<PAGE>
Annual Report
GROWTH
& INCOME
FUND
December 31, 1996
[LOGO OF T. ROWE PRICE APPEARS HERE]
<PAGE>
For yield, price, last transaction,
current balance or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(R):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
http://www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Growth & Income Fund(R).
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
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor RPRTGIF 12/31/96
<PAGE>
FELLOW SHAREHOLDERS
Your fund provided excellent returns for the second half of 1996 and the full
year as the equity market continued to surge. Concerns that a strengthening
economy would push interest rates higher subsided during the fall, as growth
moderated substantially from the first half.
Your fund performed well on a relative basis, exceeding the returns of the
average growth and income fund for the 6- and 12-month periods. Results also
compared favorably with the unmanaged Standard & Poor's 500 Stock Index, which
is a more challenging benchmark during such a robust stock market environment.
<TABLE>
<CAPTION>
PERFORMANCE COMPARISON
- ---------------------------------------------------------------
Periods Ended 12/31/96 6 Months 12 Months
- ---------------------------------------------------------------
<S> <C> <C>
Growth & Income Fund 14.32% 25.64%
...............................................................
S&P 500 11.68 22.96
...............................................................
Lipper Growth & Income
Funds Average 10.57 20.78
...............................................................
</TABLE>
DISTRIBUTIONS
On December 26, your Board of Directors declared a fourth quarter income
dividend of $0.15 per share, a short-term capital gain of $0.08 per share, and a
long-term capital gain of $0.73 per share, all payable to shareholders of record
on that date. Your check or statement reflecting these distributions was mailed
to you in early January. These fourth quarter distributions brought the 1996
total to $0.51 of income and $0.90 of capital gain distributions per share. All
these distributions were reported to you on Form 1099-DIV mailed toward the end
of January.
MARKET ENVIRONMENT
The accelerating economy in the first half of the year was troublesome for the
bond market as investors worried that interest rates would be forced higher by
demands on Federal Reserve policy. These concerns largely disappeared in the
second half as the economy's growth slowed to a more subdued pace. The yield on
the 30-year Treasury bond, which rose from under 6% at the beginning of the year
to over 7% in June, declined to 6.35% in early December. Despite the second half
improvement, bond market returns were still disappointing for the year.
The equity market, in contrast, seemed to have little concern about much of
anything. When the economy was stronger early in the year,
1
<PAGE>
investors were cheered by the favorable implications for corporate profits. When
the economy slowed in the second half, investors were cheered by the favorable
implications of declining interest rates. This cheer resulted in a powerful
market gain in 1996, on the heels of a 38% return in 1995. The cheering also
prompted Alan Greenspan, the Chairman of the Federal Reserve, to muse aloud
about "irrational exuberance," probably with the intention of deflating
potential stock market speculation. Global markets reacted immediately and
negatively to this apparent indication of concern, while the U.S. stock market
quickly regained momentum and reached new highs.
PORTFOLIO REVIEW
Your fund's asset allocation at year-end, shown in the pie chart, was little
changed since our last report dated June 30. Exposure to common stocks and
convertibles increased by three percentage points, primarily reflecting the
impact of rising stock prices on the overall portfolio.
[PIE CHART APPEARS HERE]
Security Diversification
- ------------------------
<TABLE>
<S> <C>
Common Stocks 86%
Reserves 8%
Bonds and Preferred Stocks 3%
Convertibles 3%
</TABLE>
Based on net assets as of 12/31/96.
Although 1996 was a very rewarding year for your fund, it was a period of
surprisingly low portfolio activity. As noted in the supplemental data section
of the Financial Highlights table on page 8, portfolio turnover was a very low
13.5%. Essentially, your fund was responding quite favorably to the general
market trend, and we kept our activity to a minimum. We did make some
significant additions to the portfolio, as indicated in the list of major
transactions following this letter. There was no common industry theme, but at
the time of purchase the stock prices of the 10 largest had fallen almost 22%,
on average, from their respective 1996 highs.
We often comment on our efforts to recycle money from stocks that have performed
well into those that have been laggards. The largest stock sales, in virtually
each case, were exceptionally rewarding holdings, not only in 1996, but over a
period of years. We did not eliminate these holdings but rather de-emphasized
them in favor of other opportunities.
2
<PAGE>
Your fund's emphasis on maintaining attractive relative valuation
characteristics for our stocks is shown in the Financial Profile table.
<TABLE>
<CAPTION>
FINANCIAL PROFILE
- ----------------------------------------------------------
Growth &
As of 12/31/96 Income Fund S&P 500
- ----------------------------------------------------------
Dividend Growth
<S> <C> <C>
(5-year annual average) 7.5% 6.8%
..........................................................
