- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Annual Report
Growth Stock Fund
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
REPORT HIGHLIGHTS
================================================================================
GROWTH STOCK FUND
* The S&P 500's 33.36% return in 1997 capped three straight years of 20% or
better stock market returns, the first time that has happened in the past
century.
* The Growth Stock Fund returned 10.23% and 26.57% for the past 6 and 12
months, respectively, surpassing the Lipper average for similar funds but
lagging the S&P 500 over the year.
* Good performance relative to our peers was attributable to stock selection,
while underperformance versus the S&P 500 was due largely to weaker
international holdings.
* Portfolio holdings reflect our emphasis on leading companies in growth
markets with strong management and solid returns on cash flow.
* We anticipate more moderate returns in 1998 but believe that slower
economic growth will favor growth stocks.
<PAGE>
FELLOW SHAREHOLDERS
The end of 1997 concluded an unprecedented period in the stock market. The
S&P 500's annual return of 33.36%, following the index's stellar returns in 1995
and 1996, strung together the first three straight years of 20% or better
returns in the past century. Throughout most of 1997 nearly perfect conditions
continued, and problems in the Far East during the second half had only a
slightly negative impact on U.S. stock market performance.
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 12/31/97 6 Months 12 Months
- --------------------------------------------------------------------------------
Growth Stock Fund 10.23% 26.57%
S&P 500 10.58 33.36
Lipper Growth Funds Average 9.19 25.30
================================================================================
Your fund returned 26.57% for the year ended December 31, 1997, and 10.23%
during the second half. This was in line with the performance of the unmanaged
Standard & Poor's 500 Stock Index over the last six months but not for the
longer period. Results surpassed those of the Lipper Growth Funds Average for
both periods, as can be seen in the table. Most of our large positions were
strong through the year, but overall performance was hindered by our overseas
investments as European market returns were curtailed by a strong dollar. Also,
our relatively small investments in the Far East negatively affected
performance.
YEAR-END DISTRIBUTIONS
OnDecember 26, 1997, your Board of Directors declared a $0.20 per share
income dividend, a $3.85 per share long-term capital gain, and a $0.02 per share
short-term capital gain, paid on December 30 to shareholders of record on
December 26. These distributions were reflected in either a check or statement
mailed to you early in January and were reported on Form 1099-DIV, mailed later
in the month.
MARKET ENVIRONMENT
For most of 1997, the story was a repetition of the last several years:
strong domestic economic growth, good earnings growth, mixed international
results, and mild inflation. Companies continued to focus on improving margins
and driving down costs, both of which are positive for profit growth and stock
performance. The Federal Reserve played the right cards as the economy remained
neither "too hot" nor "too cold."
<PAGE>
In the second half, this perfect backdrop began to show some holes as
trade, currency, and economic problems in the Far East unfolded. For the
remainder of 1997 these problems worsened; however, in aggregate they did little
damage to the U.S. market. An expected shortfall of worldwide economic growth
and anticipated slower earnings growth of many U.S. companies were largely
offset by a decline in interest rates and a flight to the safety of the domestic
market.
While the U.S. stock market remained relatively stable, various sectors
experienced substantial differences in returns. Technology and cyclical issues
performed poorly, while less cyclical companies did well in the second half of
the year.
================================================================================
Portfolio Characteristics
- --------------------------------------------------------------------------------
Growth Stock
Domestic
As of 12/31/97 Portfolio S&P 500
- --------------------------------------------------------------------------------
Earnings Growth Rate
Past 5 Years ................................. 17.7% 15.4%
Projected 5 Years * .......................... 14.8 13.0
Dividend Growth Rate
Past 5 Years ................................. 13.2 8.6
Projected 5 Years * .......................... 13.0 10.5
Return on Equity
Past 5 Years ................................. 21.1 20.8
Long-Term Debt as
Percent of Capital ............................. 28.4 34.1
P/E Ratio (12-month forward
projected earnings) ............................ 21.2X 19.1X
* Forecasts are based on T. Rowe Price research and are in no way indicative
of future investment returns.
