-----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, VXKFYJMPJjwQnye9ts47p45PLnHeiU+gEhnyE0Mt0FYcXj3aMteuKAjT36SgzrxY ok7Vpqc78rCbnSUWblCIBg== 0000773485-97-000002.txt : 19970225 0000773485-97-000002.hdr.sgml : 19970225 ACCESSION NUMBER: 0000773485-97-000002 CONFORMED SUBMISSION TYPE: N-30D/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961230 FILED AS OF DATE: 19970206 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE NEW AMERICA GROWTH FUND CENTRAL INDEX KEY: 0000773485 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-04358 FILM NUMBER: 97518995 BUSINESS ADDRESS: STREET 1: 100 E PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 3015472000 FORMER COMPANY: FORMER CONFORMED NAME: PRICE T ROWE COMMON STOCK FUND DATE OF NAME CHANGE: 19851003 N-30D/A 1 NEW AMERICA GROWTH FUND ANNUAL REPORT ANNUAL REPORT - -------------------------------------------------------------------------------- New America Growth Fund - -------------------------------------------------------------------------------- December 31, 1996 ================================================================================ Report Highlights - -------------------------------------------------------------------------------- * Except for a brief correction in mid-summer, stock prices continued to surge in 1996, with most indices setting new highs near year-end. * Growth stocks led the market's advance in the first half, benefiting the fund, but cyclicals regained favor in the second half when the economy d isplayed increasing vigor. * The fund provided returns of 4.79% and 20.01% for the 6- and 12-month periods, respectively, exceeding its peer group average for the year but not for the last six months. * The best-performing portfolio sector in the second half was financial services; business services (strong in the first half) and health care stocks lagged. * The fund's focus on less cyclical, high-growth companies should enable it to perform well even if the economy's overall growth slows down. Fellow Shareholders Stock prices continued their record-breaking advance in the second half of 1996 with all the major market indices setting new highs near year-end. A brief but sharp correction around midyear, caused by an increase in long-term bond yields of over one percentage point, was followed by a surprising surge back into record territory over the last five months of the year. The 1996 return of 23% for the unmanaged Standard & Poor's 500 Stock Index was particularly impressive coming in the aftermath of 1995's nearly 38% advance. The 1995-96 market was the first period of back-to-back gains exceeding 20% since 1982-83, the beginning of this record 15-year bull market. The cumulative gain of 69% for the past two years was the best for the S&P 500 since 1975-76. ================================================================================ Performance Comparison - -------------------------------------------------------------------------------- Periods Ended 12/31/96 6 Months 12 Months - -------------------------------------------------------------------------------- New America Growth Fund 4.79% 20.01% S&P 500 11.68 22.96 Lipper Growth Funds Average 8.23 19.24 ================================================================================ The New America Growth Fund had a strong first half, outperforming both the S&P 500 and the average growth fund as measured by the Lipper Growth Funds Average. The second half, however, proved to be tougher sledding, as the fund trailed both the market and its peer average. For the full year, the fund also lagged the S&P 500 but outperformed the average growth fund. Over the longer term, the fund outperformed both the S&P 500 and the Lipper Growth Funds Average for the 5- and 10-year periods ending 12/31/96. Year-End Distributions The fund's Board of Trustees declared a capital gain distribution of $3.49 per share, consisting of a short-term gain of $0.45 and a long-term gain of $3.04. This distribution was paid on December 30 to shareholders of record December 26. In early January, we mailed your statement reflecting this distribution, and Form 1099-DIV reporting this payment for tax purposes was mailed separately later in January. Market Environment The surprising feature of 1996's record-breaking market is that it occurred while interest rates rose. The primary impetus for this long bull market was a secular decline in interest rates that took long rates from a high of 14% in early 1982 to less than 6% in late 1995. Long-term rates rose approximately 75 basis points overall in 1996 (100 basis points equal one percentage point), and yet the market cruised to new highs after a brief skittish period around midyear. ============================== The primary impetus for this long bull market was a secular decline in interest rates... - ------------------------------ The stock market was able to buck the backup in long-term interest rates for several reasons. First, underlying inflation in the economy