<PAGE>
Fellow Shareholders
The economy's fundamentals strengthened noticeably toward year-end, and the
stock market responded with its fourth straight quarterly advance. Your Fund
also ended the year on a strong note, posting a solid fourth quarter gain.
Returns exceeded both the unmanaged Standard & Poor's 500 Stock Index and the
average of growth & income funds for the quarter and full year, as shown below.
Performance Comparison
<TABLE>
<CAPTION>
Periods Ended 12/31/93
3 Months 12 Months
----------------------
<S> <C> <C>
Growth & Income Fund 3.7% 13.0%
S&P 500 2.3 10.1
Lipper Growth & Income
Fund Average 2.3 11.6
</TABLE>
- -------------------------------------------------
Year-End Distributions
On December 21, your Board of Directors declared a fourth quarter income
dividend of $0.14 cents per share, bringing total income paid in 1993 to $0.47
cents per share. A capital gain of $0.48 was also declared, of which $0.36 was
long term and $0.12 was short term. These distributions were paid on January 3
to shareholders of record on December 21. You should have received your check or
statement reflecting these distributions and also Form 1099-DIV, which reports
this information for tax purposes.
Market Environment
There were two primary influences supporting the market's advance. First was the
strong rise in corporate profits, which we estimate to have grown over 10% last
year--the best annual gain in the past five years. The second major positive was
the continuing decline in long-term interest rates. The yield on long-maturity
Treasury bonds fell from 7.4% to an October low of 5.7% before backing up to
6.4% at year-end.
By some measures, 1993 was the stock market's most stable year in a long
while. Not only was the overall return positive in each quarter, the gains were
achieved with record low price volatility.
As we have discussed in previous reports, this seemingly benign environment
was more challenging than it appeared on the surface. Extensive and powerful
rotation among market sectors took place throughout the year; at any given time
certain stock groups were diverging sharply from the overall market trend. The
sudden changes in investor sentiment were difficult to foresee. The table below
contrasts first- and second-half returns provided by sectors of particular
importance to your Fund. As you can see, the differences are striking,
especially compared with the relative stability of the overall market
(represented by the S&P 500).
<TABLE>
<CAPTION>
First Half '93 Second Half '93
--------------- ----------------
<S> <C> <C>
S&P 500 4.9% 5.0%
Financial 11.7 -1.2
Energy 15.7 0.5
Utilities 13.4 1.1
Consumer -11.1 6.0
Basic Materials 4.3 8.8
</TABLE>
Portfolio Review
Your Fund achieved favorable results for the year, but the quarterly pattern of
its returns was symptomatic of the turbulence beneath the surface. Virtually all
of the annual return was generated in the first and fourth quarters, with the
Fund remaining virtually flat during the middle two periods even though the
market continued to advance. This was due in part to a gradual shift of assets
into consumer stocks that was a bit premature in hindsight, but contributed
significantly to the Fund's fourth quarter results.
The Fund's security diversification, shown on the next page, reflected only
modest change from the prior quarter. Common stock exposure increased from 75%
to 80% and reserves declined accordingly. Asset structure was not a significant
element in determining your
<PAGE>
Fund's overall performance for 1993, since bonds and convertible securities
provided returns that compared favorably with the broad stock market.
Security Diversification
12/31/93
[GRAPH APPEARS HERE]
- -----------------------------------------------
In terms of security transactions, our activity during the quarter was
somewhat unusual. As indicated by the table of Major Portfolio Changes following
this report, we clearly did a lot more buying than selling. In part this
reflected the strong cash flow into the Fund, which enabled us to establish new
investments without selling existing ones. Most of the major new holdings were
fixed-income securities purchased to bolster the Fund's income component. Our
major equity purchases were primarily additions to existing positions, with the
exception of ATLANTIC RICHFIELD, which we bought after its price fell
substantially in the second half of the year. This stock offers a generous
dividend yield and, in our opinion, favorable prospects for appreciation when
the price of crude oil begins to rise from current low levels.
