PRICE T ROWE BLUE CHIP GROWTH FUND INC, 497, 1999-05-05

PRICE T ROWE BLUE CHIP GROWTH FUND INC
497, 1999-05-05

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<PAGE>

PROSPECTUS
May 1, 1999
T. Rowe Price Blue Chip Growth Fund

A stock fund seeking long-term capital growth through high-quality U.S. growth
companies.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
T. ROWE PRICE RAM LOGO
<PAGE>

T. Rowe Price Blue Chip Growth Fund, Inc.
Prospectus

May 1, 1999

<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 ABOUT THE FUND
Fund, Market, and Risk Characteristics 1
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Other Information About the Fund 4
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2 ABOUT YOUR ACCOUNT
Pricing Shares and Receiving 6
Sale Proceeds
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Distributions and Taxes 7
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Transaction Procedures and 9
Special Requirements
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3 MORE ABOUT THE FUND
Organization and Management 12
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Understanding Performance Information 13
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Investment Policies and Practices 14
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Financial Highlights 19
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4 INVESTING WITH T. ROWE PRICE
Account Requirements 21
and Transaction Information
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Opening a New Account 21
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Purchasing Additional Shares 23
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Exchanging and Redeeming 23
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Rights Reserved by the Fund 25
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Information About Your Services 26
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T. Rowe Price Brokerage 28
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Investment Information 29
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</TABLE>

Founded in 1937 by the late Thomas Rowe Price, Jr., T. Rowe Price Associates,
Inc., and its affiliates managed $147.8 billion for more than seven million
individual and institutional investor accounts as of December 31, 1998.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve, or
any other government agency, and are subject to investment risks, including
possible loss of the principal amount invested.
<PAGE>

ABOUT THE FUND
1
FUND, MARKET, AND RISK CHARACTERISTICS: WHAT TO EXPECT
----------------------------------------------------------

To help you decide whether this fund is appropriate for you, this section
reviews its investment objective, strategy, and risks.

What is the fund's objective?

The fund seeks to provide long-term capital growth. Income is a secondary
objective.

What is the fund's principal investment strategy?

We will invest at least 65% of total assets in the common stocks of large and
medium-sized blue chip growth companies. These are firms that, in our view,
are well-established in their industries and have the potential for
above-average earnings growth. Some of these companies may have good dividend
prospects. Our approach reflects our belief that solid company fundamentals
combined with a positive industry outlook will ultimately reward investors
with a higher stock price. We look for companies that offer leading market
positions, seasoned management teams, and strong financial fundamentals.
Where possible we seek stocks whose current prices do not reflect their
long-term appreciation potential.

While most of the fund's assets will be invested in U.S. common stocks, we
may also invest in other securities, including foreign securities, futures,
and options, in keeping with the fund's objective.

The fund may sell securities for a variety of reasons, such as to secure
gains, limit losses, or redeploy assets into more promising opportunities.

. For details about the fund's investment program, please see the Investment
Policies and Practices section.

What are the main risks of investing in the fund?

As with all equity funds, this fund's share price can fall because of
weakness in the broad market, a particular industry, or specific holdings.
The market as a whole can decline for many reasons, including adverse
political or economic developments here or abroad, changes in investor
psychology, or heavy institutional selling. The prospects for an industry or
company may deteriorate because of a variety of factors, including
disappointing earnings or changes in the competitive environment. In
addition, our assessment of companies held in the fund may prove incorrect,
resulting in losses or poor performance even in a rising market. Finally, the
fund's investment approach could fall out of favor with the investing public,
resulting in lagging performance versus other types of stock funds.

<PAGE>

T. ROWE PRICE

Even well-established growth stocks can be volatile. Since growth companies
usually invest a high portion of earnings in their own businesses, their
stocks may lack the dividends of value stocks that can cushion share prices
in a down market. Since many investors buy these stocks because of
anticipated superior earnings growth, earnings disappointments often result
in sharp price declines. Also, medium-sized companies may have greater
volatility than more established ones.

To the extent that the fund invests in foreign securities, it is also subject
to the risk that some holdings may lose value because of declining foreign
currencies or adverse political or economic events overseas. If the fund uses
futures and options, it is exposed to additional volatility and potential
losses.

As with any mutual fund, there can be no guarantee the fund will achieve its
objective.

. The fund's share price may decline, so when you sell your shares, you may
lose money.

How can I tell if the fund is appropriate for me?

Consider your investment goals, your time horizon for achieving them, and
your tolerance for risk. If you are willing to accept the risk of investing
in established growth stocks in an effort to achieve long-term capital
growth, the fund could be appropriate for you. This fund should not represent
your complete investment program or be used for short-term trading purposes.

The fund can be used in both regular and tax-deferred accounts, such as IRAs.

. Equity investors should have a long-term investment horizon and be willing
to wait out bear markets.

How has the fund performed in the past?

The bar chart and the average annual total return table indicate risk by
illustrating how much returns can differ from one year to the next.The fund's
past performance is no guarantee of its future returns.

The fund can also experience short-term performance swings, as shown by the
best and worst calendar quarter returns accompanying the following chart. The
returns are only for the years depicted in the chart.
<PAGE>

INVESTING WITH T. ROWE PRICE
Calendar Year Total Returns

Quarter ended Total return

Best quarter 12/31/98 24.71%

Worst quarter 6/30/94 -1.09%

<TABLE>
Table 1 Average Annual Total Returns
<CAPTION>
Periods ended December 31, 1998
Since inception
1 year 5 years (6/30/93)
<S> <C> <C> <C> <S>

Blue Chip Growth Fund 28.84% 23.89% 24.48%
------------------------------------
S&P 500 Index 28.57 24.06 22.72
------------------------------------------------------------------------------
</TABLE>

These figures include changes in principal value, reinvested dividends, and
capital gain distributions, if any.

What fees or expenses will I pay?

The fund is 100% no load. There are no fees or charges to buy or sell fund
shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
are no 12b-1 fees.

<TABLE>
Table 2 Fees and Expenses of the Fund
<CAPTION>
Annual fund operating expenses
(expenses that are deducted from fund assets)
------------------------------------------------------------------------------
<S> <C>

Management fee 0.62%
Other expenses 0.29%
Total annual fund operating 0.91%
expenses
------------------------------------------------------------------------------
</TABLE>

Example. The following table gives you a rough idea of how expense ratios
may translate into dollars and helps you to compare the cost of investing in
this fund with that of other funds. Although your actual costs may be higher
or lower, the table shows how much you would pay if operating expenses remain
the same, you invest $10,000, you earn a 5% annual return, and you hold the
investment for the following periods:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 year 3 years 5 years 10 years

$93 $290 $504 $1,120
----------------------------------------------------
</TABLE>

<PAGE>

T. ROWE PRICE
OTHER INFORMATION ABOUT THE FUND
----------------------------------------------------------

What are some of the fund's potential rewards?

The market frequently rewards growth stocks with price increases when
earnings expectations are met or exceeded. A successful implementation of our
strategy could lead to long-term growth of capital. By investing in companies
with proven track records, the fund should be less risky than one focusing on
newer or smaller companies while still offering significant potential
appreciation.

What are some potential risks and rewards of investing in the stock market
through this fund?

Common stocks, in general, offer a way to invest for long-term growth of
capital. As the U.S. economy has expanded, corporate profits have grown and
share prices have risen. Nevertheless, economic growth has been punctuated by
periods of stagnation and recession. Share prices of all companies, even the
best managed and most profitable, can fall for any number of reasons.

What is meant by a "blue chip" investment approach?

T. Rowe Price analysts evaluate the growth prospects of companies and their
industries. This approach seeks to identify blue chip growth companies-those
with strong market franchises in industries that appear to be strategically
poised for long-term growth. Our investment approach reflects T. Rowe Price's
belief that the combination of solid company fundamentals (with emphasis on
the potential for above-average growth in earnings) along with a positive
outlook for the overall industry will ultimately reward investors with a
higher stock price. While the primary emphasis is on a company's prospects
for future growth, the fund will not purchase securities that, in T. Rowe
Price's opinion, are overvalued considering the underlying business
fundamentals. In the search for substantial capital appreciation, the fund
looks for stocks attractively priced relative to their anticipated long-term
value.
<PAGE>

ABOUT THE FUND
How does the fund select stocks for the portfolio?

The fund will generally take the following into consideration:

. Leading market positions Blue chip companies often have leading market
positions that are expected to be maintained or enhanced over time. Strong
positions, particularly in growing industries, can give a company pricing
flexibility as well as the potential for good unit sales. These factors, in
turn, can lead to higher earnings growth and greater share price
appreciation.

. Seasoned management teams Seasoned management teams with a track record of
providing superior financial results are important for a company's long-term
growth prospects. Our analysts will evaluate the depth and breadth of a
company's management experience.

