- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Annual Report
Growth & Income Fund
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
REPORT HIGHLIGHTS
================================================================================
GROWTH & INCOME FUND
* Stocks recovered from a sharp drop in October to post a third consecutive
year of gains over 20%. * The fund also completed a third straight year of
gains over 20%, but did not match the broad market because of its more
conservative, yield-oriented strategy.
* Solid returns of 9.39% and 23.53% for the 6- and 12-month periods,
respectively, were in line with the fund's peer group average for the
second half but lagged for the year.
* We added some stocks with good prospects that had been underperforming, and
sold some that had performed well and become richly valued.
* Although underlying conditions remain favorable for U.S. stocks, market
valuation remains a concern. We believe expectations should be lowered for
1998.
<PAGE>
FELLOW SHAREHOLDERS
The equity market and your fund continued to generate robust returns in the
second half of 1997, topping off another outstanding year. In fact, it was the
third consecutive year in which stocks rose more than 20%--an unprecedented
event in modern market history. This outcome was even more remarkable
considering the uncertainty introduced by the crisis in Asia, which prompted a
sharp decline in our market in October.
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 12/31/97 6 Months 12 Months
- --------------------------------------------------------------------------------
Growth & Income Fund 9.39% 23.53%
S&P 500 10.58 33.36
Lipper Growth & Income
Funds Average 9.93 27.14
================================================================================
Your fund provided a good return of 9.39% in the second half, basically in
line with the Lipper peer group average. For the 12-month period, a return of
23.53% was very favorable on an absolute basis and also marked your fund's third
consecutive annual return of greater than 20%. Given our relatively conservative
approach, which is more yield-oriented than many funds in our peer group, we
were not able to keep pace with the surging market or peer average.
DISTRIBUTIONS
Your Board of Directors declared a fourth quarter income dividend of $0.18
per share, bringing your 1997 income total to $0.56 per share. At the same time,
a $0.94 per share capital gain distribution was declared, of which $0.10
represented short-term gains and $0.84 was long-term gains. These distributions
were paid on December 30 to shareholders of record on December 26. You should
have already received your check or statement reflecting this activity, as well
as Form 1099-DIV, which provides 1997 tax information.
MARKET ENVIRONMENT
In our midyear letter, we described the nearly perfect conditions for the
stock market. The economy was growing fast enough to sustain favorable growth in
corporate profits, yet interest rates were stable and the inflation rate was
declining. These trends continued to provide a favorable foundation in the
second half and, in some respects, became more pronounced. Inflation subsided
even further, and long-term interest rates declined by nearly one percentage
point. The 30-year Treasury bond yield dropped to its lowest level since it was
introduced in 1977.
<PAGE>
Domestic business and economic fundamentals were surprisingly favorable
during the year, as described. Nevertheless, uncertainties arose later in the
year associated with the currency and stock market debacles that spread
throughout Asia. The jitters reached our stock market in October, causing a
one-day decline in the Dow Jones Industrial Average of over 7%. Investor
nervousness seemed to subside rather quickly, however, and the market rebounded
to achieve a modest gain in the final quarter.
[Security Diversification pie chart showing Common Stocks 87%, Reserves 9%,
Convertibles 2%, Bonds and Prefered Stocks 2%]
Now, concerns are mounting again as many Asian countries are experiencing
liquidity problems and further currency devaluations. Asia represents one-third
of the global economy and a significantly higher portion of worldwide growth
over the past several years. It is becoming clearer that global growth and
corporate profitability will be reduced in the year ahead. The overall impact on
our domestic economy may be relatively moderate, but some industries and sectors
could be hurt considerably. For example, Asian countries are important export
markets for many industrial products and basic commodities. Additionally, many
of them are significant exporters of consumer goods to the U.S. market, which
could affect the competitive conditions in certain of our industries that are
particularly vulnerable to currency exchange rates. Although the relationships
are complex and some industries could benefit, on balance a new uncertainty has
been injected into the investment environment.
PORTFOLIO REVIEW
Your fund's asset allocation at year-end, as indicated in the pie chart,
was virtually unchanged since midyear. However, portfolio activity in terms of
new holdings picked up substantially in the second half. This can be seen in the
list of major transactions following this letter. Eight of our 10 largest
purchases were new additions to the portfolio. Most of these companies had been
stock market underperformers during the past year for various reasons. As a
result, their relative valuations had become attractive and, in our opinion,
they now provide a longer-term investment opportunity. Several of these
additions to the portfolio, such as COLGATE-PALMOLIVE, INCO, EASTMAN KODAK, and
UNIFI, have been rewarding investments for your fund in prior market cycles.
