<PAGE>
- --------------------------------------------------------------------------------
Fellow Shareholders
- --------------------------------------------------------------------------------
The equity market was flat in the fourth quarter and ended the year with a
small total return of 1.3%. Although the economy remained healthy and
corporate profits were robust, stocks could not overcome the relentless rise
in interest rates during the year. This environment was generally adverse for
your Fund (and most others), but our yield-oriented focus made us
particularly vulnerable to rising rates.
After a strong third quarter, the decline in the last three months
wiped out the Fund's previous progress, resulting in a slight overall loss
for the year. Nevertheless, our 1994 return, while not rewarding or
satisfying, compared favorably with the average of similar funds. This was
the fourth consecutive year in which your Fund outperformed its peer group.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 12/31/94
3 Months 12 Months
----------------------
<S> <C> <C>
Growth & Income Fund -1.9% -0.1%
S&P 500 0.0 1.3
Lipper Growth & Income
Fund Average -1.6 -0.9
</TABLE>
- --------------------------------------------------------------------------------
YEAR-END DISTRIBUTIONS
Your Board of Directors declared a fourth quarter income dividend of $0.13
per share on December 27 to shareholders of record on that date. This brought
the year's total income dividends to $0.49 per share. At the same time, a
$0.36 per-share capital gain distribution was declared, of which $0.10 was
short term and the balance long term. Your check or statement reflecting
these distributions was mailed separately, as well as the Form 1099-DIV,
which reported this information for 1994 tax purposes.
MARKET ENVIRONMENT
The dominant issue for investors in 1994 was the rise in interest rates as
the Federal Reserve tightened monetary policy to forestall a pickup in
inflation. Starting in February, the Fed raised the important federal funds
rate six times during the year. These actions directly affected short-term
interest rates and, as a result, the yield on three-month Treasury bills rose
from 3.1% to 5.8% during 1994. Long-term yields also rose in the face of
inflation fears and some speculative excesses in the market; the yield on the
benchmark 30-year Treasury bond started the year at 6.4%, peaked in November
at 8.2%, and ended the year at 7.9%. This environment was one of the worst
in modern memory as virtually all fixed-income securities with maturities
over one year provided negative annual returns.
Meanwhile, the economy continued to expand broadly, and corporate
profits advanced at a good rate. Other than interest rate-sensitive
sectors, such as housing, there is little evidence to date that higher rates
are having any appreciable impact on economic growth. Additionally, the
various indicators show few signs of increasing inflation.
On balance, the economic environment remains favorable. We expect
this expansion to continue into 1996, accompanied by further gains in
corporate profitability. If the rate of growth does slow later this year, it
would signal an improvement in the interest rate outlook.
PORTFOLIO REVIEW
Your Fund's asset allocation (shown in the pie chart) was little changed from
prior quarters. This reflects our belief that the Fund is appropriately
postured in the current environment. We were fairly active in the final
quarter in terms of adding new investments to the portfolio. The retail
sector experienced a significant price decline during 1994, which piqued our
interest in the group. Consequently, we established positions in THE GAP,
K MART, and J.C. PENNEY, all of which we believe offer the patient investor
good opportunities for
<PAGE>
appreciation. Additionally, these stocks provide an above-average dividend
yield.
- --------------------------------------------------------------------------------
Security Diversification
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Growth & Income Fund Chart Description - for edgarizing only
Chart Number 1: Security Diversification
A pie chart showing the percent of the Fund's assets invested among common
stocks 79%
convertibles 6%
bonds and preferred stocks 7%
and reserves 8%
For the second consecutive quarter, our largest purchases were in the
electric utility sector. This is another area that suffered sharp price
declines, largely in reaction to rising interest rates, and now appears to
offer generous dividend yields as well as some appreciation potential. After
having virtually no exposure in this area last year, your Fund had
approximately 8% of assets invested in the utility sector at year-end.
