Annual Report
Dividend
Growth
Fund
December 31, 1999
T. Rowe Price
Report Highlights
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Dividend Growth Fund
o Powered by technology stocks, the market recorded a fifth straight year of
returns over 20%.
o Companies with consistent earnings and dividend growth were out of favor
with investors, who seemingly ignored risk to focus on return potential in
1999.
o Returns for the 6- and 12-month periods were disappointing as the fund
lagged both the market and its peer group.
o We added to holdings in the mid-cap area, which we believe offers
increasingly attractive values.
o We would welcome a broadening of market participation in 2000 but, as
always, we will remain conscious of risk in selecting investments.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
Fellow Shareholders
The market surged in the fourth quarter and finished 1999 with spectacular
returns. The S&P 500 rose more than 20% for the fifth consecutive year, though
the gains were concentrated in technology stocks and also in basic industry.
This environment proved to be a difficult one for the Dividend Growth Fund as
its exposure to both sectors is limited. Few technology companies pay a
dividend, and most cyclical shares lack the consistent growth in earnings and
dividends that we seek in our investments.
MARKET ENVIRONMENT
After advancing strongly in the first half, markets corrected in the third
quarter on fears of rising inflation and higher interest rates. The Federal
Reserve also worried that the economy's strength would ignite inflation,
and, in November, raised short-term interest rates for the third time since
May. Nevertheless, investors soon shrugged off the Fed's "tightening" and
propelled the markets into a powerful advance, led again by technology
shares-especially those related in any way to the Internet.
Despite an accelerating profits cycle, 1999 was another year of narrow
market leadership-the second narrowest for the S&P 500 of the last 14
years. Approximately 68% of the stocks in the index's technology sector
outperformed the index. The basic industry sector was the second strongest,
with 51% of the stocks in this area surpassing the index. Overall, close to
half of all the stocks in the index declined in 1999.
PERFORMANCE REVIEW
Performance Comparison
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Periods Ended 12/31/99 6 Months 12 Months
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Dividend Growth Fund -7.39% -2.82%
S&P 500 7.71 21.04
Lipper Multi-Cap Value
Funds Average -2.64 7.78
Your fund posted disappointing returns for the second half of the year.
Performance lagged both the S&P 500 and the Lipper Multi-Cap Value Funds
Average, the fund's new Lipper peer group, which we are introducing with
this report. Previously, Lipper Inc. assigned a fund to a category based on
its objective as outlined in its prospectus. The new categories are based
on the major characteristics of each fund's actual portfolio holdings, such
as market capitalization, price/earnings ratios and other valuation
measures, earnings growth rates, and so on.
The fund performed generally in line with market averages in the third
quarter but trailed in the fourth quarter when the technology sector
accelerated. For reasons discussed shortly, the fund's recent performance
contrasts markedly with its solid, longer-term record of double-digit
annualized returns, shown in the table on page 9.
Returns were hurt by the performance of certain individual holdings and by
market trends. Galileo International, a leading processor of airline
reservations and related services, fell 50% when a changeover in the
company's sales force caused a near-term slowdown in U.S. bookings. The
company, which boasts 25% operating margins and a 36% return on equity,
continued to meet earnings estimates and now trades at just 10 times free
cash flow. ACE Limited, a diversified property/casualty insurer based in
Bermuda, fell 45% despite signs of improvement in the industry's pricing
structure and increasingly good news regarding its recent purchase of
Cigna's property and casualty insurance business. We believe the stock
offers terrific value at 6.8 times earnings and a 2.8% yield. Philip
Morris's valuation sank due to continued tobacco litigation. Within Philip
Morris is Kraft Foods, perhaps the best-run food company in its industry,
as well as Miller Brewing, a leading beverage producer. The entire Philip
Morris entity is trading at 6.5 times earnings and offers an 8.5% yield. By
our estimates, Kraft and Miller are worth more than the current value of
the entire Philip Morris organization; tobacco essentially has a negative
value. REITs (10% of fund assets) were down modestly in the second half
despite solid cash flow growth but have recently shown signs of life.
