<PAGE>
Annual Report
MID-CAP
GROWTH
FUND
DECEMBER 31, 1996
[LOGO OF T. ROWE PRICE APPEARS HERE]
<PAGE>
REPORT HIGHLIGHTS
-----------------------------------------------------------------------------
. Investors were treated to another year of strong stock market gains, with the
broad market returning 22.96%; large-cap stocks generally outperformed
mid-cap issues.
. The fund's results of 10.36% and 24.84% for the 6- and 12-month periods,
respectively, outstripped the S&P MidCap Index and its Lipper peer
group average for both periods.
. The fund's best contributors for the second half and year were two energy
service companies; the worst was a music distribution company.
. Sector allocations were little changed, although we took advantage of
depressed prices to increase exposure to consumer-related companies.
. While the financial environment is undeniably favorable at present, we
believe investors should not be surprised to see a correction this year.
<PAGE>
FELLOW SHAREHOLDERS
After being treated to stellar gains in 1995, stock market investors enjoyed
another vintage year in 1996. The unmanaged Standard & Poor's 500 Stock Index
posted a return of 69.2% for '95 and '96 combined -- one of its best two-year
periods in the last six decades. Only 1954-55 (100.1%) and 1975-76 (69.5%) were
better.
As in 1995, mid-cap stocks lagged their large-cap brethren throughout
1996. However, your fund outperformed the unmanaged S&P MidCap Index for
both the second half and the full year, and surpassed an average of
other mid-cap funds by a significant margin. Since its inception on June
30, 1992, your fund has gained 177.44%, for an annualized return of
25.44%.
PERFORMANCE COMPARISON
- --------------------------------------------------------------
Periods Ended 12/31/96 6 Months 12 Months
..............................................................
Mid-Cap Growth Fund 10.36% 24.84%
..............................................................
S&P MidCap Index 9.14 19.20
..............................................................
S&P 500 Index 11.68 22.96
..............................................................
Lipper Mid Cap Funds Average 5.76 17.92
- --------------------------------------------------------------
YEAR-END DISTRIBUTIONS
The fund's Board of Directors declared a short-term capital gain of
$0.23 and a long-term gain of $0.46, both paid on December 30 to
shareholders of record on December 26. You should already have received
your check or statement reflecting these distributions and also Form
1099-DIV reporting them for tax purposes.
MARKET ENVIRONMENT
Many observers, ourselves included, thought that the S&P 500's 37.6%
gain in 1995, its best performance since 1958, would be a difficult act
to follow. While the encore was not quite as spectacular, it was far
better than most investors expected.
The environment for stocks has been unusually benign. Inflation and
interest rates are relatively low. The economy is growing fast enough to
accommodate good corporate earnings growth but slow enough to allay
fears of an impending inflationary surge. In Washington, there
1
<PAGE>
has been a surprising convergence of political thought between President
Clinton and the Republican Congress on many issues that previously
appeared intractable. The federal budget deficit is falling. Globally,
while conflict continues in some areas, we are in the midst of a
relatively peaceful period in which democracy and capitalism are making
tremendous inroads. The U.S. dollar strengthened in 1996, and there is
evidence that foreigners are again net buyers of U.S. stocks. Certainly,
there has been little externally to concern investors, and indeed they
have responded by pouring unprecedented sums into domestic equity mutual
funds. There is little doubt that this deluge of cash was the principal
driver of the market in 1996.
PORTFOLIO REVIEW
THE BEST-PERFORMING GROUPS WERE ENERGY STOCKS...AND FINANCIAL STOCKS...
Within the portfolio, the performance among various industry groups
diverged less than usual, with winners and losers coming from a broad
range of sectors. The best-performing groups were energy stocks,
benefiting from a surge in oil and gas prices, and financial stocks,
reflecting a reasonably steady interest rate environment. The worst-
performing groups were the gold stocks, which reacted to a decline in
the price of gold, and wireless telecommunications providers, which
suffered from investor fears of heightened competition from new
entrants. Retailers and consumer stocks lagged, especially late in the
year as holiday sales proved disappointing.
