Item 1. Report to Shareholders
DECEMBER 31, 2004
DIVIDEND GROWTH FUND
Annual Report
T. ROWE PRICE
The views and opinions in this report were current as of December 31, 2004. They
are not guarantees of performance or investment results and should not be taken
as investment advice. Investment decisions reflect a variety of factors, and the
managers reserve the right to change their views about individual stocks,
sectors, and the markets at any time. As a result, the views expressed should
not be relied upon as a forecast of the fund's future investment intent. The
report is certified under the Sarbanes-Oxley Act of 2002, which requires mutual
funds and other public companies to affirm that, to the best of their knowledge,
the information in their financial reports is fairly and accurately stated in
all material respects.
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T. ROWE PRICE DIVIDEND GROWTH FUND
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Fellow Shareholders
The stock market finished the year strongly, up 9.23% in the fourth quarter and
10.88% for the year, as measured by the Standard & Poor's 500 Stock Index.
Bucking headwinds generated by higher oil prices, large budget and trade
deficits, and continued geopolitical conflict, investors focused instead on
solid earnings growth, relatively low interest rates, and managements' renewed
commitment to returning money to shareholders via dividends.
Overall, this was a favorable environment for your fund even though large,
high-quality growth companies were not performance leaders. As has been the case
for several years, small- and mid-cap stocks outperformed large-cap, and value
outperformed growth. Traditional value-oriented areas such as energy, materials,
industrials, and utilities did very well, while more traditional growth areas
including health care and information technology lagged.
The cut in taxes on dividends continued to bear fruit, which is positive for
your fund. The S&P 500 recorded 269 dividend increases in 2004, up from 240 in
2003 and the most since 1998. Altogether 376 companies in the index now pay
dividends compared with 351 two years ago. Within the index, financial companies
posted the most dividend increases (70 of 81 companies), followed by consumer
discretionary and industrials. Even among the index's information technology
companies, there were 16 dividend increases, including Microsoft's $33 billion
special payout.
PERFORMANCE COMPARISON
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Periods Ended 12/31/04 6 Months 12 Months
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Dividend Growth Fund 8.90% 11.90%
S&P 500 Stock Index 7.19 10.88
Lipper Multi-Cap Core Funds Index 8.01 12.39
Your fund performed well in the second half with a return of 8.90%, surpassing
the broad market represented by the S&P 500 as well as its Lipper peer group
index. For the year, the fund's 11.90% return exceeded the broad market but not
that of the peer group index.
PERFORMANCE REVIEW
Top contributors for the second half of the year generally fell into the energy,
materials, telecommunications services, and consumer discretionary sectors. The
fund's energy holdings did well as oil climbed to $55 a barrel in October. In
particular, Diamond Offshore and ExxonMobil
(the fund's second-largest position) performed well. For Diamond Offshore,
higher oil prices led to increased demand at higher day-rates for the company's
drilling rigs. (Please refer to our portfolio of investments for a complete
listing of the fund's holdings and the amount each represents of the portfolio.)
Potash Corporation, a fertilizer company, and Nucor Steel, a leading steel
manufacturer, benefited greatly from an imbalance in demand versus supply in
their respective markets. As a result, both companies enjoyed pricing power not
seen in years. Our enthusiasm for these stocks has subsequently waned due to
their spectacular performance, so we trimmed our positions.
Reflecting healthy consumer spending throughout most of 2004, stocks of Target,
Home Depot, and Carnival all enjoyed strong returns. These companies offer their
customers a quality product at affordable prices, which is generally a recipe
for success. In addition, Carnival is benefiting from its undisputed title as
industry leader following its purchase of Princess Cruise Lines.
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
6/30/04 12/31/04
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Financials 24.2% 22.9%
Consumer Discretionary 13.9 15.4
Industrials and Business Services 14.9 14.4
Information Technology 11.4 10.5
Energy 7.6 8.0
Health Care 9.6 7.9
Consumer Staples 7.5 7.9
Telecommunications Services 4.5 5.7
Materials 2.5 3.2
Cash 2.7 2.5
Utilities 1.2 1.6
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Total 100.0% 100.0%
Historical weightings reflect current industry/sector classifications.
Telecommunications services, and our large holdings in Sprint and Vodafone in
particular, performed admirably in the second half of the year. The companies
appreciated because of solid quarterly earnings and a growing recognition that
their stocks were inexpensive. In addition, prospects for another round of
consolidation in the industry buoyed share prices. We wrote about Sprint in our
mid-year letter as a new addition. We liked the company's improved growth
prospects, particularly at a share price of $18. Following two quarters of solid
performance, the stock now trades at $24, and the company has a merger agreement
in place with Nextel Communications. The merger
will create the third-largest wireless operator in the U.S. (behind Cingular
Wireless and Verizon Communications), and we are optimistic about the combined
company's prospects.
Holdings that generally detracted from performance included pharmaceuticals and
insurance companies. Among the former, Pfizer, one of our top-10 positions, had
a rough year. Pharmaceutical stocks in general have not been this inexpensive
since the early 1990s when the Clinton administration's health care reform
initiative frightened investors, but the large drug companies' fundamental
prospects are not as attractive as they were then. The companies are larger,
which makes growth more difficult. Generally speaking, soft new-product
pipelines, significant patent expirations, increased government scrutiny of drug
prices, and litigation concerns have put extreme pressure on these companies.
Pfizer is a case in point. Despite delivering record sales and earnings for the
year, the company was hampered by fallout from rival Merck's problems with pain
drug Vioxx. Subsequent to Merck's pulling Vioxx from the market, new studies
indicated Pfizer's competing drug Celebrex had similar (though not as severe)
cardiovascular safety concerns. While it has not caused Pfizer to remove the
drug from the market, the reaction has been harsh. Prescriptions have declined,
trial attorneys have filed scores of lawsuits, and the stock market has punished
the stock. Pfizer remains inexpensive (11.8 times 2005 estimated earnings) but
still carries risk given the challenging industry environment as well as patent
exposure on some of its key drugs a few years away. We sold a fair bit of Pfizer
in the second half, much of it before the Celebrex news. While we are unlikely
to completely abandon our position, we are not comfortable with it as a top-10
holding.