While individual companies hurt performance, a few other developments are
worth discussing. The Dividend Growth Fund seeks companies with consistent
growth in earnings and dividends. Over time, this has led us to areas of
defensive growth, including pharmaceutical companies, financial services,
and consumer staples, all of which performed poorly in 1999. Perhaps the
biggest reason for the relative underperformance of these groups was that
investors appeared to focus almost exclusively on return with perhaps
little attention to risk. This led them to technology in general, and
specifically to the Internet companies, where astronomical valuations
became commonplace. Looking to double or triple their money in a short
period, investors shunned the consistent growers. For example, Freddie Mac
declined 26% in 1999 while earnings grew 27%. While rising interest rates
are not a positive for the company, Freddie Mac has proven its ability to
grow earnings in a variety of interest rate environments. Despite a stellar
track record and good earnings growth, the market drove the company's
price/earnings ratio from 22 at the beginning of the year down to 14 at the
end. We continue to believe Freddie Mac will be a rewarding investment over
time.
Valuation Comparison
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Albertson's Webvan
1999 Estimated
Revenues $37.5 Billion $12.7 Million
1999 Estimated
Operating Income $1.9 Billion -$82.0 Million
1999 Estimated Earnings
per Share $2.22 -$0.29
Market Capitalization $13.9 Billion $5.3 Billion
Market Cap/Revenue $0.3X $50.0X
The market's focus on the Internet has hurt the portfolio in other ways.
Wall Street is financing Internet start-ups at an astounding pace. Unless
an industry is growing rapidly, heavy capital inflow is typically bad
because it lowers returns to the existing players. Your fund owns many
"existing" players because they have the earnings, cash flow, and dividend
growth we seek. The supermarket industry in general and Albertson's in
particular are good examples. The stock was down 50% in 1999, due in part
to reduced earnings expectations but also because of the fear that Internet
grocers (e.g., Webvan) would destroy supermarket profitability. Despite
little or no supporting data, the market voted resoundingly that
traditional supermarkets would lose. Some interesting valuations are
outlined in the table above.
The point of the table is not to say the on-line grocers will not succeed,
because a portion of the $450 billion supermarket industry will probably
move to the Internet. So far, however, no Web grocer has turned a profit.
Despite this, the market is assigning extreme differences in market values
to the incumbent, brick-and-mortar retailers such as Albertson's versus the
insurgents such as Webvan. Albertson's, which operates 2,500 stores in 38
states, has a $38 billion sales base, is profitable, and generates
significant cash flow. It also is selling groceries on the Internet in
certain markets. Webvan, which operates one distribution center serving one
market, is expecting to report $12 million in sales and an $82 million
operating loss in 1999. To us, the valuation disparity appears extreme.
YEAR-END DISTRIBUTIONS
On December 14, 1999, the fund's Board of Directors declared a quarterly
dividend of $0.13 per share, a long-term capital gain of $0.54 per share,
and a short-term gain of $0.07 per share payable to shareholders of record
on that date. You have already received your check or statement reflecting
these distributions as well as our Form 1099-DIV reporting them for tax
purposes for taxable accounts.
PORTFOLIO CHANGES
Security Diversification
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Consumer 28
Financial 19
REITs 10
Business Services and Transportation 9
Energy 8
Utilities 8
Other 13
Reserves 5
Two of the best performers in the second half, Sprint and Computer
Associates, were new additions to the fund. Sprint accepted an attractive
premium takeover proposal from MCI WorldCom and rose nicely. Computer
Associates, a dividend-paying software company, was purchased at an
attractive valuation in August, when the entire technology market corrected
modestly, and subsequently benefited from the fourth quarter resurgence.
Other top-performing companies included Omnicom, the world's largest
advertising and marketing services company, Citigroup, a global financial
services giant, and ALLTEL, a southeastern telecommunications services
company whose wireless assets have caught the investment community's
attention.
In addition to Sprint and Computer Associates, we also added a few names in
the second half in the mid-cap area, where we increasingly find attractive
values. Black & Decker, a manufacturer and marketer of power tools,
hardware, and home improvement products, is growing earnings in excess of
15% and generating continued improvement in cash flow and return on
capital. We purchased the stock at just 12 times earnings. Viad, a leader
in payment and convention services, has had 11 consecutive quarters of
double-digit earnings growth, has $2 per share of net cash on its balance
sheet, and has repurchased shares representing 4.5% of the company since
July. We are attracted to the company's quality and consistency of earnings
and cash flow growth, its shareholder-oriented management team, and its
attractive valuation (15.5 times 2000 earnings).