================================================================================
INVESTMENT REVIEW
Over the last year, your fund's return remained strong both in absolute
terms and relative to its peers, although it lagged the return of the S&P 500
due to our relatively large weighting in international stocks. However, since
your fund's international holdings are mainly in Europe, our positions there did
much better than international stocks overall.
<PAGE>
The larger companies in the S&P 500 were more robust than their smaller-cap
counterparts, particularly during the first half. This was frustrating as
several mid-cap companies in the portfolio performed extremely well in business
terms but not as well in stock returns. However, since the market usually
rewards growth over time regardless of a company's size, we continue to feel
comfortable with these positions.
Our relatively large investments in FREDDIE MAC and FANNIE MAE, both
publicly owned, government-sponsored mortgage intermediaries, contributed
significantly to returns. While we trimmed some shares of Freddie Mac as prices
rose, we still maintain large holdings in both companies. Other large holdings
such as GE, BERKSHIRE HATHAWAY, DANAHER, NORWEST, PFIZER, and TYCO INTERNATIONAL
also performed exceedingly well. Our investments in Bermuda-based
reinsurers--ACE LIMITED and PARTNERRE HOLDINGS--were rewarding, as were some
other international holdings, including VODAFONE and NOVARTIS.
Issues affected by the problems in Asia detracted from performance. While
we cut back this exposure early in 1997, what remained performed poorly. Both
HUTCHISON WHAMPOA and SWIRE PACIFIC were down significantly in price from
early-year levels. In addition, several technology holdings, such as 3COM,
ORACLE, CORNING, and MOTOROLA, were affected by lower sales in the Far East.
The biggest disappointment was FIRST DATA, our only top 25 holding that was
down for the year. While problems there will take time to be resolved, we remain
holders of the stock due to the company's strong position in good growth
markets.
PORTFOLIO MANAGEMENT
We continue to use the same criteria in our investments as we have in the
past. We search for companies with leadership in growth markets, strong
managements, strong cash flow, and solid returns on cash flow. We attempt to
find all or most of these characteristics at reasonable valuations, but this
proved difficult as the strong market continued in 1997.
Nevertheless, opportunities did present themselves, and we initiated
several new positions in the last six months. These included leading companies
in growth markets, including CENDANT (a combination of CUC International and
HFS), BRISTOL-MYERS SQUIBB, NETWORK ASSOCIATES, and EMC, all of which are
gaining market share in growth markets and generating solid free cash flow.
We bought shares of good cash flow generators, including TENET HEALTHCARE,
a consolidator in the hospital industry; SAFEWAY, in our view the best-managed
supermarket company; and AT&T, which should begin to generate solid cash flow as
effective new management takes control.
We trimmed several large holdings whose exceptional stock performance in
1997 far outpaced their earnings growth. Over time these companies should still
deliver excellent returns, but current valuations are stretched compared with
historical measures.
<PAGE>
Also important are our sales based on fundamentals. In 1997 we sold
COLUMBIA/HCA HEALTHCARE, Corning, 3Com, and ASCEND COMMUNICATIONS due to
fundamental changes in their businesses that caused us concern.
As mentioned, early in the year we reduced the number of our international
holdings. This strategy was rewarding on a short-term basis, and we ended the
year satisfied with our current positions overseas.
OUTLOOK
While investors have benefited from an ideal environment for stocks,
particularly those of large growth companies, it is important to realize that
stock prices tend to rise with earnings and cash flow growth. Your fund's
investments are in companies offering both, but we believe that stocks have
outpaced these growth rates. In addition, Asian problems are likely to slow
economic growth somewhat. For these reasons, we anticipate more modest returns
in 1998.
[Realative P/E pie chart shown here]
Despite these concerns, we still anticipate moderate U.S. economic growth
this year. We believe the current environment should favor your fund's holdings,
as our focus on effective management and strong cash flow should help growth
stocks prosper in a tougher environment.
We will continue to work diligently on your behalf in our search for
attractive ideas, both here and abroad.
