- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
SemiAnnual Report
Growth & Income Fund
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
Report Highlights
================================================================================
Growth & Income Fund
* Supported by an almost-perfect economic environment, the stock market
surged during the first half, with virtually all the gain occurring in the
second quarter.
* The fund provided a solid gain for the six-month period but lagged the
broad market and peer group average, due mainly to our yield-oriented
strategy.
* We added some stocks with above-average yields during the past six months
and sold some whose rising prices had resulted in below-average yields.
* Although underlying economic and financial conditions remain favorable for
stocks, the market's high valuation remains a source of concern. Our focus
on undervaluation in stock selection should benefit performance over time.
Fellow Shareholders
================================================================================
The equity market experienced robust returns in the first half of 1997,
with most of the gain occurring late in the period. The market's 17.46% return
for the second quarter, as represented by the unmanaged Standard & Poor's 500
Stock Index, was its strongest second quarter performance since 1938. Although
your fund certainly benefited in this environment, we were unable to keep pace
with the market index, given the more conservative yield-oriented approach we
employ.
<PAGE>
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 6/30/97 6 Months 12 Months
- --------------------------------------------------------------------------------
Growth & Income Fund 12.92% 29.10%
S&P 500 20.61 34.70
Lipper Growth & Income Funds Average 15.52 28.07
================================================================================
For the six-month period, your fund provided a solid 12.92% return but
trailed the broad market and peer group average, as shown in the table. For the
year ended June 30, the fund's 29.10% return was higher than that of the average
growth and income fund but could not match the surging S&P 500.
Distributions
================================================================================
On June 25, your Board of Trustees declared a second quarter income
dividend of $0.12 per share, bringing 1997 total income distributions to $0.25
per share. The second quarter dividend was paid on June 27 to shareholders of
record as of June 25. You should have already received your check or statement
reflecting this dividend.
Market Environment
================================================================================
The equity market responded to what some observers describe as nearly
perfect conditions for stocks. The economy's pace has been fast enough to
sustain a favorable growth rate in corporate profits and push unemployment to a
25-year low. At the same time, this pace has not caused inflation to accelerate
or interest rates to rise. In sum, economic conditions seem just about ideal.
Meanwhile, this extended period of economic prosperityNover six yearsNhas
resulted in a reduced budget deficit and a rising value for the U.S. dollar.
Indeed, it has been an extremely supportive environment for stocks. The
market's first half return of over 20% was one of the best such periods in the
past 50 years and was particularly stunning because it followed powerful
increases in 1995 and 1996. Even if we had been sufficiently prescient to fully
recognize these favorable trends, I doubt we would have anticipated the
magnitude of the market's rise.
Your fund has prospered in this environment, providing returns that
compared favorably with most other growth and income funds over the past 1-, 3-,
5-, and 10-year periods.* (The fund's annualized returns are in a table
following this letter.) Short-term results are somewhat frustrating, however, in
that our yield-oriented approach has not been as rewarding in this explosive
market.
* For the 1-, 3-, 5-, and 10-year periods ended 6/30/97, the average annual
returns of the Lipper Growth & Income Funds Average were 28.07%, 23.54%,
17.25%, and 12.67%, respectively.
<PAGE>
[pie chart "Security Diversification" - Common stocks 86%, Reserves 9%,
Convertibles 3%, Bonds and Preferred Stocks 2%.]
Portfolio Review
================================================================================
Your fund's asset allocation at midyear, as indicated in the pie chart,
showed little change since year-end. However, we have made some significant
changes to the portfolio, as indicated in the list of major transactions
following this letter. Four of the major purchases were new holdings for the
portfolio: DOW CHEMICAL, HUBBELL, PHARMACIA & UPJOHN, and ELECTRONIC DATA
SYSTEMS. All of these were stocks with above-average yields when purchased.