- --------------------------------------------------------------------------------
Financial Profile
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
G&I Fund S&P
Stocks 500
-------- -----
<S> <C> <C>
Dividend Growth
(5-year annual average) 8.4% 4.3%
Current Yield 3.6% 2.9%
Price/Book Ratio 1.7X 2.5X
Price/Earnings Ratio
(1995 estimated EPS) 11.4X 13.3X
</TABLE>
- --------------------------------------------------------------------------------
Our objective is to maintain the favorable relative valuation
characteristics of your Fund holdings, as indicated in the preceding table.
We believe that our focus on above-average yield and long-term dividend
growth will continue to be rewarding over time.
Respectfully submitted,
/s/ Stephen W. Boesel
Stephen W. Boesel
President and Chairman of the
Investment Advisory Committee
January 23, 1995
2
<PAGE>
- --------------------------------------------------------------------------------
Twenty-Five Largest Holdings
- --------------------------------------------------------------------------------
December 31, 1994
<TABLE>
<CAPTION>
Percent of
Company Net Assets
- ------------------------------------------------------------------ ----------
<S> <C>
California Federal Bank 3.3%
- --------------------------------------------------------------------------------
Pfizer 2.2
- --------------------------------------------------------------------------------
Philip Morris 1.9
- --------------------------------------------------------------------------------
Atlantic Richfield 1.9
- --------------------------------------------------------------------------------
GE 1.8
- --------------------------------------------------------------------------------
Coltec Industries 1.8
- --------------------------------------------------------------------------------
Cooper Industries 1.7
- --------------------------------------------------------------------------------
WMX Technologies 1.6
- --------------------------------------------------------------------------------
Dayton Hudson 1.6
- --------------------------------------------------------------------------------
RJR Nabisco 1.6
- --------------------------------------------------------------------------------
Reader's Digest 1.4
- --------------------------------------------------------------------------------
CPC International 1.4
- --------------------------------------------------------------------------------
Great Lakes Chemical 1.4
- --------------------------------------------------------------------------------
Entergy 1.4
- --------------------------------------------------------------------------------
Pall 1.4
- --------------------------------------------------------------------------------
American Express 1.3
- --------------------------------------------------------------------------------
Merck 1.3
- --------------------------------------------------------------------------------
Chemical Banking 1.3
- --------------------------------------------------------------------------------
British Petroleum 1.3
- --------------------------------------------------------------------------------
Honeywell 1.3
- --------------------------------------------------------------------------------
PepsiCo 1.3
- --------------------------------------------------------------------------------
Schlumberger 1.2
- --------------------------------------------------------------------------------
Texaco 1.2
- --------------------------------------------------------------------------------
Pacific Telesis 1.2
- --------------------------------------------------------------------------------
Centerior Energy 1.2
- --------------------------------------------------------------------------------
Total 39.0%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Major Portfolio Changes
- --------------------------------------------------------------------------------
Three Months Ended December 31, 1994
- --------------------------------------------------------------------------------
TEN LARGEST PURCHASES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Cost (000)
----------
<S> <C>
SCEcorp $11,694
- --------------------------------------------------------------------------------
The Gap* 11,602
- --------------------------------------------------------------------------------
Cooper Industries 11,312
- --------------------------------------------------------------------------------
K mart* 10,284
- --------------------------------------------------------------------------------
RJR Nabisco* 9,193
- --------------------------------------------------------------------------------
Fannie Mae* 6,958
- --------------------------------------------------------------------------------
Cooper Industries Cv. Pfd. 5,514
- --------------------------------------------------------------------------------
Fleming Companies Bond* 4,995
- --------------------------------------------------------------------------------
Federal Realty Investment Trust 4,288
- --------------------------------------------------------------------------------
J.C. Penney* 4,257
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
TEN LARGEST SALES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proceeds (000)
--------------
<S> <C>
Inco** $8,587
- --------------------------------------------------------------------------------
Bristol-Myers Squibb** 8,517
- --------------------------------------------------------------------------------
Baltimore Bancorp** 7,512
- --------------------------------------------------------------------------------
IBM 7,017
- --------------------------------------------------------------------------------
Tambrands** 6,840
- --------------------------------------------------------------------------------
United Technologies 5,944
- --------------------------------------------------------------------------------
Reebok 5,772
- --------------------------------------------------------------------------------
Sallie Mae** 5,581
- --------------------------------------------------------------------------------
British Steel** 4,851
- --------------------------------------------------------------------------------
Northern Telecom 4,829
- --------------------------------------------------------------------------------
</TABLE>
* Position added
** Position eliminated
3
<PAGE>
- --------------------------------------------------------------------------------
Fiscal-Year Performance Comparison
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
Fund Name: Growth & Income
Fiscal-Year Performance Comparison: A two-line chart comparing the growth in an
initial $10,000 investment in the Fund with the same investment in the S&P 500
Index starting on 12/31/84 and ending on 12/31/94.
