarily
because of deteriorating operating results, and we decided to sell most of the
fund's holdings in these stocks. Experience has taught us that deteriorating
earnings often take a long time to repair, and, if caught early, are often
reasonable points at which to sell.
New cash flows more than doubled the fund's size in the first half, and we
welcome all of our new shareholders. We invested this cash in
2
<PAGE>
shares of leading companies with consistent earnings, cash flow, and dividend
growth potential. Because of unusually high valuations prevalent in the market
today, we took particular care to limit downside risk.
Three purchases struck us as having particularly favorable risk/reward outlooks.
American Stores, a national food and drug store chain, is rapidly reducing costs
and improving its operating profits. We look for double-digit earnings, cash
flow, and dividend growth over the next three years. Mid Ocean Limited is a
financially strong specialty reinsurance company that generates significant
excess capital. Management pays a hefty portion to shareholders in the form of
dividends but also recently completed a large acquisition that should bolster
long-term growth opportunities. Teco Energy is the parent company of Tampa
Electric and a host of other energy-related companies based in Florida. It
boasts a record of 37 consecutive years of dividend growth--a record we expect
to continue. Like many other electric utilities, Teco had gone relatively
unnoticed over the last three years and looked cheap to us. Because of their
attractive relative valuations, electric utility investments have now risen to
5% of the fund's assets, pushing our total utility position (includes telephone
services) to 9%.
There were no major changes in the fund's industry diversification over the past
six months. Likewise, the fund's overall asset allocation remained about the
same with 82% in common stocks, 4% in convertible securities, 4% in bonds and
preferred stock, and 10% in cash reserves.
- ----------------------
Sector Diversification
- ----------------------
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Financial 17%
Consumer 27%
Reserves 10%
Other 18%
Capital Equipment 5%
Utilities 9%
REITS 8%
Business Services and Transportation 6%
</TABLE>
Based on net assets as of 6/30/97.
SUMMARY AND OUTLOOK
In our 1996 annual report we warned that valuations had become quite high and
that we should expect a potentially bumpy 1997.
3
<PAGE>
Although our caution has proved unwarranted so far, we remain wary. Stock prices
have risen much faster than earnings and dividends in the 1990s, and stocks look
expensive by most yardsticks. So, as we continue our search for great dividend
growth companies, we will be paying as much attention to downside risk as to
upside potential.
Thank you for your continuing support.
Respectfully submitted,
/s/ William J. Stromberg
William J. Stromberg
President and Chairman of the Investment Advisory Committee
July 18, 1997
- --------------------
Portfolio Highlights
- --------------------
MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 6/30/97
<TABLE>
<CAPTION>
Ten Largest Purchases Ten Largest Sales
- ------------------------------------------------------------------------------------
<S> <C>
Time Warner LYONs * Burlington Northern Santa Fe **
.......................................... ....................................
Fannie Mae Kilroy Realty **
.......................................... ....................................
Security Capital Industrial Trust Endemol Entertainment **
.......................................... ....................................
American Stores * Unisource Worldwide **
.......................................... ....................................
Corporate Express Cv. Bond * UST **
.......................................... ....................................
Valspar * Tupperware **
.......................................... ....................................
Teco Energy * SPX
.......................................... ....................................
Mid Ocean Limited Turner Broadcasting Systems LYONs **
.......................................... ....................................
Hercules * Petrolite **
.......................................... ....................................
Mobil Repsol ADR **
.......................................... ....................................
</TABLE>
* Position added
** Position eliminated
4
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
- --------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/97
- -------------------------------------------------------------------------------
<S> <C>
Fannie Mae 2.1%
...............................................................................
Time Warner LYONs 1.8
...............................................................................
Mobil 1.8
...............................................................................
ACE Limited 1.6
...............................................................................
Security Capital Industrial Trust 1.6
- -------------------------------------------------------------------------------
Mid Ocean Limited 1.5
...............................................................................
SBC Communications 1.5
...............................................................................
Mellon Bank 1.4
...............................................................................
AlliedSignal 1.4
...............................................................................
EXEL 1.3
- -------------------------------------------------------------------------------
American Stores 1.3
...............................................................................
Philip Morris 1.2
...............................................................................
Hubbell 1.2
...............................................................................