Additionally, with one exception, they are companies that have been good at
sharing their prosperity with shareholders by way of rising dividends. Pharmacia
& Upjohn has not increased the dividend since the merger of these two companies,
but the yield is generous, and we believe investor disappointment with the slow
pace of restructuring the combined companies has created a longer-term
investment opportunity.
================================================================================
Financial Profile
- --------------------------------------------------------------------------------
Growth &
As of 6/30/97 Income Fund S&P 500
- --------------------------------------------------------------------------------
Dividend Growth (5-year annual average) 6.4% 7.3%
Current Yield 2.5% 1.7%
Price/Book Ratio 3.4X 4.2X
Price/Earnings Ratio
(1997 estimated EPS) 17.6X 19.8X
================================================================================
Most of the major sales had an inverse themeNbelow-average yields at the
time of sale. Nevertheless, they had been very rewarding holdings for the fund
over a period of time. This recycling process to higher-yielding stocks is a
basic part of our investment approach. It is a discipline we endeavor to pursue,
even though at a time like this it requires us to reduce some companies that are
regarded as the best of corporate America. Your fund's emphasis on yield and
relative value is shown in the Financial Profile table.
Summary and Outlook
================================================================================
So far this year, we have experienced a market advance far beyond our
expectations. As discussed in past reports, we do have some valuation concerns
about the market. However, the underlying economic and financial fundamentals
are very favorable and are dominating investor thinking. We will remain focused
upon our valuation disciplines, reflecting the belief that this investment
approach will enhance longer-term returns when we encounter a less favorable
environment.
<PAGE>
Respectfully submitted,
/s/
Stephen W. Boesel
President and Chairman of the Investment Advisory Committee
July 18, 1997
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 6/30/97
Ten Largest Purchases
- --------------------------------------------------------------------------------
Dow Chemical *
Hubbell (Class B) *
Newmont Mining
Pharmacia & Upjohn *
UST
Willis-Corroon ADR
St. Paul Companies
Reader's Digest (Class A)
Electronic Data Systems *
Pall
Ten Largest Sales
- --------------------------------------------------------------------------------
Coca-Cola **
Heinz
Texas Instruments **
Coltec Industries **
Cooper Cameron
Corning
Warner-Lambert
Pfizer
Hewlett-Packard **
Delta
* Position added
** Position eliminated
================================================================================
<PAGE>
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
6/30/97
- --------------------------------------------------------------------------------
Corning ..................................................... 3.2%
GE .......................................................... 2.0
Pfizer ...................................................... 2.0
St. Paul Companies .......................................... 1.5
Reader's Digest ............................................. 1.5
Burlington Northern Santa Fe ................................ 1.5
Great Lakes Chemical ........................................ 1.5
Chase Manhattan ............................................. 1.4
Texaco ...................................................... 1.4
American Express ............................................ 1.3
James River ................................................. 1.3
Household International ..................................... 1.3
Atlantic Richfield .......................................... 1.3
Dayton Hudson ............................................... 1.3
Schlumberger ................................................ 1.2
Warner-Lambert .............................................. 1.2
H&R Block ................................................... 1.2
Fannie Mae .................................................. 1.1
Pall ........................................................ 1.1
Dow Chemical ................................................ 1.1
Philip Morris ............................................... 1.1
Honeywell ................................................... 1.1
Frontier .................................................... 1.1
Centerior Energy ............................................ 1.1
Sara Lee .................................................... 1.1
- --------------------------------------------------------------------------------
Total ....................................................... 34.9%
================================================================================
<PAGE>
================================================================================
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.
