Annual Report
Dividend
Growth
Fund
December 31, 1998
T. Rowe Price
Report Highlights
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Dividend Growth Fund
o U.S. stocks recovered from a sharp third quarter correction to advance
over 20% for the fourth straight year.
o Market leadership was concentrated in a handful of blue chips, making it
difficult for value and income-oriented funds to keep pace.
o The fund's 6- and 12-month returns of 5.02% and 15.04%, respectively,
were competitive with its Lipper peer group but lagged the S&P 500 Stock
Index.
o Several holdings benefited from merger activity; REITs were our biggest
disappointment.
o We will be especially conscious of risk in the coming months as we expect
a more difficult investment environment.
Fellow Shareholders
After a brief but sharp third quarter correction, U.S. stocks surged ahead in
the fourth quarter and closed 1998 with outstanding returns. The Standard &
Poor's 500 Stock Index rose more than 20% for a record-setting fourth
consecutive year, but the gains were concentrated in the largest and most highly
valued companies.
Performance Comparison
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Periods Ended 12/31/98 6 Months 12 Months
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Dividend Growth Fund 5.02% 15.04%
S&P 500 9.22 28.57
Lipper Growth & Income
Funds Average 3.09 15.61
Receding inflation and declining interest rates provided consistently favorable
support for stocks, but corporate profit growth was disappointing and S&P 500
earnings were about flat versus 1997. Stocks fell over the summer on fears that
the earnings slowdown might be long-lasting but rebounded into year-end after
the Federal Reserve lowered the federal funds rate from 5.50% to 4.75% in three
quick steps from September 29 to November 17.
The Dividend Growth Fund posted healthy but unspectacular returns, rising 5.02%
in the second half and 15.04% for the full year, competitive with the Lipper
Growth & Income Funds Average but well behind the S&P 500. Dividend-oriented
stocks lagged significantly in 1998 as investors paid large premiums for the
fastest-growing companies in the S&P 500, many of which do not meet our dividend
growth requirements.
YEAR-END DISTRIBUTIONS
Your Board of Directors declared a short-term capital gain of $0.06 per share
and a long-term capital gain of $0.44 per share. Both were paid on December 17
to shareholders of record on December 15. The Board also declared a fourth
quarter dividend of $0.11 per share, which was paid on December 30 to
shareholders of record on December 28. You should already have received a check
or statement reflecting these distributions as well as your Form 1099-DIV
reporting them for tax purposes.
Preparing For The Year 2000
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The Year 2000 draws closer every day, and it holds special meaning beyond the
arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all new
systems process and store four-digit years. All critical systems have been
reprogrammed (including business applications required to service our customers
and processing infrastructure necessary to ensure the integrity of customer data
and investments), and they are currently being tested. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be able
to modify their interface files prior to December 31, 1999. In addition, we are
scheduling tests for critical vendors and companies that claim Year 2000
compliance to ensure that time-related data and calculations function properly
as we move into the next century.
SMOOTH TRANSITION PLANNED
We believe our programs and initiatives will provide a smooth transition into
the next millennium. We are assessing all systems providing products or services
to our retail mutual fund shareholders, retirement plan sponsors, and
participants, and we have modified them where necessary for the Year 2000.
The Securities Industry Association (SIA) is coordinating Year 2000 testing to
assure that securities markets, clearing corporations, depositories, and third
party service providers can send, receive, and process files and transactions
accurately. In late July 1998, the SIA completed a beta test of Year 2000
readiness. The test was considered successful in terms of transactions completed
and will serve as the basis for the SIA's industry-wide approach. During October
1998, T. Rowe Price completed its beta test of Year 2000 readiness with the SIA
and is ready for the industry-wide test that is scheduled for March and April
1999.
For a more detailed discussion of our Year 2000 effort, as well as continuing
updates on our progress, please check our Web site (www.troweprice.com).