showed little change and remained close to 3% with very few signs of a pickup. Rising inflation is anathema to a strong stock market. Also, the market responded favorably to steady economic growth at a moderate, sustainable overall rate of 2.3% for 1996. Just as important, corporate profits remained surprisingly strong for this stage of the economic cycle. We have now had six consecutive years of economic growth without any signs of a recession, and for 1996 the average company in the S&P 500 should report profit gains in excess of 10%. Investors also viewed 1996's election results favorably. Both parties seem to have become more moderate over the past four years. Further-more, the split control of the Executive and Legislative branches of government between the two parties assured investors that no radical changes to the status quo on tax, business, and social issues would upset the economy's underlying strength and growth. Lastly, record mutual fund inflows and merger and acquisition activity created strong demand for stocks in 1996 that was only partially offset by a record amount of new stock issuance by corporations. Domestic equity mutual fund inflows tailed off somewhat late in the year, but initial reports in January suggest a sharp pickup in early 1997. Overall, the positive economic, inflation, profit, supply/demand, and psychological environment helped drive the market to record levels. Your fund outperformed in the first half while interest rates were rising and investors were fearful that this increase would choke off the economy's growth. Growth stocks led the way in the first half, while cyclicals lagged. Your fund's focus on noncyclical growth companies in service businesses led us to many of the best-performing sectors of the market. In the second half, as investors realized that moderately higher interest rates would not choke off the economy, cyclicals regained market favor while growth stocks and your fund lagged. Portfolio Review In the first half, the fund's strong performance was concentrated in the business services sector with top holdings such as HFS, ADT, and Catalina Marketing leading the way. Overall, business services positions underperformed in the second half, giving back some of the first half's strong gains. Financial services companies were the fund's best performers in the second half, as interest rates stabilized and fears of further rises subsided. Insurers MGIC Investment and ACE Limited and consumer lender Norwest were among our best holdings in this area. The two largest contributors to fund performance in the last six months were two drug retailers, Revco and Eckerd. Revco rose over 50% in the second half as it rebounded following a failed takeover attempt by Rite Aid, and Eckerd climbed just under 50% in response to the continued takeover activity in the group as well as to strong underlying fundamentals. Despite a second half decline, top holding HFS, a rapidly growing franchiser of hotels, real estate brokers, and rental cars, was the leading contributor to performance for the year, followed closely by electronic couponer Catalina Marketing, home security company ADT, and waste disposal company USA Waste Services. All of these are in the business services area. The worst performers for the year were health care service companies including former top holding United HealthCare, a leading HMO, and Apria Healthcare, a top home health care provider. Earnings reports were moderately disappointing at both companies, and investors became increasingly wary about managed care companies in general. Paging Network, the nation's largest paging company, also hurt fund performance as investors shied away from all wireless communications companies due to the fear of increased competition. ================================================================================ Sector Diversification 12/31/95 6/30/96 12/31/96 - -------------------------------------------------------------------------------- Financial Services 10% 15% 20% Consumer Services 42 33 32 Business Services 46 49 44 Reserves 2 3 4 - -------------------------------------------------------------------------------- Total 100% 100% 100% ================================================================================ The major sector diversification of the portfolio has evolved substantially over the course of 1996, as indicated in the table on page 3. The most significant change was a doubling of our financial services weighting during 1996 from 10% to 20% of the portfolio. New additions in early 1996 included Norwest, Green Tree Financial, and PMI Group. We added to financial services exposure in the second half by boosting our holdings in existing companies. As noted earlier, this sector was our best performer in the second half. Consumer holdings were trimmed from 42% to 32% of the portfolio as we foresee an increasingly competitive environment for retailers, restaurant companies, entertainment companies, and communications