Current Yield 2.5% 2.0%
..........................................................
Price/Book Ratio 3.2 X 3.6 X
..........................................................
Price/Earnings Ratio
(1997 estimated EPS) 15.6 X 16.5 X
..........................................................
</TABLE>
OUTLOOK
Where does this leave us? As discussed in past reports, we do have some concerns
about the overall valuation level of the market. We recognize that the
underlying economic and financial fundamentals are quite healthy, and this is
dominating investor psychology. The market appears increasingly more skittish,
however, as investors, looking for signs of change in the investment
environment, focus upon shorter-term economic data and corporate earnings
announcements.
This economic expansion is approaching the six-year mark. The unusually long
cycle is remarkable for the absence of inflationary pressures and for the high
levels of corporate profitability. Not surprisingly, the stock market has
responded exuberantly to this favorable mix.
Your fund has prospered accordingly, outperforming the S&P 500 on a cumulative
basis for the six-year period and its peer group for six consecutive years.
Although your portfolio management team would like to think of this period as
rational exuberance, we are mindful that it has not only been an extraordinary
period for the market but we have also enjoyed more than our share of good
fortune. We believe it is appropriate to have more modest expectations for the
year ahead and to be prepared for more volatility. Our goal is to remain alert
for the investment opportunities that inevitably arise during such periods.
Respectfully submitted,
Stephen W. Boesel
President and Chairman of the Investment Advisory Committee
January 20, 1997
3
<PAGE>
STICKING TO YOUR GAME PLAN
- --------------------------------------------------------------------------------
TIME REDUCES VOLATILITY OF MARKET RETURNS
- -------------------------------------------------
(Annualized Returns for Best and Worst Period; Rolling Periods From 1950 to
1996*)
[AN 8-BAR CHART SHOWING BEST AND WORST ANNUALIZED TOTAL RETURNS OF STOCKS FOR
VARIOUS ROLLING TIME PERIODS BETWEEN 1950 AND 1996.]
* From 1950-1996, there were 47 one-year periods; 42 five-year periods; 37
ten-year periods; and 27 twenty-year periods.
Source: T. Rowe Price Associates; data from Ibbotson Associates.
Chart is for illustrative purposes only and is not intended to represent the
past performance or future results of any specific securities.
In our report to you one year ago, we mentioned the possibility of a modest
decline in stock prices. In fact, from May to July 1996, the broad market (as
measured by the Standard & Poor's 500 Stock Index) fell around 7%. However, the
bull market resumed its charge to post a robust 23% gain for the year.
Some believe the market is poised for a significant downturn. We do not expect a
major drop in stock prices in 1997, although another modest pullback is
possible. On balance, we expect stocks to advance at a much slower pace.
How should you prepare for a potential market pullback? As always, our advice is
to diversify your investments and focus on the long term. If you've implemented
a sound investment strategy, stay the course. Stocks have historically overcome
periods of volatility to provide better returns than most other investments.
Market corrections can even have a silver lining because they result in good
buying opportunities.
Furthermore, the volatility of stock market returns has diminished significantly
over longer time frames. The chart shows the best and worst annualized returns
on stocks over various rolling time periods between 1950 and 1996. (For
instance, there were 37 rolling 10-year periods: 1950-1960, 1951-1961, etc.)
Investors who held stocks for only one year could have had as much as a 52.6%
gain, or as little as a 26.5% loss -- a spread of 79 percentage points. However,
investors who held stocks for 10-year periods or longer always overcame interim
volatility to post gains for the entire period.
In addition, a well-diversified portfolio can weather volatility better than a
more concentrated portfolio over the long term and particularly during market
corrections. For example, during last summer's correction, small-company stocks
fell nearly 16% while large-company issues dropped 7.3%. However, a portfolio
diversified among large U.S. companies (30% of assets), small U.S. companies
(15%), foreign companies (15%), intermediate-term Treasury bonds (30%), and
Treasury bills (10%) would have lost a smaller 5.2% of its value./1/
Above all, remember that investing is a long-distance race, not a sprint.
/1/ Ned Davis Research.
4
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
<TABLE>
<CAPTION>
Percent of
Net Assets
12/31/96
------------------------------------------------------------------------------
<S> <C>
Corning 3.3%
..............................................................................
Pfizer 2.0
..............................................................................
GE 1.9
..............................................................................
Chase Manhattan 1.6
..............................................................................
Atlantic Richfield 1.5
------------------------------------------------------------------------------
Great Lakes Chemical 1.4
..............................................................................
James River 1.4
..............................................................................
Centerior Energy 1.3
..............................................................................
H&R Block 1.3
..............................................................................