Eliminations from the portfolio included Richfood Holdings, a wholesale
food distributor that was acquired by Supervalu following several quarters
of poor earnings performance. Slowing growth at Equifax, International
Flavors & Fragrances, and Genuine Parts caused us to sell the positions. An
earnings shortfall and subsequent management turmoil at Bank One led to its
elimination from the portfolio.
SUMMARY AND OUTLOOK
A higher interest rate environment and stretched valuations in the
technology sector could limit returns from the broad market averages in
2000. However, valuations in several of the Dividend Growth Fund's core
sectors, including health care, financials, and consumer nondurables, are
becoming increasingly attractive as the stocks lag market returns. We would
welcome a broadening of the market to recognize the value we see in these
investments. As always, we remain especially conscious of risk and will
continue to seek a margin of safety in all of our new investments. While
1999 proved to be an off year for the fund, we continue to believe that
buying stocks of companies with consistently strong earnings and dividend
growth will lead to attractive total returns for our shareholders.
We appreciate your continuing support.
Respectfully submitted,
William J. Stromberg
President
Thomas J. Huber
Executive Vice President
January 21, 2000
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Effective March 31, 2000, Thomas J. Huber assumes day-to-day responsibility for
management of the Dividend Growth Fund as chairman of the fund's Investment
Advisory Committee. Mr. Huber joined T. Rowe Price's Equity Division in 1994 as
an investment analyst and has served on the fund's Advisory Committee for a
number of years. In his new role, Mr. Huber succeeds William J. Stromberg,
Director of Equity Research, who remains president of the fund and a member of
its Advisory Committee.
This supplements the Dividend Growth Fund prospectus dated May 1, 1999.
T. Rowe Price Dividend Growth Fund
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Portfolio Highlights
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TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/99
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Exxon Mobil 2.3%
Citigroup 2.1
Fannie Mae 1.9
XL Capital 1.9
ProLogis Trust 1.9
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ALLTEL 1.9
BP Amoco 1.8
Bristol-Myers Squibb 1.7
Waddell & Reed Financial 1.7
Hewlett-Packard 1.7
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Wells Fargo 1.6
Sprint 1.6
Royal Dutch Petroleum 1.4
Bank of New York 1.4
GTE 1.4
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Omnicom 1.4
Warner-Lambert 1.3
Great Lakes Chemical 1.3
SBC Communications 1.3
Johnson & Johnson 1.3
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Mellon Financial 1.3
Galileo International 1.2
Kimberly-Clark 1.2
American Home Products 1.2
Computer Associates 1.2
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Total 39.0%
Note: Table excludes reserves.
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 12/31/99
Ten Largest Purchases
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Sprint *
Black & Decker *
Computer Associates *
CVS
American General *
Viad *
Dayton Hudson
Royal Ahold *
CIGNA *
Warner-Lambert
Ten Largest Sales
---------------------------------------------------------------------------
Raychem ***
Honeywell International
PartnerRe Holdings **
Richfood Holdings ***
Hewlett-Packard
Bank One **
Omnicom
Bristol-Myers Squibb
Reckson Associates Realty **
Chelsea GCA **
* Position added
** Position eliminated
*** Acquired by another company
T. Rowe Price Dividend Growth Fund
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Performance Comparison
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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 benchmarks, which may include
a broad-based market index and a peer group average or index. Market
indexes do not include expenses, which are deducted from fund returns as
well as mutual fund averages and indexes.
