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SCHEDULE 14A INFORMATION
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T. Rowe Price Growth & Income Fund, Inc.
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T. Rowe Price Growth & Income Fund, Inc.
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SUBJECT: Talking Points Regarding Growth & Income Fund Fee
Increase
As you know, we are seeking a 10 basis point fee increase for
the Growth & Income Fund (GIF). Under our proposal, the Fund's
management fee would increase from .49% to .59%, and the total
expense ratio would go from .81% to .91%. Proxies began
mailing to shareholders on Friday, March 3. Proxies to plan
sponsors (and remaining retail shareholders) should all be in
the mail by Wednesday, March 8.
Attached are the key points behind our decision to seek a fee
increase. Certainly no client or customer anywhere likes a
price increase. However, as you are well aware, this issue is
of considerable importance to Associates. Please feel free to
use these key points to the extent they will be helpful in
discussing our proposed change in the Fund's fee structure with
shareholders and/or plan sponsors.
In a nutshell, our position is this:
o Over the past several years the Fund has provided well
above average investment performance at well below average
cost.
o Consequently, we propose to bring the Fund's management fee
in line with that charged by competitors. However, even
after the proposed change, the Fund's management fee (and
total expense ratio) will remain below average.
o The cost of hiring and retaining qualified investment
professionals and providing high quality services has risen
significantly over the years. To retain top quality
people, our management fees need to be in line with those
paid to our competitors.
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Here, in more detail, are the key points supporting our
position:
Performance
o Since Steve Boesel assumed management of the Fund nearly
eight years ago, GIF has generated well above average
performance for shareholders.
Total Return through 1/31/95
Steve Boesel's Tenure
One Three Five Since
3 Months Year Years Years 3/31/87
GIF 0.27% -0.47% 32.63% 65.99% 97.14%
Lipper Growth &
Income Fund Avg -1.26% -2.50% 22.33% 60.71% 89.26%
GIF Ranking: 89 out 102 out 31 out 55 out 55 out
of 409 of 356 of 226 of 183 of 143
Percentile: 22nd 29th 14th 30th 38th
Ten
Years
GIF 169.42%
Lipper Growth &
Income Fund Avg 207.98%
GIF Ranking: 87 out
of 109
Percentile:
o Morningstar has awarded GIF four stars.
Pricing
o Even after the proposed fee change, expenses on GIF remain
well below average:
Management Fee Total Expense Ratio
(in basis points) (in basis points)
Lipper Lipper
G&I Percentage G&I Percentage
GIF Average Difference GIF Average Difference
Current 49 66 <26%> 81 121 <33%>
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Proposed 59 66 <11%> 91 121 <25%>
o GIF's management fee is inconsistent with the fees on our
other actively managed general stock funds. The proposed
change brings the fund in line with the fees charged on our
other funds. It is useful to note that the management fees
on seven out of eight of our general stock funds are below
the average fees charged on comparable funds, according to
Lipper.
Management Lipper Category
TRP Fund Fee Average
Value .69% .66%
Capital Appreciation .64% .76%
Blue Chip Growth .64% .73%
Equity Income .59% .65%
Growth Stock .59% .73%
New Era .59% .62%
Dividend Growth .54% .66%
Growth & Income .49% .66%
o The cost of doing business has increased significantly in
recent years as competition has increased. Primary costs
are:
- hiring and retaining qualified investment and
management personnel,
- providing high quality shareholder and administrative
services, and
- reinvesting in the necessary infrastructure
(information systems as well as physical plant).
o With nearly twice the number of mutual fund complexes as
there were ten years ago, T. Rowe Price needs to be
compensated in line with our competitors in order to
attract and retain the best people.
[The following point is provided for background only -- most
folks probably won't want to get into this level of detail.]
o As with most of our other funds, the Growth & Income Fund's
management fee consists of two components: an individual
fund fee plus a group fee. The individual fund fee
reflects the characteristics involved in managing a
particular fund, while the group fee is designed to share
economies of scale as our total assets under management
increase. The group fee is based on a schedule of rates
that declines as total assets under management increase.
This structure reflects the fact that most of the resources
we bring to bear in managing the T. Rowe Price Funds are
shared across multiple funds.
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- Since the group fee's inception in 1987, it has
declined 3 basis points as a result of overall
asset growth.
- Technically, what we are doing is seeking an increase in
the Growth & Income Fund's individual fund fee from .15%
to .25%. When combined with the group fee (currently
.34%) the overall management fee rate will increase from
.49% to .59%.
"Common Sense" Points
o We're in a unique business -- how many of our clients need
to get a customer vote to raise their prices!
o The cost of doing business has gone up for us over the
past several years, just like it has for everyone else.
o While it's true our revenues (assets under management
times management fee rate) increase as fund assets grow --
even if the management fee rate stays constant -- that's
the same as any business. Like everyone else, a greater
volume (i.e. greater assets) generates increased revenues.
Also like everyone else, when volume increases, our
investment management and administrative costs increase as
well, albeit to a smaller extent.
Expenses Covered by Management Fee
o Investment management: portfolio managers, research
analysts, traders, and
economists.
o Shareholder Communications: professional time to prepare
quarterly shareholder
reports; quarterly
newsletter; Insights
Library.
o Fund Administration: legal and regulatory
compliance, general business
oversight, performance
tracking.
o Shareholder Service Oversight: senior management oversight
and quality control of
various service providers to
the Fund. (The cost of
providing these services --
but not the oversight and
quality control over these
functions -- is included in
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the Fund's operating
expenses.)
o General Corporate Overhead: senior management; finance;
human resources; information
systems; and plant,
property, and equipment.
History of Management Fee Changes
o We are not changing the management fee on any of our 66
other funds.
o The GIF has not had any fee change since the current
contract was approved in May, 1987.
o The last fee change for T. Rowe Price Funds occurred in
1991.
o Five funds had fee increases:
- Growth Stock
- New Horizons
- New America Growth
- Science & Technology
- Small-Cap Value
o Four funds had fee decreases:
- International Discovery
- Short-Term Bond
- Tax-Free Short-Intermediate
- U.S. Treasury Money
A copy of the proxy statement as well as the accompanying
letter are attached for your reference. Please feel free to
call me with any questions.