- --------------------------------------------------------------------------------
Fiscal-Year Performance
- --------------------------------------------------------------------------------
Periods Ended December 31, 1994
<TABLE>
<CAPTION>
1 Year 5 Years* 10 Years*
------ -------- ---------
<S> <C> <C>
-0.15% 8.74% 10.87%
</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 12/31/94. Over this time, stock prices in general
have risen. The results shown should not be considered as 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
Taken in Cash Reinvested in Additional Shares Annual 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
- ------------------------------------------------------------------------------------------------------------------------
1994 15.63 0.42 0.49 1.02 1.18 39.18 -0.1 1.3
- ------------------------------------------------------------------------------------------------------------------------
Total $4.99 $7.40 $8.22 $12.08
- ------------------------------------------------------------------------------------------------------------------------
</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, $0.12 in 1993 and $0.10 in 1994.
5
<PAGE>
- --------------------------------------------------------------------------------
Statement of Net Assets (Value in thousands)
T. Rowe Price Growth & Income Fund / December 31, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stocks -- 79.4%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL -- 12.7%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
<S> <C>
BANK & TRUST -- 7.1%
318,380 shs. BANC ONE.................................. $ 8,079
3,476,124 *+California Federal Bank
(Class A)............................... 37,803
14,601 wts. *Chase Manhattan, 6/30/96.................. 71
450,000 shs. Chemical Banking.......................... 16,144
150,000 First Interstate.......................... 10,144
275,000 Great Western Financial................... 4,400
400,000 KeyCorp................................... 10,000
7,738 wts. *Shawmut National, 1/15/96................. 17
86,658
INSURANCE -- 1.2%
160,000 shs. Foremost.................................. 5,640
120,000 Provident Life & Accident
Insurance (Class A)..................... 2,490
330,000 Provident Life & Accident
Insurance (Class B)..................... 7,177
15,307
FINANCIAL SERVICES -- 4.4%
550,000 American Express.......................... 16,225
531,545 Bear Stearns.............................. 8,173
230,000 Beneficial................................ 8,970
100,000 Fannie Mae................................ 7,287
330,668 Household International................... 12,276
110,000 Lehman Brothers........................... 1,623
54,554
TOTAL FINANCIAL 156,519
- --------------------------------------------------------------------------------
UTILITIES -- 8.1%
- --------------------------------------------------------------------------------
TELEPHONE -- 3.1%
225,000 AT&T...................................... 11,306
400,000 GTE....................................... 12,150
525,000 Pacific Telesis........................... 14,963
38,419
ELECTRIC UTILITIES -- 5.0%
1,650,000 Centerior Energy.......................... 14,643
780,379 Entergy................................... 17,071
1,000,000 SCEcorp................................... 14,625
600,000 Unicom.................................... 14,400
60,739
TOTAL UTILITIES 99,158
- --------------------------------------------------------------------------------
CONSUMER NONDURABLES -- 23.4%
- --------------------------------------------------------------------------------
COSMETICS -- 0.6%
156,900 shs. International Flavors &
Fragrances.............................. $ 7,257
BEVERAGES -- 3.4%
200,000 Anheuser-Busch............................ 10,175
270,000 Brown-Forman (Class B).................... 8,235
155,000 Coca-Cola................................. 7,983
425,000 PepsiCo................................... 15,406
41,799
FOOD PROCESSING -- 5.2%
325,400 CPC International......................... 17,328
582,900 *Foodmaker................................. 2,550
