<PAGE>1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Section 240.14a-11(c) or
Section 240.14a-12
T. ROWE PRICE CAPITAL APPRECIATION FUND
_________________________________________________________________
(Name of Registrant as Specified in its Charter)
T. ROWE PRICE CAPITAL APPRECIATION FUND
_________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
_________________________________________________________
2) Aggregate number of securities to which transaction
applies:
_________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: (1)
_________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________
1 Set forth the amount on which the filing fee is calculated and
state how it was determined.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing,
1) Amount previously paid:
_________________________________________________________
2) Form, schedule, or Registration Statement no.:
_________________________________________________________
<PAGE>2
3) Filing party:
_________________________________________________________
4) Date filed:
_________________________________________________________
<PAGE>3
Proxy for the T. Rowe Price New America Growth Fund should be
inserted here.
<PAGE>1
T. ROWE PRICE
_________________________________________________________________
T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore,
MD 21202
James S. Riepe
Managing Director
Dear Shareholder:
All of the T. Rowe Price mutual funds will hold shareholder
meetings in 1994 to elect trustees, ratify the selection of
independent accountants, and approve amendments to a number of
investment policies.
The T. Rowe Price funds are not required to hold annual
meetings each year if the only items of business are to elect
trustees or ratify accountants. In order to save fund expenses,
most of the funds have not held annual meetings for a number of
years. There are, however, conditions under which the funds must
solicit shareholder approval of trustees, and one is to comply
with a requirement that a minimum number have been elected by
shareholders, not appointed by the funds' boards. Since the last
annual meetings of the T. Rowe Price funds, several trustees have
retired and new trustees have been added. In addition, a number
of trustees will be retiring in the near future.
Given this situation, we believed it appropriate to hold
annual meetings for all the T. Rowe Price funds in 1994. At the
same time, we reviewed the investment policies of all of the
funds for consistency and to assure the portfolio managers have
the flexibility they need to manage your money in today's fast
changing financial markets. The changes being recommended, which
are explained in detail in the enclosed proxy material, do not
alter the funds' investment objectives or basic investment
programs. In the case of the T. Rowe Price New America Growth
Fund, the wording in the investment objective has been changed to
clarify the investment approach and basic philosophy underlying
the fund's objective, which has essentially remained the same.
In many cases the proposals are common to several funds, so
we have combined certain proxy statements to save on fund
expenses. For those of you who own more than one of these funds,
the combined proxy may also save you the time of reading more
than one document before you vote and mail your ballots. The
<PAGE>2
proposals which are specific to an individual fund are easily
identifiable on the Notice and in the proxy statement discussion.
If you own more than one fund, please note that each fund has a
separate card. You should vote and sign each one, then return
all of them to us in the enclosed postage-paid envelope.
Your early response will be appreciated and could save your
fund the substantial costs associated with a follow-up mailing.
We know we are asking you to review a rather formidable proxy
statement, but this approach represents the most efficient one
for your fund as well as for the other funds. Thank you for your
cooperation. If you have any questions, please call us at 1-800-
225-5132.
Sincerely,
James S. Riepe
Director, Mutual Funds Division
CUSIP#779557107/fund#060
CUSIP#779547108/fund#071
CUSIP#77954M105/fund#072
<PAGE>3
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
Notice of Meeting of Shareholders
April 20, 1994
The Annual Meeting of Shareholders of the T. Rowe Price New
America Growth Fund ("New America Growth Fund"), T. Rowe Price
Equity Income Fund ("Equity Income Fund"), and T. Rowe Price
Capital Appreciation Fund ("Capital Appreciation Fund") (each a
"Fund" and collectively the "Funds"), each a Massachusetts
Business Trust, will be held on Wednesday, April 20, 1994, at the
offices of the Funds, 100 East Pratt Street, Baltimore, Maryland
21202. The times for the Annual Meeting are 8:00 o'clock a.m.,
Eastern time, for the New America Growth Fund and 9:30 o'clock
a.m., Eastern time, for the Equity Income and Capital
Appreciation Funds. The following matters will be acted upon at
that time:
1. For the shareholders of each Fund: To elect trustees
for the Fund in which you invest to serve until the
next annual meeting, if any, or until their successors
shall have been duly elected and qualified;
2. For the shareholders of each Fund:
A. To amend each Fund's fundamental policies to
increase its ability to engage in borrowing
transactions;
B. To amend each Fund's fundamental policies on
investing in commodities and futures contracts to
permit greater flexibility in futures trading;
C. To amend each Fund's fundamental policies to
increase its ability to engage in lending
transactions;
D. To change from a fundamental to an operating policy
each Fund's policy on purchasing securities on
margin;
E. To change from a fundamental to an operating policy
each Fund's policy on pledging assets;
CUSIP#779557107/fund#060
CUSIP#779547108/fund#071
CUSIP#77954M105/fund#072
<PAGE>4
F. To amend each Fund's fundamental policies to permit
the Fund to purchase more than 10% of an issuer's
voting securities;
G. To amend each Fund's fundamental policies
concerning real estate;
H. To change from a fundamental to an operating policy
each Fund's policy on short sales;
I. To amend each Fund's fundamental policies on the
issuance of senior securities;
J. To change from a fundamental to an operating policy
each Fund's policy on unseasoned issuers;
For the shareholders of New America Growth and Capital
Appreciation Funds only:
K. To amend each Fund's fundamental policy on industry
concentration;
For the shareholders of Equity Income and Capital
Appreciation Funds only:
L. To change from a fundamental to an operating policy
each Fund's policy on purchasing illiquid
securities;
For the shareholders of Equity Income Fund only:
M. To amend each Fund's fundamental policies to
increase the percentage of Fund assets which may be
invested in the securities of any single issuer;
3. For the shareholders of each Fund: To ratify or reject
the selection of the firms of Price Waterhouse as the
independent accountants for the New America Growth and
Equity Income Funds and Coopers & Lybrand as the
independent accountants for the Capital Appreciation
Fund for the fiscal year 1994;
4. For the shareholders of New America Growth Fund only:
To amend the Fund's investment objective to delete
income as a secondary objective; and
<PAGE>5
5. To transact such other business as may properly come
before the meeting and any adjournments thereof.
LENORA V. HORNUNG
Secretary
March 4, 1994
100 East Pratt Street
Baltimore, Maryland 21202
_________________________________________________________________
YOUR VOTE IS IMPORTANT
Shareholders are urged to designate their choices on each of the
matters to be acted upon and to date, sign, and return the
enclosed proxy in the envelope provided, which requires no
postage if mailed in the United States. Your prompt return of
the proxy will help assure a quorum at the meeting and avoid the
additional Fund expense of further solicitation.
_________________________________________________________________
<PAGE>6
T. ROWE PRICE NEW AMERICA GROWTH FUND
T. ROWE PRICE EQUITY INCOME FUND
T. ROWE PRICE CAPITAL APPRECIATION FUND
Meeting of Shareholders--April 20, 1994
PROXY STATEMENT
This statement is furnished in connection with the
solicitation of proxies by the T. Rowe Price New America Growth
Fund (the "New America Growth Fund"), the T. Rowe Price Equity
Income Fund (the "Equity Income Fund"), and the T. Rowe Price
Capital Appreciation Fund (the "Capital Appreciation Fund") (each
a "Fund" and collectively the "Funds"), each a Massachusetts
Business Trust, for use at the Annual Meeting of Shareholders of
each Fund to be held on April 20, 1994, and at any adjournments
thereof.
Shareholders may only vote on matters which concern the
Fund or Funds in which they hold shares. Holders of record of
the shares of beneficial interest of each Fund at the close of
business on February 18, 1994, will be entitled to one vote per
share, and a proportionate vote for each fractional share, on all
business of the meeting and any adjournment thereof.
In order to hold the meeting, a majority of each Fund's
shares entitled to be voted must have been received by proxy or
be present at the meeting. In the event that a quorum is present
but sufficient votes in favor of one or more of the Proposals are
not received by the time scheduled for the meeting, the persons
named as proxies may propose one or more adjournments of the
meeting to permit further solicitation of proxies. Any such
adjournment will require the affirmative vote of a majority of
the shares present in person or by proxy at the session of the
meeting adjourned. The persons named as proxies will vote in
favor of such adjournment if they determine that such adjournment
and additional solicitation is reasonable and in the interests of
each Fund's shareholders. The shareholders of each Fund vote
separately with respect to each Proposal.
The individuals named as proxies (or their substitutes) in
the enclosed proxy card (or cards if you own shares of more than
one Fund or have multiple accounts) will vote in accordance with
your directions as indicated thereon if your proxy is received
properly executed. You may direct the proxy holders to vote your
shares on a Proposal by checking the appropriate box "For" or
"Against," or instruct them not to vote those shares on the
Proposal by checking the "Abstain" box. Alternatively, you may
simply sign, date and return your proxy card(s) with no specific
<PAGE>7
instructions as to the Proposals. If you properly execute your
proxy card and give no voting instructions with respect to a
Proposal, your shares will be voted for the Proposal. Any proxy
may be revoked at any time prior to its exercise by filing with
the Fund a written notice of revocation, by delivering a duly
executed proxy bearing a later date, or by attending the meeting
and voting in person.
Abstentions and "broker non-votes" (as defined below) are
counted for purposes of determining whether a quorum is present,
but do not represent votes cast with respect to any Proposal.
"Broker non-votes" are shares held by a broker or nominee for
which an executed proxy is received by the Fund, but are not
voted as to one or more Proposals because instructions have not
been received from the beneficial owners or persons entitled to
vote and the broker or nominee does not have discretionary voting
power.
VOTE REQUIRED: A PLURALITY OF ALL VOTES CAST AT THE
MEETING IS SUFFICIENT TO APPROVE PROPOSAL 1 FOR EACH FUND. A
MAJORITY OF THE SHARES PRESENT IN PERSON OR BY PROXY AT THE
MEETING IS SUFFICIENT TO APPROVE PROPOSAL 3 FOR EACH FUND.
APPROVAL OF ALL REMAINING PROPOSALS OF EACH FUND REQUIRES THE
AFFIRMATIVE VOTE OF THE HOLDERS OF THE LESSER OF (A) 67% OF THE
SHARES PRESENT AT THE MEETING IN PERSON OR BY PROXY, OR (B) A
MAJORITY OF EACH FUND'S OUTSTANDING SHARES.
If the proposed amendments to each Fund's fundamental
investment policies are approved, they will become effective on
or about May 1, 1994. If any of the proposed amendments to each
Fund's fundamental investment policies are not approved, they
will remain unchanged.
Each Fund will pay a portion of the costs of the meeting,
including the solicitation of proxies, allocated on the basis of
the number of shareholder accounts of each Fund. Persons holding
shares as nominees will be reimbursed, upon request, for their
reasonable expenses in sending solicitation materials to the
principals of the accounts. In addition to the solicitation of
proxies by mail, trustees, officers, and/or employees of each
Fund or of its investment manager, T. Rowe Price Associates, Inc.
("T. Rowe Price"), may solicit proxies in person or by telephone.
The approximate date on which this Proxy Statement and form
of proxy is first being mailed to shareholders of each Fund is
March 4, 1994.
<PAGE>8
1. ELECTION OF TRUSTEES
The following table sets forth information concerning each
of the nominees for trustee indicating the particular Board(s) on
which the nominee has been asked to serve. Each nominee has
agreed to hold office until the next annual meeting (if any) or
his successor is duly elected and qualified. With the exception
of Mrs. Merriman and Messrs. Bailey, Fagin, Major, Riepe and Vos,
each of the nominees is a member of the present Board of Trustees
of the New America Fund and has served in that capacity since
originally elected. With the exception of Mrs. Merriman and
Messrs. Bailey, Broadus, Dick, Fagin, Major, Testa and Wythes,
each of the nominees is a member of the present Board of Trustees
of the Equity Income Fund and has served in that capacity since
originally elected. With the exception of Mrs. Merriman and
Messrs. Bailey, Collins, Lanier, Roche, and Wythes, each of the
nominees is a member of the present Board of Trustees of the
Capital Appreciation Fund and has served in that capacity since
originally elected. A shareholder using the enclosed proxy form
can vote for all or any of the nominees of the Board of Trustees
or withhold his or her vote from all or any of such nominees. If
the proxy card is properly executed but unmarked, it will be
voted for all of the nominees. Should any nominee become unable
or unwilling to accept nomination or election, the persons named
in the proxy will exercise their voting power in favor of such
other person or persons as the Board of Trustees of the Fund may
recommend. There are no family relationships among these
nominees.
The membership of the three Boards will not be identical
following election at the meeting. Specifically, certain
individuals who are interested persons of T. Rowe Price are being
elected to only one of the Funds. Shareholders are being asked
to elect the Board of Trustees of their respective Fund only.
<PAGE>9
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 1/31/94(2) 1/31/94
_________________________________________________________________
Leo C. Bailey Retired; Director of New America
3396 S. Placita the following T. Rowe Growth Fund:
Fabula Price Funds: Growth Stock, Equity Income
Green Valley, AZ New Era, Science & Fund:
85614 Technology, Index Trust Capital
3/3/24 (since inception), Balanced Appreciation
0New America (since inception), Mid-Cap Fund:
<PAGE>10
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 1/31/94(2) 1/31/94
_________________________________________________________________
Growth Fund: Growth (since inception),
Initial election OTC (since inception),
0Equity Income Dividend Growth (since
Fund: Initial inception), Blue Chip
election Growth (since inception),
0Capital International, and Institutional
Appreciation International (since inception)
Fund: Initial
election
*Thomas H. Managing Director, T. Rowe Equity Income
Broadus, Jr. Price Associates, Inc.; Fund:
100 East Pratt President and Director,
Street T. Rowe Price Blue Chip
Baltimore, MD Growth Fund, Inc. (since
21202 inception)
10/25/37
0Equity Income
Fund: Chairman of
the Board and
member of
Executive Committee
since 1985
<PAGE>11
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 1/31/94(2) 1/31/94
_________________________________________________________________
*George J. President, Managing Capital
Collins Director and Chief Appreciation
100 East Pratt Executive Officer T. Rowe Fund:
Street Price Associates, Inc.; Director,
Baltimore, MD Rowe Price-Fleming International,
21202 Inc., T. Rowe Price Trust Company,
7/31/40 and T. Rowe Price Retirement
0Capital Plan Services, Inc.; Chairman
Appreciation of the Board of the following
Fund: Chairman T. Rowe Price Funds/Trusts:
of the Board New Income, Short-Term Bond,
and member of High Yield, GNMA, Tax-Free
Executive Income, Tax-Exempt Money,
Committee since Tax-Free Short-Intermediate,
1986 Tax-Free High Yield, State Tax-Free
Income, California Tax-Free Income,
and Summit Municipal (since inception);
President and Director of the following
T. Rowe Price Funds: U.S. Treasury
<PAGE>12
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 1/31/94(2) 1/31/94
_________________________________________________________________
and Summit (since inception);
Vice President and Director,
T. Rowe Price Prime Reserve
Fund, Inc.; Director of the following
T. Rowe Funds: New Era and
Tax-Free Insured Intermediate
(since inception)
Donald W. Dick, Partner, Overseas Partners, New America
Jr. Inc., a financial Growth Fund:
375 Park Avenue investment firm; formerly Equity Income
Suite 3505 (6/65-3/89) Director and Fund:
New York, NY Vice President-Consumer Capital
10152 Products Division, Appreciation
1/27/43 McCormick & Company, Inc., Fund:
0New America international food
Growth Fund: processors; Director/Trustee,
Director since Waverly Press, Inc. and
1985 the following T. Rowe Price
0Equity Income Funds/Trusts: Growth Stock,
Fund: Initial Growth & Income, Balanced (since
election inception), Mid-Cap Growth (since
0Capital inception), OTC (since inception),
Appreciation Dividend Growth (since inception),
Fund: Director Blue Chip Growth (since inception),
since 1986 International, and Institutional
International (since inception)
<PAGE>13
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 1/31/94(2) 1/31/94
_________________________________________________________________
David K. Fagin Chairman, Chief Executive New America
One Norwest Officer and Director, Growth Fund:
Center Golden Star Resources, Equity Income
1700 Lincoln Ltd.; formerly (1986-7/91) Capital
Street President, Chief Operating Appreciation
Suite 1950 Officer and Director, Fund:
Denver, CO Homestake Mining Company;
80203 Director of the following T.
4/9/38 Rowe Price Funds: New Horizons,
0New America New Era, Balanced (since inception),
Growth Fund: Mid-Cap Growth (since inception),
Initial election OTC (since inception), Dividend
0Equity Income Growth (since inception), and
Fund: Director Blue Chip Growth (since inception)
<PAGE>14
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 1/31/94(2) 1/31/94
_________________________________________________________________
since 1988
0Capital
Appreciation
Fund: Director
since 1988
Addison Lanier Financial management; New America
441 Vine Street, President and Director, Growth Fund:
#2310 Thomas Emery's Sons, Inc. Equity Income
Cincinnati, OH and Emery Group, Inc.; Fund:
45202-2913 Director/Trustee, Scinet Capital
1/12/24 Development and Holdings, Appreciation
0New America Inc. and the following Fund:
Growth Fund: T. Rowe Price Funds: Small-Cap
Director since Value, Balanced (since inception),
1985 Mid-Cap Growth (since inception),
0Equity Income OTC (since inception), Dividend
Fund: Director Growth (since inception), Blue Chip
since 1985 Growth (since inception), International,
0Capital and Institutional International
Appreciation (since inception)
Fund: Initial
election
*John H. Laporte Managing Director, T. Rowe New America
100 East Pratt Price Associates, Inc.; Growth Fund:
Street Chairman of the Board of
Baltimore, MD the following T. Rowe Price
21202 Funds: Science & Technology,
7/26/45 Small-Cap Value, and OTC
0New America (since inception); President and
Growth Fund: Director, T. Rowe Price New Horizons
President and Fund, Inc.
