T. Rowe Price
--------------------------------------------------------------------------------
Semiannual Report
Dividend Growth Fund
--------------------------------------------------------------------------------
June 30, 2000
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REPORT HIGHLIGHTS
================================================================================
DIVIDEND GROWTH FUND
--------------------
* Despite extreme volatility, stocks finished only modestly lower
through the first six months of the year.
* The fund bucked the trend and posted solid year-to-date returns.
* Consumer nondurable, financial, and REIT holdings contributed to
positive returns.
* Volatility in the tech market allowed us to buy quality companies at
attractive prices.
* We believe that owning stocks of companies with strong earnings and
dividend growth will provide attractive long-term returns.
================================================================================
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
-------------------
Spring time brought a refreshing dose of reality to U.S. markets.
Continuing their fourth-quarter 1999 trend, stocks surged during most of the
first quarter, fueled by investor enthusiasm for shares of technologyNespecially
InternetNcompanies. Stocks fell sharply beginning in mid-March, however, as
investors finally reacted to the sky-high tech valuations and the ongoing series
of interest rate hikes by the Federal Reserve. Although the tech-heavy Nasdaq
Composite posted the largest drop, stocks outside the sector also suffered. The
S&P 500 finished the first six months of the year with a decline of 0.43%, while
the Russell 1000 Value Index lost 4.23%. The Dividend Growth Fund bucked the
trend, posting solid six-month returns for the period ended June 30, 2000.
MARKET ENVIRONMENT
------------------
Volatility characterized the first half of 2000. Technology shares
initially continued their blazing run as the Nasdaq Composite Index peaked on
March 10, up 24% from the end of the year. The prospect of higher interest rates
and a slowing economy, and perhaps a recognition that tech valuations were
stretched, eventually took their toll on the sector, and the Nasdaq tumbled 37%
from its March peak and 22% from December 31. Incredibly, by the end of June,
the Nasdaq had recovered much of its losses and was down just 2.5% for the first
half.
<PAGE>
The Federal Reserve was a prime market mover during the past six months,
raising short-term interest rates three times (six times since June 1999) in an
effort to lessen inflationary pressures in the economy. The economy has begun to
show signs of slowing, which means that the end of the rate-hike cycle may be
near. Markets reacted strongly to that hope, but there were lingering fears that
the Fed may need to tighten furtherNor that the Fed's actions may slow the
economy too much.
PERFORMANCE REVIEW
------------------
***********************************************************
PERFORMANCE COMPARISON
----------------------
Periods Ended 6/30/00 6 Months 12 Months
--------------------- -------- ---------
Dividend Growth Fund 2.44% -5.12%
S&P 500 -0.43 7.24
Lipper Multi-Cap Value
Funds Average -0.47 -3.99
***********************************************************
Your fund registered a positive 2.44% return for the first half of the
year, topping both the S&P 500 and its Lipper peer group average. Our
disappointi ng -5.12% return for the 12-month period trailed both benchmarks,
however, and reflected the weak 1999 performance of nearly all stocks outside a
narrow band of technology and Internet highfliers.
The springtime market volatility was generally positive for the fund, as
dividend-paying stocks made a strong recovery during the tech correction.
Concerns over a slowing economy caused money to flow toward the type of
companies we like to invest inNthose that generate steady and sustainable
earnings, cash flow, and dividend growth. Buried in the S&P 500's year-to-date
loss was a welcome broadening into sectors the fund has meaningful exposure to,
including pharmaceuticals, financials, and REITs. The volatility also allowed us
to add a number of quality companies at reasonable prices.