175,000 General Mills............................. 9,975
550,000 Pet....................................... 10,862
282,200 Ralston Purina............................ 12,593
400,000 Sara Lee.................................. 10,100
63,408
HOSPITAL SUPPLIES/HOSPITAL
MANAGEMENT -- 1.8%
400,000 Abbott Laboratories....................... 13,050
346,400 Baxter International...................... 9,786
22,836
PHARMACEUTICALS -- 5.9%
200,000 American Home Products.................... 12,550
100,000 Eli Lilly................................. 6,563
425,000 Merck..................................... 16,203
350,000 Pfizer.................................... 27,037
300,000 SmithKline Beecham
equity units ADR........................ 10,275
72,628
MISCELLANEOUS CONSUMER
PRODUCTS -- 6.5%
307,375 Bols Wessanen (NLG)...................... 5,826
100,000 Colgate-Palmolive......................... 6,337
279,500 Jostens................................... 5,206
400,000 Philip Morris............................. 23,000
300,000 Phillips-Van Heusen....................... 4,575
172,000 Reebok.................................... 6,794
1,500,000 *RJR Nabisco............................... 8,250
230,900 Springs Industries........................ 8,543
400,000 UST....................................... 11,100
79,631
TOTAL CONSUMER NONDURABLES 287,559
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
CONSUMER SERVICES -- 5.5%
- --------------------------------------------------------------------------------
GENERAL MERCHANDISERS -- 3.0%
275,000 shs. Dayton Hudson............................. $ 19,456
100,000 J.C. Penney............................... 4,462
700,000 K mart.................................... 9,100
260,900 TJX....................................... 4,077
37,095
SPECIALTY MERCHANDISERS -- 1.1%
2,728,600 *+Merry-Go-Round Enterprises................ 2,729
350,000 The Gap................................... 10,675
13,404
ENTERTAINMENT & LEISURE -- 1.4%
271,000 Reader's Digest (Class A),
non-voting.............................. 13,313
90,800 Reader's Digest (Class B)................. 4,063
17,376
TOTAL CONSUMER SERVICES 67,875
- --------------------------------------------------------------------------------
CONSUMER CYCLICALS -- 4.3%
- --------------------------------------------------------------------------------
AUTOMOBILES & RELATED -- 0.0%
20,000 A.O. Smith (Class B)...................... 490
BUILDING & REAL ESTATE -- 3.7%
200,000 Burnham Pacific Properties................ 2,550
700,000 DeBartolo Realty.......................... 10,500
450,000 Federal Realty Investment
Trust................................... 9,281
100,000 ROC Communities........................... 2,100
474,500 *Rouse..................................... 9,016
500,000 South West Property Trust................. 6,125
304,000 Taubman Centers........................... 2,964
130,000 Wellsford Residential
Property................................ 2,730
45,266
MISCELLANEOUS CONSUMER DURABLES -- 0.6%
226,400 Corning................................... 6,764
TOTAL CONSUMER CYCLICALS 52,520
- --------------------------------------------------------------------------------
TECHNOLOGY -- 3.5%
- --------------------------------------------------------------------------------
ELECTRONIC SYSTEMS -- 1.3%
500,000 Honeywell................................. 15,750
AEROSPACE & DEFENSE -- 1.0%
200,000 United Technologies....................... 12,575
INFORMATION PROCESSING -- 0.6%
100,000 IBM....................................... 7,350
TELECOMMUNICATIONS -- 0.6%
200,000 Northern Telecom.......................... 6,675
TOTAL TECHNOLOGY 42,350
- --------------------------------------------------------------------------------
CAPITAL EQUIPMENT -- 4.0%
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.8%
430,000 shs. GE........................................ $ 21,930
MACHINERY -- 2.2%
701,500 *Coltec Industries......................... 12,013
400,000 Cooper Industries......................... 13,650
165,000 Gilbert Associates (Class A).............. 2,063
27,726
TOTAL CAPITAL EQUIPMENT 49,656
- --------------------------------------------------------------------------------