member of
Executive
Committee since
1985
<PAGE>15
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 1/31/94(2) 1/31/94
_________________________________________________________________
John K. Major Chairman of the Board and New America
126 E. 26 Place President, KCMA Growth Fund:
Tulsa, OK Incorporated, Tulsa, Equity Income
74114-2422 Oklahoma; Director of the Fund:
8/3/24 following T. Rowe Price Capital
0New America Funds: Growth Stock, New Appreciation
Growth Fund: Horizons, New Era, Growth & Fund:
Initial election Income, Science & Technology,
0Equity Income Balanced (since inception),
Fund: Initial Mid-Cap Growth (since inception),
election OTC (since inception), Dividend
0Capital Growth (since inception), and
Appreciation Blue Chip Growth (since inception)
Fund: Director
since 1986
Hanne M. Retail business consultant; New America
Merriman formerly, President and America Growth:
655 15th Street Chief Operating Officer Equity Income
Suite 300 (1991-92), Nan Duskin, Fund:
Washington, Inc., a women's specialty Capital
D.C. 20005 store, Director (1984-90) Appreciation
11/16/41 and Chairman (1989-90) Fund:
0New America Federal Reserve Bank of
Growth Fund: Richmond, and President and
Initial election Chief Executive Officer
0Equity Income (1988-89), Honeybee, Inc.,
Fund: Initial a division of Spiegel, Inc.;
election Director, Central Illinois
0Capital Public Service Company, CIPSCO
Appreciation Incorporated, The Rouse Company,
Fund: Initial State Farm Mutual Automobile
election Insurance Company and USAir Group, Inc.
<PAGE>16
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 1/31/94(2) 1/31/94
_________________________________________________________________
*James S. Riepe Managing Director, T. Rowe New America
100 East Pratt Price Associates, Inc.; Growth Fund:
Street President and Director, Equity Income
Baltimore, MD T. Rowe Price Investment Fund:
21202 Services, Inc.; Chairman of Capital
6/25/43 the Board, T. Rowe Price Appreciation
0New America Services, Inc., T. Rowe Fund:
Growth Fund: Price Trust Company, T. Rowe
Initial election Price Retirement Plan Services,
- --Vice Inc., and the following T.
<PAGE>17
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 1/31/94(2) 1/31/94
_________________________________________________________________
President since Rowe Price Funds: Growth & Income,
1985 Spectrum (since inception),
0Equity Income Balanced (since inception),
Fund: Vice and Mid-Cap Growth (since
President inception); Vice President of the
and member of following T. Rowe Price Funds:
Executive New Era, Prime Reserve, International,
Committee and Institutional International (since
since 1985; inception); Vice President and
0Capital Director/Trustee of the 22 other
Appreciation T. Rowe Price Funds/Trusts; Director,
Fund: Chairman T. Rowe Price Tax-Free Insured
of the Board and Intermediate Bond Fund,Inc. (since
member of inception) and Rhone-Poulenc Rorer, Inc.
Executive
Committee since
1986
*George A. Roche Managing Director Capital
100 East Pratt and Chief Financial Appreciation
Street Officer, T. Rowe Price Fund:
Baltimore, MD Associates, Inc.; President
21202 and Director, T. Rowe Price
7/6/41 New Era Fund, Inc.; Vice
0Capital President and Director,
Appreciation Rowe Price-Fleming
Fund: Initial International, Inc.
election
<PAGE>18
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 1/31/94(2) 1/31/94
_________________________________________________________________
*M. David Testa Managing Director, T. Equity Income
100 East Pratt Rowe Price Associates, Fund:
Street Inc.; Chairman of the Board,
Baltimore, MD Rowe Price-Fleming
21202 International, Inc. and
4/22/44 the following T. Rowe Price
0Equity Income Funds: Growth Stock,
Fund: Initial International, and Institutional
election International (since inception);
Vice President and
Director, T. Rowe Price
Trust Company and T. Rowe
Price Balanced Fund, Inc.
(since inception); Director
of the following T. Rowe Price
Funds: Dividend Growth
(since inception) and Blue Chip
Growth (since inception); Vice President,
T. Rowe Price Spectrum
Fund, Inc. (since inception)
Hubert D. Vos President, Stonington New America
1231 State Capital Corporation, a Growth Fund:
Street private investment company; Equity Income
Suite 210 Director of the following Fund:
Santa Barbara, T. Rowe Price Funds: New Capital
CA 93190-0409 Horizons, New Era, Science Appreciation
8/2/33 & Technology, Small-Cap Fund:
0New America Value, Balanced (since inception),
Growth Fund: Mid-Cap Growth (since inception),
Initial election OTC (since inception), Dividend
0Equity Income Growth (since inception), and
Fund: Director Blue Chip Growth (since inception)
since 1985
0Capital
Appreciation
Fund: Director
since 1986
<PAGE>19
_________________________________________________________________
Fund All Other
Shares Price
Beneficially Funds'
Owned, Shares
Name, Address, Directly Beneficially
Date of Birth or Owned
of Nominee and Indirectly, Directly
Position with Principal as of as of
Fund Occupations(1) 1/31/94(2) 1/31/94
_________________________________________________________________
Paul M. Wythes Founding General Partner, New America
755 Page Mill Sutter Hill Ventures, a Growth Fund:
Road venture capital limited Equity Income
Suite A200 partnership providing Fund:
Palo Alto, CA equity capital to young Capital
94304 high technology companies Appreciation
6/23/33 throughout the United Fund:
0New America States; Director, Teltone
Growth Fund: Corporation, Interventional
Director since Technologies, Inc., Stuart
1985 Medical, Inc., and the following
0Equity Income T. Rowe Price Funds: New Horizons,
Fund: Initial Growth & Income, Science &
election Technology, Small-Cap Value,
0Capital Index Trust (since inception),
Appreciation Balanced (since inception),
Fund: Initial Mid-Cap Growth (since inception),
election OTC (since inception), Dividend
Growth (since inception), and
Blue Chip Growth (since inception)
*Nominees considered "interested persons" of Price Associates.
(1) Except as otherwise noted, each individual has held the
office indicated, or other offices in the same company, for
the last five years.
(2) In addition to the shares owned beneficially and of record
by each of the nominees, the amounts shown reflect the
proportionate interests of Messrs. Laporte and Riepe in
_____ shares of the New America Growth Fund, Messrs.
Broadus, Riepe and Testa in _____ shares of the Equity
Income Fund and Messrs. Collins, Riepe and Roche in _____
shares of the Capital Appreciation Fund which are owned by
a wholly-owned subsidiary of the Funds' investment manager,
T. Rowe Price, and the interests of Messrs. Broadus,
Collins, Laporte, Riepe, Roche and Testa in _______,
_______, _______, _________, _________ and _____ shares,
respectively, owned by the T. Rowe Price Associates, Inc.
Profit Sharing Trust.
<PAGE>20
The trustees of each Fund who are officers or employees of
T. Rowe Price receive no remuneration from the Fund. For the
year 1993, Messrs. Dick, Lanier, and Wythes, received from the
New America Growth Fund trustees' fees aggregating $16,188,
including expenses. For the same period, Messrs. Fagin, Lanier,
and Vos, received from the Equity Income Fund trustees' fees
aggregating $47,311, including expenses. For the same period,
Messrs. Dick, Fagin, Major and Vos, received from the Capital
Appreciation Fund trustees' fees aggregating $15,724, including
expenses. The fee paid to each such trustee is calculated in
accordance with the following fee schedule: a fee of $25,000 per
year as the initial fee for the first Price Fund/Trust on which a
trustee serves; a fee of $5,000 for each of the second, third,
and fourth Price Funds/Trusts on which a trustee serves; a fee of
$2,500 for each of the fifth and sixth Price Funds/Trusts on
which a trustee serves; and a fee of $1,000 for each of the
seventh and any additional Price Funds/Trusts on which a trustee
serves. Those nominees indicated by an asterisk (*) are persons
who, for purposes of Section 2(a)(19) of the Investment Company
Act of 1940 are considered "interested persons" of T. Rowe Price.
Each such nominee is deemed to be an "interested person" by
virtue of his officership, directorship, and/or employment with
T. Rowe Price. Messrs. Dick, Lanier, and Wythes are the
independent trustees of the New America Growth Fund, Messrs.
Fagin, Lanier, and Vos are the independent trustees of the Equity
Income Fund, and Messrs. Dick, Fagin, Major, and Vos are the
independent trustees of the Capital Appreciation Fund.
The Price Funds have established a Joint Audit Committee,
which is comprised of at least one independent trustee
representing each of the Funds. Mr. Dick, a trustee of the New
America Growth and Capital Appreciation Funds, and Mr. Vos, a
trustee of the Equity Income and Capital Appreciation Funds, are
members of the Committee. The other members are Leo C. Bailey
and Anthony W. Deering. These trustees also receive a fee of
$500 for each Committee meeting attended. The Audit Committee
holds two regular meetings during each fiscal year, at which time
it meets with the independent accountants of the Price Funds to
review: (1) the services provided; (2) the findings of the most
recent audit; (3) management's response to the findings of the
most recent audit; (4) the scope of the audit to be performed;
(5) the accountants' fees; and (6) any accounting questions
relating to particular areas of the Price Funds' operations or
the operations of parties dealing with the Price Funds, as
circumstances indicate.
<PAGE>21
The Board of Trustees of the Fund has an Executive
Committee which is authorized to assume all the powers of the
Board to manage the Fund, in the intervals between meetings of
the Board, except the powers prohibited by statute from being
delegated.
The Board of Trustees of the Fund has a Nominating
Committee, which is comprised of all the Price Funds' independent
trustees. The Nominating Committee, which functions only in an
advisory capacity, is responsible for reviewing and recommending
to the full Board candidates for election as independent trustees
to fill vacancies on the Board of Trustees. The Nominating
Committee will consider written recommendations from shareholders
for possible nominees. Shareholders should submit their
recommendations to the Secretary of the Fund. Members of the
Nominating Committee met informally during the last full fiscal
year, but the Committee as such held no formal meetings.
Each Fund's Board of Trustees held seven meetings during
the last full fiscal year. With the exception of Mr. Major, a
trustee of the Capital Appreciation Fund, each trustee standing
for election or reelection attended 75% or more of the aggregate
of (i) the total number of meetings of the Board of Trustees
(held during the period for which he was a trustees), and (ii)
the total number of meetings held by all committees of the Board
on which he served.
2. APPROVAL OR DISAPPROVAL OF CHANGES TO THE FUNDS'
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (the "1940 Act")
requires investment companies such as the Funds to adopt certain
specific investment policies that can be changed only by
shareholder vote. An investment company may also elect to
designate other policies that may be changed only by shareholder
vote. Both types of policies are often referred to as
"fundamental policies." Certain of the Funds' fundamental
policies have been adopted in the past to reflect regulatory,
business or industry conditions that are no longer in effect.
Accordingly, each Fund's Board of Directors has approved, and has
authorized the submission to each Fund's shareholders for their
approval, the amendment and/or reclassification of certain of the
fundamental policies applicable to each Fund.
<PAGE>22
The proposed amendments would (i) simplify and modernize
the limitations that are required to be fundamental by the 1940
Act and (ii) eliminate as fundamental any limitations that are
not required to be fundamental by that Act. By reducing to a
minimum those limitations that can be changed only by shareholder
vote, the Funds would be able to minimize the costs and delay
associated with holding frequent annual shareholders' meetings.
The Directors also believe that T. Rowe Price's ability to manage
the Funds' assets in a changing investment environment will be
enhanced and that investment management opportunities will be
increased by these changes.
In the following discussion "the Fund" is intended to refer
to each Fund.
EACH FUND
A. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
TO INCREASE ITS ABILITY TO ENGAGE IN BORROWING TRANSACTIONS
Because the Fund may occasionally need to borrow money to
meet substantial shareholder redemption or exchange requests when
available cash is not sufficient to satisfy these needs, the
Board of Trustees has proposed an amendment to the Fund's
fundamental policy which would permit the Fund greater
flexibility to engage in borrowing transactions. The current
restriction is not required by applicable law. The new
restriction would (1) allow the Fund to borrow larger amounts of
money; (2) borrow from other Price Funds or persons to the extent
permitted by applicable law; and (3) clarify that the Fund's
restriction on borrowing does not prohibit the Fund from entering
into reverse repurchase agreements and other proper investments
and transactions. The new restriction would also conform the
Fund's policy on borrowing to one which is expected to become
standard for all T. Rowe Price mutual funds. The Board believes
that standardized policies will assist the Fund and T. Rowe Price
in monitoring compliance with the various investment restrictions
to which the T. Rowe Price mutual funds are subject. The Board
has directed that such amendment be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of
borrowing is as follows:
<PAGE>23
"[As a matter of fundamental policy, the Fund may not:]
Borrow money, except the Fund may borrow from banks as a
temporary measure for extraordinary or emergency purposes,
and then only from banks in amounts not exceeding 15% of
its total assets valued at market. The Fund will not
borrow in order to increase income (leveraging), but only
to facilitate redemption requests which might otherwise
require untimely disposition of portfolio securities (see
page __ of prospectus). Interest paid on any such
borrowings will reduce net investment income. The Fund may
enter into futures contracts as set forth in [its
fundamental policy on futures];"
As amended, the Fund's fundamental policy on borrowing
would be as follows:
"[As a matter of fundamental policy, the Fund may not:]
Borrow money except that the Fund may (i) borrow for non-
leveraging, temporary or emergency purposes and (ii) engage
in reverse repurchase agreements and make other investments
or engage in other transactions, which may involve a
borrowing, in a manner consistent with the Fund's
investment objective and program, provided that the
combination of (i) and (ii) shall not exceed 33 1/3% of the
value of the Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings) or such
other percentage permitted by law. Any borrowings which
come to exceed this amount will be reduced in accordance
with applicable law. The Fund may borrow from banks, other
Price Funds or other persons to the extent permitted by
applicable law."