LONG-TERM PERSPECTIVE
We launched the Dividend Growth Fund six years ago because we believed that
buying stocks of companies with consistently strong earnings and dividend growth
would lead to attractive total returns and rising dividends for our
shareholders. Our long-term results have been encouraging. The fund's cumulative
203% six-year gain is ahead of the Lipper Growth & Income Funds Average (161%)
and close to the S&P 500 (224%). Fund dividends have grown each year. As the
chart shows, investors who purchased shares at the $10 inception price and
reinvested dividends and capital gains in additional shares have received rising
dividends over the ensuing six years. We cannot guarantee that the fund's
dividends will increase every year, particularly since many companies have
de-emphasized dividends in recent years. Over the long term, though, they should
continue to rise as our portfolio companies grow and increase their dividend
payments.
Compounding of Dividends
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Annual yield on an initial investment of
$1,000 at the Dividend Growth Fund's
inception on 12/30/92.
Dividend distributions on the investment
were $29.29 in 1993, $35.82 in 1994,
$40.27 in 1995, $42.70 in 1996,
$55.02 in 1997, and $61.31 in 1998.
Yield
12/31/93 2.93
12/31/94 3.58
12/31/95 4.03
12/31/96 4.27
12/31/97 5.50
12/31/98 6.13
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.
PERFORMANCE REVIEW
After powerful first-half performance, stocks reacted to worsening news and
corrected in the third quarter. During the summer, earnings growth had slowed or
reversed for a broad list of companies, President Clinton's personal struggles
had intensified, and corporate borrowing rates had risen suddenly and
significantly as global financial market turmoil worked its way into our
markets. Most notable perhaps was the near-failure of Long-Term Capital
Management, a large hedge fund that was caught off guard by rapidly changing
global credit markets. Fearing that market dislocations at home and abroad might
lead to an economic downturn, the Federal Reserve lowered the federal funds rate
in three steps by a total of three-quarters of a percentage point, igniting a
powerful fourth quarter rally in U.S. stocks that continued into 1999.
The narrowness of the year's advance made it difficult for value and
dividend-oriented funds to keep pace with the S&P 500. Slightly more than half
of the Index's total return came from just 15 stocks, seven of which pay little
or no dividends. Of these, technology companies in particular captured investor
attention: Microsoft, Lucent Technologies, Cisco Systems, Dell Computer, and MCI
WorldCom more than doubled in 1998.
Your fund held up quite well during the third quarter downturn but lagged in the
fourth quarter rise. Three of the fund's top performers benefited from 1998's
frenzied merger activity. Amoco, Mobil, and American Stores all accepted
attractive premium takeover proposals and rose nicely. We expect to retain
shares of the acquiring companies because we view the transactions as reasonably
attractive. Hewlett-Packard and Linear Technology both rose smartly as investor
sentiment on technology shares turned quite positive after a short period of
disenchantment. SBC Communications also rebounded strongly as investors came to
appreciate its consistent growth outlook at a time when earnings were faltering
in many other sectors.
Security Diversification
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Business Services
Consumer Financials and Transportation REITS
22 18 13 10
Utilities Energy Other Reserves
7 5 15 10
Based on net assets as of 12/31/98.
Perhaps our most frustrating holdings were our REITs, which dramatically
underperformed the S&P 500 despite producing double-digit cash flow growth for
the year. We expect our current holdings to increase cash flows an additional 6%
to 14% in 1999, which should compare favorably with most companies. REITs offer
high current yields and reasonably good cash flow and dividend growth-a unique
combination in the market today.
PORTFOLIO CHANGES
Trading activity picked up during the summer correction as we invested in a
number of stocks that reached bargain prices, in our view. We bought shares of
two high-quality semiconductor manufacturers with good dividend records, Linear
Technology and Dallas Semiconductor. Both stocks have rebounded sharply of late
and now look fully valued. We made a significant investment in First Union, a
high-quality regional bank holding company with a long-term record of consistent
earnings and dividend growth. We felt it was largely insulated from the global
credit market woes affecting many banks. Waddell & Reed, a Midwestern money
management company, was another significant purchase. Financially strong and
with a proprietary distribution system, the company represents an attractive
franchise at a very reasonable valuation. Richfood Holdings, the largest
wholesale food distributor in the Mid-Atlantic region, looked like a solid value
after falling 50%. Although a moderate grower, the company is well managed and
generates significant free cash flow.