BUSINESS SERVICES & TRANSPORTATION -- 2.8%
- --------------------------------------------------------------------------------
MISCELLANEOUS BUSINESS SERVICES -- 2.2%
150,000 Browning-Ferris........................... 4,256
249,200 Ennis Business Forms...................... 3,115
750,000 WMX Technologies.......................... 19,688
27,059
RAILROADS -- 0.6%
100,000 CSX....................................... 6,962
TOTAL BUSINESS SERVICES & TRANSPORTATION 34,021
- --------------------------------------------------------------------------------
ENERGY -- 8.9%
- --------------------------------------------------------------------------------
ENERGY SERVICES -- 2.4%
418,000 Halliburton............................... 13,846
300,000 Schlumberger.............................. 15,113
28,959
INTEGRATED PETROLEUM-
DOMESTIC -- 4.5%
225,000 Atlantic Richfield........................ 22,894
200,000 British Petroleum ADR..................... 15,975
125,000 Pennzoil.................................. 5,515
400,000 Unocal.................................... 10,900
55,284
INTEGRATED PETROLEUM-
INTERNATIONAL -- 2.0%
350,000 Sun Company............................... 10,062
250,000 Texaco.................................... 14,969
25,031
TOTAL ENERGY 109,274
- --------------------------------------------------------------------------------
PROCESS INDUSTRIES -- 4.1%
- --------------------------------------------------------------------------------
PAPER & PAPER PRODUCTS -- 0.9%
550,000 Albany International (Class A)............ 10,588
SPECIALTY CHEMICALS -- 3.2%
220,000 Geon...................................... 6,022
300,000 Great Lakes Chemical...................... 17,100
904,000 Pall...................................... 16,950
40,072
TOTAL PROCESS INDUSTRIES 50,660
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price Growth & Income Fund / Statement of Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
BASIC MATERIALS -- 2.1%
- --------------------------------------------------------------------------------
METALS -- 2.1%
158,200 shs. Alcoa..................................... $ 13,704
300,000 De Beers ADR.............................. 6,937
100,000 Vulcan Materials.......................... 5,063
TOTAL BASIC MATERIALS 25,704
TOTAL COMMON STOCKS (COST $861,318) 975,296
- --------------------------------------------------------------------------------
Preferred Stocks -- 0.2%
- --------------------------------------------------------------------------------
7,558 Gulf States Utilities,
$8.64, Cum.............................. 740
17,087 Gulf States Utilities, Adj.,
Dep., Series B.......................... 820
3,455 Gulf States Utilities, Adj.,
Series A................................ 341
TOTAL PREFERRED STOCKS (COST $1,895) 1,901
- --------------------------------------------------------------------------------
Convertible Preferred Stocks -- 4.7%
- --------------------------------------------------------------------------------
75,000 *+California Federal Bank,
Series A................................ 1,500
90,000 Citicorp (144a), 5.375%................... 10,311
375,000 Cooper Industries, $1.60.................. 7,641
180,000 Freeport-McMoRan,
Dep. Shs., Rep. 4....................... 4,230
200,000 Glendale Federal Bank,
8.75%, Series E......................... 5,575
300,000 Mobile Telecommunication
Technologies (144a),
$2.25................................... 8,137
150,000 Newmont Mining,
$2.75 (144a)............................ 7,894
1,840,000 RJR Nabisco, PERCS C...................... 11,040
100,000 Tanger Factory Outlet
Centers, REIT........................... 2,062
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $54,742) 58,390
- --------------------------------------------------------------------------------
Convertible Bonds -- 1.6%
- --------------------------------------------------------------------------------
$ 8,000,000 Banco Nacional de Mexico,
Sub. Deb., 7.00%, 12/15/99.............. 6,300
15,000,000 Delta, Sub. Deb., 3.23%,
6/15/03................................. 10,613
5,000,000 Grupo Financiero
InverMexico, Sub. Deb.