Financial Profile
<TABLE>
<CAPTION>
G&I Fund S&P
Stocks 500
-------- -----
<S> <C> <C>
Dividend Growth
(5-year annual average) 10.3% 6.1%
Current Yield 2.9% 2.7%
Price/Book Ratio 1.9X 2.6X
Price/Earnings Ratio
(1994 estimated EPS) 13.7X 16.1X
</TABLE>
- -----------------------------------------------
The profile of your Fund's common stock holdings (above) underscores our
continuing emphasis on relative value, yield, and dividend growth. We are
currently focusing more attention on dividend growth, reflecting our view that
companies achieving superior fundamental progress should be more rewarding
investments in an environment of modest economic growth. Meanwhile, the
portfolio as a whole is earning a respectable income return, and we are
preserving the flexibility to react to opportunities that develop.
Respectfully submitted,
/s/ Stephen W. Boesel
Stephen W. Boesel
President and Chairman of the
Investment Advisory Committee
January 24, 1994
2
<PAGE>
Twenty-Five Largest Holdings
December 31, 1993
<TABLE>
<CAPTION>
Percent of
Company Net Assets
- ---------------------------------- --------------
<S> <C>
California Federal Bank 2.7%
Entergy 2.4
GE 2.4
Philip Morris 1.9
Coltec Industries 1.7
Inco 1.6
United Technologies 1.6
Dayton Hudson 1.6
Chemical Banking 1.5
American Express 1.5
Pacific Telesis 1.4
Texaco 1.4
Reader's Digest 1.4
Atlantic Richfield 1.4
IBM 1.3
CPC International 1.3
Northern Telecom 1.3
Provident Life & Accident Insurance 1.3
Merck 1.3
Alcoa 1.2
AT&T 1.2
GTE 1.2
Pfizer 1.2
Pall 1.2
Halliburton 1.1
Total 38.1%
- ---------------------------------------------------
</TABLE>
Major Portfolio Changes
Three Months Ended December 31, 1993
LARGEST PURCHASES
<TABLE>
<CAPTION>
Cost (000)
--------------
<S> <C>
Atlantic Richfield* $15,953
WMX Technologies 10,831
Geon* 8,400
Chemical Banking 8,179
UST 5,732
Glendale Federal Bank Cv. Pfd.* 5,014
Texas Bottling Group Notes* 5,000
Merry-Go-Round Enterprises 4,651
Ralston Purina 4,288
Westpoint Stevens Notes* 4,000
- ---------------------------------------------------
</TABLE>
LARGEST SALES
<TABLE>
<CAPTION>
Proceeds (000)
--------------
<S> <C>
National Medical Enterprises** $ 5,587
Safeway Notes** 5,400
A. O. Smith 2,287
- ---------------------------------------------------
</TABLE>
* Position added
** Position eliminated
3
<PAGE>
Performance Comparison
[GRAPH APPEARS HERE]
Total Return Performance
Periods Ended December 31, 1993
<TABLE>
<CAPTION>
1 Year 5 Years* 10 Years*
------ -------- ---------
<S> <C> <C> <C>
12.96% 12.68% 11.12%
- -----------------------------------------------
</TABLE>
*Average Annual Compound Total Return
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
4
<PAGE>
Investment Record
T. Rowe Price Growth & Income Fund
The table below shows the investment record of one share of the T. Rowe Price
Growth & Income Fund, purchased at the initial price of $10.00, for the period
12/21/82 through 12/31/93. Over this time, stock prices in general have risen.
The results shown should not be considered a representation of the income or
capital gain or loss which may be realized from an investment made in the Fund
today.