Our best performer was WADDELL & REED FINANCIAL, a Midwestern money
management company with an attractive, diverse franchise and proprietary
distribution system. The company rose on strong earnings growth, consolidation
within its industry, and speculation that it would make an attractive
acquisition. Pharmaceutical companies WARNER-LAMBERT and AMERICAN HOME PRODUCTS
also contributed to fund performance. Warner-Lambert was acquired by PFIZER--the
fund's top holding as of June 30--creating a company with a powerful product
lineup that should drive compound earnings growth to 25% for the next several
years. American Home Products benefited from a partial resolution of a lawsuit
concerning side effects of the company's diet drug, plus the recognition that it
possesses one of the better pharmaceutical pipelines in the business. Other top
contributors included a few that had required much patience, including insurer
ACE LIMITED and STARWOOD HOTELS & RESORTS WORLDWIDe. In each case, a fundamental
improvement in operations provided a strong lift from overly depressed
valuations.
<PAGE>
Certain individual holdings and market trends hurt returns. TRIBUNE, which
owns a raft of newspapers and radio and TV stations, was slowed by its recent
purchase of Times Mirror. While strategically a fine acquisition, its hefty
price diluted near-term earnings. Moreover, newspaper stocks in general
struggled on fears that a slowing economy would hurt advertising revenues.
GALILEO INTERNATIONAL, a leading processor of airline reservations and related
services, slid due to competitive issues and the unforeseen costs of
repositioning the business for the Internet. The stock trades at just seven
times estimated 2000 earnings and generates cash at the rate of two times
earnings, but lacks the "visibility" on near-term earnings growth that Wall
Street requires. Two well-run home-improvement companies, MASCO and BLACK &
DECKER, suffered as investors feared higher interest rates would harm future
sales growth. Both companies trade at attractive valuations and offer above-
average growth potential.
PORTFOLIO CHANGES
-----------------
The correction in tech and telecom stocks gave us the opportunity to
increase exposure to some well-run companies in this dynamic sector. Four of our
top five purchases during the past six months were tech-related. MICROSOFT
became attractive when its stock price was cut in half after a federal judge
ruled that the company violated antitrust laws. The company also suffered from
concerns over the company's lack of Internet-related revenue and the Nasdaq
slide. At one point Microsoft traded at 30 times forward earnings, a modest
premium to the market and a valuation level not seen in some time for this
world-class company. Although the antitrust ruling is a risk, we felt the stock
offered great potential, particularly as Microsoft reaches beyond its current
strength to new markets in the Internet and wireless software. VODAFONE
AIRTOUCH, the world's largest wireless company, runs highly profitable
operations in its major markets. Market weakness and concerns over the costs of
acquiring new licenses brought the stock down 40% from its peak. The company is
growing earnings in excess of 25%, generates significant cash flow, and has a
track record of paying and raising its dividend. We purchased NORTEL NETWORKS, a
dominant player in data networking, telecom equipment, and optical systems, as a
less-expensive alternative to Cisco Systems. Nortel's strength in optical
networking, which is showing explosive growth and should account for 35% to 40%
of company revenues in 2000, is quickly capturing investors' attention. WORLDCOM
provides local, long distance, Internet, and international telecom services in
more than 50 countries. Competitive pressures in its voice businesses, combined
with antitrust objections to its merger with Sprint, sent the price from $60 to
$35. We initiated our position at 14 times cash earnings for this well-managed
company that is growing its earnings in excess of 20%. As a group, these stocks
contributed nicely to performance in the first half of 2000.
***********************************************************
Security Diversification chart pie chart showing
Consumer 29%; Financial 18%; REITS 10%; Business
Services and Transportation 8%; Energy 8%;
Technology 8%; Other 15%; Reserves 4%
***********************************************************
<PAGE>
The fund's technology and telecom exposure rose to 8% from 4% at the
beginning of the year. Given its dividend focus, the fund will likely never
match the S&P 500's 35% tech weighting, although we will continue to look for
opportunities to increase exposure to quality companies. We remain committed to
the fund's dividend strategy, but on occasionNas in the case of MicrosoftNwe
will own a company that does not pay a dividend but has all the other
characteristics we look for. Companies such as Vodafone AirTouch and NOKIA
(owned by the fund but not a top-10 purchase in the last six months) pay and
raise their dividends. Nortel and TEXAS INSTRUMENTS pay dividends but don't
raise them.