7.50%, 6/16/01 (144a)................... 2,175
TOTAL CONVERTIBLE BONDS (COST $22,778) 19,088
- --------------------------------------------------------------------------------
Corporate Bonds -- 6.7%
- --------------------------------------------------------------------------------
$ 4,000,000 American Standard, Sr.
Sub. Deb., 9.875%, 6/1/01............... $ 3,880
4,250,000 ARA Services, Sr. Notes,
10.625%, 8/1/00......................... 4,462
1,472,700 +California Federal Bank,
Sub. Deb., 10.00%, 1/3/03............... 1,370
10,000,000 Coltec Industries, Sr. Notes,
10.25%, 4/1/02.......................... 9,800
5,000,000 Container Corporation
of America, Sr. Notes,
9.75%, 4/1/03........................... 4,737
4,635,000 Continental Cablevision,
Sr. Deb., 9.00%, 9/1/08................. 4,172
5,000,000 Ferrellgas, Sr. Notes,
10.00%, 8/1/01.......................... 4,925
1,600,000 Flagstar, Sr. Notes,
10.75%, 9/15/01......................... 1,500
5,000,000 Fleming Companies, Sr. Notes,
10.625%, 12/15/01....................... 5,000
3,000,000 Gulf Canada Resources,
Sr. Sub. Deb.,
9.25%, 1/15/04.......................... 2,753
3,000,000 IMC Fertilizer Group,
Sr. Notes, Series B, 9.25%,
10/1/00................................. 2,895
3,000,000 IMC Fertilizer Group,
Sr. Notes, 10.75%, 6/15/03.............. 3,105
5,000,000 O. M. Scott, 9.875%, 8/1/04............... 5,087
5,000,000 Paging Network, Sr. Sub. Notes,
8.875%, 2/1/06.......................... 3,900
5,000,000 Riverwood International,
Sr. Sub. Notes,
10.375%, 6/30/04........................ 4,962
5,000,000 Rowan Companies, Sr. Notes,
11.875%, 12/1/01........................ 5,150
4,000,000 Southern Pacific Rail,
Sr. Notes, 9.375%, 8/15/05.............. 3,720
3,370,000 Stone Container, Sr. Sub.