SUMMARY AND OUTLOOK
We expect a more difficult environment in 1999. Stock prices have risen much
faster than sales, earnings, and dividends over the past four years-especially
in 1998. Valuation levels have reached all-time highs, earnings growth has
become more problematic, and, as shown by the frenzied trading in Internet
stocks, speculative activity has increased substantially. We are especially
conscious of risk and will be careful to seek a margin of safety in all of our
new investments.
Thank you for your continuing support.
Respectfully submitted,
William J. Stromberg
President and Chairman of the Investment Advisory Committee
January 19, 1999
T. Rowe Price Dividend Growth Fund
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Portfolio Highlights
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MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 12/31/98
Ten Largest Purchases Ten Largest Sales
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Campbell* Hercules**
Waddell & Reed* Willis-Corroon**
First Union British Petroleum
Richfood Holdings* Rite Aid
Galileo International IndyMac Mortgage Holdings**
PartnerRe Holdings Storage USA**
GTE* Travelers Property Casualty**
Bristol-Myers Squibb Duke Energy**
Loews* Danaher
Telebras* Washington Mutual**
* Position added
** Position eliminated
T. Rowe Price Dividend Growth Fund
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Portfolio Highlights
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TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/98
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SBC Communications 1.9%
EXEL 1.9
Mobil 1.8
Wells Fargo 1.8
Bristol-Myers Squibb 1.7
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First Union 1.6
Galileo International 1.6
Philip Morris 1.6
PartnerRe Holdings 1.6
Fannie Mae 1.5
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AlliedSignal 1.5
ACE Limited 1.5
ALLTEL 1.4
Prologis Trust 1.4
Hewlett-Packard 1.4
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Omnicom 1.3
Reckson Associates Realty 1.2
Rentokil Group 1.1
Rite Aid 1.1
American Home Products 1.1
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Newell 1.1
Crescent Real Estate Equities 1.1
Johnson & Johnson 1.1
Sara Lee 1.1
Waddell & Reed 1.0
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Total 35.4%
T. Rowe Price Dividend Growth Fund
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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.
DIVIDEND GROWTH FUND
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As of 12/31/98
S&P 500 Dividend Growth
Index Fund
12/30/92 10,000 10,000
12/31/93 10,930 11,941
12/31/94 11,075 12,199
12/31/95 15,236 16,072
12/31/96 18,735 20,147
12/31/97 24,985 26,346
12/31/98 32,122 30,308
Average Annual Compound Total Return
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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 11/30/98 1 Year 3 Years 5 Years Inception Date
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Dividend Growth Fund 15.04% 23.55% 20.48% 20.29% 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
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For a share outstanding throughout each period
Financial Highlights
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Year
Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
NET ASSET VALUE
Beginning of period $ 20.13 $ 16.37 $ 13.81 $ 11.04 $ 11.48
Investment activities
Net investment income 0.46 0.44 0.35 0.36* 0.35*
Net realized and
unrealized gain (loss) 2.51 4.51 3.08 3.08 (0.11)