. Strong financial fundamentals Companies should demonstrate faster earnings
growth than their competitors and the market in general; high profit margins
relative to competitors; strong cash flow; a healthy balance sheet with
relatively low debt; and a high return on equity with a comparatively low
dividend payout ratio.

Is there other information I can review before making a decision?

Investment Policies and Practices in Section 3 discusses various types of
portfolio securities the fund may purchase as well as types of investment
management practices the fund may use.
<PAGE>

ABOUT YOUR ACCOUNT
2
PRICING SHARES AND RECEIVING SALE PROCEEDS
----------------------------------------------------------
Here are some procedures you should know when investing in a T. Rowe Price
fund.

How and when shares are priced

The share price (also called "net asset value" or NAV per share) for the fund
is calculated at the close of the New York Stock Exchange, normally 4 p.m.
ET, each day the New York Stock Exchange is open for business. To calculate
the NAV, the fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. Current market values are used to price fund shares.

. The various ways you can buy, sell, and exchange shares are explained at the
end of this prospectus and on the New Account Form. These procedures may
differ for institutional and employer-sponsored retirement accounts.

How your purchase, sale, or exchange price is determined

If we receive your request in correct form by 4 p.m. ET, your transaction
will be priced at that day's NAV. If we receive it after 4 p.m., it will be
priced at the next business day's NAV.

We cannot accept orders that request a particular day or price for your
transaction or any other special conditions.

Fund shares may be purchased through various third-party intermediaries
including banks, brokers, and investment advisers. Where authorized by a
fund, orders will be priced at the NAV next computed after receipt by the
intermediary. Consult your intermediary to determine when your orders will be
priced. The intermediary may charge a fee for its services.

Note: The time at which transactions and shares are priced and the time until
which orders are accepted may be changed in case of an emergency or if the
New York Stock Exchange closes at a time other than 4 p.m. ET.

How you can receive the proceeds from a sale

. When filling out the New Account Form, you may wish to give yourself the
widest range of options for receiving proceeds from a sale.

ABOUT YOUR ACCOUNT
financial institution account. The ACH system is supported by over 20,000
banks, savings banks, and credit unions. Proceeds sent by bank wire should be
credited to your account the next business day.

. Exception: Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to seven calendar days
after we receive your redemption request.

. If for some reason we cannot accept your request to sell shares, we will
contact you.

USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
----------------------------------------------------------
. All net investment income and realized capital gains are distributed to
shareholders.

Dividends and Other Distributions

Dividend and capital gain distributions are reinvested in additional fund
shares in your account unless you select another option on your New Account
Form. The advantage of reinvesting distributions arises from compounding;
that is, you receive income dividends and capital gain distributions on a
rising number of shares.

Distributions not reinvested are paid by check or transmitted to your bank
account via ACH. If the Post Office cannot deliver your check, or if your
check remains uncashed for six months, the fund reserves the right to
reinvest your distribution check in your account at the NAV on the business
day of the reinvestment and to reinvest all subsequent distributions in
shares of the fund. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.

Income dividends
. The fund declares and pays dividends (if any) annually.

. A portion of the fund's dividends may be eligible for the 70% deduction for
dividends received by corporations.

Capital gains
. A capital gain or loss is the difference between the purchase and sale price
of a security.

. If a fund has net capital gains for the year (after subtracting any capital
losses), they are usually declared and paid in December to shareholders of
record on a specified date that month.
<PAGE>

T. ROWE PRICE
Tax Information

. You will be sent timely information for your tax filing needs.

You need to be aware of the possible tax consequences when:

. You sell fund shares, including an exchange from one fund to another.

. The fund makes a distribution to your account.

Taxes on fund redemptions
When you sell shares in any fund, you may realize a gain or loss. An exchange
from one fund to another is still a sale for tax purposes.

In January, you will be sent Form 1099-B indicating the date and amount of
each sale you made in the fund during the prior year. This information will
also be reported to the IRS. For most new accounts or those opened by
exchange in 1984 or later, we will provide the gain or loss on the shares you
sold during the year, based on the "average cost," single category method.
This information is not reported to the IRS, and you do not have to use it.
You may calculate the cost basis using other methods acceptable to the IRS,
such as "specific identification."

To help you maintain accurate records, we send you a confirmation immediately
following each transaction you make (except for systematic purchases and
redemptions) and a year-end statement detailing all your transactions in each
fund account during the year.

Taxes on fund distributions
. The following summary does not apply to retirement accounts, such as IRAs,
which are not subject to current tax.

In January, you will be sent Form 1099-DIV indicating the tax status of any
dividend and capital gain distributions made to you. This information will
also be reported to the IRS. Distributions are generally taxable to you for
the year in which they were paid. You will be sent any additional information
you need to determine your taxes on fund distributions, such as the portion
of your dividends, if any, that may be exempt from state income taxes.

The tax treatment of a capital gain distribution is determined by how long
the fund held the portfolio securities, not how long you held shares in the
fund. Short-term (one year or less) capital gain distributions are taxable at
the same rate as ordinary income and long-term gains on securities held more
than 12 months are taxed at a maximum rate of 20%. If you realized a loss on
the sale or exchange of fund shares that you held six months or less, your
short-term loss will be reclassified to a long-term loss to the extent of any
long-term capital gain distribution received during the period you held the
shares.
<PAGE>

ABOUT YOUR ACCOUNT
Gains and losses from the sale of foreign currencies and the foreign currency
gain or loss resulting from the sale of a foreign debt security can increase
or decrease a fund's ordinary income dividend. Net foreign currency losses
may cause a fund's dividend to be classified as a return of capital.

. Distributions are taxable whether reinvested in additional shares or
received in cash.

Tax effect of buying shares before a capital gain or dividend distribution
If you buy shares shortly before or on the "record date" - the date that
establishes you as the person to receive the upcoming distribution - you will
receive a portion of the money you just invested in the form of a taxable
distribution. Therefore, you may wish to find out a fund's record date before
investing. Of course, a fund's share price may, at any time, reflect
undistributed capital gains or income and unrealized appreciation, which may
result in future taxable distributions.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
----------------------------------------------------------
. Following these procedures helps assure timely and accurate transactions.

Purchase Conditions

Nonpayment
If your payment is not received or you pay with a check or ACH transfer that
does not clear, your purchase will be canceled. You will be responsible for
any losses or expenses incurred by the fund or transfer agent, and the fund
can redeem shares you own in this or another identically registered T. Rowe
Price fund as reimbursement. The fund and its agents have the right to reject
or cancel any purchase, exchange, or redemption due to nonpayment.

U.S. dollars

All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks. The fund does not accept purchases made by credit card check.

Sale (Redemption) Conditions

Holds on immediate redemptions: 10-day hold

If you sell shares that you just purchased and paid for by check or ACH
transfer, the fund will process your redemption but will generally delay
sending you the proceeds for up to 10 calendar days to allow the check or
transfer to clear. If your redemption request was sent by mail or mailgram,
proceeds will be mailed no later than the seventh calendar day following
receipt unless the check or ACH transfer has not cleared. (The 10-day hold
does not apply to the following: purchases paid for by bank wire; cashier's,
certified, or treasurer's checks; or automatic purchases through your
paycheck.)
<PAGE>

T. ROWE PRICE
Telephone, Tele*Access/(R)/, and personal computer transactions
Exchange and redemption services through telephone and Tele*Access are
established automatically when you sign the New Account Form unless you check
the boxes that state you do not want these services. Personal computer
transactions must be authorized separately. T. Rowe Price funds and their
agents use reasonable procedures (including shareholder identity
verification) to confirm that instructions given by telephone or computer are
genuine; they are not liable for acting on these instructions. If these
procedures are not followed, it is the opinion of certain regulatory agencies
that the funds and their agents may be liable for any losses that may result
from acting on the instructions. A confirmation is sent promptly after a
transaction. All telephone conversations are recorded.

Redemptions over $250,000
Large sales can adversely affect a portfolio manager's ability to implement a
fund's investment strategy by causing the premature sale of securities that
would otherwise be held. If, in any 90-day period, you redeem (sell) more
than $250,000, or your sale amounts to more than 1% of fund net assets, the
fund has the right to pay the difference between the redemption amount and
the lesser of the two previously mentioned figures with securities from the
fund.

Excessive Trading

. T. Rowe Price may bar excessive traders from purchasing shares.

Frequent trades, involving either substantial fund assets or a substantial
portion of your account or accounts controlled by you, can disrupt management
of the fund and raise its expenses. To deter such activity, the fund has
adopted an excessive trading policy. If you violate our excessive trading
policy, you may be barred indefinitely and without further notice from
further purchases of T. Rowe Price funds.

. Trades placed directly with T. Rowe Price If you trade directly with T.
Rowe Price, you can make one purchase and sale involving the same fund within
any 120-day period. For example, if you are in fund A, you can move
substantial assets from fund A to fund B and, within the next 120 days, sell
your shares in fund B to return to fund A or move to fund C. If you exceed
this limit, you are in violation of our excessive trading policy.

