-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IpSa2BWbAlUZ2WS46II85JAMv8taPuA5J387J+Bv+KZkxofAtse95diXHinfk9Bx qbITJMrcD+uIJczxoO94Ew== 0000773485-02-000011.txt : 20020819 0000773485-02-000011.hdr.sgml : 20020819 20020816174719 ACCESSION NUMBER: 0000773485-02-000011 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE NEW AMERICA GROWTH FUND CENTRAL INDEX KEY: 0000773485 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04358 FILM NUMBER: 02741814 BUSINESS ADDRESS: STREET 1: 100 E PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105472000 FORMER COMPANY: FORMER CONFORMED NAME: PRICE T ROWE COMMON STOCK FUND DATE OF NAME CHANGE: 19851003 N-30D 1 srnag.txt NEW AMERICA GROWTH FUND 06/30/02 Semiannual Report New America Growth Fund June 30, 2002 T. Rowe Price(registered trademark) logo(registered trademark) Report Highlights - -------------------------------------------------------------------------------- New America Growth Fund o Stocks fell sharply during the past six months as investors worried about the pace of economic growth, international tensions, and the growing corporate accounting scandal. o The fund's returns were mixed versus the Lipper peer group, and lagged the S&P 500 for six and 12 months. o Industrials and business services and the health care sectors provided the best contributions to performance; IT, media, and telecom holdings were worst. o While growth stocks have been through a difficult period, we are optimistic about the fund's long-term growth potential. REPORTS ON THE WEB Sign up for our E-mail Program, and you can begin to receive updated fund reports and prospectuses online rather than through the mail. Log on to your account at www.troweprice.com for more information. Fellow Shareholders At the end of 2001, the market appeared to be optimistic about the new year and the impending economic recovery. However, that optimism was replaced by doubt in early 2002. In the second quarter, doubt turned to pessimism as investors lost confidence in both the economy and the integrity of corporate management, their auditors, and in Wall Street. We believe the current level of pessimism is excessive, yet it is unclear when investors may turn positive again. Over the years, we've witnessed recessions, market collapses, and mass euphoria, all of which stemmed from economies that recovered or deteriorated and valuations that rose or fell to more normal levels. However, the market's current malaise involved something deeper than statistics and historical trends; it evolved from the erosion of trust and faith. Performance Comparison Periods Ended 6/30/02 6 Months 12 Months - -------------------------------------------------------------------------------- New America Growth Fund -20.70% -25.21% S&P 500 Index -13.16 -17.99 Lipper Multi-Cap Growth Funds Index -20.13 -29.88 During the first half, the fund returned -20.70%, contributing to a -25.21% return for the full year. These results were behind the S&P 500 but roughly in line with the Lipper peer group as well as a more style-appropriate benchmark, the Russell 1000 Growth Index, which fell -20.78% and -26.49% for the 6- and 12-month periods, respectively. MARKET ENVIRONMENT Most U.S. stock indices posted double-digit declines in the six-month period through June. The retrenchment was driven by a slowing economy, weak corporate earnings, high valuations (particularly in the technology sector), and now a crisis of confidence in the financial markets. Greed and pressure to meet analyst estimates drove a few high-profile corporate management teams to manipulate earnings statements. Enron, WorldCom, and Xerox, along with the actions of Tyco's ex-CEO, have increased investor skepticism, which in turn has fueled the dramatic declines we've endured this year. Media hype fanned the embers of skepticism, prompting credit-rating agencies to respond with downgrades, crimping the financial flexibility of many firms. Companies that historically relied on short-term debt financing, or had generated growth through acquisitions, were punished severely. The extreme price declines were far greater than we imagined possible. We believe it will take time to repair the trust that has been lost in recent quarters. INVESTMENT REVIEW Over the last six months, two major forces worked against the market; the first was expected and the other was not. Both factors punished performance, especially in the second quarter. We expected that the economy would stabilize at the consumer level and that the business environment would remain difficult for technology and telecommunications companies. In fact, the decline in information technology spending was even greater than we had projected. Additionally, the lack of a rebound in the equity markets and financing in many large companies hurt financial stocks. Only three S&P market sectors posted gains in the first half-energy, materials, and consumer staples-areas most frequently associated with value rather than growth investing. Information technology posted the largest six-month loss, and telecommunications services and health care were pounded as well. The factor that took us by surprise was the loss of investor confidence. The impact was most severe on companies that have historically grown through acquisitions. Multinational conglomerates that have consistently expanded their market share through mergers and acquisitions, like American International Group, GE, and Citigroup, all came under a cloud of suspicion for aggressive accounting. For the most part, there was no proven basis for such claims. None of these companies has had to restate revenues or earnings, but their stocks have dropped precipitously, which in our view creates opportunity. We stand firm in our belief that these are solid growth companies and should be afforded higher-than-market multiples. Fears about which large company would be next to fall from grace prompted a shift into traditionally safer, value-oriented sectors like energy and consumer staples. While the fund had some exposure to these sectors, they did little to limit losses. Media stocks were among the fund's worst performers for the year-to-date, and our overweight positions hampered results. These companies held up well at the beginning of 2002, but fell during the recent