Total from
investment activities 2.97 4.95 3.43 3.44 0.24
Distributions
Net investment income (0.46) (0.44) (0.36) (0.36) (0.34)
Net realized gain (0.63) (0.75) (0.51) (0.31) (0.34)
Total distributions (1.09) (1.19) (0.87) (0.67) (0.68)
NET ASSET VALUE
End of period $ 22.01 $ 20.13 $ 16.37 $ 13.81 $ 11.04
----------------------------------------------------
Ratios/Supplemental Data
Total return* 15.04% 30.77% 25.36% 31.75%* 2.16%*
Ratio of expenses to
average net assets 0.77% 0.80% 1.10% 1.10%* 1.00%*
Ratio of net investment
income to average
net assets 2.26% 2.42% 2.53% 2.92%* 3.11%*
Portfolio turnover rate 37.3% 39.1% 43.1% 56.1% 71.4%
Net assets, end of period
(in millions) $ 1,338 $ 747 $ 209 $ 85 $ 54
* Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
* Excludes expenses in excess of a 1.00% voluntary expense limitation in
effect through 12/31/94 and a 1.10% voluntary expense limitation in effect
through 12/31/96.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
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December 31, 1998
Statement of Net Assets
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Shares/Par Value
In thousands
Common Stocks 83.9%
FINANCIAL 17.5%
Bank and Trust 7.7%
Bank of New York 200,000 $ 8,050
Bank One 230,000 11,744
BankAmerica 80,000 4,810
Citigroup 250,000 12,375
First Union 360,000 21,893
Mellon Bank 200,000 13,750
U.S. Bancorp 190,000 6,745
Wells Fargo 600,000 23,962
103,329
Insurance 5.7%
ACE Limited 580,000 19,974
Erie Indemnity 328,800 10,275
EXEL (Class A) 330,000 24,750
PartnerRe Holdings 460,000 21,045
76,044
Financial Services 4.1%
Associates First Capital
(Class A) 300,000 12,712
Fannie Mae 280,000 20,720
Freddie Mac 110,000 7,088
Waddell & Reed Financial
(Class A) 95,500 2,262
Waddell & Reed Financial
(Class B) * 504,500 11,730
54,512
Total Financial 233,885
UTILITIES 6.7%
Telephone Services 4.2%
ALLTEL 320,000 19,140
GTE 180,000 11,700
SBC Communications 480,000 25,740
56,580
Electric Utilities 2.5%
DPL 350,000 7,569
DQE 270,000 11,863
NIPSCO 190,000 $ 5,783
Teco Energy 270,000 7,611
32,826
Total Utilities 89,406
CONSUMER NONDURABLES 17.7%
Cosmetics 0.6%
International Flavors
& Fragrances 190,000 8,396
8,396
Beverages 1.4%
Anheuser-Busch 100,000 6,563
PepsiCo 280,000 11,462
18,025
Food Processing 2.6%
Campbell 160,000 8,800
General Mills 50,000 3,887
McCormick 230,000 7,770
Sara Lee 500,000 14,094
34,551
Hospital Supplies/Hospital Management 0.9%
Abbott Laboratories 250,000 12,250
12,250
Pharmaceuticals 5.7%
American Home Products 260,000 14,641
Bristol-Myers Squibb 170,000 22,748
Johnson & Johnson 170,000 14,259
Merck 55,000 8,123
Pfizer 70,000 8,781
Schering-Plough 150,000 8,287
76,839
Miscellaneous Consumer Products 6.5%
Colgate-Palmolive 90,000 8,359
Hasbro 290,000 10,476
Newell 350,000 14,437
Philip Morris 400,000 21,400
Service Corp. International 130,000 4,948
Stanley Works 230,000 6,383
Sysco 180,000 $ 4,939
Tomkins (GBP) 1,500,000 7,127
Tomkins ADR 430,000 8,600
86,669
Total Consumer Nondurables 236,730
CONSUMER SERVICES 4.8%
General Merchandisers 1.1%
Dayton Hudson 20,000 1,085
Dollar General 150,000 3,544
Warnaco Group (Class A) 400,000 10,100
14,729
Specialty Merchandisers 1.9%
American Stores 300,000 11,081
Rite Aid 300,000 14,869
25,950
Entertainment and Leisure 0.7%
Carnival (Class A) 140,000 6,720
Disney 70,000 2,100
8,820
Media and Communications 1.1%
Tribune 160,000 10,560
Wolters Kluwer (NLG) 20,000 4,278
14,838
Total Consumer Services 64,337
CONSUMER CYCLICALS 10.3%
Automobiles and Related 0.5%
Genuine Parts 200,000 6,687