================================================================================
Financial Profile
- --------------------------------------------------------------------------------
Growth &
As of 12/31/97 Income Fund S&P 500
- --------------------------------------------------------------------------------
Dividend Growth
(5-year annual average) 6.0% 8.6%
Current Yield 2.3% 1.6%
Price/Book Ratio 3.7X 4.6X
Price/Earnings Ratio
(1998 estimated EPS) 16.5X 19.1X
================================================================================
<PAGE>
In contrast, the major sales were generally stocks that had performed well
over a period of years. This recycling process to higher yielding stocks with
better valuation characteristics is a basic part of our investment approach.
Your fund's emphasis on these characteristics is shown in the Financial Profile
table.
SUMMARY AND OUTLOOK
The past year provided the equity investor with another outstanding year of
returns. We are mindful that stock prices have risen much faster than the
underlying corporate earnings during this same period. As a result, the equity
market has become richly priced in a historical context. Therefore, we believe
it is appropriate for fund shareholders to have more modest expectations for the
year ahead and also to expect more volatility from the stock market because of
global uncertainties. For our part, we will remain focused on our valuation
disciplines in the belief that this approach will enhance longer-term returns
while providing less price volatility.
Respectfully submitted,
/s/
Stephen W. Boesel
President and Chairman of the Investment Advisory Committee
January 22, 1998
<PAGE>
T. Rowe Price Growth & Income Fund
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 12/31/97
Ten Largest Purchases
- --------------------------------------------------------------------------------
American Stores *
Tupperware *
Colgate-Palmolive *
DQE *
Inco *
Eastman Kodak *
Unifi *
Patriot American Hospitality
Waste Management
Swire Pacific *
Ten Largest Sales
- --------------------------------------------------------------------------------
Vodafone **
Electronic Data Systems **
Merck
Wells Fargo
Greenfield Capital Trust **
Delta **
Perrigo **
3Com **
FMC
Cal Fed Bancorp **
* Position added
** Position eliminated
================================================================================
<PAGE>
T. Rowe Price Growth & Income Fund
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/97
- --------------------------------------------------------------------------------
GE .......................................................... 2.0%
Corning ..................................................... 2.0
Pfizer ...................................................... 1.9
Great Lakes Chemical ........................................ 1.4
H&R Block ................................................... 1.4
Chase Manhattan ............................................. 1.4
St. Paul Companies .......................................... 1.4
American Express ............................................ 1.4
AT&T ........................................................ 1.4
Dayton Hudson ............................................... 1.4
Schlumberger ................................................ 1.4
Burlington Northern Santa Fe ................................ 1.3
FirstEnergy ................................................. 1.3
Fannie Mae .................................................. 1.3
Atlantic Richfield .......................................... 1.3
Sara Lee .................................................... 1.3
Texaco ...................................................... 1.3
Unicom ...................................................... 1.2
Household International ..................................... 1.2
Frontier .................................................... 1.2
UST ......................................................... 1.2
Dow Chemical ................................................ 1.2
Fort James .................................................. 1.2
KeyCorp ..................................................... 1.1
Reader's Digest ............................................. 1.1
- --------------------------------------------------------------------------------
Total ....................................................... 34.3%
================================================================================
<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.