Per-Share Data
<TABLE>
<CAPTION>
With Capital Gains and Income Dividends Annual
Taken in Cash Reinvested in Additional Shares Total Return
-------------------------------------- --------------------------------------- On Investment
Year Net Capital Capital % Change
Ended Asset Gain Income Gain Income Value of -----------------
12/31 Value Distributions/2/ Dividends Distributions Dividends Investment Fund S&P 500
- ------- ------- ---------------- --------- -------------- --------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1982/1/ $10.33 -- -- -- -- $10.33 3.3% 1.6%
1983 13.05 -- $0.60 -- $ 0.61 13.68 32.4 22.6
1984 12.44 $0.06 0.79 $0.06 0.85 13.96 2.1 6.2
1985 14.18 -- 0.61 -- 0.70 16.70 19.6 31.7
1986 12.98 1.57 0.71 1.96 0.89 18.03 8.0 18.7
1987 10.63 1.04 0.88 1.53 1.27 17.27 -4.2 5.3
1988 12.32 0.47 0.49 0.78 0.81 21.60 25.1 16.5
1989 13.25 0.79 0.64 1.43 1.14 25.77 19.3 31.6
1990 11.22 0.01 0.56 0.02 1.11 22.90 -11.1 -3.1
1991 14.16 -- 0.56 -- 1.16 30.12 31.5 30.3
1992 15.53 0.15 0.60 0.33 1.30 34.74 15.3 7.6
1993 16.57 0.48 0.47 1.09 1.06 39.24 13.0 10.1
- ------------------------------------------------------------------------------------------------------------------
Total $4.57 $6.91 $7.20 $10.90
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ From inception 12/21/82 to 12/31/82.
/2/ Includes short-term capital gains of $0.06 in 1984, $0.30 in 1986, $0.32 in
1988, $0.44 in 1989, and $0.12 in 1993.
5
<PAGE>
Statement of Net Assets (Value in thousands)
T. Rowe Price Growth & Income Fund / December 31, 1993
<TABLE>
<CAPTION>
Common Stocks -- 79.9%
FINANCIAL -- 14.4%
Value
---------
<S> <C> <C>
BANK & TRUST -- 7.8%
362,000 shs. Baltimore Bancorp................... $ 5,159
289,437 BANC ONE............................ 11,324
1,885,674 *+California Federal Bank
(Class A)......................... 28,992
14,601 *Chase Manhattan..................... 119
450,000 Chemical Banking.................... 18,056
150,000 First Interstate.................... 9,619
275,000 Great Western Financial............. 5,500
400,000 Society Corp. ...................... 11,900
90,669
INSURANCE -- 1.9%
160,000 Foremost............................ 5,360
170,000 Provident Life & Accident
Insurance (Class A)............... 4,717
330,000 Provident Life & Accident
Insurance (Class B)............... 10,189
60,600 Selective Insurance................. 1,818
22,084
FINANCIAL SERVICES -- 4.7%
550,000 American Express.................... 16,981
506,234 Bear Stearns........................ 11,074
230,000 Beneficial.......................... 8,798
330,668 Household International............. 10,788
175,000 Sallie Mae.......................... 7,853
55,494
Total Financial 168,247
UTILITIES -- 6.2%
TELEPHONE -- 3.8%
275,000 AT&T................................ 14,438
400,000 GTE................................. 14,000
300,000 Pacific Telesis..................... 16,200
44,638
ELECTRIC UTILITIES -- 2.4%
780,380 Entergy............................. 28,094
Total Utilities 72,732
CONSUMER NONDURABLES -- 20.3%
COSMETICS -- 0.5%
52,300 shs. International Flavors &
Fragrances........................ $ 5,949
BEVERAGES -- 2.6%
140,900 Anheuser-Busch...................... 6,922
77,500 Brown-Forman (Class B).............. 6,762
43,000 *Coca-Cola FEMSA, ADR................ 1,408
79,000 Panamerican Beverages
(Class A)......................... 3,022
285,000 PepsiCo............................. 11,649
29,763
FOOD PROCESSING -- 3.0%
35,000 Continental Baking.................. 293