Financials, the fund's largest sector exposure, posted a generally lackluster
year amid uncertainties over inflation and interest rates. Major bank holdings
Citigroup and State Street were basically flat for 2004, while U.S. Bancorp rose
modestly. Insurance was a difficult investment area in the second half of the
year. While prospects of higher interest rates hurt the group, the New York
attorney general's office caused the most headaches. AIG and St. Paul Companies
suffered flesh wounds while Marsh & McLennan took a full body blow. An
investigation that focused on the insurance brokerage business and so-called
"contingent commissions" sent the shares of Marsh & McLennan from $43 to $24
over the course of several days. We added to the stock on the break, believing
the
company's earning power to be in the $2.50-$3.00 range by 2006. In fact,
signs are that the company is retaining most of its customers, and the stock has
rebounded into the low $30s.
PORTFOLIO CHANGES
We increased our exposure to the telecommunications sector in the second half of
the year by adding Canadian service provider Telus to the portfolio. Telus is
focusing on its faster-growing wireless business in an industry structure that
is improving with consolidation. In addition, wireless penetration in the
Canadian market is only 47% (versus 60% for the U.S.), which provides for an
above-average growth opportunity for the foreseeable future. We anticipate the
company will translate single-digit top-line growth into double-digit
bottom-line growth while also generating a large amount of free cash flow, which
it is using for dividend growth and share repurchases. Telus, even after
appreciating 15% since our purchase, trades at just 5.4 times 2005 estimated
cash flow.
We took a position in Wal-Mart in the back half of 2004. Many investors are
unaware that Wal-Mart has a terrific record of dividend growth even though its
current yield is less than 1%. The dividend has been raised every year since
1974. The company's share price struggled in 2004 because of tough competition
(partly from another of our favorites, Target Stores) as well as the effect of
higher oil prices on consumers' discretionary income. Unimpressive comparable
store sales provided an opportunity to purchase this world-class retailer at an
attractive price. We bought the stock at 20 times 2005 earnings per share (EPS),
a modest premium to the "market multiple" but well below the 10%-15% premium the
company generally commands. We believe Wal-Mart's sales weakness is transitory;
in fact, the company reaffirmed its sales and earnings estimates following the
holiday season. In the meantime, oil has eased below $50 per barrel, which
should bode well for discretionary spending.
With a 70% market share of the slot machine business, International Game
Technology is the "arms dealer" to gaming companies around the world. The global
proliferation of gaming provides an opportunity for this company to continue its
impressive growth record. While international markets have not been a huge part
of its business to date, the company has made good progress in Asia and is
eyeing the rapidly growing Macau market. New domestic markets in California and
Pennsylvania are set to
benefit IGT in late 2005 into 2006. We bought the stock for 20 times forward EPS
(down from 25 times), a reasonable price we believe for a company growing
15%-20% per year and generating a 20% return on invested capital. Additionally,
the company has proven willing to return capital to shareholders through
aggressive share repurchases as well as dividend growth.
International Paper (IP), the world's largest paper and forest products company,
was the fund's largest addition in the second half of 2004. Materials and
commodity-based sectors generally did well in 2004, but paper was an exception.
While the paper group has begun to see some pricing power over the last year and
supply conditions appear favorable, rising input costs and slow demand growth
have kept profits somewhat below expectations. We are of the opinion that IP
will show tremendous earnings leverage to a pricing recovery in almost all of
the commodity paper and packaging grades. In the meantime, the company is doing
what it can--selling non-core assets, using free cash flow to pay down excess
debt, and cutting costs aggressively. We feel the company has mid-cycle earnings
power in the range of $3.75, and with the stock in the low $40 range (with a
2.5% yield) IP is trading at a significant discount to its timberland and paper
net asset value.
During the second half, we eliminated the rest of our positions in Nordstrom and
Starwood Hotels & Resorts Worldwide. Both were terrific performers for the
portfolio but had risen to levels where their risk/reward potential was no
longer favorable, in our opinion.
We continued to reduce our REIT exposure during the period, eliminating one of
our holdings, Duke Realty, and trimming another, Vornado Realty Trust. We have
nothing against the companies, but our view of the sector grew increasingly
bearish after it chalked up another spectacular year in 2004. The long period of
low interest rates and skyrocketing real estate values have driven REIT prices
to a premium to net asset value (NAV) not seen in years. We redeployed some of
the proceeds into utilities, another higher-yielding sector, in particular by
adding to our position in NiSource, a gas utility holding company. Finally, we
took advantage of strength in materials stocks such as Nucor and Potash to trim
the positions and reinvest the proceeds in areas we felt offered better value.
OUTLOOK
We are cautiously optimistic as we head into 2005. Despite the sell-off under
way in early January, a normal market return of 5%-7% for the year seems
reasonable, matching the expected earnings growth for the S&P 500 in 2005. We
believe the greatest value lies in larger-cap securities, which again trailed
their small- and mid-cap brethren in 2004. Dividend-paying stocks in particular
should gain more attention as prospects for lower total returns become a
reality. We have written much about the significant historical contribution to
total return provided by dividends. As always, we will seek companies offering
an attractive combination of earnings and dividend growth whose prices reflect
attractive valuations.
Respectfully submitted,
Thomas J. Huber
President of the fund and chairman of its Investment Advisory Committee
January 19, 2005
The committee chairman has day-to-day responsibility for managing the portfolio
and works with committee members in developing and executing the fund's
investment program.
RISKS OF STOCK INVESTING
As with all stock and bond mutual funds, a fund's share price can fall because
of weakness in the stock or bond markets, a particular industry, or specific
holdings. Stock markets can decline for many reasons, including adverse
political or economic developments, 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, the investment manager's assessment of
companies held in a fund may prove incorrect, resulting in losses or poor
performance even in rising markets. Funds investing in stocks with a dividend
orientation may have somewhat lower potential for price appreciation than those
concentrating on rapidly growing firms. Also, a company may reduce or eliminate
its dividend.