If approved, the primary effect of the proposals would be
to allow the Fund to: (1) borrow up to 33 1/3% (or such higher
amount permitted by law) of its total assets (including the
amount borrowed) less liabilities (other than borrowings) as
opposed to the current limitation of 15%; (2) borrow from persons
other than banks including other mutual funds advised by T. Rowe
Price or Rowe Price-Fleming International, Inc. ("Price Funds");
and (3) enter into reverse repurchase agreements and other
investments consistent with the Fund's investment objective and
program.
<PAGE>24
33 1/3% Limitation
The increase in the amount of money which the Fund could
borrow is designed to allow the Fund greater flexibility to meet
shareholder redemption requests should the need arise. As is the
case under its current policy, the Fund would not borrow to
increase income through leveraging. It is possible the Fund's
ability to borrow a larger percentage of its assets could
adversely affect the Fund if the Fund were unable to liquidate
sufficient securities, or the Fund were forced to liquidate
securities at unfavorable prices, to pay back the borrowed sums.
However, the Trustees believe the risks of such possibilities are
outweighed by the greater flexibility the Fund would have in
borrowing. The increased ability to borrow should permit the
Fund, if it were faced with substantial shareholder redemptions,
to avoid liquidating securities at unfavorable prices or times to
a greater degree than would be the case under the current policy.
Borrowing From Other Price Funds
Current law prohibits the Fund from borrowing from other
Price Funds. However, if the proposed amendments to the Fund's
fundamental investment policy on borrowing are approved by
shareholders, the Fund may apply to the SEC for an exemption from
this prohibition. There is, of course, no assurance that the SEC
would act favorably on such a request. If the SEC did grant such
an order, the Fund could be allowed to borrow from other Price
Funds. T. Rowe Price believes that the ability to engage in
borrowing transactions with the participating Price Funds as part
of a program, referred to as the "interfund lending program," may
allow the Fund to obtain lower interest rates on money borrowed
for temporary or emergency purposes. Any existing Price Fund
participating in the interfund lending program would only do so
upon approval of its shareholders.
As noted above, when the Fund is required to borrow money,
it currently may do so only from banks. When the Fund borrows
money from banks, it typically pays interest on those borrowings
at a rate that is higher than rates available contemporaneously
from investments in repurchase agreements. If the proposed
amendment is approved, eligible Price Funds would be permitted to
participate in an interfund lending program to allow various of
the Price Funds, through a master loan agreement, to lend
available cash to and borrow from other Price Funds. Each
lending fund could lend available cash to another Price Fund only
when the interfund rate was higher than repurchase agreement
<PAGE>25
rates or rates on other comparable short-term investments. Each
borrowing fund could borrow through the interfund lending program
only when the interfund loan rate was lower than available bank
loan rates.
In determining to recommend the proposed amendment to
shareholders for approval, T. Rowe Price and the Trustees
considered the possible risks to the Fund from participation in
the interfund lending program. T. Rowe Price does not view the
difference in rates available on bank borrowings and repurchase
agreements or other short-term investments as reflecting a
material difference in the quality of the risk of the
transactions, but rather as an indication of the ability of banks
to earn a higher rate of interest on loans than they pay on
repurchase agreements or other short-term investments. There is
a risk that a lending fund could experience a delay in obtaining
prompt repayment of a loan and, unlike repurchase agreements, the
lending fund would not necessarily have received collateral for
its loan, although it could require that collateral be provided
as a condition for making a loan. A delay in obtaining prompt
payment could cause a lending fund to miss an investment
opportunity or to incur costs to borrow money to replace the
delayed payment. There is also a risk that a borrowing fund
could have a loan recalled on one day's notice. In these
circumstances, the borrowing fund might have to borrow from a
bank at a higher interest cost if money to lend were not
available from another Price Fund. The Trustees consider that
the benefits to the Fund of participating in the program outweigh
the possible risks to the Fund from such participation.
In order to permit the Fund to engage in interfund lending
transactions, regulatory approval of the SEC is required because,
among other reasons, the transactions may be considered to be
among affiliated parties. If the proposed amendment is approved
by shareholders, the proposed interfund lending program would be
implemented only to the extent permitted by rule or by order of
the SEC and to the extent that the transactions were otherwise
consistent with the investment objectives and limitations of each
participating Price Fund. If exemptive relief from the SEC is
not granted, the Fund, as previously noted, will not be able to
engage in the interfund lending program even though shareholders
have approved the proposal. As noted, no prediction can be made
as to whether the SEC would grant such relief.
<PAGE>26
Shareholders are being asked to approve an amendment to the
Fund's fundamental policy on borrowing in this proposal.
Shareholders are also being asked to vote separately on an
amendment to the Fund's fundamental policy on lending (see page
___). If both amendments are adopted, the Fund, subject to its
investment objective and policies, will be able to participate in
the interfund lending program as both a lender and a borrower.
If only one of the two proposals is adopted, then the Fund's
participation in the interfund lending program will be confined
to either lending or borrowing, depending on which amendment is
approved.
The Trustees believe the proposed amendment may benefit the
Fund by facilitating its flexibility to explore cost-effective
alternatives to satisfy its borrowing requirements and by
borrowing money from other Price Funds. Implementation of
interfund borrowing would be accomplished consistent with
applicable regulatory requirements, including the provisions of
any order the SEC might issue to the Fund and to other Price
Funds.
Reverse Repurchase Agreements
To facilitate portfolio liquidity, it is possible the Fund
could enter into reverse repurchase agreements. Reverse
repurchase agreements are ordinary repurchase agreements in which
a fund is a seller of, rather than the investor in, securities,
and agrees to repurchase them at an agreed upon time and price.
Reverse repurchase agreements can avoid certain market risks and
transaction costs associated with an outright sale and
repurchase. Reverse repurchase agreements, however, may be
viewed as borrowings. To the extent they are, the proposed
amendment would clarify that the Fund's restrictions on borrowing
would not prohibit the Fund from entering into a reverse
repurchase agreement.
Other Changes
The other proposed changes in the Fund's fundamental policy
- - to allow the Fund to borrow from persons other than banks and
other Price Funds to the extent consistent with applicable law -
and to engage in transactions other than reverse repurchase
agreements which may, or may be deemed to, involve a borrowing -
are simply designed to permit the Fund the greatest degree of
flexibility permitted by law in pursuing its investment program.
All activities of the Fund are, of course, subject to the 1940
Act and the rules and regulations thereunder as well as various
state securities laws.
<PAGE>27
The Board of Trustees recommends that shareholders vote FOR
the proposal.
B. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL POLICIES ON
INVESTING IN COMMODITIES AND FUTURES CONTRACTS TO PROVIDE
GREATER FLEXIBILITY IN FUTURES TRADING
The Board of Trustees has proposed amendments to the
Fundamental Investment Policies of the Fund to provide the Fund
with greater flexibility in buying and selling futures. The
provisions of the Fund's current fundamental investment policies
in this area are not required by applicable law and the Trustees
believe the Fund's investment manager, T. Rowe Price, should have
greater flexibility to enter into futures contracts consistent
with the Fund's investment objective and program and as market
and regulatory developments require and permit without the
necessity of seeking further shareholder approval. The new
restriction would also conform the Fund's policy on commodities
and futures to one which is expected to become standard for all
T. Rowe Price mutual funds. The Board believes that standardized
policies will assist the Fund and T. Rowe Price in monitoring
compliance with the various investment restrictions to which the
T. Rowe Price mutual funds are subject. The Board has directed
that such amendments be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policies in the area of
investing in commodities and futures are as follows:
Commodities
"[As a matter of fundamental policy, the Fund may not:]
Purchase or sell commodities or commodity contracts; except
that it may enter into futures contracts, subject to [its
fundamental policy on futures];"
<PAGE>28
Futures Contracts
"[As a matter of fundamental policy, the Fund may not:]
Enter into a futures contract or options thereon if, as a
result thereof, (i) the then current aggregate futures
market prices of securities required to be delivered under
option futures contract sales plus the then current
aggregate purchase prices of securities required to be
purchased under open futures contract purchases would
exceed 30% of the Fund's total assets (taken at market
value at the time of entering into the contract) or (ii)
more than 5% of the Fund's total assets (taken at market
value at the time of entering into the contract) would be
committed to margin on such futures contracts or premiums
on options; provided, however, that in the case of an
option which is in-the-money at the time of purchase, the
in-the-money amount as defined under certain CFTC
regulations may be excluded in computing such 5%;"
As amended, the Fund's fundamental policy on investing in
commodities and futures would be combined and would be as
follows:
"[As a matter of fundamental policy, the Fund may not:]
Purchase or sell physical commodities; except that it may
enter into futures contracts and options thereon;"
In addition, the Board of Trustees intends to adopt the
following operating policy, which may be changed by the Board of
Trustees without further shareholder approval.
"[As a matter of operating policy, the Fund will not:]
Purchase a futures contract or an option thereon if, with
respect to positions in futures or options on futures which
do not represent bona fide hedging, the aggregate initial
margin and premiums on such positions would exceed 5% of
the Fund's net asset value (the "New Operating Policy")."
If approved, the primary effects of the amendments would be
to: (i) eliminate the restriction that the Fund may not enter
into a futures contract if, as a result, more than 30% of the
Fund's total assets would be represented by such contracts (the
"30% Limitation"); and (ii) replace the restriction that the Fund
may not commit more than 5% of its total assets to initial margin
on futures contracts or premiums on options (the "5% Limitation")
with the New Operating Policy. Although not specifically
<PAGE>29
described in the amended restriction, the Fund would have the
ability to invest in forward foreign currency contracts and
instruments which have the characteristics of futures and
securities or whose value is determined, in whole or in part, by
reference to commodity prices. Although it has no current
intention of doing so, the new policy would also permit the Fund
to enter into any type of futures contract, not just those
described in its current prospectus. The risks of such futures
could differ from the risks of the Fund's currently permitted
futures activity.
The 30% Limitation
The SEC formerly required mutual funds trading in futures
to have no more than 30% of their assets represented by futures
contracts. The SEC no longer imposes this percentage limitation.
Although the Fund has no current intention of engaging in
substantial trading in futures, this situation could change, and
the Trustees believe the best interest of the Fund would be
served by removing this requirement from the Fund's fundamental
policy on futures. Removal of the 30% Limitation could allow the
Fund, subject to applicable margin requirements, to hedge 100% of
the value of its portfolio and to enter into futures contracts
and options thereon to a greater degree than is currently
permitted. All trading in futures by the Fund would be subject
to applicable SEC and Commodity Futures Trading Commission
("CFTC") rules prohibiting the use of futures for speculation and
leveraging and applicable state law.
The 5% Limitation
The 5% Limitation was previously required by rules of the
CFTC in order for the Fund to be excluded from status as a
commodity pool operator under applicable CFTC regulations, even
if the Fund used futures for hedging purposes only. The CFTC no
longer applies the 5% test to bona fide hedging activities, which
is generally the type of futures activity in which the Fund
engages. Although applicable state law may still require
compliance with similar limitations, the Board of Trustees
believes the best interest of the Fund would be served by
replacing the 5% Limitation with the New Operating Policy. This
would provide the Fund with the flexibility to adapt to changes
in CFTC regulations and any state laws without seeking further
shareholder approval.
<PAGE>30
The Board of Trustees recommends that shareholders vote FOR
the proposal.
C. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING THE MAKING OF LOANS
The Board of Trustees has proposed an amendment to the
Fundamental Investment Policies of the Fund in order to: (i)
increase the amount of its assets which may be subject to its
lending policy; (ii) authorize the Fund to participate as a
lender in an interfund lending program involving the funds
advised by T. Rowe Price or Rowe Price-Fleming International,
Inc. (the "Price Funds"); and (iii) allow the Fund to purchase
the entire or any portion of the debt of a company. The new
restriction would also conform the Fund's policy on lending to
one which is expected to become standard for all T. Rowe Price
mutual funds. The Board believes that standardized policies will
assist the Fund and T. Rowe Price in monitoring compliance with
the various investment restrictions to which the T. Rowe Price
mutual funds are subject. The Board has directed that such
amendment be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policy in the area of making
loans is as follows:
"[As a matter of fundamental policy, the Fund may not:]
Make loans, although the Fund may (i) purchase money market
securities and enter into repurchase agreements, and (ii)
lend portfolio securities provided that no such loan may be
made if, as a result, the aggregate of such loans would
exceed 30% of the value of the Fund's total assets;
provided, however, that the Fund may acquire publicly-
distributed bonds, debentures, notes and other debt
securities and may purchase debt securities at private
placement within the limits imposed on the acquisition of
restricted securities;"
<PAGE>31
As amended, the Fund's fundamental policy on loans would be
as follows:
"[As a matter of fundamental policy, the Fund may not:]
Make loans, although the Fund may (i) lend portfolio
securities and participate in an interfund lending program
with other Price Funds provided that no such loan may be
made if, as a result, the aggregate of such loans would
exceed 33 1/3% of the value of the Fund's total assets;
(ii) purchase money market securities and enter into
repurchase agreements; and (iii) acquire publicly-
distributed or privately-placed debt securities and
purchase debt;"
33 1/3% Restriction
The Fund's current fundamental policy on lending restricts
the Fund to lending no more than 30% of the value of the Fund's
total assets. The new policy would raise this amount to 33 1/3%
of the value of the Fund's total assets. The purpose of this
change is to conform the Fund's policy to one that is expected to
become standard for all Price Funds and to permit the Fund to
lend its assets to the maximum extent permitted under applicable
law. The Board of Trustees does not view this change as
significantly raising the level of risk to which the Fund would
be subject.
Interfund Lending Program
The proposed amendments to the Fund's fundamental policy
would allow the Fund to participate in an interfund lending
program with other Price mutual funds. The nature of this
program and the risks associated with the Fund's participation
are set forth under "Borrowing from Other Price Funds" beginning
on page ____. Shareholders are being asked to consider, and vote
separately, on the Fund's participation in the interfund lending
program as a borrower and as a lender.
The Trustees believe that the interfund lending program:
(i) may benefit the Fund by providing it with greater flexibility
to engage in lending transactions; and (ii) would facilitate the
Fund's ability to earn a higher return on short-term investments
by allowing it to lend cash to other Price Funds. Implementation
of interfund lending would be accomplished consistent with
applicable regulatory requirements, including the provisions of
any order the SEC might issue to the Fund and to other Price
Funds.
<PAGE>32
Purchase of Debt
The Fund's fundamental policy on lending allows the Fund to
purchase debt securities as an exception to the general
limitations on making loans. However, there is no similar
exception for the purchase of straight debt, e.g., debt held by a
bank for example which might not be considered a debt security.
Such an investment might be subject to greater risks of liquidity
and unavailability of public information than would be the case
for an investment in a publicly held security. The primary
purpose of this proposal is to conform the Fund's fundamental
policy in this area to one that is expected to become standard
for all Price Funds. The Fund will continue to invest primarily
in equity securities. However, the Board of Trustees believes
that increased standardization will help promote operational
efficiencies and facilitate monitoring of compliance with the
Fund's investment restrictions.