providers. Business services, our largest sector, changed only moderately from 46% to 44% of the portfolio and remains our most fertile area for sustainable, high-growth service businesses. Portfolio characteristics remain strong. Our analysts forecast over 18% annual earnings growth for the portfolio companies over the next five years, 50% higher than the forecasted growth for the S&P 500. Our portfolio sells at a valuation premium of less than 20%, based on its average P/E ratio, which seems a very reasonable trade-off for the much higher expected growth. ================================================================================ Portfolio Characteristics - -------------------------------------------------------------------------------- New America As of 12/31/96 Growth Fund S&P 500 - -------------------------------------------------------------------------------- Earnings Growth Rate Estimated Next 5 Years * 18.2% 12.2% Profitability N Return on Equity Latest 12 Months 15.7 19.4 Dividend Yield on Stocks 0.4 2.0 P/E Ratio (Based on Next 12 Months' Estimated Earnings) 19.4X 16.5X - -------------------------------------------------------------------------------- * Earnings forecasts are based on T. Rowe Price research and are in no way indicative of future investment returns. ================================================================================ Outlook While the better-than-20% annual stock market returns of the past two years are clearly not replicable going forward, the favorable environment that drove the market in 1996 remains largely in place as we begin 1997. Economic growth is solid, profit momentum is strong, inflation remains low, and investor appetite for stocks continues at record levels. Our portfolio companies remain vibrant and should continue to show strong earnings growth even if overall economic growth falls off. Having cooled down a bit over the past six months, the valuation characteristics of the portfolio look more attractive. We believe that the fund's focus on less cyclical, consistent high growth companies, operating primarily in service businesses, will continue to provide shareholders with competitive long-term returns. Respectfully submitted, [Signature] John H. Laporte President and Chairman of the Investment Advisory Committee [Signature] Brian W. H. Berghuis Executive Vice President January 20, 1997 ================================================================================ Sticking To Your Game Plan - -------------------------------------------------------------------------------- [An 8-bar chart showing best and worst annualized total returns of stocks for various rolling time periods between 1950 and 1996] In our report to you one year ago, we mentioned the possibility of a modest decline in stock prices. In fact, from May to July 1996, the broad market (as measured by the Standard & Poor's 500 Stock Index) fell around 7%. However, the bull market resumed its charge to post a robust 23% gain for the year. Some believe the market is poised for a significant downturn. We do not expect a major drop in stock prices in 1997, although another modest pullback is possible. On balance, we expect stocks to advance at a much slower pace. How should you prepare for a potential market pullback? As always, our advice is to diversify your investments and focus on the long term. If you've implemented a sound investment strategy, stay the course. Stocks have historically overcome periods of volatility to provide better returns than most other investments. Market corrections can even have a silver lining because they result in good buying opportunities. Furthermore, the volatility of stock market returns has diminished significantly over longer time frames. The chart shows the best and worst annualized returns on stocks over various rolling time periods between 1950 and 1996. (For instance, there were 37 rolling 10-year periods: 1950-1960, 1951-1961, etc.) Investors who held stocks for only one year could have had as much as a 52.6% gain, or as little as a 26.5% loss -- a spread of 79 percentage points. However, investors who held stocks for 10-year periods or longer always overcame interim volatility to post gains for the entire period. In addition, a well-diversified portfolio can weather volatility better than a more concentrated portfolio over the long term and particularly during market corrections. For example, during last summer's correction, small-company stocks fell nearly 16% while large-company issues dropped 7.3%. However, a portfolio diversified among large U.S. companies (30% of assets), small U.S. companies (15%), foreign companies (15%), intermediate-term Treasury bonds (30%), and Treasury bills (10%) would have lost a smaller 5.2% of its value. {1} Above all, remember that investing is a long-distance race, not a sprint. {1} Ned Davis Research. Portfolio Highlights ================================================================================ TWENTY-FIVE LARGEST