Item 1. Report to Shareholders
T. Rowe Price Dividend Growth Fund
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Certifed Financials
T. ROWE PRICE DIVIDEND GROWTH FUND
- --------------------------------------------------------------------------------
Certified Financials (Unaudited)
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
6 Months Year
Ended Ended
6/30/03 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98
- --------------------------------------------------------------------------------
NET ASSET VALUE
Beginning of period $16.76 $20.79 $21.88 $20.21 $22.01 $20.13
Investment activities
Net investment
income (loss) 0.10 0.20 0.27 0.30 0.45 0.46
Net realized
and unrealized
gain (loss) 1.59 (4.03) (1.08) 1.71 (1.08) 2.51
Total from
investment
activities 1.69 (3.83) (0.81) 2.01 (0.63) 2.97
Distributions
Net investment
income (0.10) (0.20) (0.28) (0.29) (0.45) (0.46)
Net realized gain - - - (0.05) (0.72) (0.63)
Total distributions (0.10) (0.20) (0.28) (0.34) (1.17) (1.09)
NET ASSET VALUE
End of period $18.35 $16.76 $20.79 $21.88 $20.21 $22.01
------ ------ ------ ------ ------ ------
Ratios/Supplemental Data
Total return^ 10.11% (18.47)% (3.64)% 10.06% (2.82)% 15.04%
Ratio of total
expenses to
average net assets 0.86%+ 0.83% 0.82% 0.81% 0.77% 0.77%
Ratio of net
investment
income (loss)
to average
net assets 1.16%+ 1.08% 1.31% 1.43% 2.01% 2.26%
Portfolio
turnover rate 19.0%+ 20.4% 34.9% 35.7% 37.8% 37.3%
Net assets,
end of period
(in millions $ 599 $ 531 $ 692 $ 751 $ 1,028 $1,338
^ 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.
+ Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
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Certified Financials (Unaudited) June 30, 2003
STATEMENT OF NET ASSETS Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
COMMON STOCKS 95.6%
CONSUMER DISCRETIONARY 13.5%
HOTELS, RESTAURANTS & LEISURE 1.5%
Carnival 135,000 $ 4,389
Starwood Hotels & Resorts Worldwide, REIT 160,000 4,574
8,963
LEISURE EQUIPMENT & PRODUCTS 1.0%
Hasbro 250,000 4,372
Mattel 80,000 1,514
5,886
MEDIA 5.7%
AOL Time Warner * 280,000 4,505
Disney 350,000 6,913
McGraw-Hill 95,000 5,890
Meredith 85,000 3,740
Omnicom 90,000 6,453
Viacom, Class B * 150,000 6,549
34,050
MULTILINE RETAIL 3.3%
Family Dollar Stores 200,000 7,630
Nordstrom 150,000 2,928
Target 250,000 9,460
20,018
SPECIALTY RETAIL 2.0%
Home Depot 225,000 7,452
Ross Stores 100,000 4,274
11,726
Total Consumer Discretionary 80,643
CONSUMER STAPLES 8.1%
BEVERAGES 1.1%
PepsiCo 140,000 6,230
6,230
FOOD & STAPLES RETAILING 1.6%
Sysco 145,000 $ 4,356
Walgreen 180,000 5,418
9,774
FOOD PRODUCTS 2.4%
General Mills 150,000 7,112
McCormick 180,000 4,896
Unilever (GBP) 275,000 2,193
14,201
HOUSEHOLD PRODUCTS 0.8%
Colgate-Palmolive 50,000 2,897
Kimberly-Clark 40,000 2,086
4,983
PERSONAL PRODUCTS 0.9%
Estee Lauder, Class A 150,000 5,029
5,029
TOBACCO 1.3%
Altria Group 175,000 7,952
7,952
Total Consumer Staples 48,169
ENERGY 6.7%
ENERGY EQUIPMENT & SERVICES 1.6%
Baker Hughes 165,000 5,539
Diamond Offshore Drilling 200,000 4,198
9,737
OIL & GAS 5.1%
Amerada Hess 60,000 2,951
BP ADR 135,000 5,672
ChevronTexaco 80,000 5,776
Exxon Mobil 325,000 11,671
TotalFinaElf ADR 60,000 4,548
30,618
Total Energy 40,355
FINANCIALS 25.3%
CAPITAL MARKETS 6.0%
Bank of New York 100,000 $ 2,875
Mellon Financial 275,000 7,631
Morgan Stanley 100,000 4,275
Northern Trust 115,000 4,806
State Street 160,000 6,304
Waddell & Reed Financial, Class A 380,000 9,755
35,646