Two types of transactions are exempt from this policy: 1) trades solely in
money market funds (exchanges between a money fund and a nonmoney fund are
not exempt); and 2) systematic purchases or redemptions (see Information
About Your Services).

. Trades placed through intermediaries If you purchase fund shares through an
intermediary including a broker, bank, investment adviser, or other third
party and hold them for less than 60 calendar days, you are in violation of
our excessive trading policy.
<PAGE>

ABOUT YOUR ACCOUNT
Keeping Your Account Open

Due to the relatively high cost to a fund of maintaining small accounts, we
ask you to maintain an account balance of at least $1,000. If your balance is
below $1,000 for three months or longer, we have the right to close your
account after giving you 60 days in which to increase your balance.

Small Account Fee

Because of the disproportionately high costs of servicing accounts with low
balances, a $10 fee, paid to T. Rowe Price Services, the fund's transfer
agent, will automatically be deducted from nonretirement accounts with
balances falling below a minimum level. The valuation of accounts and the
deduction are expected to take place during the last five business days of
September. The fee will be deducted from accounts with balances below $2,000,
except for UGMA/ UTMA accounts, for which the limit is $500. The fee will be
waived for any investor whose T. Rowe Price mutual fund investments total
$25,000 or more. Accounts employing automatic investing (e.g., payroll
deduction, automatic purchase from a bank account, etc.) are also exempt from
the charge. The fee will not apply to IRAs and other retirement plan
accounts. (A separate custodial fee may apply to IRAs and other retirement
plan accounts.)

Signature Guarantees

. A signature guarantee is designed to protect you and the T. Rowe Price funds
from fraud by verifying your signature.

You may need to have your signature guaranteed in certain situations, such
as:

. Written requests 1) to redeem over $100,000, or 2) to wire redemption
proceeds.

. Remitting redemption proceeds to any person, address, or bank account not on
record.

. Transferring redemption proceeds to a T. Rowe Price fund account with a
different registration (name or ownership) from yours.

. Establishing certain services after the account is opened.

You can obtain a signature guarantee from most banks, savings institutions,
broker-dealers, and other guarantors acceptable to T. Rowe Price. We cannot
accept guarantees from notaries public or organizations that do not provide
reimbursement in the case of fraud.
<PAGE>

MORE ABOUT THE FUND
3
ORGANIZATION AND MANAGEMENT
----------------------------------------------------------

How is the fund organized?

The fund was incorporated in Maryland in 1993 and is a "diversified, open-end
investment company," or mutual fund. Mutual funds pool money received from
shareholders and invest it to try to achieve specified objectives.

. Shareholders benefit from T. Rowe Price's 62 years of investment management
experience.

What is meant by "shares"?

As with all mutual funds, investors purchase shares when they put money in a
fund. These shares are part of a fund's authorized capital stock, but share
certificates are not issued.

Each share and fractional share entitles the shareholder to:

. Receive a proportional interest in a fund's income and capital gain
distributions.

. Cast one vote per share on certain fund matters, including the election of
fund directors, changes in fundamental policies, or approval of changes in
the fund's management contract.

Do T. Rowe Price funds have annual shareholder meetings?

The fund is not required to hold annual meetings and, to avoid unnecessary
costs to fund shareholders, does not intend to do so except when certain
matters, such as a change in its fundamental policies, must be decided. In
addition, shareholders representing at least 10% of all eligible votes may
call a special meeting, if they wish, for the purpose of voting on the
removal of any fund director or trustee. If a meeting is held and you cannot
attend, you can vote by proxy. Before the meeting, the fund will send you
proxy materials that explain the issues to be decided and include
instructions on voting by mail or telephone, or on the Internet.

Who runs the fund?

General Oversight
The fund is governed by a Board of Directors that meets regularly to review
the fund's investments, performance, expenses, and other business affairs.
The Board elects the fund's officers. The policy of the fund is that the
majority of Board members are independent of T. Rowe Price Associates, Inc.
(T. Rowe Price).

. All decisions regarding the purchase and sale of fund investments are made
by T. Rowe Price - specifically by the fund's portfolio managers.
<PAGE>

ABOUT YOUR ACCOUNT
Portfolio Management

The fund has an Investment Advisory Committee with the following members:
Larry J. Puglia, Chairman, Brian W. H. Berghuis, Robert N. Gensler, Seema R.
Hingorani, Thomas J. Huber, Robert W. Sharps, Robert W. Smith, and William J.
Stromberg. The committee chairman has day-to-day responsibility for managing
the portfolio and works with the committee in developing and executing the
fund's investment program. Mr. Puglia has been chairman of the fund since
1996. He joined T. Rowe Price in 1990 and has been a portfolio manager since
1993.

The Management Fee
This fee has two parts - an "individual fund fee," which reflects a fund's
particular characteristics, and a "group fee." The group fee, which is
designed to reflect the benefits of the shared resources of the T. Rowe Price
investment management complex, is calculated daily based on the combined net
assets of all T. Rowe Price funds (except the Spectrum Funds, and any
institutional, index, or private label mutual funds). The group fee schedule
(shown below) is graduated, declining as the asset total rises, so
shareholders benefit from the overall growth in mutual fund assets.

<TABLE>
Group Fee Schedule
<CAPTION>
<S> <C> <C> <C>

0.334% First $50 billion/a/
-----------------------------------------
0.305% Next $30 billion
-----------------------------------------
0.300% Next $40 billion
-----------------------------------------
0.295% Thereafter
-----------------------------------------------------------------------------------------------------------------
</TABLE>

/a/ Represents a blended group fee rate containing various break points.

The fund's portion of the group fee is determined by the ratio of its daily
net assets to the daily net assets of all the T. Rowe Price funds described
previously. Based on combined T. Rowe Price funds' assets of over $89 billion
at December 31, 1998, the group fee was 0.32%. The individual fund fee is
0.30%.

UNDERSTANDING PERFORMANCE INFORMATION
----------------------------------------------------------
This section should help you understand the terms used to describe fund
performance. You will come across them in shareholder reports you receive
from us; in our newsletter, The Price Report; in T. Rowe Price
advertisements; and in the media.
<PAGE>

T. ROWE PRICE
Total Return

This tells you how much an investment in a fund has changed in value over a
given time period. It reflects any net increase or decrease in the share
price and assumes that all dividends and capital gains (if any) paid during
the period were reinvested in additional shares. Therefore, total return
numbers include the effect of compounding.

Advertisements for a fund may include cumulative or average annual total
return figures, which may be compared with various indices, other performance
measures, or other mutual funds.

Cumulative Total Return

This is the actual return of an investment for a specified period. A
cumulative return does not indicate how much the value of the investment may
have fluctuated during the period. For example, a fund could have a 10-year
positive cumulative return despite experiencing three negative years during
that time.

Average Annual Total Return

This is always hypothetical and should not be confused with actual
year-by-year results. It smooths out all the variations in annual performance
to tell you what constant year-by-year return would have produced the
investment's actual cumulative return. This gives you an idea of an
investment's annual contribution to your portfolio, provided you held it for
the entire period.

INVESTMENT POLICIES AND PRACTICES
----------------------------------------------------------
This section takes a detailed look at some of the types of securities the
fund may hold in its portfolio and the various kinds of investment practices
that may be used in day-to-day portfolio management. The fund's investment
program is subject to further restrictions and risks described in the
Statement of Additional Information.

Shareholder approval is required to substantively change the fund's objective
and certain investment restrictions noted in the following section as
"fundamental policies." The managers follow certain "operating policies,"
which can be changed without shareholder approval. However, significant
changes are discussed with shareholders in fund reports. The fund adheres to
applicable investment restrictions and policies at the time it makes an
investment. A later change in circumstances will not require the sale of an
investment if it was proper at the time it was made.
<PAGE>

MORE ABOUT THE FUND
The fund's holdings of certain kinds of investments cannot exceed maximum
percentages of total assets, which are set forth in this prospectus. For
instance, this fund is not permitted to invest more than 10% of total assets
in hybrid instruments. While these restrictions provide a useful level of
detail about the fund's investment program, investors should not view them as
an accurate gauge of the potential risk of such investments. For example, in
a given period, a 5% investment in hybrid instruments could have
significantly more of an impact on the fund's share price than its weighting
in the portfolio. The net effect of a particular investment depends on its
volatility and the size of its overall return in relation to the performance
of all the fund's other investments.

Changes in the fund's holdings, the fund's performance, and the contribution
of various investments are discussed in the shareholder reports sent to you.

. Fund managers have considerable leeway in choosing investment strategies and
selecting securities they believe will help the fund achieve its objective.

Types of Portfolio Securities

In seeking to meet its investment objective, the fund may invest in any type
of security or instrument (including certain potentially high-risk
derivatives described in this section) whose investment characteristics are
consistent with the fund's investment program. The following pages describe
various types of portfolio securities and investment management practices of
the fund.