HOLDINGS Percent of Net Assets 12/31/96 - -------------------------------------------------------------------------------- HFS 3.1% ADT 2.7 ACE Limited 2.4 Franklin Resources 2.4 CUC International 2.3 Cardinal Health 2.3 USA Waste Quorum Health Group 2.1 Catalina Marketing 2.0 Comcast 2.0 Western Atlas 2.0 General Nutrition 1.9 Corporate Express 1.9 La Quinta Inns 1.9 Columbia/HCA Healthcare 1.9 UNUM 1.9 SunGard Data Systems 1.8 Outback Steakhouse 1.7 Norwest 1.7 PacifiCare Health Systems 1.6 PMI Group 1.5 - -------------------------------------------------------------------------------- Total 51.9% ================================================================================ Portfolio Highlights ================================================================================ CONTRIBUTIONS TO THE CHANGE IN NET ASSET VALUE PER SHARE 6 Months Ended 12/31/96 ================================================================================ Ten Best Contributors - -------------------------------------------------------------------------------- Revco 33(cent) Eckerd 29 MGIC Investment 23 ACE Limited 22 ADT 20 BJ Services 20 Smith International 17 Cardinal Health 17 Catalina Marketing 16 Cole National 14 - -------------------------------------------------------------------------------- Total 211(cent) Ten Worst Contributors - -------------------------------------------------------------------------------- United HealthCare ** -38(cent) Apria Healthcare 28 Paging Network 27 Olsten ** 25 HFS 22 Corporate Express 18 Gaylord Entertainment 11 Patterson Dental 11 Lone Star Steakhouse & Saloon 10 Circuit City Stores 9 - -------------------------------------------------------------------------------- Total -199(cent) ================================================================================ 12 Months Ended 12/31/96 ================================================================================ Ten Best Contributors - -------------------------------------------------------------------------------- HFS 46(cent) Catalina Marketing 43 ADT 42 USA Waste Services 40 Cardinal Health 37 Republic Industries * 35 Eckerd 31 PriceCostco 30 ACE Limited 29 Cole National 29 - -------------------------------------------------------------------------------- Total 362(cent) Ten Worst Contributors - -------------------------------------------------------------------------------- United HealthCare ** -65(cent) Micro Warehouse 32 Paging Network 27 Apria Healthcare * 23 General Nutrition 23 Viacom ** 19 Olsten ** 16 CellStar ** 11 Lone Star Steakhouse & Saloon 10 Outback Steakhouse 8 - -------------------------------------------------------------------------------- Total -234(cent) * Position added ** Position eliminated ================================================================================ ================================================================================ Performance Comparison - -------------------------------------------------------------------------------- This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with a broad-based average or index. The index return does not reflect expenses, which have been deducted from the fund's return. [New America Growth Fund SEC Chart Shown Here] ================================================================================ Average Annual Compound Total Return - -------------------------------------------------------------------------------- This table shows how the fund would have performed each year if its actual (or cumulative) returns for the periods shown had been earned at a constant rate. ================================================================================ Periods Ended 12/31/96 1 Year 3 Years 5 Years 10 Years - -------------------------------------------------------------------------------- New America Growth Fund 20.01% 17.04% 15.65% 15.89% Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. ================================================================================ For a share outstanding throughout each period ==================================================================================================================================== Financial Highlights
Year Ended 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE Beginning of period ..................... $ 34.91 $ 25.42 $ 28.04 $ 24.86 $ 22.79 Investment activities Net investment income ................. (0.13) (0.12) (0.07) (0.08) (0.04) Net realized and unrealized gain (loss) ................ 7.08 11.36 (2.02) 4.39 2.29 Total from investment activities ................. 6.95 11.24 (2.09) 4.31 2.25 Distributions Net realized gain ..................... (3.49) (1.75) (0.53) (1.13) (0.18) NET ASSET VALUE End of period ........................... $ 38.37 $ 34.91 $ 25.42 $ 28.04 $ 24.86 Ratios/Supplemental Data Total return ............................ 20.01% 44.31% (7.43)% 17.44% 9.89% Ratio of expenses to average net assets ...................... 1.01% 1.07% 1.14% 1.23% 1.25% Ratio of net investment income to average net assets .............................. (0.39)% (0.46)% (0.27)% (0.39)% (0.44)% Portfolio turnover rate ................. 36.7% 56.2% 31.0% 43.7% 26.4% Average commission rate paid ............................... $ 0.0975 -- -- -- -- Net assets, end of period (in millions) ........................... $ 1,440 $ 1,028 $ 646 $ 619 $ 480 ====================================================================================================================================