[Growth & Income SEC chart shown here]
================================================================================
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 6/30/97 1 Year 3 Years 5 Years 10 years
- --------------------------------------------------------------------------------
Growth & Income Fund 29.10% 24.10% 18.48% 13.13%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
================================================================================
<PAGE>
<TABLE>
Unaudited For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
6 Months Year
Ended Ended
6/30/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
Beginning of period ............... $ 22.63 $ 19.18 $ 15.63 $ 16.57 $ 15.53 $ 14.16
Investment activities
Net investment income ......... 0.25 0.52 0.58 0.50 0.46 0.55
Net realized and
unrealized gain (loss) ........ 2.66 4.34 4.16 (0.53) 1.53 1.57
Total from
investment activities ......... 2.91 4.86 4.74 (0.03) 1.99 2.12
Distributions
Net investment income ......... (0.25) (0.51) (0.59) (0.49) (0.47) (0.60)
Net realized gain ............. (0.03) (0.90) (0.60) (0.42) (0.48) (0.15)
Total distributions ........... (0.28) (1.41) (1.19) (0.91) (0.95) (0.75)
NET ASSET VALUE
End of period ..................... $ 25.26 $ 22.63 $ 19.18 $ 15.63 $ 16.57 $ 15.53
Ratios/Supplemental Data
Total return ...................... 12.92% 25.64% 30.92% (0.15)% 12.96% 15.33%
Ratio of expenses to
average net assets ................ 0.79%+ 0.82% 0.84% 0.81% 0.83% 0.85%
Ratio of net investment
income to average
net assets ........................ 2.16%+ 2.53% 3.31% 3.08% 2.91% 3.75%
Portfolio turnover rate ........... 17.3%+ 13.5% 26.2% 25.6% 22.4% 29.9%
Average commission
rate paid ......................... $ 0.0424 $ 0.0509 -- -- -- --
Net assets, end of period
(in millions) ..................... $ 3,065 $ 2,489 $ 1,748 $ 1,229 $ 1,167 $ 840
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
+ Annualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited June 30, 1997
================================================================================
Statement of Net Assets
- --------------------------------------------------------------------------------
Shares/Par Value
In thousands
Common Stocks 85.8%
FINANCIAL 17.5%
Bank and Trust 5.8%
BANC ONE ........................................ 450,218 $21,808
Cal Fed Bancorp +* .............................. 347,612 5,366
Chase Manhattan ................................. 450,000 43,678
Citicorp ........................................ 246,575 29,728
KeyCorp ......................................... 550,000 30,731
National City ................................... 400,000 21,000
Wells Fargo ..................................... 100,000 26,950
179,261
Insurance 5.5%
American General 600,000 28,650
EXEL ............................................ 335,600 17,703
St. Paul Companies .............................. 600,000 45,750
Travelers Property Casualty (Class A) ........... 800,000 31,900
UNUM ............................................ 500,000 21,000
Willis-Corroon ADR .............................. 2,000,000 22,375
167,378
Financial Services 6.2%
American Express ................................ 550,000 40,975
Bear Stearns .................................... 615,329 21,036
Beneficial ...................................... 230,000 16,344
Fannie Mae ...................................... 800,000 34,900
H&R Block ....................................... 1,100,000 35,475
Household International ......................... 330,668 38,833
Mercury Finance ................................. 970,500 2,366
189,929
Total Financial ................................. 536,568
UTILITIES 7.2%
Telephone Services 3.5%
AT&T ............................................ 500,000 17,531
BellSouth ....................................... 330,000 15,304
Frontier ........................................ 1,700,000 $ 33,894
GTE ............................................. 400,000 17,550
SBC Communications .............................. 384,011 23,760
108,039