GLOSSARY
Dividend yield: The annual dividend of a stock divided by the stock's price.
Beta: A measure of the market risk of a stock showing how responsive it is to a
given market index, such as the S&P 500 Stock Index. By definition, the beta of
the benchmark index is 1.00. A fund with a 1.10 beta is expected to perform 10%
better than the index in up markets and 10% worse in down markets. Usually,
higher betas represent riskier investments.
Lipper indexes: Fund benchmarks that consist of a small number (10 to 30) of the
largest mutual funds in a particular category as tracked by Lipper Inc.
Price/earnings ratio (P/E): A valuation measure calculated by dividing the price
of a stock by its current or projected earnings per share. This ratio gives
investors an idea of how much they are paying for current or future earnings
power.
Risk/reward: The relationship between the degree of risk associated with an
investment and its return potential. Typically, the higher the potential return
of an investment, the greater the risk.
Standard & Poor's Stock Ratings: A computerized scoring system based on per
share earnings and dividend records of the most recent 10 years and measured
against a matrix derived from the scores of a large and representative sample of
stocks.
S&P 500 Stock Index: An unmanaged index that tracks the stocks of 500 primarily
large-capitalization U.S. companies.
T. ROWE PRICE DIVIDEND GROWTH FUND
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PORTFOLIO HIGHLIGHTS
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TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/04
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Citigroup 2.4%
ExxonMobil 2.2
GE 2.1
Vodafone 1.7
Target 1.7
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State Street 1.6
U.S. Bancorp 1.6
Microsoft 1.5
Pfizer 1.4
Tyco International 1.4
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Altria Group 1.3
Home Depot 1.3
XL Capital 1.3
Viacom 1.3
Wyeth 1.2
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Sprint 1.2
Carnival 1.2
Diamond Offshore Drilling 1.2
Verizon Communications 1.2
UPS 1.2
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Union Pacific 1.2
St. Paul Companies 1.2
Johnson & Johnson 1.1
Roper Industries 1.1
American Express 1.1
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Total 35.7%
Note: Table excludes investments in the T. Rowe Price Reserve Investment Fund.
T. ROWE PRICE DIVIDEND GROWTH FUND
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PORTFOLIO HIGHLIGHTS
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MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 12/31/04
Largest Purchases Largest Sales
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International Paper * Pfizer
Clear Channel Communications * Duke Realty **
Telus * Nucor
Mattel * ARAMARK
Wal-Mart * SBC Communications **
SBC Communications * Hasbro **
International Game Technology * Vornado Realty Trust
NiSource Adobe Systems **
State Street Amerada Hess
Time Warner Applied Materials **
* Position added
** Position eliminated
T. ROWE PRICE DIVIDEND GROWTH FUND
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GROWTH OF $10,000
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This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
[Graphic Omitted]
DIVIDEND GROWTH FUND
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As of 12/31/04
Dividend Growth Fund $29,240
S&P 500 Stock Index $31,258
Lipper Multi-Cap Core Funds Index $28,721
Dividend Growth S&P 500 Lipper Multi-Cap
Fund Stock Index Core Funds Index
12/94 $10,000 $10,000 $10,000
12/95 13,175 13,758 13,221
12/96 16,516 16,917 15,927
12/97 21,598 22,561 20,112
12/98 24,846 29,008 23,871
12/99 24,145 35,112 28,828
12/00 26,573 31,915 27,866
12/01 25,606 28,122 24,868
12/02 20,877 21,907 19,461
12/03 26,132 28,190 25,555
12/04 29,240 31,258 28,721
AVERAGE ANNUAL COMPOUND TOTAL RETURN
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This table shows how the fund and its benchmarks would have performed if their
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Periods Ended 12/31/04 1 Year 5 Years 10 Years
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Dividend Growth Fund 11.90% 3.90% 11.33%
S&P 500 Stock Index 10.88 -2.30 12.07
Lipper Multi-Cap Core Funds Index 12.39 -0.07 11.13
Current performance may be higher or lower than the quoted past performance,
which cannot guarantee future results. Share price, principal value, and return
will vary, and you may have a gain or loss when you sell your shares. For the
most recent month-end performance information, please visit our Web site
(troweprice.com) or contact a T. Rowe Price representative at 1-800-225-5132.
Average annual total return figures include changes in principal value,
reinvested dividends, and capital gain distributions. Returns do not reflect
taxes that the shareholder may pay on fund distributions or the redemption of
fund shares. When assessing performance, investors should consider both short-
and long-term returns.
FUND EXPENSE EXAMPLE
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As a mutual fund shareholder, you may incur two types of costs: (1) transaction
costs such as redemption fees or sales loads and (2) ongoing costs, including
management fees, distribution and service (12b-1) fees, and other fund expenses.
The following example is intended to help you understand your ongoing costs (in
dollars) of investing in the fund and to compare these costs with the ongoing
costs of investing in other mutual funds. The example is based on an investment
of $1,000 invested at the beginning of the most recent six-month period and held
for the entire period.
Actual Expenses
The first line of the following table ("Actual") provides information about
actual account values and actual expenses. You may use the information in this
line, together with your account balance, to estimate the expenses that you paid
over the period. Simply divide your account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number in the first line under the heading "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The information on the second line of the table ("Hypothetical") is based on
hypothetical account values and expenses derived from the fund's actual expense
ratio and an assumed 5% per year rate of return before expenses (not the fund's
actual return). You may compare the ongoing costs of investing in the fund with
other funds by contrasting this 5% hypothetical example and the 5% hypothetical
examples that appear in the shareholder reports of the other funds. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period.
Note: T. Rowe Price charges an annual small-account maintenance fee of $10,
generally for accounts with less than $2,000 ($500 for UGMA/UTMA). The fee is
waived for any investor whose T. Rowe Price mutual fund accounts total $25,000
or more, accounts employing automatic investing, and IRAs and other retirement
plan accounts that utilize a prototype plan sponsored by T. Rowe Price (although
a separate custodial or administrative fee may apply to such accounts). This fee
is not included in the accompanying table. If you are subject to the fee, keep
it in mind when you are estimating the ongoing expenses of investing in the fund
and when comparing the expenses of this fund with other funds.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs, such as redemption
fees or sales loads. Therefore, the second line of the table is useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. To the extent a fund charges transaction costs,
however, the total cost of owning that fund is higher.