COMMERCIAL BANKS 2.9%
Fifth Third Bancorp 30,000 1,720
U.S. Bancorp 375,000 9,188
Wells Fargo 125,000 6,300
17,208
CONSUMER FINANCE 0.8%
American Express 120,000 5,017
5,017
DIVERSIFIED FINANCIAL SERVICES 3.3%
Citigroup 390,000 16,692
Principal Financial Group 85,000 2,741
19,433
INSURANCE 6.4%
AMBAC 50,000 3,313
American International Group 115,000 6,346
Hartford Financial Services Group 65,000 3,273
Marsh & McLennan 130,000 6,639
Prudential Financial 50,000 1,683
St. Paul Companies 130,000 4,746
Travelers Property Casualty, Class A 265,000 4,213
XL Capital, Class A 100,000 8,300
38,513
REAL ESTATE 3.8%
Archstone-Smith Trust, REIT 200,000 4,800
Cousins Properties, REIT 210,000 5,859
Duke Realty, REIT 175,000 4,821
Vornado Realty Trust, REIT 165,000 7,194
22,674
THRIFTS & MORTGAGE FINANCE 2.1%
Fannie Mae 90,000 $ 6,070
Freddie Mac 130,000 6,600
12,670
Total Financials 151,161
HEALTH CARE 11.2%
HEALTH CARE EQUIPMENT & SUPPLIES 0.9%
Dentsply International 130,000 5,317
5,317
HEALTH CARE PROVIDERS & SERVICES 0.9%
CIGNA 30,000 1,408
HCA 130,000 4,165
5,573
PHARMACEUTICALS 9.4%
Abbott Laboratories 175,000 7,658
Bristol-Myers Squibb 150,000 4,073
Eli Lilly 60,000 4,138
Johnson & Johnson 95,000 4,911
Pfizer 660,000 22,539
Schering-Plough 150,000 2,790
Wyeth 225,000 10,249
56,358
Total Health Care 67,248
INDUSTRIALS & BUSINESS SERVICES 11.2%
AEROSPACE & DEFENSE 2.0%
General Dynamics 55,000 3,987
Honeywell International 135,000 3,625
Rockwell Collins 160,000 3,941
11,553
AIR FREIGHT & LOGISTICS 1.2%
C.H. Robinson Worldwide 40,000 1,422
Expeditors International of Washington 60,000 2,079
UPS, Class B 60,000 3,822
7,323
BUILDING PRODUCTS 1.2%
Masco 295,000 $ 7,036
7,036
COMMERCIAL SERVICES & SUPPLIES 0.7%
Waste Management 180,000 4,336
4,336
INDUSTRIAL CONGLOMERATES 2.9%
GE 295,000 8,461
Roper Industries 125,000 4,650
Tyco International 225,000 4,270
17,381
MACHINERY 2.1%
Danaher 60,000 4,083
Nordson 170,000 4,055
Pall 200,000 4,500
12,638
ROAD & RAIL 1.1%
Union Pacific 115,000 6,672
6,672
Total Industrials & Business Services 66,939
INFORMATION TECHNOLOGY 11.1%
COMMUNICATIONS EQUIPMENT 1.0%
Cisco Systems * 185,000 3,088
Nokia 165,000 2,711
5,799
COMPUTER & PERIPHERALS 1.7%
Dell Computer * 125,000 3,995
Diebold 80,000 3,460
Hewlett-Packard 125,000 2,662
10,117
ELECTRONIC EQUIPMENT & INSTRUMENTS 1.2%
Jabil Circuit * 95,000 2,100
Molex, Class A 220,000 5,099
7,199
IT SERVICES 3.5%
Automatic Data Processing 100,000 $ 3,386
Certegy * 150,000 4,162
First Data 250,000 10,360
Paychex 100,000 2,931
20,839
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT 1.5%
Applied Materials * 175,000 2,776
Linear Technology 115,000 3,704
Texas Instruments 160,000 2,816
9,296
SOFTWARE 2.2%
Adobe Systems 75,000 2,405
Jack Henry & Associates 150,000 2,669
Microsoft 325,000 8,323
13,397
Total Information Technology 66,647
MATERIALS 1.5%
CHEMICALS 1.5%
Dow Chemical 110,000 3,406
Ecolab 70,000 1,792
Potash Corp./Saskatchewan 55,000 3,520
Total Materials 8,718
TELECOMMUNICATION SERVICES 4.8%
DIVERSIFIED TELECOMMUNICATION SERVICES 3.2%
Alltel 100,000 4,822
SBC Communications 205,000 5,238
Verizon Communications 225,000 8,876
18,936
WIRELESS TELECOMMUNICATION SERVICES 1.6%
Vodafone 500,000 9,825
9,825
Total Telecommunication Services 28,761
UTILITIES 1.2%
ELECTRIC UTILITIES 0.5%
Pinnacle West Capital 90,000 $ 3,371
3,371
GAS UTILITIES 0.7%
NiSource 210,000 3,990
3,990
Total Utilities 7,361
Total Miscellaneous Common Stocks 1.0% 6,183