Other large recent purchases included PHARMACIA (formerly Pharmacia &
Upjohn), diversified manufacturer UNITED TECHNOLOGIES, home retailer LOWE'S, and
filtration-systems maker PALL. All operate terrific franchises with stable to
improving business trends.
We eliminated DQE and STANLEY WORKS from the portfolio. We took profits in
DQE, a Pennsylvania-based electric utility that had performed nicely but was no
longer attractively valued. We eliminated Stanley in favor of maintaining
positions in peers Black & Decker and Masco, whose business trends we have more
confidence in. We also lightened our exposure to pharmaceuticals, REITs, and
financials, areas that had performed well and become too heavily weighted in the
portfolio.
SUMMARY AND OUTLOOK
-------------------
Given the prospect of higher interest rates and stretched technology
valuations, we are not surprised at the performance of the market averages so
far in 2000. Current earnings reports remain generally robust, but the rate
hikes are beginning to take their toll on the economy. As long as the Fed
continues to tighten, stocks are unlikely to stage a major advance. The downturn
eliminated some excesses in the market and refocused attention on fundamentally
sound companies, and a continuation of this trend should be positive for the
fund. Our strategy leads us to stable companies with track records of
maintaining growth through business cycles, and we believe that owning stocks of
companies with strong earnings and dividend growth will provide attractive
long-term returns for shareholders.
Respectfully submitted,
/s/
Thomas J. Huber
Chairman of the Investment Advisory Committee
July 18, 2000
================================================================================
<PAGE>
T. Rowe Price Dividend Growth Fund
-------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
--------------------
TWENTY-FIVE LARGEST HOLDINGS
----------------------------
Percent of
Net Assets
6/30/00
-----------
Pfizer 3.5%
Citigroup 2.4
Waddell & Reed Financial 2.2
Exxon Mobil 2.1
XLCapital 1.8
American Home Products 1.8
Bank of New York 1.7
Hewlett-Packard 1.6
PepsiCo 1.6
Royal Dutch Petroleum 1.6
Family Dollar Stores 1.5
BPAmoco 1.5
Starwood Hotels & Resorts Worldwide 1.5
ProLogis Trust 1.4
Freddie Mac 1.4
Mellon Financial 1.4
GTE 1.4
GE 1.3
Tyco International 1.3
CIGNA 1.2
ACELimite 1.2
Omnicom 1.2
Nortel Networks 1.2
Fannie Mae 1.2
Reckson Associates Realty 1.2
-----------
Total 40.2%
Note: Table excludes reserves.
================================================================================
<PAGE>
T. Rowe Price Dividend Growth Fund
--------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
--------------------
MAJOR PORTFOLIO CHANGES
-----------------------
Listed in descending order of size
6 Months Ended 6/30/00
Ten Largest Purchases Ten Largest Sales
--------------------- -----------------
Microsoft * DQE **
Pharmacia & Upjohn *** Sprint
Vodafone AirTouch * Bristol-Myers Squibb
Nortel Networks * ProLogis Trust
WorldCom * Johnson & Johnson
United Technologies * Wells Fargo
Lowe's * Stanley Works **
America Online * Fannie Mae
Pall * Waddell & Reed Financial
Tyco International C.H. Robinson Worldwide
* Position added
** Position eliminated
*** Acquired by another company
================================================================================
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 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.
S&P 500 Dividend
Stock Index Growth Fund
----------- -----------
12/30/92 10,000 10,000
6/93 10,414 11,001
6/94 10,560 11,680
6/95 13,313 13,952
6/96 16,775 17,410
6/97 22,595 23,216
6/98 29,411 28,860
6/99 36,104 31,308
6/00 38,719 30,174
<PAGE>
AVERAGE ANNUAL COMPOUND TOTAL RETURN
------------------------------------
This table shows how the fund would have performed each year if its actual
(or cumulative)returns for the periods shown had been earned at a constant rate.