quarter amid accounting speculation. Omnicom, one of the leaders in the sector, came under public scrutiny for its handling of acquisitions. Even though the fund avoided Omnicom's steep losses, there was enough pressure on the sector to drag down our holdings in AOL Time Warner and Clear Channel Communications. We remain committed to these companies as they have enduring franchises with good cash flow and believe that they are well positioned to benefit from an economic and advertising recovery. Sector Diversification - -------------------------------------------------------------------------------- 6/30/01 12/31/01 6/30/02 - -------------------------------------------------------------------------------- Energy and Utilities 3% 4% 4% Industrials and Materials 11 12 15 Consumer 25 24 25 Health Care 12 15 21 Financials 11 11 13 Information Technology 26 23 18 Telecommunication Services 5 4 1 Reserves and Other 7 7 3 - -------------------------------------------------------------------------------- Total 100% 100% 100% Neither the information technology nor telecommunications services sectors have yet recovered from the excessive capital expenditures of the tech bubble. The beaten down telecom sector suffered another blow in the second quarter when WorldCom announced it had committed a $3.8 billion accounting fraud. Western Wireless, a large cellular operator, and Crown Castle International, a wireless infrastructure developer, were among our largest performance detractors since December. We eliminated both stocks during the period due to deteriorating fundamentals. For similar reasons, we also eliminated tech holdings Peregrine Systems and Flextronics. Our investment in Tyco International has been extremely disappointing. We bought Tyco with the view that it had strong franchises (outside of its CIT Group), generated solid cash flow, and possessed a wealth of experienced and talented management. The allegations against the company's CEO, and his subsequent dismissal from the firm, have spotlighted our error in judging at least one component of the management team. However, we have studied the financials and continue to believe that the firm's franchises are worth more than is reflected in the current share price, and we have maintained the majority of our original position. While the aforementioned securities detracted from performance, several stocks were strong contributors. Apollo Group (industrials and business services), which is the largest Internet-based, degree-granting university in the U.S., was the top contributor for the six months. Apollo has produced very consistent earnings in a niche usually served by traditional brick-and-mortar universities. We expect continued success as online education grows. We remained bullish on health care services stocks WellPoint Health Networks, Laboratory Corporation of America, and Anthem, which were strong year-to-date contributors. Overall, the health care sector produced mixed results because large-cap pharmaceuticals and biotech stocks suffered severe losses. The telecom sector was a dismal performer during the 6- and 12-month periods; however, we dodged some of the pain by maintaining an underweight allocation, aiding comparisons with our benchmarks. OUTLOOK During this period of incredible uncertainty, the market appears to be valuing all stocks the same, including those with higher growth prospects. We are upgrading the portfolio, adding to companies where we have the highest conviction, believing that they will provide superior long-term results for the fund. The strength of an economy and a stock market is based on faith that the future holds promise. The faith likely leads to consumer spending, capital investment, and equity appreciation based on future growth. Over time, we think the market will regain this faith and a more virtuous cycle will begin again. During this uncertain period we will continue to work diligently to find companies that increase market share, improve returns, and run their businesses ethically for all shareholders. We think these companies will offer significant returns to shareholders and your fund. Respectfully submitted, Robert W. Smith President Joseph M. Milano Executive vice president and chairman of the fund's Investment Advisory Committee July 26, 2002 The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the fund's investment program. Change in New America Growth Fund Management Effective May 29, 2002, Robert W. Smith became president of New America Growth Fund and interim chairman of its Investment Advisory Committee, assuming day-to-day responsibility for managing the fund. Marc L. Baylin stepped down as chairman to pursue interests outside of T. Rowe Price, and we wish him well in his new endeavors. On July 22, 2002, Joseph M. Milano became executive vice president of New America Growth Fund and chairman of its Investment Advisory Committee, assuming day-to-day responsibility for managing the fund. Mr. Smith will continue as president of the fund and will stay on the Investment Advisory Committee. - -------------------------------------------------------------------------------- The following updates the Portfolio Management paragraph on page 18 of your May 1, 2002, prospectus: Effective July 22, 2002, Joseph M. Milano became chairman of New America Growth Fund's Investment Advisory Committee and assumed day-to-day responsibility for managing the fund. Mr. Milano joined T. Rowe Price in 1996 as a research analyst in the equity division covering a wide range of growth companies. He is a member of seven T. Rowe Price Investment Advisory Committees. T. Rowe Price New America Growth Fund - -------------------------------------------------------------------------------- Portfolio Highlights TWENTY-FIVE LARGEST HOLDINGS Percent of Net Assets 6/30/02 - -------------------------------------------------------------------------------- Freddie Mac 3.4% Apollo Group 3.3 First Data 3.2 Microsoft 3.1 Pfizer 2.9 Affiliated Computer Services 2.8 Viacom 2.7 Target 2.7 Omnicare 2.6 Family Dollar Stores 2.6 Home Depot 2.2 Cisco Systems 2.2 Concord EFS 1.8 Costco Wholesale 1.7 WellPoint Health Networks 1.6 Citigroup 1.6 Laboratory Corporation of America 1.6 Wyeth 1.5 Clear Channel Communications 1.5 American International Group 