The accompanying notes are an integral part of these financial statements. Statement of Net Assets ================================================================================ Shares/Par Value In thousands - -------------------------------------------------------------------------------- Common Stocks 95.9% FINANCIAL SERVICES 19.8% Bank and Trust 1.6% Norwest ................................. 550,000 $ 23,925 23,925 Insurance 7.9% ACE Limited ............................. 575,000 34,572 MGIC Investment ......................... 400,000 30,400 PMI Group ............................... 400,000 22,150 UNUM .................................... 375,000 27,094 114,216 Investment Services 2.4% Franklin Resources ........................ 500,000 34,187 34,187 Other Financial Services 7.9% Associates First Capital .................. 150,000 6,619 Fannie Mae ................................ 400,000 14,900 Freddie Mac ............................... 200,000 22,025 Green Tree Financial ...................... 550,000 21,244 Household International ................... 200,000 18,450 Mercury Finance ........................... 1,403,700 17,195 Money Store ............................... 475,000 13,181 113,614 Total Financial Services ................... 285,942 CONSUMER SERVICES 31.8% Retailing/General Merchandisers 2.2% PriceCostco * .................................. 1,250,000 31,484 31,484 Retailing/Specialty Merchandisers 11.1% AutoZone * ................................... 500,000 13,750 Circuit City Stores .......................... 500,000 15,062 Cole National (Class A) * + .................. 800,000 21,000 Eckerd * ..................................... 156,390 5,004 General Nutrition * .......................... 1,650,000 28,050 Home Depot ................................... 300,000 15,038 Kohl's * ..................................... 500,000 19,625 Revco * ...................................... 823,100 30,455 Tommy Hilfiger * ............................. 250,000 12,000 159,984 Entertainment and Leisure 4.0% Carnival (Class A) .......................... 464,900 15,342 Disney ...................................... 200,000 13,925 La Quinta Inns .............................. 1,450,000 27,731 56,998 Media/Communication Services 6.7% AirTouch Communications * .................... 600,000 15,150 Comcast (Class A Special) .................... 1,320,000 23,512 Comcast (Class A) ............................ 280,000 4,953 Cox Communications (Class A) * ............... 200,000 4,625 Gaylord Entertainment ........................ 900,000 20,587 Paging Network * ............................. 1,073,600 16,440 PanAmSat * ................................... 400,000 11,250 96,517 Restaurants/Food Distribution 4.1% Boston Chicken * ............................. 600,000 21,525 Lone Star Steakhouse & Saloon * .............. 500,000 13,406 Outback Steakhouse * ......................... 925,000 24,628 59,559 Personal Services 3.7% CUC International * ....................... 1,414,000 33,583 Service Corp. ............................. 700,000 19,600 53,183 Total Consumer Services ................... 457,725 BUSINESS SERVICES43.4% Health Care Services7.7% Apria Healthcare * .............................. 750,000 14,063 Columbia/HCA Healthcare ......................... 675,000 27,506 PacifiCare Health Systems (Class B) * ........... 275,000 23,409 Quorum Health Group * ........................... 1,000,000 29,625 Vencor * ........................................ 500,000 15,813 110,416 Distribution Services 5.4% Alco Standard .............................. 600,000 $ 30,975 Cardinal Health ............................ 562,500 32,766 Patterson Dental * ......................... 475,000 13,359 77,100 Computer Services6.0% BISYS Group * .............................. 500,000 18,531 Ceridian * ................................. 220,000 8,910 Electronic Data Systems .................... 320,000 13,840 First Data ................................. 500,000 18,250 SunGard Data Systems * ..................... 660,000 26,318 85,849 Environmental Services 3.3% Republic Industries * ...................... 513,000 15,999 USA Waste Services * ....................... 1,000,000 31,875 47,874 Energy Services 6.5% BJ Services * ............................. 425,000 21,675 Camco International ....................... 350,000 16,144 Schlumberger .............................. 100,000 9,987 Smith International * ..................... 400,000 17,950 Western Atlas * ........................... 