[Growth & Income Fund SEC graph 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 12/31/97 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Growth & Income Fund 23.53% 26.66% 18.04% 16.51%
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>
T. Rowe Price Growth & Income Fund
================================================================================
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year
Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ....................... $ 22.63 $ 19.18 $ 15.63 $ 16.57 $ 15.53
Investment activities
Net investment income ............. 0.55 0.52 0.58 0.50 0.46
Net realized and
unrealized gain (loss) ............ 4.71 4.34 4.16 (0.53) 1.53
Total from
investment activities ............. 5.26 4.86 4.74 (0.03) 1.99
Distributions
Net investment income ............. (0.56) (0.51) (0.59) (0.49) (0.47)
Net realized gain ................. (0.97) (0.90) (0.60) (0.42) (0.48)
Total distributions ............... (1.53) (1.41) (1.19) (0.91) (0.95)
NET ASSET VALUE
End of period ............................. $ 26.36 $ 22.63 $ 19.18 $ 15.63 $ 16.57
Ratios/Supplemental Data
Total return .............................. 23.53% 25.64% 30.92% (0.15)% 12.96%
Ratio of expenses to
average net assets ........................ 0.78% 0.82% 0.84% 0.81% 0.83%
Ratio of net investment
income to average
net assets ................................ 2.22% 2.53% 3.31% 3.08% 2.91%
Portfolio turnover rate ................... 15.7% 13.5% 26.2% 25.6% 22.4%
Average commission
rate paid ................................. $ 0.0428 $ 0.0509 -- -- --
Net assets, end of period
(in millions) ............................. $ 3,447 $ 2,489 $ 1,748 $ 1,229 $ 1,167
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Growth & Income Fund
================================================================================
December 31, 1997
================================================================================
Portfolio of Investments
- --------------------------------------------------------------------------------
Shares/Par Value
In thousands
Common Stocks and Warrants 87.3%
FINANCIAL 16.6%
Bank and Trust 5.4%
BANC ONE .......................................... 450,218 $ 24,453
Chase Manhattan ................................... 450,000 49,275
Citicorp .......................................... 246,575 31,176
KeyCorp ........................................... 550,000 38,947
National City ..................................... 400,000 26,300
Wells Fargo ....................................... 50,000 16,972
187,123
Insurance 5.8%
American General .................................. 600,000 32,437
EXEL .............................................. 335,600 21,269
St. Paul Companies ................................ 600,000 49,237
Travelers Property Casualty (Class A) ............. 800,000 35,200
UNUM .............................................. 500,000 27,188
Willis-Corroon ADR ................................ 2,733,800 33,660
198,991
Financial Services 5.4%
American Express .................................. 550,000 49,087
Bear Stearns ...................................... 615,329 29,228
Beneficial ........................................ 230,000 19,119
Fannie Mae ........................................ 800,000 45,650
Household International ........................... 330,668 42,181
Mercury Finance ................................... 820,500 513
185,778
Total Financial ................................... 571,892
UTILITIES 9.9%
Telephone Services 4.5%
AT&T .............................................. 800,000 49,000
BellSouth ......................................... 330,000 18,583
Frontier .......................................... 1,700,000 40,906
GTE ............................................... 400,000 20,900
SBC Communications ................................ 384,011 28,129
157,518
<PAGE>
Electric Utilities 5.4%
Dominion Resources ................................ 350,000 $ 14,897
DQE ............................................... 600,000 21,075
Edison International .............................. 1,001,700 27,234
Entergy ........................................... 780,379 23,362
FirstEnergy ....................................... 1,575,000 45,675
Niagara Mohawk * .................................. 1,000,000 10,500
Unicom ............................................ 1,400,000 43,050
185,793
Total Utilities ................................... 343,311
CONSUMER NONDURABLES 20.4%
Cosmetics 0.3%
International Flavors & Fragrances ................ 200,000 10,300
10,300
Beverages 1.8%
Anheuser-Busch .................................... 380,600 16,746