Since Inception
Periods Ended 6/30/00 1 Year 3 Years 5 Years Inception Date
--------------------- ------ ------- ------- --------- ---------
Dividend Growth Fund -5.12% 9.13% 16.68% 15.87% 12/30/92
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
================================================================================
T. Rowe Price Dividend Growth Fund
--------------------------------------------------------------------------------
Unaudited For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
--------------------
6 Months Year
Ended Ended
6/30/00 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
------- -------- -------- -------- -------- --------
NET ASSET VALUE
Beginning of period $ 20.21 $ 22.01 $ 20.13 $ 16.37 $ 13.81 $ 11.04
--------------------------------------------------------------------------------
Investment activities
Net investment
income (loss) 0.14 0.45 0.46 0.44 0.35 0.36*
Net realized and
unrealized gain (loss) 0.35 (1.08) 2.51 4.51 3.08 3.08
--------------------------------------------------------------------------------
Total from
investment activities 0.49 (0.63) 2.97 4.95 3.43 3.44
--------------------------------------------------------------------------------
Distributions
Net investment income (0.12) (0.45) (0.46) (0.44) (0.36) (0.36)
Net realized gain (0.05) (0.72) (0.63) (0.75) (0.51) (0.31)
--------------------------------------------------------------------------------
Total distributions (0.17) (1.17) (1.09) (1.19) (0.87) (0.67)
--------------------------------------------------------------------------------
NET ASSET VALUE
End of period $ 20.53 $ 20.21 $ 22.01 $ 20.13 $ 16.37 $ 13.81
--------------------------------------------------------------------------------
<PAGE>
RATIOS/SUPPLEMENTAL DATA
------------------------
Total return~ 2.44% (2.82)% 15.04% 30.77% 25.36% 31.75%*
--------------------------------------------------------------------------------
Ratio of total expenses
to average net assets 0.83%+ 0.77% 0.77% 0.80% 1.10% 1.10%*
--------------------------------------------------------------------------------
Ratio of net investment
income (loss) to
average net assets 1.29%+ 2.01% 2.26% 2.42% 2.53% 2.92%*
--------------------------------------------------------------------------------
Portfolio
turnover rate 34.3%+ 37.8% 37.3% 39.1% 43.1% 56.1%
--------------------------------------------------------------------------------
Net assets, end of
period (in millions) $ 757 $ 1,028 $ 1,338 $ 747 $ 209 $ 85
--------------------------------------------------------------------------------
~ 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.
+ Annualized
The accompanying notes are an integral part of these financial statements.
