- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Annual Report
New America Growth Fund
- --------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------
REPORT HIGHLIGHTS
================================================================================
New America Growth Fund
* Led again by blue chip growth stocks, the
market rose for a record fourth straight year
of returns above 20%.
* The New America Growth Fund's 12-month gain
of 17.89%, while strong in absolute terms,
lagged the fund's peer average and the S&P
500.
* Consumer stocks were the fund's standout
performers, while financial services and
health care services stocks hurt returns.
* The average price/earnings ratio for
portfolio holdings is below that of the S&P
500, even though the portfolio's earnings are
expected to grow faster.
<PAGE>
Fellow Shareholders
Stock prices were extraordinarily volatile in the second half of 1998,
declining sharply in late summer in response to renewed global economic concerns
but then rallying strongly in the fourth quarter to new all-time highs. Driven
by a small number of the largest-capitalization stocks, the S&P 500 Stock Index
rose 9.22% for the six months and 28.57% for the full year, marking a record
fourth consecutive year of gains in excess of 20%.
Other more broad-based market indices, however, registered quite different
results as the average New York Stock Exchange issue fell 1.25% for the year and
the average Nasdaq stock actually fell 11%. Even in the S&P 500, the average
stock gained just 13% for the year.
================================================================================
Performance Comparison
Periods Ended 12/31/98 6 Months 12 Months
- ---------------------- --------- ---------
New America Growth Fund 0.53% 17.89%
S&P 500 9.22 28.57
Lipper Growth Funds Average 6.21 22.86
================================================================================
Your fund kept pace with the S&P 500 in the first half but declined much
more sharply in the third quarter. Despite a strong recovery in the last three
months, The New America Growth Fund trailed the S&P 500 by a wide margin in the
second half and for the full year, as noted in the accompanying performance
table. New America invests in both mid- and large-cap growth issues and had
minimal representation in the narrow list of the largest-cap blue chips, which
drove the S&P 500's return. We trailed the performance of the average growth
fund in 1998 for the same reason. We still think that these market-leading
stocks are at extended valuations, and we continue to find better earnings
growth and more reasonable valuations in stocks outside the very largest
companies.
YEAR-END DISTRIBUTIONS
Your Board of Trustees declared a long-term capital gain of $3.84 per
share, paid on December 17 to shareholders of record on December 15. You should
have already received a check or statement reflecting this distribution, as well
as our Form 1099-DIV reporting it for tax purposes.
<PAGE>
================================================================================
Preparing For The Year 2000
- --------------------------------------------------------------------------------
The Year 2000 draws closer every day, and it holds special meaning beyond
the arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all
new systems process and store four-digit years. All critical systems have been
reprogrammed (including business applications required to service our customers
and processing infrastructure necessary to ensure the integrity of customer data
and investments), and they are currently being tested. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be able
to modify their interface files prior to December 31, 1999. In addition, we are
scheduling tests for critical vendors and companies that claim Year 2000
compliance to ensure that time-related data and calculations function properly
as we move into the next century.
SMOOTH TRANSITION PLANNED
We believe our programs and initiatives will provide a smooth transition
into the next millennium. We are assessing all systems providing products or
services to our retail mutual fund shareholders, retirement plan sponsors, and
participants, and we have modified them where necessary for the Year 2000.
The Securities Industry Association (SIA) is coordinating Year 2000 testing
to assure that securities markets, clearing corporations, depositories, and
third party service providers can send, receive, and process files and
transactions accurately. In late July 1998, the SIA completed a beta test of
Year 2000 readiness. The test was considered successful in terms of transactions
completed and will serve as the basis for the SIA's industry-wide approach.
During October 1998, T. Rowe Price completed its beta test of Year 2000
readiness with the SIA and is ready for the industry-wide test that is scheduled
for March and April 1999.
For a more detailed discussion of our Year 2000 effort, as well as
continuing updates on our progress, please check our Web site
(WWW.TROWEPRICE.COM).