American Express 1.2
------------------------------------------------------------------------------
Household International 1.2
..............................................................................
Warner-Lambert 1.2
..............................................................................
Schlumberger 1.2
..............................................................................
Unicom 1.2
..............................................................................
Fannie Mae 1.2
------------------------------------------------------------------------------
Merck 1.2
..............................................................................
Honeywell 1.2
..............................................................................
Texaco 1.2
..............................................................................
Kimberly-Clark 1.1
..............................................................................
Dayton Hudson 1.1
------------------------------------------------------------------------------
Travelers/Aetna Property Casualty 1.1
..............................................................................
British Petroleum 1.1
..............................................................................
KeyCorp 1.1
..............................................................................
Reader's Digest 1.1
..............................................................................
Wells Fargo 1.1
------------------------------------------------------------------------------
Total 34.2%
</TABLE>
5
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended December 31, 1996
Ten Largest Purchases Ten Largest Sales
----------------------------------------------------------------------------
H&R Block * Cal Fed Bancorp
............................................................................
Reynolds Metals * Philip Morris
............................................................................
Frontier * Cooper Cameron
............................................................................
Mercury Finance * United HealthCare
............................................................................
St. Paul Companies * Pfizer
............................................................................
Corporate Express Cv. Bond * TJX
............................................................................
Great Lakes Chemical Electronic Data Systems **
............................................................................
AT&T Coltec Industries Notes **
............................................................................
Nabisco Holdings * Associates First Capital **
............................................................................
Unicom Telefonica del Peru ADR **
............................................................................
* Position added
** Position eliminated
6
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or
index. The index return does not reflect expenses, which have been deducted
from the fund's return.
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
-------------------------------------------------------------------------------
LIPPER GROWTH &
S&P 500 INCOME FUNDS GROWTH & INCOME
INDEX AVERAGE FUND
<S> <C> <C> <C>
12/31/8 10,000 10,000 10,000
12/87 10,510 10,203 9,575
12/88 12,256 11,862 11,979
12/89 16,139 14,671 14,290
12/90 15,638 14,011 12,698
12/91 20,402 18,059 16,701
12/92 21,957 19,720 19,261
12/93 24,170 22,248 21,758
12/94 24,489 22,090 21,726
12/95 33,692 28,818 28,444
12/96 41,428 34,726 35,736
</TABLE>
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- --------------------------------------------------------------------------------
This table shows how the fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
Periods Ended 12/31/96 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Growth & Income Fund 25.64% 17.99% 16.43% 13.58%
................................................................................
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
7
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 19.18 $ 15.63 $ 16.57 $ 15.53 $ 14.16
............................................................
Investment activities
Net investment income 0.52 0.58 0.50 0.46 0.55
Net realized and
unrealized gain (loss) 4.34 4.16 (0.53) 1.53 1.57
............................................................
Total from
investment activities 4.86 4.74 (0.03) 1.99 2.12
............................................................
Distributions
Net investment income (0.51) (0.59) (0.49) (0.47) (0.60)
Net realized gain (0.90) (0.60) (0.42) (0.48) (0.15)
............................................................
Total distributions (1.41) (1.19) (0.91) (0.95) (0.75)
............................................................
NET ASSET VALUE
End of period $ 22.63 $ 19.18 $ 15.63 $ 16.57 $ 15.53
------------------------------------------------------------
Ratios/Supplemental Data
Total return 25.64% 30.92% (0.15)% 12.96% 15.33%
..........................................................................................
Ratio of expenses to
average net assets 0.82% 0.84% 0.81% 0.83% 0.85%
..........................................................................................
Ratio of net investment
income to average
net assets 2.53% 3.31% 3.08% 2.91% 3.75%
..........................................................................................
Portfolio turnover rate 13.5% 26.2% 25.6% 22.4% 29.9%
..........................................................................................
Average commission
rate paid $ 0.0694 - - - -
..........................................................................................
Net assets, end of period
(in millions) $ 2,489 $ 1,748 $ 1,229 $ 1,167 $ 840
..........................................................................................
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
December 31, 1996
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
COMMON STOCKS 85.6%
FINANCIAL 17.2%
Bank and Trust 6.3%
BANC ONE 350,218 $ 15,059
.........................................................................
Cal Fed Bancorp *+ 347,612 4,932
.........................................................................
Chase Manhattan 450,000 40,163
.........................................................................
Citicorp 246,575 25,397
.........................................................................
KeyCorp 550,000 27,775
.........................................................................
National City 400,000 17,950
.........................................................................
Wells Fargo 100,000 26,975
.........................................................................
158,251
............
Insurance 3.8%
American General 600,000 24,525
.........................................................................