6,687
Building and Real Estate 8.4%
Archstone Communities
Trust, REIT 550,000 11,137
Arden Realty, REIT 320,000 7,420
Chelsea GCA, REIT 270,000 9,619
Cousins Properties, REIT 77,700 2,506
Crescent Real Estate
Equities, REIT 620,000 14,260
Manufactured Home
Communities, REIT 400,000 10,025
Nationwide Health
Properties, REIT 330,000 $ 7,116
Prologis Trust, REIT 900,000 18,675
Reckson Associates Realty, REIT 430,000 9,540
Starwood Hotels & Resorts, REIT 380,900 8,642
Vornado Realty Trust, REIT 160,000 5,400
Weeks, REIT 300,000 8,456
112,796
Miscellaneous Consumer Durables 1.4%
Masco 430,000 12,363
Valspar 170,000 6,343
18,706
Total Consumer Cyclicals 138,189
TECHNOLOGY 4.9%
Electronic Components 1.5%
Analogic 204,800 7,706
Dallas Semiconductor 90,000 3,667
Linear Technology 90,000 8,058
19,431
Electronic Systems 1.4%
Hewlett-Packard 270,000 18,445
18,445
Aerospace and Defense 2.0%
AlliedSignal 460,000 20,384
Raytheon (Class B) 130,000 6,922
27,306
Total Technology 65,182
CAPITAL EQUIPMENT 2.8%
Electrical Equipment 1.0%
GE 60,000 6,124
Hubbell (Class B) 201,500 7,657
13,781
Machinery 1.8%
Danaher 80,000 4,345
Nordson 110,000 5,631
Teleflex 300,000 13,687
23,663
Total Capital Equipment 37,444
BUSINESS SERVICES AND
TRANSPORTATION 11.7%
Computer Service and Software 3.7%
Analysts International 350,000 $ 6,759
Automatic Data Processing 80,000 6,415
Computer Associates 100,000 4,262
Galileo International 500,000 21,750
Reynolds & Reynolds 450,000 10,322
49,508
Distribution Services 0.8%
Richfood Holdings 544,200 11,292
11,292
Environmental 1.1%
Rentokil Group (GBP) 2,000,000 15,080
15,080
Transportation Services 0.5%
C.H. Robinson Worldwide 260,000 6,736
6,736
Miscellaneous Business Services 4.8%
Equifax 230,000 7,863
H&R Block 250,000 11,250
Omnicom 300,000 17,400
RPM 450,000 7,200
ServiceMaster 265,000 5,847
Waste Management 300,000 13,987
63,547
Railroads 0.8%
Norfolk Southern 330,000 10,457
10,457
Total Business Services and Transportation 156,620
ENERGY 4.8%
Integrated Petroleum - Domestic 0.8%
British Petroleum ADR 110,000 10,450
10,450
Integrated Petroleum - International 4.0%
Amoco 220,000 $ 12,980
Chevron 100,000 8,294
Mobil 280,000 24,395
Royal Dutch Petroleum ADR 160,000 7,660
53,329
Total Energy 63,779
PROCESS INDUSTRIES 1.7%
Specialty Chemicals 1.0%
Great Lakes Chemical 320,000 12,800
12,800
Paper and Paper Products 0.7%
Kimberly-Clark 180,000 9,810
9,810
Total Process Industries 22,610
Miscellaneous Common Stocks 1.0% 13,330
Total Common Stocks (Cost $904,495) 1,121,512
Preferred Stocks 0.2%
Cleveland Electric (Series L),
$1.88 Adj 22,560 2,275
Cleveland Electric
(Series R), 8.80% 320 341
Total Preferred Stocks (Cost $1,905) 2,616
Convertible Preferred Stocks 0.5%
Reckson Associates Realty,
(Series A) 7.625% 340,000 7,140
Total Convertible Preferred Stocks (Cost $8,194) 7,140
Convertible Bonds 1.7%
Loews, Sub. Notes,
3.125%, 9/15/07 $10,000,000 8,122
Networks Associates, Sub. Deb.,
Zero Coupon, 2/13/18 8,000,000 4,875
Security Capital U. S. Realty,
(144a), 2.00%, 5/22/03 12,000,000 9,390
Total Convertible Bonds (Cost $20,578) 22,387
U.S. Government Obligations 4.0%
U.S. Treasury Notes
5.375%, 2/15/01 $7,000,000 $ 7,113
5.625%, 5/15/01 - 2/15/06 5,500,000 5,652
5.75%, 11/15/00 - 8/15/03 17,400,000 17,765
5.875%, 2/28/99 - 9/30/02 9,000,000 9,157
6.00%, 8/15/99 - 8/15/00 4,700,000 4,790
6.125%, 12/31/01 1,500,000 1,562
6.25%, 3/31/99 - 2/28/02 3,400,000 3,471
6.375%, 5/15/99 500,000 503
6.50%, 5/31/01 - 5/31/02 2,500,000 2,636
6.625%, 5/15/07 1,000,000 1,124
Total U.S. Government Obligations (Cost $52,522) 53,773