================================================================================
<PAGE>
MARKET ENVIRONMENT
The U.S. economy performed exceptionally well again in 1998, providing an
excellent backdrop for the financial markets. Last year marked the eighth
consecutive year of economic growth, one of the longest such periods in U.S.
history. The consumer sector, which accounts for over two-thirds of GDP, was the
main engine for growth as employment levels surged and the jobless rate fell to
lows not seen in recent history. The manufacturing sector, however, showed mixed
results due to weakness in many other economies around the world and increased
global competition. Corporate earnings rose overall, but more companies
experienced downturns than at any time since the 1990-1991 recession.
The lack of any meaningful inflationary pressure was another positive for
the financial markets. The consumer price index rose less than 2% in 1998 as
commodity prices, including oil, were extremely weak and labor rates remained
under control despite record employment. Low inflation, slower overall economic
growth, and a generally strong dollar helped push yields on long-term Treasury
bonds below 5% for the first time in 30 years. This "virtuous circle" was then
completed as low interest rates in turn led to higher price/earnings ratios and
higher overall stock prices.
Investor confidence also remained robust during the year, and mutual fund
inflows were sizable but below the record levels of 1996 and 1997. Investors all
but ignored Washington as the midterm elections proved to be a nonevent and Wall
Street paid little attention to President Clinton's growing legal problems, even
as the impeachment process moved forward at year-end.
The market did, however, experience its sharpest correction since 1990 in
the third quarter as stock prices fell 20% from peak to trough. The catalyst for
the sell-off was a financial crisis in Russia and several other developing
nations and related concern about the potential impact on many of our largest
financial institutions, which had direct and indirect exposure to these suddenly
questionable credits. This led to a credit squeeze here at home, but fortunately
Federal Reserve Chairman Alan Greenspan took swift action, lowering interest
rates in three successive steps beginning September 30, and stock prices then
rebounded to record levels.
As discussed at the outset, the S&P 500's strong return masked weakness
beneath the surface, as the average stock substantially trailed the overall
performance. Market leadership was extremely narrow, a phenomenon that typically
occurs late in a market cycle. Growth stocks were favored in 1998 as slower
economic growth and weakness in the cyclical manufacturing and industrial
sectors drove investors to companies with more assured growth prospects. Very
large blue chip growth companies became a safe haven for investors, although
smaller and mid-size growth companies did not receive the same attention. We
were disappointed that our portfolio of primarily domestic, high-growth,
service-based businesses of all sizes did not receive more investor focus.
<PAGE>
PORTFOLIO REVIEW
Consumer stocks, especially retailers, were the fund's standout performers
in the last six months. Favorable employment trends and high consumer confidence
led to strong retail sales. Five of the fund's top 10 contributors in the latest
six-month period were retailers, led by OFFICE DEPOT and HOME DEPOT. We
reestablished a position in Office Depot, a former holding, when the company
acquired another fund holding, VIKING OFFICE PRODUCTS. Home Depot is a long-time
holding, first bought in 1992. Food retailers SAFEWAY and FRED MEYER were also
strong performers.
We added several new retailers -- WILLIAMS-SONOMA, ABERCROMBIE & FITCH, and
SAKS -- to the portfolio in September and October when the market was concerned
about the economic outlook. All rose sharply by year-end from their initial
purchase prices.
Communications companies were also very strong performers for the second
half as well as the full year. MCI WORLDCOM and AIR TOUCH COMMUNICATIONS, the
fund's two largest holdings at year-end, were our top contributors for all of
1998. MCI WorldCom, the long distance carrier that was the product of the merger
last year between MCI and WorldCom, more than doubled in price during the year.
We owned both companies prior to the merger. AirTouch, the leading domestic
wireless-communications company, which became the subject of takeover
speculation itself around year-end, rose nearly 75% in 1998.
Fund performance was hurt in the second half by our financial services and
health care holdings. Turmoil in the financial markets led to price declines for
FRANKLIN RESOURCES and MORGAN STANLEY DEAN WITTER, though Morgan Stanley
recovered substantially. Health care services was our worst-performing group as
continued pressures on service providers led to sharp declines in our holdings,
including QUORUM HEALTH GROUP, CONCENTRA MANAGED CARE, and PHYCOR.