St. Paul Companies 300,000 17,588
.........................................................................
Travelers/Aetna Property Casualty (Class A) 800,000 28,300
.........................................................................
UNUM 250,000 18,062
.........................................................................
Willis-Corroon ADR 460,800 5,299
.........................................................................
93,774
............
Financial Services 7.1%
American Express 550,000 31,075
.........................................................................
Bear Stearns 586,028 16,336
.........................................................................
Beneficial 230,000 14,576
.........................................................................
Fannie Mae 800,000 29,800
.........................................................................
H&R Block 1,100,000 31,900
.........................................................................
Household International 330,668 30,504
.........................................................................
Mercury Finance 1,770,700 21,691
.........................................................................
175,882
............
Total Financial 427,907
............
UTILITIES 8.4%
Telephone Services 3.8%
AT&T 500,000 21,750
.........................................................................
BellSouth 330,000 13,324
.........................................................................
Frontier 1,000,000 22,625
.........................................................................
GTE 400,000 18,200
.........................................................................
Pacific Telesis 525,000 19,293
.........................................................................
95,192
............
</TABLE>
9
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Electric Utilities 4.6%
Centerior Energy 3,000,000 $ 32,250
.........................................................................
Edison International 1,001,700 19,909
.........................................................................
Entergy 780,379 21,656
.........................................................................
Niagara Mohawk * 1,000,000 9,875
.........................................................................
Unicom 1,100,000 29,837
.........................................................................
113,527
............
Total Utilities 208,719
............
CONSUMER NONDURABLES 20.8%
Cosmetics 0.3%
International Flavors & Fragrances 200,000 9,000
.........................................................................
9,000
............
Beverages 2.9%
Anheuser-Busch 380,600 15,224
.........................................................................
Bols Wessanen (NLG) 307,375 5,661
.........................................................................
Brown-Forman (Class B) 241,000 11,026
.........................................................................
Coca-Cola 310,000 16,314
.........................................................................
PepsiCo 820,000 23,985
.........................................................................
72,210
............
Food Processing 5.1%
General Mills 350,000 22,181
.........................................................................
Heinz 700,000 25,025
.........................................................................
McCormick 387,400 9,128
.........................................................................
Nabisco Holdings (Class A) 400,000 15,550
.........................................................................
Quaker Oats 219,800 8,380
.........................................................................
Ralston Purina 325,500 23,884
.........................................................................
Sara Lee 615,000 22,909
.........................................................................
127,057
............
Hospital Supplies/Hospital Management 1.7%
Abbott Laboratories 200,000 10,150
.........................................................................
Allegiance 49,280 1,361
.........................................................................
Baxter International 246,400 10,103
.........................................................................
Millipore 513,000 21,225
.........................................................................
42,839
............
Pharmaceuticals 6.5%
American Home Products 400,000 23,450
.........................................................................
Merck 375,000 29,719
.........................................................................
</TABLE>
10
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Perrigo * 900,000 $ 8,100
.......................................................................................
Pfizer 600,000 49,725
.......................................................................................
SmithKline Beecham ADR 300,000 20,400
.......................................................................................
Warner-Lambert 400,000 30,000
.......................................................................................
161,394
............
Miscellaneous Consumer Products 4.1%
Newell 600,000 18,900
.......................................................................................
Philip Morris 200,000 22,525
.......................................................................................
Proctor & Gamble 200,000 21,500
.......................................................................................
RJR Nabisco 300,000 10,200
.......................................................................................
Springs Industries 199,300 8,570
.......................................................................................
Tomkins (GBP) 1,500,000 6,938
.......................................................................................
UST 400,000 12,950
.......................................................................................
101,583
............
Health Care Services 0.2%
United HealthCare 100,000 4,500
.......................................................................................
4,500
............
Total Consumer Nondurables 518,583
............
CONSUMER SERVICES 5.0%
General Merchandisers 2.4%
Dayton Hudson 725,000 28,456
.......................................................................................
J.C. Penney 200,000 9,750
.......................................................................................
TJX 360,900 17,098
.......................................................................................
Wal-Mart 150,000 3,431
.......................................................................................
58,735
............
Entertainment and Leisure 1.6%
Host Marriott * 765,700 12,252
.......................................................................................
Reader's Digest (Class A) 332,400 13,379
.......................................................................................
Reader's Digest (Class B) 386,400 14,007
.......................................................................................
39,638
............
Media and Communications 1.0%
Vodafone ADR 600,000 24,825
.......................................................................................
24,825
............
Total Consumer Services 123,198
............
</TABLE>
11
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
CONSUMER CYCLICALS 7.3%
Building and Real Estate 4.0%
Burnham Pacific Properties, REIT 200,000 $ 3,000
............................................................................................