================================================================================
T. Rowe Price Dividend Growth Fund
--------------------------------------------------------------------------------
Unaudited June 30, 2000
STATEMENT OF NET ASSETS
-----------------------
Shares/Par Value
---------- ----------
In thousands
COMMON STOCKS 90.7%
FINANCIAL 17.2%
----------------
BANK AND TRUST 5.1%
Bank of America 40,000 $ 1,720
--------------------------------------------------------------------------------
Bank of New York 280,000 13,020
--------------------------------------------------------------------------------
Firstar 300,000 6,319
--------------------------------------------------------------------------------
Mellon Financial 300,000 10,931
--------------------------------------------------------------------------------
Wells Fargo 170,000 6,587
--------------------------------------------------------------------------------
38,577
------------
<PAGE>
INSURANCE 4.5%
ACE Limited 325,000 9,100
--------------------------------------------------------------------------------
American General 100,000 6,100
--------------------------------------------------------------------------------
Marsh & McLennan 50,000 5,222
--------------------------------------------------------------------------------
XL Capital (Class A) 250,000 13,531
--------------------------------------------------------------------------------
33,953
------------
FINANCIAL SERVICES 7.6%
Associates First Capital (Class A) 140,000 3,124
--------------------------------------------------------------------------------
Citigroup 300,000 18,075
--------------------------------------------------------------------------------
Fannie Mae 170,000 8,872
--------------------------------------------------------------------------------
Freddie Mac 270,000 10,935
--------------------------------------------------------------------------------
Waddell & Reed Financial (Class B) 575,000 16,711
--------------------------------------------------------------------------------
57,717
------------
Total Financial 130,247
------------
UTILITIES 5.6%
---------------
TELEPHONE 4.8%
ALLTEL 110,000 6,813
--------------------------------------------------------------------------------
AT&T 90,250 2,854
--------------------------------------------------------------------------------
SBC Communications 160,000 6,920
--------------------------------------------------------------------------------
Sprint 60,000 3,060
--------------------------------------------------------------------------------
Verizon Communications 165,000 10,271
--------------------------------------------------------------------------------
Vodafone Airtouch ADR 160,000 6,630
--------------------------------------------------------------------------------
36,548
------------
ELECTRIC UTILITIES 0.8%
Teco Energy 300,000 6,019
--------------------------------------------------------------------------------
6,019
------------
Total Utilities 42,567
------------
<PAGE>
CONSUMER NONDURABLES 19.7%
---------------------------
COSMETICS 0.4%
Gillette 90,000 $ 3,144
--------------------------------------------------------------------------------
3,144
------------
BEVERAGES 1.6%
PepsiCo 280,000 12,442
--------------------------------------------------------------------------------
12,442
------------
FOOD PROCESSING 2.5%
General Mills 180,000 6,885
--------------------------------------------------------------------------------
McCormick 210,000 6,825
--------------------------------------------------------------------------------
Quaker Oats 70,000 5,259
--------------------------------------------------------------------------------
18,969
------------
HOSPITAL SUPPLIES/HOSPITAL MANAGEMENT 0.9%
Abbott Laboratories 145,000 6,462
--------------------------------------------------------------------------------
6,462
------------
PHARMACEUTICALS 9.0%
American Home Products 230,000 13,512
--------------------------------------------------------------------------------
Bristol-Myers Squibb 100,000 5,825
--------------------------------------------------------------------------------
Johnson & Johnson 20,000 2,038
--------------------------------------------------------------------------------
Merck 70,000 5,364
--------------------------------------------------------------------------------
Pfizer 545,000 26,160
--------------------------------------------------------------------------------
Pharmacia 150,000 7,753
--------------------------------------------------------------------------------
Schering-Plough 150,000 7,575
--------------------------------------------------------------------------------
68,227
------------
<PAGE>
MISCELLANEOUS CONSUMER PRODUCTS 4.1%
Colgate-Palmolive 80,000 4,790
--------------------------------------------------------------------------------
Hasbro 300,000 4,519
--------------------------------------------------------------------------------
NIKE (Class B) 70,000 2,787
--------------------------------------------------------------------------------
Philip Morris 255,000 6,773
--------------------------------------------------------------------------------