Two of the top three contributors to the fund for both the year and the
second half were Cooper Cameron and Smith International, energy service
companies that reported strong earnings gains throughout the year. Other
top contributors included Philip Environmental, a specialty waste
service company that made several positive acquisitions during the year,
and, in the second half, our two drugstore chains: Revco, benefiting
from stronger-than-expected earnings gains, and Eckerd, recipient of a
friendly buyout offer from J.C. Penney.
The worst detractor to the fund's 1996 performance was Alliance
Entertainment, whose music distribution business was negatively affected
by an industry downturn, causing earnings to fall below expectations.
The worst for the second half was Apria Healthcare, a home health care
provider whose difficulties in upgrading its systems caused a temporary
loss of control over its accounts receivable.
2
<PAGE>
INVESTMENT STRATEGY
Normally, sharply rising markets are an uncomfortable environment for
us. It's not that we dislike high returns (quite the contrary!), but we
devote our time to carefully researching and evaluating company
fundamentals. We typically examine a multitude of factors before
investing, and virtually never proceed without a face-to-face meeting
with a company's management. Among the criteria we use are the growth in
the company's industry sector; the growth rate we foresee for the
company over the next several years; the strength of a company's
business model (competitive advantages such as brand names, low cost
production, and patent positions); management we respect; strong
financial characteristics such as good cash flow and healthy balance
sheets; and, finally, reasonable valuations.
THE EBULLIENT MARKET ENVIRONMENT HAS LED TO ABUNDANT SPECULATION...
While we believe that a dedication to fundamental research will deliver
superior long-term results, times like these test our patience. The
ebullient market environment has led to abundant speculation,
particularly in areas emphasizing conceptual themes, such as the
Internet, where substantial sales and earnings are often years away, at
best. Most of our holdings are companies with proven business concepts
and the ability to grow sales and earnings at reasonable rates. We
believe their businesses will thrive long after Wall Street's
infatuation with the Internet has faded.
Currently, a type of growth investing described as "momentum" investing
is in vogue. This genre grew from the observation that changes in the
rates of growth of a company's sales and earnings often lead to future
changes in the same direction. As with anything else, a simple precept
has been taken to an extreme. Some managers now focus on changes in
sales and earnings growth rates to the exclusion of all else--including
a stock's valuation. Several momentum portfolio managers have stated in
the national press that, in effect, valuation is irrelevant. In some
respects, this is reminiscent of what happened in the early 1970s, when
investors gravitated to the "nifty fifty," a group of growth stocks that
were deemed good investments regardless of valuation. The aftermath was
a particularly gruesome bear market; many stocks took a decade or more
to match their previous highs.
As a result of the trend toward momentum investing, we note that, in the
growth stock universe, there is an increasing bifurcation of companies
3
<PAGE>
into two groups: the momentum stocks, featuring fast-growing companies
with accelerating fundamentals trading at dizzying heights; and the
plodders, growing more slowly and less consistently but trading at much
lower valuations. We see two consequences to the momentum craze. In the
short term, we are witnessing more volatility in select individual
stocks as momentum investors buy and sell. For example, a stock trading
at 50 times earnings that disappoints can easily be cut in half
overnight. Longer term, new valuation eras always end badly, though the
timing of this is left to conjecture.
In managing the fund, we have tended to gravitate toward the plodders,
and, historically, this fund has generated above-average returns
compared with other growth funds.
Your fund remains well diversified across sectors, and we have made only
modest changes in the last six months, as shown in the table.
The most notable change was in the consumer category, where we have
taken advantage of relatively depressed stock prices to initiate several
new positions in recent months including Warnaco Group, a market share
leader in women's intimate apparel, and Gymboree, a retailer of high-
quality children's clothing.
Sector Diversification
- ----------------------------------------------------------
6/30/96 12/31/96
- ----------------------------------------------------------
Financial 10% 10%
..........................................................
Health Care 10 9
..........................................................
Consumer 14 19
..........................................................
Technology 9 8
..........................................................
Business Services 31 28
..........................................................