Notes, 9.875%, 2/1/01................... 3,168
5,000,000 Texas Bottling Group,
Sr. Sub. Notes,
9.00%, 11/15/03......................... 4,350
4,000,000 Westpoint Stevens,
Sr. Notes, 8.75%, 12/15/01.............. 3,680
TOTAL CORPORATE BONDS (COST $84,679) 82,616
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Short-Term Investments -- 7.6%
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- 0.8%
$ 10,000,000 Societe Generale,
5.80%, 3/1/95........................... $ 10,002
COMMERCIAL PAPER -- 6.0%
10,000,000 B.A.T. Capital, 6.03%, 1/6/95............. 9,972
13,000,000 Ciba-Geigy, 6.00%, 1/3/95................. 12,991
10,000,000 Dillard Investment,
6.04%, 1/9/95........................... 9,960
10,000,000 Miles, 5.50%, 2/7/95...................... 9,852
10,000,000 Preferred Receivables
Funding, 5.50%, 1/13/95................. 9,878
1,014,000 President & Fellows
Harvard College,
6.00%, 1/3/95........................... 1,013
10,000,000 Times Mirror, 6.07%,
1/12/95................................. 9,954
10,000,000 Wool International,
6.05%, 1/19/95.......................... 9,940
73,560
MEDIUM-TERM NOTES -- 0.8%
10,000,000 Morgan Stanley Group,
VR, 6.525%, 3/15/95..................... 10,007
TOTAL SHORT-TERM INVESTMENTS (COST $93,569) 93,569
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 100.2%
(COST $1,118,981) 1,230,859
- --------------------------------------------------------------------------------
Other Assets Less Liabilities $ (1,933)
NET ASSETS CONSISTING OF:
Accumulated net investment
income -- net of distributions................... $ 689
Accumulated realized gains/losses --
net of distributions............................. 12,650
Net unrealized gain.................................. 111,878
Paid-in-capital applicable to
78,602,452 shares of $0.01 par
value capital stock outstanding;
500,000,000 shares authorized.................... 1,103,709
----------
NET ASSETS $1,228,926
==========
NET ASSET VALUE PER SHARE $15.63
======
</TABLE>
- --------------------------------------------------------------------------------
* Non-income producing
+ Affiliated company
144a Security was purchased pursuant to Rule 144a under the Securities Act
of 1933 and may not be resold subject to that rule except to qualified
institutional buyers--total of such securities at year-end amounts to
2.3% of net assets.
NLG Dutch guilder
PERCS Participating Equity Redemption Certificates
REIT Real Estate Investment Trust
VR Variable Rate
- --------------------------------------------------------------------------------
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, 1994
<TABLE>
<CAPTION>
(Amounts in thousands)
<S> <C>
INVESTMENT INCOME
Income
Dividends.............................................................. $ 35,409
Interest............................................................... 11,763
--------
Total income........................................................... 47,172
--------
Expenses
Investment management.................................................. 5,984
Shareholder servicing.................................................. 3,185
Custodian and accounting............................................... 202
Prospectus and shareholder reports..................................... 156
Registrations.......................................................... 77
Proxy and annual meeting............................................... 76
Legal and auditing..................................................... 34
Directors.............................................................. 30
Miscellaneous.......................................................... 30
--------
Total expenses......................................................... 9,774
--------
Net investment income.................................................... 37,398
--------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain on:
Securities........................................................... 40,603
Foreign currency transactions........................................ 7
--------
Net realized gain...................................................... 40,610
Change in net unrealized gain or loss on securities.................... (79,873)
--------
Net realized and unrealized loss......................................... (39,263)
--------
DECREASE IN NET ASSETS FROM OPERATIONS $ (1,865)
========
</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,
-----------------------------------
1994 1993
--------------- ---------------
(Amounts in thousands)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income...................................... $ 37,398 $ 30,382
Net realized gain.......................................... 40,610 37,365
Change in net unrealized gain or loss ..................... (79,873) 54,654
---------- ----------
Increase (decrease) in net assets from operations.......... (1,865) 122,401
---------- ----------
Distributions to shareholders
Net investment income...................................... (36,709) (30,491)
Net realized gain.......................................... (31,863) (32,680)
---------- ----------
Decrease in net assets from distributions.................. (68,572) (63,171)
---------- ----------
Capital share transactions/1/
Shares sold................................................ 277,477 417,267
Distributions reinvested................................... 66,473 61,217
Shares redeemed............................................ (212,081) (210,132)
---------- ----------
Increase in net assets from capital share transactions..... 131,869 268,352
---------- ----------
Net equalization............................................. -- 325
---------- ----------
Increase in net assets....................................... 61,432 327,907
NET ASSETS
Beginning of year.......................................... 1,167,494 839,587
---------- ----------
End of year................................................ $1,228,926 $1,167,494
========== ==========
- ------------------------------------------------------------------------------------------------------
/1/Capital share transactions (number of shares)
Shares sold................................................ 16,973 25,384
Distributions reinvested................................... 4,201 3,728
Shares redeemed............................................ (13,023) (12,736)
---------- ----------
Increase in capital shares outstanding..................... 8,151 16,376
========== ==========
</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, 1994
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, 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.