<PAGE>
Electric Utilities 3.7%
Centerior Energy ................................ 3,000,000 33,562
Edison International ............................ 1,001,700 24,917
Entergy ......................................... 780,379 21,363
Niagara Mohawk * ................................ 1,000,000 8,563
Unicom .......................................... 1,100,000 24,475
112,880
Total Utilities ................................. 220,919
CONSUMER NONDURABLES 20.3%
Cosmetics 0.3%
International Flavors & Fragrances .............. 200,000 10,100
10,100
Beverages 2.1%
Anheuser-Busch .................................. 380,600 15,961
Bols Wessanen (NLG) ............................. 307,375 5,904
Brown-Forman (Class B) .......................... 220,000 10,739
PepsiCo ......................................... 820,000 30,801
63,405
Food Processing 3.9%
General Mills ................................... 300,000 19,537
Heinz ........................................... 300,000 13,838
McCormick ....................................... 472,400 11,958
Nabisco Holdings (Class A) ...................... 400,000 15,950
Ralston Purina .................................. 325,500 26,752
Sara Lee ........................................ 775,000 32,259
120,294
Hospital Supplies/Hospital Management 1.8%
Abbott Laboratories ............................. 200,000 13,350
Baxter International ............................ 246,400 12,874
Millipore ....................................... 513,000 22,572
Quest Diagnostics * ............................. 218,750 4,498
53,294
Pharmaceuticals 7.2%
American Home Products .......................... 400,000 30,600
Merck ........................................... 300,000 31,050
Perrigo * ....................................... 800,000 10,050
Pfizer .......................................... 509,100 60,837
Pharmacia & Upjohn .............................. 700,000 24,325
SmithKline Beecham ADR .......................... 300,000 27,488
Warner-Lambert .................................. 300,000 37,275
221,625
<PAGE>
Miscellaneous Consumer Products 5.0%
Newell .......................................... 600,000 23,775
Philip Morris ................................... 780,000 34,612
Procter & Gamble ................................ 200,000 28,250
RJR Nabisco ..................................... 668,000 22,044
Springs Industries .............................. 149,300 7,876
Tomkins (GBP) ................................... 1,500,000 6,545
UST ............................................. 1,100,000 30,525
153,627
Total Consumer Nondurables ...................... 622,345
CONSUMER SERVICES 5.3%
General Merchandisers 2.6%
Dayton Hudson ................................... 725,000 38,561
J.C. Penney ..................................... 500,000 26,094
TJX ............................................. 321,800 8,487
Wal-Mart ........................................ 150,000 5,072
78,214
Entertainment and Leisure 1.9%
Host Marriott * ................................. 765,700 13,639
Reader's Digest (Class A) ....................... 832,400 23,880
Reader's Digest (Class B) ....................... 786,400 21,773
59,292
Media and Communications 0.8%
Vodafone ADR .................................... 500,000 24,219
24,219
Total Consumer Services ......................... 161,725
CONSUMER CYCLICALS 6.5%
Building and Real Estate 3.3%
Burnham Pacific Properties, REIT ................ 200,000 2,750
Federal Realty Investment Trust, REIT ........... 566,700 15,301
Patriot American Hospitality, REIT .............. 200,000 5,100
Reckson Associates Realty, REIT ................. 518,000 11,914
Rouse ........................................... 574,500 16,948
Security Capital Industrial Trust, REIT ......... 300,000 6,450
Simon DeBartolo Group, REIT ..................... 816,000 26,112
Taubman Centers, REIT ........................... 504,000 6,678
United Dominion Realty Trust, REIT .............. 857,900 12,171
103,424
Miscellaneous Consumer Durables 3.2%
Corning ......................................... 1,750,000 97,344
97,344