Federal Realty Investment Trust, REIT 566,700 15,372
............................................................................................
Patriot American Hospitality, REIT 100,000 4,313
............................................................................................
Reckson Associates, REIT 259,000 10,943
............................................................................................
Rouse 574,500 18,240
............................................................................................
Security Capital Industrial Trust, REIT 300,000 6,412
............................................................................................
Simon DeBartolo Group, REIT 816,000 25,296
............................................................................................
South West Property Trust, REIT 625,000 10,547
............................................................................................
Taubman Centers, REIT 504,000 6,489
............................................................................................
100,612
............
Miscellaneous Consumer Durables 3.3%
Corning 1,750,000 80,937
............................................................................................
80,937
............
Total Consumer Cyclicals 181,549
............
TECHNOLOGY 2.3%
Electronic Systems 1.6%
Hewlett-Packard 200,000 10,050
............................................................................................
Honeywell 450,000 29,587
............................................................................................
39,637
............
Electronic Components 0.5%
Texas Instruments 200,000 12,750
............................................................................................
12,750
............
Telecommunications Equipment 0.2%
Lucent Technologies 129,633 5,996
............................................................................................
5,996
............
Total Technology 58,383
............
CAPITAL EQUIPMENT 4.1%
Electrical Equipment 1.9%
GE 480,000 47,460
............................................................................................
47,460
............
</TABLE>
12
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
Machinery 2.2%
Coltec Industries * 701,500 $ 13,241
............................................................................................
Cooper Industries 455,907 19,205
............................................................................................
FMC * 305,100 21,395
............................................................................................
53,841
..............
Total Capital Equipment 101,301
..............
BUSINESS SERVICES AND
TRANSPORTATION 2.5%
Miscellaneous Business Services 1.1%
Gilbert Associates (Class A) 165,000 2,310
............................................................................................
WMX Technologies 750,000 24,469
............................................................................................
26,779
..............
Airlines 0.4%
Delta 126,800 8,987
............................................................................................
8,987
..............
Railroads 1.0%
Burlington Northern Santa Fe 300,000 25,912
............................................................................................
25,912
..............
Total Business Services and Transportation 61,678
..............
ENERGY 8.5%
Energy Services 3.0%
Cooper Cameron * 250,000 19,125
............................................................................................
Halliburton 418,000 25,185
............................................................................................
Schlumberger 300,000 29,962
............................................................................................
74,272
..............
Integrated Petroleum - Domestic 4.3%
Atlantic Richfield 275,000 36,437
............................................................................................
British Petroleum ADR 200,000 28,275
............................................................................................
Unocal 500,000 20,313
............................................................................................
USX-Marathon 1,000,000 23,875
............................................................................................
108,900
..............
Integrated Petroleum - International 1.2%
Texaco 300,000 29,438
............................................................................................
29,438
..............
Total Energy 212,610
..............
</TABLE>
13
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- ----------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
PROCESS INDUSTRIES 6.8%
Paper and Paper Products 3.0%
Albany International (Class A) 450,000 $ 10,406
............................................................................................
James River 1,050,000 34,781
............................................................................................
Kimberly-Clark 300,000 28,575
............................................................................................
73,762
..............
Specialty Chemicals 2.9%
A. Schulman 700,000 17,238
............................................................................................
Great Lakes Chemical 750,000 35,062
............................................................................................
Pall 804,000 20,502
............................................................................................
72,802
..............
Diversified Chemicals 0.9%
DuPont 250,000 23,594
............................................................................................
23,594
..............
Total Process Industries 170,158
..............
BASIC MATERIALS 2.7%
Metals 2.4%
Alcoa 326,400 20,808
............................................................................................
Freeport-McMoRan Copper & Gold (Class A) 183,748 5,168
............................................................................................
Nucor 200,000 10,200
............................................................................................
Reynolds Metals 400,000 22,550
............................................................................................
58,726
..............
Mining 0.3%
Newmont Mining 195,100 8,731
............................................................................................
8,731
..............
Total Basic Materials 67,457
..............
Total Common Stocks (Cost $1,394,401) 2,131,543
..............
PREFERRED STOCKS 0.1%
Entergy GSU
8.75%, Dep., Adj. B 14,750 723
....................................................................................
$8.64 5,795 584
....................................................................................
Adj. A 3,071 298
....................................................................................
Total Preferred Stocks (Cost $1,585) 1,605
..............
</TABLE>
14
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- ---------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
CONVERTIBLE PREFERRED STOCKS 1.4%
AnnTaylor Finance Trust, (144a) 100,000 $ 5,346
............................................................................................