DIVIDEND GROWTH FUND
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S&P 500 Dividend Growth
Index Fund
12/30/92 10,000 10,000
12/93 10,930 11,941
12/94 11,075 12,199
12/95 15,236 16,072
12/96 18,735 20,147
12/97 24,985 26,346
12/98 32,122 30,308
12/99 38,886 29,454
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 12/31/99 1 Year 3 Years 5 Years Inception Date
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Dividend Growth Fund -2.82% 13.49% 19.28% 16.68% 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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Financial Highlights For a share outstanding throughout each period
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Year
Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
NET ASSET VALUE
Beginning of period $ 22.01 $ 20.13 $ 16.37 $ 13.81 $ 11.04
Investment activities
Net investment income
(loss) 0.45 0.46 0.44 0.35 0.36*
Net realized and
unrealized gain (loss) (1.08) 2.51 4.51 3.08 3.08
Total from
investment activities (0.63) 2.97 4.95 3.43 3.44
Distributions
Net investment income (0.45) (0.46) (0.44) (0.36) (0.36)
Net realized gain (0.72) (0.63) (0.75) (0.51) (0.31)
Total distributions (1.17) (1.09) (1.19) (0.87) (0.67)
NET ASSET VALUE
End of period $ 20.21 $ 22.01 $ 20.13 $ 16.37 $ 13.81
----------------------------------------------------
Ratios/Supplemental Data
Total return (diamond) (2.82)% 15.04% 30.77% 25.36% 31.75%*
Ratio of total expenses
to average net assets 0.77% 0.77% 0.80% 1.10% 1.10%*
Ratio of net investment
income (loss) to average
net assets 2.01% 2.26% 2.42% 2.53% 2.92%*
Portfolio turnover rate 37.8% 37.3% 39.1% 43.1% 56.1%
Net assets, end of period
(in millions) $ 1,028 $ 1,338 $ 747 $ 209 $ 85
(diamond) 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 1.10% 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, 1999
Statement of Net Assets Shares/Par Value
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In thousands
Common Stocks 88.0%
FINANCIAL 17.9%
Bank and Trust 6.3%
Bank of America 60,000 $ 3,011
Bank of New York 360,000 14,400
FirStar 470,000 9,929
Huntington Bancshares 100,000 2,384
Mellon Financial 380,000 12,944
U.S. Bancorp 250,000 5,953
Wells Fargo 400,000 16,175
64,796
Insurance 4.1%
ACE Limited 560,000 9,345
American General 110,000 8,346
Marsh & McLennan 50,000 4,784
XL Capital (Class A) 380,000 19,713
42,188
Financial Services 7.5%
Associates First Capital (Class A) 239,500 6,571
Citigroup 390,000 21,669
Fannie Mae 320,000 19,980
Freddie Mac 250,000 11,766
Waddell & Reed Financial (Class A) 62,100 1,685
Waddell & Reed Financial (Class B) 615,000 15,452
77,123
Total Financial 184,107
UTILITIES 7.6%
Telephone 6.1%
ALLTEL 230,000 19,018
GTE 200,000 14,112
SBC Communications 270,000 13,163
Sprint 240,000 16,155
62,448
Electric Utilities 1.5%
DQE 300,000 $ 10,387
Teco Energy 300,000 5,569
15,956
Total Utilities 78,404
CONSUMER NONDURABLES 18.2%
Beverages 1.1%
PepsiCo 330,000 11,633
11,633
Food Processing 2.0%
General Mills 170,000 6,077
McCormick 240,000 7,140
Sara Lee 350,000 7,722
20,939
Hospital Supplies/Hospital Management 0.7%
Abbott Laboratories 190,000 6,899
6,899
Pharmaceuticals 7.6%
American Home Products 310,000 12,226
Bristol-Myers Squibb 280,000 17,972
Johnson & Johnson 140,000 13,037
Merck 110,000 7,377
Pfizer 170,000 5,514
Schering-Plough 190,000 8,016
Warner-Lambert 165,000 13,520
77,662
Miscellaneous Consumer Products 5.7%
Colgate-Palmolive 110,000 7,150
Hasbro 340,000 6,481
Newell Rubbermaid 170,000 4,930
NIKE (Class B) 130,000 6,443
Philip Morris 400,000 9,275
Stanley Works 350,000 10,544
Tomkins (GBP) 2,000,000 6,461
Viad 254,000 7,081
58,365
Health Care Services 1.1%
CIGNA 80,000 $ 6,445
IMS Health 175,000 4,758
11,203
Total Consumer Nondurables 186,701
CONSUMER SERVICES 6.1%
General Merchandisers 1.8%
Dayton Hudson 120,000 8,813
Family Dollar Stores 600,000 9,787
18,600
Specialty Merchandisers 2.1%
Royal Ahold (EUR) 175,000 5,181