T. ROWE PRICE DIVIDEND GROWTH FUND
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Beginning Ending Expenses Paid
Account Value Account Value During Period*
7/1/04 12/31/04 7/1/04 to 12/31/04
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Actual $1,000.00 $1,089.00 $4.10
Hypothetical (assumes 5%
return before expenses) 1,000.00 1,021.22 3.96
* Expenses are equal to the fund's annualized expense ratio for the six-month
period (0.78%), multiplied by the average account value over the period,
multiplied by the number of days in the most recent fiscal half year (184)
divided by the days in the year (366) to reflect the half-year period.
T. ROWE PRICE DIVIDEND GROWTH FUND
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FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
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Year
Ended
12/31/04 12/31/03 12/31/02 12/31/01 12/31/00
NET ASSET VALUE
Beginning of period $ 20.72 $ 16.76 $ 20.79 $ 21.88 $ 20.21
Investment activities
Net investment income (loss) 0.26 0.22 0.20 0.27 0.30
Net realized and
unrealized gain (loss) 2.19 3.97 (4.03) (1.08) 1.71
Total from
investment activities 2.45 4.19 (3.83) (0.81) 2.01
Distributions
Net investment income (0.25) (0.23) (0.20) (0.28) (0.29)
Net realized gain - - - - (0.05)
Total distributions (0.25) (0.23) (0.20) (0.28) (0.34)
NET ASSET VALUE
End of period $ 22.92 $ 20.72 $ 16.76 $ 20.79 $ 21.88
-------------------------------------------------
Ratios/Supplemental Data
Total return^ 11.90% 25.17% (18.47)% (3.64)% 10.06%
Ratio of total expenses to
average net assets 0.78% 0.83% 0.83% 0.82% 0.81%
Ratio of net investment
income (loss) to average
net assets 1.21% 1.25% 1.08% 1.31% 1.43%
Portfolio turnover rate 16.5% 17.5% 20.4% 34.9% 35.7%
Net assets, end of period
(in millions) $ 754 $ 695 $ 531 $ 692 $ 751
^ 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.
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE DIVIDEND GROWTH FUND
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December 31, 2004
PORTFOLIO OF INVESTMENTS (1) Shares Value
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(Cost and value in $ 000s)
COMMON STOCKS 97.5%
CONSUMER DISCRETIONARY 15.4%
Hotels, Restaurants & Leisure 1.7%
Carnival 160,000 9,221
International Game Technology 100,000 3,438
12,659
Household Durables 0.4%
Newell Rubbermaid 125,000 3,024
3,024
Leisure Equipment & Products 0.7%
Mattel 270,000 5,262
5,262
Media 7.8%
Clear Channel Communications 140,000 4,689
Disney 220,000 6,116
EchoStar Communications, Class A 110,000 3,657
McGraw-Hill 82,500 7,552
Meredith 85,000 4,607
New York Times, Class A 175,000 7,140
Omnicom 87,500 7,378
Time Warner * 400,000 7,776
Viacom, Class B 265,000 9,643
58,558
Multiline Retail 2.7%
Family Dollar Stores 260,000 8,120
Target 245,000 12,723
20,843
Specialty Retail 2.1%
Home Depot 235,000 10,044
Ross Stores 205,000 5,918
15,962
Total Consumer Discretionary 116,308
CONSUMER STAPLES 7.9%
Beverages 0.9%
PepsiCo 135,000 7,047
7,047
Food & Staples Retailing 2.3%
Sysco 130,000 4,962
Wal-Mart 85,000 4,490
Walgreen 195,000 7,482
16,934
Food Products 2.3%
General Mills 150,000 7,456
McCormick 170,000 6,562
Unilever N.V. (GBP) 360,000 3,528
17,546
Household Products 0.3%
Colgate-Palmolive 50,000 2,558
2,558
Personal Products 0.8%
Estee Lauder, Class A 125,000 5,721
5,721
Tobacco 1.3%
Altria Group 165,000 10,082
10,082
Total Consumer Staples 59,888
ENERGY 8.0%
Energy Equipment & Services 2.2%
Baker Hughes 170,000 7,254
Diamond Offshore Drilling 230,000 9,211
16,465
Oil & Gas 5.8%
Amerada Hess 40,000 3,295
BP ADR 140,000 8,176
ChevronTexaco 150,000 7,877
ExxonMobil 325,000 16,659
Total ADR 70,000 7,689
43,696
Total Energy 60,161
FINANCIALS 22.9%
Capital Markets 5.2%
Bank of New York 170,000 5,681
Mellon Financial 245,000 7,622
Morgan Stanley 110,000 6,107
State Street 245,000 12,035
Waddell & Reed Financial, Class A 320,000 7,645
39,090
Commercial Banks 2.9%
Fifth Third Bancorp 30,000 1,418
U.S. Bancorp 380,000 11,902
Wells Fargo 135,000 8,390
21,710
Consumer Finance 1.6%
American Express 150,000 8,456
SLM Corporation 65,000 3,470
11,926
Diversified Financial Services 3.0%
Citigroup 375,000 18,068
Principal Financial Group 110,000 4,503
22,571
Insurance 5.7%
American International Group 125,000 8,209
Genworth Financial, Class A 100,000 2,700
Hartford Financial Services 65,000 4,505
Marsh & McLennan 200,000 6,580
Prudential 50,000 2,748
St. Paul Companies 235,000 8,711
XL Capital 125,000 9,706
43,159
Real Estate 2.2%
Archstone-Smith Trust, REIT 145,000 5,554
Cousins Properties, REIT 135,000 4,086
Vornado Realty Trust, REIT 90,000 6,852
16,492
Thrifts & Mortgage Finance 2.3%
Fannie Mae 92,500 6,587
Freddie Mac 90,000 6,633
Radian 80,000 4,259
17,479
Total Financials 172,427
HEALTH CARE 7.9%
Biotechnology 0.6%
MedImmune * 150,000 4,067
4,067
Health Care Equipment & Supplies 1.3%
Dentsply International 100,000 5,620
Medtronic 90,000 4,470
10,090
Health Care Providers & Services 0.6%
HCA 115,000 4,595
4,595
Pharmaceuticals 5.4%
Abbott Laboratories 110,000 5,131
Bristol Myers Squibb 155,000 3,971
Eli Lilly 50,000 2,838
Johnson & Johnson 135,000 8,562
Pfizer 400,000 10,756
Wyeth 220,000 9,370
40,628
Total Health Care 59,380
INDUSTRIALS & BUSINESS SERVICES 14.4%
Aerospace & Defense 3.3%
General Dynamics 40,000 4,184
Honeywell International 150,000 5,312
Lockheed Martin 150,000 8,332
Rockwell Collins 175,000 6,902
24,730
Air Freight & Logistics 1.8%
C.H. Robinson Worldwide 40,000 2,221
Expeditors International of Washington 52,500 2,934
UPS, Class B 102,500 8,759
13,914
Building Products 1.0%
Masco 200,000 7,306
7,306
Commercial Services & Supplies 1.2%
ARAMARK, Class B 75,000 1,988
Waste Management 250,000 7,485
9,473
Industrial Conglomerates 4.7%
GE 430,000 15,695