Glendale Federal Bank, 8.75%, Series E 200,000 11,750
............................................................................................
Mobile Telecommunication Technologies, (144a), $2.25 300,000 5,385
............................................................................................
RJR Nabisco, PERCS, Series C 1,840,000 12,420
............................................................................................
Total Convertible Preferred Stocks (Cost $30,282) 34,901
..............
CONVERTIBLE BONDS 1.9%
Banco Nacional de Mexico, Sub. Deb., (144a)
7.00%, 12/15/99 $ 1,736,000 1,649
............................................................................................
Banco Nacional de Mexico S A, 11.00%, 7/15/03 6,264,000 6,421
............................................................................................
Corporate Express, (144a), 4.50%, 7/1/00 15,000,000 13,976
............................................................................................
Exide, 2.90%, 12/15/05 40,000,000 23,963
............................................................................................
Total Convertible Bonds (Cost $45,158) 46,009
..............
CORPORATE BONDS 1.3%
American Standard, Sr. Sub. Notes, 9.875%, 6/1/01 4,000,000 4,240
............................................................................................
B.F. Saul REIT, Sr. Secured Notes, 11.625%, 4/1/02 3,500,000 3,780
............................................................................................
Container Corporation of America, Sr. Notes
9.75%, 4/1/03 5,000,000 5,250
............................................................................................
El Paso Electric, 1st Mtg. Notes
8.90%, 2/1/06 850,000 886
...................................................................................
9.40%, 5/1/11 1,250,000 1,325
............................................................................................
O. M. Scott, Sr. Sub. Notes, 9.875%, 8/1/04 5,000,000 5,250
............................................................................................
Texas Bottling Group, Sr. Sub. Notes, 9.00%, 11/15/03 3,000,000 3,037
............................................................................................
Trump Atlantic City, 1st Mtg. Notes, 11.25%, 5/1/06 7,525,000 7,450
............................................................................................
Total Corporate Bonds (Cost $30,208) 31,218
..............
U.S. GOVERNMENT OBLIGATIONS 2.0%
U.S. Treasury Bonds, 6.875%, 8/15/25 50,000,000 50,985
............................................................................................
Total U.S. Government Obligations (Cost $49,318) 50,985
..............
15
</TABLE>
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares/Par Value
- --------------------------------------------------------------------------------------------------
In thousands
<S> <C> <C>
SHORT-TERM INVESTMENTS 7.7%
Certificates of Deposit 0.8%
Bayerische Hypotheken und Wechsel, (London)
5.375%, 2/18/97 $ 10,000,000 $ 10,000
............................................................................................
Societe Generale, 5.60%, 2/10/97 10,000,000 10,000
............................................................................................
20,000
..............
Commercial Paper 6.5%
American Home Products, 4(2), 5.32%, 2/21/97 10,000,000 9,925
............................................................................................
Asset Securitization Cooperative, 4(2), 5.30 - 5.38%
1/29 - 2/11/97 26,000,000 25,865
............................................................................................
Beta Finance, 4(2), 5.30 - 5.33%, 2/14 - 2/27/97 17,000,000 16,876
............................................................................................
Caisse des Depots et Consignations, 4(2), 5.33 - 5.40%
1/9 - 1/31/97 20,000,000 19,943
............................................................................................
Caterpillar Financial Services, 5.40%, 2/4/97 10,000,000 9,949
............................................................................................
Corporate Asset Funding, 4(2), 5.30%, 2/19/97 10,000,000 9,928
............................................................................................
Cregem North America, 5.45%, 1/10/97 10,000,000 9,986
............................................................................................
Investments in Commercial Paper through a joint account
6.75 - 7.10%, 1/2/97 14,431,640 14,429
............................................................................................
Island Finance Puerto Rico, 5.31 - 5.36%
1/13 - 2/24/97 24,800,000 24,693
............................................................................................
SBNSW (Delaware), 5.37%, 2/13/97 10,000,000 9,936
............................................................................................
Sherwood Medical, 5.35%, 2/11/97 10,000,000 9,939
............................................................................................
161,469
..............
Medium-Term Notes 0.4%
Morgan Stanley Group, Eurodollar, VR, 5.656%, 1/31/97 10,000,000 10,003
............................................................................................
10,003
..............
Total Short-Term Investments (Cost $191,472) 191,472
..............
</TABLE>
16
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- -------------------------------------------------------------------------------------------------
In thousands
<S> <C>
Total Investments in Securities
100.0% of Net Assets (Cost $1,742,424) $ 2,487,733
Other Assets Less Liabilities 1,090
..............