325,400 CPC International................... 15,497
700,000 *Foodmaker........................... 6,825
57,700 Pet................................. 1,010
282,200 Ralston Purina...................... 11,218
34,843
HOSPITAL SUPPLIES/HOSPITAL
MANAGEMENT -- 1.7%
400,000 Abbott Laboratories................. 11,800
346,400 Baxter International................ 8,443
20,243
PHARMACEUTICALS -- 4.9%
100,000 American Home Products.............. 6,475
150,000 Bristol-Myers Squibb................ 8,719
100,000 Eli Lilly........................... 5,937
425,000 Merck............................... 14,609
200,000 Pfizer.............................. 13,800
300,000 SmithKline Beecham,
equity units, ADR................. 8,213
57,753
MISCELLANEOUS CONSUMER
PRODUCTS -- 7.6%
307,375 Bolswessanen (NLG).................. 7,313
100,000 Colgate-Palmolive................... 6,238
200,000 Hanson, ADR......................... 4,000
300,000 Jostens............................. 5,925
400,000 Philip Morris....................... 22,300
372,000 Reebok.............................. 11,160
330,900 Springs Industries.................. 12,491
175,000 Tambrands........................... 7,744
400,000 UST................................. 11,100
88,271
Total Consumer Nondurables 236,822
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
CONSUMER SERVICES -- 4.9%
GENERAL MERCHANDISERS -- 2.8%
275,000 shs. Dayton Hudson....................... $ 18,356
395,000 TJX................................. 11,505
100,000 Wal-Mart............................ 2,500
32,361
SPECIALTY MERCHANDISERS -- 0.8%
2,728,600 +Merry-Go-Round Enterprises.......... 9,209
ENTERTAINMENT & LEISURE -- 1.3%
308,500 Reader's Digest (Class A)........... 13,883
50,500 Reader's Digest (Class B)........... 2,171
16,054
Total Consumer Services 57,624
CONSUMER CYCLICALS -- 4.0%
AUTOMOBILES & RELATED -- 0.4%
128,200 A.O. Smith (Class B)................ 4,583
16,800 Borg-Warner......................... 471
5,054
BUILDING & REAL ESTATE -- 2.6%
100,000 Burnham Pacific Properties.......... 1,713
250,000 Federal Realty Investment
Trust............................. 6,250
250,000 IRT Property........................ 2,687
474,500 *Rouse............................... 8,422
200,000 Southwestern Property Trust......... 2,525
304,000 Taubman Centers..................... 3,534
200,000 Wellsford Residential
Property.......................... 5,175
30,306
MISCELLANEOUS CONSUMER
DURABLES -- 1.0%
126,400 Corning............................. 3,539
138,500 Eastman Kodak....................... 7,756
11,295
Total Consumer Cyclicals 46,655
TECHNOLOGY -- 4.9%
ELECTRONIC SYSTEMS -- 0.7%
100,000 Hewlett-Packard..................... 7,900
AEROSPACE & DEFENSE -- 1.6%
300,000 United Technologies................. 18,600
INFORMATION PROCESSING -- 1.3%
275,000 IBM................................. 15,537
TELECOMMUNICATIONS -- 1.3%
500,000 Northern Telecom.................... 15,437
Total Technology 57,474
CAPITAL EQUIPMENT -- 5.7%
ELECTRICAL EQUIPMENT -- 2.4%
265,000 shs. GE.................................. $ 27,792
MACHINERY -- 3.3%
801,500 *Coltec Industries................... 15,028
200,000 Danaher............................. 7,625
177,700 Deere............................... 13,150
165,000 Gilbert Associates (Class A)........ 2,516
38,319
Total Capital Equipment 66,111
BUSINESS SERVICES & TRANSPORTATION -- 2.7%
MISCELLANEOUS BUSINESS
SERVICES -- 2.7%
300,000 Browning-Ferris..................... 7,725
550,100 Ennis Business Forms................ 7,358