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- Assets and liabilities are converted 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 or losses is reflected as a component of such
gains or losses.
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 and may differ from those determined in accordance with
generally accepted accounting principles. Effective January 1, 1994, the
Fund discontinued the practice of equalization. The results of operations
and net assets were not affected by this change.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term and U.S.
Government securities, aggregated $383,823,000 and $287,099,000,
respectively, for the year ended December 31, 1994.
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, 1994, the aggregate cost of investments for federal
income tax and financial reporting purposes was $1,118,981,000 and
12
<PAGE>
net unrealized gain aggregated $111,878,000, of which $158,020,000 related to
appreciated investments and $46,142,000 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 $511,000 was payable at December 31, 1994. The fee is computed
daily and paid monthly, and consists 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. At December 31, 1994, and for the year then ended,
the effective annual Group Fee rate was 0.34%. 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. (TRPS)
is the Fund's transfer and dividend disbursing agent and provides shareholder
and administrative services to the Fund. T. Rowe Price Retirement Plan Services,
Inc. provides subaccounting and recordkeeping services for certain retirement
accounts invested in the Fund. Additionally, 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. The Fund incurred
expenses pursuant to these related party agreements totaling approximately
$2,870,000 for the year ended December 31, 1994, of which $295,000 was payable
at year-end.
13
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
T. Rowe Price Growth & Income Fund
<TABLE>
<CAPTION>
For a share outstanding throughout each
-------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------
1994 1993 1992 1991 1990
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR........... $16.57 $15.53 $14.16 $11.22 $13.25
------ ------ ------ ------ ------
Investment Activities
Net investment income.................... 0.50 0.46 0.55 0.56 0.56
Net realized and unrealized gain (loss).. (0.53) 1.53 1.57 2.94 (2.02)
------ ------ ------ ------ ------
Total from Investment Activities............. (0.03) 1.99 2.12 3.50 (1.46)
------ ------ ------ ------ ------
Distributions
Net investment income.................... (0.49) (0.47) (0.60) (0.56) (0.56)
Net realized gain........................ (0.42) (0.48) (0.15) -- (0.01)
------ ------ ------ ------ ------
Total Distributions.......................... (0.91) (0.95) (0.75) (0.56) (0.57)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR................. $15.63 $16.57 $15.53 $14.16 $11.22
====== ====== ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return................................. (0.1)% 13.0% 15.3% 31.5% (11.1)%
Ratio of Expenses to Average Net Assets...... 0.81% 0.83% 0.85% 0.93% 0.97%
Ratio of Net Investment Income to
Average Net Assets....................... 3.08% 2.91% 3.75% 4.23% 4.68%
Portfolio Turnover Rate...................... 25.6% 22.4% 29.9% 47.9% 34.6%
Net Assets, End of Year (in thousands)....... $1,228,926 $1,167,494 $839,587 $655,510 $474,970
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Growth & Income Fund, Inc.
In our opinion, the accompanying statement of 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 the T. Rowe Price Growth & Income Fund, Inc. at December 31, 1994, and 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, 1994 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 LLP
Baltimore, Maryland
January 19, 1995
15
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
T. Rowe Price
- -------------
GROWTH & INCOME
FUND
DECEMBER 31, 1994
FOR YIELD, PRICE, LAST TRANSACTION, AND CURRENT BALANCE, 24 HOURS,
7 DAYS A WEEK, CALL:
1-800-638-2587 toll free
625-7676 Baltimore area
FOR ASSISTANCE WITH YOUR EXISTING FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to shareholders and to
others who have received a copy of the prospectus of the T. Rowe Price Growth
& Income Fund(R).
T. Rowe Price
Invest With Confidence(R)
GIF