NET ASSETS $ 2,488,823
--------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 1,198
Accumulated net realized gain/loss - net of distributions 4,826
Net unrealized gain (loss) 745,309
Paid-in-capital applicable to 109,984,451 shares of $0.01 par
value capital stock outstanding; 500,000,000 shares authorized 1,737,490
..............
NET ASSETS $ 2,488,823
--------------
NET ASSET VALUE PER SHARE $ 22.63
--------------
</TABLE>
* Non-income producing
+ Affiliated company
PERCS Participating Equity Redemption Certificates
REIT Real Estate Investment Trust
4(2) Commercial paper sold within terms of a private placement memorandum,
exempt from registration under section 4.2 of the Securities Act of
1933, as amended, and may be sold only to dealers in that program or
other "accredited investors."
144a Security was purchased pursuant to Rule 144a under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers -- total of such securities at year-end amounts to
1.06% of net assets.
VR Variable Rate
GBP British sterling
NLG Dutch guilder
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/96
<S> <C>
Investment Income
Income
Dividend $ 49,065
Interest 20,374
.............
Total income 69,439
.............
Expenses
Investment management 12,048
Shareholder servicing 4,374
Custody and accounting 217
Registration 169
Prospectus and shareholder reports 90
Directors 26
Legal and audit 21
Miscellaneous 24
.............
Total expenses 16,969
.............
Net investment income 52,470
.............
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on
Securities 90,159
Foreign currency transactions (27)
.............
Net realized gain (loss) 90,132
.............
Change in net unrealized gain or loss on securities 339,963
.............
Net realized and unrealized gain (loss) 430,095
.............
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 482,565
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- -------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
In thousands
<TABLE>
<CAPTION>
Year
Ended
12/31/96 12/31/95
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ 52,470 $ 48,544
Net realized gain (loss) 90,132 47,568
Change in net unrealized gain or loss 339,963 293,468
...............................
Increase (decrease) in net assets from operations 482,565 389,580
...............................
Distributions to shareholders
Net investment income (51,272) (49,245)
Net realized gain (94,021) (51,490)
...............................
Decrease in net assets from distributions (145,293) (100,735)
...............................
Capital share transactions *
Shares sold 526,034 320,350
Distributions reinvested 142,065 98,041
Shares redeemed (265,026) (187,684)
...............................
Increase (decrease) in net assets from capital
share transactions 403,073 230,707
...............................
Net Assets
Increase (decrease) during period 740,345 519,552
Beginning of period 1,748,478 1,228,926
...............................
End of period $ 2,488,823 $ 1,748,478
-------------------------------
* Share information
Shares sold 25,086 17,917
Distributions reinvested 6,411 5,380
Shares redeemed (12,676) (10,736)
...............................
Increase (decrease) in shares outstanding 18,821 12,561
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- ------------------------------------------------------------------------------
December 31, 1996
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Growth & Income Fund, Inc. (the fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company and commenced operations on December 21, 1982.
Valuation Equity securities listed or regularly traded on a securities exchange
are valued at the last quoted sales price at the time the valuations are made. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such security.
Listed securities not traded on a particular day and securities regularly traded
in the over-the-counter market are valued at the mean of the latest bid and
asked prices. Other equity securities are valued at a price within the limits of
the latest bid and asked prices deemed by the Board of Directors, or by persons
delegated by the Board, best to reflect fair value.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service. Short-
term debt securities are valued at their amortized cost which, when combined
with accrued interest, approximates fair value.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Directors.
Affiliated Companies Investments in companies 5% or more of whose outstanding
voting securities are held by the fund are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940.
Currency Translation Assets and liabilities are translated into U.S. dollars at
the prevailing exchange rate at the end of the reporting period. Purchases and
sales of securities and income and expenses are translated into U.S. dollars at
the prevailing exchange rate on the dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized security gains and
losses is reflected as a component of such gains and losses.
20
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- ------------------------------------------------------------------------------
Premiums and Discounts Premiums and discounts on debt securities are amortized
for both financial reporting and tax purposes.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Commercial Paper Joint Account The fund, and other affiliated funds, may
transfer uninvested cash into a commercial paper joint account, the daily
aggregate balance of which is invested in high-grade commercial paper. All
securities purchased by the joint account satisfy the fund's criteria as to
quality, yield, and liquidity.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $632,660,000 and $252,840,000, respectively, for the year
ended December 31, 1996.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of its
taxable income.