Energy 6 6
..........................................................
Basic Industrial 9 8
..........................................................
Basic Materials 3 2
..........................................................
Reserves 8 10
- ----------------------------------------------------------
Total 100% 100%
OUTLOOK
The stock market has been abnormally beneficent in the last two years,
and complacency is high on the part of both professionals and the
investing public. A recent national survey of mutual fund investors
found that a large majority expect the market to match or beat the high
returns of the last 10 years in the next 10. At the risk of sounding
like a curmudgeon, we must remind ourselves and our shareholders that
the returns of the last two years, and, for that matter, the last 10 to
15 years, have been well above average and cannot continue indefinitely.
4
<PAGE>
Though the current stock market environment appears favorable, there is
less room for error as the market climbs. While government statistics
show few signs of inflation, asset inflation is occurring in financial
markets and could begin to insinuate itself into the real economy
through rising prices in sectors such as real estate. Federal Reserve
Chairman Alan Greenspan posed the question in early December, "How do we
know when irrational exuberance has unduly escalated asset values ...?"
The implication that the rapid rise in stock prices concerns the Fed
should not be dismissed easily.
We do not mean to suggest that the stock market is wildly overvalued,
but we do wish to sound a note of caution. A correction would not be a
surprise in 1997. However, we remain optimistic about the long-term
prospects for mid-cap growth companies. The growth rates of our
portfolio companies are significantly above the market as a whole, yet
their average price/earnings ratio is only modestly higher. As this long
expansion ages, we believe investors will increasingly seek the
consistent earnings gains of true growth stocks.
Respectfully submitted,
/s/ Brian W. H. Berghuis
Brian W. H. Berghuis
President and Chairman of the Investment Advisory Committee
January 15, 1997
5
<PAGE>
STICKING TO YOUR GAME PLAN
- --------------------------------------------------------------------------------
TIME REDUCES VOLATILITY OF MARKET RETURNS
-----------------------------------------
(Annualized Returns for Best and Worst Period: Rolling Periods From 1950 to
1996*)
[BAR GRAPH APPEARS HERE]
* From 1950-1996, there were 47 one-year periods; 42 five-year periods;
37 ten-year periods; and 27 twenty-year periods.
Source: T. Rowe Price Associates; data from Ibbotson Associates
Chart is for illustrative purposes only and is not intended to represent
the past performance or future results of any specific securities.
In our report to you one year ago, we mentioned the possibility of a modest
decline in stock prices. In fact, from May to July 1996, the broad market (as
measured by the Standard & Poor's 500 Stock Index) fell around 7%. However, the
bull market resumed its charge to post a robust 23% gain for the year.
Some believe the market is poised for a significant downturn. We do not expect a
major drop in stock prices in 1997, although another modest pullback is
possible. On balance, we expect stocks to advance at a much slower pace.
How should you prepare for a potential market pullback? As always, our advice is
to diversify your investments and focus on the long term. If you've implemented
a sound investment strategy, stay the course. Stocks have historically overcome
periods of volatility to provide better returns than most other investments.
Market corrections can even have a silver lining because they result in good
buying opportunities.
Furthermore, the volatility of stock market returns has diminished significantly
over longer time frames. The chart shows the best and worst annualized returns
on stocks over various rolling time periods between 1950 and 1996. (For
instance, there were 37 rolling 10-year periods: 1950-1960, 1951-1961, etc.)
Investors who held stocks for only one year could have had as much as a 52.6%
gain, or as little as a 26.5% loss -- a spread of 79 percentage points. However,
investors who held stocks for 10-year periods or longer always overcame interim
volatility to post gains for the entire period.
In addition, a well-diversified portfolio can weather volatility better than a
more concentrated portfolio over the long term and particularly during market
corrections. For example, during last summer's correction, small-company stocks
fell nearly 16% while large-company issues dropped 7.3%. However, a portfolio
diversified among large U.S. companies (30% of assets), small U.S. companies
(15%), foreign companies (15%), intermediate-term Treasury bonds (30%), and
Treasury bills (10%) would have lost a smaller 5.2% of its value./1/
Above all, remember that investing is a long-distance race, not a sprint.