Fundamental policy The fund will not purchase a security if, as a result,
with respect to 75% of its total assets, more than 5% of its total assets
would be invested in securities of a single issuer, or if more than 10% of
the voting securities of the issuer would be held by the fund.

The fund invests primarily in common stocks and may, to a lesser degree,
purchase other types of securities described below.

Common and Preferred Stocks
Stocks represent shares of ownership in a company. Generally, preferred stock
has a specified dividend and ranks after bonds and before common stocks in
its claim on income for dividend payments and on assets should the company be
liquidated. After other claims are satisfied, common stockholders participate
in company profits on a pro-rata basis; profits may be paid out in dividends
or reinvested in the company to help it grow. Increases and decreases in
earnings are usually reflected in a company's stock price, so common stocks
generally have the greatest appreciation and depreciation potential of all
corporate securities. While most preferred stocks pay a dividend, the fund
may purchase preferred stock where the issuer has omitted, or is in danger of
omitting, payment of its dividend. Such investments would be made primarily
for their capital appreciation potential.
<PAGE>

T. ROWE PRICE
Convertible Securities and Warrants
The fund may invest in debt or preferred equity securities convertible into,
or exchangeable for, equity securities. Traditionally, convertible securities
have paid dividends or interest at rates higher than common stocks but lower
than nonconvertible securities. They generally participate in the
appreciation or depreciation of the underlying stock into which they are
convertible, but to a lesser degree. In recent years, convertibles have been
developed which combine higher or lower current income with options and other
features. Warrants are options to buy a stated number of shares of common
stock at a specified price anytime during the life of the warrants
(generally, two or more years).

Foreign Securities
The fund may invest in foreign securities. These include
nondollar-denominated securities traded outside of the U.S. and
dollar-denominated securities of foreign issuers traded in the U.S. (such as
ADRs). Such investments increase a portfolio's diversification and may
enhance return, but they also involve some special risks, such as exposure to
potentially adverse local political and economic developments;
nationalization and exchange controls; potentially lower liquidity and higher
volatility; possible problems arising from accounting, disclosure,
settlement, and regulatory practices that differ from U.S. standards; and the
chance that fluctuations in foreign exchange rates will decrease the
investment's value (favorable changes can increase its value). These risks
are heightened for investments in developing countries, and there is no limit
on the amount of the fund's foreign investments that may be made in such
countries.

Operating policy The fund may invest up to 20% of its total assets
(excluding reserves) in foreign securities.

Fixed Income Securities
From time to time, the fund may invest in debt securities of any type,
including municipal securities, without regard to quality or rating. Such
securities would be purchased in companies, municipalities, or entities which
meet the investment criteria for the fund. The price of a bond fluctuates
with changes in interest rates, rising when interest rates fall and falling
when interest rates rise.

High-Yield, High-Risk Investing
The total return and yield of lower-quality (high-yield, high-risk) bonds,
commonly referred to as "junk" bonds, can be expected to fluctuate more than
the total return and yield of higher-quality, shorter-term bonds, but not as
much as those of common stocks. Junk bonds (those rated below BBB or in
default) are regarded as predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments.
<PAGE>

MORE ABOUT THE FUND
Operating policy The fund may purchase any type of noninvestment-grade debt
security (or junk bond) including those in default. The fund will not
purchase this type of security if immediately after such purchase the fund
would have more than 5% of its total assets invested in such securities. The
fund's investments in convertible securities are not subject to this limit.

Hybrid Instruments
These instruments (a type of potentially high-risk derivative) can combine
the characteristics of securities, futures, and options. For example, the
principal amount, redemption, or conversion terms of a security could be
related to the market price of some commodity, currency, or securities index.
Such securities may bear interest or pay dividends at below market or even
relatively nominal rates. Under certain conditions, the redemption value of
such an investment could be zero.

. Hybrids can have volatile prices and limited liquidity, and their use by the
fund may not be successful.

Operating policy The fund may invest up to 10% of its total assets in hybrid
instruments.

Private Placements
These securities are sold directly to a small number of investors, usually
institutions. Unlike public offerings, such securities are not registered
with the SEC. Although certain of these securities may be readily sold, for
example, under Rule 144A, others may be illiquid, and their sale may involve
substantial delays and additional costs.

Operating policy The fund may invest up to 15% of its net assets in illiquid
securities.

Types of Investment Management Practices

Reserve Position
The fund will hold a certain portion of its assets in money market reserves.
The fund's reserve position is expected to consist primarily of shares of one
or more T. Rowe Price internal money market funds. Short-term, high-quality
U.S. and foreign dollar-denominated money market securities, including
repurchase agreements, may also be held. For temporary, defensive purposes,
the fund may invest without limitation in money market reserves. The effect
of taking such a position is that the fund may not achieve its investment
objective. The reserve position provides flexibility in meeting redemptions,
expenses, and the timing of new investments and can serve as a short-term
defense during periods of unusual market volatility.
<PAGE>

T. ROWE PRICE
Borrowing Money and Transferring Assets
The fund can borrow money from banks and other Price funds as a temporary
measure for emergency purposes, to facilitate redemption requests, or for
other purposes consistent with the fund's investment objective and program.
Such borrowings may be collateralized with fund assets, subject to
restrictions.

Fundamental policy Borrowings may not exceed 33/1//\\/3/\\% of total fund
assets.

Operating policy The fund may not transfer as collateral any portfolio
securities except as necessary in connection with permissible borrowings or
investments, and then such transfers may not exceed 33/1//\\/3/\\% of the
fund's total assets. The fund may not purchase additional securities when
borrowings exceed 5% of total assets.

Futures and Options

Futures (a type of potentially high-risk derivative) are often used to manage
or hedge risk because they enable the investor to buy or sell an asset in the
future at an agreed-upon price. Options (another type of potentially
high-risk derivative) give the investor the right (where the investor
purchases the option), or the obligation (where the investor writes (sells)
the option), to buy or sell an asset at a predetermined price in the future.
The fund may buy and sell futures and options contracts for any number of
reasons, including: to manage its exposure to changes in securities prices
and foreign currencies; as an efficient means of adjusting its overall
exposure to certain markets; in an effort to enhance income; as a cash
management tool; and to protect the value of portfolio securities. The fund
may purchase, sell, or write call and put options on securities, financial
indices, and foreign currencies.

Operating policies Futures: Initial margin deposits and premiums on options
used for non-hedging purposes will not exceed 5% of the fund's net asset
value. Options on securities: The total market value of securities against
which the fund writes call or put options may not exceed 25% of its total
assets. The fund will not commit more than 5% of its total assets to premiums
when purchasing call or put options.

MORE ABOUT THE FUND
Lending of Portfolio Securities
Like other mutual funds, the fund may lend securities to broker-dealers,
other institutions, or other persons to earn additional income. The principal
risk is the potential insolvency of the broker-dealer or other borrower. In
this event, the fund could experience delays in recovering its securities and
possibly capital losses.

Fundamental policy The value of loaned securities may not exceed
33/1//\\/3/\\% of total fund assets.

Portfolio Turnover
The fund will not generally trade in securities for short-term profits, but,
when circumstances warrant, securities may be purchased and sold without
regard to the length of time held. A high turnover rate may increase
transaction costs and result in higher capital gain distributions by the
fund. The fund's portfolio turnover rates for the fiscal years ending
December 31, 1998, 1997, and 1996, were 34.5%, 23.7%, and 26.3%,
respectively.

Year 2000 Processing Issue

Many computer programs use two digits rather than four to identify the year.
These programs, if not adapted, will not correctly handle the change from
"99" to "00" on January 1, 2000, and will not be able to perform necessary
functions. The Year 2000 issue affects virtually all companies and
organizations.

T. Rowe Price has implemented steps intended to assure that major computer
systems and processes are capable of Year 2000 processing. We are working
with third parties to assess the adequacy of their compliance efforts and are
developing contingency plans intended to assure that third-party
noncompliance will not materially affect T. Rowe Price's operations.

Companies, organizations, governmental entities, and markets in which the T.
Rowe Price funds invest will be affected by the Year 2000 issue, but at this
time the funds cannot predict the degree of impact. For funds that invest in
foreign markets, especially emerging markets, it is possible foreign
companies and markets will not be as prepared for Year 2000 as domestic
companies and markets. To the extent the effect of Year 2000 is negative, a
fund's returns could be reduced.

T. ROWE PRICE
request). The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the fund (assuming reinvestment
of all dividends and distributions). The financial statements in the annual
report were audited by the fund's independent accountants,
PricewaterhouseCoopers LLP.