Corporate Express 1.1
...............................................................................
British Petroleum 1.1
- -------------------------------------------------------------------------------
Valspar 1.1
...............................................................................
Tomkins 1.1
...............................................................................
Teco Energy 1.1
...............................................................................
Sara Lee 1.1
...............................................................................
Royal Dutch Petroleum 1.0
- -------------------------------------------------------------------------------
Great Lakes Chemical 1.0
...............................................................................
Kimberly-Clark 1.0
...............................................................................
Newmont Mining 0.9
...............................................................................
Hercules 0.9
...............................................................................
ALLTEL 0.9
- -------------------------------------------------------------------------------
Total 32.0%
</TABLE>
5
<PAGE>
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.
[LINE GRAPH APPEARS HERE]
DIVIDEND GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE S&P 500 INDEX DIVIDEND GROWTH FUND
<S> <C> <C>
12/30/92 10,000 10,000
06/93 10,487 11,001
06/94 10,634 11,680
06/95 13,408 13,952
06/96 16,894 17,410
06/97 22,756 23,216
</TABLE>
- ------------------------------------
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how the fund would have performed if its actual (or cumulative)
returns for the periods shown had been earned at a constant rate each year.
<TABLE>
<CAPTION>
Since Inception
Periods Ended 6/30/97 1 Year 3 Years Inception Date
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend Growth Fund 33.34% 25.73% 20.61% 12/30/92
.............................................................................
</TABLE>
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
6
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
Unaudited
- --------------------
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 Months Year 12/30/92
Ended Ended Through
6/30/97 12/31/96 12/31/95 12/31/94 12/31/93
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 16.37 $ 13.81 $ 11.04 $ 11.48 $ 10.00
...........................................................................
Investment activities
Net investment income 0.20 0.35 0.36** 0.35* 0.29*
Net realized and
unrealized gain (loss) 2.27 3.08 3.08 (0.11) 1.63
...........................................................................
Total from
investment activities 2.47 3.43 3.44 0.24 1.92
...........................................................................
Distributions
Net investment income (0.19) (0.36) (0.36) (0.34) (0.29)
Net realized gain (0.15) (0.51) (0.31) (0.34) (0.15)
...........................................................................
Total distributions (0.34) (0.87) (0.67) (0.68) (0.44)
...........................................................................
NET ASSET VALUE
End of period $ 18.50 $ 16.37 $ 13.81 $ 11.04 $ 11.48
---------------------------------------------------------------------------
Ratios/Supplemental Data
Total return 15.23% 25.36% 31.75%** 2.16%* 19.41%*
...........................................................................
Ratio of expenses to
average net assets 0.85%+ 1.10% 1.10%** 1.00%* 1.00%*+
...........................................................................
Ratio of net investment
income to average
net assets 2.36%+ 2.53% 2.92%** 3.11%* 2.60%*+
...........................................................................
Portfolio turnover rate 45.2%+ 43.1% 56.1% 71.4% 51.2%+
...........................................................................
Average commission
rate paid $ 0.0447 $ 0.0478 - - -
...........................................................................
Net assets, end of period
(in thousands) $ 548,220 $ 209,498 $ 84,500 $ 53,597 $ 40,862
...........................................................................
</TABLE>
* 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.
7
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1997
<TABLE>
<CAPTION>
- -----------------------
Statement of Net Assets Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Common Stocks 82.1%
FINANCIAL 17.3%
Bank and Trust 4.3%
BANC ONE 100,000 $ 4,844
..............................................................................
Marshall & Ilsley 30,000 1,220
..............................................................................
Mellon Bank 170,000 7,671
..............................................................................
National City 40,000 2,100
..............................................................................
Norwest 85,000 4,781
..............................................................................
Washington Mutual 50,000 2,989
..............................................................................
23,605
...........
Insurance 9.5%
ACE Limited 120,000 8,865
..............................................................................
AmerUs Life 75,000 2,086
..............................................................................
Erie Indemnity 128,300 5,004
..............................................................................
EXEL 140,000 7,385
..............................................................................
Harleysville Group 70,000 2,664
..............................................................................
Mid Ocean Limited 160,000 8,390
..............................................................................
Nationwide Financial Services (Class A) 110,000 2,922
..............................................................................