Other Matters
For purposes of the restriction on lending, the Fund will
consider the acquisition of a debt security to include the
execution of a note or other evidence of an extension of credit
with a term of more than nine months.
The Board of Trustees recommends that shareholders vote FOR
the proposal.
D. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON PURCHASING SECURITIES ON MARGIN
The Board of Trustees has proposed that the Fund's
Fundamental Investment Policy on purchasing securities on margin
be changed from a fundamental policy to an operating policy.
Fundamental policies may be changed only by shareholder vote,
while operating policies may be changed by the Board of Trustees
without shareholder approval. The purpose of the proposal is to
allow the Fund greater flexibility in responding to market and
regulatory developments by providing the Board of Trustees with
the authority to make changes in the Fund's policy on margin
without further shareholder approval. The new restriction would
also conform the Fund's policy on margin to one which is expected
to become standard for all T. Rowe Price mutual funds. The Board
believes that standardized policies will assist the Fund and T.
Rowe Price in monitoring compliance with the various investment
restrictions to which the T. Rowe Price mutual funds are subject.
The Board has directed that such amendment be submitted to
shareholders for approval or disapproval.
<PAGE>33
The Fund's current fundamental policy in the area of
purchasing securities on margin is as follows:
"[As a matter of fundamental policy, the Fund may not:]
Purchase securities on margin, except for use of short-term
credit necessary for clearance of purchases of portfolio
securities; except that it may make margin deposits in
connection with futures contracts, subject to [its
fundamental policy on futures];"
As amended, the Fund's operating policy on purchasing
securities on margin would be as follows:
"[As a matter of operating policy, the Fund may not:]
Purchase securities on margin, except (i) for use of short-
term credit necessary for clearance of purchases of
portfolio securities and (ii) it may make margin deposits
in connection with futures contracts or other permissible
investments;"
Both the Fund's current policy and the proposed operating
policy prohibit the purchase of securities on margin but allow
the Fund to make margin deposits in connection with futures
contracts and use such short-term credit as may be necessary for
clearance of purchases of portfolio securities. The proposed
operating policy would acknowledge that the Fund is permitted to
make margin deposits in connection with other investments in
addition to futures. Such investments might include, but are not
limited to, written options where the Fund could be required to
put up margin with a broker as security for the Fund's obligation
to deliver the security on which the option is written.
The Board of Trustees recommends that shareholders vote FOR
the proposal.
E. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON PLEDGING ITS ASSETS
The Board of Trustees has proposed that the Fund's
Fundamental Investment Restriction on pledging its assets be
eliminated and replaced with an operating policy. Fundamental
policies may be changed by shareholder vote, while operating
policies may be changed by vote of the Board of Trustees without
shareholder approval. Applicable law does not require the
<PAGE>34
current percentage limitation set forth in the policy and does
not require such policy to be fundamental. The new operating
policy would allow the Fund to pledge, in connection with Fund
indebtedness 33 1/3% of its total assets (an increase from the
current restriction) and allow the Fund to pledge assets in
connection with permissible investments. The Board of Trustees
believes it is advisable to provide the Fund with greater
flexibility in pursuing its investment objective and program and
responding to regulatory and market developments. The new
restriction would also conform the Fund's policy on pledging it
assets to one which is expected to become standard for all T.
Rowe Price mutual funds. The Board believes that standardized
policies will assist the Fund and T. Rowe Price in monitoring
compliance with the various investment restrictions to which the
T. Rowe Price mutual funds are subject. The Board has directed
that such proposals be submitted to shareholders for approval or
disapproval.
The Fund's current fundamental policy in the area of
pledging its assets is as follows:
New America Growth Fund
"[As a matter of fundamental policy, the Fund may not:]
Mortgage, pledge, hypothecate or, in any other manner,
transfer as security for indebtedness any security owned by
the Fund, except (i) as may be necessary in connection with
permissible borrowings, in which event such mortgaging,
pledging, or hypothecating may not exceed 15% of the Fund's
assets, valued at cost, provided, however, that as a matter
of operating policy, the Fund will limit any such
mortgaging, pledging, or hypothecating to 10% of its net
assets, valued at market, in order to comply with certain
state investment restrictions; and (ii) it may enter into
interest rate futures contracts;"
Equity Income Fund
"[As a matter of fundamental policy, the Fund may not:]
Mortgage, pledge, hypothecate or, in any other manner,
transfer as security for indebtedness any security owned by
the Fund, except (i) as may be necessary in connection with
permissible borrowings, in which event such mortgaging,
pledging, or hypothecating may not exceed 15% of the Fund's
assets, valued at cost, provided, however, that as a matter
of operating policy, the Fund will limit any such
<PAGE>35
mortgaging, pledging, or hypothecating to 10% of its net
assets, valued at market, in order to comply with certain
state investment restrictions; and (ii) it may enter into
futures contracts;"
Capital Appreciation Fund
"[As a matter of fundamental policy, the Fund may not:]
Mortgage, pledge, hypothecate or, in any other manner,
transfer as security for indebtedness any security owned by
the Fund, except (i) as may be necessary in connection with
permissible borrowings, in which event such mortgaging,
pledging, or hypothecating may not exceed 15% of the Fund's
assets, valued at cost, provided, however, that as a matter
of operating policy, the Fund will limit any such
mortgaging, pledging, or hypothecating to 10% of its net
assets, valued at market, in order to comply with certain
state investment restrictions; and (ii) it may enter into
futures contracts;"
The operating policy on pledging of assets, to be adopted by
the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:]
Mortgage, pledge, hypothecate or, in any manner, transfer
any security owned by the Fund as security for indebtedness
except as may be necessary in connection with permissible
borrowings or investments and then such mortgaging, pledging
or hypothecating may not exceed 33 1/3% of the Fund's total
assets at the time of the borrowing or investment;"
The operating policy would allow the Fund to pledge 33 1/3%
of its total assets instead of the current 15% as set forth in
the Fund's fundamental policy (and 10% as set forth in the Fund's
current operating policy). The new policy, in addition to
allowing pledging in connection with indebtedness would clarify
the Fund's ability to pledge its assets in connection with
permissible investments. Such pledging could arise, for example,
when the Fund engages in futures or options transactions or
purchases securities on a when-issued or forward basis. As an
operating policy, the Board of Trustees could modify the proposed
policy on pledging in the future as the need arose, without
seeking further shareholder approval.
<PAGE>36
Pledging assets to other parties is not without risk.
Because assets that have been pledged to other parties may not be
readily available to the Fund, the Fund may have less flexibility
in liquidating such assets if needed. Therefore, the new policy,
by allowing the Fund to pledge a greater portion of its assets,
could, to a greater extent than the current policy, impair the
Fund's ability to meet current obligations, or impede portfolio
management. On the other hand, these potential risks should be
considered together with the potential benefits, such as
increased flexibility to borrow and the increased ability of the
Fund to pursue its investment program.
The Board of Trustees recommends that shareholders vote
FOR the proposal.
F. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL POLICY REGARDING
PURCHASING MORE THAN 10% OF AN ISSUER'S VOTING SECURITIES
The Board of Trustees has proposed an amendment to the
Fundamental Investment Restrictions of the Fund to conform such
policies to Section 5(b)(1) of the 1940 Act and to provide the
Fund with greater flexibility to invest its assets in the
outstanding voting securities of various companies. Under the
amended policy, the Fund would be restricted from owning more
than 10% of an issuer's outstanding voting securities only with
respect to 75% of the value of its total assets, as opposed to
100% under the current policy. By permitting the Fund to own
more than 10% of the outstanding voting securities of an issuer,
the proposed amendment, if adopted, could increase the risk to
the Fund with respect to adverse developments concerning such
securities. The Board of Trustees, however, believes the Fund
should have the increased flexibility which the amendment would
provide. The Board has directed that such change be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of
purchasing more than 10% of an issuer's voting securities is as
follows:
"As a matter of fundamental policy, the Fund may not
purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities) if, as a result: . . . more
than 10% of the outstanding voting securities of any issuer
would be held by the Fund;"
<PAGE>37
As amended, the Fund's fundamental policy on purchasing more
than 10% of an issuer's voting securities would be as follows:
"[As a matter of fundamental policy, the Fund may not:]
Purchase a security if, as a result, with respect to 75% of
the value of the Fund's total assets, more than 10% of the
outstanding voting securities of any issuer would be held by
the Fund (other than obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities);"
The proposed amendments will not affect the status of the
Fund as a diversified investment company under the 1940 Act.
However, the proposed amendments would permit the Fund, with
respect to 25% of its assets, to take a larger position in the
voting securities of companies than under the current investment
limitation. Thus, for example, the Fund could purchase 100% of
the voting securities of one or more companies. This would cause
the Fund's net asset value per share to be more affected by
changes in the value of, and market, credit and business
developments with respect to, the securities of such companies.
In addition, if the Fund were to own a substantial percentage of
an issuer's voting or other securities, there is a risk that the
liquidity of those securities would be reduced. However, the
Fund's Board of Trustees believes the Fund should have the
increased flexibility to pursue its investment program which the
proposed amendment would allow.
The Board of Trustees recommends that shareholders vote FOR
the proposal.
G. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICIES
CONCERNING REAL ESTATE
The Board of Trustees has proposed an amendment to the
Fundamental Investment Policies of the Fund to clarify the types
of securities in which the Fund is authorized to invest and to
conform the Fund's fundamental policy on investing in real estate
to a policy that is expected to become standard for all Price
Funds. The proposed amendment is not expected to affect the
investment program of the Fund or instruments in which the Fund
invests. The Fund will not purchase or sell real estate. In
addition, the proposed amendment would clarify that the Fund may
purchase all types of securities secured by real estate or
interests therein, or issued by companies which invest in real
estate, not only money market securities as set forth in the
current limitation. The Board has directed that such amendments
be submitted to shareholders for approval or disapproval.
<PAGE>38
The Fund's current fundamental policy in the area of
investing in real estate is as follows:
"[As a matter of fundamental policy, the Fund may not:]
Purchase or sell real estate (although it may purchase money
market securities secured by real estate or interests
therein, or issued by companies which invest in real estate
or interests therein);"
As amended, the Fund's fundamental policy on investing in
real estate would be as follows:
"[As a matter of fundamental policy, the Fund may not:]
Purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall
not prevent the Fund from investing in securities or other
instruments backed by real estate or securities of companies
engaged in the real estate business);"
The Board of Trustees recommends that shareholders vote FOR
the proposal.
H. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON SHORT SALES
The Fund's Board of Trustees has proposed that the Fund's
Fundamental Policy on effecting short sales be eliminated and
replaced with a substantially similar operating policy.
Fundamental policies may be changed only by shareholder vote,
while operating policies may be changed by the Board of Trustees
without shareholder approval. The current policy of the Fund is
not required by applicable law to be fundamental. The purpose of
the proposal is to provide the Fund with greater flexibility in
pursuing its investment objective and program. The Board has
directed that the proposal be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of
effecting short sales of securities is as follows:
"[As a matter of fundamental policy, the Fund may not:]
Effect short sales of securities . . .;"
<PAGE>39
The operating policy on short sales, to be adopted by the
Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:]
Effect short sales of securities;"
The current fundamental policy was formerly required by
certain states to be fundamental. This is no longer the case and
the replacement of the policy with an operating policy will
adequately protect the Fund while providing greater flexibility
to the Fund to respond to market or regulatory developments by
allowing the Board of Trustees the authority to make changes in
this policy without seeking further shareholder approval.
In a short sale, an investor, such as the Fund, sells a
borrowed security and must return the same security to the
lender. Although the Board has no current intention of allowing
the Fund to engage in short sales, if the proposed amendment is
adopted, the Board would be able to authorize the Fund to engage
in short sales at any time without further shareholder action.
In such a case, the Fund's prospectus would be amended and a
description of short sales and their risks would be set forth
therein.
The Board of Trustees recommends that shareholders vote FOR
the proposal.
I. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
ON THE ISSUANCE OF SENIOR SECURITIES
The Fund's Board of Trustees has proposed an amendment to
the Fund's fundamental policy on investing in senior securities
which would allow the Fund to invest in senior securities to the
extent permitted under the Investment Company Act of 1940. The
new policy, if adopted, would provide the Fund with greater
flexibility in pursuing its investment objective and program.
The Board has directed that such amendment be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of issuing
senior securities is as follows:
"[As a matter of fundamental policy, the Fund may not:]
Issue any class of securities senior to any other class of
securities;"
<PAGE>40
As amended, the Fund's fundamental policy on issuing senior
securities would be as follows:
"[As a matter of fundamental policy, the Fund may not:]
Issue senior securities except in compliance with the
Investment Company Act of 1940;"
The 1940 Act limits a Fund's ability to issue senior
securities or engage in investment techniques which could be
deemed to create a senior security. Although the definition of a
"senior security" involves complex statutory and regulatory
concepts, a senior security is generally thought of as a class of
security preferred over shares of the Fund with respect to the
Fund's assets or earnings. It generally does not include
temporary or emergency borrowings by the Fund (which might occur
to meet shareholder redemption requests) in accordance with
federal law and the Fund's investment limitations. Various
investment techniques that obligate the Fund to pay money at a
future date (e.g., the purchase of securities for settlement on a
date that is longer than required under normal settlement
practices) occasionally raise questions as to whether a "senior
security" is created. The Fund utilizes such techniques only in
accordance with applicable regulatory requirements under the 1940
Act. Although the Fund has no current intention of issuing
senior securities, the proposed change will clarify the Fund's
authority to issue senior securities in accordance with the 1940
Act without the need to seek shareholder approval.
The Board of Trustees recommends that shareholders vote FOR
the proposal.
J. PROPOSAL TO CHANGE THE DESIGNATION OF THE FUND'S FUNDAMENTAL
INVESTMENT POLICY ON INVESTING IN UNSEASONED ISSUERS
The Board of Trustees has proposed that the Fund's
fundamental policy on investing in the securities of unseasoned
issuers be eliminated and replaced by a substantially similar
operating policy. Fundamental policies may only be changed with
shareholder approval, while operating policies may be changed by
vote of the Board of Trustees without shareholder approval. The
proposed change should provide the Fund with greater flexibility
in responding to market and regulatory developments without the
necessity of seeking further shareholder approval. The new
restriction would also conform the Fund's policy on investing in
unseasoned issuers to one which is expected to become standard
for all T. Rowe Price mutual funds. The Board believes that
<PAGE>41
standardized policies will assist the Fund and T. Rowe Price in
monitoring compliance with the various investment restrictions to
which the T. Rowe Price mutual funds are subject. The Board has
directed that such change be submitted to shareholders for
approval or disapproval.
The Fund's current fundamental policy in the area of
investing in unseasoned issuers is as follows:
"[As a matter of fundamental policy, the Fund may not:]
Purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities) if, as a result: . . . More
than 5% of the value of the Fund's total assets would be
invested in the securities of issuers which at the time of
purchase had been in operation for less than three years
including predecessors and unconditional guarantors;"
The operating policy on investing in unseasoned issuers, to
be adopted by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:]
Purchase a security (other than obligations issued or
guaranteed by the U.S., any foreign, state or local
government, their agencies or instrumentalities) if, as a
result, more than 5% of the value of the Fund's total assets
would be invested in the securities of issuers which at the
time of purchase had been in operation for less than three
years (for this purpose, the period of operation of any
issuer shall include the period of operation of any
predecessor or unconditional guarantor of such issuer).
This restriction does not apply to securities of pooled
investment vehicles or mortgage or asset-backed securities;"
The new operating policy would add the securities issued or
guaranteed by foreign, state or local governments, as well as
securities of pooled investment vehicles and mortgage and asset-
backed securities, to the list of those which are excluded from
the percentage restriction on investing in unseasoned issuers.