================================================================================
Sector Diversification
12/31/97 6/30/98 12/31/98
-------- ------- --------
Financial Services 18.6% 16.0% 15.4%
Consumer Services 35.2 35.7 39.6
Business Services 40.7 44.1 44.8
Reserves 5.5 4.2 0.2
Total 100.0% 100.0% 100.0%
================================================================================
<PAGE>
Our worst performer for the year was CENDANT, the fund's largest holding at
year-end 1997. Cendant's stock dropped precipitously in April when the company
announced the discovery of accounting irregularities. We reduced our position
significantly following this announcement. The stock continued to decline in the
summer and early fall as the accounting fraud was deeper than originally
thought, and as it took longer than expected for the company to get its arms
around the situation. When the stock fell below $10 in early October, down from
a high of over $40 in April, we repurchased much of what we had sold. The stock
has nearly doubled since our latest purchases, and the company is making
substantial headway in resolving its accounting and legal problems. The company
continues to be solidly profitable and generate sustainable free cash flow. We
have confidence that management is taking the right steps to get the company
back on track.
Changes in sector weightings were relatively modest during the year. As the
accompanying table shows, we reduced our holdings of financial services stocks,
principally by trimming some insurance positions. The increase in consumer
services shown in the Sector Diversification table reflects the addition of the
retailers mentioned earlier. Business services holdings increased due to the
continued buildup in media services positions, including new holdings in FOX
ENTERTAINMENT GROUP and INFINITY BROADCASTING.
OUTLOOK
The stock market enters 1999 healthy on the surface but with some
disturbing undercurrents. The S&P 500 is near all-time highs reflecting a
still-growing economy, low inflation and interest rates, and strong investor
confidence. But market leadership is very narrow.
================================================================================
Portfolio Characteristics
- -------------------------
New America
As of 12/31/98 Growth Fund S&P 500
- -------------- ----------- -------
Earnings Growth Rate
Estimated Next 5 Years* 20.9% 13.6%
Profitability -- Return on
Equity Latest 12 Months 18.4% 23.4%
Dividend Yield on Stocks 0.3% 1.3%
P/E Ratio (Based on next 12 Months'
Estimated Earnings) 23.8X 25.4X
- --------------------------------------------------------------------------------
* Forecasts are based on T. Rowe Price research and are in no way indicative
of future investment returns.
================================================================================
<PAGE>
The average NYSE stock at year-end was 28% below its 1998 high, and the
average Nasdaq stock was 38% below its high. Only 57% of all public companies
reported an increase in earnings in their latest quarter. The speculation in any
stock even remotely related to the Internet is worrisome and symptomatic of a
market top.
We believe strong employment trends and continued low inflation make
another year of positive economic growth highly likely. Continued worldwide
economic and financial turbulence plus market speculation here at home suggest
that the stock market will remain highly volatile in 1999. While the market
leaders have extended valuations, most stocks, including the New America Growth
Fund's portfolio holdings, are more reasonably valued. Based on our research
analysts' estimates, we believe our portfolio will show earnings growth over the
next five years of 20.9% annually compared with 13.6% for the S&P 500, as shown
in the table. Yet the average price/earnings ratio for the portfolio's holdings
is 23.8 times estimated calendar 1999 earnings, a discount to the S&P 500's P/E
of 25.4 times. We believe the portfolio is positioned for improved relative
performance in 1999.