Respectfully submitted,
/s/
Robert W. Smith
Chairman of the Investment Advisory Committee
January 20, 1998
<PAGE>
T. Rowe Price Growth Stock Fund
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 12/31/97
TEN LARGEST PURCHASES
- --------------------------------------------------------------------------------
Network Associates *
Bristol-Myers Squibb *
MCI *
United HealthCare *
American Home Products *
AT&T *
Dillards *
First Union *
Barnett Banks *
Tenet Healthcare *
TEN LARGEST SALES
- --------------------------------------------------------------------------------
Corning **
Zurich Reinsurance **
Columbia/HCA Healthcare **
ACE Limited
Freddie Mac
3Com **
Great Lakes Chemical
Vodafone
Intel
Cisco Systems
* Position added
** Position eliminated
================================================================================
<PAGE>
T. Rowe Price Growth Stock Fund
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/97
- --------------------------------------------------------------------------------
Freddie Mac ................................................ 2.9%
GE ......................................................... 2.7
Berkshire Hathaway ......................................... 2.6
Royal Dutch Petroleum ...................................... 2.0
Danaher .................................................... 2.0
- --------------------------------------------------------------------------------
PartnerRe Holdings ......................................... 1.8
Fannie Mae ................................................. 1.6
Philip Morris .............................................. 1.6
ACE Limited ................................................ 1.4
AlliedSignal ............................................... 1.4
- --------------------------------------------------------------------------------
Tyco International ......................................... 1.4
Norwest .................................................... 1.4
Microsoft .................................................. 1.3
Merck ...................................................... 1.3
Cendant .................................................... 1.2
- --------------------------------------------------------------------------------
UNUM ....................................................... 1.2
Disney ..................................................... 1.2
Pfizer ..................................................... 1.2
BMC Software ............................................... 1.2
Mutual Risk Management ..................................... 1.1
- --------------------------------------------------------------------------------
Tribune .................................................... 1.1
First Data ................................................. 1.1
Starwood Lodging ........................................... 1.0
Parametric Technology ...................................... 1.0
Safeway .................................................... 1.0
- --------------------------------------------------------------------------------
Total ...................................................... 37.7%
================================================================================
<PAGE>
T. Rowe Price Growth Stock 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 STock 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 Stock Fund 26.57% 26.36% 18.65% 15.56%
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>
T. Rowe Price Growth Stock Fund
================================================================================
<TABLE>
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 ....................... $ 26.18 $ 23.35 $ 18.75 $ 20.42 $ 18.66
Investment activities
Net investment income ............. 0.23 0.19 0.23 0.18 0.17
Net realized and
unrealized gain (loss) ............ 6.65 4.89 5.57 (0.01) 2.72
Total from
investment activities ............. 6.88 5.08 5.80 0.17 2.89
Distributions
Net investment income ............. (0.20) (0.19) (0.23) (0.18) (0.14)
Net realized gain ................. (3.87) (2.06) (0.97) (1.66) (0.99)
Total distributions ............... (4.07) (2.25) (1.20) (1.84) (1.13)
NET ASSET VALUE
End of period ............................. $ 28.99 $ 26.18 $ 23.35 $ 18.75 $ 20.42
Ratios/Supplemental Data
Total return .............................. 26.57% 21.70% 30.97% 0.89% 15.56%