The Board of Trustees recommends that shareholders vote FOR
the proposal.
<PAGE>42
NEW AMERICA GROWTH AND CAPITAL APPRECIATION FUNDS ONLY
K. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL POLICY ON INDUSTRY
CONCENTRATION
The Board of Trustees has proposed two amendments to the
Fundamental policy of the Fund on industry concentration. The
first amendment would change the limit of the Fund's total assets
which may be invested in the securities of issuers in the same
industry from "25% or more" to "more than 25%." This is merely a
technical change which would conform the Fund's policy to the
standard policy on concentration of other T. Rowe Price mutual
funds. The second amendment would eliminate the policy on
concentrating 25% or more of the Fund's assets in the banking
industry when the Fund's position in issues maturing in one year
or less equals 35% or more of the Fund's total assets. Since the
banking concentration policy was adopted, it has not proved
necessary to implement it. Finally, the amendment would allow
the Fund to adopt a policy which is expected to become a standard
policy regarding industry concentration for all the Price Funds.
The Board has directed that such amendments be submitted to
shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of
industry concentration is as follows:
New America Growth Fund
"[As a matter of fundamental policy, the Fund may not
purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities) if, as a result]: . . . 25%
or more of the value of the Fund's total assets would be
invested in the securities of issuers having their principal
business activities in the same industry; provided, however,
that the Fund will normally concentrate 25% or more of its
assets in the securities of the banking industry when the
Fund's position in issues maturing in one year or less
equals 35% or more of the Fund's total assets;"
<PAGE>43
Capital Appreciation Fund
"[As a matter of fundamental policy, the Fund may not
purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities) if, as a result]: . . . 25%
or more of the value of the Fund's total assets would be
invested in the securities of issuers having their principal
business activities in the same industry; provided, however,
that the Fund will normally concentrate 25% or more of its
assets in the banking industry when the Fund's position in
issues maturing in one year or less equals 35% or more of
the Fund's total assets;"
As amended the Fund's fundamental policy on industry
concentration would be as follows:
"[As a matter of fundamental policy, the Fund may not:]
Purchase the securities of any issuer if, as a result, more
than 25% of the value of the Fund's total assets would be
invested in the securities of issuers having their principal
business activities in the same industry;"
The amended policy does not include any reference to
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities as an exception to the general
prohibition against industry concentration. This is because the
SEC has determined that governments are not industries.
Therefore, there is no need to make specific reference to this
position in the policy.
The Board of Trustees recommends that shareholders vote FOR
the proposal.
EQUITY INCOME AND CAPITAL APPRECIATION FUNDS ONLY
<PAGE>44
L. PROPOSAL TO CHANGE THE DESIGNATION OF THE FUND'S FUNDAMENTAL
INVESTMENT POLICY REGARDING THE PURCHASE OF ILLIQUID
SECURITIES
The Board of Trustees has proposed that the Fund's
Fundamental Investment Policy on purchasing unmarketable
securities be changed from a fundamental policy to an operating
policy. Fundamental policies may be changed only by shareholder
vote, while operating policies may be changed by the Board of
Trustees without shareholder approval. If the proposed change is
approved by shareholders, the Board of Trustees of the Fund
intends to adopt an operating policy which would (1) allow the
Fund to invest up to 15% of its net assets in illiquid securities
and (2) conform the Fund's operating policy in this area to one
which is expected to become standard for all T. Rowe Price Funds.
The Fund's current fundamental policy in this area is not
required by applicable law and the proposed change should provide
the Fund with greater flexibility in responding to market and
regulatory developments. The Board has directed that such change
be submitted to shareholders for approval or disapproval.
The Fund's current fundamental policy in the area of
purchasing illiquid securities is as follows:
Equity Inocme Fund
"[As a matter of fundamental policy, the Fund may not:]
Purchase a security if, as a result, more than 10% of the
value of the Fund's total assets would be invested in: (a)
securities with legal or contractual restrictions on resale,
but as a matter of operating policy, the Fund will limit
purchases of restricted securities to 5% of its total
assets, valued at market, in order to comply with certain
state investment restrictions; (b) repurchase agreements
which do not provide for payment within seven (7) days; and
(c) other securities that are not readily marketable;"
Capital Appreciation Fund
"[As a matter of fundamental policy, the Fund may not:]
Purchase a security if, as a result, more than 10% of the
value of the Fund's total assets would be invested in: (a)
securities with legal or contractual restrictions on resale;
(b) repurchase agreements which do not provide for payment
within seven (7) days; and (c) other securities that are not
readily marketable;"
<PAGE>45
As changed, the operating policy on investing in illiquid
securities, to be adopted by the Fund, would be as follows:
"[As a matter of operating policy, the Fund may not:]
Purchase illiquid securities and securities of unseasoned
issuers if, as a result, more than 15% of its net assets
would be invested in such securities, provided that the Fund
will not invest more than 5% of its total assets in
restricted securities and not more than 5% in securities of
unseasoned issuers. Securities eligible for resale under
Rule 144A of the Securities Act of 1933 are not included in
the 5% limitation but are subject to the 15% limitation;"
Illiquid Securities
As an open-end investment company, the Fund may not hold a
significant amount of illiquid securities because such securities
may present problems of accurate valuation and it is possible the
Fund could have difficulty satisfying redemptions within seven
days as required under the 1940 Act. In general, the SEC defines
an illiquid security as one which can not be sold in the ordinary
course of business within seven days at approximately the value
at which the Fund has valued the security. Illiquid securities
have included those enumerated in the Fund's fundamental
restriction on restricted securities -- securities with legal or
contractual restrictions on resale ("restricted securities") and
repurchase agreements of a duration of more than seven days.
The securities markets, however, are evolving and new types
of instruments have developed. In light of these developments,
the Fund's fundamental investment restriction, by essentially
assuming restricted securities are unmarketable, may be overbroad
and unnecessarily restrictive. For example, the markets for
various types of securities -- repurchase agreements, commercial
paper, and some corporate bonds and notes -- are almost
exclusively institutional. These instruments are often either
exempt from registration or sold in transactions not requiring
registration. Although these securities may be legally
classified as "restricted," institutional investors will often
justifiably rely either on the issuer's ability to honor a demand
for repayment in less than seven days or on an efficient
institutional market in which the unregistered security can be
readily resold. The fact that the securities may be restricted
because of legal or contractual restrictions on resale to the
general public will, therefore, not be dispositive of the
liquidity of such investments.
<PAGE>46
In recognition of the increased size and liquidity of the
institutional markets for unregistered securities and the
importance of institutional investors in the capital formation
process, the SEC has adopted rules, including Rule 144A under the
Securities Act of 1933, designed to further facilitate efficient
trading among institutional investors. These rules permit a
broader institutional trading market for securities subject to
restriction on resale to the general public. If institutional
markets develop which trade in these securities, the Fund could
be constrained by its current investment restrictions.
Accordingly, T. Rowe Price recommends that the Fund eliminate its
fundamental limitations in this area so that restricted
securities that are nonetheless liquid may be purchased without
regard to the Fund's limit on investing in illiquid securities.
Of course, the Fund would modify its operating policy to comply
with future regulatory and market developments.
If this proposal is approved by shareholders, the specific
types of securities that may be deemed to be illiquid will be
determined from time to time by T. Rowe Price under the
supervision of the Trustees, with reference to legal, regulatory
and market developments. By making the Fund's policy on illiquid
securities non-fundamental, the Fund will be able to respond more
quickly to such developments because no shareholder vote will be
required to redefine what types of securities may be deemed
illiquid.
Percentage Limitations
The Fund's fundamental policy limits it to investing no more
than 10% of the value of its total assets in restricted and
unmarketable securities. The new operating policy to be adopted
by the Board of Trustees, if shareholders approve elimination of
the fundamental policy, would allow the Fund to invest 15% of its
net assets in illiquid securities. The 15% limitation represents
a higher percentage than the Fund was previously allowed to
invest in illiquid securities and is the result of a 1992
liberalization by the SEC in this area. If the fundamental
policy is changed to an operating policy, the Fund will, without
the necessity of any further shareholder vote, be able to take
advantage of any future changes in SEC policy in this area.
<PAGE>47
Notwithstanding the 15% limitation, in conformity with
various state laws, the Fund's new operating policy would limit
the Fund to investing no more than 5% of its assets in restricted
securities (other than Rule 144A securities) and no more than 5%
of its assets in the securities of unseasoned issuers (as
defined). Shareholders are being asked separately to eliminate
the Fund's fundamental policy on investing in unseasoned issuers.
If that action is approved, the Trustees intend to incorporate
the Fund's policy on investing in unseasoned issuers with the
Fund's policy on investing in illiquid securities.
The Board of Trustees recommends that shareholders vote FOR
the proposal.
EQUITY INCOME FUND ONLY
M. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL POLICY TO INCREASE
THE PERCENTAGE OF FUND ASSETS WHICH MAY BE INVESTED IN ANY
ONE ISSUER
The Board of Trustees has proposed an amendment to the
Fundamental Investment Policies of the Fund to conform such
policies to Section 5(b)(1) of the Investment Company Act of 1940
(the "1940 Act") and to permit the Fund greater flexibility to
invest in securities considered by T. Rowe Price to present
attractive investment opportunities. Under the amended policy,
the Fund would be limited, with respect to 75% of its total
assets, to investing no more than 5% of its total assets in the
securities of any one issuer. However, no such limitation would
apply with respect to the remaining 25% of the Fund's assets. It
should be understood that the proposed amendment, by permitting
the Fund to invest a greater percentage of its assets with a
single issuer, could increase the risk to the Fund in the event
of adverse developments affecting the securities of such issuer.
In addition, as under the current policy, the new restrictions
would apply, to repurchase agreements. The Board has directed
that such amendment be submitted to shareholders for approval or
disapproval.
<PAGE>48
The Fund's current fundamental policy in the area of
investing in the securities of a single issuer is as follows:
"[As a matter of fundamental policy, the Fund may not:]
Purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities) if, as a result: . . . More
than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including
repurchase agreements with any one issuer);"
As amended, the Fund's fundamental policy on investing in
the securities of a single issuer would be as follows:
"[As a matter of fundamental policy, the Fund may not:]
Purchase a security if, as a result, with respect to 75% of
the value of its total assets, more than 5% of the value of
the Fund's total assets would be invested in the securities
of a single issuer, except securities issued or guaranteed
by the U.S. government, or any of its agencies or
instrumentalities;"
The proposed amendments will not affect the status of the
Fund as a diversified investment company under the 1940 Act.
However, the proposed amendments would allow the Fund to invest a
significantly larger portion of its assets in the securities of a
single issuer. Thus, for example, the Fund could invest 25% of
its total assets in the securities of a single issuer, or 10% of
its total assets in securities of one issuer and 15% of its total
assets in securities of another issuer. This would cause the
Fund's net asset value per share to be more affected by changes
in the value of, and market, credit and business developments
with respect to, the securities of such issuer(s). In addition,
if the Fund were to have a substantial portion of its assets
invested in the securities of a single issuer, the liquidity of
the Fund's investment in that issuer could be reduced. However,
the Fund's Board of Trustees believes the Fund should have the
increased flexibility to pursue its investment program which the
proposed amendment would allow.
The Board of Trustees recommends that shareholders vote FOR
the proposal.
<PAGE>49
3. RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT
ACCOUNTANTS
The selection by the Board of Trustees of the New America
and Equity Income Funds of the firm of Price Waterhouse as the
independent accountants for each Fund for the year 1994 is to be
submitted for ratification or rejection by the shareholders of
each Fund at the Shareholders Meeting. The firm of Price
Waterhouse has served each Fund as independent accountants since
each Fund's inception. The selection by the Board of Trustees of
the Capital Appreciation Fund of the firm of Coopers & Lybrand as
the independent accountants for the Fund for the year 1994 is to
be submitted for ratification or rejection by the shareholders of
the Fund at the Shareholders Meeting. The firm of Price
Waterhouse has served the Capital Appreciation Fund as
independent accountants since the Fund's inception.
Each Fund has been advised by its independent accountants
that they have no direct or material indirect financial interest
in the Fund. Representatives of the firm of Price Waterhouse and
Coopers & Lybrand are expected to be present at the Shareholders
Meeting and will be available to make a statement, if they desire
to do so, and to respond to appropriate questions which the
shareholders may wish to address to them.
NEW AMERICA GROWTH FUND ONLY
4. PROPOSAL TO REMOVE INVESTING FOR INCOME AS A SECONDARY
OBJECTIVE OF THE FUND
The Fund is seeking approval to remove "investing for
income" as a secondary objective of the Fund. The original
intent of mentioning income as a secondary objective was to
indicate that income would be incidental to pursuit of the Fund's
primary objective - long-term growth of capital through
investment primarily in the common stocks of U.S. growth
companies which operate in service industries. In light of the
minor role income has always played in the Fund's investment
program and performance, and to avoid any confusion about the
importance of current income, the Board of Trustees has proposed
that it be deleted as a secondary objective.
The Board of Trustees recommends that shareholders vote FOR
the proposal to delete income as a secondary objective of the
Fund.
<PAGE>50
INVESTMENT MANAGER
The Funds' investment manager is T. Rowe Price, a Maryland
corporation, 100 East Pratt Street, Baltimore, Maryland 21202.
The principal executive officer of T. Rowe Price is George J.
Collins, who together with Thomas H. Broadus, Jr., James E.
Halbkat, Jr., Carter O. Hoffman, Henry H. Hopkins, James S.
Riepe, George A. Roche, John W. Rosenblum, Charles H. Salisbury,
Jr., Robert L. Strickland, M. David Testa, and Philip C. Walsh,
constitute its Board of Directors. The address of each of these
persons, with the exception of Messrs. Halbkat, Rosenblum,
Stickland and Walsh, is 100 East Pratt Street, Baltimore,
Maryland 21202, and, with the exception of Messrs. Halbkat,
Rosenblum, Strickland, and Walsh, all are employed by T. Rowe
Price. Mr. Halbkat is President of U.S. Monitor Corporation, a
provider of public response systems, P.O. Box 23109, Hilton Head
Island, South Carolina 29925. Mr. Rosenblum, whose address is
P.O. Box 6550, Charlottesville, Virginia 22906, is the Tayloe
Murphy Professor at the University of Virginia, and a director
of: Chesapeake Corporation, a manufacturer of paper products;
Cadmus Communications Corp., a provider of printing and
communication services; Comdial Corporation, a manufacturer of
telephone systems for businesses; and Cone Mills Corporation, a
textiles producer. Mr. Strickland is Chairman of Lowe's
Companies, Inc., a retailer of specialty home supplies, 604 Two
Piedmont Plaza Building, Winston-Salem, North Carolina 27104.
Mr. Walsh, whose address is Blue Mill Road, Morristown, New
Jersey 07960, is a consultant to Cyprus Amax Minerals Company,
Englewood, Colorado, and a director of Piedmont Mining Company,
Charlotte, North Carolina.
The officers of the Funds (other than the nominees for
election or reelection as trustees) and their positions with T.