Tomkins (GBP) 1,000,000 3,246
--------------------------------------------------------------------------------
Viad 320,000 8,720
--------------------------------------------------------------------------------
30,835
------------
HEALTH CARE SERVICES 1.2%
CIGNA 100,000 9,350
--------------------------------------------------------------------------------
9,350
------------
Total Consumer Nondurables 149,429
------------
CONSUME SERVICES 6.2%
----------------------
GENERAL MERCHANDISERS 2.6%
Family Dollar Stores 580,000 $ 11,346
--------------------------------------------------------------------------------
Target 140,000 8,120
--------------------------------------------------------------------------------
19,466
------------
SPECIALTY MERCHANDISERS 1.9%
Albertson's 50,000 1,662
--------------------------------------------------------------------------------
CVS 170,000 6,800
--------------------------------------------------------------------------------
Lowe's 140,000 5,749
--------------------------------------------------------------------------------
14,211
------------
ENTERTAINMENT AND LEISURE 1.3%
Disney 200,000 7,763
--------------------------------------------------------------------------------
MGM Grand++ * 73,572 2,245
--------------------------------------------------------------------------------
10,008
------------
MEDIA AND COMMUNICATIONS 0.4%
Tribune 100,000 3,500
--------------------------------------------------------------------------------
3,500
------------
Total Consumer Services 47,185
------------
<PAGE>
CONSUMER CYCLICALS 10.9%
-------------------------
BUILDING AND REAL ESTATE 8.9%
Archstone Communities Trust, REIT 370,000 7,793
--------------------------------------------------------------------------------
Arden Realty, REIT 175,000 4,113
--------------------------------------------------------------------------------
Cousins Properties, REIT 210,000 8,085
--------------------------------------------------------------------------------
Duke Realty Investments, REIT 350,000 7,831
--------------------------------------------------------------------------------
ProLogis Trust, REIT 515,000 10,976
--------------------------------------------------------------------------------
Reckson Associates Realty, REIT 370,000 8,788
--------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, REIT 340,000 11,071
--------------------------------------------------------------------------------
Vornado Realty Trust, REIT 240,000 8,340
--------------------------------------------------------------------------------
66,997
------------
MISCELLANEOUS CONSUMER DURABLES 2.0%
Black & Decker 200,000 7,862
--------------------------------------------------------------------------------
Masco 232,200 4,194
--------------------------------------------------------------------------------
Valspar 90,000 3,038
--------------------------------------------------------------------------------
15,094
------------
Total Consumer Cyclicals 82,091
------------
TECHNOLOGY 7.8%
----------------
ELECTRONIC COMPONENTS 1.5%
Analogic 125,000 $ 4,957
--------------------------------------------------------------------------------
Linear Technology 60,000 3,834
--------------------------------------------------------------------------------
Texas Instruments 40,000 2,748
--------------------------------------------------------------------------------
11,539
------------
ELECTRONIC SYSTEMS 2.1%
Hewlett-Packard 100,000 12,487
--------------------------------------------------------------------------------
Nokia ADR 70,000 3,496
--------------------------------------------------------------------------------
15,983
------------
<PAGE>
INFORMATION PROCESSING 1.0%
COMPAQ Computer 50,000 1,278
--------------------------------------------------------------------------------
Dell Computer * 120,000 5,921
--------------------------------------------------------------------------------
7,199
------------
TELECOMMUNICATIONS 2.3%
Cisco Systems * 35,000 2,224
--------------------------------------------------------------------------------
Nortel Networks 130,000 8,872
--------------------------------------------------------------------------------
WorldCom * 136,400 6,262
--------------------------------------------------------------------------------
17,358
------------
AEROSPACE AND DEFENSE 0.9%
United Technologies 120,000 7,065
--------------------------------------------------------------------------------
7,065
------------
Total Technology 59,144
------------
CAPITAL EQUIPMENT 3.5%
-----------------------
ELECTRICAL EQUIPMENT 2.5%
GE 180,000 9,540
--------------------------------------------------------------------------------
Tyco International 200,000 9,475
--------------------------------------------------------------------------------
19,015
------------
MACHINERY 1.0%
Teleflex 200,000 7,413
--------------------------------------------------------------------------------
7,413
------------
Total Capital Equipment 26,428
------------
BUSINESS SERVICE AND TRANSPORTATION 6.7%
-----------------------------------------
COMPUTER SERVICE AND SOFTWARE 3.1%
America Online * 100,000 $ 5,275