Short-Term Investments 9.5%
Money Market Funds 9.5%
Reserve Investment Fund, 5.42% # 127,321,843 127,322
Total Short-Term Investments (Cost $127,322) 127,322
Total Investments in Securities
99.8% of Net Assets (Cost $1,115,016) $1,334,750
Other Assets Less Liabilities 2,977
NET ASSETS $1,337,727
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ (246)
Accumulated net realized gain/loss -
net of distributions 7,053
Net unrealized gain (loss) 219,734
Paid-in-capital applicable to 60,766,604
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 1,111,186
Net Assets $1,337,727
----------
Net Asset Value Per Share $ 22.01
----------
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
REIT Real Estate Investment Trust
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
0.7% of net assets.
GBP British sterling
NLG Dutch guilder
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
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Statement of Operations
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In thousands
Year
Ended
12/31/98
Investment Income
Income
Dividend 22,322
Interest $ 9,535
Total income 31,857
Expenses
Investment management 5,482
Shareholder servicing 2,033
Registration 292
Prospectus and shareholder reports 148
Custody and accounting 116
Legal and audit 13
Directors 9
Miscellaneous 8
Total expenses 8,101
Net investment income 23,756
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 35,871
Foreign currency transactions (46)
Net realized gain (loss) 35,825
Change in net unrealized gain
or loss on securities 88,719
Net realized and unrealized gain (loss) 124,544
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 148,300
---------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/98 12/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 23,756 $ 12,272
Net realized gain (loss) 35,825 28,069
Change in net unrealized
gain or loss 88,719 96,262
Increase (decrease) in net
assets from operations 148,300 136,603
Distributions to shareholders
Net investment income (24,002) (13,152)
Net realized gain (34,922) (24,253)
Decrease in net assets
from distributions (58,924) (37,405)
Capital share transactions*
Shares sold 831,901 559,369
Distributions reinvested 55,832 35,245
Shares redeemed (387,431) (157,461)
Increase (decrease) in
net assets from capital
share transactions 500,302 437,153
Net equalization 1,138 1,062
Net Assets
Increase (decrease) during period 590,816 537,413
Beginning of period 746,911 209,498
End of period $1,337,727 $ 746,911
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*Share information
Shares sold 39,472 31,018
Distributions reinvested 2,625 1,825
Shares redeemed (18,426) (8,547)
Increase (decrease) in shares outstanding 23,671 24,296
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
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December 31, 1998
Notes to Financial Statements
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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.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
Valuation Equity securities listed or regularly traded on a securities
exchange 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. 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.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
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 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
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $785,294,000 and $366,029,000, respectively, for the
year ended December 31, 1998.