1.5 AOL Time Warner 1.5 Liberty Media 1.5 Comcast 1.4 Smith International 1.3 GE 1.2 Total 53.4% Note: Table excludes investments in the T. Rowe Price Reserve Investment Fund. T. Rowe Price New America Growth Fund - -------------------------------------------------------------------------------- Portfolio Highlights CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE 6 Months Ended 6/30/02 Ten Best Contributors Apollo Group 22(cents) WellPoint Health Networks 14 Family Dollar Stores 10 Laboratory Corporation of America 9 Smith International 8 Anthem 5 Starbucks 5 Omnicare 4 Choicepoint 4 Weight Watchers 4 Total 85(cents) Ten Worst Contributors Western Wireless ** -40(cents) AOL Time Warner 34 Flextronics ** 23 SmartForce PLC ** 22 Clear Channel Communications 22 Tyco International 22 Peregrine Systems ** 21 Home Depot 21 Crown Castle International ** 20 Vodafone 20 Total -245(cents) 12 Months Ended 6/30/02 Ten Best Contributors Apollo Group 28(cents) Affiliated Computer Services 28 WellPoint Health Networks 22 Family Dollar Stores 20 First Data 18 Omnicare 14 Concord EFS 12 Laboratory Corporation of America 11 Anthem * 9 Choicepoint * 7 Total 169(cents) Ten Worst Contributors Western Wireless ** -66(cents) AOL Time Warner 60 Liberty Media 39 Peregrine Systems ** 38 TMP Worldwide 37 Clear Channel Communications 36 Crown Castle International ** 35 VeriSign ** 32 Allegiance Telecom ** 28 Comcast 26 Total -397(cents) * Position added ** Position eliminated T. Rowe Price New America Growth Fund - -------------------------------------------------------------------------------- Performance Comparison This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which may include a broad-based market index and a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes. NEW AMERICA GROWTH FUND XXX S&P 500 Index Lipper Multi-Cap Growth NAG-Line 06/92 10000 10000 10000 06/93 11363 12130 12649 06/94 11522 12143 12920 06/95 14527 15301 15893 06/96 18304 18932 21950 06/97 24655 22685 24968 06/98 32092 29013 32663 06/99 39395 35446 36431 06/00 42249 48747 36495 06/01 35983 34026 30951 06/02 29511 23860 23147 Average Annual Compound Total Return This table shows how the fund would have performed each year if its actual (or cumulative) returns for the periods shown had been earned at a constant rate. Period Ending 6/30/02 1 Year 3 Years 5 Years 10 Years - -------------------------------------------------------------------------------- New America Growth Fund -25.21% -14.03% -1.50% 8.76% Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. T. Rowe Price New America Growth Fund - -------------------------------------------------------------------------------- Unaudited Financial Highlights For a share outstanding throughout each period 6 Months Year Ended Ended 6/30/02 12/31/01 12/31/00 12/31/99 12/31/98 12/31/97 NET ASSET VALUE Beginning of period $ 30.87 $ 35.77 $ 48.06 $ 47.79 $ 44.19 $ 38.37 Investment activities Net investment income (loss) (0.07) (0.12) (0.14) (0.20) (0.21) (0.13) Net realized and unrealized gain (loss) (6.32) (4.14) (4.63) 5.87 7.65 8.15 Total from investment activities (6.39) (4.26) (4.77) 5.67 7.44 8.02 Distributions Net realized gain -- (0.64) (7.52) (5.40) (3.84) (2.20) NET ASSET VALUE End of period $ 24.48 $ 30.87 $ 35.77 $ 48.06 $ 47.79 $ 44.19 -------- -------- -------- -------- -------- -------- Ratios/Supplemental Data Total return^ (20.70)% (11.89)% (10.53)% 12.76% 17.89% 21.10% Ratio of total expenses to average net assets 0.96%! 0.99% 0.93% 0.94% 0.95% 0.96% Ratio of net investment income (loss) to average net assets (0.46)%! (0.36)% (0.33)% (0.43)% (0.49)% (0.34)% Portfolio turnover rate 62.4%! 52.1% 81.4% 39.7% 45.6% 43.2% Net assets, end of period (in millions) $ 884 $ 1,183 $ 1,519 $ 2,064 $ 2,064 $ 1,758 ^ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions. ! Annualized The accompanying notes are an integral part of these financial statements. T. Rowe Price New America Growth Fund - -------------------------------------------------------------------------------- Unaudited June 30, 2002 Statement of Net Assets Shares Value - -------------------------------------------------------------------------------- In thousands Common Stocks 97.4% CONSUMER DISCRETIONARY 22.1% Hotels, Restaurants & Leisure 0.9% Starbucks * 325,000 $ 8,076 8,076 Internet & Catalog Retail 0.9% USA Interactive * 355,000 8,325 8,325 Media 11.2% AOL Time Warner * 900,000 13,239 Clear Channel Communications * 420,000 13,448 Comcast, Class A * 515,000 12,278 EchoStar Communications * 260,000 4,826 Lamar Advertising, Class A * 70,000 2,605 Liberty Media, Class A * 1,300,000 13,000 TMP Worldwide * 275,000 5,912 Univision Communications, Class A * 295,000 9,263 Viacom, Class B * 540,000 23,960 98,531 Multiline Retail 6.9% Costco Wholesale * 385,000 14,869 Family Dollar Stores 640,000 22,560 Target 625,000 23,812 61,241 Specialty Retail 2.2% Home Depot 530,000 19,467 19,467 Total Consumer Discretionary 195,640 CONSUMER STAPLES 2.1% Food & Drug Retailing 2.1% Sysco 320,000 8,710 Walgreen 250,000 9,658 Total Consumer Staples 18,368 ENERGY 3.9% Energy Equipment & Services 3.9% Baker Hughes 255,000 8,489 Diamond Offshore Drilling 340,000 9,690 Schlumberger 110,000 5,115 Smith International * 170,000 11,592 Total Energy 34,886 FINANCIALS 12.5% Banks 1.5% Mellon Financial 250,000 7,857 Northern Trust 127,000 5,596 13,453 Diversified Financials 8.4% Charles Schwab 350,000 3,920 Citigroup 355,000 13,757 Freddie Mac 490,000 29,988 Goldman Sachs Group 135,000 9,902 Morgan Stanley 215,000 9,262 Waddell & Reed Financial, Class A 306,900 7,034 73,863 Insurance 2.6% American International Group 195,000 13,305 Marsh & McLennan 97,500 9,419 22,724 Total Financials 110,040 HEALTH CARE 19.5% Biotechnology 2.5% Abgenix* 120,500 1,181 Amgen* 120,000 5,026 Cephalon* 95,000 4,294 Genentech* 115,000 3,852 MedImmune* 285,000 7,524 21,877 Health Care Equipment & Supplies 1.4% Baxter International 225,000 10,002 Waters Corporation* 90,000 2,403 12,405 Health Care Providers & Services 8.2% Anthem* 115,000 7,760 HCA 70,000 3,325 Laboratory Corporation of America * 300,000 13,695 Omnicare 875,000 22,977 UnitedHealth Group 110,000 10,071 Wellpoint Health Networks * 185,000 14,395 72,223 Pharmaceuticals 7.4% Allergan 125,000 8,344 Eli Lilly 