--------------------------------------------------------------------------------
Automatic Data Processing 140,000 7,499
--------------------------------------------------------------------------------
Computer Associates 65,000 3,327
--------------------------------------------------------------------------------
Microsoft * 100,000 7,997
--------------------------------------------------------------------------------
24,098
------------
<PAGE>
TRANSPORTATION SERVICES 0.7%
C.H. Robinson Worldwide 100,000 4,947
--------------------------------------------------------------------------------
4,947
------------
MISCELLANEOUS BUSINESS SERVICES 2.9%
Equifax 80,500 2,113
--------------------------------------------------------------------------------
Galileo International 175,000 3,653
--------------------------------------------------------------------------------
Omnicom 100,000 8,907
--------------------------------------------------------------------------------
ServiceMaster 485,000 5,517
--------------------------------------------------------------------------------
United Parcel Service 30,000 1,770
--------------------------------------------------------------------------------
21,960
------------
Total Business Services and Transportation 51,005
------------
ENERGY 7.9%
------------
ENERGY SERVICES 0.8%
Baker Hughes 175,000 5,600
--------------------------------------------------------------------------------
5,600
------------
INTEGRATED PETROLEUM - DOMESTIC 0.8%
Amerada Hess 100,000 6,175
--------------------------------------------------------------------------------
6,175
------------
INTEGRATED PETROLEUM - INTERNATIONAL 6.3%
BP Amoco ADR 200,000 11,313
--------------------------------------------------------------------------------
Chevron 100,000 8,481
--------------------------------------------------------------------------------
Exxon Mobil 200,000 15,700
--------------------------------------------------------------------------------
Royal Dutch Petroleum 200,000 12,312
--------------------------------------------------------------------------------
47,806
------------
Total Energy 59,581
------------
PROCESS INDUSTRIES 2.2%
------------------------
DIVERSIFIED CHEMICALS 0.1%
DuPont 20,000 $ 875
--------------------------------------------------------------------------------
875
------------
<PAGE>
SPECIALTY CHEMICALS 1.1%
Great Lakes Chemical 125,000 3,937
--------------------------------------------------------------------------------
Pall 250,000 4,625
--------------------------------------------------------------------------------
8,562
------------
PAPER AND PAPER PRODUCTS 1.0%
Kimberly-Clark 130,000 7,459
--------------------------------------------------------------------------------
7,459
------------
Total Process Industries 16,896
------------
BASIC MATERIALS 0.6%
--------------------
METALS 0.6%
Newmont Mining 200,000 4,325
--------------------------------------------------------------------------------
Total Basic Materials 4,325
--------------------------------------------------------------------------------
Miscellaneous Common Stocks 2.4% 17,878
------------
Total Common Stocks (Cost $542,574) 686,776
------------
PREFERRED STOCKS 0.3%
Cleveland Electric (Series L), Adj. 22,560 2,211
--------------------------------------------------------------------------------
Total Preferred Stocks (Cost $1,651) 2,211
------------
CONVERTIBLE BONDS 2.5%
E* Trade, (144a), 6.00%, 2/1/07 $ 2,825,000 2,564
--------------------------------------------------------------------------------
Loew's, 3.125%, 9/15/07 9,000,000 7,562
--------------------------------------------------------------------------------
Security Capital U. S. Realty,
(144a), 2.00%, 5/22/03 11,000,000 8,635
--------------------------------------------------------------------------------
Total Convertible Bonds (Cost $19,931) 18,761
------------
U.S. GOVERNMENT OBLIGATIONS 3.0%
U.S. Treasury Notes
6.00%, 8/15/09 23,000,000 22,816
--------------------------------------------------------------------------------
Total U.S. Government Obligations (Cost $22,720) 22,816
------------
<PAGE>
SHORT-TERM INVESTMENTS 2.9%
----------------------------
MONEY MARKET FUNDS 2.9%
Reserve Investment Fund, 6.68% # 21,863,532 $ 21,864
--------------------------------------------------------------------------------
Total Short-Term Investments (Cost $21,864) 21,864
------------
Tota Investments in Securities
99.4% of Net Assets (Cost $608,740) $ 752,428
Other Assets Less Liabilities 4,585
------------
NET ASSETS $ 757,013
------------
NET ASSETS CONSIST OF:
----------------------
Accumulated net investment income - net of distributions $ 385
Accumulated net realized gain/loss - net of distributions (12,530)
Net unrealized gain (loss) 143,688
Paid-in-capital applicable to 36,870,652 shares of $0.0001 par
value capital stock outstanding; 1,000,000,000 shares authorized 625,470
------------
NET ASSETS $ 757,013
------------
NET ASSET VALUE PER SHARE $ 20.53
------------
# Seven-day yield
* Non-income producing
++ Securities contain some restrictions as to
public resale--total of such securities at
period-end amounts to 0.3% of net assets.