Rowe Price are as follows:
<PAGE>51
Position Position with
Officer with Fund Manager
Brian W.H. Berghuis+ Executive Vice Vice President
President
Andrew M. Brooks! Vice President Vice President
Arthur B. Cecil, III* Vice President Vice President
Gregory V. Donovan+ Vice President Vice President
Henry H. Hopkins Vice President Managing Director
Richard P. Howard# President Vice President
Denise S. Jevne! Vice President Vice President
Charles A. Morris* Vice President Vice President
David L. Rea* Vice President Vice President
Brian C. Rogers! President Managing Director
Robert W. Smith! Vice President Vice President
William J. Stromberg! Vice President Vice President
Alan R. Stuart* Vice President Vice President
Mark J. Vaselkiv! Vice President Vice President
John Wakeman+ Vice President Vice President
Lenora V. Hornung Secretary Vice President
Carmen F. Deyesu Treasurer Vice President
David S. Middleton Controller Vice President
Roger L. Fiery Assistant Vice PresidentEmployee
Edward T. Schneider Assistant Vice PresidentEmployee
Ingrid I. Vordemberge Assistant Vice PresidentEmployee
+Mr. Berghuis is an Executive Vice President and Messrs. Donovan
and Wakeman are Vice Presidents of the New America Growth Fund
only.
#Mr. Howard is President of the Capital Appreciation Fund and a
Vice President of the Equity Income Fund.
!Mr. Rogers is President and Ms. Jevne and Messrs. Brooks, Smith,
Stromberg and Vaselkiv are Vice Presidents of the Equity Income
Fund only.
*Messrs. Cecil, Morris, Rea and Stuart are Vice Presidents of the
Capital Appreciation Fund only.
The Funds have an Underwriting Agreement with T. Rowe Price
Investment Services, Inc. ("Investment Services"), a Transfer
Agency Agreement with T. Rowe Price Services, Inc. ("Price
Services"), and an Agreement with T. Rowe Price Retirement Plan
Services, Inc. ("Retirement Services"), which are wholly-owned
subsidiaries of T. Rowe Price. In addition, the Funds have an
Agreement with T. Rowe Price to perform fund accounting services.
James S. Riepe, a Vice President and Trustee of the Equity Income
<PAGE>52
and Capital Appreciation Funds and a Vice President of the New
America Growth Fund, is Chairman of the Board of Price Services
and Retirement Services and President and Director of Investment
Services. Henry H. Hopkins, a Vice President of the Funds, is a
Vice President and Director of both Investment Services and Price
Services and a Vice President of Retirement Services. Edward T.
Schneider, an Assistant Vice President of the Funds, is a Vice
President of Price Services. Certain officers of the Funds own
shares of the common stock of T. Rowe Price, its only class of
securities.
The following information pertains to transactions involving
common stock of T. Rowe Price, par value $.20 per share
("Stock"), during the period January 1, 1993 through December 31,
1993. There were no transactions during the period by any
trustee or officer of the Fund, or any trustee or officer of T.
Rowe Price which involved more than 1% of the outstanding Stock
of T. Rowe Price. These transactions did not involve, and should
not be mistaken for, transactions in the stock of the Fund.
During the period, the holders of certain options purchased a
total of 343,525 shares of common stock at varying prices from
$0.67 to $18.75 per share. Pursuant to the terms of T. Rowe
Price's Employee Stock Purchase Plan, eligible employees of T.
Rowe Price and its subsidiaries purchased an aggregate of 96,931
shares at fair market value. Such shares were purchased in the
open market during this period for employees' accounts.
The Company's Board of Trustees has approved the repurchase
of shares of its common stock in the open market. During 1993,
the Company purchased 80,000 common shares under this plan,
leaving 1,432,000 shares authorized for future repurchase at
December 31, 1993.
During the period, T. Rowe Price issued 1,154,000 common
stock options with an exercise price of $28.13 per share to
certain employees under terms of the 1990 and 1993 Stock
Incentive Plans.
An audited consolidated balance sheet of T. Rowe Price as of
December 31, 1993, is included in this Proxy Statement.
<PAGE>53
INVESTMENT MANAGEMENT AGREEMENT
T. Rowe Price serves as investment manager to the Funds
pursuant to their respective Investment Management Agreements
(each the "Management Agreement" and collectively the "Management
Agreements"). The date of each Fund's Management Agreement and
the date it was approved by the respective Fund's shareholders is
as follows.
Date of Shareholder
Management Approval
Agreement Date
__________ ___________
New America Growth Fund May 1, 1991 April 18, 1991
Equity Income Fund May 1, 1987 April 21, 1987
Capital Appreciation Fund May 1, 1987 April 22, 1987
By their terms, the Management Agreements will continue in effect
from year to year as long as they are approved annually by each
Fund's Board of Trustees (at a meeting called for that purpose)
or by vote of a majority of each Fund's outstanding shares. In
either case, renewal of the Management Agreement must be approved
by a majority of each Fund's independent trustees. On March __,
1994, the trustees of each Fund, including all of the independent
trustees, voted to extend the Management Agreement for an
additional period of one year, commencing May 1, 1994, and
terminating April 30, 1995. The Management Agreement is subject
to termination by either party without penalty on 60 days'
written notice to the other and will terminate automatically in
the event of assignment.
Under each Management Agreement, T. Rowe Price provides the
Fund with discretionary investment services. Specifically, T.
Rowe Price is responsible for supervising and directing the
investments of each Fund in accordance with the Funds' investment
objectives, programs, and restrictions as provided in their
prospectuses and Statements of Additional Information. T. Rowe
Price is also responsible for effecting all securities
transactions on behalf of the Funds, including the negotiation of
commissions and the allocation of principal business and
portfolio brokerage. In addition to these services, T. Rowe
Price provides the Funds with certain corporate administrative
services, including: maintaining each Fund's corporate
existence, corporate records, and registering and qualifying Fund
shares under federal and state laws; monitoring the financial,
<PAGE>54
accounting, and administrative functions of the Funds;
maintaining liaison with the agents employed by the Funds, such
as each Fund's custodian and transfer agent; assisting the Funds
in the coordination of such agents' activities; and permitting T.
Rowe Price's employees to serve as officers, trustees, and
committee members of the Funds without cost to the Fund.
Each Fund's Management Agreement also provides that T. Rowe
Price, its trustees, officers, employees, and certain other
persons performing specific functions for the Fund will only be
liable to the Fund for losses resulting from willful misfeasance,
bad faith, gross negligence, or reckless disregard of duty.
The Management Agreement provides that each Fund will bear
all expenses of its operations not specifically assumed by T.
Rowe Price. However, in compliance with certain state
regulations, T. Rowe Price will reimburse the Funds for any
expenses (excluding interest, taxes, brokerage, other
expenditures which are capitalized in accordance with generally
accepted accounting principles, and extraordinary expenses) which
in any year exceed the limits prescribed by any state in which
the Funds' shares are qualified for sale. Presently, the most
restrictive expense ratio limitation imposed by any state is 2.5%
of the first $30 million of the Fund's average daily net assets,
2% of the next $70 million of such assets, and 1.5% of net assets
in excess of $100 million. For the purpose of determining
whether a Fund is entitled to reimbursement, the expenses of the
Fund are calculated on a monthly basis. If the Fund is entitled
to reimbursement, that month's management fee will be reduced or
postponed, with any adjustment made after the end of the year.
New America Growth Fund
Effective January 1, 1990, T. Rowe Price agreed to bear any
expenses through December 31, 1993, which would cause the Fund's
ratio of expenses to average net assets to exceed 1.25%.
Expenses paid or assumed under this agreement are subject to
reimbursement to T. Rowe Price by the Fund whenever the Fund's
expense ratio is below 1.25%, however, no reimbursement will be
made after December 31, 1995, or if it would result in the
expense ratio exceeding 1.25%.
<PAGE>55
During the year ended December 31, 1987, $326,000 of
management fees were not accrued by the fund pursuant to an
annual state limitation. In 1988, the Fund obtained a variance
from this limitation which permitted the 1987 fees to be
reimbursed to the Manager. the unaccrued fees from 1987 were to
be reimbursed to the Manager only to the extent that doing so
would not cause the Fund's ratio of expenses to average net
assets to exceed any expense limitation then in effect. Pursuant
to these provisions, the remaining $278,00 of fees were
reimbursed to the Manager during the year ended December 31,
1993.
Capital Appreciation Fund
Effective January 1, 1990, T. Rowe Price agreed to bear any
expenses through December 31, 1993, which would cause the Fund's
ratio of expenses to average net assets to exceed 1.25%.
Expenses paid or assumed under this agreement are subject to
reimbursement to T. Rowe Price by the Fund whenever the Fund's
expense ratio is below 1.25%, however, no reimbursement will be
made after December 31, 1995, or if it would result in the
expense ratio exceeding 1.25%.
The following chart shows the ratio of operating expenses to
average net assets of each Fund for the last three years ended
December 31.
1993 1992 1991
____ ____ ____
New America Growth Fund 1.23% 1.25% 1.25%
Equity Income Fund 0.91% 0.97% 1.05%
Capital Appreciation Fund 1.09% 1.08% 1.20%
<PAGE>56
For its services to each Fund under the Management
Agreement, T. Rowe Price is paid a management fee ("Management
Fee") consisting of two elements: a "group" fee ("Group Fee")
and an "individual" fund fee ("Individual Fund Fee"). The Group
Fee varies and is based on the combined net assets of all of the
Price Funds distributed by T. Rowe Price Investment Services,
other than institutional or "private label" products. For this
purpose, the Price Funds include all funds managed and sponsored
by T. Rowe Price as well as those Funds managed and sponsored by
Rowe Price-Fleming International, Inc. Each Fund pays, as its
portion of the Group Fee, an amount equal to the ratio of its
daily net assets to the daily net assets of all the Price Funds.
The Funds pay a flat Individual Fund Fee of 0.35% for the New
America Growth Fund, 0.25% for the Equity Income Fund and 0.30%
for the Capital Appreciation Fund, based on the net assets of the
Fund. Based on combined Price Funds' assets of approximately
$34.7 billion at December 31, 1993 the group fee was 0.35% and
the total management fee for the year would have been an annual
rate of 0.70%, 0.60% and 0.65% of net assets of the New America
Growth, Equity Income and Capital Appreciation Funds,
respectively. The following chart shows the net assets and the
management fees, paid by each Fund to T. Rowe Price, at December
31, 1993.
Net Assets Management Fee
__________ ______________
New America Growth Fund $ 619,117,750 $ 3,988,797
Equity Income Fund $2,851,346,798 $15,154,800
Capital Appreciation Fund $ 536,244,375 $ 2,740,545
Capital Appreciation Fund--Explanation of Performance-Based Fee
The Fund's Monthly Group Fee and Monthly Fund Fee are
combined (the "Combined Fee") and are subject to a Performance
Fee Adjustment, depending on the total return investment
performance of the Fund relative to the total return performance
of the Standard & Poor's 500 Stock Composite Index (the "Index")
during the previous thirty-six (36) months. The Performance Fee
Adjustment is computed as of the end of each month and if an
adjustment results, is added to, or subtracted from the Combined
Fee. No Performance Fee Adjustment is made to the Combined Fee
unless the investment performance ("Investment Performance") of
the Fund (stated as a percent) exceeds, or is exceeded by, the
investment record ("Investment Record") of the Index (stated as a
<PAGE>57
percent) by at least one full point. (The difference between the
Investment Performance and Investment Record will be referred to
as the Investment Performance Differential.) The Performance Fee
Adjustment for any month is calculated by multiplying the rate of
the Performance Fee Adjustment ("Performance Fee Adjustment") (as
determined below) achieved for the 36-month period, times the
average daily net assets of the Fund for such 36-month period and
dividing the product by 12. The Performance Fee Adjustment Rate
is calculated by multiplying the Investment Performance
Differential (rounded downward to the nearest full point) times a
factor of .02%. Regardless of the Investment Performance
Differential, the Performance Fee Adjustment Rate shall not
exceed .30%. the same period.
Example
For example, if the Investment Performance Differential
was 11.6, it would be rounded to 11. The Investment
Performance Differential of 11 would be multiplied by
.02% to arrive at the Performance Fee Adjustment Rate of
.22%. The .22% Performance Fee Adjustment Rate would be
multiplied by the fraction of 1/12 and that product would
be multiplied by the Fund's average daily net assets for
the 36-month period to arrive at the Performance Fee
Adjustment.
The computation of the Investment Performance of the Fund and
the Investment Record of the Index will be made in accordance
with Rule 205-1 under the Investment Advisers Act of 1940 or any
other applicable rule as, from time to time, may be adopted or
amended. These terms are currently defined as follows:
The Investment Performance of the Fund is the sum of: (i) the
change in the Fund's net asset value per share during the period;
(ii) the value of the Fund's cash distributions per share having
an exdividend date occurring within the period; and (iii) the per
share amount of any capital gains taxes paid or accrued during
such period by the Fund for undistributed, realized long-term
capital gains.
The Investment Record of the Index is the sum of: (i) the
change in the level of the Index during the period; and (ii) the
value, computed consistently with the Index, of cash
distributions having an exdividend date occurring within the
period made by companies whose securities comprise the Index.
<PAGE>58
The performance Fee Adjustment became operable on July 1,
1987. From July 1, 1987 through June 30, 1989 ("Phase-In
Period"), the Performance Fee Adjustment is computed based upon a
comparison of the Investment Performance of the Fund and the
Investment Record of the Index over the number of months that
have elapsed between June 30, 1986, and the end of the month for
which the fee is being computed. The Investment Performance
Differential is adjusted each month by multiplying that number by
36 and dividing that result by the number of months for which the
Investment Performance is being compared. In addition, the
Performance Fee Adjustment Rate is conversely adjusted
proportionately to reflect the shorter time period involved. In
all other respects, the Performance Fee Adjustment is computed
and the amount of Investment Performance Differential is pro
rated in accordance with the provisions of Release 7113 under the
Investment Company Act of 1940 or any other applicable
interpretation, rule, or regulation as, from time, may be
adopted. Effective July 1, 1989, the Performance Fee Adjustment
was based upon the full Investment Performance Differential and
the Investment Performance of the Fund and the Investment Record
of the Index for the full thirty-six (36) month period. The
performance adjustment for the year ended December 1, 1993,
decreased management fees by $220,000.
PORTFOLIO TRANSACTIONS
In the following discussion "the Fund" is intended to refer
to each Fund.
Investment or Brokerage Discretion
Decisions with respect to the purchase and sale of portfolio
securities on behalf of the Fund are made by T. Rowe Price. T.
Rowe Price is also responsible for implementing these decisions,
including the negotiation of commissions and the allocation of
portfolio brokerage and principal business.
How Brokers and Dealers are Selected
Equity Securities
In purchasing and selling the Fund's portfolio securities,
it is T. Rowe Price's policy to obtain quality execution at the
most favorable prices through responsible brokers and dealers
and, in the case of agency transactions, at competitive
<PAGE>59
commission rates. However, under certain conditions, the Fund may
pay higher brokerage commissions in return for brokerage and
research services. As a general practice, over-the-counter
orders are executed with market-makers. In selecting among
market-makers, T. Rowe Price generally seeks to select those it
believes to be actively and effectively trading the security
being purchased or sold. In selecting broker-dealers to execute
the Fund's portfolio transactions, consideration is given to such
factors as the price of the security, the rate of the commission,
the size and difficulty of the order, the reliability, integrity,
financial condition, general execution and operational
capabilities of competing brokers and dealers, and brokerage and
research services provided by them. It is not the policy of T.
Rowe Price to seek the lowest available commission rate where it
is believed that a broker or dealer charging a higher commission
rate would offer greater reliability or provide better price or
execution.
Fixed Income Securities
Fixed income securities are generally purchased from the
issuer or a primary market-maker acting as principal for the
securities on a net basis, with no brokerage commission being
paid by the client. Transactions placed through dealers serving
as primary market-makers reflect the spread between the bid and
asked prices. Securities may also be purchased from underwriters
at prices which include underwriting fees.