<TABLE>
Table 3 Financial Highlights
<CAPTION>
Year ended December 31
1994 1995 1996 1997 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

Net asset value,
beginning of period $ 11.24 $ 11.11 $ 15.09 $ 19.06 $ 24.17
Income From Investment Operations
Net investment income 0.12 /a/ 0.16 /a/ 0.14 0.13 0.11
Net gains or losses
on securities
(both realized and
unrealized) (0.03) 4.05 4.05 5.12 6.82
Total from investment
operations 0.09 4.21 4.19 5.25 6.93
Less Distributions
Dividends (from net
investment income) (0.10) (0.15) (0.14) (0.12) (0.11)
Distributions (from
capital gains) (0.12) (0.08) (0.08) (0.02) (0.39)
Returns of capital - - - - -
Total distributions (0.22) (0.23) (0.22) (0.14) (0.50)
Net asset value, end
of period $ 11.11 $ 15.09 $ 19.06 $ 24.17 $ 30.60
Total return 0.80%/ a/ 37.90% / a/ 27.75% 27.56% 28.84%
Ratios/Supplemental Data
Net assets, end of
period (in thousands) $38,978 $146,454 $539,674 $2,344,555 $4,330,134
Ratio of expenses to
average net assets 1.25% /a/ 1.25% /a/ 1.12% 0.95% 0.91%
Ratio of net income
to average net assets 1.05% /a/ 1.27% /a/ 0.87% 0.86% 0.43%
Portfolio turnover 75.0% 38.1% 26.3% 23.7% 34.5%
rate
---------------------------------------------------------------------------------------
</TABLE>

/a/
Excludes expenses in excess of a 1.25% voluntary expense limitation in effect
through December 31, 1996.
<PAGE>

INVESTING WITH T. ROWE PRICE
4
ACCOUNT REQUIREMENTS AND TRANSACTION INFORMATION
----------------------------------------------------------
Tax Identification Number
We must have your correct Social Security or corporate tax identification number
on a signed New Account Form or W-9 Form. Otherwise, federal law requires the
funds to withhold a percentage (currently 31%) of your dividends, capital gain
distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed, priced at the NAV on the date of redemption.

Always verify your transactions by carefully reviewing the confirmation we send
you. Please report any discrepancies to Shareholder Services promptly.

Employer-Sponsored Retirement Plans and Institutional Accounts T. Rowe Price
Trust Company 1-800-492-7670
Transaction procedures in the following sections may not apply to
employer-sponsored retirement plans and institutional accounts. For procedures
regarding employer-sponsored retirement plans, please call T. Rowe Price Trust
Company or consult your plan administrator. For institutional account
procedures, please call your designated account manager or service
representative.

OPENING A NEW ACCOUNT
----------------------------------------------------------
$2,500 minimum initial investment; $1,000 for retirement plans or gifts or
transfers to minors (UGMA/UTMA) accounts

Account Registration
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.)

T. ROWE PRICE
Mail via United States Postal Service
T. Rowe Price Account Services P.O. Box 17300 Baltimore, MD 21297-1300

Mail via private carriers/overnight services
T. Rowe Price Account Services 10090 Red Run Blvd. Owings Mills, MD 21117-4842

By Wire
Call Investor Services for an account number and give the following wire
information to your bank:

Receiving Bank: PNC Bank, N.A. (Pittsburgh) Receiving Bank ABA#: 043000096
Beneficiary: T. Rowe Price [fund name] Beneficiary Account: 1004397951
Originator to Beneficiary Information (OBI): name of owner(s) and account
number

Complete a New Account Form and mail it to one of the appropriate addresses
listed previously.

Note: No services will be established and IRS penalty withholding may occur
until a signed New Account Form is received. Also, retirement plan accounts and
IRAs cannot be opened by wire.

By Exchange
Call Shareholder Services or use Tele*Access or your personal computer (see
Automated Services under Information About Your Services). The new account will
have the same registration as the account from which you are exchanging.
Services for the new account may be carried over by telephone request if
preauthorized on the existing account. For limitations on exchanging, see
explanation of Excessive Trading under Transaction Procedures and Special
Requirements.

In Person
Drop off your New Account Form at any location listed on the back cover and
obtain a receipt.
<PAGE>

INVESTING WITH T. ROWE PRICE
PURCHASING ADDITIONAL SHARES
----------------------------------------------------------
$100 minimum purchase; $50 minimum for retirement plans, Automatic Asset
Builder, and gifts or transfers to minors (UGMA/UTMA) accounts

By ACH Transfer
Use Tele*Access or your personal computer or call Investor Services if you have
established electronic transfers using the ACH network.

By Wire
Call Shareholder Services or use the wire address listed in Opening a New
Account.

By Mail
1. Make your check payable to T. Rowe Price Funds (otherwise it may be
returned).

2. Mail the check to us at the following address with either a fund reinvestment
slip or a note indicating the fund you want to buy and your fund account
number.

3. Remember to provide your account number and the fund name on the memo line of
your check.

Mail via United States Postal Service
T. Rowe Price Funds Account Services P.O. Box 17300 Baltimore, MD 21297-1300

/(For //mail via private carriers and overnight services//, see previous /
/section.)/

By Automatic Asset Builder
Fill out the Automatic Asset Builder section on the New Account or Shareholder
Services Form.

EXCHANGING AND REDEEMING SHARES
----------------------------------------------------------
Exchange Service
You can move money from one account to an existing identically registered
account or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the fund is registered.)
<PAGE>

T. ROWE PRICE
Redemptions
Redemption proceeds can be mailed to your account address, sent by ACH transfer
to your bank, or wired to your bank (provided your bank information is already
on file). For charges, see Electronic Transfers - By Wire under Information
About Your Services.

Some of the T. Rowe Price funds may impose a redemption fee of 0.5% to 2% on
shares held for less than six months or one year, as specified in the
prospectus. The fee is paid to the fund.

By Phone
Call Shareholder Services
If you find our phones busy during unusually volatile markets, please consider
placing your order by your personal computer, Tele*Access (if you have
previously authorized telephone services), mailgram, or express mail. For
exchange policies, please see Transaction Procedures and Special Requirements -
Excessive Trading.

By Mail
For each account involved, provide the account name, number, fund name, and
exchange or redemption amount. For exchanges, be sure to indicate any fund you
are exchanging out of and the fund or funds you are exchanging into. T. Rowe
Price requires the signatures of all owners exactly as registered, and possibly
a signature guarantee (see Transaction Procedures and Special Requirements -
Signature Guarantees). Please use the appropriate address below:

Mail via United States Postal Service
For nonretirement and IRA accounts
T. Rowe Price Account Services P.O. Box 17302 Baltimore, MD 21297-1302

For employer-sponsored retirement accounts
T. Rowe Price Trust Company P.O. Box 17479 Baltimore, MD 21297-1479

/(For// //mail via private carriers and overnight services//, see the
//addresses / /listed in the //Opening a New Account section.)/

Redemptions from employer-sponsored retirement accounts must be in writing;
please call T. Rowe Price Trust Company or your plan administrator for
<PAGE>

INVESTING WITH T. ROWE PRICE
instructions. IRA distributions may be requested in writing or by telephone;
please call Shareholder Services to obtain an IRA Distribution Form or an IRA
Shareholder Services Form to authorize the telephone redemption service.

RIGHTS RESERVED BY THE FUND
----------------------------------------------------------
The fund and its agents reserve the following rights: (1) to waive or lower
investment minimums; (2) to accept initial purchases by telephone or mailgram;
(3) to refuse any purchase or exchange order; (4) to cancel or rescind any
purchase or exchange order (including, but not limited to, orders deemed to
result in excessive trading, market timing, fraud, or 5% ownership) upon notice
to the shareholder within five business days of the trade or if the written
confirmation has not been received by the shareholder, whichever is sooner; (5)
to freeze any account and suspend account services when notice has been received
of a dispute between the registered or beneficial account owners or there is
reason to believe a fraudulent transaction may occur; (6) to otherwise modify
the conditions of purchase and any services at any time; or (7) to act on
instructions believed to be genuine. These actions will be taken when, in the
sole discretion of management, they are deemed to be in the best interest of the
fund.

In an effort to protect the fund from the possible adverse effects of a
substantial redemption in a large account, as a matter of general policy, no
shareholder or group of shareholders controlled by the same person or group of
persons will knowingly be permitted to purchase in excess of 5% of the
outstanding shares of the fund, except upon approval of the fund's management.
<PAGE>

T. ROWE PRICE
INFORMATION ABOUT YOUR SERVICES
----------------------------------------------------------
Shareholder Services 1-800-225-5132 Investor Services 1-800-638-5660
Many services are available to you as a T. Rowe Price shareholder; some you
receive automatically, and others you must authorize or request on the New
Account Form. By signing up for services on the New Account Form rather than
later on, you avoid having to complete a separate form and obtain a signature
guarantee. This section discusses some of the services currently offered. Our
Services Guide, which we mail to all new shareholders, contains detailed
descriptions of these and other services.