110,000 6,204 King Pharmaceuticals * 143,033 3,182 Pfizer 725,000 25,375 Pharmacia 240,000 8,988 Wyeth 265,000 13,568 65,661 Total Health Care 172,166 INDUSTRIALS & BUSINESS SERVICES 15.1% Air Freight & Logistics 0.6% UPS, Class B 95,000 5,866 5,866 Commercial Services & Supplies 12.9% Apollo Group, Class A * 737,500 29,072 BISYS Group * 200,000 6,660 Certegy * 210,000 7,793 Choicepoint * 193,333 8,791 Concord EFS * 525,000 15,823 DST Systems * 140,000 6,399 First Data 760,000 28,272 Robert Half International * 205,000 4,777 Weight Watchers * 140,000 6,082 113,669 Industrial Conglomerates 1.6% GE 375,000 10,894 Tyco International 219,900 2,971 13,865 Total Industrials & Business Services 133,400 INFORMATION TECHNOLOGY 18.6% Communications Equipment 3.5% Brocade Communications Systems * 250,000 4,370 Cisco Systems * 1,383,000 19,293 Nokia ADR 235,000 3,403 QUALCOMM * 150,000 4,123 31,189 Computers & Peripherals 0.7% Lexmark International, Class A * 115,000 6,256 6,256 Electronic Equipment & Instruments 1.0% Celestica* 390,000 8,857 8,857 IT Consulting & Services 4.5% Accenture, Class A * 440,000 8,360 Affiliated Computer Services, Class A * 530,000 25,164 SunGard Data Systems * 225,000 5,958 39,482 Semiconductor Equipment & Products 3.8% Analog Devices * 285,000 8,464 Applied Materials * 400,000 7,608 Maxim Integrated Products * 275,000 10,541 Texas Instruments 300,000 7,110 33,723 Software 5.1% Electronic Arts * 75,000 4,954 Mercury Interactive * 165,000 3,788 Microsoft * 495,000 27,077 Siebel Systems * 235,000 3,342 VERITAS Software * 275,000 5,442 44,603 Total Information Technology 164,110 TELECOMMUNICATION SERVICES 1.0% Wireless Telecommunication Services 1.0% Vodafone ADR 665,000 9,077 Total Telecommunication Services 9,077 Total Miscellaneous Common Stocks 2.6% 22,701 Total Common Stocks (Cost $775,871) 860,388 Short-Term Investments 4.6% Money Market Fund 4.6% T. Rowe Price Reserve Investment Fund, 1.95%# 40,783,328 40,783 Total Short-Term Investments (Cost $40,783) 40,783 Total Investments in Securities 102.0% of Net Assets (Cost $816,654) $ 901,171 Other Assets Less Liabilities (17,666) NET ASSETS $ 883,505 ----------- Net Assets Consist of: Undistributed net investment income (loss) $ (2,385) Undistributed net realized gain (loss) (155,191) Net unrealized gain (loss) 84,517 Paid-in-capital applicable to 36,092,197 shares of no par value capital stock outstanding; unlimited shares authorized 956,564 NET ASSETS $ 883,505 ----------- NET ASSET VALUE PER SHARE $ 24.48 ----------- # Seven-day yield * Non-income producing ADR American Depository Receipts The accompanying notes are an integral part of these financial statements. T. Rowe Price New America Growth Fund - -------------------------------------------------------------------------------- Unaudited Statement of Operations - -------------------------------------------------------------------------------- In thousands 6 Months Ended 6/30/02 Investment Income (Loss) Income Dividend $ 2,023 Interest 559 Total income 2,582 Expenses Investment management 3,501 Shareholder servicing 1,340 Custody and accounting 62 Prospectus and shareholder reports 50 Proxy and annual meeting 24 Registration 8 Legal and audit 8 Trustees 5 Total expenses 4,998 Expenses paid indirectly (31) Net expenses 4,967 Net investment income (loss) (2,385) Realized and Unrealized Gain (Loss) Net realized gain or loss on securities (77,554) Change in net unrealized gain or loss on securities (156,667) Net realized and unrealized gain (loss) (234,221) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $(236,606) --------- The accompanying notes are an integral part of these financial statements. T. Rowe Price New America Growth Fund - -------------------------------------------------------------------------------- Unaudited Statement of Changes in Net Assets - -------------------------------------------------------------------------------- In thousands 6 Months Year Ended Ended 6/30/02 12/31/01 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ (2,385) $ (4,658) Net realized gain (loss) (77,554) (77,344) Change in net unrealized gain (loss) (156,667) (104,718) Increase (decrease) in net assets from operations (236,606) (186,720) Distributions to shareholders Net realized gain -- (24,211) Capital share transactions * Shares sold 63,151 165,212 Distributions reinvested -- 23,540 Shares redeemed (126,323) (313,336) Increase (decrease) in net assets from capital share transactions (63,172) (124,584) Net Assets Increase (decrease) during period (299,778) (335,515) Beginning of period 1,183,283 1,518,798 End of period $ 883,505 $ 1,183,283 --------------- --------------- *Share information Shares sold 2,205 5,149 Distributions reinvested -- 771 Shares redeemed (4,441) (10,054) Increase (decrease) in shares outstanding (2,236) (4,134) The accompanying notes are an integral part of these financial statements. T. Rowe Price New America Growth Fund - -------------------------------------------------------------------------------- Unaudited June 30, 2002 Notes to Financial Statements NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price New America Growth Fund, Inc. (the fund) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company and commenced operations on September 30, 1985. The fund seeks to achieve long-term growth of capital by investing primarily in the common stocks of companies operating in sectors T. Rowe Price believes will be the fastest growing in the United States. The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates made by fund management. Valuation Equity securities listed or regularly traded on a securities exchange or in the over-the-counter market are valued at the last quoted sale price, or official closing price for certain markets, at the time the valuations are made. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day are valued at the mean of the latest bid and ask prices. Other equity securities are valued at a price within the limits of the latest bid and ask prices deemed by the Board of Trustees, or by persons delegated by the Board, best to reflect fair value. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. Assets and liabilities for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by or under the supervision of the officers of the fund, as authorized by the Board of Trustees. Expenses Paid Indirectly Certain security trades are directed to brokers who have agreed to rebate a portion of the related commission to the fund to pay fund expenses. Additionally, credits earned on temporarily uninvested cash balances at the custodian are used to reduce the fund's custody charges. Total expenses in the accompanying statement of operations are presented before reduction for rebates and credits, which totaled $31,000 and $0, respectively, for the period ended June 30, 2002. Other Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Dividend income and distributions to shareholders are recorded by the fund on the ex-dividend date. NOTE 2 - INVESTMENT TRANSACTIONS Purchases and sales of portfolio securities, other than short-term securities, aggregated $310,902,000 and $317,048,000, respectively, for the six months ended June 30, 2002. NOTE 3 - FEDERAL INCOME TAXES No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company and distribute to shareholders all of its taxable income and capital gains. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions determined in accordance with tax regulations may differ in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Temporary differences are not adjusted. The amount and character of tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of June 30, 2002. For tax purposes, the fund has elected to treat net capital losses realized between November 1 and December 31 of each year as occurring on the first day of the following tax year; consequently, $14,157,000 of realized losses recognized for financial reporting purposes in 2001 were recognized for tax purposes on January 1, 2002. Further, the fund intends to retain realized gains to the extent of available capital loss carryforwards. As of December 31, 2001, the fund had $63,480,000 of unused capital loss carryforwards, of which $63,480,000 expire in 2009. At June 30, 2002, the cost of investments for federal income tax purposes was substantially the same as for financial reporting and totaled $816,654,000. Net unrealized gain aggregated $84,517,000 at period-end, of which $235,047,000 related to appreciated investments and $150,530,000 related to depreciated investments. NOTE 4 - RELATED PARTY TRANSACTIONS The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price Associates), a wholly owned subsidiary of T. Rowe Price Group. The investment management agreement between the fund and the manager provides for an annual investment management fee, which is computed daily and paid monthly. The fee consists of an individual fund fee, equal to 0.35% of the fund's average daily net assets, and the fund's pro-rata share of a group fee. The group fee is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.295% for assets in excess of $120 billion. The fund's portion of the group fee is determined by the ratio of its net assets to those of the group. At June 30, 2002, the effective annual group fee rate was 0.32%, and investment management fee payable totaled $509,000. In addition, the fund has entered into service agreements with Price Associates and two wholly owned subsidiaries of Price Associates (collectively, Price). Price Associates computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc. provides shareholder and administrative services in its capacity as the fund's transfer and dividend disbursing agent. T. Rowe Price Retirement Plan Services, Inc. provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. Expenses incurred pursuant to these service agreements totaled $1,079,000 for the six months ended June 30, 2002, of which $197,000 was payable at period-end. The fund may invest in the T. Rowe Price Reserve Investment Fund and T. Rowe Price Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by Price Associates. The Reserve Funds are offered as cash management options only to mutual funds and other accounts managed by Price Associates and/or its affiliates, and are not available to the public. The Reserve Funds pay no investment management fees. Distributions from the Reserve Funds to the fund for the six months ended June 30, 2002, totaled $559,000 and are reflected as interest income in the accompanying Statement of Operations. T. Rowe Price New America Growth Fund - -------------------------------------------------------------------------------- About the Fund's Trustees and Officers - -------------------------------------------------------------------------------- Your fund is governed by a Board of Trustees that meets regularly to review investments, performance, expenses, and other business matters, and is responsible for protecting the interests of shareholders. The majority of the fund's trustees are independent of T. Rowe Price Associates, Inc. ("T. Rowe Price"); "inside" trustees are officers of T. Rowe Price. The Board of Trustees elects the fund's officers, who are listed in the final table. The business address of each trustee and officer is 100 East Pratt Street, Baltimore, MD 21202. Independent Trustees Name (Date of Birth) Principal Occupation(s) During Past 5 Years and Year Elected* Other Directorships of Public Companies - -------------------------------------------------------------------------------- Calvin W. Burnett, Ph.D. (3/16/32) President, Coppin State College; Director, Provident 2001 Bank of Maryland Anthony W. Deering Director, Chairman of the Board, President, and (1/28/45) Chief Executive Officer, The Rouse Company, real 2001 estate developers Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an acquisition (1/27/43) and management advisory firm 1985 David K. Fagin Director, Dayton Mining Corp. (6/98 to present), (4/9/38) Golden Star Resources Ltd., and Canyon Resources 1994 Corp. (5/00 to present); Chairman and President, Nye Corp. F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates, Inc., (8/22/34) consulting environmental and civil engineers 2001 Hanne M. Merriman Retail Business Consultant; Director, Ann Taylor (11/16/41) Stores Corp., Ameren Corp., Finlay Enterprises, 1994 Inc., The Rouse Company, and US Airways Group, Inc. John G. Schreiber Owner/President, Centaur Capital Partners, Inc., a (10/21/46) real estate investment company; Senior Advisor and 2001 Partner, Blackstone Real