Roper Industries 140,000 8,508
Teleflex 5,800 302
Tyco International 300,000 10,722
35,227
Machinery 1.3%
Danaher 90,000 5,167
Pall 150,000 4,342
9,509
Road & Rail 1.1%
Union Pacific 130,000 8,743
8,743
Total Industrials & Business Services 108,902
INFORMATION TECHNOLOGY 10.5%
Communications Equipment 0.5%
Cisco Systems * 180,000 3,474
3,474
Computers & Peripherals 2.1%
Dell * 130,000 5,478
Diebold 115,000 6,409
Hewlett-Packard 200,000 4,194
16,081
Electronic Equipment & Instruments 1.0%
Jabil Circuit * 100,000 2,558
Molex, Class A 200,000 5,330
7,888
IT Services 2.9%
Automatic Data Processing 100,000 4,435
Certegy 160,000 5,685
First Data 175,000 7,444
Paychex 120,000 4,090
21,654
Semiconductor & Semiconductor Equipment 2.0%
Intersil Holding, Class A 225,000 3,767
Linear Technology 120,000 4,651
Texas Instruments 210,000 5,170
Xilinx 55,000 1,631
15,219
Software 2.0%
Jack Henry & Associates 175,000 3,484
Microsoft 425,000 11,352
14,836
Total Information Technology 79,152
MATERIALS 3.2%
Chemicals 1.8%
Dow Chemical 110,000 5,446
Potash Corp./Saskatchewan 92,500 7,683
13,129
Metals & Mining 0.7%
Nucor 100,000 5,234
5,234
Paper & Forest Products 0.7%
International Paper 130,000 5,460
5,460
Total Materials 23,823
TELECOMMUNICATION SERVICES 5.7%
Diversified Telecommunication Services 4.0%
Alltel 100,000 5,876
Sprint 375,000 9,318
Telus 200,000 5,780
Verizon Communications 225,000 9,115
30,089
Wireless Telecommunication Services 1.7%
Vodafone ADR 475,000 13,006
13,006
Total Telecommunication Services 43,095
UTILITIES 1.6%
Electric Utilities 0.6%
Pinnacle West Capital 90,000 3,997
3,997
Gas Utilities 1.0%
NiSource 340,000 7,745
7,745
Total Utilities 11,742
Total Common Stocks (Cost $525,675) 734,878
SHORT-TERM INVESTMENTS 2.1%
Money Market Fund 2.1%
T. Rowe Price Reserve Investment Fund, 2.28% #! 16,012,379 16,012
Total Short-Term Investments (Cost $16,012) 16,012
Total Investments in Securities
99.6% of Net Assets (Cost $541,687) $750,890
--------
(1) Denominated in U.S. dollars unless otherwise noted
# Seven-day yield
* Non-income producing
! Affiliated company - See Note 4
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
- --------------------------------------------------------------------------------
December 31, 2004
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
(In thousands except shares and per share amounts)
Assets
Investments in securities, at value
Affiliated companies (cost $16,012) $ 16,012
Non-affiliated companies (cost $525,675) 734,878
Total investments in securities 750,890
Other assets 5,701
Total assets 756,591
Liabilities
Total liabilities 2,816
NET ASSETS $ 753,775
---------------
Net Assets Consist of:
Undistributed net investment income (loss) $ 269
Undistributed net realized gain (loss) (6)
Net unrealized gain (loss) 209,203
Paid-in-capital applicable to 32,892,372 shares of
$0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized 544,309
NET ASSETS $ 753,775
---------------
NET ASSET VALUE PER SHARE $ 22.92
---------------
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE DIVIDEND GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
12/31/04
Investment Income (Loss)
Income
Dividend $ 14,076
Securities lending 7
Total income 14,083
Expenses
Investment management 3,632
Shareholder servicing 1,627
Custody and accounting 119
Prospectus and shareholder reports 82
Registration 39
Legal and audit 14
Directors 6
Miscellaneous 9
Total expenses 5,528
Net investment income (loss) 8,555
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 20,554
Foreign currency transactions (5)
Net realized gain (loss) 20,549
Change in net unrealized gain (loss) on securities 51,147
Net realized and unrealized gain (loss) 71,696
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 80,251
---------------
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE DIVIDEND GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
12/31/04 12/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 8,555 $ 7,368
Net realized gain (loss) 20,549 (2,244)
Change in net unrealized gain (loss) 51,147 131,897
Increase (decrease) in net assets
from operations 80,251 137,021
Distributions to shareholders
Net investment income (8,286) (7,544)
Capital share transactions *
Shares sold 108,886 113,468
Distributions reinvested 7,772 7,013
Shares redeemed (129,907) (86,163)
Increase (decrease) in net assets
from capital share transactions (13,249) 34,318
Net Assets
Increase (decrease) during period 58,716 163,795
Beginning of period 695,059 531,264
End of period $ 753,775 $ 695,059
--------------------------
(Including undistributed net investment income of
$269 at 12/31/04 and $0 at 12/31/03)
*Share information
Shares sold 5,139 6,222
Distributions reinvested 358 378
Shares redeemed (6,147) (4,759)
Increase (decrease) in shares outstanding (650) 1,841
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE DIVIDEND GROWTH FUND
- --------------------------------------------------------------------------------
December 31, 2004
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Dividend Growth Fund, Inc. (the fund) is registered under the
Investment Company Act of 1940 (the 1940 Act) as a diversified, open-end
management investment company. The fund 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
The fund values its investments and computes its net asset value per share 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, for certain markets, the official closing price at
the time the valuations are made, except for OTC Bulletin Board securities,
which are valued at the mean of the latest bid and asked prices. 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 asked prices for domestic securities and the last quoted sale price for
international securities.