/1/ Ned Davis Research.
6
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- ------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
- ------------------------------------------------------------------
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/96
-----------------------------------------------------------------
Alco Standard 2.1%
.................................................................
ACE Limited 2.1
.................................................................
Warnaco Group 2.0
.................................................................
Quorum Health Group 1.9
.................................................................
ADT 1.8
-----------------------------------------------------------------
JP Foodservice 1.8
.................................................................
Corporate Express 1.7
.................................................................
Danaher 1.7
.................................................................
Camco International 1.7
.................................................................
OEA 1.7
-----------------------------------------------------------------
Smith International 1.6
.................................................................
USA Waste Services 1.6
.................................................................
Mercury Finance 1.6
.................................................................
TriMas 1.6
.................................................................
PriceCostco 1.5
-----------------------------------------------------------------
Interim Services 1.5
.................................................................
Cooper Cameron 1.5
.................................................................
Cardinal Health 1.5
.................................................................
PMI Group 1.5
.................................................................
American Pad & Paper 1.5
-----------------------------------------------------------------
General Nutrition 1.5
.................................................................
PartnerRe Holdings 1.4
.................................................................
Revco 1.4
.................................................................
La Quinta Inns 1.4
.................................................................
Tupperware 1.4
-----------------------------------------------------------------
Total 41.0%
7
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE
6 Months Ended December 31, 1996
Ten Best Contributors
-----------------------------------------------------------------------------
Cooper Cameron 23(cent)
.............................................................................
Philip Environmental 17
.............................................................................
Smith International 15
.............................................................................
Revco 14
.............................................................................
Eckerd 14
.............................................................................
American Pad & Paper 13
.............................................................................
ACE Limited 13
.............................................................................
Maxim Integrated Products 12
.............................................................................
Biogen 12
.............................................................................
Altera ** 11
-----------------------------------------------------------------------------
Total 144(cent)
Ten Worst Contributors
-----------------------------------------------------------------------------
Apria Healthcare -16(cent)
.............................................................................
Shiva 13
.............................................................................
Palmer Wireless 11
.............................................................................
Olsten ** 9
.............................................................................
Vanguard Cellular 9
.............................................................................
Intuit 7
.............................................................................
Great Lakes Chemical 6
.............................................................................
Corporate Express 6
.............................................................................
Circuit City Stores 6
.............................................................................
Telephone and Data Systems 5
-----------------------------------------------------------------------------
Total -88(cent)
12 Months Ended December 31, 1996
Ten Best Contributors
-----------------------------------------------------------------------------
Cooper Cameron 29(cent)
.............................................................................
National Data 26
.............................................................................
Smith International 23
.............................................................................
ADT 22
.............................................................................
Republic Industries * 20
.............................................................................
Cardinal Health 19
.............................................................................
OEA 18
.............................................................................
USA Waste Services 18
.............................................................................
ACE Limited 18
.............................................................................
Philip Environmental * 16
-----------------------------------------------------------------------------
Total 209(cent)
Ten Worst Contributors
-----------------------------------------------------------------------------
Alliance Entertainment ** -11(cent)
.............................................................................
Palmer Wireless * 11
.............................................................................
Intuit 11
.............................................................................
Great Lakes Chemical 9
.............................................................................
Aerial Communications * 9
.............................................................................
Broderbund Software ** 9
.............................................................................
Shiva 8
.............................................................................
Apria Healthcare * 8
.............................................................................
Mobile Telecom. Technologies ** 7
.............................................................................