Estate Advisors, L.P.; Director, AMLI Residential Properties Trust, Host Marriott Corp., and The Rouse Company Hubert D. Vos Owner/President, Stonington Capital Corp., a private (8/2/33) investment company 1994 Paul M. Wythes Founding Partner, Sutter Hill Ventures, (6/23/33) a venture capital limited partnership, 1985 providing equity capital to young high-technology companies throughout the United States; Director, Teltone Corp. *Each independent trustee oversees 98 T. Rowe Price portfolios and serves until the election of a successor. T. Rowe Price New America Growth Fund - -------------------------------------------------------------------------------- Inside Trustees Name (Date of Birth) Year Elected* [Number of T. Rowe Price Portfolios Principal Occupation(s) During Past 5 Years and Overseen] Other Directorships of Public Companies - -------------------------------------------------------------------------------- John H. Laporte Director, T. Rowe Price Group, Inc.; Vice President, (7/26/45) T. Rowe Price and New America Growth Fund 1985 [15] James S. Riepe Director and Vice President, T. Rowe Price; Vice (6/25/43) Chairman of the Board, Director, and Vice President, 1985 T. Rowe Price Group, Inc.; Chairman of the Board and [98] Director, T. Rowe Price Global Asset Management Limited, T. Rowe Price Investment Services, Inc., T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Services, Inc.; Chairman of the Board, Director, President, and Trust Officer, T. Rowe Price Trust Company; Director, T. Rowe Price International, Inc., and T. Rowe Price Global Investment Services Limited; Vice President, New America Growth Fund M. David Testa Vice Chairman of the Board, Chief Investment (4/22/44) Officer, Director, and Vice President, T. Rowe Price 1997 Group, Inc.; Chief Investment Officer, Director, and [98] Vice President, T. Rowe Price; Chairman and Director, T. Rowe Price Global Asset Management Limited; Vice President and Director, T. Rowe Price Trust Company; Director, T. Rowe Price Global Investment Services Limited and T. Rowe Price International, Inc. *Each inside trustee serves until the election of a successor. Officers Name (Date of Birth) Title and Fund(s) Served Principal Occupation(s) - -------------------------------------------------------------------------------- Brace C. Brooks (1/10/67) Vice President, T. Rowe Price and T. Rowe Vice President, New America Price Group, Inc. Growth Fund Joseph A. Carrier (12/30/60) Vice President, T. Rowe Price, T. Rowe Price Treasurer, New America Group, Inc., and T. Rowe Price Investment Growth Fund Services, Inc. Giri Devulapally (11/18/67) Vice President, T. Rowe Price and T. Rowe Vice President, New America Price Group, Inc. Growth Fund Eric M. Gerster (3/23/71) Vice President, T. Rowe Price and T. Rowe Vice President, New America Price Group, Inc. Growth Fund Henry H. Hopkins (12/23/42) Director and Vice President, T. Rowe Price Vice President, New America Group, Inc.; Vice President, T. Rowe Price, T. Growth Fund Rowe Price International, Inc., and T. Rowe Price Retirement Plan Services, Inc.; Vice President and Director, T. Rowe Price Investment Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price Trust Company J. Jeffrey Lang (1/10/62) Vice President, T. Rowe Price and T. Rowe Vice President, New America Price Trust Company Growth Fund Christopher R. Leonard Vice President, T. Rowe Price and T. Rowe (1/11/73) Price Group, Inc. Vice President, New America Growth Fund Patricia B. Lippert (1/12/53) Assistant Vice President, T. Rowe Price and T. Secretary, New America Rowe Price Investment Services, Inc. Growth Fund Robert J. Marcotte (3/6/62) Vice President, T. Rowe Price and T. Rowe Vice President, New America Price Group, Inc. Growth Fund David S. Middleton (1/18/56) Vice President, T. Rowe Price, T. Rowe Price Controller, New America Group, Inc., and T. Rowe Price Trust Company Growth Fund Joseph M. Milano (9/14/72) Vice President, T. Rowe Price and T. Rowe Vice President, New America Price Group, Inc. Growth Fund Robert W. Sharps, 6/10/71 Vice President, T. Rowe Price and T. Rowe Executive Vice President, Price Group, Inc. New America Growth Fund Robert W. Smith (4/11/61) Vice President, T. Rowe Price, T. Rowe Price President, New America Group, Inc., and T. Rowe Price International, Growth Fund Inc. R. Candler Young (9/28/71) Vice President, T. Rowe Price Vice President, New America Growth Fund Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least five years. T. Rowe Price Investment Services and Information - -------------------------------------------------------------------------------- Investment Services and Information KNOWLEDGEABLE SERVICE REPRESENTATIVES By Phone 1-800-225-5132. Available Monday through Friday from 7 a.m. until midnight ET and weekends from 8:30 a.m. until 5 p.m. ET. In Person. Available in T. Rowe Price Investor Centers. Please call a service representative at 1-800-225-5132 or visit the Web at www.troweprice.com/investorcenter to locate a center near you. ACCOUNT SERVICES Automated 24-Hour Services Including Tele*Access(registered trademark) and Account Access through the T. Rowe Price Web site on the Internet. Address: www.troweprice.com. Automatic Investing. From your bank account or paycheck. Automatic Withdrawal. Scheduled, automatic redemptions. IRA Rebalancing. Ensuring that your accounts reflect your desired asset allocation. BROKERAGE SERVICES * Individual Investments. Stocks, bonds, options, precious metals, and other securities at a savings over full-service commission rates. INVESTMENT INFORMATION Consolidated Statement. Overview of all of your accounts. Shareholder Reports. Manager reviews of their strategies and results. T. Rowe Price Report. Quarterly investment newsletter. Performance Update. Quarterly review of all T. Rowe Price fund results. Insights. Educational reports on investment strategies and markets. Investment Guides. Asset Mix Worksheet, Diversifying Overseas: A Guide to International Investing, Retirement Planning Kit, Retirement Readiness Guide, and Tax Considerations Guide. * T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC. T. Rowe Price Planning Tools and Services - -------------------------------------------------------------------------------- T. Rowe Price Retirement