Respectfully submitted,
/s/
John H. Laporte
President and Chairman of the Investment Advisory Committee
/s/
Brian W.H. Berghuis
Executive Vice President
January 25, 1999
================================================================================
T. Rowe Price New America Growth Fund
- --------------------------------------------------------------------------------
Portfolio Highlights
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/98
- -----------------------------------------------------------
MCI WorldCom 3.5%
- -----------------------------------------------------------
AirTouch Communications 3.1
- -----------------------------------------------------------
Office Depot 2.9
- -----------------------------------------------------------
Comcast 2.7
- -----------------------------------------------------------
Waste Management 2.6
- -----------------------------------------------------------
<PAGE>
Cendant 2.5
- -----------------------------------------------------------
Freddie Mac 2.5
- -----------------------------------------------------------
Chancellor Media 2.3
- -----------------------------------------------------------
Outdoor Systems 2.3
- -----------------------------------------------------------
Telecom Liberty Media 2.2
- -----------------------------------------------------------
Home Depot 2.1
- -----------------------------------------------------------
The CITGroup 2.1
- -----------------------------------------------------------
Affiliated Computer Services 2.0
- -----------------------------------------------------------
Fred Meyer 2.0
- -----------------------------------------------------------
Circuit City Stores 1.9
- -----------------------------------------------------------
Costco Companies 1.9
- -----------------------------------------------------------
Carnival 1.9
- -----------------------------------------------------------
BISYS Group 1.8
- -----------------------------------------------------------
Acxiom 1.8
- -----------------------------------------------------------
AutoZone 1.8
- -----------------------------------------------------------
Galileo International 1.8
- -----------------------------------------------------------
Total Renal Care Holdings 1.8
- -----------------------------------------------------------
Associates First Capital 1.7
- -----------------------------------------------------------
SunGard Data Systems 1.7
- -----------------------------------------------------------
Catalina Marketing 1.6
- -----------------------------------------------------------
Total 54.5%
================================================================================
<PAGE>
T. Rowe Price New America Growth Fund
Portfolio Highlights
CONTRIBUTIONS TO THE NET ASSET VALUE PER SHARE
6 Months Ended 12/31/98
Ten Best Contributors
- --------------------------------------------------------------------------------
MCIWorldCom 61(cent)
- ------------------------------------------------
Comcast 42
- ------------------------------------------------
Office Depot * 42
- ------------------------------------------------
Freddie Mac 34
- ------------------------------------------------
Home Depot 34
- ------------------------------------------------
Williams-Sonoma * 34
- ------------------------------------------------
Fred Meyer 30
- ------------------------------------------------
AirTouch Communications 30
- ------------------------------------------------
Safeway 27
- ------------------------------------------------
Catalina Marketing 21
- ------------------------------------------------
Total 355(cent)
Ten Worst Contributors
- --------------------------------------------------------------------------------
General Nutrition -59(cent)
- ------------------------------------------------
Franklin Resources 53
- ------------------------------------------------
Cole National 46
- ------------------------------------------------
Sinclair Broadcast Group ** 43
- ------------------------------------------------
Paging Network ** 39
- ------------------------------------------------
Concentra Managed Care 38
- ------------------------------------------------
Quorum Health Group 36
- ------------------------------------------------
Republic Industries ** 36
- ------------------------------------------------
PhyCor ** 29
- ------------------------------------------------
Schlumberger 28
- ------------------------------------------------
Total -407(cent)
<PAGE>
12 Months Ended 12/31/98
Ten Best Contributors
- --------------------------------------------------------------------------------
MCIWorldCom 103(cent)
- -----------------------------------------------
AirTouch Communications 71
- -----------------------------------------------
Comcast 68
- -----------------------------------------------
Home Depot 60
- -----------------------------------------------
Telecom Liberty Media 56
- -----------------------------------------------
Outdoor Systems 50
- -----------------------------------------------
Carnival 46
- -----------------------------------------------
Safeway 45
- -----------------------------------------------
Freddie Mac 45
- -----------------------------------------------
Affiliated Computer Services 43
- -----------------------------------------------
Total 587(cent)
Ten Worst Contributors
- --------------------------------------------------------------------------------
Cendant -80(cent)
- -----------------------------------------------
General Nutrition 65
- -----------------------------------------------
PhyCor ** 51
- -----------------------------------------------
Concentra Managed Care * 47
- -----------------------------------------------
Quorum Health Group 35
- -----------------------------------------------
Republic Industries ** 33
- -----------------------------------------------
Smith International 31
- -----------------------------------------------
Sinclair Broadcast Group ** 30
- -----------------------------------------------
Cole National 26
- -----------------------------------------------
Paging Network ** 25
- -----------------------------------------------
Total -423(cent)
* Position added
** Position eliminated
================================================================================
<PAGE>
T. Rowe Price New America Growth Fund
- --------------------------------------------------------------------------------
Performance Comparison
This chart shows the value of a hypothetical $10,000 investment in the fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or index.
The index return does not reflect expenses, which have been deducted from the
fund's return.