400,000 Mid-American Waste Systems.......... 3,300
500,000 WMX Technologies.................... 13,187
Total Business Services & Transportation 31,570
ENERGY -- 7.7%
ENERGY SERVICES -- 1.7%
418,000 Halliburton......................... 13,324
100,000 Schlumberger........................ 5,912
19,236
INTEGRATED PETROLEUM-
DOMESTIC -- 4.0%
150,000 Atlantic Richfield.................. 15,788
200,000 British Petroleum, ADR.............. 12,800
125,000 Pennzoil............................ 6,656
400,000 Unocal.............................. 11,150
46,394
INTEGRATED PETROLEUM-
INTERNATIONAL -- 2.0%
250,000 Sun Company......................... 7,344
250,000 Texaco.............................. 16,156
23,500
Total Energy 89,130
PROCESS INDUSTRIES -- 2.9%
PAPER & PAPER PRODUCTS -- 0.9%
550,000 Albany International (Class A)...... 10,519
SPECIALTY CHEMICALS -- 2.0%
420,000 Geon................................ 9,922
750,000 Pall................................ 13,781
23,703
Total Process Industries 34,222
</TABLE>
7
<PAGE>
T. Rowe Price Growth & Income Fund / Statement of Net Assets
<TABLE>
<CAPTION>
<S> <C> <C>
BASIC MATERIALS -- 6.2%
METALS -- 5.6%
208,200 shs. Alcoa............................... $ 14,444
250,000 *Alumax.............................. 5,375
500,000 British Steel, ADR.................. 9,250
500,000 De Beers, ADR....................... 12,000
700,000 Inco................................ 18,812
100,000 Vulcan Materials.................... 4,688
64,569
MINING -- 0.6%
122,750 Amax Gold........................... 844
250,000 Cyprus Amax Minerals................ 6,469
7,313
Total Basic Materials 71,882
Total Common Stocks (Cost -- $755,047) 932,469
Preferred Stocks -- 0.2%
8,139 Gulf States Utilities, $8.64,
Cum. Pfd. ........................ 828
18,330 Gulf States Utilities, 8.75%,
Dep. Pfd., Series D............... 935
3,658 Gulf States Utilities, Adj.
Pfd., Series A.................... 366
Total Preferred Stocks (Cost -- $2,029) 2,129
Convertible Preferred Stocks -- 5.5%
75,000 +California Federal Bank,
Cv. Pfd., Series A................ 1,556
90,000 Citicorp, 5.375%, Cv. Pfd. ......... 9,697
150,000 Delta Air Lines, Dep. Shs.,
Rep. 1/1000 Cv. Pfd.,
Series C.......................... 8,025
200,000 Freeport-McMoRan (144a),
$4.375, Cum. Cv. Exch. Pfd. ...... 9,800
180,000 Freeport-McMoRan, Dep. Shs.,
Rep. 4 Cv. Pfd. .................. 5,580
200,000 Glendale Federal Bank,
8.75%, Cv. Pfd., Series E......... 5,100
150,000 Newmont Mining (144a),
$2.75, Cv. Pfd. .................. 10,219
800,000 RJR Nabisco, 10.50% - 13.50%,
PERCS............................. 5,600
100,000 Tanger Factory Outlet
Centers, Cv. Pfd., REIT........... 2,538
109,800 USAir, Dep. Shs., Rep.
1/100 Cum. Pfd., Series B......... 5,641
Total Convertible Preferred Stocks
(Cost -- $54,768) 63,756
Convertible Bonds -- 2.3%
$ 5,000,000 Banco Nacional de
Mexico, Sub. Deb.,
7.00%, 12/15/99................... $ 6,275
1,472,700 +California Federal Bank,
Sub. Deb.,
10.00%, 1/3/03.................... 1,325
8,000,000 Ceridian, Sub. Deb.,
8.50%, 6/15/11.................... 8,200
5,000,000 Greyhound Lines,
Sub. Deb., 8.50%,
3/31/07........................... 5,813
1,400,000 IRT Property, Sub. Deb.,
7.30%, 8/15/03.................... 1,400
4,750,000 *Perpetual Savings Bank,
Sub. Deb., 7.25%,
5/15/11........................... 47
3,000,000 Southwestern Property
Trust, Deb., 8.00%,
1/15/03........................... 3,690
Total Convertible Bonds (Cost -- $24,802) 26,750
Corporate Bonds -- 4.8%
4,000,000 American Standard, Sub.