Albertson's 270,000 8,708
CVS 190,000 7,588
21,477
Entertainment and Leisure 1.1%
Carnival (Class A) 100,000 4,781
Disney 200,000 5,850
10,631
Media and Communications 1.1%
Tribune 210,000 11,563
11,563
Total Consumer Services 62,271
CONSUMER CYCLICALS 11.8%
Building and Real Estate 9.0%
Archstone Communities Trust, REIT 530,000 10,865
Arden Realty, REIT 300,000 6,019
Cousins Properties, REIT 250,000 8,484
Crescent Real Estate Equities, REIT 375,000 6,891
Duke Realty Investments, REIT 400,000 7,800
Manufactured Home Communities, REIT 170,000 4,133
ProLogis Trust, REIT 1,000,000 19,250
Reckson Associates Realty, REIT 450,000 9,225
Starwood Hotels & Resorts Worldwide, REIT 420,000 9,870
Vornado Realty Trust, REIT 320,000 10,400
92,937
Miscellaneous Consumer Durables 2.8%
Black & Decker 210,000 $ 10,972
Masco 390,000 9,896
Valspar 180,000 7,538
28,406
Total Consumer Cyclicals 121,343
TECHNOLOGY 3.4%
Electronic Components 0.8%
Analogic 200,000 6,562
Linear Technology 30,000 2,147
8,709
Electronic Systems 1.6%
Hewlett-Packard 150,000 17,091
17,091
Information Processing 0.3%
COMPAQ Computer 100,000 2,706
2,706
Aerospace and Defense 0.7%
Honeywell International 120,000 6,923
6,923
Total Technology 35,429
CAPITAL EQUIPMENT 1.8%
Electrical Equipment 0.9%
GE 60,000 9,285
9,285
Machinery 0.9%
Teleflex 277,700 8,696
8,696
Total Capital Equipment 17,981
BUSINESS SERVICES AND
TRANSPORTATION 8.8%
Computer Service and Software 3.5%
Automatic Data Processing 160,000 8,620
Computer Associates 170,000 11,889
Galileo International 420,000 $ 12,574
Reynolds & Reynolds 110,000 2,475
35,558
Environmental 0.9%
Rentokil Group (GBP) 2,500,000 9,122
9,122
Transportation Services 1.0%
C.H. Robinson Worldwide 270,000 10,741
10,741
Miscellaneous Business Services 3.4%
H&R Block 180,000 7,875
Omnicom 140,000 14,000
RPM 400,000 4,075
ServiceMaster 475,000 5,848
United Parcel Service 44,500 3,071
34,869
Total Business Services and Transportation 90,290
ENERGY 7.1%
Integrated Petroleum - Domestic 0.8%
Amerada Hess 150,000 8,513
8,513
Integrated Petroleum - International 6.3%
BP Amoco ADR 310,000 18,387
Chevron 100,000 8,662
Exxon Mobil 290,000 23,363
Royal Dutch Petroleum ADR 240,000 14,505
64,917
Total Energy 73,430
PROCESS INDUSTRIES 2.5%
Specialty Chemicals 1.3%
Great Lakes Chemical 350,000 13,366
13,366
Paper and Paper Products 1.2%
Kimberly-Clark 190,000 12,397
12,397
Total Process Industries 25,763
EDUCATION 0.3%
Education 0.3%
Wolters Kluwer (EUR) 80,000 $ 2,708
Total Education 2,708
Miscellaneous Common Stocks 2.5% 25,783
Total Common Stocks (Cost $774,408) 904,210
Preferred Stocks 0.2%
Cleveland Electric (Series L), Adj 22,560 2,261
Cleveland Electric (Series R), 8.80% 320 329
Total Preferred Stocks (Cost $1,905) 2,590
Convertible Bonds 1.9%
Loews, Sub. Notes, 3.125%, 9/15/07 $10,000,000 8,231
Networks Associates, Sub. Deb.,
Zero Coupon, 2/13/18 5,000,000 1,936
Security Capital U. S. Realty, (144a),
2.00%, 5/22/03 12,000,000 8,917
Total Convertible Bonds (Cost $20,356) 19,084
U.S. Government Obligations 4.7%
U.S. Treasury Notes
6.00%, 8/15/09 50,000,000 48,422
Total U.S. Government Obligations (Cost $49,369) 48,422
Short-Term Investments 5.2%
Money Market Funds 5.2%
Reserve Investment Fund, 6.16% # 53,837,749 53,838
Total Short-Term Investments (Cost $53,838) 53,838
Total Investments in Securities
100.0% of Net Assets (Cost $899,876) $1,028,144
Other Assets Less Liabilities (176)
NET ASSETS $1,027,968
----------
Net Assets Consist of:
Accumulated net investment income
- - net of distributions $ (313)
Accumulated net realized gain/loss
- - net of distributions 2,001
Net unrealized gain (loss) 128,268
Paid-in-capital applicable to 50,870,807
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 898,012
NET ASSETS $1,027,968
----------
NET ASSET VALUE PER SHARE $ 20.21
----------
# Seven-day yield
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
0.9% of net assets.