Bols Wessanen (NLG) ............................... 307,375 4,760
Brown-Forman (Class B) ............................ 220,000 12,155
PepsiCo ........................................... 820,000 29,879
63,540
Food Processing 4.2%
General Mills ..................................... 300,000 21,487
Heinz ............................................. 300,000 15,244
McCormick ......................................... 472,400 13,257
Nabisco Holdings (Class A) ........................ 400,000 19,375
Ralston Purina .................................... 325,500 30,251
Sara Lee .......................................... 775,000 43,642
143,256
Hospital Supplies/Hospital Management 1.8%
Abbott Laboratories ............................... 200,000 13,112
Baxter International .............................. 246,400 12,428
Millipore ......................................... 513,000 17,410
Smith & Nephew (GBP) .............................. 6,700,000 19,809
62,759
Pharmaceuticals 6.1%
American Home Products ............................ 500,000 38,250
Merck ............................................. 100,000 10,625
Pfizer ............................................ 900,000 67,106
Pharmacia & Upjohn ................................ 700,000 25,638
SmithKline Beecham ADR ............................ 600,000 30,862
Warner-Lambert .................................... 300,000 37,200
209,681
<PAGE>
Miscellaneous Consumer Products 6.2%
Colgate-Palmolive ................................. 352,500 $ 25,909
Newell ............................................ 600,000 25,500
Philip Morris ..................................... 780,000 35,344
Procter & Gamble .................................. 400,000 31,925
RJR Nabisco ....................................... 668,000 25,050
Tomkins (GBP) ..................................... 2,500,000 11,826
Unifi ............................................. 435,000 17,699
UST ............................................... 1,100,000 40,631
213,884
Total Consumer Nondurables ........................ 703,420
CONSUMER SERVICES 6.4%
Restaurants 0.1%
Tricon Global Restaurants * ....................... 82,000 2,383
2,383
General Merchandisers 2.6%
Dayton Hudson ..................................... 725,000 48,938
J.C. Penney ....................................... 500,000 30,156
TJX ............................................... 321,800 11,062
90,156
Specialty Merchandisers 1.9%
American Stores ................................... 1,313,800 27,015
The Limited ....................................... 500,000 12,750
Tupperware ........................................ 1,000,000 27,875
67,640
Entertainment and Leisure 1.6%
Host Marriott * ................................... 765,700 15,027
Reader's Digest (Class A) ......................... 832,400 19,665
Reader's Digest (Class B) ......................... 786,400 19,169
53,861
Media and Communications 0.2%
France Telecom ADR * .............................. 160,000 5,760
5,760
Total Consumer Services ........................... 219,800
<PAGE>
CONSUMER CYCLICALS 6.5%
Building and Real Estate 4.0%
CRIIMI MAE, REIT .................................. 260,000 $ 3,900
Federal Realty Investment Trust, REIT ............. 666,700 17,168
Ocwen Asset Investment, REIT ...................... 100,000 2,056
Patriot American Hospitality, REIT ................ 800,003 23,050
Reckson Associates Realty, REIT ................... 518,000 13,144
Rouse ............................................. 574,500 18,815
Security Capital Group, Warrants, 9/18/98* ........ 15,234 80
Security Capital Industrial Trust, REIT ........... 327,272 8,141
Simon DeBartolo Group, REIT ....................... 816,000 26,673
Spieker Properties, REIT .......................... 200,000 8,575
United Dominion Realty Trust, REIT ................ 1,057,900 14,744
136,346
Miscellaneous Consumer Durables 2.5%
Corning ........................................... 1,850,000 68,681
Eastman Kodak ..................................... 300,000 18,244
86,925
Total Consumer Cyclicals .......................... 223,271
TECHNOLOGY 0.9%
Electronic Systems 0.9%
Honeywell ......................................... 450,000 30,825
Total Technology .................................. 30,825
CAPITAL EQUIPMENT 4.1%
Electrical Equipment 3.1%
GE ................................................ 960,000 70,440
Hubbell (Class B) ................................. 710,000 35,012
105,452
Machinery 1.0%
Cooper Industries ................................. 455,907 22,339
FMC * ............................................. 205,100 13,806
36,145