St. Jude Medical ** 7
-----------------------------------------------------------------------------
Total -90(cent)
* Position added
** Position eliminated
8
<PAGE>
T. ROWE PRICE MID-CAP GROWTH 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.
[LINE GRAPH APPEARS HERE]
MID-CAP GROWTH FUND
------------------------------------------------------------------------
As of 12/31/96
Mid-Cap Growth Fund $27,744
S&P MidCap Index $19,909
Lipper Mid Cap Funds Average $20,718
<TABLE>
<CAPTION>
S&P Lipper Mid-Cap
<S> <C> <C> <C>
6/30/92 10,000 10,000 10,000
12/92 11,609 11,774 12,454
12/93 13,229 13,625 15,721
12/94 12,755 13,420 15,767
12/95 16,702 17,646 22,224
12/96 19,909 20,718 27,744
</TABLE>
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- --------------------------------------------------------------------------------
This table shows how the fund would have performed each year if its
actual (or cumulative) returns for the periods shown had been earned at
a constant rate.
Since Inception
Periods Ended 12/31/96 1 Year 3 Years Inception Date
- -----------------------------------------------------------------------------
Mid-Cap Growth Fund 24.84% 20.84% 25.44% 6/30/92
.............................................................................
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
9
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year 6/30/92
Ended to
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
NET ASSET VALUE
Beginning of period $ 20.13 $ 14.85 $ 15.18 $ 12.27 $ 10.00
...........................................................
<S> <C> <C> <C> <C> <C>
Investment activities
Net investment income (0.01) - -* -* 0.01*
Net realized and
unrealized gain (loss) 5.00 6.07 0.04 3.21 2.44
...........................................................
Total from
investment activities 4.99 6.07 0.04 3.21 2.45
...........................................................
Distributions
Net realized gain (0.69) (0.79) (0.37) (0.30) (0.18)
...........................................................
NET ASSET VALUE
End of period $ 24.43 $ 20.13 $ 14.85 $ 15.18 $ 12.27
-----------------------------------------------------------
Ratios/Supplemental Data
Total return 24.84% 40.95% 0.29%* 26.24%* 24.54%*
....................................................................................................
Ratio of expenses to
average net assets 1.04% 1.25% 1.25%* 1.25%* 1.25%*+
....................................................................................................
Ratio of net investment
income to average
net assets (0.11)% (0.01)% 0.02%* (0.12)%* 0.16%*+
....................................................................................................
Portfolio turnover rate 38.1% 57.5% 48.7% 62.4% 51.9%+
....................................................................................................
Average commission
rate paid $ 0.1203 - - - -
....................................................................................................
Net assets, end of period
(in millions) $ 1,021 $ 264 $ 101 $ 65 $ 28
....................................................................................................
</TABLE>
* Excludes expenses in excess of a 1.25% voluntary expense limitation in effect
through 12/31/95.
+ Annualized.
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
December 31, 1996
STATEMENT OF NET ASSETS Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
COMMON STOCKS 90.2%
FINANCIAL 10.4%
Insurance 5.0%
ACE Limited 350,000 $ 21,044
.........................................................................
PartnerRe Holdings 425,000 14,450
.........................................................................
PMI Group 275,000 15,228
.........................................................................
50,722
............
Financial Services 5.4%
Franklin Resources 185,000 12,649
.........................................................................
Mercury Finance 1,354,400 16,592
.........................................................................
Money Store 425,000 11,794
.........................................................................
Oxford Resources (Class A) * 450,000 13,809
.........................................................................
54,844
............
Total Financial 105,566
............
HEALTH CARE 8.6%
Biotechnology 1.8%
Biogen * 300,000 11,587
.........................................................................
Gilead Sciences * 275,000 6,858
.........................................................................
18,445
............
Medical Instruments and Devices 1.5%
Dentsply International 46,500 2,212
.........................................................................
Sybron International * 401,300 13,243
.........................................................................
15,455
............
Health Care Services 5.3%
Apria Healthcare 457,500 8,578
.........................................................................
Cardinal Health 262,500 15,291
.........................................................................
PacifiCare Health Systems (Class B) * 130,000 11,066
.........................................................................
Quorum Health Group * 650,000 19,256
.........................................................................
54,191
............
Total Health Care 88,091
............
CONSUMER 19.0%
Soft Goods Retailers 2.0%
Gymboree * 413,500 9,407
.........................................................................
Kohl's * 275,000 10,794
.........................................................................
20,201
............
11
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Hard Goods Retailers 5.9%
Circuit City Stores 425,000 $ 12,803
.........................................................................