400,000 28,350 94,106 Other Business Services 14.5% ADT * ..................................... 1,700,000 38,888 ADVO ...................................... 775,000 10,850 Catalina Marketing * ...................... 519,300 28,626 Corporate Express * ....................... 950,000 27,966 HFS * ..................................... 750,000 44,813 Interim Services * ........................ 569,900 20,231 Micro Warehouse * ......................... 345,000 4,011 Paychex ................................... 300,000 15,431 Scholastic * .............................. 278,600 18,631 209,447 Total Business Services ................... 624,792 Miscellaneous Common Stocks 0.9% ......... 12,429 Total Common Stocks (Cost $949,939) ...... 1,380,888 Short-Term Investments 4.2% Commercial Paper 4.2% Asset Securitization Cooperative, 4(2) 5.30 - 5.45%, 2/6 - 2/11/97 ................... 15,000,000 $14,911 BHF Finance (Delaware), 5.30%, 4/11/97 ................ 5,000,000 4,926 Caisse des Depots et Consignations, 4(2), 5.55%, 1/9/97 5,000,000 4,994 Caterpillar Financial Services, 5.42%, 2/20/97 ........ 3,500,000 3,474 Delaware Funding, 4(2), 5.32%, 1/14/97 ................ 5,000,000 4,990 General Electric Capital, 5.75%, 1/8/97 ............... 5,800,000 5,794 Investments in Commercial Paper through a joint account 6.75 - 7.10%, 1/2/97 .......................... 3,419,431 3,419 Kingdom of Sweden, 5.39%, 1/10/97 ..................... 3,000,000 2,996 Nordbanken North America, 5.40%, 3/10/97 .............. 5,000,000 4,949 Preferred Receivables Funding, 5.35%, 2/3/97 .......... 5,000,000 4,975 Unifunding, 5.44%, 1/6/97 ............................. 5,000,000 4,996 Total Short-Term Investments (Cost $ 60,424) .......... 60,424 Total Investments in Securities 100.1% of Net Assets (Cost $1,010,363) ................ $ 1,441,312 Other Assets Less Liabilities ......................... (1,123) NET ASSETS $ 1,440,189 Net Assets Consist of: Accumulated net realized gain/loss - net of distributions ................................. $ 29,107 Net unrealized gain (loss) ............................ 430,949 Paid-in-capital applicable to 37,538,584 shares of no par value capital stock outstanding; unlimited number of shares authorized ................. 980,133 NET ASSETS ............................................ $ 1,440,189 NET ASSET VALUE PER SHARE ............................. $ 38.37 * Non-income producing + Affiliated company 4(2) Commercial paper sold within terms of a private placement memorandum, exempt from registration under section 4.2 of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." The accompanying notes are an integral part of these financial statements. ================================================================================ Statement of Operations - -------------------------------------------------------------------------------- In thousands Year Ended 12/31/96 - -------------------------------------------------------------------------------- Investment Income Income Dividend .................................................... $ 5,706 Interest .................................................... 2,168 Total income ................................................ 7,874 Expenses Investment management ....................................... 8,648 Shareholder servicing ....................................... 3,673 Custody and accounting ...................................... 169 Registration ................................................ 166 Prospectus and shareholder reports .......................... 113 Legal and audit ............................................. 19 Directors ................................................... 19 Miscellaneous ............................................... 8 Total expenses .............................................. 12,815 Net investment income ........................................... (4,941) Realized and Unrealized Gain (Loss) Net realized gain (loss) on securities .......................... 148,351 Change in net unrealized gain or loss on securities ............ 76,091 Net realized and unrealized gain (loss) ..................... 224,442 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ............... $ 219,501 ================================================================================ The accompanying notes are an integral part of these financial statements. ================================================================================ Statement of Changes in Net Assets - -------------------------------------------------------------------------------- In thousands Year Ended 12/31/96 12/31/95 - -------------------------------------------------------------------------------- Increase (Decrease) in Net Assets Operations Net investment income ................... $ (4,941) $ (3,671) Net realized gain (loss) ................ 148,351 58,011 Change in net unrealized gain or loss ............................ 76,091 236,779 Increase (decrease) in net assets from operations .................. 