Deb., 9.875%, 6/1/01.............. 4,165
4,250,000 ARA Services, Sr. Notes,
10.625%, 8/1/00................... 4,781
5,000,000 Coltec Industries, Sr. Notes,
10.25%, 4/1/02.................... 5,325
5,000,000 Container Corporation of
America, Sr. Notes, 9.75%,
4/1/03............................ 5,150
3,000,000 Continental Cablevision,
11.00%, 6/1/07.................... 3,537
5,000,000 Healthtrust, 10.75%, 5/1/02......... 5,600
3,000,000 IMC Fertilizer Group,
9.25%, 10/1/00.................... 3,015
3,000,000 IMC Fertilizer Group,
10.75%, 6/15/03................... 3,172
5,000,000 Rowan, Sr. Notes,
11.875%, 12/1/01.................. 5,525
4,000,000 Southern Pacific Rail,
9.375%, 8/15/05................... 4,255
5,000,000 Texas Bottling Group,
9.00%, 11/15/03................... 5,000
3,000,000 USAir, 9.625%, 9/1/03............... 2,978
4,000,000 Westpoint Stevens,
8.75%, 12/15/01................... 4,040
Total Corporate Bonds (Cost -- $53,250) 56,543
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C>
Short-Term Investments -- 7.3%
BANK NOTE -- 0.8%
$10,000,000 Pittsburgh National Bank,
3.25%, 4/19/94.................... $ 9,995
CERTIFICATES OF DEPOSIT -- 0.9%
10,000,000 Banque Nationale de
Paris, 3.39%, 5/3/94.............. 9,998
COMMERCIAL PAPER -- 5.6%
10,000,000 Bank of Nova Scotia,
3.25%, 1/21/94.................... 9,922
10,000,000 Caisse des Depots et
Consignations, 3.40%,
1/20/94........................... 9,939
10,000,000 General Electric Capital,
3.38%, 4/6/94..................... 9,856
638,000 Harvard University,
3.20%, 1/3/94..................... 638
10,000,000 Merrill Lynch, VRMTN,
3.360%, 9/16/94................... 10,000
10,000,000 Morgan Stanley Group,
VRMTN, 3.578%, 7/21/94............ 10,024
10,000,000 Province of British Columbia,
3.30%, 2/11/94.................... 9,830
5,700,000 South Australian Government
Finance Auth., 4(2), 3.35%,
1/4/94............................ 5,622
65,831
Total Short-Term Investments (Cost -- $85,824) 85,824
- ----------------------------------------------------------------------
Total Investments in Securities -- 100.0%
(Cost -- $975,720) $1,167,471
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Other Assets Less Liabilities -- 0.0% 23
Net Assets Consisting of:
Accumulated realized gains/losses --
net of distributions....................... $ 3,903
Unrealized appreciation of
investments................................ 191,751
Paid-in-capital applicable to
70,450,668 shares of $0.01 par
value capital stock outstanding;
500,000,000 shares authorized.............. 971,840
--------
Net Assets -- 100.0% $1,167,494
==========
Net Asset Value Per Share $16.57
======
- ----------------------------------------------------------------------
</TABLE>
* Non-income producing
+ Affiliated company
NLG Dutch guilder denominated
PERCS Participating Equity Redemption Certificates
REIT Real Estate Investment Trust
VRMTN Variable rate medium term note
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.