At December 31, 1996, the aggregate cost of investments for federal income tax
and financial reporting purposes was $1,742,424,000, and net unrealized gain
aggregated $745,309,000, of which $765,848,000 related to appreciated
investments and $20,539,000 to depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management fee,
of which $1,212,000 was payable at December 31, 1996. The fee is computed daily
and paid monthly, and consists of an individual fund fee equal to
21
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- -----------------------------------------------------------------------------
0.25% of average daily net assets and a group fee. The group fee is based on the
combined assets of certain mutual funds sponsored by the manager or Rowe Price-
Fleming International, Inc. (the group). The group fee rate ranges from 0.48%
for the first $1 billion of assets to 0.305% for assets in excess of $50
billion. At December 31, 1996, and for the year then ended, the effective annual
group fee rate was 0.33%. The fund pays a pro-rata share of the group fee based
on the ratio of its net assets to those of the group.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund receives
certain other services. The manager computes the daily share price and maintains
the financial records of the fund. T. Rowe Price Services, Inc. (TRPS) is the
fund's transfer and dividend disbursing agent and provides shareholder and
administrative services to the fund. T. Rowe Price Retirement Plan Services,
Inc., provides subaccounting and recordkeeping services for certain retirement
accounts invested in the fund. Additionally, the fund is one of several T. Rowe
Price mutual funds (the underlying funds) in which the T. Rowe Price Spectrum
Growth Fund (Spectrum) invests. In accordance with an agreement among Spectrum,
the underlying funds, the manager, and TRPS, expenses from the operation of
Spectrum are borne by the underlying funds based on each underlying fund's
proportionate share of assets owned by Spectrum. The fund incurred expenses
pursuant to these related party agreements totaling approximately $3,868,000 for
the year ended December 31, 1996, of which $381,000 was payable at period-end.
22
<PAGE>
T. ROWE PRICE GROWTH & INCOME FUND
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Growth & Income Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
T. Rowe Price Growth & Income Fund, Inc. (the "Fund") at December 31, 1996, 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
generally accepted accounting principles. 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 generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1996 by
correspondence with custodians and, where appropriate, the application of
alternative auditing procedures for unsettled security transactions, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
January 20, 1997
23
<PAGE>
T. ROWE PRICE SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone Shareholder service representatives are available from 8 a.m. to 10
p.m. ET Monday through Friday and from 8:30 a.m. to 5 p.m. ET on weekends. Call
1-800-225-5132 to speak directly with a representative who will be able to
assist you with your accounts.
In Person Visit one of our investor center locations to meet with a
representative who will be able to assist you with your accounts. You can also
drop off applications or obtain prospectuses and other literature at these
centers.
AUTOMATED 24-HOUR SERVICES
Tele*Access(R) Call 1-800-638-2587 to obtain information such as account
balance, date and amount of your last transaction, latest dividend payment, fund
prices, and yields. Additionally, you have the ability to request prospectuses,
statements, and account and tax forms; to reorder checks; and to initiate
purchase, redemption, and exchange orders for identically registered accounts.
T. Rowe Price OnLine Through a personal computer via dial-up modem, you can
replicate all the services available on Tele*Access plus conduct transactions in
your Discount Brokerage and Variable Annuity Accounts.
ACCOUNT SERVICES
Checking Write checks for $500 or more on any money market and most bond fund
accounts (except the High Yield and Emerging Markets Bond Funds).
Automatic Investing Build your account over time by investing directly from your
bank account or paycheck with Automatic Asset Builder. Additionally, Automatic
Exchange enables you to set up systematic investments from one fund account into
another, such as from a money fund into a stock fund. A $50 minimum makes it
easy to get started.
24
<PAGE>
T. ROWE PRICE MUTUAL FUNDS
- --------------------------------------------------------------------------------
MUTUAL FUNDS
STOCK FUNDS
.............................
Domestic
Balanced
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Dividend Growth
Equity Income
Equity Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
OTC
Science & Technology
Small-Cap Value*
Spectrum Growth
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
.............................
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-free
California Tax-Free Bond
Florida Insured
Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal
Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
..............................
International/Global
Global Government Bond
Emerging Markets Bond
International Bond
MONEY MARKET
..............................
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET
..............................
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
..............................
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
*Closed to new investors.
Please call for a prospectus. Read it carefully before you invest or send money.
25
<PAGE>
REPORT HIGHLIGHTS
-----------------------------------------------------------------------------
. The market overcame worries about rising interest rates to climb 23% in 1996.
. Your fund's returns of 14.32% and 25.64% for the 6- and 12-month periods
ended December 31, respectively, exceeded those of the S&P 500 and Lipper
peer group average for both periods.
. Portfolio activity was subdued throughout the year, with an overall turnover
rate of only 13.5%.
. We added a number of stocks after their prices had declined over 20% and
reduced holdings of some that had risen sharply in order to seize better
opportunities.
. Like all investors, we have enjoyed more than our share of good fortune in
recent years and believe more modest expectations are appropriate.