PartnerRe Holdings 120,000 4,575
..............................................................................
St. Paul Companies 65,000 4,956
..............................................................................
UNUM 80,000 3,360
..............................................................................
Willis-Corroon ADR 140,000 1,566
..............................................................................
51,773
...........
Financial Services 3.5%
American Express 20,000 1,490
..............................................................................
Fannie Mae 270,000 11,779
..............................................................................
H&R Block 70,000 2,257
..............................................................................
Travelers Group 60,000 3,784
..............................................................................
19,310
...........
Total Financial 94,688
...........
UTILITIES 7.9%
Telephone Services 3.6%
ALLTEL 150,000 5,016
..............................................................................
BellSouth 70,000 3,246
..............................................................................
</TABLE>
8
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
SBC Communications 130,000 $ 8,044
..............................................................................
Sprint 60,000 3,157
..............................................................................
19,463
...........
Electric Utilities 4.3%
DQE 150,000 4,238
..............................................................................
Duke Energy 100,000 4,794
..............................................................................
FPL Group 70,000 3,224
..............................................................................
GPU 50,000 1,794
..............................................................................
NIPSCO 90,000 3,718
..............................................................................
Teco Energy 230,000 5,879
..............................................................................
23,647
...........
Total Utilities 43,110
...........
CONSUMER NONDURABLES 17.4%
Cosmetics 1.0%
Gillette 18,000 1,706
..............................................................................
International Flavors & Fragrances 70,000 3,535
..............................................................................
5,241
...........
Beverages 1.3%
Anheuser-Busch 50,000 2,097
..............................................................................
PepsiCo 130,000 4,883
..............................................................................
6,980
...........
Food Processing 4.1%
Cadbury Schweppes (GBP) 450,000 4,017
..............................................................................
General Mills 45,000 2,931
..............................................................................
McCormick 130,000 3,290
..............................................................................
Nabisco Holdings (Class A) 110,000 4,386
..............................................................................
Ralston Purina 25,000 2,055
..............................................................................
Sara Lee 140,000 5,827
..............................................................................
22,506
...........
Hospital Supplies/Hospital Management 0.8%
Abbott Laboratories 25,000 1,669
..............................................................................
Allergan 80,000 2,545
..............................................................................
4,214
...........
Pharmaceuticals 3.3%
American Home Products 65,000 4,972
..............................................................................
Johnson & Johnson 45,000 2,897
..............................................................................
Merck 20,000 2,070
..............................................................................
</TABLE>
9
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Pfizer 30,000 $ 3,585
................................................................................
Schering-Plough 50,000 2,394
................................................................................
SmithKline Beecham ADR 26,000 2,382
................................................................................
18,300
.............
Miscellaneous Consumer Products 6.9%
Colgate-Palmolive 60,000 3,915
................................................................................
Mattel 120,000 4,065
................................................................................
Newell 110,000 4,359
................................................................................
Philip Morris 145,000 6,434
................................................................................
Richfood Holdings 125,000 3,250
................................................................................
Service Corp. International 120,000 3,945
................................................................................
Stanley Works 80,000 3,200
................................................................................
Sysco 75,000 2,738
................................................................................
Tomkins (GBP) 800,000 3,490
................................................................................
Unilever N.V. ADR 12,000 2,616
................................................................................
38,012
.............
Total Consumer Nondurables 95,253
.............
CONSUMER SERVICES 6.5%
General Merchandisers 0.6%
Warnaco Group (Class A) 110,000 3,506
................................................................................
3,506
.............
Specialty Merchandisers 1.3%
American Stores 140,000 6,913
................................................................................
6,913
.............
Entertainment and Leisure 1.5%
Carnival ADR (Class A) 110,000 4,537
................................................................................
Disney 20,000 1,605
................................................................................
Reader's Digest (Class B) 80,000 2,215
................................................................................
8,357
.............
Media and Communications 3.1%
Gannett 30,000 2,962
................................................................................
Knight-Ridder 70,000 3,434
................................................................................
R.R. Donnelley 105,000 3,846
................................................................................
TCA Cable TV 85,000 3,193
................................................................................
Vodafone ADR 70,000 3,391
................................................................................
16,826
.............
Total Consumer Services 35,602
.............