Investments in mutual funds are valued at the mutual fund's closing net asset
value per share on the day of valuation.
Other investments, including restricted securities, 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 the T. Rowe Price
Valuation Committee, established by the fund's Board of Directors.
Most foreign markets close before the close of trading on the NYSE. If the fund
determines that developments between the close of a foreign market and the close
of the NYSE will, in its judgment, materially affect the value of some or all of
its portfolio securities, which in turn will affect the fund's share price, the
fund will
adjust the previous closing prices to reflect the fair value of the securities
as of the close of the NYSE, as determined in good faith by the T. Rowe Price
Valuation Committee, established by the fund's Board of Directors. A fund may
also fair value securities in other situations, such as when a particular
foreign market is closed but the fund is open. In deciding whether to make fair
value adjustments, the fund reviews a variety of factors, including developments
in foreign markets, the performance of U.S. securities markets, and the
performance of instruments trading in U. S. markets that represent foreign
securities and baskets of foreign securities. The fund uses outside pricing
services to provide it with closing market prices and information used for
adjusting those prices. The fund cannot predict how often it will use closing
prices and how often it will adjust those prices. As a means of evaluating its
fair value process, the fund routinely compares closing market prices, the next
day's opening prices in the same markets, and adjusted prices.
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 asked 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 security gains and losses.
Rebates
Subject to best execution, the fund may direct certain security trades to
brokers who have agreed to rebate a portion of the related brokerage commission
to the fund in cash. Commission rebates are included in realized gain on
securities in the accompanying financial statements and totaled $18,000 for the
year ended December 31, 2004.
Investment Transactions, Investment Income, and Distributions
Income and expenses are recorded on the accrual basis. Dividends received from
mutual fund investments are reflected as dividend income; capital gain
distributions are reflected as realized gain/loss. Dividend income and capital
gain distributions are recorded on the ex-dividend date. Investment transactions
are accounted for on the trade date. Realized gains and losses are reported on
the identified cost basis. Distributions to shareholders are recorded on the
ex-dividend date. Income distributions are declared and paid on a quarterly
basis. Capital gain distributions, if any, are
declared and paid by the fund, typically on an annual basis. During the year
ended December 31, 2004, the fund received a one-time special dividend on a
security held in its portfolio (Microsoft Corp.). The dividend, which totaled
$1,263,000, represents 9.0% of dividend income reflected in the accompanying
financial statements and is not expected to recur.
Other
In the normal course of business, the fund enters into contracts that provide
general indemnifications. The fund's maximum exposure under these arrangements
is dependent on claims that may be made against the fund in the future and,
therefore, cannot be estimated; however, based on experience, the risk of
material loss from such claims is considered remote.
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 December 31, 2004, there were no
securities on loan.
Other
Purcases and sales of portfolio securities, other than short-term securities,
aggregated $113,802,000 and $121,790,000 respectively, for the year ended
December 31, 2004.
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 under Subchapter M of the
Internal Revenue Code 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 significantly 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. Financial records are not adjusted for temporary differences.
Distributions during the year ended December 31, 2004 totaled $8,286,000 and
were characterized as ordinary income. At December 31, 2004, the tax-basis
components of net assets were as follows:
- --------------------------------------------------------------------------------
Unrealized appreciation $ 221,926,000
Unrealized depreciation (12,729,000)
Net unrealized appreciation (depreciation) 209,197,000
Undistributed ordinary income 269,000
Paid-in capital 544,309,000
Net assets $ 753,775,000
----------------
The fund intends to retain realized gains to the extent of available capital
loss carryforwards for federal income tax purposes. During the year ended
December 31, 2004, the fund utilized $20,234,000 of capital loss carryforwards.
For the year ended December 31, 2004, the fund recorded the following permanent
reclassifications to reflect tax character. Reclassifications to paid-in capital
relate primarily to a tax practice that treats a portion of the proceeds from
each redemption of capital shares as a distribution of taxable net investment
income and/or realized capital gain. Results of operations and net assets were
not affected by these reclassifications.
Undistributed net realized gain $ (321,000)
Paid-in capital 321,000
At December 31, 2004, the cost of investments for federal income tax purposes
was $541,693,000.
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 average daily net assets to those of the group. At December 31,
2004, the effective annual group fee rate was 0.31%, and investment management
fee payable totaled $322,000.
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. For the year ended December 31, 2004, expenses incurred
pursuant to these service agreements were $64,000 for Price Associates, $754,000
for T. Rowe Price Services, Inc., and $484,000 for T. Rowe Price Retirement Plan
Services, Inc. At period-end, a total of $143,000 of these expenses was payable.
The fund may invest in the T. Rowe Price Reserve Investment Fund and the T. Rowe
Price Government Reserve Investment Fund (collectively, the Reserve Funds),
open-end management investment companies managed by Price Associates and
affiliates of the fund. The Reserve Funds are offered as cash management options
to mutual funds, trusts, and other accounts managed by Price Associates and/or
its affiliates, and are not available for direct purchase by members of the
public. The Reserve Funds pay no investment management fees. During the year
ended December 31, 2004, dividend income from the Reserve Funds totaled
$222,000, and the value of shares of the Reserve Funds held at December 31, 2004
and December 31, 2003 was $16,012,000 and $20,527,000, respectively.