219,501 291,119 Distributions to shareholders Net realized gain ....................... (120,154) (49,223) Capital share transactions * Shares sold ............................. 536,293 267,361 Distributions reinvested ................ 117,263 48,036 Shares redeemed ......................... (340,924) (175,229) Increase (decrease) in net assets from capital share transactions ...................... 312,632 140,168 Net Assets Increase (decrease) during period ........... 411,979 382,064 Beginning of period ......................... 1,028,210 646,146 End of period ............................... $ 1,440,189 $ 1,028,210 *Share information Shares sold ............................. 13,831 8,445 Distributions reinvested ................ 3,087 1,396 Shares redeemed ......................... (8,836) (5,804) Increase (decrease) in shares outstanding 8,082 4,037 ================================================================================ The accompanying notes are an integral part of these financial statements. ================================================================================ Notes to Financial Statements - -------------------------------------------------------------------------------- NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- T. Rowe Price New America Growth Fund (the fund) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company and commenced operations on September 30, 1985. Valuation Equity securities listed or regularly traded on a securities exchange are valued at the last quoted sales price at the time the valuations are made. A security which is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day and securities regularly traded in the over-the-counter market are valued at the mean of the latest bid and asked prices. Other equity securities are valued at a price within the limits of the latest bid and asked prices deemed by the Board of Trustees, or by persons delegated by the Trustees, best to reflect fair value. Short-term debt securities are valued at their amortized cost which, when combined with accrued interest, approximates fair value. Assets and liabilities for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by or under the supervision of the officers of the fund, as authorized by the Board of Trustees. Affiliated Companies Investments in companies 5% or more of whose outstanding voting securities are held by the fund are defined as "Affiliated Companies" in Section 2(a)(3) of the Investment Company Act of 1940. Premiums and Discounts Premiums and discounts on debt securities are amortized for both financial reporting and tax purposes. Other Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Dividend income and distributions to shareholders are recorded by the fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with federal income tax regulations and may differ from those determined in accordance with generally accepted accounting principles. NOTE 2 - INVESTMENT TRANSACTIONS - -------------------------------------------------------------------------------- Commercial Paper Joint Account The fund, and other affiliated funds, may transfer uninvested cash into a commercial paper joint account, the daily aggregate balance of which is invested in high-grade commercial paper. All securities purchased by the joint account satisfy the fund's criteria as to quality, yield, and liquidity. Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $608,923,000 and $452,347,000, respectively, for the year ended December 31, 1996. NOTE 3 - FEDERAL INCOME TAXES - -------------------------------------------------------------------------------- No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. In order for the fund's capital accounts and distributions to shareholders to reflect the tax character of certain transactions, the following reclassifications were made during the year ended December 31, 1996. The results of operations and net assets were not affected by the reclassifications. ================================================================================ Undistributed net investment income $ 4,941,000 Undistributed net realized gain ... (4,941,000) - -------------------------------------------------------------------------------- At December 31, 1996, the aggregate cost of investments for federal income tax and financial reporting purposes was $1,010,363,000, and net unrealized gain aggregated $430,949,000, of which $456,922,000 related to appreciated investments and $25,973,000 to depreciated investments. NOTE 4 - RELATED PARTY TRANSACTIONS - -------------------------------------------------------------------------------- The investment management agreement between the fund and T. Rowe Price Associates, Inc. (the manager) provides for an annual investment management fee, of which $822,000 was payable at December 31, 1996. The fee is computed daily and paid monthly, and consists of an individual fund fee equal to 0.35% of average daily net assets