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
1.5% of net assets.
GBP British sterling
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Dividend Growth Fund
--------------------------------------------------------------------------------
Unaudited
STATEMENT OF OPERATIONS
-----------------------
In thousands
6 Months
Ended
6/30/00
-------------
Investment Income (Loss)
Income
Dividend $ 6,264
Interest 2,306
-------------
Total income 8,570
-------------
Expenses
Investment management 2,087
Shareholder servicing 1,092
Prospectus and shareholder reports 89
Custody and accounting 65
Registration 12
Legal and audit 8
Directors 4
Miscellaneous 5
Total expenses 3,362
-------------
Net investment income (loss) 5,208
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (12,554)
Foreign currency transactions (16)
-------------
Net realized gain (loss) (12,570)
Change in net unrealized gain or loss on securities 15,420
-------------
Net realized and unrealized gain (loss) 2,850
-------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 8,058
-------------
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Dividend Growth Fund
---------------------------------------------------------------------
Unaudited
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
In thousands
6 Months Year
Ended Ended
6/30/00 12/31/99
------------- -------------
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 5,208 $ 25,192
Net realized gain (loss) (12,570) 33,142
Change in net unrealized gain or loss 15,420 (91,466)
------------- -------------
Increase (decrease) in net assets from operations 8,058 (33,132)
------------- -------------
Distributions to shareholders
Net investment income (4,510) (25,259)
Net realized gain (1,961) (38,194)
------------- -------------
Decrease in net assets from distributions (6,471) (63,453)
------------- -------------
Capital share transactions *
Shares sold 56,810 430,425
Distributions reinvested 6,058 60,223
Shares redeemed (335,410) (703,822)
------------- -------------
Increase (decrease) in net assets from capital
share transactions (272,542) (213,174)
------------- -------------
Net Assets
Increase (decrease) during period (270,955) (309,759)
Beginning of period 1,027,968 1,337,727
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End of period $ 757,013 $ 1,027,968
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*Share information
Shares sold 2,874 19,932
Distributions reinvested 302 2,951
Shares redeemed (17,176) (32,779)
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Increase (decrease) in shares outstanding (14,000) (9,896)
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price Dividend Growth Fund
--------------------------------------------------------------------------------
Unaudited June 30, 2000
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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. The fund seeks increasing
dividend income over time, long-term growth of capital, and a reasonable level
of current income by investing primarily in the common stocks of dividend-paying
companies.
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.
<PAGE>
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. Credits earned on daily uninvested cash balances
at the custodian are used to reduce the fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $134,963,000 and $380,326,000, respectively, for the six
months ended June 30, 2000.
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, 2000, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled $608,740,000.
Net unrealized gain aggregated $143,688,000 at period-end, of which $172,363,000
related to appreciated investments and $28,675,000 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 $326,000 was payable at June 30, 2000. 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
June 30, 2000, and for the six months 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 $907,000 for the six months
ended June 30, 2000, of which $207,000 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 six months ended June 30, 2000, totaled $746,000 and are reflected
as interest income in the accompanying State ment of Operations.
<PAGE>
================================================================================
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
<PAGE>
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 Investment Services, Inc., Distributor. F58-051 6/30/00