Total Consumer Cyclicals ........................ 200,768
TECHNOLOGY 1.1%
Electronic Systems 1.1%
Honeywell ....................................... 450,000 34,144
Total Technology ................................ 34,144
<PAGE>
CAPITAL EQUIPMENT 4.6%
Electrical Equipment 3.1%
GE .............................................. 960,000 62,760
Hubbell (Class B) ............................... 710,000 31,240
94,000
Machinery 1.5%
Cooper Industries ............................... 455,907 22,681
FMC * ........................................... 305,100 24,237
46,918
Total Capital Equipment ......................... 140,918
BUSINESS SERVICES AND
TRANSPORTATION 4.2%
Computer Service and Software 1.5%
Electronic Data Systems ......................... 500,000 20,500
First Data ...................................... 400,000 17,575
Intuit * ........................................ 300,000 6,872
44,947
Miscellaneous Business Services 0.8%
Waste Management ................................ 750,000 24,094
24,094
Airlines 0.4%
Delta ........................................... 166,300 13,637
13,637
Railroads 1.5%
Burlington Northern Santa Fe .................... 500,000 44,937
44,937
Total Business Services and Transportation ...... 127,615
ENERGY 7.5%
Energy Services 2.3%
Cooper Cameron * ................................ 150,000 7,013
Halliburton ..................................... 318,000 25,201
Schlumberger .................................... 300,000 37,500
69,714
Integrated Petroleum - Domestic 3.8%
Atlantic Richfield .............................. 550,000 38,775
British Petroleum ADR ........................... 400,000 29,950
Unocal .......................................... 500,000 19,406
USX-Marathon .................................... 1,000,000 28,875
117,006
Integrated Petroleum - International 1.4%
Texaco .......................................... 400,000 43,500
43,500
Total Energy .................................... 230,220
<PAGE>
PROCESS INDUSTRIES 7.7%
Diversified Chemicals 2.2%
Dow Chemical .................................... 400,000 34,850
DuPont .......................................... 500,000 31,437
66,287
Specialty Chemicals 3.1%
A. Schulman ..................................... 700,000 17,303
Great Lakes Chemical ............................ 850,000 44,519
Pall ............................................ 1,500,000 34,875
96,697
Paper and Paper Products 2.4%
Albany International (Class A) .................. 250,000 5,625
James River ..................................... 1,050,000 38,850
Kimberly-Clark .................................. 600,000 29,850
74,325
Total Process Industries ........................ 237,309
BASIC MATERIALS 3.3%
Metals 2.3%
Alcoa ........................................... 326,400 24,602
Freeport McMoRan Copper & Gold (Class A) ........ 183,748 5,375
Nucor ........................................... 200,000 11,300
Reynolds Metals ................................. 400,000 28,500
69,777
Mining 1.0%
Newmont Mining .................................. 800,000 31,200
31,200
Total Basic Materials ........................... 100,977
Miscellaneous Common Stocks 0.6% ................ 17,303
Total Common Stocks (Cost $1,654,378) ........... 2,630,811
Preferred Stocks 0.1%
Entergy GSU, 8.75%, Adj. B ...................... 14,750 716
Entergy Gulf States Utils., $8.64 ............... 5,795 590
Entergy Gulf States Utils., Adj. A .............. 3,071 $ 297
Total Preferred Stocks (Cost .................... $ 1,585) 1,603
Convertible Preferred Stocks 0.9%
Glendale Federal Bank, 8.75%, Series E .......... 200,000 13,000
Greenfield Capital Trust ........................ 300,000 14,066
Total Convertible Preferred Stocks (Cost $ 17,652) 27,066
Convertible Bonds 1.8%
3Com Corporation, (144a) 10.25%, 11/1/01 ........ $ 8,000,000 11,185
Boston Chicken, 7.75%, 5/1/04 ................... 5,000,000 4,537
Corporate Express, (144a) 4.50%, 7/1/00 ......... 15,000,000 13,443
Exide, (144a) 2.90%, 12/15/05 ................... 40,000,000 25,100
Total Convertible Bonds (Cost $ 52,119) ...... 54,265