and a group fee. The group fee is based on the combined assets of certain mutual funds sponsored by the manager or Rowe Price-Fleming International, Inc. (the group). The group fee rate ranges from 0.48% for the first $1 billion of assets to 0.305% for assets in excess of $50 billion. At December 31, 1996, and for the year then ended, the effective annual group fee rate was 0.33%. The fund pays a pro-rata share of the group fee based on the ratio of its net assets to those of the group. In addition, the fund has entered into agreements with the manager and two wholly owned subsidiaries of the manager, pursuant to which the fund receives certain other services. The manager computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc., (TRPS) is the fund's transfer and dividend disbursing agent and provides shareholder and administrative services to the fund. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. The fund incurred expenses pursuant to these related party agreements totaling approximately $3,208,000 for the year ended December 31, 1996, of which $321,000 was payable at period-end. ================================================================================ Report of Independent Accountants - -------------------------------------------------------------------------------- To the Board of Trustees and Shareholders of T. Rowe Price New America Growth Fund In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price New America Growth Fund (the "Fund") at December 31, 1996, and the results of its operations, the changes in its net assets and the financial highlights for each of the fiscal periods presented, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1996 by correspondence with custodians and, where appropriate, the application of alternative auditing procedures for unsettled security transactions, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Baltimore, Maryland January 20, 1997 ================================================================================ T. Rowe Price Shareholder Services ================================================================================ ================================================================================ Investment Services And Information - -------------------------------------------------------------------------------- Knowledgeable Service Representatives - -------------------------------------------------------------------------------- By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET. In Person Available in T. Rowe Price Investor Centers. Account Services - -------------------------------------------------------------------------------- Checking Available on most fixed income funds. Automatic Investing From your bank account or paycheck. Automatic Withdrawal Scheduled, automatic redemptions. Distribution Options Reinvest all, some, or none of your distributions. Automated 24-Hour Services Including Tele*AccessRegistration Mark and T. Rowe Price OnLine. Discount Brokerage* - -------------------------------------------------------------------------------- Individual Investments Stocks, bonds, options, precious metals, and other securities at a savings over regular commission rates. Investment Information - -------------------------------------------------------------------------------- Combined Statement Overview of your T. Rowe Price accounts. Shareholder Reports Fund managers' reviews of their strategies and results. T. Rowe Price Report Quarterly investment newsletter discussing markets and financial strategies. Performance Update Quarterly review of all T. Rowe Price fund results. Insights Educational reports on investment strategies and financial markets. Investment Guides Asset Mix Worksheet, College Planning Kit, Personal Strategy Planner, Retirees Financial Guide, and Retirement Planning Kit. * A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC. For yield, price, last transaction, current balance, or to conduct transactions, 24 hours, 7 days a week, call Tele*Access(R): 1-800-638-2587 toll free For assistance with your existing fund account, call: Shareholder Service Center 1-800-225-5132 toll free 625-6500 Baltimore area To open a Discount Brokerage account or obtain information, call: 1-800-638-5660 toll free Internet address: http://www.troweprice.com T. Rowe Price Associates 100 East Pratt Street Baltimore, Maryland 21202 This report is authorized for distribution only to shareholders and to others who have received a copy of the prospectus of the T. Rowe Price New America Growth Fund [Registration Mark.] Investor Centers: 101 East Lombard St. Baltimore, MD 21202 T. Rowe Price Financial Center 10090 Red Run Blvd. Owings Mills, MD 21117 Farragut Square 900 17th Street, N.W. Washington, D.C. 20006 ARCO Tower 31st Floor 515 South Flower St. Los Angeles, CA 90071 4200 West Cypress St. 10th Floor Tampa, FL 33607 T. Rowe Price Investment Services, Inc., Distributor. RPRTNAG 12/31/96 -----END PRIVACY-ENHANCED MESSAGE-----