Eckerd * 73,137 2,341
.........................................................................
General Nutrition * 875,000 14,875
.........................................................................
PriceCostco * 625,000 15,742
.........................................................................
Revco * 389,000 14,393
.........................................................................
60,154
............
Consumer Non-Durables 6.4%
American Pad & Paper * 660,000 14,932
.........................................................................
Consolidated Cigar Holdings * 475,000 11,756
.........................................................................
Tommy Hilfiger * 100,000 4,800
.........................................................................
Tupperware 260,000 13,943
.........................................................................
Warnaco Group 687,900 20,379
.........................................................................
65,810
............
Restaurants 2.5%
Boston Chicken * 350,000 12,556
.........................................................................
Outback Steakhouse * 500,000 13,313
.........................................................................
25,869
............
Consumer Services 2.2%
CUC International * 337,500 8,015
.........................................................................
La Quinta Inns 750,000 14,344
.........................................................................
22,359
............
Total Consumer 194,393
............
TECHNOLOGY 7.8%
Computer Software 3.3%
Adobe Systems 130,000 4,867
.........................................................................
BMC Software * 235,000 9,767
.........................................................................
Intuit * 200,000 6,350
.........................................................................
PLATINUM technology * 450,000 6,103
.........................................................................
Synopsys * 150,000 6,900
.........................................................................
33,987
............
Networking and Telecom Equipment 1.9%
FORE Systems * 160,000 5,270
.........................................................................
Network General * 250,000 7,547
.........................................................................
Shiva * 175,000 6,081
.........................................................................
18,898
............
12
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Semiconductors 2.6%
Analog Devices * 250,000 $ 8,469
.........................................................................
Maxim Integrated Products * 250,000 10,828
.........................................................................
Xilinx * 210,000 7,731
.........................................................................
27,028
............
Total Technology 79,913
............
BUSINESS SERVICES 27.6%
Telecom Services 5.9%
360 Communications * 442,400 10,230
.........................................................................
Aerial Communications * 741,500 5,932
.........................................................................
Comcast (Class A Special) 650,000 11,578
.........................................................................
Cox Communications (Class A) * 500,000 11,562
.........................................................................
Palmer Wireless * 469,000 4,954
.........................................................................
Telephone and Data Systems 137,700 4,992
.........................................................................
U. S. Cellular * 150,000 4,181
.........................................................................
Vanguard Cellular * 425,000 6,641
.........................................................................
60,070
............
Computer Services 4.5%
BDM International * 155,000 8,351
.........................................................................
Ceridian * 130,000 5,265
.........................................................................
Checkfree * 300,000 5,119
.........................................................................
DST Systems * 120,000 3,765
.........................................................................
National Data 175,000 7,612
.........................................................................
Sterling Commerce * 150,000 5,287
.........................................................................
SunGard Data Systems * 275,000 10,966
.........................................................................
46,365
............
Distribution 6.9%
Airgas * 132,200 2,908
.........................................................................
Alco Standard 425,000 21,941
.........................................................................
Corporate Express * 600,000 17,662
.........................................................................
JP Foodservice * 648,100 18,066
.........................................................................
MSC * 260,000 9,620
.........................................................................
70,197
............
Media and Advertising 1.9%
ADVO 225,000 3,150
.........................................................................
Catalina Marketing * 150,000 8,269
.........................................................................
Scholastic * 120,000 8,025
.........................................................................
19,444
............
13
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
Environmental 3.9%
Philip Environmental * 950,000 $ 13,775
.........................................................................
Republic Industries * 310,000 9,668
.........................................................................
USA Waste Services * 522,500 16,655
.........................................................................
40,098
............
Miscellaneous Business Services 4.5%
ADT * 825,000 18,872
.........................................................................
HFS * 190,000 11,353
.........................................................................
Interim Services * 431,000 15,300
.........................................................................
45,525
............
Total Business Services 281,699
............
ENERGY 6.2%
Energy Services 6.2%
Camco International 375,000 17,297
.........................................................................