Total Capital Equipment 141,597
BUSINESS SERVICES AND
TRANSPORTATION 5.1%
Computer Service and Software 1.0%
First Data ........................................ 800,000 23,400
Intuit * .......................................... 300,000 12,394
35,794
Miscellaneous Business Services 2.7%
H&R Block ......................................... 1,100,000 49,293
Swire Pacific (Class A) (HKD) ..................... 1,500,000 8,227
Waste Management .................................. 1,350,000 37,125
94,645
<PAGE>
Railroads 1.4%
Burlington Northern Santa Fe ...................... 500,000 $ 46,469
46,469
Total Business Services and Transportation ........ 176,908
ENERGY 7.4%
Energy Services 2.4%
Halliburton ....................................... 636,000 33,032
Schlumberger ...................................... 600,000 48,300
81,332
Integrated Petroleum - Domestic 3.7%
Atlantic Richfield ................................ 550,000 44,069
British Petroleum ADR ............................. 400,000 31,875
Unocal ............................................ 500,000 19,406
USX-Marathon ...................................... 1,000,000 33,750
129,100
Integrated Petroleum - International 1.3%
Texaco ............................................ 800,000 43,500
43,500
Total Energy ...................................... 253,932
PROCESS INDUSTRIES 7.0%
Diversified Chemicals 2.0%
Dow Chemical ...................................... 400,000 40,600
DuPont ............................................ 500,000 30,031
70,631
Specialty Chemicals 3.0%
A. Schulman ....................................... 700,000 17,675
Great Lakes Chemical .............................. 1,100,000 49,363
Pall .............................................. 1,700,000 35,169
102,207
Paper and Paper Products 2.0%
Fort James ........................................ 1,050,000 40,162
Kimberly-Clark .................................... 600,000 29,588
69,750
Total Process Industries .......................... 242,588
BASIC MATERIALS 3.0%
Metals 2.2%
Alcoa ............................................. 326,400 22,970
Freeport-McMoRan Copper & Gold (Class A) .......... 183,748 2,814
Inco .............................................. 1,000,000 17,000
Nucor ............................................. 200,000 9,663
Reynolds Metals ................................... 400,000 24,000
76,447
<PAGE>
Mining 0.8%
Newmont Mining .................................... 900,000 $ 26,437
26,437
Total Basic Materials ............................. 102,884
Total Common Stocks and Warrants (Cost $1,874,052). 3,010,428
Preferred Stocks 0.1%
Entergy-GSU
$8.64 ..................................... 4,630 465
Series A .................................. 2,866 287
Series B .................................. 14,750 742
Total Preferred Stocks (Cost $1,458) 1,494
Convertible Preferred Stocks 0.5%
Golden State Bancorp, (Series A), 8.75% ........... 200,000 18,225
Total Convertible Preferred Stocks (Cost $5,014).. 18,225
Convertible Bonds 1.2%
Corporate Express, (144a) 4.50%, 7/1/00 ........... $ 15,000,000 13,730
Exide, (144a) 2.90%, 12/15/05 ..................... 40,000,000 26,789
Total Convertible Bonds (Cost $39,137) ........... 40,519
Corporate Bonds 0.7%
B.F. Saul, REIT, Sr. Secured Notes, 11.625%, 4/1/02 3,500,000 3,728
Container Corporation of America, Sr. Notes
9.75%, 4/1/03 ............................ 5,000,000 5,375
HMH Properties, Sr. Notes, 8.875%, 7/15/07 ........ 5,000,000 5,262
Scotts, Sr. Sub. Notes, 9.875%, 8/1/04 ............ 5,000,000 5,237
Texas Bottling Group, Sr. Sub. Notes, 9.00%, 11/15/03 3,000,000 3,090
Trump Atlantic City, 1st Mtg. Notes, 11.25%, 5/1/06 1,000,000 988
Total Corporate Bonds (Cost $22,604) ............. 23,680
U.S. Government Obligations/
Agencies 1.6%
U.S. Treasury Bonds, 6.875%, 8/15/25 .............. 50,000,000 55,750
Total U.S. Government Obligations/Agencies (Cost $49,326) 55,750
Short-Term Investments 8.6%
Medium-Term Notes 0.3%
Morgan Stanley Group, VR, 6.176%, 3/18/98 ......... 10,000,000 10,010
10,010
Money Market Funds 8.3%
Reserve Investment Fund, 5.84% #+ ................. 284,898,177 284,898
284,898
Total Short-Term Investments (Cost $294,908) ..... 294,908
<PAGE>
Total Investments in Securities
100.0% of Net Assets (Cost $2,286,499) ............ $ 3,445,004
Other Assets Less Liabilities ..................... 1,712
NET ASSETS ........................................ $ 3,446,716
# Seven-day yield
+ Affiliated company
* Non-income producing
ADR American Depository Receipt
REIT Real Estate Investment Trust
VR Variable rate
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
1.18% of net assets.