- ----------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
Statement of Operations
T. Rowe Price Growth & Income Fund / Year Ended December 31, 1993
<TABLE>
<CAPTION>
Amounts in Thousands
------------------------
<S> <C> <C>
INVESTMENT INCOME
Income
Dividends.......................................... $ 28,183
Interest........................................... 10,834
----------
Total income....................................... $ 39,017
Expenses
Investment management fees......................... 5,209
Shareholder servicing fees & expenses.............. 2,909
Custodian and accounting fees & expenses........... 196
Prospectus & shareholder reports................... 121
Registration fees & expenses....................... 108
Legal & auditing fees.............................. 39
Directors' fees & expenses......................... 26
Miscellaneous...................................... 27
----------
Total expenses..................................... 8,635
----------
Net investment income................................ 30,382
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
Securities........................................ 37,370
Currencies........................................ (5)
----------
Net realized gain.................................. 37,365
Change in unrealized appreciation or depreciation.. 54,654
----------
Net gain on investments.............................. 92,019
----------
INCREASE IN NET ASSETS FROM OPERATIONS $ 122,401
==========
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
Statement of Changes in Net Assets
T. Rowe Price Growth & Income Fund
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1993 1992
------------ ------------
Amounts in Thousands
-----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income.......................... $ 30,382 $ 27,418
Net realized gain on investments............... 37,365 20,715
Change in unrealized appreciation or
depreciation of investments................... 54,654 59,419
---------- ---------
Increase in net assets from operations......... 122,401 107,552
---------- ---------
Distributions to shareholders
Net investment income.......................... (30,491) (30,326)
Net realized gain on investments............... (32,680) (7,915)
---------- ---------
Decrease in net assets from distributions to
shareholders.................................. (63,171) (38,241)
---------- ---------
Capital share transactions
Sold 25,384 and 13,834 shares.................. 417,267 201,567
Distributions reinvested of 3,728 and 2,485
shares........................................ 61,217 36,858
Redeemed 12,736 and 8,527 shares............... (210,132) (124,021)
---------- ---------
Increase in net assets from capital share
transactions.................................. 268,352 114,404
---------- ---------
Net equalization................................. 325 362
---------- ---------
Total increase................................... 327,907 184,077
NET ASSETS
Beginning of year.............................. 839,587 655,510
---------- ---------
End of year.................................... $1,167,494 $ 839,587
========== =========
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
Notes to Financial Statements
T. Rowe Price Growth & Income Fund / December 31, 1993
Note 1 - Significant Accounting Policies
T. Rowe Price Growth & Income Fund (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
A) 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 that are not traded on a particular day 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. Securities regularly traded in the over-the-counter market are valued at
the latest bid price.
Debt securities are generally traded in the over-the-counter market and are
valued at a price deemed best to reflect fair value as quoted by dealers who
make markets in these securities or by an independent pricing service.
Short-term debt securities are valued at their cost which, when combined with
accrued interest, approximates fair value.
For purposes of determining the Fund's net asset value per share, all
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at 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.
B) Affiliated Companies - Investments in companies 5% or more of whose
outstanding voting securities are held by the Fund are defined as "Affiliated
Companies" in Section 2(a)(3) of the Investment Company Act of 1940.
C) Currency translation - Foreign currency amounts are translated into U.S.
dollars at prevailing exchange rates as follows: assets and liabilities at the
rate of exchange at the end of the respective period, purchases and sales of
securities and income and expenses at the rate of exchange prevailing on the
dates of such transactions.
D) 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 an 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 which may differ from 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.
E) Accounting Change - Effective as of the beginning of the year, the Fund
adopted a recently issued accounting standard related to shareholder
distributions. This change resulted in a reclassification to paid-in-capital of
permanent differences between tax and financial reporting of net investment
income and net realized gains/losses. The cumulative effect of this change as
of December 31, 1992 increased Accumulated net investment income - net of
distributions by $2,461,000, decreased Accumulated net realized gains/losses -
net of distributions by $2,219,000 and decreased Paid-in-capital by $242,000.
The results of operations, shareholder distributions and net assets were not
affected by this change.
12
<PAGE>
Note 2 - Portfolio Transactions
Purchases and sales of portfolio securities, other than short-term and U.S.
Government securities, aggregated $430,597,000 and $201,731,000, respectively,
for the year ended December 31, 1993.
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, 1993, the aggregate cost of investments for federal income
tax and financial reporting purposes was $975,720,000 and net unrealized
appreciation aggregated $191,751,000, of which $220,111,000 related to
appreciated investments and $28,360,000 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,
computed daily and paid monthly, consisting of an Individual Fund Fee equal to
0.15% 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 0.31% for assets in excess of $34
billion. The effective annual Group Fee rate at December 31, 1993 and for the
year then ended was 0.35%. The Fund pays a pro rata portion of the Group Fee
based on the ratio of the Fund's net assets to those of the Group.
T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services, Inc.
(RPS) are wholly owned subsidiaries of the Manager. TRPS provides transfer and
dividend disbursing agent functions and shareholder services for all accounts.