Note: Corporate and other institutional accounts require an original or
certified resolution to establish services and to redeem by mail. For more
information, call Investor Services.

Retirement Plans
We offer a wide range of plans for individuals, institutions, and large and
small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, Keoghs
(profit sharing, money purchase pension), 401(k), and 403(b)(7). For information
on IRAs, call Investor Services. For information on all other retirement plans,
including our no-load variable annuity, please call our Trust Company at
1-800-492-7670.

Automated Services Tele*Access 1-800-638-2587 24 hours, 7 days
Tele*Access
24-hour service via toll-free number enables you to (1) access information on
fund yields, prices, distributions, account balances, and your latest
transaction; (2) request checks, prospectuses, services forms, duplicate
statements, and tax forms; and (3) initiate purchase, redemption, and exchange
transactions in your accounts (see Electronic Transfers in this section).

Web Address www.troweprice.com
After obtaining proper authorization, account transactions may also be conducted
through our Web site on the Internet. If you subscribe to America Online/(R)/,
you can access our Web site via keyword "T. Rowe Price" and conduct transactions
in your account.

Plan Account Line 1-800-401-3279
Plan Account Line
This 24-hour service is similar to Tele*Access but is designed specifically to
meet the needs of retirement plan investors.
<PAGE>

INVESTING WITH T. ROWE PRICE
Telephone and Walk-In Services
Buy, sell, or exchange shares by calling one of our service representatives or
by visiting one of our investor center locations whose addresses are listed on
the back cover.

Electronic Transfers
By ACH
With no charges to pay, you can initiate a purchase or redemption for as little
as $100 or as much as $100,000 between your bank account and fund account using
the ACH network. Enter instructions via Tele*Access or your personal computer,
or call Shareholder Services.

By Wire
Electronic transfers can be conducted via bank wire. There is currently a $5 fee
for wire redemptions under $5,000, and your bank may charge for incoming or
outgoing wire transfers regardless of size.

Checkwriting
(Not available for equity funds, or the High Yield or Emerging Markets Bond
Funds) You may write an unlimited number of free checks on any money market
fund, and most bond funds, with a minimum of $500 per check. Keep in mind,
however, that a check results in a redemption; a check written on a bond fund
will create a taxable event which you and we must report to the IRS.

Automatic Investing
($50 minimum) You can invest automatically in several different ways, including:

Automatic Asset Builder
You instruct us to move $50 or more from your bank account, or you can instruct
your employer to send all or a portion of your paycheck to the fund or funds you
designate.

Automatic Exchange
You can set up systematic investments from one fund account into another, such
as from a money fund into a stock fund.
<PAGE>

T. ROWE PRICE
T. ROWE PRICE BROKERAGE
----------------------------------------------------------
To open an account 1-800-638-5660 For existing brokerage investors
1-800-225-7720
This service gives you the opportunity to consolidate all of your investments
with one company. Investments available through our brokerage service include
stocks, options, bonds, and others at commission savings over full-service
brokers. We also provide a wide range of services, including:

Automated telephone and computer services
You can enter stock and option orders, access quotes, and review account
information around the clock by phone with Tele-Trader or via the Internet with
Internet-Trader. Any trades executed through Tele-Trader save you an additional
10% on commissions. You will save 20% on commissions for stock trades and 10% on
option trades when you use Internet-Trader. All trades are subject to a $35
minimum commission except stock trades placed through Internet-Trader, which are
subject to a $29.95 minimum commission.

Investor information
A variety of informative reports, such as our Brokerage Insights series and S&P
Market Month newsletter, as well as access to on-line research tools can help
you better evaluate economic trends and investment opportunities.

Dividend Reinvestment Service
Virtually all stocks held in customer accounts are eligible for this free
service. If you elect to participate in this service, the cash dividends from
your eligible securities will automatically be reinvested in additional shares
of the same securities free of charge. Dividend payments must be $10.00 or
greater to qualify for reinvestment. Most securities listed on national
securities exchanges or on Nasdaq are eligible for this service.

/T. Rowe Price// Brokerage is a division of T. Rowe Price Investment /
/Services, Inc., Member NASD/SIPC./
<PAGE>

INVESTING WITH T. ROWE PRICE
INVESTMENT INFORMATION
----------------------------------------------------------
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety of
information in addition to account statements. Most of this information is also
available on our Web site at www.troweprice.com.

Shareholder Reports
Fund managers' reviews of their strategies and performance. If several members
of a household own the same fund, only one fund report is mailed to that
address. To receive additional copies, please call Shareholder Services or write
to us at 100 East Pratt Street, Baltimore, Maryland 21202.

The T. Rowe Price Report
A quarterly investment newsletter discussing markets and financial strategies.

Performance Update
A 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 T. Rowe
Price Guide to International Investing, Managing Your Retirement Distribution,
Personal Strategy Planner, Retirees Financial Guide, Retirement Planning Kit,
and Tax Considerations for Investors.
<PAGE>

To help you achieve your financial goals, T. Rowe Price offers a wide range of
stock, bond, and money market investments, as well as convenient services and
informative reports.
For Mutual Fund or T. Rowe Price Brokerage Information
Investor Services
1-800-638-5660

For Existing Accounts
Shareholder Services
1-800-225-5132

For Yields, Prices, Account Information, or to Conduct Transactions
Tele*Access/(R)/
24 hours, 7 days 1-800-638-2587

Internet Address
www.troweprice.com

Plan Account Line
For retirement plan investors 1-800-401-3279
Walk-in
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

4200 West Cypress St. 10th Floor Tampa, FL 33607

Headquarters
100 East Pratt St. Baltimore, MD 21202
A Statement of Additional Information about the fund has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus. Further information about the fund's investments, including a review
of market conditions and the manager's recent strategies and their impact on
performance, is available in the annual and semiannual shareholder reports. To
obtain free copies of any of these documents, or for shareholder inquiries, call
1-800-638-5660.

Fund reports and Statements of Additional Information are also available from
the Securities and Exchange Commission by calling 1-800-SEC-0330 or by writing
the SEC's Public Reference Section, Washington, D.C. 20549-6009 (you will be
charged a duplicating fee); by visiting the SEC's public reference room; or by
consulting the SEC's Web site at www.sec.gov.
1940 Act File No. 811-7059
LOGO
F93-040 5/1/99

<PAGE>

PROSPECTUS
May 1, 1999
T. Rowe Price Dividend Growth Fund

A stock fund seeking growing dividend income and long-term capital growth.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
T. ROWE PRICE RAM LOGO
<PAGE>

T. Rowe Price Dividend Growth Fund, Inc.
Prospectus

May 1, 1999

2 ABOUT YOUR ACCOUNT
Pricing Shares and Receiving 5
Sale Proceeds
---------------------------------------------
Distributions and Taxes 6
---------------------------------------------
Transaction Procedures and 8
Special Requirements
---------------------------------------------

ABOUT THE FUND
1
FUND, MARKET, AND RISK CHARACTERISTICS: WHAT TO EXPECT
----------------------------------------------------------

To help you decide whether this fund is appropriate for you, this section
reviews its investment objective, strategy, and risks.

What is the fund's objective?

The fund seeks to provide increasing dividend income over time, long-term
growth of capital, and a reasonable level of current income through
investments primarily in dividend-paying stocks.

What is the fund's principal investment strategy?

We will normally invest at least 65% of the fund's total assets in the common
stocks of dividend-paying companies that we expect to increase their
dividends over time and also provide long-term appreciation. T. Rowe Price
believes that a track record of dividend increases is an excellent indicator
of financial health and growth prospects, and that over the long term, income
can contribute significantly to total return. Dividends can also help reduce
the fund's volatility during periods of market turbulence and help offset
losses when stock prices are falling.

Our in-house research team looks for stocks with sustainable, above-average
growth in earnings and dividends, and we attempt to buy them when they are
temporarily out of favor or undervalued by the market. Holdings tend to be in
large to medium sized companies.

In selecting investments, we favor companies with one or more of the
following:

. Either a track record of, or the potential for, above-average earnings and
dividend growth;

. A competitive current dividend yield;

. A sound balance sheet and solid cash flow to support future dividend
increases;

. A sustainable competitive advantage and leading market position; and

. Attractive valuations, such as low price/earnings, price/cash flow, or
price/dividend ratios.

The fund may sell securities for a variety of reasons, such as to secure
gains, limit losses, or redeploy assets into more promising opportunities.
<PAGE>

T. ROWE PRICE
. For details about the fund's investment program, please see the Investment
Policies and Practices section.

What are the main risks of investing in the fund?

The fund's emphasis on dividend-paying companies could result in significant
investments in large-capitalization stocks. At times, stocks such as these
may lag shares of smaller, faster-growing companies. Also, a company may
reduce or eliminate its dividend. The fund's efforts to buy stocks that
appear temporarily out of favor carry the risk that a stock or group of
stocks may remain out of favor for a long time and may continue to decline.