<PAGE>
Corporate Bonds 0.9%
American Standard, Sr. Sub. Notes, 9.875%, 6/1/01 ...... 4,000,000 4,240
BF Saul REIT, Sr. Secured Notes, 11.625%, 4/1/02 ....... 3,500,000 3,727
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 ........ 850,000 904
El Paso Electric, 1st Mtg. Notes, 9.40%, 5/1/11 ........ 1,250,000 1,361
O. M. Scott, 9.875%, 8/1/04 ............................ 5,000,000 5,350
Texas Bottling Group, Sr. Sub. Notes, 9.00%, 11/15/03 .. 3,000,000 3,053
Trump Atlantic City Associates, 1st Mtg. Notes
11.25%, 5/1/06 ................................ 4,000,000 3,910
Total Corporate Bonds (Cost $ 26,675) ................ 27,795
U.S. Government Obligations/
Agencies 1.6%
U.S. Treasury Bonds
6.875%, 8/15/25 ............................ 50,000,000 50,188
Total U.S. Government Obligations/Agencies
(Cost $ 49,322) .................................... 50,188
Short-Term Investments 8.5%
Certificates of Deposit 1.6%
Bayerische Vereinsbank, (London), 5.63%, 8/5/97 ..... 10,000,000 $10,000
Caisse National De Credit Agricole,
5.51 - 5.63%, 8/11/97 ........................... 20,000,000 20,000
Deutsche Bank AG, (London), 5.50%, 8/29/97 .......... 10,000,000 9,998
Societe Generale, 5.92%, 9/17/97 .................... 10,000,000 10,006
50,004
Commercial Paper 6.6%
Allied Signal, 4(2), 5.58%, 7/15/97 ..................... 10,000,000 9,978
Asset Securitization Cooperative, 4(2), 5.57%, 7/14/97 .. 10,000,000 9,980
Bank of New York, 5.535%, 7/22/97 ....................... 10,000,000 9,968
Banque Nationale de Paris, 5.55%, 7/14/97 ............... 10,000,000 9,980
BBL North America, 5.53%, 7/1/97 ........................ 10,000,000 10,000
BT Securities, 5.57%, 8/25/97 ........................... 10,000,000 9,915
Delaware Funding, 4(2), 5.57%, 7/16/97 .................. 10,000,000 9,977
Den Danske, 5.55%, 7/23/97 .............................. 10,000,000 9,966
Dover Funding, 4(2), 5.55%, 7/22/97 ..................... 10,000,000 9,968
FCAR Owner Trust, 5.53%, 7/10/97 ........................ 10,000,000 9,986
Ford Motor Credit Company, 5.57%, 7/18/97 ............... 10,000,000 9,974
Halifax, 5.54%, 7/14/97 ................................. 10,000,000 9,980
Island Finance Puerto Rico, 5.55%, 7/28/97 .............. 10,000,000 9,958
Kredietbank N.A. Finance, 5.57%, 8/5/97 ................. 10,000,000 9,946
Market Street Funding, 4(2), 5.60%, 8/13/97 ............. 10,000,000 9,933
Merrill Lynch & Co., 5.58%, 7/9/97 ...................... 10,000,000 9,987
National City Credit, 5.55%, 7/21/97 .................... 10,000,000 9,969
National Rural Utilities Cooperative Finance
5.55%, 9/19/97 ................................. 10,000,000 9,877
Repeat Offering Security Entity, 4(2), 5.60%, 8/29/97 ... 10,000,000 9,908
Investments in Commercial Paper through a Joint Account
6.05 - 6.20%, 7/1/97 ........................... 11,595,158 11,595
200,845
<PAGE>
Medium-Term Notes 0.3%
Morgan Stanley Group, VR, 6.051%, 9/17/97 ........ 10,000,000 10,023
10,023
Total Short-Term Investments (Cost $ 260,872) .. 260,872
Total Investments in Securities
99.6% of Net Assets (Cost $2,062,603) ............ $ 3,052,600
Other Assets Less Liabilities .................... 12,529
NET ASSETS ................................................... $3,065,129
Net Assets Consist of:
Accumulated net investment income -
net of distributions ......................................... $ 1,225
Accumulated net realized gain/loss -
net of distributions ......................................... 69,340
Net unrealized gain (loss) ................................... 989,995
Paid-in-capital applicable to 121,323,588
shares of $0.01 par value capital stock
outstanding; 5,000,000,000 shares authorized ................. 2,004,569
NET ASSETS ................................................... $3,065,129
NET ASSET VALUE PER SHARE .................................... $ 25.26
+ Affiliated company
* Non-income producing
REIT Real Estate Investment Trust
VR Variable rate
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 period-end amounts to
1.62% of net assets.