Cooper Cameron * 200,000 15,300
.........................................................................
Smith International * 375,000 16,828
.........................................................................
Weatherford Enterra * 450,000 13,500
.........................................................................
Total Energy 62,925
............
INDUSTRIAL 8.2%
Defense and Aerospace 1.0%
BE Aerospace * 395,000 10,788
.........................................................................
10,788
............
Automobiles and Related 1.7%
OEA 375,000 17,156
.........................................................................
17,156
............
Specialty Chemicals 1.2%
Great Lakes Chemical 150,000 7,013
.........................................................................
Polymer Group * 350,000 4,856
.........................................................................
11,869
............
Machinery 4.3%
Danaher 375,000 17,485
.........................................................................
Teleflex 200,000 10,425
.........................................................................
TriMas 675,700 16,132
.........................................................................
44,042
............
Total Industrial 83,855
............
14
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
Shares/Par Value
- --------------------------------------------------------------------------------
In thousands
BASIC MATERIALS 2.2%
Mining 2.2%
Cambior 650,000 $ 9,506
.........................................................................
Rustenburg Platinum (ZAR) 205,473 2,811
.........................................................................
TVX Gold * 1,341,500 10,397
.........................................................................
Total Basic Materials 22,714
............
Miscellaneous Common Stocks 0.2% 2,054
............
Total Common Stocks (Cost $772,799) 921,210
............
SHORT-TERM INVESTMENTS 9.8%
Repurchase Agreements 1.6%
Investments in Repurchase Agreements
through a joint account, 6.52%, 1/2/97 $15,968,051 15,968
.........................................................................
15,968
............
U.S. Treasury Obligations 8.2%
U.S. Treasury Bills, 4.88%-5.09%,
01/09-05/22/97 85,000,000 84,157
.........................................................................
84,157
............
Total Short-Term Investments (Cost $100,125) 100,125
............
Total Investments in Securities
100.0% of Net Assets (Cost $872,924) $ 1,021,335
Other Assets Less Liabilities (297)
............
NET ASSETS $ 1,021,038
------------
Net Assets Consist of:
Accumulated net realized gain/loss - net of distributions $ 6,342
Net unrealized gain (loss) 148,411
Paid-in-capital applicable to 41,791,846 shares of $0.01 par
value capital stock outstanding; 1,000,000,000 shares authorized 866,285
............
NET ASSETS $ 1,021,038
------------
NET ASSET VALUE PER SHARE $ 24.43
------------
* Non-income producing
ZAR South African rand
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/96
Investment Income
Income
Interest $ 3,604
Dividend 2,369
............
Total income 5,973
............
Expenses
Investment management 4,390
Shareholder servicing 1,694
Registration 278
Custody and accounting 133
Prospectus and shareholder reports 107
Legal and audit 17
Directors 12
Miscellaneous 17
............
Total expenses 6,648
............
Net investment income (675)
............
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on
Securities 31,578
Foreign currency transactions (28)
............
Net realized gain (loss) 31,550
Change in net unrealized gain or loss on securities 101,719
............
Net realized and unrealized gain (loss) 133,269
............
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 132,594
------------
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/96 12/31/95
Increase (Decrease) in Net Assets
Operations
Net investment income $ (675) $ (22)
Net realized gain (loss) 31,550 11,953
Change in net unrealized gain or loss 101,719 38,138
............................
Increase (decrease) in net assets from
operations 132,594 50,069
............................
Distributions to shareholders
Net realized gain (27,658) (9,790)
............................
Capital share transactions *
Shares sold 794,631 153,457
Distributions reinvested 26,549 9,273
Shares redeemed (169,185) (39,545)
............................
Increase (decrease) in net assets from capital
share transactions 651,995 123,185
............................
Net equalization 120 -
............................
Net Assets
Increase (decrease) during period 757,051 163,464
Beginning of period 263,987 100,523
............................
End of period $ 1,021,038 $ 263,987
----------------------------
* Share information
Shares sold 35,021 8,079
Distributions reinvested 1,102 468
Shares redeemed (7,442) (2,204)
............................