Total Common Stocks (Cost $490,704) 572,185
CONVERTIBLE BONDS 0.9%
Loews, 3.125%, 9/15/07 5,700,000 5,386
Total Convertible Bonds (Cost $5,212) 5,386
SHORT-TERM INVESTMENTS 3.6%
MONEY MARKET FUND 3.6%
T. Rowe Price Reserve Investment Fund, 1.16% # 21,493,567 21,494
Total Short-Term Investments (Cost $21,494) 21,494
Total Investments in Securities
100.1% of Net Assets (Cost $517,410) $599,065
Other Assets Less Liabilities (362)
NET ASSETS $598,703
--------
Net Assets Consist of:
Undistributed net investment income (loss) $ 80
Undistributed net realized gain (loss) (22,756)
Net unrealized gain (loss) 81,655
Paid-in-capital applicable to 32,633,579
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 539,724
NET ASSETS $598,703
--------
NET ASSET VALUE PER SHARE $ 18.35
--------
# Seven-day yield
* Non-income producing
ADR American Depository Receipts
GBP British pound
REIT Real Estate Investment Trust
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
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Certified Financials (Unaudited)
STATEMENT OF OPERATIONS
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In thousands
6 Months
Ended
6/30/03
Investment Income (Loss)
Income
Dividend $ 5,184
Interest 141
Income distributions from mutual funds 121
Securities lending 4
Total income 5,450
Expenses
Investment management 1,404
Shareholder servicing 802
Custody and accounting 58
Prospectus and shareholder reports 47
Registration 8
Legal and audit 8
Directors 4
Total expenses 2,331
Expenses paid indirectly (10)
Net expenses 2,321
Net investment income (loss) 3,129
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (4,753)
Foreign currency transactions (2)
Net realized gain (loss) (4,755)
Change in net unrealized gain (loss) on securities 55,496
Net realized and unrealized gain (loss) 50,741
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $53,870
-------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
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Certified Financials (Unaudited)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/03 12/31/02
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 3,129 $ 6,566
Net realized gain (loss) (4,755) (15,718)
Change in net unrealized gain (loss) 55,496 (117,559)
Increase (decrease) in net
assets from operations 53,870 (126,711)
Distributions to shareholders
Net investment income (3,224) (6,451)
Capital share transactions *
Shares sold 52,503 83,037
Distributions reinvested 2,987 5,960
Shares redeemed (38,697) (116,691)
Increase (decrease) in
net assets from capital
share transactions 16,793 (27,694)
Net Assets
Increase (decrease) during period 67,439 (160,856)
Beginning of period 531,264 692,120
End of period $598,703 $ 531,264
----------------------
*Share information
Shares sold 3,068 4,385
Distributions reinvested 170 337
Shares redeemed (2,305) (6,306)
Increase (decrease) in shares outstanding 933 (1,584)
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Dividend Growth Fund
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Certified Financials (Unaudited) June 30, 2003
NOTES TO FINANCIAL STATEMENTS
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NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Dividend Growth Fund (the fund) is registered under the
Investment Company Act of 1940 (the 1940 Act) as a diversified, open-end
management investment company and commenced operations on December 30,
1992. 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.