EUR Euro
GBP British sterling
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/99
Investment Income (Loss)
Income
Dividend $ 24,248
Interest 10,547
Total income 34,795
Expenses
Investment management 6,522
Shareholder servicing 2,621
Prospectus and shareholder reports 198
Custody and accounting 150
Registration 89
Legal and audit 14
Directors 9
Miscellaneous 11
Total expenses 9,614
Expenses paid indirectly (11)
Net expenses 9,603
Net investment income (loss) 25,192
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 33,147
Foreign currency transactions (5)
Net realized gain (loss) 33,142
Change in net unrealized gain or loss on securities (91,466)
Net realized and unrealized gain (loss) (58,324)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (33,132)
----------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
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Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/99 12/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 25,192 $ 23,756
Net realized gain (loss) 33,142 35,825
Change in net unrealized gain or loss (91,466) 88,719
Increase (decrease) in net
assets from operations (33,132) 148,300
Distributions to shareholders
Net investment income (25,259) (24,002)
Net realized gain (38,194) (34,922)
Decrease in net assets
from distributions (63,453) (58,924)
Capital share transactions *
Shares sold 430,425 831,901
Distributions reinvested 60,223 55,832
Shares redeemed (703,822) (387,431)
Increase (decrease) in net
assets from capital
share transactions (213,174) 500,302
Net equalization -- 1,138
Net Assets
Increase (decrease) during period (309,759) 590,816
Beginning of period 1,337,727 746,911
End of period $1,027,968 $1,337,727
*Share information
Shares sold 19,932 39,472
Distributions reinvested 2,951 2,625
Shares redeemed (32,779) (18,426)
Increase (decrease) in
shares outstanding (9,896) 23,671
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
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December 31, 1999
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. Expenses paid
indirectly reflect credits earned on daily uninvested cash balances at the
custodian which are used to reduce the fund's custody charges. Effective
January 1, 1999, the fund discontinued its practice of equalization. The
results of operations and net assets were not affected by this change.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term and U.S.
government securities, aggregated $377,048,000 and $548,804,000,
respectively, for the year ended December 31, 1999. Purchases and sales of
U.S. government securities aggregated $49,359,000 and $52,474,000,
respectively, for the year ended December 31, 1999.
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 December 31, 1999, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$899,876,000. Net unrealized gain aggregated $128,268,000 at period-end, of
which $186,646,000 related to appreciated investments and $58,378,000 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 $473,000 was payable at December 31, 1999. 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 0.295% for
assets in excess of $120 billion. At December 31, 1999, 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 $2,118,000 for the year ended December 31, 1999, of which
$224,000 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, 1999, totaled $6,285,000 and are reflected as interest income
in the accompanying Statement of Operations.
During the year ended December 31, 1999, the fund, in the ordinary course
of business, placed security purchase and sale orders aggregating
$1,038,000 with certain affiliates of the manager and paid commissions of
$1,000 related thereto.
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,
1999, 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 accounting principles generally accepted in the United
States. 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 auditing standards generally accepted in the
United States, 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, 1999 by correspondence with
custodians, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 20, 2000
T. Rowe Price Dividend Growth Fund
- --------------------------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 12/31/99
- --------------------------------------------------------------------------------
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 $4,832,000 from short-term capital gains,
o $33,362,000 from long-term capital gains, subject to the 20% rate gains
category.
For corporate shareholders, $13,278,000 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.
** Based on a September 1999 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary depending on size of order.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
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 appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
T. Rowe Price, Invest with Confidence (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F58-050 12/31/99