Average Annual Compound Total Return
This table shows how the fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Periods Ended 12/31/98 1 Year 3 Years 5 Years 10 Years
- ---------------------- ------ ------- ------- --------
New America Growth Fund 17.89% 19.66% 18.01% 19.24%
- --------------------------------------------------------------------------------
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
================================================================================
<PAGE>
T. Rowe Price New America Growth Fund
For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Year
Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
-------- -------- -------- -------- --------
NET ASSET VALUE
Beginning of period $ 44.19 $ 38.37 $ 34.91 $ 25.42 $ 28.04
- -------------------------------------------------------------------------------
Investment activities
Net investment income (0.21) (0.13) (0.13) (0.12) (0.07)
Net realized and
unrealized gain (loss) 7.65 8.15 7.08 11.36 (2.02)
- -------------------------------------------------------------------------------
Total from
investment activities 7.44 8.02 6.95 11.24 (2.09)
- -------------------------------------------------------------------------------
Distributions
Net realized gain (3.84) (2.20) (3.49) (1.75) (0.53)
- -------------------------------------------------------------------------------
NET ASSET VALUE
===============================================================================
End of period $ 47.79 $ 44.19 $ 38.37 $ 34.91 $ 25.42
Ratios/Supplemental=Data=======================================================
Total return* 17.89% 21.10% 20.01% 44.31% (7.43)%
- -------------------------------------------------------------------------------
Ratio of expenses to
average net assets 0.95% 0.96% 1.01% 1.07% 1.14%
- -------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets (0.49)% (0.34)% (0.39)% (0.46)% (0.27)%
- -------------------------------------------------------------------------------
Portfolio turnover rate 45.6% 43.2% 36.7% 56.2% 31.0%
- -------------------------------------------------------------------------------
Net assets, end of period
(in millions) $ 2,064 $ 1,758 $ 1,440 $ 1,028 $ 646
- -------------------------------------------------------------------------------
* Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price New America Growth Fund
December 31, 1998
Statement of Net Assets
Shares Value
------ -----
In thousands
- ------------
COMMON STOCKS 99.9%
FINANCIAL=SERVICES==15.4%==========================================
Bank and Trust 1.5%
Wells Fargo 775,000 $ 30,951
- -------------------------------------------------------------------
30,951
- -------------------------------------------------------------------
Insurance 2.3%
ACE Limited 525,000 18,080
- -------------------------------------------------------------------
Fairfax Financial (CAD) * 40,000 14,131
- -------------------------------------------------------------------
MGIC Investment 375,000 14,930
- -------------------------------------------------------------------
47,141
- -------------------------------------------------------------------
Investment Services 3.9%
Franklin Resources 1,000,000 32,000
- -------------------------------------------------------------------
Morgan Stanley Dean Witter 400,000 28,400
- -------------------------------------------------------------------
Waddell & Reed Financial (Class B) * 871,100 20,253
- -------------------------------------------------------------------
80,653
- -------------------------------------------------------------------
Other Financial Services 7.7%
Associates First Capital (Class A) 850,000 36,019
- -------------------------------------------------------------------
Fannie Mae 385,000 28,490
- -------------------------------------------------------------------
Freddie Mac 800,000 51,550
- -------------------------------------------------------------------
The CIT Group (Class A) 1,350,000 42,947
- -------------------------------------------------------------------
159,006
- -------------------------------------------------------------------
Total Financial Services 317,751
CONSUMER=SERVICES==39.6%===========================================
<PAGE>
Retailing/General Merchandisers 5.6%
Costco Companies * 550,000 39,789
- -------------------------------------------------------------------
Fred Meyer * 700,000 42,175
- -------------------------------------------------------------------
Safeway * 344,100 20,969
- -------------------------------------------------------------------
Saks * 425,000 13,414
- -------------------------------------------------------------------
116,347
- -------------------------------------------------------------------
Retailing/Specialty Merchandisers 12.6%
Abercrombie & Fitch (Class A) * 235,000 16,626
- -------------------------------------------------------------------
AutoZone * 1,125,000 37,055
- -------------------------------------------------------------------
Circuit City Stores 800,000 39,950
- -------------------------------------------------------------------
Cole National (Class A) * + 940,000 16,098
- -------------------------------------------------------------------
General Nutrition * 1,450,000$ 23,517