</TABLE>
10
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
CONSUMER CYCLICALS 10.8%
Automobiles and Related 1.3%
Genuine Parts 125,000 $ 4,234
................................................................................
SPX 50,000 3,241
................................................................................
7,475
.............
Building and Real Estate 7.2%
Arden Realty Group 120,000 3,120
................................................................................
Chelsea GCA, REIT 120,000 4,560
................................................................................
Franchise Finance 140,000 3,649
................................................................................
Nationwide Health Properties 170,000 3,740
................................................................................
Reckson Associates Realty, REIT 80,000 1,840
................................................................................
Security Capital Industrial Trust, REIT 400,000 8,600
................................................................................
SECURITY CAPITAL PACIFIC TRUST, REIT 210,000 4,804
................................................................................
Starwood Lodging, REIT 84,400 3,603
................................................................................
Storage USA, REIT 50,000 1,912
................................................................................
United Dominion Realty Trust, REIT 250,000 3,547
................................................................................
39,375
.............
Miscellaneous Consumer Durables 2.3%
Corning 50,000 2,781
................................................................................
Masco 90,000 3,758
................................................................................
Valspar 200,000 5,925
................................................................................
12,464
.............
Total Consumer Cyclicals 59,314
.............
TECHNOLOGY 1.9%
Electronic Systems 0.5%
Hewlett-Packard 55,000 3,080
................................................................................
3,080
.............
Aerospace and Defense 1.4%
AlliedSignal 90,000 7,560
................................................................................
7,560
.............
Total Technology 10,640
.............
CAPITAL EQUIPMENT 4.9%
Electrical Equipment 2.9%
GE 54,000 3,530
................................................................................
</TABLE>
11
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Hubbell (Class A) 80,000 $ 3,340
................................................................................
Hubbell (Class B) 70,000 3,080
................................................................................
Tomkins ADR 330,000 5,899
................................................................................
15,849
.............
Machinery 2.0%
Danaher 50,000 2,541
................................................................................
Teleflex 120,000 3,750
................................................................................
TriMas 160,000 4,500
................................................................................
10,791
.............
Total Capital Equipment 26,640
.............
BUSINESS SERVICES AND
TRANSPORTATION 4.6%
Computer Service and Software 1.2%
Analysts International 120,000 4,020
................................................................................
Automatic Data Processing 55,000 2,585
................................................................................
6,605
.............
Distribution Services 0.4%
Ikon Office Solutions 90,000 2,245
................................................................................
2,245
.............
Environmental 0.9%
Rentokil Group (GBP) 1,400,000 4,910
................................................................................
4,910
.............
Miscellaneous Business Services 2.1%
Interpublic Group 40,000 2,452
................................................................................
Omnicom 50,000 3,081
................................................................................
RPM 170,000 3,145
................................................................................
Wallace Computer Services 105,000 3,157
................................................................................
11,835
.............
Total Business Services and Transportation 25,595
.............
ENERGY 4.4%
Integrated Petroleum - Domestic 1.1%
British Petroleum ADR 82,000 6,140
................................................................................
6,140
.............
Integrated Petroleum - International 3.3%
Mobil 140,000 9,782
................................................................................
</TABLE>
12
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Royal Dutch Petroleum ADR 104,000 $ 5,655
................................................................................
Texaco 25,000 2,719
................................................................................
18,156
.............
Total Energy 24,296
.............
PROCESS INDUSTRIES 2.8%
Diversified Chemicals 0.9%
Hercules 105,000 5,027
................................................................................
5,027
.............
Specialty Chemicals 1.0%
Great Lakes Chemical 100,000 5,237
................................................................................
5,237
.............
Paper and Paper Products 0.9%
Kimberly-Clark 105,000 5,224
................................................................................
5,224
.............
Total Process Industries 15,488
.............
BASIC MATERIALS 0.9%
Mining 0.9%
Newmont Mining 130,000 5,070
................................................................................
Total Basic Materials 5,070
.............
Miscellaneous Common Stocks 2.7% 14,592
.............
Total Common Stocks (Cost $371,685) 450,288
.............
Preferred Stocks 0.4%
Cleveland Electric (Series L), $1.88 Adj. 22,560 1,997
................................................................................
Cleveland Electric (Series R), 8.80% 320 333
................................................................................