As with any mutual fund, there can be no guarantee the fund will achieve its
objective.

. The fund's share price may decline, so when you sell your shares, you may
lose money.

How can I tell if the fund is appropriate for me?

Consider your investment goals, your time horizon for achieving them, and
your tolerance for the inherent risk of common stock investments. If you seek
a reasonable level of current income from equity investments that has the
potential to rise faster than inflation, and can accept price fluctuations in
an effort to achieve long-term capital growth, the fund could be an
appropriate part of your overall investment strategy. This fund should not
represent your complete investment program or be used for short-term trading
purposes.

The fund can be used in both regular and tax-deferred accounts, such as IRAs.

. Equity investors should have a long-term investment horizon and be willing
to wait out bear markets.
<PAGE>

INVESTING WITH T. ROWE PRICE
How has the fund performed in the past?

<TABLE>
INSERT BAR
CHART HERE
<CAPTION>
Calendar Year Total Returns
-------------------------------
<S> <C>
1993 19.41%
1994 2.16
1995 31.75
1996 25.36
1997 30.77
1998 15.04
-------------------------------
</TABLE>

Quarter ended Total return

Best quarter 12/31/1998 13.05%

Worst quarter 9/30/1998 -7.11%

<TABLE>
Table 1 Average Annual Total Returns
<CAPTION>
Periods ended December 31, 1998
Since inception
1 year 5 years (12/30/92)
<S> <C> <C> <C> <S>

Dividend Growth Fund 15.04% 20.48% 20.29%
------------------------------------
S&P 500 Stock Index 28.57 24.06 21.46
------------------------------------------------------------------------------
</TABLE>

These figures include changes in principal value, reinvested dividends, and
capital gain distributions, if any.

What fees or expenses will I pay?

The fund is 100% no load. There are no fees or charges to buy or sell fund
shares, reinvest dividends, or exchange into other T. Rowe Price funds. There
are no 12b-1 fees.

Management fee 0.52%
Other expenses 0.25%
Total annual fund operating 0.77%
expenses
------------------------------------------------------------------------------
</TABLE>

<PAGE>

T. ROWE PRICE
Example. The following table gives you a rough idea of how expense ratios
may translate into dollars and helps you to compare the cost of investing in
this fund with that of other funds. Although your actual costs may be higher
or lower, the table shows how much you would pay if operating expenses remain
the same, you invest $10,000, you earn a 5% annual return, and you hold the
investment for the following periods:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
1 year 3 years 5 years 10 years

$79 $246 $428 $954
----------------------------------------------------
</TABLE>

OTHER INFORMATION ABOUT THE FUND
----------------------------------------------------------

What are some of the fund's potential rewards?

The fund will seek investments that will allow the fund's dividend growth
rate to exceed the inflation rate and that can provide capital appreciation
as well. While a company's stock price can go up or down in response to
earnings or to fluctuations in the general market, dividends, the second
component of a fund's total return, are usually more reliable. Therefore,
dividend-paying stocks generally are less volatile than those paying
below-average dividends or none at all.

What are some potential risks and rewards of investing in the stock market
through this fund?

Is there other information I can review before making a decision?

Investment Policies and Practices in Section 3 discusses various types of
portfolio securities the fund may purchase as well as types of investment
management practices the fund may use.
<PAGE>

How and when shares are priced

The share price (also called "net asset value" or NAV per share) for a fund
is calculated at the close of the New York Stock Exchange, normally 4 p.m.
ET, each day the New York Stock Exchange is open for business. To calculate
the NAV, the fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. Current market values are used to price fund shares.

How your purchase, sale, or exchange price is determined

If we receive your request in correct form by 4 p.m. ET, your transaction
will be priced at that day's NAV. If we receive it after 4 p.m., it will be
priced at the next business day's NAV.

We cannot accept orders that request a particular day or price for your
transaction or any other special conditions.

How you can receive the proceeds from a sale

. When filling out the New Account Form, you may wish to give yourself the
widest range of options for receiving proceeds from a sale.

T. ROWE PRICE
financial institution account. The ACH system is supported by over 20,000
banks, savings banks, and credit unions. Proceeds sent by bank wire should be
credited to your account the next business day.

. Exception: Under certain circumstances and when deemed to be in the fund's
best interests, your proceeds may not be sent for up to seven calendar days
after we receive your redemption request. Under these circumstances, if you
are exchanging into a bond or money fund, your new investment will not begin
to earn dividends until the eighth calendar day.

. If for some reason we cannot accept your request to sell shares, we will
contact you.

USEFUL INFORMATION ON DISTRIBUTIONS AND TAXES
----------------------------------------------------------
. All net investment income and realized capital gains are distributed to
shareholders.

Dividends and Other Distributions

Income dividends
. The fund declares and pays dividends (if any) quarterly.

. A portion of the fund's dividends may be eligible for the 70% deduction for
dividends received by corporations.

Capital gains
. A capital gain or loss is the difference between the purchase and sale price
of a security.

. If a fund has net capital gains for the year (after subtracting any capital
losses), they are usually declared and paid in December to shareholders of
record on a
<PAGE>

ABOUT YOUR ACCOUNT
specified date that month. If a second distribution is necessary, it is
usually declared and paid during the first quarter of the following year.

Tax Information

. You will be sent timely information for your tax filing needs.

You need to be aware of the possible tax consequences when:

. You sell fund shares, including an exchange from one fund to another.

. The fund makes a distribution to your account.

Taxes on fund redemptions
When you sell shares in any fund, you may realize a gain or loss. An exchange
from one fund to another is still a sale for tax purposes.

Taxes on fund distributions
. The following summary does not apply to retirement accounts, such as IRAs,
which are not subject to current tax.

T. ROWE PRICE
exchange of fund shares that you held six months or less, your short-term
loss will be reclassified to a long-term loss to the extent of any long-term
capital gain distribution received during the period you held the shares.

Gains and losses from the sale of foreign currencies and the foreign currency
gain or loss resulting from the sale of a foreign debt security can increase
or decrease a fund's ordinary income dividend. Net foreign currency losses
may cause a fund's dividend to be classified as a return of capital.

. Distributions are taxable whether reinvested in additional shares or
received in cash.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
----------------------------------------------------------
. Following these procedures helps assure timely and accurate transactions.

Purchase Conditions

U.S. dollars

All purchases must be paid for in U.S. dollars; checks must be drawn on U.S.
banks. The fund does not accept purchases made by credit card check.

Sale (Redemption) Conditions

Holds on immediate redemptions: 10-day hold

ABOUT YOUR ACCOUNT
later than the seventh calendar day following receipt unless the check or ACH
transfer has not cleared. (The 10-day hold does not apply to the following:
purchases paid for by bank wire; cashier's, certified, or treasurer's checks;
or automatic purchases through your paycheck.)

Telephone, Tele*Access/(R)/, and personal computer transactions
Exchange and redemption services through telephone and Tele*Access are
established automatically when you sign the New Account Form unless you check
the boxes that state you do not want these services. Personal computer
transactions must be authorized separately. T. Rowe Price funds and their
agents use reasonable procedures (including shareholder identity
verification) to confirm that instructions given by telephone or computer are
genuine; they are not liable for acting on these instructions. If these
procedures are not followed, it is the opinion of certain regulatory agencies
that the funds and their agents may be liable for any losses that may result
from acting on the instructions. A confirmation is sent promptly after a
transaction. All telephone conversations are recorded.

Excessive Trading

. T. Rowe Price may bar excessive traders from purchasing shares.

T. ROWE PRICE

Keeping Your Account Open

Small Account Fee

Signature Guarantees

. A signature guarantee is designed to protect you and the T. Rowe Price funds
from fraud by verifying your signature.

You may need to have your signature guaranteed in certain situations, such
as:

. Written requests 1) to redeem over $100,000, or 2) to wire redemption
proceeds.

. Remitting redemption proceeds to any person, address, or bank account not on
record.

. Transferring redemption proceeds to a T. Rowe Price fund account with a
different registration (name or ownership) from yours.

. Establishing certain services after the account is opened.

ABOUT YOUR ACCOUNT
MORE ABOUT THE FUND
3

ORGANIZATION AND MANAGEMENT
----------------------------------------------------------

How is the fund organized?

The fund was incorporated in Maryland in 1992 and is a "diversified, open-end
investment company," or mutual fund. Mutual funds pool money received from
shareholders and invest it to try to achieve specified objectives.

. Shareholders benefit from T. Rowe Price's 62 years of investment management
experience.

What is meant by "shares"?

As with all mutual funds, investors purchase shares when they put money in a
fund. These shares are part of a fund's authorized capital stock, but share
certificates are not issued.

Each share and fractional share entitles the shareholder to:

. Receive a proportional interest in a fund's income and capital gain
distributions.