Ratio of expenses to
average net assets ........................ 0.75% 0.77% 0.80% 0.81% 0.82%
Ratio of net investment
income to average
net assets ................................ 0.75% 0.74% 1.09% 0.91% 0.86%
Portfolio turnover rate ................... 40.9% 49.0% 42.5% 54.0% 35.3%
Average commission
rate paid ................................. $ 0.0164 $ 0.0426 -- -- --
Net assets, end of period
(in millions) ............................. $ 3,988 $ 3,431 $ 2,762 $ 2,068 $ 1,976
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Growth Stock Fund
================================================================================
December 31, 1997
================================================================================
Portfolio of Investments
- --------------------------------------------------------------------------------
Shares/Par Value
In thousands
COMMON STOCKS 93.1%
FINANCIAL 19.8%
Bank and Trust 6.5%
Banca Fideuram (ITL) ............................. 3,960,000 $ 17,338
Barnett Banks .................................... 286,200 20,571
Citicorp ......................................... 240,000 30,345
First Union ...................................... 450,000 23,062
Mellon Bank ...................................... 325,000 19,703
Northern Trust ................................... 230,000 16,086
Norwest .......................................... 1,450,000 56,006
Societe Generale (FRF) ........................... 75,000 10,218
Toronto-Dominion Bank (CAD) ...................... 750,000 28,236
Wells Fargo ...................................... 115,000 39,035
260,600
Insurance 5.7%
ACE Limited ...................................... 590,000 56,935
Erie Indemnity ................................... 190,600 5,694
EXEL ............................................. 177,400 11,243
PartnerRe Holdings ADR ........................... 1,205,409 55,901
PartnerRe Holdings * ............................. 531,665 15,689
St. Paul Companies ............................... 159,900 13,122
Travelers Property Casualty (Class A) ............ 400,000 17,600
UNUM ............................................. 900,000 48,938
225,122
Financial Services 7.6%
AMBAC ............................................ 450,000 20,700
Fairfax Financial (CAD) * ........................ 137,900 30,879
Fannie Mae ....................................... 1,120,400 63,933
Freddie Mac ...................................... 2,770,000 116,167
H&R Block ........................................ 700,000 31,369
SLM Holding ...................................... 50,000 6,956
Travelers Group .................................. 642,600 34,620
304,624
Total Financial .................................. 790,346
<PAGE>
UTILITIES 0.2%
Telephone 0.2%
Telecom Italia Mobile (ITL) ...................... 2,000,000 $9,228
Total Utilities .................................. 9,228
CONSUMER NONDURABLES 17.8%
Beverages 0.9%
PepsiCo .......................................... 950,000 34,616
34,616
Food Processing 0.7%
Sara Lee ......................................... 500,000 28,156
28,156
Hospital Supplies/Hospital Management 2.2%
Baxter International ............................. 200,000 10,087
Boston Scientific * .............................. 200,000 9,175
HealthSouth * .................................... 1,150,000 31,912
Medtronic ........................................ 252,000 13,183
United HealthCare ................................ 500,000 24,844
89,201
Biotechnology 1.1%
Biogen * ......................................... 425,000 15,486
Genentech * ...................................... 500,000 30,312
45,798
Pharmaceuticals 7.2%
American Home Products ........................... 325,000 24,862
Astra (Class B) (SEK) ............................ 850,000 14,292
Bristol-Myers Squibb ............................. 394,800 37,358
Johnson & Johnson ................................ 260,000 17,128
Merck ............................................ 480,000 51,000
Novartis (CHF) ................................... 20,000 32,439
Pfizer ........................................... 650,000 48,466
Warner-Lambert ................................... 200,000 24,800
Zeneca Group (GBP) ............................... 1,000,000 35,100
285,445
Miscellaneous Consumer Products 5.7%
Cendant * ........................................ 1,450,000 49,844