GBP British sterling
HKD Hong Kong dollar
NLG Dutch guilder
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Growth & Income Fund
================================================================================
December 31, 1997
================================================================================
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value
Affiliated companies (cost $284,898) .......................... $ 284,898
Other companies (cost $2,001,601) ............................. 3,160,106
Total investments in securities ............................... 3,445,004
Other assets .................................................... 17,619
Total assets .................................................... 3,462,623
Liabilities
Total liabilities ............................................... 15,907
NET ASSETS ...................................................... $3,446,716
Net Assets Consist of:
Accumulated net investment income - net of distributions ........ $ 45
Accumulated net realized gain/loss - net of distributions ....... 36,524
Net unrealized gain (loss) ...................................... 1,158,505
Paid-in-capital applicable to 130,774,457 shares of
$0.01 par value capital stock outstanding;
500,000,000 shares authorized ................................... 2,251,642
NET ASSETS ...................................................... $3,446,716
NET ASSET VALUE PER SHARE ....................................... $ 26.36
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Growth & Income Fund
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/97
Investment Income
Income
Dividend .................................................... $ 64,976
Interest .................................................... 25,972
Total income ................................................ 90,948
Expenses
Investment management ....................................... 17,390
Shareholder servicing ....................................... 5,657
Custody and accounting ...................................... 207
Prospectus and shareholder reports .......................... 215
Registration ................................................ 198
Directors ................................................... 18
Legal and audit ............................................. 16
Miscellaneous ............................................... 32
Total expenses .............................................. 23,733
Net investment income ......................................... 67,215
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities .................................................. 153,204
Foreign currency transactions ............................... (58)
Net realized gain (loss) .................................... 153,146
Change in net unrealized gain or loss on securities ........... 413,196
Net realized and unrealized gain (loss) ....................... 566,342
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ........................................ $ 633,557
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
T. Rowe Price Growth & Income Fund
====================================================================================================================================
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
In thousands
<CAPTION>
Year
Ended
12/31/97 12/31/96
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income .................................................... $ 67,215 $ 52,470
Net realized gain (loss) ................................................. 153,146 90,132
Change in net unrealized gain or loss .................................... 413,196 339,963
Increase (decrease) in net assets from operations ........................ 633,557 482,565
Distributions to shareholders
Net investment income .................................................... (68,368) (51,272)
Net realized gain ........................................................ (121,448) (94,021)
Decrease in net assets from distributions ................................ (189,816) (145,293)
Capital share transactions *
Shares sold .............................................................. 719,456 526,034
Distributions reinvested ................................................. 185,574 142,065
Shares redeemed .......................................................... (390,878) (265,026)
Increase (decrease) in net assets from capital
share transactions ....................................................... 514,152 403,073
Net Assets
Increase (decrease) during period ................................................ 957,893 740,345
Beginning of period .............................................................. 2,488,823 1,748,478
End of period .................................................................... $ 3,446,716 $ 2,488,823
*Share information
Shares sold .............................................................. 29,160 25,086
Distributions reinvested ................................................. 7,236 6,411
Shares redeemed .......................................................... (15,606) (12,676)
Increase (decrease) in shares outstanding ................................ 20,790 18,821
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Growth & Income Fund
================================================================================
December 31, 1997
================================================================================
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.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company industry;
these principles may require the use of estimates by fund management.
VALUATION Equity securities listed or regularly traded on a securities
exchange 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. 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 amortized cost which, when combined
with accrued interest, approximates fair value.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
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 As defined by the Investment Company Act of 1940, an
affiliated company is one in which the fund owns at least 5% of the outstanding
voting securities.
<PAGE>
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.
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
Purchases and sales of portfolio securities, other than short-term and U.S.
government securities, aggregated $717,631,000 and $429,814,000, respectively,
for the year ended December 31, 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 December 31, 1997, the aggregate cost of investments for federal income
tax and financial reporting purposes was $2,286,500,000, and net unrealized gain
aggregated $1,158,505,000, of which $1,223,712,000 related to appreciated
investments and $65,207,000 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 $1,655,000 was payable at December 31, 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. The
effective annual group fee rate was 0.32% at December 31, 1997, and 0.33% for
the year then ended. 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. The fund incurred expenses pursuant to these
related party agreements totaling approximately $3,861,000 for the year ended
December 31, 1997, of which $339,000 was payable at period-end.
Additionally, the fund is one of several T. Rowe Price-sponsored mutual
funds (underlying funds) in which the T. Rowe Price Spectrum Funds (Spectrum)
may invest. Spectrum does not invest in the underlying funds for the purpose of
exercising management or control. Expenses associated with the operation of
Spectrum are borne by each underlying fund to the extent of estimated savings to
it and in proportion to the average daily value of its shares owned by Spectrum,
pursuant to special servicing agreements between and among Spectrum, the
underlying funds, T. Rowe Price, and, in the case of T. Rowe Price Spectrum
International, Rowe Price-Fleming International. Spectrum Growth Fund held
approximately 11.3% of the outstanding shares of the Growth and Income Fund at
December 31, 1997. For the year then ended, the fund was allocated $858,000 of
Spectrum expenses, $71,000 of which was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not available to the public.
The Reserve Funds pay no investment management fees. Distributions from the
Reserve Funds to the fund for the year ended December 31, 1997, totaled
$4,379,000 and are reflected as interest income in the accompanying Statement of
Operations.
During the year ended December 31, 1997, the fund, in the ordinary course
of business, placed security purchase and sale orders aggregating $9,061,000
with certain affiliates of the manager and paid commissions of $45,000 related
thereto.