The accompanying financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America,
which require the use of estimates made by fund management.
Valuation
Investments are valued at the close of the New York Stock Exchange (NYSE),
normally 4 p.m. ET, each day that the NYSE is open for business. Equity
securities listed or regularly traded on a securities exchange or in the
over-the-counter market are valued at the last quoted sale price, or
official closing price for certain markets, at the time the valuations are
made. A security that 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
are valued at the mean of the latest bid and ask prices for domestic
securities and the last quoted sale price for international securities.
Debt securities are generally traded in the over-the-counter market.
Securities with original maturities of one year or more are valued at
prices furnished by dealers who make markets in such securities or by an
independent pricing service, which considers yield or price of bonds of
comparable quality, coupon, maturity, and type, as well as prices quoted by
dealers who make markets in such securities. Securities with original
maturities less than one year are valued at amortized cost in local
currency, which approximates fair value when combined with accrued
interest.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
Other investments and those 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.
Most foreign markets close before the NYSE. Developments that could affect
the values of securities that occur between the close of a foreign market
and the close of the NYSE normally will not be reflected in security
valuations. However, if such developments are so significant that they
will, in the judgment of the officers of the fund, clearly and materially
affect the value of securities, the previous closing prices may be adjusted
to reflect the fair value of the securities as of the close of the NYSE, 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, including investments, and liabilities denominated in foreign
currencies are translated into U.S. dollar values each day at the
prevailing exchange rate, using the mean of the bid and ask prices of such
currencies against U.S. dollars as quoted by a major bank. Purchases and
sales of securities, income, and expenses are translated into U.S. dollars
at the prevailing exchange rate on the date of the transaction. The effect
of changes in foreign currency exchange rates on realized and unrealized
security gains and losses is reflected as a component of such gains and
losses.
Premiums and Discounts
Premiums and discounts on debt securities are amortized for financial
reporting purposes.
Expenses Paid Indirectly
Certain security trades are directed to brokers who have agreed to rebate a
portion of the related commission to the fund to pay fund expenses.
Additionally, credits earned on temporarily uninvested cash balances at the
custodian are used to reduce the fund's custody charges. Total expenses in
the accompanying statement of operations are presented before reduction for
rebates and credits, which totaled $10,000 and $0, respectively, for the
six months ended June 30, 2003.
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.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Securities Lending
The fund lends its securities to approved brokers to earn additional
income. It receives as collateral cash and U.S. government securities
valued at 102% to 105% of the value of the securities on loan. Cash
collateral is invested in a money market pooled account managed by the
fund's lending agent in accordance with investment guidelines approved by
fund management. Collateral is maintained over the life of the loan in an
amount not less than the value of loaned securities, as determined at the
close of fund business each day; any additional collateral required due to
changes in security values is delivered to the fund the next business day.