Mattel ........................................... 630,000 23,467
Philip Morris .................................... 1,400,900 63,478
Procter & Gamble ................................. 280,000 22,348
Service Corp. International ...................... 586,500 21,664
Tomkins (GBP) .................................... 5,900,000 27,909
Unilever N.V. ADR ................................ 308,000 19,231
227,941
Total Consumer Nondurables ....................... 711,157
<PAGE>
CONSUMER SERVICES 11.3%
Restaurants 0.3%
McDonald's ....................................... 250,000 11,938
11,938
General Merchandisers 1.1%
Circuit City Stores .............................. 148,000 5,263
Safeway * ........................................ 630,000 39,848
45,111
Specialty Merchandisers 2.9%
CVS .............................................. 316,050 20,247
Dillard Department Stores ........................ 550,000 19,387
Home Depot ....................................... 450,000 26,494
Kohl's * ......................................... 145,200 9,892
Tag Heuer (CHF) * ................................ 44,195 3,841
Tag Heuer ADR * .................................. 1,060,600 8,750
Wal-Mart ......................................... 650,000 25,634
114,245
Health Care Services 0.8%
PacifiCare Health Systems (Class B) * ............ 145,000 7,617
Tenet Healthcare * ............................... 717,400 23,764
31,381
Entertainment and Leisure 2.5%
Carnival ADR (Class A) ........................... 420,000 23,258
Disney ........................................... 491,300 48,669
Hutchison Whampoa (HKD) .......................... 4,500,000 28,223
100,150
Media and Communications 3.7%
Elsevier (NLG) ................................... 1,000,000 16,176
Granada (GBP) .................................... 1,400,000 21,385
Schibsted (NOK) .................................. 670,000 11,475
Total Access Communications ...................... 300,000 102
Tribune .......................................... 700,000 43,575
TV Azteca ADR * .................................. 315,000 7,107
VNU (NLG) + ...................................... 1,050,000 $ 29,621
Wolters Kluwer (NLG) ............................. 125,000 16,146
145,587
Total Consumer Services .......................... 448,412
<PAGE>
CONSUMER CYCLICALS 2.4%
Building and Real Estate 2.4%
Masco ............................................ 650,000 33,069
Security Capital U.S. Realty (144A) * ............ 265,000 3,763
Security Capital U.S. Realty (Class A) * ......... 1,165,000 16,543
Starwood Lodging, REIT ........................... 700,600 40,547
Total Consumer Cyclicals ......................... 93,922
TECHNOLOGY 14.8%
Networking 0.6%
Cisco Systems * .................................. 411,900 22,989
22,989
Electronic Components 2.9%
Analog Devices * ................................. 766,666 21,227
Intel ............................................ 200,000 14,044
Linear Technology ................................ 400,000 23,025
Maxim Integrated Products * ...................... 952,000 32,904
Molex (Class A) .................................. 343,750 9,904
National Semiconductor * ......................... 510,000 13,228
Xilinx * ......................................... 70,000 2,450
116,782
Electronic Systems 0.8%
Dell Computer * .................................. 120,000 10,084
Hewlett-Packard .................................. 370,000 23,125
33,209
Telecommunications 3.3%
AT&T ............................................. 470,000 28,787
Cox Communications (Class A) * ................... 600,000 24,037
MCI .............................................. 750,000 32,133
Telecomunicacoes Brasileiras ADR ................. 130,000 15,137
Vodafone (GBP) ................................... 1,000,000 7,211
Vodafone ADR ..................................... 100,000 7,250
WorldCom ......................................... 600,000 18,169
132,724
Computer Services 1.9%
Automatic Data Processing ........................ 500,000 30,687
Autotote (Class A) * ............................. 37,131 91
First Data ....................................... 1,471,942 43,054
73,832
Computer Software 5.3%
BMC Software * ................................... 700,000 45,894
JBA Holdings (GBP) ............................... 100,000 1,700
Microsoft * ...................................... 400,000 51,687