- -------------------------------------------------------------------
Home Depot 705,000 43,137
- -------------------------------------------------------------------
Office Depot * 1,625,000 60,023
- -------------------------------------------------------------------
Williams-Sonoma * 600,000 24,188
- -------------------------------------------------------------------
260,594
- -------------------------------------------------------------------
Entertainment and Leisure 4.4%
Carnival (Class A) 806,800 38,726
- -------------------------------------------------------------------
Extended Stay America * 2,000,000 21,000
- -------------------------------------------------------------------
Premier Parks * 1,000,000 30,250
- -------------------------------------------------------------------
89,976
- -------------------------------------------------------------------
Restaurants/Food Distribution 1.5%
Outback Steakhouse * 775,000 30,855
- -------------------------------------------------------------------
30,855
- -------------------------------------------------------------------
Personal Services 7.7%
Apollo Group (Class A) * 800,000 27,050
- -------------------------------------------------------------------
Avis Rent A Car * 1,175,000 28,420
- -------------------------------------------------------------------
Cendant * 2,750,000 52,422
- -------------------------------------------------------------------
Service Corp. International 475,000 18,080
- -------------------------------------------------------------------
Sylvan Learning Systems * 1,050,000 32,058
- -------------------------------------------------------------------
158,030
- -------------------------------------------------------------------
<PAGE>
Communications 7.8%
AirTouch Communications * 900,000 64,912
- -------------------------------------------------------------------
MCI WorldCom * 1,000,000 71,781
- -------------------------------------------------------------------
Western Wireless * 1,125,000 24,715
- -------------------------------------------------------------------
161,408
- -------------------------------------------------------------------
Total Consumer Services 817,210
BUSINESS=SERVICES==44.5%===========================================
Health Care Services 4.0%
Concentra Managed Care * 1,190,300 12,610
- -------------------------------------------------------------------
McKesson 280,000 22,138
- -------------------------------------------------------------------
Quorum Health Group * 850,000 10,970
- -------------------------------------------------------------------
Total Renal Care Holdings * 1,250,000 36,953
- -------------------------------------------------------------------
82,671
- -------------------------------------------------------------------
Computer Services 10.4%
Acxiom * 1,200,000 37,125
- -------------------------------------------------------------------
Affiliated Computer Services (Class A) * 940,000 42,300
- -------------------------------------------------------------------
BISYS Group * 725,000$ 37,383
- -------------------------------------------------------------------
First Data 875,000 27,726
- -------------------------------------------------------------------
Galileo International 850,000 36,975
- -------------------------------------------------------------------
SunGard Data Systems * 860,500 34,151
- -------------------------------------------------------------------
215,660
- -------------------------------------------------------------------
Environmental Services 4.1%
Allied Waste Industries * 1,300,000 30,712
- -------------------------------------------------------------------
Waste Management 1,150,000 53,619
- -------------------------------------------------------------------
84,331
- -------------------------------------------------------------------
<PAGE>
Other Business Services 8.4%
ADVO * 775,000 20,441
- -------------------------------------------------------------------
Catalina Marketing * 475,000 32,478
- -------------------------------------------------------------------
Gartner Group (Class A) * 875,000 18,594
- -------------------------------------------------------------------
Interim Services * 1,200,000 28,050
- -------------------------------------------------------------------
Metamor Worldwide * 1,075,000 26,673
- -------------------------------------------------------------------
Modis Professional Services * 2,000,000 29,000
- -------------------------------------------------------------------
Paychex 375,000 19,301
- -------------------------------------------------------------------
174,537
- -------------------------------------------------------------------
Energy Services 1.7%
Schlumberger 525,000 24,216
- -------------------------------------------------------------------
Smith International * 400,000 10,075
- -------------------------------------------------------------------
34,291
- -------------------------------------------------------------------
Media Services 15.0%
Chancellor Media * 1,000,000 47,843
- -------------------------------------------------------------------
Comcast (Class A Special) 950,000 55,783
- -------------------------------------------------------------------
Fox Entertainment Group * 1,200,000 30,225
- -------------------------------------------------------------------