Total Preferred Stocks (Cost $1,905) 2,330
.............
Convertible Bonds 4.0%
ADT Operations, Sub. Notes, Zero Coupon, 7/6/10 $3,000,000 2,852
................................................................................
ALZA, Sub. Notes, Zero Coupon, 7/14/14 3,000,000 1,327
................................................................................
Corporate Express
4.50%, 7/1/00 4,800,000 4,302
...........................................................................
(144a) 4.50%, 7/1/00 2,200,000 1,972
................................................................................
</TABLE>
13
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Liberty Property Trust, Sub. Deb.,
Zero Coupon, 7/1/01 $ 1,000,000 $ 1,238
................................................................................
Time Warner, LYONs, Zero Coupon,
12/17/12 - 6/22/13 22,300,000 9,992
................................................................................
Total Convertible Bonds (Cost $20,038) 21,683
.............
U.S. Government Obligations/
Agencies 3.2%
U.S. Treasury Notes
5.625%, 2/15/06 500,000 470
...........................................................................
5.75%, 8/15/03 400,000 386
...........................................................................
5.875%, 2/28/99 - 2/15/00 7,000,000 6,952
...........................................................................
6.00%, 8/15/99 700,000 698
...........................................................................
6.125%, 12/31/01 1,500,000 1,485
...........................................................................
6.25%, 3/31/99 - 2/28/02 3,400,000 3,400
...........................................................................
6.375%, 5/15/99 500,000 503
...........................................................................
6.50%, 5/31/01 - 5/31/02 2,500,000 2,511
...........................................................................
6.625%, 5/15/07 1,000,000 1,008
...........................................................................
Total U.S. Government Obligations/Agencies
(Cost $ 17,394) 17,413
.............
Short-Term Investments 11.6%
Certificates of Deposit 0.9%
Union Bank of California, 5.55%, 7/11/97 5,000,000 5,000
................................................................................
5,000
.............
Commercial Paper 10.7%
AC Acquisition Holding Company,
5.56%, 8/11/97 5,000,000 4,968
................................................................................
Asset Securitization Cooperative, 4(2),
5.55%, 7/10/97 5,000,000 4,993
................................................................................
BT Securities, 5.57%, 8/25/97 5,000,000 4,957
................................................................................
Dover, 4(2), 5.57%, 7/14/97 5,000,000 4,990
................................................................................
Halifax, 5.54%, 7/14/97 5,000,000 4,990
................................................................................
Merrill Lynch & Co., 5.56%, 7/31/97 5,000,000 4,977
................................................................................
Metlife Funding, 5.55%, 8/4/97 5,000,000 4,974
................................................................................
National Rural Utilities
Cooperative Finance 5.55%, 9/19/97 4,510,000 4,454
................................................................................
New Center Asset Trust, 5.62%, 7/2/97 5,000,000 4,999
................................................................................
</TABLE>
14
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Svenska Handelsbanken, 5.60%, 9/5/97 5,000,000 $ 4,949
...........................................................................
Investments in Commercial Paper through a
Joint Account 6.05 - 6.20%, 7/1/97 9,545,477 9,546
...........................................................................
58,797
.............
Total Short-Term Investments (Cost $63,797) 63,797
.............
Total Investments in Securities
101.3% of Net Assets (Cost $474,819) $555,511
Other Assets Less Liabilities (7,291)
.............
NET ASSETS $ 548,220
-------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 348
Accumulated net realized gain/loss - net of distributions 6,474
Net unrealized gain (loss) 80,691
Paid-in-capital applicable to 29,625,543 shares of
$0.0001 par value capital stock outstanding; 1,000,000,000
shares authorized 460,707
.............
NET ASSETS $ 548,220
-------------
NET ASSET VALUE PER SHARE $ 18.50
-------------
</TABLE>
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."
144a Security was purchased pursuant to Rule 144a under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers -- total of such securities at period-end amounts to
0.36% of net assets.
GBP British sterling
LYONs Liquid Yield Option Notes
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
Unaudited
- ------------------------
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
6 Months
Ended
6/30/97
<S> <C>
Investment Income
Income
Dividend $ 3,925
Interest 2,107
.........
Total income 6,032
.........