As of December 31, 2004, T. Rowe Price Group, Inc. and/or its wholly owned
subsidiaries owned 96,070 shares of the fund, representing less than 1% of the
fund's net assets.
T. ROWE PRICE DIVIDEND GROWTH FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Dividend Growth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of T. Rowe Price Dividend Growth Fund,
Inc. (the "Fund") at December 31, 2004, and the results of its operations, the
changes in its net assets and the financial highlights for each of the fiscal
periods presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the auditing standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 11, 2005
T. ROWE PRICE DIVIDEND GROWTH FUND
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/04
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included:
o $1,000 from short-term capital gains,
o $320,000 from long-term capital gains, subject to the 15% rate gains category.
For taxable non-corporate shareholders, $8,556,000 of the fund's income
represents qualified dividend income subject to the 15% rate category.
For corporate shareholders, $8,556,000 of the fund's income qualifies for the
dividends-received deduction.
INFORMATION ON PROXY VOTING POLICIES, PROCEDURES, AND RECORDS
- --------------------------------------------------------------------------------
A description of the policies and procedures used by T. Rowe Price funds and
portfolios to determine how to vote proxies relating to portfolio securities is
available in each fund's Statement of Additional Information, which you may
request by calling 1-800-225-5132 or by accessing the SEC's Web site,
www.sec.gov. The description of our proxy voting policies and procedures is also
available on our Web site, www.troweprice.com. To access it, click on the words
"Company Info" at the top of our homepage for individual investors. Then, in the
window that appears, click on the "Proxy Voting Policy" navigation button in the
top left corner.
Each fund's most recent annual proxy voting record is available on our Web site
and through the SEC's Web site. To access it through our Web site, follow the
directions above, then click on the words "Proxy Voting Record" at the bottom of
the Proxy Voting Policy page.
HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
The fund files a complete schedule of portfolio holdings with the Securities and
Exchange Commission for the first and third quarters of each fiscal year on Form
N-Q. The fund's Form N-Q is available electronically on the SEC's Web site
(www.sec.gov); hard copies may be reviewed and copied at the SEC's Public
Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information
on the Public Reference Room, call 1-800-SEC-0330.
T. ROWE PRICE DIVIDEND GROWTH FUND
- --------------------------------------------------------------------------------
ABOUT THE FUND'S DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
Your fund is governed by a Board of Directors that meets regularly to review
investments, performance, compliance matters, advisory fees, expenses, and other
business affairs, and is responsible for protecting the interests of
shareholders. The majority of the fund's directors are independent of T. Rowe
Price Associates, Inc. (T. Rowe Price); "inside" directors are officers of
T. Rowe Price. The Board of Directors elects the fund's officers, who are listed
in the final table. The business address of each director and officer is 100
East Pratt Street, Baltimore, MD 21202. The Statement of Additional Information
includes additional information about the fund directors and is available
without charge by calling a T. Rowe Price representative at 1-800-225-5132.
Independent Directors
Name
(Year of Birth) Principal Occupation(s) During Past 5 Years
Year Elected * and Directorships of Other Public Companies
Anthony W. Deering Director, Chairman of the Board, President, and
(1945) Chief Executive Officer, The Rouse Company, real
2001 estate developers; Director, Mercantile Bank
(4/03 to present)
Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an
(1943) acquisition and management advisory firm
1992
David K. Fagin Director, Golden Star Resources Ltd., Canyon
(1938) Resources Corp. (5/00 to present), and Pacific
1992 Rim Mining Corp. (2/02 to present); Chairman and
President, Nye Corp.
Karen N. Horn Managing Director and President, Global Private
(1943) Client Services, Marsh Inc. (1996-2003); Managing
2003 Director and Head of International Private
Banking, Bankers Trust (1999-2003); Director, Eli
Lilly and Company and Georgia Pacific
(5/04 to present)
F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates,
(1934) Inc., consulting environmental and civil engineers
2001
John G. Schreiber Owner/President, Centaur Capital Partners, Inc., a
(1946) real estate investment company; Partner,
2001 Blackstone Real Estate Advisors, L.P.; Director,
AMLI Residential Properties Trust and The Rouse
Company, real estate developers
* Each independent director oversees 112 T. Rowe Price portfolios and serves
until retirement, resignation, or election of a successor.
Inside Directors
Name
(Year of Birth)
Year Elected *
[Number of T. Rowe Price Principal Occupation(s) During Past 5 Years
Portfolios Overseen] and Directorships of Other Public Companies
James A.C. Kennedy, CFA Director and Vice President, T. Rowe Price and
(1953) T. Rowe Price Group, Inc.; Director, T. Rowe
1997 Price Global Investment Services Limited and
[43] T. Rowe Price International, Inc.
James S. Riepe Director and Vice President, T. Rowe Price; Vice
(1943) Chairman of the Board, Director, and Vice
1992 President, T. Rowe Price Group, Inc.; Chairman of
[112] the Board and Director, T. Rowe Price Global Asset
Management Limited, T. Rowe Price Global
Investment Services Limited, T. Rowe Price
Investment Services, Inc., T. Rowe Price
Retirement Plan Services, Inc., and T. Rowe Price
Services, Inc.; Chairman of the Board, Director,
President, and Trust Officer, T. Rowe Price Trust
Company; Director, T. Rowe Price International,
Inc.; Chairman of the Board, Dividend Growth Fund
* Each inside director serves until retirement, resignation, or election of a
successor.