GBP British sterling
NLG Dutch guilder
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
6/30/97
- --------------------------------------------------------------------------------
Investment Income
Income
Dividend ................................................ $ 28,326
Interest ................................................ 12,241
Total income ............................................ 40,567
Expenses
Investment management ................................... 7,875
Shareholder servicing ................................... 2,643
Custody and accounting .................................. 167
Prospectus and shareholder reports ...................... 72
Registration ............................................ 68
Directors ............................................... 10
Legal and audit ......................................... 7
Miscellaneous ........................................... 9
Total expenses .......................................... 10,851
Net investment income ....................................... 29,716
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities .............................................. 68,043
Foreign currency transactions ........................... (23)
Net realized gain (loss) ................................ 68,020
Change in net unrealized gain or loss
Securities .............................................. 244,688
Other assets and liabilities
denominated in foreign currencies ....................... (2)
Change in net unrealized gain or loss ................... 244,686
Net realized and unrealized gain (loss) ..................... 312,706
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ...................................... $ 342,422
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited
================================================================================
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
6/30/97 12/31/96
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
Operations
Net investment income ........................ $ 29,716 $ 52,470
Net realized gain (loss) ..................... 68,020 90,132
Change in net unrealized gain or loss ........ 244,686 339,963
Increase (decrease) in net assets
from operations .............................. 342,422 482,565
Distributions to shareholders
Net investment income ........................ (29,689) (51,272)
Net realized gain ............................ (3,506) (94,021)
Decrease in net assets from distributions .... (33,195) (145,293)
Capital share transactions *
Shares sold .................................. 410,761 526,034
Distributions reinvested ..................... 32,257 142,065
Shares redeemed .............................. (175,939) (265,026)
Increase (decrease) in net assets from capital
share transactions ........................... 267,079 403,073
Net Assets
Increase (decrease) during period ................ 576,306 740,345
Beginning of period .............................. 2,488,823 1,748,478
End of period .................................... $ 3,065,129 $ 2,488,823
*Share information
Shares sold .................................. 17,494 25,086
Distributions reinvested ..................... 1,340 6,411
Shares redeemed .............................. (7,495) (12,676)
Increase (decrease) in shares outstanding .... 11,339 18,821
================================================================================
The accompanying notes are an integral part of these financial statements.
<PAGE>
Unaudited June 30, 1997
================================================================================
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
T. Rowe Price Growth & Income, 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 are valued at the last quoted sales price on
the day the valuations are made. A security which is listed or traded on more
than one exchange is valued at the quotation on the exchange determined to be
the primary market for such security. Listed securities not traded on a
particular day and securities regularly traded in the over-the-counter market
are valued at the mean of the latest bid and asked prices.
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 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.
PREMIUMS AND DISCOUNTS Premiums and discounts on debt securities are
amortized for both financial reporting and tax purposes.
<PAGE>
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 $398,710,000 and $214,772,000, respectively, for the six
months ended June 30, 1997.
NOTE 3 - FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of its
taxable income.
At June 30, 1997, the aggregate cost of investments for federal income tax
and financial reporting purposes was $2,062,603,000, and net unrealized gain
aggregated $989,997,000, of which $1,027,801,000 related to appreciated
investments and $37,804,000 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 $1,427,000 was payable at June 30, 1997. The fee is computed daily and
paid monthly, and consists of an individual fund fee equal to 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 0.30% for assets in excess of $80 billion. At June
30, 1997, and for the six months 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.
<PAGE>
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 $2,349,000 for
the six months ended June 30, 1997, of which $370,000 was payable at period-end.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access [Registration Mark]:
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address: 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 [Registration Mark].
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
<PAGE>
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
T. Rowe Price Investment Services, Inc., Distributor. F54-051 6/30/97