Expenses
Investment management 988
Shareholder servicing 392
Registration 102
Custody and accounting 62
Prospectus and shareholder reports 38
Legal and audit 6
Directors 4
Miscellaneous 11
.........
Total expenses 1,603
.........
Net investment income 4,429
.........
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 6,537
Foreign currency transactions (35)
.........
Net realized gain (loss) 6,502
.........
Change in net unrealized gain or loss
Securities 45,939
Other assets and liabilities
denominated in foreign currencies (1)
.........
Change in net unrealized gain or loss 45,938
.........
Net realized and unrealized gain (loss) 52,440
.........
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 56,869
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
Unaudited
- -----------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
6 Months Year
Ended Ended
6/30/97 12/31/96
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ 4,429 $ 3,165
Net realized gain (loss) 6,502 7,385
Change in net unrealized gain or loss 45,938 20,575
......................
Increase (decrease) in net assets from operations 56,869 31,125
......................
Distributions to shareholders
Net investment income (4,788) (3,338)
Net realized gain (3,231) (5,269)
......................
Decrease in net assets from distributions (8,019) (8,607)
......................
Capital share transactions *
Shares sold 345,508 130,963
Distributions reinvested 7,470 7,902
Shares redeemed (63,813) (36,688)
......................
Increase (decrease) in net assets from capital
share transactions 289,165 102,177
......................
Net equalization 707 303
......................
Net Assets
Increase (decrease) during period 338,722 124,998
Beginning of period 209,498 84,500
......................
End of period $ 548,220 $209,498
----------------------
* Share information
Shares sold 20,127 8,636
Distributions reinvested 428 504
Shares redeemed (3,729) (2,460)
......................
Increase (decrease) in shares outstanding 16,826 6,680
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
Unaudited June 30, 1997
- ------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Dividend Growth Fund, Inc. (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 are valued at the last quoted sales price on the
day the valuations are made. A security which is listed or traded on more than
one exchange is valued at the quotation on the exchange determined to be the
primary market for such security. Listed securities not traded on a particular
day and securities regularly traded in the over-the-counter market are valued at
the mean of the latest bid and asked prices.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service. Short-
term debt securities are valued at their amortized cost which, when combined
with accrued interest, approximates fair value.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of 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 are amortized
for both financial reporting and tax purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
18
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
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 $313,921,000 and $75,875,000,
respectively, for the six months ended June 30, 1997.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of its
taxable income.
At June 30, 1997, the aggregate cost of investments for federal income tax and
financial reporting purposes was $474,819,000, and net unrealized gain
aggregated $80,692,000, of which $82,261,000 related to appreciated investments
and $1,569,000 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 $226,000 was payable at June 30, 1997. The fee is computed daily and
paid monthly, and consists of an individual fund fee equal to 0.20% of average
daily net assets and a group fee. The group fee is based on the
19
<PAGE>
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
combined assets of certain mutual funds sponsored by the manager or Rowe Price-
Fleming International, Inc. (the group). The group fee rate ranges from 0.48%
for the first $1 billion of assets to 0.30% for assets in excess of $80 billion.
At June 30, 1997, and for the six months then ended, the effective annual group
fee rate was 0.33%. The fund pays a pro-rata share of the group fee based on the
ratio of its net assets to those of the group.
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
unaccrued 1995 management fees were repaid during the six months ended June
30, 1997.
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 $345,000 for the six months
ended June 30, 1997, of which $61,000 was payable at period-end.
During the six months ended June 30, 1997, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $855,000 with
certain affiliates of the manager and paid commissions of $2,000 related
thereto.
20
<PAGE>
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from
8 a.m. to 10 p.m. ET 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 ($500 minimum).
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(R) and
T. Rowe Price OnLine.
DISCOUNT BROKERAGE*
Individual Investments Stocks, bonds, options, precious metals,
and other securities at a savings over regular commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of your T. Rowe Price accounts.
Shareholder Reports Fund managers' reviews of their strategies and
results.
T. Rowe Price Report 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,
Diversifying Overseas: A Guide to International Investing, Personal
Strategy Planner, Retirees Financial Guide, and Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
21
<PAGE>
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(R):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Dividend Growth Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
[LOGO OF T. ROWE
PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor. F58-051 6/30/97