Officers
Name (Year of Birth)
Title and Fund(s) Served Principal Occupation(s)
Stephen V. Booth, CPA (1961) Vice President, T. Rowe Price, T. Rowe
Vice President, Dividend Growth Fund Price Group, Inc., and T. Rowe Price
Trust Company
Joseph A. Carrier (1960) Vice President, T. Rowe Price, T. Rowe
Treasurer, Dividend Growth Fund Price Group, Inc., T. Rowe Price
Investment Services, Inc., and T. Rowe
Price Trust Company
Roger L. Fiery III, CPA (1959) Vice President, T. Rowe Price, T. Rowe
Vice President, Dividend Growth Fund Price Group, Inc., T. Rowe Price
International, Inc., and T. Rowe Price
Trust Company
John R. Gilner (1961) Chief Compliance Officer and Vice
Chief Compliance Officer, President, T. Rowe Price; Vice
Dividend Growth Fund President, T. Rowe Price Investment
Services, Inc., and T. Rowe Price Group,
Inc.
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Officers (continued)
Name (Year of Birth)
Title and Fund(s) Served Principal Occupation(s)
David R. Giroux, CFA (1975) Vice President, T. Rowe Price and
Vice President, Dividend Growth Fund T. Rowe Price Group, Inc.
Gregory S. Golczewski (1966) Vice President, T. Rowe Price and
Vice President, Dividend Growth Fund T. Rowe Price Trust Company
Michael W. Holton (1968) Vice President, T. Rowe Price and
Vice President, Dividend Growth Fund T. Rowe Price Group, Inc.
Henry H. Hopkins (1942) Director and Vice President, T. Rowe
Vice President, Dividend Growth Fund Price Investment Services, Inc., T. Rowe
Price Services, Inc., and T. Rowe Price
Trust Company; Vice President, T. Rowe
Price, T. Rowe Price Group, Inc.,
T. Rowe Price International, Inc., and
T. Rowe Price Retirement Plan Services,
Inc.
Thomas J. Huber, CFA (1966) Vice President, T. Rowe Price and
President, Dividend Growth Fund T. Rowe Price Group, Inc.
David M. Lee, CFA (1962) Vice President, T. Rowe Price and
Vice President, Dividend Growth Fund T. Rowe Price Group, Inc.
Patricia B. Lippert (1953) Assistant Vice President, T. Rowe Price
Secretary, Dividend Growth Fund and T. Rowe Price Investment Services,
Inc.
Timothy E. Parker (1974) Vice President, T. Rowe Price and
Vice President, Dividend Growth Fund T. Rowe Price Group, Inc.; formerly
student, Darden Graduate School,
University of Virginia (to 2001);
Financial Analyst, Robert W. Baird & Co.
Inc. (to 1999)
Donald J. Peters (1959) Vice President, T. Rowe Price and
Vice President, Dividend Growth Fund T. Rowe Price Group, Inc.
Karen M. Regan (1967) Vice President, T. Rowe Price
Vice President, Dividend Growth Fund
Jeffrey Rottinghaus, CPA (1970) Vice President, T. Rowe Price and
Vice President, Dividend Growth Fund T. Rowe Price Group, Inc.; formerly
student, the Wharton School, University
of Pennsylvania (to 2001); Information
Technology Consultant, Kelly-Lewey &
Associates (to 1999)
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Officers (continued)
Name (Year of Birth)
Title and Fund(s) Served Principal Occupation(s)
William J. Stromberg, CFA (1960) Vice President, T. Rowe Price, T. Rowe
Vice President, Dividend Growth Fund Price Group, Inc., and T. Rowe Price
Trust Company
Julie L. Waples (1970) Vice President, T. Rowe Price
Vice President, Dividend Growth Fund
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Item 2. Code of Ethics.
The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR,
applicable to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions. A copy of this code of ethics is filed as an exhibit to this Form
N-CSR. No substantive amendments were approved or waivers were granted to this
code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Directors/Trustees has determined that Mr. David K.
Fagin qualifies as an audit committee financial expert, as defined in Item 3 of
Form N-CSR. Mr. Fagin is considered independent for purposes of Item 3 of Form
N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal accountant were
as follows:
2004 2003
Audit Fees $7,530 $9,265
Audit-Related Fees 1,050 516
Tax Fees 2,042 2,406
All Other Fees - 124
Audit fees include amounts related to the audit of the registrant's annual
financial statements and services normally provided by the accountant in
connection with statutory and regulatory filings. Audit-related fees include
amounts reasonably related to the performance of the audit of the registrant's
financial statements, specifically the issuance of a report on internal
controls. Tax fees include amounts related to tax compliance, tax planning, and
tax advice. Other fees include the registrant's pro-rata share of amounts for
agreed-upon procedures in conjunction with service contract approvals by the
registrant's Board of Directors/Trustees.
(e)(1) The registrant's audit committee has adopted a policy whereby audit and
non-audit services performed by the registrant's principal accountant for the
registrant, its investment adviser, and any entity controlling, controlled by,
or under common control with the investment adviser that provides ongoing
services to the registrant require pre-approval in advance at regularly
scheduled audit committee meetings. If such a service is required between
regularly scheduled audit committee meetings, pre-approval may be authorized by
one audit committee member with ratification at the next scheduled audit
committee meeting. Waiver of pre-approval for audit or non-audit services
requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) - (d) above were approved pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50 percent of the hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees.
(g) The aggregate fees billed for the most recent fiscal year and the preceding
fiscal year by the registrant's principal accountant for non-audit services
rendered to the registrant, its investment adviser, and any entity controlling,
controlled by, or under common control with the investment adviser that provides
ongoing services to the registrant were $903,000 and $821,000, respectively, and
were less than the aggregate fees billed for those same periods by the
registrant's principal accountant for audit services rendered to the T. Rowe
Price Funds.
(h) All non-audit services rendered in (g) above were pre-approved by the
registrant's audit committee. Accordingly, these services were considered by the
registrant's audit committee in maintaining the principal accountant's
independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Not applicable. The complete schedule of investments is included in Item 1 of
this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. 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 change in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal quarter covered by
this report that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is
attached.
(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.
(3) Written solicitation to repurchase securities issued by closed-end
companies: not applicable.
(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 February 18, 2005
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 February 18, 2005
By /s/ Joseph A. Carrier
-----------------------------------
Joseph A. Carrier
Principal Financial Officer
Date February 18, 2005