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, the following
reclassifications were made during the year ended December 31, 1998. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
- --------------------------------------------------------------------------------
Undistributed net investment income $(1,138,000)
Paid-in-capital 1,138,000
At December 31, 1998, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$1,115,016,000. Net unrealized gain aggregated $219,734,000 at period end,
of which $243,499,000 related to appreciated investments and $23,765,000 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 $564,000 was payable at December 31, 1998. 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 0.30% for
assets in excess of $80 billion. At December 31, 1998, and for the year
then ended, the effective annual group fee rate was 0.32%. The fund pays a
pro-rata share of the group fee based on the ratio of its net assets to
those of the group.
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 $1,633,000 for the year ended December 31, 1998, of which
$182,000 was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve
Funds are offered as cash management options only to mutual funds and other
accounts managed by T. Rowe Price and its affiliates and are not available
to the public. The Reserve Funds pay no investment management fees.
Distributions from the Reserve Funds to the fund for the year ended
December 31, 1998, totaled $6,092,000 and are reflected as interest income
in the accompanying Statement of Operations.
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
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,
1998, 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, 1998, by correspondence
with custodians, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 21, 1999
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 12/31/98
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The Fund's distributions to shareholders included:
o $5,765,000 from short-term capital gains,
o $29,157,000 from long-term capital gains, subject to the 20%
rate gains category,
For corporate shareholders, $13,482,000 of the fund's distributed income and
short-term capital gains qualified for the dividends-received deduction.
- --------------------------------------------------------------------------------
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(registered trademark) and
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
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.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
STOCK FUNDS
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500*
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons**
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
BONDFUNDS
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Intermediate Tax-Free***
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond!
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond!!
International Bond
MONEY MARKET FUNDS!!!
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money\
BLENDED ASSET FUNDS
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Formerly named Equity Index.
** Closed to new investors.
*** Formerly named Florida Insured Intermediate Tax-Free.
! Formerly named Tax-Free Insured Intermediate Bond.
!! Formerly named Global Government Bond.
!!! Neither the funds nor their share prices are insured or guaranteed
by the U.S. government.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
T. Rowe Price Retirement Plans and Resources
- --------------------------------------------------------------------------------
Retirement Plans and Resources
We recognize that saving for retirement is the number one investment goal
for most Americans. We can help you meet your retirement needs, whether you
are starting an IRA or designing a retirement program for your employees.
T. Rowe Price offers an assortment of retirement plans for individuals, the
self-employed, small businesses, corporations, and nonprofit organizations.
We provide recordkeeping, communications, and investment management
services, as well as a variety of educational materials, self-help planning
guides, and software tools to help you choose and implement a retirement
plan appropriate for you. For information or to request literature, call us
at 1-800-638-5660.
IRAs AND QUALIFIED PLANS
---------------------------------------------------------------------------
Traditional IRA Money Purchase Pension
Roth IRA "Paired" Plans (Money Purchase
Rollover IRA Pension and Profit Sharing Plans)
SEP-IRA 401(k)
SIMPLE IRA 403(b)
Profit Sharing 457 Deferred Compensation
RETIREMENT RESOURCES AT T. ROWE PRICE
---------------------------------------------------------------------------
Planning and Informational Guides Investing for Retirement in
Your 403(b) Account
Minimum Required
Distributions Guide
Retirement Planning Kit The T. Rowe Price No-Load Variable
Annuity Information Kit
Retirees Financial Guide
Tax Considerations for Investors Insights Reports
Investment Kits The Challenge of Preparing for
Retirement
The IRA Investing Kit Financial Planning After Retirement
Roth IRA Conversion Kit The Roth IRA: A Review
Rollover IRA Kit
The T. Rowe Price Software Packages
SIMPLE IRA Plan Kit
T. Rowe Price Retirement Planning
The T. Rowe Price SEP-IRA Plan AnalyzerTM CD-ROM or diskette
$19.95. To order, please call
The Simplified Keogh 1-800-541-5760. Also available
Plan(registered trademark) on the Internet for $9.95.