Network Associates * ............................. 730,000 38,530
Oracle * ......................................... 887,500 19,775
Parametric Technology * .......................... 850,000 40,216
PLATINUM technology * ............................ 501,700 14,204
212,006
Total Technology ................................. 591,542
<PAGE>
CAPITAL EQUIPMENT 9.9%
Electrical Equipment 4.4%
AlliedSignal ..................................... 1,453,600 56,599
GE ............................................... 1,450,000 106,394
Getronics (NLG) .................................. 370,000 11,788
174,781
Capital Equipment 1.4%
Tyco International ............................... 1,252,450 56,439
56,439
Machinery 4.1%
Danaher .......................................... 1,270,000 80,169
Mannesmann (DEM) ................................. 30,000 15,159
S I G Schweis (CHF) .............................. 4,000 10,950
Teleflex ......................................... 817,800 30,872
TriMas ........................................... 700,000 24,062
161,212
Total Capital Equipment .......................... 392,432
BUSINESS SERVICES AND TRANSPORTATION 5.0%
Distribution Services 0.4%
Ikon Office Solutions ............................ 612,700 17,232
17,232
Environmental 0.9%
Rentokil Group (GBP) ............................. 8,300,000 36,127
36,127
Miscellaneous Business Services 3.3%
Assa-Abloy (Class B) (SEK) ....................... 150,000 3,967
Corporate Express * .............................. 650,000 8,389
Interpublic Group ................................ 600,000 29,887
Mutual Risk Management ........................... 1,477,332 44,228
Reuters ADR ...................................... 125,000 8,281
Securitas (Class B) (SEK) ........................ 200,000 6,045
USA Waste Services * ............................. 750,000 29,438
130,235
Airlines 0.4%
Swire Pacific (Class A) (HKD) .................... 3,000,000 16,454
16,454
Total Business Services and Transportation ....... 200,048
<PAGE>
ENERGY 4.2%
Energy Services 1.0%
Cooper Cameron * ................................. 150,000 9,150
Halliburton ...................................... 350,000 18,178
Schlumberger ..................................... 180,000 14,490
41,818
Integrated Petroleum - International 3.2%
Mobil ............................................ 450,000 32,485
PETROBRAS * ...................................... 550,000 13,097
Royal Dutch Petroleum ADR ........................ 1,500,000 81,281
126,863
Total Energy ..................................... 168,681
PROCESS INDUSTRIES 1.2%
Specialty Chemicals 0.1%
Great Lakes Chemical ............................. 131,400 5,897
5,897
Paper and Paper Products 1.1%
Kimberly-Clark ................................... 600,000 29,587
Kimberly-Clark Mexico (Class A) (MXN) ............ 2,550,000 12,481
42,068
Total Process Industries ......................... 47,965
BASIC MATERIALS 0.5%
Mining 0.5%
Newmont Mining ................................... 700,000 20,562
Total Basic Materials ............................ 20,562
MISCELLANEOUS 6.0%
Conglomerates 2.6%
Berkshire Hathaway (Class A) * ................... 2,240 103,040
103,040
Other Miscellaneous Common Stocks 3.4% .......... 136,229
Total Miscellaneous .............................. 239,269
Total Common Stocks (Cost $2,105,003) ............ 3,713,564
Preferred Stocks 0.4%
Banco Bradesco (BRL) ............................. 1,599,434,539 15,764
Miscellaneous Preferred Stocks ................... 245
Total Preferred Stocks (Cost $6,118) ............. 16,009
<PAGE>
SHORT-TERM INVESTMENTS 7.3%
Medium-Term Notes 0.2%
PHH, VR, 6.00%, 1/10/98 .......................... $10,000,000 10,000
10,000
Money Market Fund 6.8%
Reserve Investment Fund, 5.84% # ................. 271,415,438 271,416
271,416
Structured Investment Vehicles 0.3%
Short Term Card Account Trust, VR,
(144a) 6.00%,1/15/98 ................ 10,000,000 10,000
10,000
Total Short-Term Investments (Cost $291,416) ..... 291,416
Total Investments in Securities
100.8% of Net Assets (Cost $2,402,537) ........... $4,020,989
Other Assets Less Liabilities .................... (32,591)
NET ASSETS ....................................... $3,988,398
+ Affiliated company
* Non-income producing
# Seven-day yield
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
0.35% of net assets.