. Cast one vote per share on certain fund matters, including the election of
fund directors, changes in fundamental policies, or approval of changes in
the fund's management contract.

Do T. Rowe Price funds have annual shareholder meetings?

Who runs the fund?
General Oversig ht
General Oversig ht
The fund is governed by a Board of Directors that meets regularly to review
the fund's investments, performance, expenses, and other business affairs.
The Board elects the fund's officers. The policy of the fund is that the
majority of Board members are independent of T. Rowe Price Associates, Inc.
(T. Rowe Price).

. All decisions regarding the purchase and sale of fund investments are made
by T. Rowe Price - specifically by the fund's portfolio managers.

Portfolio Management
The fund has an Investment Advisory Committee with the following members:
William J. Stromberg, Chairman, Thomas J. Huber, David M. Lee, Donald J.
Peters, Larry J. Puglia, and Brian C. Rogers. The committee chairman has
day-to-day responsibility for managing the portfolio and works with the
committee in developing and executing the fund's investment program. Mr.
Stromberg has been chairman of the fund's committee since 1992. Mr. Stromberg
joined T. Rowe Price in 1987 and has been managing investments since 1989.

<TABLE>
Group Fee Schedule
<CAPTION>
<S> <C> <C> <C>

/a/ Represents a blended group fee rate containing various break points.

MORE ABOUT THE FUND
UNDERSTANDING PERFORMANCE INFORMATION
----------------------------------------------------------
This section should help you understand the terms used to describe fund
performance. You will come across them in shareholder reports you receive
from us; in our newsletter, The Price Report; in T. Rowe Price
advertisements; and in the media.

Total Return

Advertisements for a fund may include cumulative or average annual total
return figures, which may be compared with various indices, other performance
measures, or other mutual funds.

Cumulative Total Return

Average Annual Total Return

T. ROWE PRICE
discussed with shareholders in fund reports. The fund adheres to applicable
investment restrictions and policies at the time it makes an investment. A
later change in circumstances will not require the sale of an investment if
it was proper at the time it was made.

The fund's holdings of certain kinds of investments cannot exceed maximum
percentages of total assets, which are set forth in this prospectus. For
instance, this fund is not permitted to invest more than 10% of total assets
in hybrid instruments. While these restrictions provide a useful level of
detail about the fund's investment program, investors should not view them as
an accurate gauge of the potential risk of such investments. For example, in
a given period, a 5% investment in hybrid instruments could have
significantly more of an impact on the fund's share price than its weighting
in the portfolio. The net effect of a particular investment depends on its
volatility and the size of its overall return in relation to the performance
of all the fund's other investments.

Changes in the fund's holdings, the fund's performance, and the contribution
of various investments are discussed in the shareholder reports sent to you.

. Fund managers have considerable leeway in choosing investment strategies and
selecting securities they believe will help the fund achieve its objective.

Types of Portfolio Securities

The fund invests primarily in common stocks and may, to a lesser degree,
purchase other types of securities described below.

MORE ABOUT THE FUND
While most preferred stocks pay a dividend, the fund may purchase preferred
stock where the issuer has omitted, or is in danger of omitting, payment of
its dividend. Such investments would be made primarily for their capital
appreciation potential.

Convertible Securities and Warrants
The fund may invest in debt or preferred equity securities convertible into,
or exchangeable for, equity securities. Traditionally, convertible securities
have paid dividends or interest at rates higher than common stocks but lower
than nonconvertible securities. They generally participate in the
appreciation or depreciation of the underlying stock into which they are
convertible, but to a lesser degree. In recent years, convertibles have been
developed which combine higher or lower current income with options and other
features. Warrants are options to buy a stated number of shares of common
stock at a specified price anytime during the life of the warrants
(generally, two or more years).

Operating policy The fund may invest up to 25% of its total assets
(excluding reserves) in foreign securities.

T. ROWE PRICE
those of common stocks. Junk bonds (those rated below BBB or in default) are
regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments.

Operating policy The fund may purchase any type of noninvestment-grade debt
security (or junk bond) including those in default. The fund will not
purchase this type of security if immediately after such purchase the fund
would have more than 10% of its total assets invested in such securities. The
fund's investments in convertible securities are not subject to this limit.

. Hybrids can have volatile prices and limited liquidity, and their use by the
fund may not be successful.

Operating policy The fund may invest up to 10% of its total assets in hybrid
instruments.

Operating policy The fund may invest up to 15% of its net assets in illiquid
securities.

Types of Investment Management Practices

MORE ABOUT THE FUND
position provides flexibility in meeting redemptions, expenses, and the
timing of new investments and can serve as a short-term defense during
periods of unusual market volatility.

Borrowing Money and Transferring Assets
The fund can borrow money from banks and other Price funds as a temporary
measure for emergency purposes, to facilitate redemption requests, or for
other purposes consistent with the fund's investment objective and program.
Such borrowings may be collateralized with fund assets, subject to
restrictions.

Fundamental policy Borrowings may not exceed 33/1//\\/3/\\% of total fund
assets.

Futures and Options

Futures contracts and options may not always be successful hedges; their
prices can be highly volatile; using them could lower the fund's total
return, and the potential loss from the use of futures can exceed the fund's
initial investment in such contracts.

T. ROWE PRICE
Managing Foreign Currency Risk
Investors in foreign securities may "hedge" their exposure to potentially
unfavorable currency changes by purchasing a contract to exchange one
currency for another on some future date at a specified exchange rate. In
certain circumstances, a "proxy currency" may be substituted for the currency
in which the investment is denominated, a strategy known as "proxy hedging."
If the fund were to engage in foreign currency transactions, they would be
used primarily to protect the fund's foreign securities from adverse currency
movements relative to the dollar. Such transactions involve the risk that
anticipated currency movements will not occur, and the fund's total return
could be reduced.

Lending of Portfolio Securities
Like other mutual funds, the fund may lend securities to broker-dealers,
other institutions, or other persons to earn additional income. The principal
risk is the potential insolvency of the broker-dealer or other borrower. In
this event, the fund could experience delays in recovering its securities and
possibly capital losses.

Fundamental policy The value of loaned securities may not exceed
33/1//\\/3/\\% of total fund assets.

Year 2000 Processing Issue

MORE ABOUT THE FUND
markets will not be as prepared for Year 2000 as domestic companies and
markets. To the extent the effect of Year 2000 is negative, a fund's returns
could be reduced.

FINANCIAL HIGHLIGHTS
----------------------------------------------------------
Table 3, which provides information about the fund's financial history, is
based on a single share outstanding throughout each fiscal year. The table is
part of the fund's financial statements, which are included in its annual
report and are incorporated by reference into the Statement of Additional
Information (available upon request). The total returns in the table
represent the rate that an investor would have earned or lost on an
investment in the fund (assuming reinvestment of all dividends and
distributions). The financial statements in the annual report were audited by
the fund's independent accountants, PricewaterhouseCoopers LLP.

Net asset value,
beginning of period $ 11.48 $ 11.04 $ 13.81 $ 16.37 $ 20.13
Income From Investment Operations
Net investment income 0.35/a/ (0.36)/b/ 0.35 0.44 0.46
---------------------------------------------------------
Net gains or losses
on securities (both
realized and (0.11) 3.08 3.08 4.51 2.51
unrealized)
---------------------------------------------------------
Total from investment
operations 0.24 3.44 3.43 4.95 2.97
Less Distributions
Dividends (from net (0.34) (0.36) (0.36) (0.44) (0.46)
investment income)
---------------------------------------------------------
Distributions (from (0.34) (0.31) (0.51) (0.75) (0.63)
capital gains)
---------------------------------------------------------
Returns of capital -- -- -- -- --
---------------------------------------------------------
Total distributions (0.68) (0.67) (0.87) (1.19) (1.09)
---------------------------------------------------------
Net asset value, $ 11.04 $ 13.81 $ 16.37 $ 20.13 $ 22.01
end of period
---------------------------------------------------------
Total return 2.16%/a/ 31.75%/b/ 25.36% 30.77% 15.04%
Ratios/Supplemental Data
Net assets, end of $53,597 $84,500 $209,498 $746,911 $1,337,727
period (in thousands)
---------------------------------------------------------
Ratio of expenses to 1.00%/a/ 1.10%/b/ 1.10% 0.80% 0.77%
average net assets
---------------------------------------------------------
Ratio of net income 3.11%/a/ 2.92%/b/ 2.53% 2.42% 2.26%
to average net assets
---------------------------------------------------------
Portfolio turnover 71.4% 56.1% 43.1% 39.1% 37.3%
rate
---------------------------------------------------------------------------------
</TABLE>

<PAGE>

T. ROWE PRICE
/a/
Excludes expenses in excess of a 1.00% voluntary expense limitation in effect
through December 31, 1994.

/b/
Excludes expenses in excess of a 1.10% voluntary expense limitation in effect
through December 31, 1996.
<PAGE>