Although risk is mitigated by the collateral, the fund could experience a
delay in recovering its securities and a possible loss of income or value
if the borrower fails to return the securities. Securities lending revenue
recognized by the fund consists of earnings on invested collateral and
borrowing fees, net of any rebates to the borrower and compensation to the
lending agent. At June 30, 2003, there were no securities on loan.
Other
Purchases and sales of portfolio securities, other than short-term and U.S.
government securities, aggregated $62,334,000 and $50,004,000,
respectively, for the six months ended June 30, 2003.
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 to
shareholders all of its taxable income and gains. Federal income tax
regulations differ from generally accepted accounting principles;
therefore, distributions determined in accordance with tax regulations may
differ in amount or character from net investment income and realized gains
for financial reporting purposes. Financial reporting records are adjusted
for permanent book/tax differences to reflect tax character. Temporary
differences are not adjusted. The amount and character of tax-basis
distributions and composition of net assets are finalized at fiscal
year-end; accordingly, tax-basis balances have not been determined as of
June 30, 2003.
For tax purposes, the fund has elected to treat net capital losses realized
between November 1 and December 31 of each year as occurring on the first
day of the following tax year; consequently, $2,951,000 of realized losses
recognized for financial reporting purposes in the year ended December 31,
2002 were recognized for tax purposes on January 1, 2003. Further, the fund
intends to retain realized gains to the extent of available capital loss
carryforwards. As of December 31, 2002, the fund had $15,050,000 of unused
capital loss carryforwards, of which $2,127,000 expire in 2008 and
$12,923,000 expire in 2010.
At June 30, 2003, the cost of investments for federal income tax purposes
was $517,410,000. Net unrealized gain aggregated $81,655,000 at period-end,
of which $116,872,000 related to appreciated investments and $35,217,000
related to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price
Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. The
investment management agreement between the fund and the manager provides
for an annual investment management fee, which is computed daily and paid
monthly. The fee consists of an individual fund fee, equal to 0.20% of the
fund's average daily net assets, and the fund's pro-rata share of a group
fee. The group fee is calculated based on the combined net assets of
certain mutual funds sponsored by Price Associates (the group) applied to a
graduated fee schedule, with rates ranging from 0.48% for the first $1
billion of assets to 0.295% for assets in excess of $120 billion. The
fund's portion of the group fee is determined by the ratio of its net
assets to those of the group. At June 30, 2003, the effective annual group
fee rate was 0.32%, and investment management fee payable totaled $258,000.
In addition, the fund has entered into service agreements with Price
Associates and two wholly owned subsidiaries of Price Associates
(collectively, Price). Price Associates computes the daily share price and
maintains the financial records of the fund. T. Rowe Price Services, Inc.
provides shareholder and administrative services in its capacity as the
fund's transfer and dividend disbursing agent. T. Rowe Price Retirement
Plan Services, Inc. provides subaccounting and recordkeeping services for
certain retirement accounts invested in the fund. Expenses incurred
pursuant to these service agreements totaled $638,000 for the six months
ended June 30, 2003, of which $123,000 was payable at period-end.
The fund may invest in the T. Rowe Price Reserve Investment Fund and T.
Rowe Price Government Reserve Investment Fund (collectively, the Reserve
Funds), open-end management investment companies managed by Price
Associates. The Reserve Funds are offered as cash management options only
to mutual funds, trusts, and other accounts managed by Price Associates
and/or 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, 2003, totaled $121,000.
Item 2. Code of Ethics.
Not required at this time.
Item 3. Audit Committee Financial Expert.
Not required at this time.
Item 4. Principal Accountant Fees and Services.
Not required at this time.
Item 5. Audit Committee of Listed Registrants.
Not required at this time.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The registrant's principal executive officer and principal financial officer
are aware of no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a)(1) Not required at this time.
(a)(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b) A certification by the registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940,
is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Dividend Growth Fund, Inc.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date August 22, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James S. Riepe
James S. Riepe
Principal Executive Officer
Date August 22, 2003
By /s/ Joseph A. Carrier
Joseph A. Carrier
Principal Financial Officer
Date August 22, 2003