<PAGE>
================================================================================
Tax Information (Unaudited) for the Tax Year Ended 12/31/97
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions to shareholders included:
* $12,547,000 from short-term capital gains, and
* $108,901,000 from long-term capital gains; of which $74,440,000 was subject
to the 20% rate gains category.
For corporate shareholders, 66% of the fund's distributed income and short-term
capital gains qualified for the dividends-received deduction.
================================================================================
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 assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of T. Rowe Price Growth & Income Fund,
Inc. (the "Fund") at December 31, 1997, 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, 1997 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 21, 1998
<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 [Registration Mark] 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.
AUTOMATIC WITHDRAWAL If you need money from your fund account on
a regular basis, you can establish scheduled, automatic
redemptions.
<PAGE>
DIVIDEND AND CAPITAL GAINS PAYMENT OPTIONS Reinvest all or some
of your distributions, or take them in cash. We give you maximum
flexibility and convenience.
DISCOUNT BROKERAGE*
INVESTMENTS AVAILABLE You can trade stocks, bonds, options,
precious metals, and other securities at a savings over regular
commission rates.
TO OPEN AN ACCOUNT Call a shareholder service representative for
more information.
INVESTMENT INFORMATION
COMBINED STATEMENT A comprehensive overview of your T. Rowe Price
accounts is provided. The summary page gives you earnings by tax
category, provides total portfolio value, and lists your
investments by type-stock, bond, and money market. Detail pages
itemize account transactions by fund.
SHAREHOLDER REPORTS Portfolio managers review the performance of
the funds in plain language and discuss T. Rowe Price's economic
outlook.
T. ROWE PRICE REPORT This is a quarterly newsletter with relevant
articles on market trends, personal financial planning, and T.
Rowe Price's economic perspective.
PERFORMANCE UPDATE This quarterly report reviews recent market
develop- ments and provides comprehensive performance information
for every T. Rowe Price fund.
INSIGHTS This library of information includes reports on mutual
fund tax issues, investment strategies, and financial markets.
DETAILED INVESTMENT GUIDES Our widely acclaimed Asset Mix
Worksheet, College Planning Kit, Diversifying Overseas: A Guide
to International Investing, Retirees Financial Guide, and
Retirement Planning Kit (also available on disk for PC use) can
help you determine and reach your investment goals.
* A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
<PAGE>
T. Rowe Price Mutual Funds
================================================================================
STOCK FUNDS
- --------------------------------------------------------------------------------
DOMESTIC
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications*
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons**
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value**
Spectrum Growth
Total Equity Market Index
Value
INTERNATIONAL/GLOBAL
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
<PAGE>
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
Emerging Markets Bond
Global Government Bond
International Bond
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
TAXABLE
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
<PAGE>
TAX-FREE
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
- --------------------------------------------------------------------------------
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
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
* Formerly the closed-end New Age Media Fund. Converted to open-end status on
7/28/97.
** Closed to new investors.
Please call for a prospectus. Read it carefully before you invest or send money.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
<PAGE>
T. Rowe Price Discount Brokerage
================================================================================
DISCOUNT BROKERAGE
A Division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC
This low-cost service gives you the opportunity to easily consolidate all
your investments with one company. Through T. Rowe Price Discount Brokerage, you
can buy and sell individual securities-stocks, bonds, options, and others-at
considerable commission savings over full-service brokers.* We also provide a
wide range of services, including:
AUTOMATED TELEPHONE AND COMPUTER SERVICES You can enter trades, access
quotes, and review account information 24 hours a day, seven days a week. Any
trades executed through these programs save you an additional 10% on
commissions.**
INVESTOR INFORMATION A variety of informative reports, such as our
Brokerage Insights series, S&P Market Month newsletter, and select stock
reports, can help you better evaluate economic trends and investment
opportunities.
DIVIDEND REINVESTMENT SERVICE Virtually all stocks held in customer
accounts are eligible for this service, free of charge.
* Based on a February 1997 telephone survey that compared our commission
rates on stock transactions of various sizes with those of other
full-service and discount brokerages. Commission rates will vary based on
size and nature of trades. Services vary by firm. For additional
information concerning our commission rates and services, call
1-800-638-5660.
** Discount applies to our current commission schedule; subject to our $35
minimum commission.
<PAGE>
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
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. F54-050 12/31/97