Infinity Broadcasting * 986,300 27,000
- -------------------------------------------------------------------
Jacor Communications * 500,000 32,344
- -------------------------------------------------------------------
Outdoor Systems * 1,575,000 47,250
- -------------------------------------------------------------------
Telecom Liberty Media * 1,000,000 46,094
- -------------------------------------------------------------------
Tribune 350,000 23,100
- -------------------------------------------------------------------
309,639
- -------------------------------------------------------------------
Transportation Services 0.9%
Coach USA * 523,300 18,152
- -------------------------------------------------------------------
18,152
- -------------------------------------------------------------------
Total Business Services 919,281
- -------------------------------------------------------------------
Total Miscellaneous Common Stocks 0.4% 6,837
- -------------------------------------------------------------------
<PAGE>
===================================================================
Total Common Stocks (Cost $1,255,506) 2,061,079
SHORT-TERM=INVESTMENTS==0.6%=======================================
Money Market Funds 0.6%
Reserve Investment Fund, 5.42% # 12,832,623 $ 12,833
Total Short-Term Investments (Cost $12,833) 12,833
=Total=Investments=in=Securities===================================
100.5% of Net Assets (Cost $1,268,339) $2,073,912
Other Assets Less Liabilities (9,464)
NET ASSETS $2,064,448
Net Assets Consist of:
Accumulated net realized gain/loss
- net of distributions $ 37,085
Net unrealized gain (loss) 805,573
Paid-in-capital applicable to 43,198,645 shares
of no par value capital stock outstanding;
unlimited number of shares authorized 1,221,790
NET ASSETS $2,064,448
NET ASSET VALUE PER SHARE $ 47.79
- --------------------------------------------------------------------------------
+ Affiliated company
* Non-income producing
# Seven day yield
CAD Canadian dollar
================================================================================
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price New America Growth Fund
Statement of Operations
In thousands
- ------------
Year
Ended
12/31/98
=Investment=Income=====================================
Income
Dividend $ 5,322
Interest 3,442
- -------------------------------------------------------
Total income 8,764
- -------------------------------------------------------
Expenses
Investment management 12,703
Shareholder servicing 4,757
Prospectus and shareholder reports 227
Custody and accounting 160
Registration 85
Legal and audit 14
Trustees 11
Miscellaneous 12
- -------------------------------------------------------
Total expenses 17,969
- -------------------------------------------------------
Net investment income (9,205)
- -------------------------------------------------------
=Realized=and=Unrealized=Gain=(Loss)===================
Net realized gain (loss) on securities 146,088
Change in net unrealized gain
or loss on securities 169,824
- -------------------------------------------------------
Net realized and unrealized gain (loss) 315,912
- -------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $306,707
=======================================================
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price New America Growth Fund
Statement of Changes in Net Assets
In thousands
Year
Ended
12/31/98 12/31/97
==Increase=(Decrease)=in=Net=Assets===============================
Operations
Net investment income $ (9,205) $ (5,243)
Net realized gain (loss) 146,088 101,824
Change in net unrealized gain or loss 169,824 204,800
- ------------------------------------------------------------------
Increase (decrease) in net assets
from operations 306,707 301,381
- ------------------------------------------------------------------
Distributions to shareholders
Net realized gain (153,725) (83,203)
- ------------------------------------------------------------------
Capital share transactions *
Shares sold 553,381 407,110
Distributions reinvested 149,481 81,127
Shares redeemed (549,281) (388,719)
- ------------------------------------------------------------------
Increase (decrease) in net
assets from capital
share transactions 153,581 99,518
==Net=Assets======================================================
Increase (decrease) during period 306,563 317,696
Beginning of period 1,757,885 1,440,189
End of period $2,064,448 $1,757,885
==================================================================
*Share information
Shares sold 11,747 9,833
Distributions reinvested 3,508 1,898
Shares redeemed (11,832) (9,494)
- ------------------------------------------------------------------
Increase (decrease) in shares
outstanding 3,423 2,237
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. Rowe Price New America Growth Fund
December 31, 1998
Notes to Financial Statements
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price New America Fund (the fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company and commenced operations on September 30, 1985.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company industry;
these principles may require the use of estimates by fund management.