Services T. Rowe Price offers unique retirement resources that can help you meet a broad variety of planning challenges. Our retirement tools are suitable for individuals, the self-employed, small businesses, corporations, and nonprofit organizations. We also provide recordkeeping, communications, and investment management services. For more information, call us at 1-800-IRA-5000, or visit our Web site at www.troweprice.com. PLANNING TOOLS AND SERVICES T. Rowe Price(registered trademark) Retirement Income Manager* helps retirees or those within two years of retirement determine how much income they can draw down in retirement. The program uses extensive statistical analysis and the input of a T. Rowe Price Advisory Counselor to suggest an income plan that best meets your objectives. Retirement Income Calculator. This free calculator, incorporating the analytic approach of the T. Rowe Price Retirement Income Manager program, simulates 500 potential market scenarios to estimate the probability of maintaining an income strategy throughout retirement. Rollover Investment Service* offers asset allocation and fund selection advice to those planning a 401(k) rollover from a previous employer after changing jobs or retiring. IRA Rebalancing Service. T. Rowe Price will rebalance your IRA at the end of every quarter by exchanging shares between mutual fund accounts. This ensures that your accounts retain your desired asset allocation. Quality Information. Thousands of investors have made their personal choices with the help of our Retirement Readiness Guide, Retirement Planning Kit, IRA Insights, and Retirement Planning Worksheet. INVESTMENT VEHICLES Individual Retirement Accounts (IRAs) No-Load Variable Annuities Small Business Retirement Plans * Services of T. Rowe Price Advisory Services, Inc., a federally registered investment adviser. There are costs associated with these services. T. Rowe Price Web Services - -------------------------------------------------------------------------------- www.troweprice.com ACCOUNT INFORMATION Account Access allows you to access, in a secure environment, all of your T. Rowe Price mutual fund, brokerage, variable annuity, and workplace retirement accounts with a single login. AccountMinder is a personal page, with one password, that gives you access to all your online financial information and other records from the secure T. Rowe Price Account Access site. FINANCIAL TOOLS AND CALCULATORS College Investment Calculator. This interactive tool allows you to estimate simultaneously the college costs for as many as five children. Morningstar(registered trademark) Portfolio Trackersm. See how your investments are performing at any time. After you enter ticker symbols for your stocks and mutual funds, Portfolio Tracker provides information on prices, market value, and any applicable Morningstar ratings. Investment Strategy Planner. This planning tool can help you develop and implement an asset allocation strategy that's appropriate for you. Retirement Income Calculator. This free calculator simulates 500 potential market scenarios to estimate the probability of maintaining an income strategy throughout retirement. INVESTMENT TRACKING AND INFORMATION My TRP e-Updates. This free e-mail service offers timely market reports, important information about investing, and the latest updates on the T. Rowe Price funds and services. Morningstar(registered trademark) Portfolio Watchlistsm. Like the Portfolio Tracker, the Watchlist allows you to see how your investments are performing. After entering your ticker symbols, the Watchlist automatically provides you with prices, price changes in dollars and percentages, target highs and lows, and target volume. Morningstar(registered trademark) Portfolio X-Raysm. This comprehensive tool goes below the surface to give you an in-depth examination of all your investments. It analyzes your portfolio by asset allocation, stock sector, fees and expenses, stock statistics, world regions, and top holdings. T. Rowe Price College Planning - -------------------------------------------------------------------------------- College Planning With the costs of college steadily increasing, it's critical to plan early for this financial event. Our educational investment vehicles and information can help you lay the foundation for the future of your loved ones. For more information or to request a kit, call us at 1-800-638-5660, or visit our Web site at www.troweprice.com. T. Rowe Price College Savings Plan. This national "529" plan is sponsored by the Education Trust of Alaska and designed to help families prepare for college education costs. The Plan, which is open to any U.S. resident, allows participants to invest up to a maximum account balance of $250,000 for a person's education. With systematic investing, you can invest as little as $50 per month. In addition, assets grow tax-deferred and are free of federal income taxes when used for qualified educational expenses. We also offer two additional college savings plans, including the Maryland College Investment Plan and the University of Alaska College Savings Plan, both of which offer federal tax-deferred growth and benefits for state residents. Education Savings Accounts (formerly Education IRAs). This education investment account allows individuals to invest a total of $2,000 per year per beneficiary to pay for educational costs at eligible schools including elementary, secondary, and post-secondary institutions. Withdrawals from Education Savings Accounts are tax-free if the proceeds are used for qualifying educational expenses. College Investment Calculator. This Web-based application helps you to determine simultaneously the college costs for as many as five children. The calculator is also connected with a database that lets you select specific schools with actual costs of tuition and room and board. College Planning Basics. This Insights report offers a college cost worksheet and describes the options available to individuals planning for college. T. Rowe Price Advisory Services - -------------------------------------------------------------------------------- Advisory Services If you are looking for professional investment advisory services with a personal touch, T. Rowe Price offers tools to help