BRL Brazilian real
CAD Canadian dollar
CHF Swiss franc
DEM German deutschemark
FRF French franc
GBP British sterling
HKD Hong Kong dollar
ITL Italian lira
MXN Mexican peso
NOK Norwegian krone
NLG Dutch guilder
SEK Swedish krona
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Growth Stock Fund
================================================================================
December 31, 1997
================================================================================
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value
Affiliated companies (cost $16,646) ..................... $ 29,620
Other companies (cost $2,385,891) ....................... 3,991,369
Total investments in securities ......................... 4,020,989
Other assets .................................................... 32,990
Total assets .................................................... 4,053,979
Liabilities
Total liabilities ............................................... 65,581
NET ASSETS ...................................................... $3,988,398
Net Assets Consist of:
Accumulated net investment income - net of distributions ........ $ 4,678
Accumulated net realized gain/loss - net of distributions ....... 139,386
Net unrealized gain (loss) ...................................... 1,618,410
Paid-in-capital applicable to 137,572,653 shares of
$1.00 par value capital stock outstanding;
200,000,000 shares authorized ................................... 2,225,924
NET ASSETS ...................................................... $3,988,398
NET ASSET VALUE PER SHARE ....................................... $ 28.99
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Growth Stock Fund
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/97
Investment Income
Income
Dividend ............................................. $ 43,223
Interest ............................................. 14,563
Total income ......................................... 57,786
Expenses
Investment management ................................ 22,078
Shareholder servicing ................................ 5,827
Custody and accounting ............................... 506
Prospectus and shareholder reports ................... 298
Registration ......................................... 41
Legal and audit ...................................... 25
Directors ............................................ 22
Miscellaneous ........................................ 44
Total expenses ....................................... 28,841
Net investment income ........................................ 28,945
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities ........................................... 583,071
Foreign currency transactions ........................ (937)
Net realized gain (loss) ............................. 582,134
Change in net unrealized gain or loss
Securities ........................................... 295,362
Other assets and liabilities
denominated in foreign currencies .................... (32)
Change in net unrealized gain or loss ................ 295,330
Net realized and unrealized gain (loss) ...................... 877,464
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ....................................... $ 906,409
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
T. Rowe Price Growth Stock 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 .................................................... $ 28,945 $ 22,689
Net realized gain (loss) ................................................. 582,134 226,082
Change in net unrealized gain or loss .................................... 295,330 365,010
Increase (decrease) in net assets from operations ........................ 906,409 613,781
Distributions to shareholders
Net investment income .................................................... (24,428) (23,110)
Net realized gain ........................................................ (472,912) (250,078)
Decrease in net assets from distributions ................................ (497,340) (273,188)
Capital share transactions *
Shares sold .............................................................. 435,680 440,441
Distributions reinvested ................................................. 469,793 259,226
Shares redeemed .......................................................... (756,953) (371,279)
Increase (decrease) in net assets from capital
share transactions ....................................................... 148,520 328,388
Net Assets
Increase (decrease) during period ................................................ 557,589 668,981
Beginning of period .............................................................. 3,430,809 2,761,828
End of period .................................................................... $ 3,988,398 $ 3,430,809
*Share information
Shares sold .............................................................. 14,940 17,612
Distributions reinvested ................................................. 16,507 9,845
Shares redeemed .......................................................... (24,930) (14,667)
Increase (decrease) in shares outstanding ................................ 6,517 12,790
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Growth Stock Fund
================================================================================
December 31, 1997
================================================================================
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Growth Stock 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 January 1, 1950.
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.
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
securities, aggregated $1,450,301,000 and $1,933,792,000, 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 $2,402,537,000, and net unrealized gain
aggregated $1,618,452,000, of which $1,676,625,000 related to appreciated
investments and $58,173,000 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 $1,937,000 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 $3,983,000 for the year ended
December 31, 1997, of which $364,000 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 7.7% of the outstanding shares of the Growth Stock Fund at
December 31. For the year then ended, the fund was allocated $1,266,000 of
Spectrum expenses, $123,000 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
$4,356,000 and are reflected as interest income in the accompanying Statement of
Operations.
During the year December 31, 1997, the fund, in the ordinary course of
business, placed security purchase and sale orders aggregating $44,072,000 with
certain affiliates of the manager and paid commissions of $252,000 related
thereto.
<PAGE>
T. Rowe Price Growth Stock Fund
================================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF
DIRECTORS OF T. ROWE PRICE
GROWTH STOCK FUND, INC.
We have audited the accompanying statement of assets and liabilities of T.
Rowe Price Growth Stock Fund, Inc., including the portfolio of investments, as
of December 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of T.
Rowe Price Growth Stock Fund, Inc. as of December 31, 1997, the results of its
operations, the changes in its net assets and financial highlights for each of
the respective periods stated in the first paragraph, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 21, 1998
<PAGE>
T. Rowe Price Growth Stock Fund
================================================================================
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:
o $2,444,000 from short-term capital gains, and
o $470,468,000 from long-term capital gains; of which $251,983,000 was
subject to the 20% rate gains category.
For corporate shareholders, 85% of the fund's distributed income and short-term
capital gains qualified for the dividends-received deduction.
================================================================================
<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 Stock 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. F40-050 12/31/97