Valuation Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price on the day the valuations are
made. A security which is listed or traded on more than one exchange is valued
at the quotation on the exchange determined to be the primary market for such
security. Listed securities not traded on a particular day and securities
regularly traded in the over-the-counter market are valued at the mean of the
latest bid and asked prices. Other equity securities are valued at a price
within the limits of the latest bid and asked prices deemed by the Board of
Trustees, or by persons delegated by the Board, best to reflect fair value.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
For purposes of determining the fund's net asset value per share, the U.S.
dollar value of all assets and liabilities initially expressed in foreign
currencies is determined by using the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by a major bank.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by or under the supervision of the officers of the
fund, as authorized by the Board of Trustees.
Affiliated Companies As defined by the Investment Company Act of 1940, an
affiliated company is one in which the fund owns at least 5% of the outstanding
voting securities.
Currency Translation Assets and liabilities are translated into U.S.
dollars at the prevailing exchange rate at the end of the reporting period.
Purchases and sales of securities and income and expenses are translated into
U.S. dollars at the prevailing exchange rate on the dates of such transactions.
The effect of changes in foreign exchange rates on realized and unrealized
security gains and losses is reflected as a component of such gains and losses.
Other Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles.
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NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $918,074,000 and $834,298,000, respectively, for the year
ended December 31, 1998.
NOTE3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of its
taxable income.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended December 31, 1998. The results
of operations and net assets were not affected by the increases/(decreases) to
these accounts.
At December 31, 1998, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$1,268,339,000. Net unrealized gain aggregated $805,573,000 at period-end, of
which $837,503,000 related to appreciated investments and $31,930,000 to
depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management fee,
of which $1,091,000 was payable at December 31, 1998. The fee is computed daily
and paid monthly, and consists of an individual fund fee equal to 0.35% of
average daily net assets and a group fee. The group fee is based on the combined
assets of certain mutual funds sponsored by the manager or Rowe Price-Fleming
International, Inc. (the group). The group fee rate ranges from 0.48% for the
first $1 billion of assets to 0.30% for assets in excess of $80 billion. At
December 31, 1998, and for the year then ended, the effective annual group fee
rate was 0.32% The fund pays a pro-rata share of the group fee based on the
ratio of its net assets to those of the group.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund receives
certain other services. The manager computes the daily share price and maintains
the financial records of the fund. T. Rowe Price Services, Inc. is the fund's
transfer and dividend disbursing agent and provides shareholder and
administrative services to the fund. T. Rowe Price Retirement Plan Services,
Inc. provides subaccounting and recordkeeping services for certain retirement
accounts invested in the fund. The fund incurred expenses pursuant to these
related party agreements totaling approximately $4,074,000 for the year ended
December 31, 1998, of which $360,000 was payable at period-end.
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The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not available to the public.
The Reserve Funds pay no investment management fees. Distributions from the
Reserve Funds to the fund for the year ended December 31, 1998, totaled
$3,442,000 and are reflected as interest income in the accompanying Statement of
Operations.
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T. Rowe Price New America Growth Fund
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Undistributed net investment income $ 9,205,000
Undistributed net realized gain (3,111,000)
Paid-in-capital (6,094,000)
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T. Rowe Price New America Growth Fund
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Report of Independent Accountants
To the Board of Trustees and Shareholders of
T. Rowe Price New America Growth Fund
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
T. Rowe Price New America Growth Fund (the "Fund") at December 31, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with custodians, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 21, 1999
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T. Rowe Price New America Growth Fund
Tax Information (Unaudited) for the Tax Year Ended 12/31/98
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's distributions included $153,725,000 from long-term capital
gains, subject to the 20% rate gains category.
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FOR YIELD, PRICE, LAST TRANSACTION,
CURRENT BALANCE, OR TO CONDUCT
TRANSACTIONS, 24 HOURS, 7 DAYS
A WEEK, CALL TELE*ACCESS [REGISTRATION MARK]:
1-800-638-2587 toll free
FOR ASSISTANCE
WITH YOUR EXISTING
FUND ACCOUNT, CALL:
shareholder service center
1-800-225-5132 toll free
410-625-6500 Baltimore area
TO OPEN A BROKERAGE ACCOUNT
OR OBTAIN INFORMATION, CALL:
1-800-638-5660 toll free
INTERNET ADDRESS:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price New America Growth
Fund [Registration Mark.]
INVESTOR CENTERS:
101 East Lombard St.
Baltimore, MD 21202
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T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor. F60-050 12/31/98