With respect to equity and fixed income securities, T. Rowe
Price may effect principal transactions on behalf of the Fund
with a broker or dealer who furnishes brokerage and/or research
services, designate any such broker or dealer to receive selling
concessions, discounts or other allowances, or otherwise deal
with any such broker or dealer in connection with the acquisition
of securities in underwritings.
How Evaluations are Made of the Overall Reasonableness of
Brokerage Commissions Paid
On a continuing basis, T. Rowe Price seeks to determine what
levels of commission rates are reasonable in the marketplace for
transactions executed on behalf of the Fund. In evaluating the
reasonableness of commission rates, T. Rowe Price considers: (a)
historical commission rates, both before and since rates have
been fully negotiable; (b) rates which other institutional
investors are paying, based on available public information; (c)
<PAGE>60
rates quoted by brokers and dealers; (d) the size of a particular
transaction, in terms of the number of shares, dollar amount, and
number of clients involved; (e) the complexity of a particular
transaction in terms of both execution and settlement; (f) the
level and type of business done with a particular firm over a
period of time; and (g) the extent to which the broker or dealer
has capital at risk in the transaction.
Description of Research Services Received from Brokers and
Dealers
T. Rowe Price receives a wide range of research services
from brokers and dealers. These services include information on
the economy, industries, groups of securities, individual
companies, statistical information, accounting and tax law
interpretations, political developments, legal developments
affecting portfolio securities, technical market action, pricing
and appraisal services, credit analysis, risk measurement
analysis, performance analysis and analysis of corporate
responsibility issues. These services provide both domestic and
international perspective. Research services are received
primarily in the form of written reports, computer generated
services, telephone contacts and personal meetings with security
analysts. In addition, such services may be provided in the form
of meetings arranged with corporate and industry spokespersons,
economists, academicians and government representatives. In some
cases, research services are generated by third parties but are
provided to T. Rowe Price by or through broker-dealers.
Research services received from brokers and dealers are
supplemental to T. Rowe Price's own research effort and, when
utilized, are subject to internal analysis before being
incorporated by T. Rowe Price into its investment process. As a
practical matter, it would not be possible for T. Rowe Price's
Equity Research Division to generate all of the information
presently provided by brokers and dealers. T. Rowe Price pays
cash for certain research services received from external
sources. T. Rowe Price also allocates brokerage for research
services which are available for cash. While receipt of research
services from brokerage firms has not reduced T. Rowe Price's
normal research activities, the expenses of T. Rowe Price could
be materially increased if it attempted to generate such
additional information through its own staff. To the extent that
research services of value are provided by brokers or dealers, T.
Rowe Price may be relieved of expenses which it might otherwise
bear.
<PAGE>61
T. Rowe Price has a policy of not allocating brokerage
business in return for products or services other than brokerage
or research services. In accordance with the provisions of
Section 28(e) of the Securities Exchange Act of 1934, T. Rowe
Price may from time to time receive services and products which
serve both research and non-research functions. In such event,
T. Rowe Price makes a good faith determination of the anticipated
research and non-research use of the product or service and
allocates brokerage only with respect to the research component.
Commissions to Brokers who Furnish Research Services
Certain brokers who provide quality execution services also
furnish research services to T. Rowe Price. In order to be
assured of continuing to receive research services considered of
value to its clients, T. Rowe Price has adopted a brokerage
allocation policy embodying the concepts of Section 28(e) of the
Securities Exchange Act of 1934, which permits an investment
adviser to cause an account to pay commission rates in excess of
those another broker or dealer would have charged for effecting
the same transaction, if the adviser determines in good faith
that the commission paid is reasonable in relation to the value
of the brokerage and research services provided. The
determination may be viewed in terms of either the particular
transaction involved or the overall responsibilities of the
adviser with respect to the accounts over which it exercises
investment discretion. Accordingly, while T. Rowe Price cannot
readily determine the extent to which commission rates or net
prices charged by broker-dealers reflect the value of their
research services, T. Rowe Price would expect to assess the
reasonableness of commissions in light of the total brokerage and
research services provided by each particular broker.
Internal Allocation Procedures
T. Rowe Price has a policy of not precommitting a specific
amount of business to any broker or dealer over any specific time
period. Historically, the majority of brokerage placement has
been determined by the needs of a specific transaction such as
market-making, availability of a buyer or seller of a particular
security, or specialized execution skills. However, T. Rowe
Price does have an internal brokerage allocation procedure for
that portion of its discretionary client brokerage business where
special needs do not exist, or where the business may be
allocated among several brokers which are able to meet the needs
of the transaction.
<PAGE>62
Each year, T. Rowe Price assesses the contribution of the
brokerage and research services provided by brokers, and attempts
to allocate a portion of its brokerage business in response to
these assessments. Research analysts, counselors, various
investment committees, and the Trading Department each seek to
evaluate the brokerage and research services they receive from
brokers and make judgments as to the level of business which
would recognize such services. In addition, brokers sometimes
suggest a level of business they would like to receive in return
for the various brokerage and research services they provide.
Actual brokerage received by any firm may be less than the
suggested allocations but can, and often does, exceed the
suggestions, because the total brokerage business is allocated on
the basis of all the considerations described above. In no case
is a broker excluded from receiving business from T. Rowe Price
because it has not been identified as providing research
services.
Miscellaneous
T. Rowe Price's brokerage allocation policy is consistently
applied to all its fully discretionary accounts, which represent
a substantial majority of all assets under management. Research
services furnished by brokers through which T. Rowe Price effects
securities transactions may be used in servicing all accounts
(including non-Fund accounts) managed by T. Rowe Price.
Conversely, research services received from brokers which execute
transactions for the Fund are not necessarily used by T. Rowe
Price exclusively in connection with the management of the Fund.
From time to time, orders for clients may be placed through
a computerized transaction network.
The Fund does not allocate business to any broker-dealer on
the basis of its sales of the Fund's shares. However, this does
not mean that broker-dealers who purchase Fund shares for their
clients will not receive business from the Fund.
Some of T. Rowe Price's other clients have investment
objectives and programs similar to those of the Fund. T. Rowe
Price may occasionally make recommendations to other clients
which result in their purchasing or selling securities
simultaneously with the Fund. As a result, the demand for
securities being purchased or the supply of securities being sold
may increase, and this could have an adverse effect on the price
<PAGE>63
of those securities. It is T. Rowe Price's policy not to favor
one client over another in making recommendations or in placing
orders. T. Rowe Price frequently follows the practice of
grouping orders of various clients for execution which generally
results in lower commission rates being attained. In certain
cases, where the aggregate order is executed in a series of
transactions at various prices on a given day, each participating
client's proportionate share of such order reflects the average
price paid or received with respect to the total order. T. Rowe
Price has established a general investment policy that it will
ordinarily not make additional purchases of a common stock of a
company for its clients (including the Price Funds) if, as a
result of such purchases, 10% or more of the outstanding common
stock of such company would be held by its clients in the
aggregate.
To the extent possible, T. Rowe Price intends to recapture
solicitation fees paid in connection with tender offers through
T. Rowe Price Investment Services, Inc., the Fund's distributor.
At the present time, T. Rowe Price does not recapture commissions
or underwriting discounts or selling group concessions in
connection with taxable securities acquired in underwritten
offerings. T. Rowe Price does, however, attempt to negotiate
elimination of all or a portion of the selling-group concession
or underwriting discount when purchasing tax-exempt municipal
securities on behalf of its clients in underwritten offerings.
Transactions with Related Brokers and Dealers
As provided in the Investment Management Agreement between
the Fund and T. Rowe Price, T. Rowe Price is responsible not only
for making decisions with respect to the purchase and sale of the
Fund's portfolio securities, but also for implementing these
decisions, including the negotiation of commissions and the
allocation of portfolio brokerage and principal business. It is
expected that T. Rowe Price may place orders for the Fund's
portfolio transactions with broker-dealers through the same
trading desk T. Rowe Price uses for portfolio transactions in
domestic securities. The trading desk accesses brokers and
dealers in various markets in which the Fund's foreign securities
are located. These brokers and dealers may include certain
affiliates of Robert Fleming Holdings Limited ("Robert Fleming
Holdings") and Jardine Fleming Group Limited ("JFG"), persons
indirectly related to T. Rowe Price. Robert Fleming Holdings,
through Copthall Overseas Limited, a wholly-owned subsidiary,
<PAGE>64
owns 25% of the common stock of Rowe Price-Fleming International,
Inc. ("RPFI"), an investment adviser registered under the
Investment Advisers Act of 1940. Fifty percent of the common
stock of RPFI is owned by TRP Finance, Inc., a wholly-owned
subsidiary of T. Rowe Price, and the remaining 25% is owned by
Jardine Fleming Holdings Limited, a subsidiary of JFG. JFG is
50% owned by Robert Fleming Holdings and 50% owned by Jardine
Matheson Holdings Limited. Orders for the Fund's portfolio
transactions placed with affiliates of Robert Fleming Holdings
and JFG will result in commissions being received by such
affiliates.
The Board of Trustees of the Fund has authorized T. Rowe
Price to utilize certain affiliates of Robert Fleming and JFG in
the capacity of broker in connection with the execution of the
Fund's portfolio transactions. These affiliates include, but are
not limited to, Jardine Fleming Securities Limited ("JFS"), a
wholly-owned subsidiary of JFG, Robert Fleming & Co. Limited
("RF&Co."), Jardine Fleming Australia Securities Limited, and
Robert Fleming, Inc. (a New York brokerage firm). Other
affiliates of Robert-Fleming Holdings and JFG also may be used
although it does not believe that the Fund's use of these brokers
would be subject to Section 17(e) of the Investment Company Act
of 1940, the Board of Trustees of the Fund has agreed that the
procedures set forth in Rule 17e-1 under that Act will be
followed when using such brokers.
Other
Shown below are the approximate total brokerage commissions,
including the discounts received by securities dealers in
connection with underwritings, paid by the New America Growth,
Equity Income and Capital Appreciation Funds for the last three
years:
1993 1992 1991
____ ____ ____
New America Growth Fund $2,345,000 $1,349,000 $1,435,000
Equity Income Fund $4,660,000 $3,419,000 $3,087,000
Capital Appreciation Fund$1,141,000 $439,000 $478,000
The approximate percentage of these commissions paid to
firms which provided research, statistical, or other services to
T. Rowe Price in connection with the management of each Fund, or
in some cases, to each Fund, for the last three years, are shown
in the following chart.
<PAGE>65
1993 1992 1991
____ ____ ____
New America Growth Fund 18% 20% 24%
Equity Income Fund 42% 37% 36%
Capital Appreciation Fund 45% 55% 59%
The portfolio turnover rate for each Fund for each of the
last three years has been as follows:
1993 1992 1991
____ ____ ____
New America Growth Fund 43.7% 26.4% 42.3%
Equity Income Fund 31.2% 30.0% 33.5%
Capital Appreciation Fund 39.4% 30.3% 50.7%
OTHER BUSINESS
The management of each Fund knows of no other business which
may come before the meeting. However, if any additional matters
are properly presented at the meeting, it is intended that the
persons named in the enclosed proxy, or their substitutes, will
vote such proxy in accordance with their judgment on such
matters.
GENERAL INFORMATION
As of December 31, 1993, there were 22,082,772, 171,256,084
and 42,347,540 shares of the capital stock of the New America
Growth, Equity Income and Capital Appreciation Funds,
respectively, outstanding, each with a par value of $.01. Of
those shares, approximately _____, ______ and ______,
representing ___%, ___% and ___%, respectively, of the
outstanding stock, were registered to the T. Rowe Price Trust
Company as Trustee for participants in the T. Rowe Price Funds
Retirement Plan for Self-Employed (Keogh), as Trustee for
participants in T. Rowe Price Funds 401(k) plans, as Custodian
for participants in the T. Rowe Price Funds Individual Retirement
Account (IRA), as Custodian for participants in various 403(b)(7)
plans, and as Custodian for various Profit Sharing and Money
Purchase plans. The T. Rowe Price Trust Company has no
beneficial interest in such accounts, nor in any other account
for which it may serve as trustee or custodian.
<PAGE>66
As of December 31, 1993, approximately ______, ______ and
______ shares of the New America Growth, Equity Income and
Capital Appreciation Funds, representing approximately ___%, ___%
and ___%, respectively, of the outstanding stock, were owned by
various private counsel clients of the Fund's investment manager,
T. Rowe Price, as to which T. Rowe Price has discretionary
authority. Accordingly, such shares are deemed to be owned
beneficially by T. Rowe Price only for the limited purpose as
that term is defined in Rule 13d-3 under the Securities Exchange
Act of 1934. T. Rowe Price disclaims actual beneficial ownership
of such shares. In addition, as of December 31, 1993, T. Rowe
Price owned directly ______, ______ and ______ shares of the New
America Growth, Equity Income and Capital Appreciation Funds,
respectively, representing approximately ___%, ___% and ___%,
respectively, of the outstanding stock.
As of December 31, 1993, the officers and trustees of the
New America Growth Fund, as a group, beneficially owned, directly
or indirectly, ___________ shares, representing approximately
____% of the Fund's outstanding stock. The ownership of the
officers and trustees reflects their proportionate interests, if
any, in _____________ shares of the Fund which are owned by a
wholly-owned subsidiary of the Fund's investment manager, T. Rowe
Price, and their interests in __________ shares owned by the T.
Rowe Price Associates, Inc. Profit Sharing Trust.
As of December 31, 1993, the officers and trustees of the
Equity Income Fund, as a group, beneficially owned, directly or
indirectly, ___________ shares, representing approximately ____%
of the Fund's outstanding stock. The ownership of the officers
and trustees reflects their proportionate interests, if any, in
_____________ shares of the Fund which are owned by a wholly-
owned subsidiary of the Fund's investment manager, T. Rowe Price,
and their interests in __________ shares owned by the T. Rowe
Price Associates, Inc. Profit Sharing Trust.
As of December 31, 1993, the officers and trustees of the
Capital Appreciation Fund, as a group, beneficially owned,
directly or indirectly, ___________ shares, representing
approximately ____% of the Fund's outstanding stock. The
ownership of the officers and trustees reflects their
proportionate interests, if any, in _____________ shares of the
Fund which are owned by a wholly-owned subsidiary of the Fund's
investment manager, T. Rowe Price, and their interests in
__________ shares owned by the T. Rowe Price Associates, Inc.
Profit Sharing Trust.
<PAGE>67
A copy of the Annual Report of each Fund for the year ended
December 31, 1993, including financial statements, has been
mailed to shareholders of record at the close of business on that
date and to persons who became shareholders of record between
that time and the close of business on February 18, 1993, the
record date for the determination of the shareholders who are
entitled to be notified of and to vote at the meeting.
SHAREHOLDER PROPOSALS
If a shareholder wishes to present a proposal to be included
in the Proxy Statement for the next Annual Meeting, and if such
Annual Meeting is held in April, 1995, such proposal must be
submitted in writing and received by the Corporation's Secretary
at its Baltimore office prior to November 5, 1994.
FINANCIAL STATEMENT OF INVESTMENT MANAGER
The audited consolidated balance sheet of T. Rowe Price
which follows is required by the Investment Company Act of 1940,
and should not be confused with, or mistaken for, the financial
statements of T. Rowe Price New America Growth Fund, T. Rowe
Price Equity Index Fund and T. Rowe Price Capital Appreciation
Fund, which are set forth in the Annual Report for each Fund.