Increase (decrease) in shares outstanding 28,681 6,343
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
December 31, 1996
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Mid-Cap Growth 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 June 30, 1992.
Valuation Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price at the time the
valuations are made. A security which is listed or traded on more than
one exchange is valued at the quotation on the exchange determined to be
the primary market for such security. Listed securities not traded on a
particular day and securities regularly traded in the over-the-counter
market are valued at the mean of the latest bid and asked prices. Other
equity securities are valued at a price within the limits of the latest
bid and asked prices deemed by the Board of Directors, or by persons
delegated by the Board, best to reflect fair value.
Short-term debt securities are valued at their amortized cost which, when
combined with accrued interest, approximates fair value.
For purposes of determining the fund's net asset value per share, the
U.S. dollar value of all assets and liabilities initially expressed in
foreign currencies is determined by using the mean of the bid and offer
prices of such currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair
value as determined in good faith by or under the supervision of the
officers of the fund, as authorized by the Board of Directors.
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
18
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
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. The fund follows the
practice of equalization under which undistributed net investment income
per share is unaffected by fund shares sold or redeemed.
NOTE 2 - INVESTMENT TRANSACTIONS
Repurchase Agreements The fund, and other affiliated funds, may transfer
uninvested cash into a joint account, the daily aggregate balance of
which is invested in one or more overnight repurchase agreements
collaterallized by U.S. government securities. Collateral is in the
possession of the fund's custodian and is evaluated daily by the fund to
ensure that its market value exceeds the delivery value of the repurchase
agreements at maturity. All repurchase agreements purchased by the joint
account satisfy the fund's criteria as to quality, yield, and liquidity.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $770,238,000 and $219,707,000, respectively, for
the year ended December 31, 1996.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends
to continue to qualify as a regulated investment company and distribute
all of its taxable income.
In order for the fund's capital accounts and distributions to
shareholders to reflect the tax character of certain transactions, the
following reclassifications were made during the year ended December 31,
1996. The results of operations and net assets were not affected by the
reclassifications.
-------------------------------------------------------------------------
Undistributed net investment income $ 537,000
Undistributed net realized gain (647,000)
Paid-in-capital 110,000
19
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
At December 31, 1996, the aggregate cost of investments for federal
income tax and financial reporting purposes was $872,924,000, and net
unrealized gain aggregated $148,411,000, of which $177,409,000 related to
appreciated investments and $28,998,000 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 $565,000 was payable at December 31, 1996. The
fee is computed daily and paid monthly, and consists of an individual
fund fee equal to 0.35% of average daily net assets and a group fee. The
group fee is based on the combined assets of certain mutual funds
sponsored by the manager or Rowe Price-Fleming International, Inc. (the
group). The group fee rate ranges from 0.48% for the first $1 billion of
assets to 0.305% for assets in excess of $50 billion. At December 31,
1996, and for the year then ended, the effective annual group fee rate
was 0.33%. The fund pays a pro-rata share of the group fee based on the
ratio of its net assets to those of the group.
In addition, the fund has entered into agreements with the manager and
two wholly owned subsidiaries of the manager, pursuant to which the fund
receives certain other services. The manager computes the daily share
price and maintains the financial records of the fund. T. Rowe Price
Services, Inc., 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 $1,365,000 for the year ended December
31, 1996, of which $204,000 was payable at period-end.
20
<PAGE>
T. ROWE PRICE MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Mid-Cap Growth Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial
position of T. Rowe Price Mid-Cap Growth Fund, Inc. (the "Fund") at
December 31, 1996, and the results of its operations, the changes in its
net assets and the financial highlights for each of the fiscal periods
presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with
custodians and, where appropriate, the application of alternative
auditing procedures for unsettled security transactions, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
January 20, 1997
21
<PAGE>
For yield, price, last transaction, current balance or to conduct transactions,
24 hours, 7 days a week, call Tele*Access(R): 1-800-638-2587 toll free
For assistance with your existing fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
http://www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Mid-Cap Growth Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
[LOGO OF T ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor RPRTMCG 12/31/96