you make informed investing decisions and take control of your financial future. The T. Rowe Price(registered trademark) Retirement Income Manager* helps retirees or those within two years of retirement determine how much income they can take in retirement. The program uses extensive statistical analysis and the input of financial planning professionals to suggest an income plan that best meets your objectives. Rollover Investment Service* offers asset allocation advice to those planning a major change in their qualified retirement plans, such as a 401(k) rollover from a previous employer or an IRA transfer. T. Rowe Price Investment Checkup(registered trademark) offers a second opinion on your portfolio. We analyze your investments using proprietary software and provide asset allocation suggestions based on your personal profile. Retirement Income Calculator. This free calculator, incorporating the analytic approach of the T. Rowe Price Retirement Income Manager program, simulates 500 potential market scenarios to estimate the probability of maintaining an income strategy throughout retirement. Morningstar(registered trademark) Clear Futuresm Guidance. This unique retirement planning tool can help you determine an investment strategy for your retirement assets. After you input information about your current financial situation, Clear Future calculates several retirement income ranges you could achieve. *Services of T. Rowe Price Advisory Services, Inc., a federally registered investment adviser. There are costs associated with these services. T. Rowe Price Brokerage Services - -------------------------------------------------------------------------------- Brokerage Services T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC. T. Rowe Price Brokerage provides high-quality services and financial tools you can use to manage your investments effectively and conveniently. We also offer commission savings over full-service brokerages on a number of transactions. Asset Manager Account. This premium relationship account is designed for investors with higher balances who seek to manage all of their investments through a single account. AMA clients also enjoy unlimited checking and VISA Gold ATM & Check Cards. Mutual Fund Gateway. This service lets you invest in more than 100 prominent no-load fund families using a single account. Margin and Options Trading for qualified investors. Online Account Access. This service lets you access your Brokerage account, place stock, option, and mutual fund orders, create personal watch lists, and get real-time quotes over the Internet. Customers can enjoy low flat-rate commissions of $19.95 on stock trades.* Tele-Trader. This automated, 24-hour trading service allows you to enter stock and option orders, access real-time quotes, and hear a report of your account balances. You can also create a quote list for your selected securities. Online Research and News.** Company news, stock information, and interactive charting available 24 hours a day, provided by Thomson Financial Services. * $19.95 per trade for up to 1,000 shares, plus $0.02 per share thereafter. ** The information provided through these services is prepared by independent investment research companies that are not affiliated with T. Rowe Price. While the information provided is deemed reliable, neither T. Rowe Price Brokerage nor the information providers guarantee the accuracy or completeness of the information or make any warranties with regard to the results obtained from its use. T. Rowe Price Mutual Funds - -------------------------------------------------------------------------------- STOCK FUNDS Domestic Blue Chip Growth* Capital Appreciation Capital Opportunity Developing Technologies Diversified Small-Cap Growth Dividend Growth Equity Income* Equity Index 500 Extended Equity Market Index Financial Services Growth & Income Growth Stock* Health Sciences Media & Telecommunications Mid-Cap Growth* Mid-Cap Value New America Growth New Era New Horizons Real Estate Science & Technology* Small-Cap Stock* Small-Cap Value*! Spectrum Growth Tax-Efficient Growth Tax-Efficient Multi-Cap Growth Total Equity Market Index Value* BLENDED ASSET FUNDS Balanced Personal Strategy Balanced Personal Strategy Growth Personal Strategy Income Tax-Efficient Balanced BOND FUNDS Domestic Taxable Corporate Income GNMA High Yield* New Income Short-Term Bond Spectrum Income Summit GNMA U.S. Bond Index U.S. Treasury Intermediate U.S. Treasury Long-Term Domestic Tax-Free California Tax-Free Bond Florida Intermediate Tax-Free Georgia Tax-Free Bond Maryland Short-Term Tax-Free Bond Maryland Tax-Free Bond New Jersey Tax-Free Bond New York Tax-Free Bond Summit Municipal Income Summit Municipal Intermediate Tax-Free High Yield Tax-Free Income Tax-Free Intermediate Bond Tax-Free Short-Intermediate Virginia Tax-Free Bond MONEY MARKET FUNDS!! Taxable Prime Reserve Summit Cash Reserves U.S. Treasury Money Tax-Free California Tax-Free Money Maryland Tax-Free Money New York Tax-Free Money Summit Municipal Money Market Tax-Exempt Money INTERNATIONAL/GLOBAL FUNDS Stock Emerging Europe & Mediterranean Emerging Markets Stock European Stock Global Stock Global Technology International Discovery! International Equity Index International Growth & Income International Stock* Japan Latin America New Asia Spectrum International Bond Emerging Markets Bond International Bond* For more information about T. Rowe Price funds or services, please contact us directly at 1-800-225-5132. * T. Rowe Price Advisor Class available for these funds. The T. Rowe Price Advisor Class is offered only through financial intermediaries. For more information about T. Rowe Price Advisor Class funds, contact your financial professional or T. Rowe Price at 1-877-804-2315. ! Closed to new investors. !! Investments in the funds are not insured or guaranteed by the FDIC or any other government agency. Although the funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the funds. Please call for a prospectus, which contains complete information, including risks, fees, and expenses. Read it carefully before investing. logo(registered trademark) T. Rowe Price Investment Services, Inc. 100 East Pratt Street Baltimore, MD 21202 F60-051 6/30/02 -----END PRIVACY-ENHANCED MESSAGE-----