From T. Rowe Price
The T. Rowe Price 401(k) Century T. Rowe Price Variable Annuity
Plan(registered trademark) AnalyzerTM CD-ROM or diskette,
(for small businesses) free. To order, please call
1-800-469-5304.
Money Purchase Pension/
Profit Sharing Plan Kit
Many of these resources are also available for viewing or ordering on the
Internet at www.troweprice.com.
T. Rowe Price Insights Reports
- --------------------------------------------------------------------------------
The Fundamentals of Investing
Whether you are unsure how to get started or are saving for a specific
goal, such as retirement or college, the T. Rowe Price Insights series can
help you make informed investment decisions. These reports, written in
plain English about fundamental investment topics, can be useful at every
stage of your investment journey. They cover a range of topics, from the
basic, such as getting started with mutual funds, to the more advanced,
such as managing risk through diversification or buying individual
securities through a broker. To request one or more Insights, call us at
1-800-638-5660.
INSIGHTS REPORTS
- --------------------------------------------------------------------------------
General Information Investing in Common Stocks
The ABCs of Giving Investing in Emerging Growth Stocks
Back to Basics: The ABCs of Investing Investing in Financial
Services Stocks
The Challenge of Preparing for
Retirement Investing in Health Care Stocks
Financial Planning After Retirement Investing in High-Yield
Municipal Bonds
Getting Started: Investing With
Mutual Funds Investing in Money Market Securities
The Roth IRA: A Review Investing in Mortgage-Backed
Securities
Tax Information for Mutual
Fund Investors Investing in Natural Resource Stocks
Investment Strategies Investing in Science and
Technology Stocks
Conservative Stock Investing
Investing in Small-Company Stocks
Dollar Cost Averaging
Understanding Derivatives
Equity Index Investing
Understanding High-Yield
Growth Stock Investing "Junk" Bonds
Investing for Higher Yield Brokerage Insights
Managing Risk Through Diversification Combining Individual SecuritiesWith
Mutual Funds
The Power of Compounding
Getting Started: An Introduction to
Value Investing Individual Securities
Types of Securities What You Should Know About Bonds
The Basics of International What You Should Know About Margin
Stock Investing and Short-Selling
The Basics of Tax-Free Investing What You Should Know About Options
The Fundamentals of Fixed Income What You Should Know About Stocks
Investing
Global Bond Investing
T. Rowe Price Insights are also available for reading or downloading on the
Internet at www.troweprice.com.
T. Rowe Price Brokerage
- --------------------------------------------------------------------------------
Brokerage Services
T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services,
Inc., Member NASD/SIPC.
Our brokerage service offers significant commission savings over
full-service brokerages on a wide range of individual securities and other
investments.* It also provides high-quality services and financial tools
you can use to manage your investments effectively and conveniently.
Internet and Automated Services You can enter trades, access quotes, and
review account information 24 hours a day, seven days a week, by telephone
or computer. Trades executed through these automated services provide
additional commission savings.**
Research Services To help you make informed investment decisions, we offer
access to several sources of data. You can research your investments using
our Online Research & News Service, provided by Thomson Investors Network,
which includes company profiles, intra-day and 12-month interactive
charting, and analysts' ratings and earnings estimates. Using our Research
On Call service, you can request reports from Standard & Poor's, Vickers,
Lipper, and other well-known research providers.
Dividend Reinvestment Service This service helps keep more of your money
working for you. Virtually all stocks held in customer accounts are
eligible for this service, free of charge.
* Based on an April 1998 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary by size of
order.
** Discount applies to our current commission schedule. All trades
subject to a $35 minimum commission except equity trades placed
through Internet-Trader, which are subject to a $29.95 minimum
commission.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
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 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
Invest With Confidence (regisered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor. F58-050 12/31/98