<PAGE>68
T. ROWE PRICE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
(in thousands)
ASSETS
Cash and cash equivalents $ 46,218
Accounts receivable 43,102
Investments in sponsored mutual funds
Short-term bond and money market mutual funds
held as trading securities 27,647
Other funds held as available-for-sale securities 69,423
Partnership and other investments 19,606
Property and equipment 39,828
Goodwill and deferred expenses 9,773
Other assets 7,803
________
$263,400
________
________
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 15,111
Accrued retirement and other compensation costs 19,844
Income taxes payable 5,097
Dividends payable 3,784
Debt 12,915
Deferred revenues 1,548
Minority interests in consolidated subsidiaries 9,148
________
Total liabilities 67,447
________
Commitments and contingent liabilities
Stockholders' equity
Common stock, $.20 par value - authorized 48,000,000
shares; issued and outstanding 29,095,039 shares 5,819
Capital in excess of par value 1,197
Unrealized security holding gains 5,345
Retained earnings 183,592
________
Total stockholders' equity 195,953
________
$263,400
________
________
The accompanying notes are an integral part of the consolidated
balance sheet.
<PAGE>69
T. ROWE PRICE ASSOCIATES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Associates, Inc. and its consolidated subsidiaries
(the "Company") provide investment advisory and administrative
services to sponsored mutual funds and investment products, and
to private accounts of other institutional and individual
investors.
Basis of preparation
The Company's financial statements are prepared in accordance
with generally accepted accounting principles.
Principles of consolidation
The consolidated financial statements include the accounts of all
majority owned subsidiaries and, by virtue of the Company's
controlling interest, its 50%-owned subsidiary, Rowe Price-
Fleming International, Inc. ("RPFI"). All material intercompany
accounts are eliminated in consolidation.
Cash equivalents
For purposes of financial statement disclosure, cash equivalents
consist of all short-term, highly liquid investments including
certain money market mutual funds and all overnight commercial
paper investments. The cost of these investments is equivalent
to fair value.
Investments in sponsored mutual funds
The Company has historically accounted for its investments in
stock and bond mutual funds at the lower of aggregate cost or
market. On December 31, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which
requires the Company to state its mutual fund investments at fair
value and to classify these holdings as either trading (held for
only a short period of time) or available-for-sale securities.
Unrealized holding gains on available-for-sale securities at
December 31, 1993 are reported net of income tax effects in a
separate component of stockholders' equity.
Concentration of credit risk
Financial instruments which potentially expose the Company to
concentrations of credit risk as defined by SFAS No. 105 consist
primarily of investments in sponsored money market and bond
mutual funds and accounts receivable. Credit risk is believed to
be minimal in that counterparties to these financial instruments
have substantial assets including the diversified portfolios
under management by the Company which aggregate $54.4 billion at
December 31, 1993.
<PAGE>70
T. ROWE PRICE ASSOCIATES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Partnership and other investments
The Company invests in various partnerships and ventures
including those sponsored by the Company. These investments
which hold equity securities, venture capital investments, debt
securities and real estate are stated at cost adjusted for the
Company's share of the earnings or losses of the investees
subsequent to the date of investment. Because the majority of
these entities carry their investments at fair value and include
unrealized gains and losses in their reported earnings, the
Company's carrying value for these investments approximates fair
value.
Property and equipment
Property and equipment is stated at cost net of accumulated
depreciation and amortization computed using the straight-line
method. Provisions for depreciation and amortization are based
on the following estimated useful lives: computer and
communications equipment and furniture and other equipment, 3 to
7 years; building, 40 years; leased land, the 50-year lease term;
and leasehold improvements, the shorter of their useful lives or
the remainder of the lease term.
<PAGE>71
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 1 - INVESTMENTS IN SPONSORED MUTUAL FUNDS
Investments in sponsored money market mutual funds, which are
classified as cash equivalents in the accompanying consolidated
financial statements, aggregate $45,272,000 at December 31, 1993.
The Company's investments in sponsored mutual funds held as
available-for-sale at December 31, 1993 (in thousands) include:
Gross
unrealized Aggregate
Aggregate holding fair
cost gains value
________ _________ _________
Stock funds $ 34,990 $ 7,025 $ 42,015
Bond funds 26,190 1,218 27,408
________ _______ _________
Total $ 61,180 $ 8,243 $ 69,423
________ _______ _________
________ _______ _________
The Company provides investment advisory and administrative
services to the T. Rowe Price family of mutual funds which had
aggregate assets under management at December 31, 1993 of $34.7
billion. All services rendered by the Company are provided under
contracts that set forth the services to be provided and the fees
to be charged. These contracts are subject to periodic review
and approval by each of the funds' boards of directors and, with
respect to investment advisory contracts, also by the funds'
shareholders. Services rendered to the funds accounted for 71%
of 1993 revenues.
Accounts receivable from the sponsored mutual funds aggregated
$21,741,000 at December 31, 1993.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1993 (in thousands)
consists of:
Computer and communications equipment $ 31,431
Building and leased land 19,756
Furniture and other equipment 13,889
Leasehold improvements 4,691
_________
69,767
Accumulated depreciation and amortization (29,939)
_________
$ 39,828
_________
_________
<PAGE>72
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (Continued)
NOTE 3 - GOODWILL AND DEFERRED EXPENSES
On September 2, 1992, the Company acquired an investment
management subsidiary of USF&G Corporation and combined six USF&G
mutual funds with aggregate net assets of $.5 billion into the T.
Rowe Price family of funds. The total transaction cost which has
been recognized using the purchase method of accounting was
approximately $11,024,000, including goodwill of $8,139,000 which
is being amortized over 11 years using the straight-line method.
Prepaid non-compete and transition services agreements totaling
$2,500,000 are being amortized over their three-year life.
Accumulated amortization at December 31, 1993 aggregates
$2,216,000.
Goodwill of $1,980,000 from an earlier corporate acquisition is
being amortized over 40 years using the straight-line method.
Accumulated amortization was $1,039,000 at December 31, 1993.
NOTE 4 - DEBT
In June 1991, the Company completed the long-term financing
arrangements for its administrative services facility. Terms of
the $13,500,000 secured promissory note with Confederation Life
Insurance Company include an interest rate of 9.77%, monthly
principal and interest payments totaling $128,000 for 10 years,
and a final principal payment of $9,845,000 in 2001. A
prepayment option is available under the terms of the note;
however, the payment of a substantial premium would have been
required to retire the debt at December 31, 1993. Related debt
issuance costs of $436,000 are included in deferred expenses and
are being amortized over the life of the loan to produce an
effective annual interest rate of 10.14%.
The outstanding principal balance for this note was $12,904,000
at December 31, 1993. A fair value of $16,030,000 was estimated
based on the cost of risk-free assets that could be acquired to
extinguish the obligation at December 31, 1993.
A maximum of $20,000,000 is available to the Company under unused
bank lines of credit at December 31, 1993.
NOTE 5 - INCOME TAXES
Deferred income taxes arise from differences between taxable
income for financial statement and income tax return purposes and
are calculated using the liability method prescribed by SFAS No.
109, "Accounting for Income Taxes."
<PAGE>73
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (Continued)
The net deferred tax liability of $2,596,000 included in income
taxes payable at December 31, 1993 consists of total deferred tax
liabilities of $5,609,000 and total deferred tax assets of
$3,013,000. Deferred tax liabilities include $2,898,000 arising
from unrealized holding gains on available-for-sale securities,
$1,353,000 arising from unrealized capital gains allocated from
the Company's partnership investments, and $677,000 from
differences in the recognition of depreciation expense. Deferred
tax assets include $1,100,000 from differences in the recognition
of the costs of the defined benefit retirement plan and
postretirement benefits.
NOTE 6 - COMMON STOCK AND EMPLOYEE STOCK INCENTIVE PLANS
Shares Authorized
At December 31, 1993, the Company had reserved 8,151,315 shares
of its unissued common stock for issuance upon the exercise of
stock options and 420,000 shares for issuance under an employee
stock purchase plan.
Share Repurchases
The Company's board of directors has authorized the future
repurchase of up to 1,432,000 common shares at December 31, 1993.
Executive Stock
At December 31, 1993, there were outstanding 1,226,540 shares of
common stock ("Executive Stock") which were sold to certain
officers of the Company in 1982 at a discount. These shares are
subject to restrictions which require payment of the discount of
$.32 per share to the Company at the earlier of the sale of such
stock or termination of employment.
<PAGE>74
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (Continued)
Stock Incentive Plans
The following table summarizes the status of noncompensatory
stock options granted at market value to certain officers and
directors of the Company.
Options
Unexer- Options Unexer- Exer-
cised Options Granted cised cisable
Options Exer- (Canceled) Options at
Year at Decem- cised During Decem- Decem- Exer-
of ber 31, During ber 31, ber 31, ber 31, cise
Grant 1992 1993 1993 1993 1993 Price
____ ________ ________ ________ ________ ________ ______
1983-4 53,000 (30,600) -- 22,400 22,400 $.67 &
$.75
1987 309,410 (68,064) -- 241,346 241,346 $5.38 &
$9.38
1988 359,000 (66,586) -- 292,414 292,414 $7.94
1989 632,280 (46,288) (5,600) 580,392 312,404 $11.38
1990 681,500 (83,387) (11,800) 586,313 141,313 $7.19 &
$8.50
1991 811,450 (37,000) (14,000) 760,450 283,450 $17.00
1992 926,000 (11,600) (27,400) 887,000 168,600 $18.75
1993 -- -- 1,154,000 1,154,000 -- $28.13
_________ ________ _________ _________ _________
3,772,640 (343,525) 1,095,200 4,524,315 1,461,927
_________ ________ _________ _________ _________
_________ ________ _________ _________ _________
The right to exercise stock options generally vests over the
five-year period following the grant. After the tenth year
following the grant, the right to exercise the related stock
options lapses and the options are canceled.
NOTE 7 - EMPLOYEE RETIREMENT PLANS
The Company sponsors two defined contribution retirement plans:
a profit-sharing plan based on participant compensation and a
401(k) plan.
The Company also has a defined benefit plan covering those
employees whose annual base salaries do not exceed a specified
salary limit. Participant benefits are based on the final
month's base pay and years of service subsequent to January 1,
1987. The Company's funding policy is to contribute annually the
maximum amount that can be deducted for federal income tax
purposes. The following table sets forth the plan's funded
<PAGE>75
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (Continued)
status and the amounts recognized in the Company's consolidated
balance sheet (in thousands) at December 31, 1993.
Actuarial present value of
Accumulated benefit obligation for service rendered
Vested $ 780
Non-vested 1,362
______
Total 2,142
Obligation attributable to estimated future compensation
increases 2,594
______
Projected benefit obligation 4,736
Plan assets held in sponsored mutual funds, at fair value 2,594
______
Projected benefit obligation in excess of plan assets 2,142
Unrecognized loss from decreases in discount rate 407
______
Accrued retirement costs $1,735
______
______
Discount rate used in determining actuarial present
values 6.40%
______
______
NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a minority partner in the joint venture which owns
the land and building in which the Company leases its corporate
offices. Future minimum rental payments under the Company's
lease agreement are $3,110,000 in 1994 and 1995, $3,220,000 in
1996, $3,769,000 in 1997 and 1998, and $33,755,000 in 1999
through 2006. Other assets at December 31, 1992 includes a
receivable from the venture of $3,485,000 for leasehold
improvements made by the Company and reimbursed by the venture in
1993.
The Company leases office facilities and equipment under other
noncancelable operating leases. Future minimum rental payments
under these leases aggregate $4,621,000 in 1994, $4,123,000 in
1995, $1,776,000 in 1996, $1,259,000 in 1997, $696,000 in 1998,
and $4,806,000 in later years.
At December 31, 1993, the Company had outstanding commitments to
invest an additional $6,757,000 in various investment
partnerships and ventures.
The Company has contingent obligations at December 31, 1993 under
a $500,000 direct pay letter of credit expiring not later than
1999 and a $780,000 standby letter of credit which is renewable
annually.
<PAGE>76
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED BALANCE SHEET (Continued)
Consolidated stockholders' equity at December 31, 1993 includes
$32,635,000 which is restricted as to use under various
regulations and agreements to which the Company and its
subsidiaries are subject in the ordinary course of business.
From time to time, the Company is a party to various employment-
related claims, including claims of discrimination, before
federal, state and local administrative agencies and courts. The
Company vigorously defends itself against these claims. In the
opinion of management, after consultation with counsel, it is
unlikely that any adverse determination in one or more pending
employment-related claims would have a material adverse effect on
the Company's financial position.
<PAGE>77
REPORT OF INDEPENDENT ACCOUNTANTS
_________________________________
To the Stockholders and Board of Directors
of T. Rowe Price Associates, Inc.
In our opinion, the accompanying consolidated balance sheet
presents fairly, in all material respects, the financial position
of T. Rowe Price Associates, Inc. and its subsidiaries at
December 31, 1993 in conformity with generally accepted
accounting principles. This financial statement is the
responsibility of the Company's management; our responsibility is
to express an opinion on this financial statement based on our
audit. We conducted our audit 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 audit
provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Baltimore, Maryland
January 25, 1994
<PAGE>4
T. ROWE PRICE (LOGO) PROXY
_______________________________________________________________
INSTRUCTIONS:
1. Cast your vote by checking the appropriate boxes on the
reverse side. If you do not check a box, your vote will be
cast FOR that proposal.
2. Sign and date the card below.
3. Please return the signed card promptly using the enclosed
postage paid envelope, even if you will be attending the
meeting.
4. Please do not enclose checks or any other correspondence.
Please fold and detach card at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
T. ROWE PRICE CAPITAL APPRECIATION FUND
MEETING: 9:30 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints George J. Collins and James S.
Riepe, as proxies, each with the power to appoint his substitute,
and hereby authorizes them to represent and to vote, as
designated below, all shares of stock of the Fund, which the
undersigned is entitled to vote at the Annual Meeting of
Shareholders to be held on Wednesday, April 20, 1994, at the time
indicated above, at the offices of the Fund, 100 East Pratt
Street, Baltimore, Maryland 21202, and at any and all
adjournments thereof, with respect to the matters set forth below
and described in the Notice of Annual Meeting and Proxy Statement
dated March ___, 1994, receipt of which is hereby acknowledged.
Please sign exactly as name
appears. Only authorized officers
should sign for corporations. For
information as to the voting of
stock registered in more than one
name, see page ___ of the Notice of
Annual Meeting and Proxy Statement.
Dated: __________________, 1994
___________________________________
___________________________________
Signature(s)
CUSIP#77954M105/fund#072
(Front)
<PAGE>5
T. ROWE PRICE (LOGO) WE NEED YOUR PROXY VOTE BEFORE APRIL 20,
1994
_________________________________________________________________
Please refer to the Proxy Statement discussion of each of these
matters.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE SHAREHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR ALL PROPOSALS.
Please fold and detach card at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
1. Election of FOR all nominees / /WITHHOLD AUTHORITY / /1.
trustees. listed below (except to vote for all
as marked to the nominees listed below
contrary)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL
NOMINEE STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
BELOW.)
Leo C. Bailey George J. Collins Donald W. Dick, Jr.
David K. Fagin Addison Lanier John K. Major Hanne M. Merriman
James S. Riepe George A. Roche Hubert D. Vos Paul M. Wythes
2. Approve changes to the Fund's fundamental policies.
FOR each policy / / ABSTAIN / / 2.
listed below (except as
marked to the contrary)
PLEASE CHECK THE BOX FOR any policy change you do NOT
(underscored) wish to approve:
/ / / / / / / / / / / / / / / / / / / / / / / /
A B C D E F G H I J K L
3. Ratify the selection of Coopers & Lybrand as independent
accountants. FOR / / AGAINST / / ABSTAIN / / 3.
4. I authorize the Proxies, in their discretion, to vote upon
such other business as may properly come before the meeting.
CUSIP#77954M105/fund#072
(BACK)