RPS provides subaccounting and recordkeeping services for certain retirement
accounts invested in the Fund. The Manager, under a separate agreement,
calculates the daily share price and maintains the financial records of the
Fund. The Fund is one of several T. Rowe Price mutual funds (the Underlying
Funds) in which the T. Rowe Price Spectrum Growth Fund (Spectrum) invests. In
accordance with an Agreement between Spectrum, the Underlying Funds, the Manager
and TRPS, expenses from the operation of Spectrum are borne by the Underlying
Funds based on each Underlying Fund's proportionate share of assets owned by
Spectrum. For the year ended December 31, 1993, the Fund incurred fees
totalling approximately $2,571,000 for these services provided by related
parties. At December 31, 1993, these investment management and service fees
payable were $809,000.
13
<PAGE>
Financial Highlights
T. Rowe Price Growth & Income Fund
<TABLE>
<CAPTION>
For a Share outstanding throughout each
--------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------
1993 1992 1991 1990 1989
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR.................... $15.53 $14.16 $11.22 $13.25 $12.32
------ ------ ------ ------ ------
Investment Activities
Net investment income............................. 0.46 0.55 0.56 0.56 0.65
Net realized and unrealized gain (loss)........... 1.53 1.57 2.94 (2.02) 1.71
------ ------ ------ ------ ------
Total from Investment Activities...................... 1.99 2.12 3.50 (1.46) 2.36
------ ------ ------ ------ ------
Distributions
Net investment income............................. (0.47) (0.60) (0.56) (0.56) (0.64)
Net realized gain................................. (0.48) (0.15) -- (0.01) (0.79)
------ ------ ------ ------ ------
Total Distributions................................... (0.95) (0.75) (0.56) (0.57) (1.43)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR.......................... $16.57 $15.53 $14.16 $11.22 $13.25
====== ====== ====== ====== ======
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C>
Total Return.......................................... 13.0% 15.3% 31.5% (11.1)% 19.3%
Ratio of Expenses to Average Net Assets............... 0.83% 0.85% 0.93% 0.97% 0.96%
Ratio of Net Investment Income to Average Net Assets.. 2.91% 3.75% 4.23% 4.68% 4.70%
Portfolio Turnover Rate............................... 22.4% 29.9% 47.9% 34.6% 57.1%
Net Assets, End of Year (in thousands)................ $1,167,494 $839,587 $655,510 $474,970 $553,609
Number of Shareholder Accounts, End of Year........... 55,000 46,000 44,000 44,000 48,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
of T. Rowe Price Growth & Income Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the selected per share
data and information (which appears under the heading "Financial Highlights")
present fairly, in all material respects, the financial position of T. Rowe
Price Growth & Income Fund, Inc. at December 31, 1993, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the selected per share data and
information for each of the five years in the period then ended, in conformity
with generally accepted accounting principles. These financial statements and
selected per share data and information (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, 1993 by
correspondence with custodians and brokers and, where appropriate, the
application of alternative auditing procedures for unsettled security
transactions, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Baltimore, Maryland
January 19, 1994
Officers and Directors
James S. Riepe, Chairman
Stephen W. Boesel, President/Director
Donald W. Dick, Jr., Director
John K. Major, Director
Paul M. Wythes, Director
Andrew M. Brooks, Vice President
Arthur B. Cecil III, Vice President
Brent Clum, Vice President
Henry H. Hopkins, Vice President
Gregory A. McCrickard, Vice President
Larry J. Paglia, Vice President
Richard T. Whitney, Vice President
Lenora V. Hornung, Secretary
Carmen F. Deyesu, Treasurer
David S. Middleton, Controller
15
<PAGE>
GRAPHIC APPENDIX LIST
---------------------
EDGAR Version Typeset Version
- ------------- ---------------
Page 2 Chart Number 1: Security Diversification
A pie chart showing the percent of the Fund's assets invested
among common stocks 80%
convertibles 8%
bonds and preferred stocks 5%
and reserves 7%
Page 4 Growth & Income Fund Performance Comparison
A line graph compares the 12/31/93 value of a hypothetical
$10,000 investment made ten years earlier in the Growth &
Income Fund and the S&P 500 Index. At 12/31/93, the Fund
investment would have been worth $28693 and the S&P
Index investment would have been worth $40177.
